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annual REPoRT 2018
(Incorporated in Victoria, australia with limited liability)
Stock code: 3668 acn 111 859 119
STRENgTh,
PERfORmANcE,
PROfiT.
OUR HIGHLIGHTS
FINANCIAL &
OPERATING
PERFORMANCE
OUR OUTLOOK
2
4
6
8
10
12
14
16
CHAIRMAN’S LETTER
OUR STRATEGY
CEO’S STATEMENT
FINANCIAL SUMMARY
MARKET CONDITIONS
18
HEALTH, SAFETY
AND THE
ENVIRONMENT
COMMUNITY
20
22
REVIEW OF
OPERATIONS
28
INFRASTRUCTURE
AND LOGISTICS
30
COAL RESOURCES
AND COAL RESERVES
STATEMENT
40
FINANCIAL
REPORT
225
CORPORATE
DIRECTORY
1
As Australia’s largest pure-play
coal producer, Yancoal operates a
diversified portfolio of world class
assets consisting of both large-scale
open cut and underground mines.
Yancoal manages the underground Ashton
(100% ownership), Austar (100% ownership) and
Donaldson (100% ownership) mines in New South
Wales on behalf of Yancoal’s unconsolidated,
wholly-owned subsidiary, the Watagan Mining
Company Pty Ltd (“Watagan”)2.
Yancoal also manages the open cut Cameby
Downs mine in Queensland and open cut Premier
coal mine in West Australia on behalf of its majority
shareholder Yanzhou Coal Mining Company
Limited (“Yanzhou”)3.
Yancoal also has shareholding interests in three
major Australian coal export terminals, with
sufficient allocation to meet existing and potential
expansion needs.
Dual primary listed on the Australian Securities
Exchange and The Stock Exchange of Hong Kong
Ltd (HKEx), Yancoal Australia Ltd operates five
coal mine complexes and manages five others
across Australia.
As a leading low cost coal producer in the global
seaborne market, Yancoal’s coal mining operations
produce a mix of premium thermal, semi-soft
coking, and PCI coals, together with mid-to-high
ash thermal coals.
Yancoal’s mining interests in New South Wales
include the open cut and underground mines of
the Moolarben coal complex (85% ownership1); the
integrated joint venture operations of the Mount
Thorley and Warkworth open cut mines (82.9%
ownership); the open cut Hunter Valley Operations
joint venture with Glencore Coal (51% ownership),
and the integrated operations of the Stratford and
Duralie open cut mines (100% ownership).
Yancoal’s mining interests in Queensland include
the Yarrabee open cut mine (100% ownership),
and a near 50% equity interest in Middlemount
Coal Pty Ltd (“Middlemount”) open cut mine, an
incorporated joint venture with Peabody Energy.
1 Attributable includes: 81% Moolarben up to and including 30
November 2018 and 85% thereafter; Hunter valley Operations
51% from 1 September 2017; Mount Thorley Warkworth 64.1%
from 1 September 2017 up to and including 28 February 2018 and
82.9% thereafter; Stratford Duralie (100%); and Yarrabee (100%).
2 Watagan is wholly owned by Yancoal Australia Ltd, controlled
by a consortium of financiers consisting of Industrial Bank Co.
Ltd, BOCI Financial Products Limited (BOCIF) and United NSW
Energy Limited. Effective 31 March 2016, Yancoal ceased to
control Watagan. As announced 4 January 2019, BOCIF gave
notice to Yankuang Group Company Limited (“Yankuang”) and
Watagan that it has exercised its right to put its Watagan Bonds
(the “Put Bonds”) to Yankuang. As a consequence, Yankuang
will become the Bondholder of the Put Bonds following
completion of the purchase of those bonds by Yankuang
consequent to the exercise of the put option (which should
occur on or around 1 April 2019).
3 Yanzhou Coal Mining Company is a China-based, integrated
mining company with interests in coal, coal chemicals, power
generation and potash resources. Its shares are listed on the
Hong Kong, New York and Shanghai stock exchanges. The
state owned Yankuang Group Company Limited has a 53%
direct shareholding in Yanzhou.
ANNUAL REPORT 2018 2
In 2018 Yancoal listed on The
Stock Exchange of Hong Kong
Ltd and achieved a record profit
after tax of A$852 million (FY2017:
A$229 million) from revenue of
A$4,850 million.
OUR
HIGHLIGHTS
YANCOAL AUSTRALIA LTD 3
A$507M
TOTAL DIVIDEND PAYMENTS
Total FY2018 dividend payments of
A$507 million represent a payout ratio
of ~60%, consisting of 40% of net profit
after tax (A$341 million) and a 19.5%
special dividend (A$166 million).
A$2,180M
TOTAL OPERATING EBITDA
Yancoal achieved a Total Operating
EBITDA of A$2,180 million, up A$1,192
million on the year prior.
A$1,657M
TOTAL OPERATING EBIT
Yancoal achieved a Total Operating EBIT
of A$1,657 million, up A$925 million on the
year prior.
A$268M
GLOBAL OFFERING
Yancoal raised A$268 million as part of
the Global Offering associated with the
Company’s listing on the Main Board of
the Stock Exchange of Hong Kong.
US$1,400M
TOTAL DEBT REDUCTION
As of 26 February 2019, Yancoal reduced
total debt liabilities by US$1.4 billion since
completion of the acquisition of Coal &
Allied Industries Ltd from Rio Tinto on
1 September 2017.
66.5Mt
RUN OF MINE COAL
ROM coal production of 66.5Mt (42.9Mt
attributable basis), up 62% from 41.1Mt
(24.2Mt attributable) in 2017.
50.0Mt
SALEABLE COAL
Yancoal ’ s tier-one assets drove continued
transformational growth, achieving record
annual total saleable coal production of
50.0 million tonnes (32.9Mt attributable1),
up 59% from 31.5Mt (18.5 Mt attributable)
in 2017.
37.1Mt
TOTAL COAL SALES
Total coal sales of 37.1Mt (attributable
share) for the year, up 68% on the year
prior (22.1Mt attributable share).
1 Attributable includes: 81% Moolarben up to and including 30 November 2018 and 85% thereafter; Hunter valley Operations 51% from 1 September 2017; Mount Thorley
Warkworth 64.1% from 1 September 2017 up to and including 28 February 2018 and 82.9% thereafter; Stratford Duralie (100%); and Yarrabee (100%).
ANNUAL REPORT 2018 4
FINANCIAL
& OPERATING
PERFORMANCE
OPERATING PERFORMANCE
Yancoal ’ s operations produced a record 50.0
million tonnes saleable coal for 2018, up 59%
on the year prior, with the Moolarben complex
achieving a new annual total saleable coal
production record of 16.5 million tonnes, up 33%
on the year prior.
The Mount Thorley Warkworth and Hunter
Valley Operations mines produced annual totals
of 12.1 million tonnes and 13.3 million tonnes
respectively.
The three tier-one assets led an increase in total
attributable coal sales of 68% on the year prior,
Yancoal achieving total sales of 37.1 million
tonnes in 2018, up from 22.1 million tonnes in
2017.
Thermal coal sales were up 88% on the prior
year, supported by increased market demand
and tier-one production rates, achieving a
FY2018 total of 29.9 million tonnes (15.9 million
tonnes FY2017).
Total metallurgical coal sales were up 16% on the
year prior, achieving 7.2 million tonnes (6.2 million
tonnes FY2017).
Yancoal continued to implement cost reduction
strategies at each of its mines, restructuring
the Mount Thorley Warkworth operation to
introduce significant fleet efficiencies to improve
maintenance times and overall haul rates.
FINANCIAL PERFORMANCE
Record production at a time of sustained pricing
strength across global coal markets drove
Yancoal ’ s financial turnaround, achieving a
record profit after tax of A$852 million (2017:
A$229 million) from revenue of A$4,850 million
(2017: A$2,601 million) for the year ended 31
December 2018.
Yancoal achieved a total operating EBITDA of
A$2,180 million, driven by a full year ’ s equity
contribution from Mount Thorley Warkworth
(A$718 million) and Hunter Valley Operations
(A$513 million), acquired on 1 September 2017.
EBITDA contributions included the additional
benefit of a full year ’ s underground production
achieved at the Moolarben Coal Complex (total
Moolarben complex equity contribution of A$871
million), with the underground mine having
commenced longwall mining in October 2017 on
budget and ahead of schedule.
The Group realised an average price1 of A$123
for its thermal coal products (2017: A$102) and
A$182 for its metallurgical coal products (2017:
A$165), representing an overall average price of
A$132 (2017: A$114).
Thermal coal sales represented 81% (2017:
72%) of total coal sales, based on sales tonnes
including external purchase coal sales.
FOB Cash Costs per tonne excluding royalties
were A$63 (2017: A$62 per tonne), a slight
increase on the year prior due to rises in coal
mining sector inflationary costs and the addition
of a full year ’ s attributable ownership of the
Mount Thorley Warkworth and Hunter Valley
Operations acquired in September 2017.
1 Excluding resale of purchased coal.
YANCOAL AUSTRALIA LTD FINANCIAL PERFORMANCE
Results for 2018 and 2017
Revenue from continuing operations
Operating EBITDA
Operating EBIT
Finance costs
Bank fees and other charges
Interest income
Gain on disposal
Gain on acquisition
Impairment reversal of mining tenements
Fair value losses recycled from hedge reserve
Remeasurement of royalty
Remeasurement of financial asset
Remeasurement of contingent royalty
Impairment of financial assets
Transaction costs
Stamp duty expensed
Other
Profit before tax
Tax expense
Profit after tax
Cash flow summary
Operating cash flows
Investing cash flows
Financing cash flows
Net increase in cash
Cash at the beginning of the period
Effect of FX on cash
Cash at the end of the period
Capital management
Net debt
Gearing ratio (net debt/(net debt plus equity)
Leverage (net debt/Operating EBITDA)(1)
(%)
(times)
5
Year ended 31-Dec-18
A$ ’ m
Year ended 31-Dec-17
A$ ’ m
4,850
2,180
1,657
(293)
(96)
119
78
–
–
(160)
4
(29)
(33)
(21)
(29)
(25)
–
1,172
(320)
852
2,601
988
732
(287)
(109)
114
–
177
100
(229)
8
–
–
–
(33)
(167)
5
311
(82)
229
Year ended 31-Dec-18
A$ ’ m
Year ended 31-Dec-17
A$ ’ m
1,747
(55)
(904)
788
207
36
1,031
3,093
35%
1.4
408
(3,386)
2,999
21
190
(4)
207
4,516
43%
4.6
YoY
Change
77%
78%
68%
2%
16%
-39%
OPERATING PERFORMANCE
Attributable Production and Sales
Run of Mine (ROM)
Coal Production
Saleable Coal Production
Coal Sales (1)
Cash Costs FOB (excluding
government royalties)
Price Achievement
Product Mix
(Met%/Thermal %) (2)
Capital Expenditure
(1) Attributable sales and sale of external coal purchases
(2) Product Mix is an ex-mine sales basis
Attributable Mt
Attributable Mt
Mt
A$/t
A$/t
2018
2017
43
33
37
63
132
24
18
22
62
114
Attributable A$m
15/85
210
20/80
345
Table note: Attributable includes: 81% Moolarben up to and including 30 November 2018 and 85% thereafter; Hunter valley Operations 51% from 1
September 2017; Mount Thorley Warkworth 64.1% from 1 September 2017 up to and including 28 February 2018 and 82.9% thereafter; Stratford
Duralie (100%); and Yarrabee (100%).
ANNUAL REPORT 2018
6
OUR
OUTLOOK
Yancoal will continue its drive toward increased
production and cost efficiency. Expansion and extension
projects across its tier-one assets combined with
ongoing cost minimising efforts underpin future cash
flow. Outside the existing assets, Yancoal remains open
to strategic acquisitions.
ASSETS AND GROWTH
Through 2018 Yancoal consolidated the
high-quality assets secured in late 2017 through
the Coal & Allied transaction.
Yancoal anticipates demand for its high-quality,
low-sulphur coal to remain healthy through 2019.
In combination with a constrained market supply
response in these products, this should result
in the premiums for the company can achieve
through the year.
In the year ahead, Yancoal will continue the
exploration, expansion and optimisation efforts
across the three Tier-1 assets of Mount Thorley
Warkworth, Moolarben and Hunter Valley
Operations.
Key projects include an underground mine
concept at Mount Thorley Warkworth. The
underground mine could add six million tonnes
per annum of raw coal production. Exploration
drilling for the pre-feasibility on the target seams
concluded in late 2018.
At Moolarben, mine plan modifications could add
a further six million tonnes per annum of raw coal
production to the production profile. It is through
optimisation of the approved operations this
would be achieved.
At the third Tier-1 asset, Hunter Valley
Operations, Yancoal continues to work with joint
venture partner Glencore Coal to implement
a strategic review of existing operational,
maintenance and fleet efficiencies. The focus
is on delivering operational synergies identified
during the joint venture transaction. This project
contributes to the ongoing operating cost control
efforts.
Blending of our coal products to meet evolving
market conditions is an ongoing opportunity to
maximise the revenue potential of our asset base.
The aim is to combine coal of various quality
and characteristics to achieve a higher average
realised price.
GUIDANCE:
Our focus is on the controllable operational
factors that drive the financial outcomes. In 2019
the company intends to increase its production
while maintaining steady operating costs.
The guidance for saleable coal production
in 2019 is approximately 35 million tonnes
(attributable), up from 32.9 million tonnes in 2018.
The majority of the output will come from the
three Tier 1 Asserts, Mount Thorley Warkworth,
Moolarben and Hunter Valley Operations (in 2018
it was 90% of 32.9 million tonnes).
1 Operating cash costs exclude Government royalties.
2019e is an estimate for the forward period
YANCOAL AUSTRALIA LTD 7
PRODUCTION BASE EXPANSION
35
30
25
20
15
10
5
0
32.9
~35
18.5
2017
2018
2019e
12.1
2016
Saleable Coal production (attributable), Mn tonnes
Yancoal will maintain strong cost discipline, with 2019 cash costs
(excluding Government royalties) expected to remain flat at around
A$62.5/t (2018: A$63/t)1. Yancoal continues to secure efficiency gains
from the assets acquired in 2017; this enables the flat operating cost
forecast despite the broader industry cost pressure.
STABLE PRODUCTION COSTS
80
70
60
50
40
30
20
10
0
63
62
63
62.5
2016
2017
2018
2019e
Operating Cash cost, A$/t FOB
Forecast capital expenditure for 2019 is around AU$285 million
(attributable); this is consistent with prior years, despite the increased
operational production profile.
MODEST CAPITAL OBLIGATION
400
350
300
250
200
150
100
50
0
383
345
285
210
2016
2017
2018
2019e
Capital Expenditure (attributable), A$mn
ANNUAL REPORT 2018 8
CHAIRMAN’S
LETTER
In 2018 we have fortified our position
in the competitive international coal
market and returned the Yancoal
Group to a position of strength and
financial health.
ACHIEVEMENTS
2018 has been a year of extraordinary growth
and success. We have achieved a record financial
result, paid half year and full year dividends,
significantly reduced our debt and successfully
listed Yancoal Australia Ltd on the Main Board of
the Stock Exchange of Hong Kong.
Our transformational financial turnaround
demonstrates the robustness of our operational,
investment and cash flow management
strategies.
ExCEPTIONAL RESULT
Our renewed financial strength has been
achieved via our consistently disciplined approach
to cost management and the implementation of
production efficiencies.
Benefitting from a full year ’ s attributable
production and coal sales from our tier-one
assets, Yancoal achieved a record profit after tax
of A$852 million from revenue of A$4,850 million.
Our total operating EBITDA was A$2,180 million,
more than double that of the prior year with
a full year ’ s contribution from Mount Thorley
Warkworth and the Hunter Valley Operations
complementing the Moolarben complex. The
margin achieved was also stronger than the prior
year.
YANCOAL AUSTRALIA LTD 9
With market demand for high-quality thermal
coal remaining strong throughout 2018, Yancoal
produced a record 50.0 million tonnes of saleable
coal for 2018, up 59% on the year prior.
Our three tier-one assets led an increase in total
attributable coal sales of 68% on the year prior,
with Yancoal achieving total sales of 37.1 million
tonnes in 2018, up from 22.1 million tonnes in
2017.
Importantly, we also delivered a consistently
positive improvement in safety, awareness and
training across all operations, decreasing our
Total Recordable Injury Frequency Rate from
10.43 in 2017 to 7.74 in 2018.
We cannot achieve our production and growth
targets without considering and adopting safe
operating practices in everything we do. We
maintain our position that we never compromise
on safety.
HK LISTING
In 2018 we strengthened our shareholder base
via Yancoal ’ s successful listing on the Main
Board of The Stock Exchange of Hong Kong Ltd.
As an established leader within the global
resources sector, our Hong Kong listing is an
important step forward in the Company ’ s history.
Yancoal Australia is now the only dual-listed
Australian/Hong Kong coal operator and our
listing will provide further opportunities to drive
share price improvement and improve Yancoal ’ s
liquidity.
Yancoal also raised A$268 million as part of the
Global Offering associated with the Company ’ s
HKEx listing, with the net proceeds raised to be
used to repay debt and unsecured loans; finance
potential acquisitions; and for working capital and
general corporate purposes. Proceeds raised
were also used to finance the acquisition of an
additional 4 percent interest in Moolarben in
December 2018.
OUTLOOK
In the year ahead, Yancoal remains focused on
delivering high quality thermal and metallurgical
coal to meet increasing global demand; and
developing its pipeline of major projects.
We have high expectations for our future growth,
and remain committed to leading by example
and operating in accordance with the values of
the Yancoal Way, guided by our core beliefs of
compliance, transparency and efficiency.
As we continue to support the development of
a low-emissions future, coal remains a critical
part of global baseload energy supply needs. It is
therefore our responsibility to operate efficiently
and transparently to ensure only the highest
grades of quality coal are being produced
and exported to meet future low-emission,
high-energy needs in the international market.
Demand for both thermal and metallurgical coal
is expected to continue to grow in 2019, and
I believe this year ’ s financial and operational
results clearly demonstrate we have the
resilience, skills and strength to maximise future
opportunities.
Together, with the support of our majority
shareholders, the Board and Executive, and
operational leadership teams, I believe we will
generate further success for Yancoal Australia
and value for investors.
2019 will be a year of new opportunities and I
look forward to the road ahead as an integral
participant in our key markets.
Baocai Zhang
Chairman of the Board
In accordance with our assurance to return
shareholder value following the strategic
acquisition of Coal & Allied in September 2017,
we have signalled a new era of financial stability
for Yancoal via the payment of a maiden interim
dividend totalling A$130 million on 21 September
2018, and a final dividend totalling A$211 million
and special dividend of A$166 million on 30 April
2019.
Our total FY2018 dividend payments of A$507
million represent a payout ratio of ~60%,
consisting of 40% of net profit after tax (A$341
million) and a 19.5% special dividend (A$166
million). Yancoal has subsequently announced
a targeted dividend payout of 50% of net profit
after tax in the year ahead.
CASHFLOW MANAGEMENT
The strength of the Company ’ s 2018 balance
sheet and cashflow management strategy has
enabled Yancoal to pay down debt throughout
2018 and end the financial year with A$1,031
million in cash. This cash has subsequently been
used to facilitate the Company ’ s final dividend
payment and a further debt repayment of
US$500 million1.
We have now reduced the Company ’ s total debt
liabilities by US$1.4 billion since completion of
the acquisition of Coal & Allied on 1 September
2017.
Such an achievement demonstrates the quality
of our assets, the aptitude of our operational
leadership teams, the commitment of our Board
to our shareholders, and the sustained strength
of the thermal and metallurgical coal markets.
Repayment of debt remains a critical objective
of our long-term plan for strategic growth and
we remain committed to further prepayments
as revenue allows and in the best interests of all
shareholders.
OPERATIONAL STRENGTH
Within the past two years, Yancoal has
successfully restructured its business to
significantly improve operational efficiencies
and establish new blending and marketing
opportunities.
We have implemented strict cost control
measures at all sites and forged strong bonds
with our many customers and joint venture
partners to maximise the changing scale of our
operations, post-acquisition.
1 As announced 25 February 2019.
ANNUAL REPORT 2018 10
OUR
STRATEGY
The expanded production base and strengthened
financial position are milestones on an ongoing journey.
Through its core values and strategic advantages,
Yancoal strives for improved shareholder returns. The
Board and Management team continually seek improved
operational performance, the certainty of product quality
and health relationships inside and outside the business.
CORE BELIEFS
Business Compliance and Efficiency
CORE VALUES
People, Safety, Integrity, Excellence,
Innovation
Business
Transparency
Path way
People
Safe way
Safety
Compliance
High way
Excellence
Right way
Integrity
Yancoal asks its sites and corporate functions
to operate to the highest governance standards.
Applying transparent, compliant and efficient
processes to meet the needs of all stakeholders.
The Yancoal Core Values underpin the ‘ Core
Beliefs ’ . The values start with engaged people;
working safely; acting with integrity, striving for
excellence and seeking improvement through
innovation.
STRATEGIC ADVANTAGES
1. People – Attracting, retaining and developing
people with the right skills is essential. Our
assets only deliver if our teams are working
together. Yancoal has assembled a highly
capable team.
2. Projects – Yancoal assembled a strong asset
portfolio through opportune acquisitions.
Tier-1 assets with robust operating margins
that underpin the business.
Better way
Innovation
3. Relationships – As the largest pure-play
coal company in Australia Yancoal supplies
numerous customers. There is a continued
emphasis on strong relationships through
Japan, South Korea, China and Taiwan.
4. Products – Yancoal produces high-quality
coal for the international market. Maximising
the achieved price through product blending
to meet the evolving customer demand is a
continual focus.
5. Optimisation – The recently expanded asset
portfolio continues to deliver cost efficiencies.
Optimising operations, maintenance,
procurement, product blending and taxes
are all contributing to competitive financial
performance.
YANCOAL AUSTRALIA LTD 11
CAPITAL ALLOCATION
The cash from operations surged to $1.75 billion
in 2018, a four-fold increase over 2017. The
increased production base, strong commodity
pricing and stable operating costs all contributed
to this compelling outcome. The robust cashflow
enables Yancoal to pursue several initiatives
concurrently.
The first stage in the Capital allocation cycle is to
concurrently meet the primary obligations.
Reinvestment – Primary obligation #1
Future operating cash flow depends upon the
assets delivering the availability and utilisation
targets. Reinvesting in the operations and
equipment is essential to this. The forecast
capital and sustaining expenditure in 2019 is
$285 million; this is less than the prior three-year
average as the equipment upgrade cycle and
expansion project required higher levels of capital
in previous years has reduced the near-term
burden.
Dividend returns – Primary obligation #2
The Board provides shareholders with direct
exposure to the company ’ s performance via a
Net Profit After Tax (NPAT) based distribution.
In 2018 the total Dividend allocation was $507
million, including the special dividend this was a
payout ratio of ~60% from Net Profits After Tax.
The 2019 target is a 50% NPAT payout ratio1.
The next stage of the capital cycle is
consideration of the discretionary opportunities.
The Board seeks to balance the relative merits of
each against the other.
Debt reduction – Discretionary pursuit #1
The rapid reduction of debt is something the
company continues to deliver. US$1.4 billion
in debt has been repaid ahead of schedule
since the Coal & Allied transaction in late 2017.
The debt repayment brought the gearing ratio
down to 35% at the end of December2, and the
Leverage Ratio down to 1.4x3 Yancoal intends to
continue making early repayments to reduce its
debt position and optimise existing loan facilities;
particularly in the coming year given the coal
price outlook.
Growth opportunities – Discretionary pursuit
#2
Yancoal has identified 12Mn tonnes of additional
annual production to pursue within its existing
asset base. The internal expansion provides a
pathway for boosting operating cash flow. The
Coal & Allied transaction demonstrated that
external growth could also be tremendously
successful – it transformed the company in
2018. Examining opportunities for corporate
acquisitions is an ongoing effort, but growth must
be accretive.
In the Capital Allocation Cycle asset reinvestment
and growth opportunities support the future
cycles, Dividends reward the investors, and Debt
reduction improves the capacity for all other
steps.
Yancoal capital allocation cycle – Prioritises capital returns and asset reinvestment
Operating
cash flow
Asset
reinvestment
Primary
obligations
Dividends to
shareholders
Growth
opportunities
Discretionary
pursuits
Debt
reduction
1 The NPAT used will be adjusted for foreign exchange, hedge reserve movements and non-operating items as determined by the directors.
2 Gearing calculated as Net Debt divided by the sum of Net Debt and Equity.
3 Leverage Ratio calculated as Net Debt divided by Operating EBITDA
Net Debt does not include the debt associated with Watagan.
OUR STRATEGY ANNUAL REPORT 2018
12
CEO’S
STATEMENT
This year’s exceptional financial and
production results are attributable
to our people and their commitment
to drive our business forward.
The Yancoal team has implemented our
operational and corporate strategies to deliver
the robust financial rebound we promised
shareholders during our acquisition of Coal &
Allied.
prior. Such a result highlights the success of the
roll-out of our Critical Controls safety training and
education program, as well as the importance of
instituting safety as a core value of the Yancoal
Way.
Supported by our leadership team, the Board
and our majority shareholders, we have set a new
standard of success for our business and defined
Yancoal as consistently exceeding market
expectations.
SAFETY
In a year of continued growth and financial
achievement, I am encouraged by the significant
improvement in our safety performance.
TRIFR for the combined Watagan assets of
Austar and Ashton, managed by Yancoal, was
also significantly improved on the year prior – with
a 2018 total of 23.04, down from 33.54 in 2017.
By understanding our individual responsibility
for the safety of ourselves and those working
alongside us, we can continue to work towards
our ambitious goal of achieving zero harm at our
operations.
Yancoal ’ s operations reported a Total
Recordable Injury Frequency Rate ( “ TRIFR ” )
of 7.74 for 2018, down from 10.43 in the year
There are no shortcuts when it comes to safety
and we continue to look for new ways of working
to always protect our people.
YANCOAL AUSTRALIA LTD 13
In an evolving regulatory and approvals
environment, we are taking the time required
to appropriately navigate the changing political
landscape.
Key projects include further extensions of the
Moolarben open cut pits, and the conceptual
underground mine at Mount Thorley Warkworth
which completed exploration drilling for the
prefeasibility on the target seams at the end of
2018.
STAKEHOLDER FOCUS
Consistency of behaviour establishes confidence
among shareholders and partners. We are
using the success of 2018 as a benchmark for
all operational teams. The emphasis is on the
controllable production, cost and expenditure
targets, as these underpin our ability to continue
delivering shareholder returns.
Our people have the ability, ambition and focus
to push Yancoal further and to do so safely,
efficiently and without peer.
Reinhold Schmidt.
Chief Executive Officer
OPERATIONS
2018 was our first full year of attributable
production from Mount Thorley Warkworth
and Hunter Valley Operations following their
acquisition in September 2017.
Yancoal ’ s capacity to blend its coals across
the New South Wales operations provided the
flexibility required to meet market needs, while
maximising price and sales opportunities on the
spot market.
Yancoal ’ s operations produced a record 50.0
million tonnes saleable coal for 2018 (100%
basis), up 59% on the year prior; with the
Moolarben complex achieving a new annual total
saleable coal production record of 16.5 million
tonnes, up 33% on the year prior.
The Mount Thorley Warkworth and Hunter
Valley Operations mines produced annual totals
of 12.1 million tonnes and 13.3 million tonnes
respectively.
In Queensland, Yancoal also maintained the
flexibility required to adjust its washing of product
coal at the Yarrabee open cut mine; this allowed
it to strategically target increasing market demand
for PCI coals throughout 2018.
Yancoal continued to implement cost reduction
strategies across each of its mines, restructuring
the Mount Thorley Warkworth operation to
introduce significant fleet efficiencies to improve
maintenance times and overall haul rates.
These three tier-one assets led an increase in
total attributable coal sales of 68% on the year
prior, with Yancoal achieving total sales of 37.1
million tonnes in 2018, up from 22.1 million
tonnes in 2017.
Similar efficiencies continue to be developed for
implementation at the Hunter Valley Operations
joint venture with JV partner Glencore, with
both companies aligned in continuing to pursue
synergies wherever possible.
Supported by increased market demand and
our tier-one production performance, Yancoal ’ s
thermal coal sales were up 88% on the prior year,
achieving a 2018 total of 29.9 million tonnes,
including purchased coal, compared with 15.9
million tonnes in 2017.
We experienced similar positive sales growth
across metallurgical coal, as global demand and
prices remained strong for the majority of the
year. Yancoal achieved total metallurgical coal
sales of 7.2 million tonnes, up 16% on the 2017
total of 6.2 million tonnes.
Our ability to optimise our portfolio and implement
new operating efficiencies across each of the tier
one assets enabled us to achieve a new Yancoal
total production record of 50 million tonnes of
saleable coal.
As coal remains a critical source for global
baseload energy, Yancoal is well-positioned to
meet increasing demand for high quality product
in both established and developing markets.
FUTURE GROWTH
While this has been a year of exceptional
production gains, we are not resting on our
success.
Yancoal continues to pursue its long-term
strategy for organic growth, with a commitment
to progressing projects across each of its
operations; most notably our tier-one assets.
Moolarben, Mount Thorley Warkworth and
Hunter Valley Operations provide the pathway
for our future and we are carefully considering all
options for potential growth via both extension
and expansion.
CEO’S STATEMENT ANNUAL REPORT 2018 14
FINANCIAL
SUMMARY
Total Revenue increased by 80% from
$2,716 million in 2017 to $4,891 million in
2018. A 74% uplift in the sales volume and
a 16% increase in the average sale price
drove the strong revenue performance.
INCOME STATEMENT ELEMENTS
Revenue and Costs
Total Revenue increased by 86% from $2,601
million in 2017 to $4,891 million in 2018. A 68%
uplift in the sales volume and a 16% increase in
the average sale price drove the strong revenue
performance.
The Operating Cash Costs increased by less than
2% to $63/t. Including royalties and the non-cash
depreciation and amortisation charges, the Total
Production Costs increased by less than 5% to
$89/t. These costs compare to an average sale
price of $132/t across all the coal sold.
Operating EBITDA and operating EBITDA
margin
Operating EBITDA increased by 121% from $988
million in 2017 to $2,180 million in 2018. The
EBITDA flows directly from the higher revenue
with a modest offset from the cash costs (A$73/
t including royalties). Consequently, Operating
EBITDA margin as a percentage of Operating
Revenue increased from 36% in 2017 to 45% in
2018.
Depreciation and amortisation
Depreciation and amortisation expenses
increased by 104% from $256 million in 2017
to $523 million in 2018. The increase primarily
stemmed from the increased asset base following
the Coal & Allied acquisition. On a per tonne
basis, the depreciation and amortisation costs
increased from $14/t to $16/t in 2018.
Net finance costs
Net finance costs decreased by 4% from $282
million in 2017 to $270 million in 2018, primarily
due to the ongoing voluntary loan repayments.
Income tax expense
It is important to note that the company did
not pay any cash tax in 2018; this is due to tax
losses carried forward from prior years. There are
further tax losses to be utilised in future years. For
accounting purposes, the Income tax expense
was $320 million in 2018, and the effective tax
rate was 27.3%.
Net Profit After Tax
These elements combined to deliver a profit
after income tax that increased 272% from $229
million in 2017 to $852 million in 2018.
YANCOAL AUSTRALIA LTD 15
CASH FLOW ELEMENTS
Net operating cash inflows increased 328%
to $1,747 million mainly reflecting the higher
EBITDA.
Net investing cash outflows were $55 million;
asset disposals and loan repayments offset
capital expenditure and JV stake acquisitions.
Net financing cash outflows were of $904 million;
mostly due to the $1,014 million of voluntary net
debt repayments and the $130 million interim
dividend. The $268 million raised in the Hong
Kong IPO was a positive inflow.
The overall outcome was a $824 million increase
in the net cash position to $1,031 million. This
uplift facilitated the final and special dividend
payment decision.
FINANCIAL RESOURCES
The Group defines its gearing ratio as net debt
(being interest-bearing liabilities less cash and
cash equivalents) divided by net debt + total
equity. As a result of the Net debt being cut by
$1.4 billion during 2018, the gearing ratio has
improved significantly. It decreased from 47%
at 31 December 2017 to 35% at 31 December
2018.
DIVIDENDS AND DEBT REDUCTION
On 25 February 2019, Yancoal announced a final
dividend of A$377 million, with a record date of
11 March 2019. The final dividend and special
dividend will be paid on 30 April 2019.
On 25 February 2019, Yancoal announced it
would pre-pay a further US$500 million in loans,
reducing its total debt liabilities by US$1.4 billion
since September 2017.
EBITDA UP ON VOLUME, MARGIN UP ON PRICE
EBITDA Margin year on year
2500
2000
1500
1000
500
14%
172
2016
EBITDA, $ million.
EBITDA margin, %.
45%
2180
38%
988
2017
2018
NPAT REFLECTS THE NEW PLATFORM
Profit after income tax, $ million
1000
800
600
400
200
0
-200
-400
2016
-227
NPAT, $ million.
229
2017
NET DEBT AND GEARING BOTH BROUGHT DOWN
Net debt, $ million
4,760
78%
5000
4000
3000
2000
1000
4,516
47%
2016
2017
Net debt, $ million.
Gearing ratio, %.
852
2018
3,093
35%
2018
FINANCIAL SUMMARY ANNUAL REPORT 2018 16
MARKET
CONDITIONS
Yancoal remains focused on its sizable
and diverse customer base. The company
emphasis is maximising the product mix to
optimise revenues across various global
markets. The high-quality coal products are
suited to the needs of end-users in the prime
target markets of Japan, Korea and China.
STRENGTH IN 2018
During 2018 the Average Selling Price Yancoal
achieved for its Thermal coal output was A$123/
tonne, this was a 21% increase from the A$102/
tonne in 2017. Similarly, the Average Selling
Price achieved for Metallurgical coal output was
A$182/tonne, a 10% increase from the A$165/
tonne in 2017.
An increasing premium for high-energy thermal
coal aided the price achieved by Yancoal.
Between the two index prices for exports from
Newcastle, the price premium for the higher
energy content coal (6,000kCal vs 5,500kCal)
increased from an average of 25% in 2017 to
52% in 2018.
Thermal coal sales dominate Yancoal ’ s product
mix; in 2018 it was 85% of the ex-mine sales
volume. The ratio increased from 80% in 2017
as a result if the new asset mix following the Coal
& Allied transaction in late 2017. The combined
outcome of the product mix and sales prices
was a 16% increase average price across all
attributable coal sales to A$132/t in 2018.
PRODUCER OF PREMIUM THERMAL COAL
Saleable production (attributable), Million tonnes
35
30
25
20
15
10
5
0
5.2
27.7
~35
3.7
14.8
3.3
8.8
2016
2017
2018
2019e
Thermal coal production (attributable), Million tonnes.
EBITDA margin, %.
2019e = estimate for year ahead
1 Based on research and commentary from Wood Mackenzie
YANCOAL AUSTRALIA LTD 17
OUTLOOK
Market Demand
Demand for high-quality, low ash and low sulphur
coals remains strong, as developed economies in
Asia including Japan, Korea and Taiwan continue
to implement environmental policies requiring
coal users to consume cleaner, higher grades
of product. As higher grades of coal quality
remain in tight supply, the premiums captured by
suppliers should remain supported during 2019.
Asia remains a dynamic market, with coal
currently representing over 50% of the Asian
energy requirement and remains the cheapest
energy source for developing nations. China
continues to introduce an alternative energy
policy, but it also needs the certainty of a
baseload energy supply. The middle ground
DIVERSE CUSTOMER BASE
Percentage of revenue by region 2017 to 2018
sees Chinese buyers seeking higher CV and low
sulphur coals, as focus shifts toward a more
significant proportion of import coals with an
energy level higher than 5,000 kcal/kg NAR. This
scenario is constructive for the price outlook on
Yancoal thermal coal products.
Statistics indicate Australia will continue to
retain a market share of approximately 26%
of the growing world seaborne thermal coal
requirement1. As Australia ’ s largest pure-play
coal producer Yancoal is well positioned to
participate in the seaborne market.
Yancoal has a diverse customer base by
geography. In 2018 no one country contributed
more than 22% of the revenue generated by the
company. This customer split provides insulation
from regional demand disruption should it occur.
25
22
19
18
13
16
16
14
25
20
15
10
5
11
5
12
10
7
6
6
Japan
Singapore
China
South Korea
Taiwan
Thailand
Australia
Other
2017
2018
Price-Related
Australia has a critical role suppling
premium-grade thermal and metallurgical coals
to the global market, and yet supply growth faces
ongoing challenges associated with obtaining
development approvals for new operations.
Seaborne supply from South Africa, Russia and
Indonesia is also likely to be constrained to satisfy
their domestic energy requirements and likely to
positively impact international coal prices.
It is the locally-based operators with brownfield
expansion opportunities, such as Yancoal, that
best placed to benefit from the combination of
sustained global demand for high-quality coal
and a limited greenfield supply response.
Given the demand outlook, this has the potential
to continue supporting premium coal prices.
Based on pure market supply and demand
fundamentals, Yancoal starts the year anticipating
coal price stability in 2019.
RISING PREMIUM FOR HIGHER ENERGY AUSTRALIAN COAL
Premium percentage of Newcastle coal exports
100
80
60
40
20
Jan 17
Jan 18
Jan 19
Premium for 6,000 kCal coal vs 5,500 kCal coal exported from Newcastle.
2017 Average Premium.
2018 Average Premium.
Source: S&P Global Platts, globalCOAL.
MARKET CONDITIONS ANNUAL REPORT 2018 18
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.
safety
At Yancoal the Safety of employees and the
many contractors and service providers that
support operations is considered in everything
we do.
The Total Recordable Injury Frequency Rate
(TRIFR) steadily improved throughout 2018.
TRIFR was 10.43 at the end of 2017, by the
end of 2018 it was 7.74. This improvement
flowed from the integration and aligning of safety
systems following the Coal & Allied acquisition.
The trend reflects the company ’ s emphasis on
safety. Implementation of the Core Hazard Critical
Control program continued with the focus shifting
towards verification of Critical Controls and their
effectiveness across operational sites.
The Health and Safety and Environment
Committee continues to lead the Group in its
objective of ‘ zero harm ’ .
12mth Rolling TRIFR
12
10
8
6
4
2
Dec-17
Jun-18
Dec-18
12mth Rolling LTIFR
3.0
2.5
2.0
1.5
1.0
0.5
Dec-17
Jun-18
Dec-18
Note: Lost time injury frequency rate (LTIFR)
Note: Safety Statistic include HVO until April 2018, exclude Watagan and Middlemount
1 Excludes Hunter Valley Operation. Includes Watagan assets.
YANCOAL AUSTRALIA LTD HEALTH, SAFETY
AND THE
ENVIRONMENT
19
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
and the community to ensure full transparency in
its environmental reporting.
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
following legislative requirements.
Each Yancoal operation implements proactive
strategies to oversee its environmental
management activities to meet its obligations.
There are also rehabilitation and end-of-mine
plans to return mined areas to pastoral and
woodland areas suitable for future use.
Yancoal continues to apply robust water, dust
and noise management practices across all
operations. The methods used can respond
quickly to changing operating and weather
conditions.
Total seeding and planting across all operations in
2018 is 217 ha. Total new disturbance across all
operations in 2018 is 242 ha. As of 31 December
2018, Yancoal has seeded and planted 53% of
disturbed areas across all operations.1
Greenhouse Gas and enerGy data
reportinG reQuireMents
As Australia ’ s largest pure-play thermal coal
producer, Yancoal acknowledges it has a role to
play in mitigating the emissions generated by its
operations and supporting investment into low-
emission technology to assist the reduction of
downstream emissions from the consumption of
coal products.
The company also understands the growing
interest by stakeholders regarding the potential
risks and opportunities posed to our business
and the broader sector as a result of an
anticipated global shift towards a lower-carbon
economy.
Recognising this, the Board continues to
consider the adoption of the Taskforce on
Climate-related Financial Disclosures ( “ TCFD ” )
Recommendations, established by the G20
Financial Stability Board, as the framework to
guide our climate-related disclosures.
The considerations include the desire for greater
transparency in the way we identify and mitigate
potential risks posed by changes to our external
environment from a policy, legal, market demand,
reputational and technological perspective.
GoVernanCe
The Board regularly considers how climate
change may drive changes to physical, regulatory,
commercial, and operating environments to
inform the development of medium-to-long term
goals and strategies.
Reporting on emissions
Yancoal reports its operational direct (scope 1)
and indirect (scope 2) emissions on an annual
basis in line with the National Greenhouse and
Energy Reporting legislation. The Group has
implemented systems and processes for the
collection and calculation of the data required by
the Federal Clean Energy Regulator.
Overall, on an operational control basis, our total
Scope 1 and Scope 2 emissions for the period
ended 30 June 2018 totalled 1.96Mn tCo2-e,
less than a 1% increase on the year prior. The
majority of Scope 1 emissions relate to fugitive
emissions associated with the underground
and open cut mining operations, while Scope
2 emissions stem from the consumption of
electricity purchased from the grid.
While we do not currently calculate Scope 3
emissions associated with the consumption
of our coal products, we actively support the
development of technologies aimed at reducing
the emissions intensity of these downstream
activities. This stance includes supporting the
construction or installation of high-efficiency,
low-emissions technologies in coal-fired power
stations and investment in carbon capture and
storage technology.
National Greenhouse Energy Reporting (NGER) *
Emissions Reporting
Period
2016 – 2017
2017 – 2018
% Variance
Scope 1
Emissions
(Mn tCo2-e)
1.60
1.63
1.8%
Scope 2
Emissions
(Mn tCo2-e)
0.34
0.33
-3.8%
Scope 1 and
Scope 2
Emissions
(tCo2-e)
1.94
1.96
0.9%
* Includes Warkworth and Mount Thorley Operations emissions under Rio Tinto Coal Australia (RTCA) ownership before 01-Sept-17 (tCo2-e: tonnes
of carbon dioxide equivalent)
ANNUAL REPORT 2018 20
COMMUNITY
Yancoal is committed to supporting
the communities in which it operates,
financially investing into projects and
initiatives with the potential to make a
genuine positive difference.
YANCOAL COMMUNITY SUPPORT
PROGRAM
As Australia ’ s largest pure-play coal producer,
Yancoal understands the value of making a
financial contribution to support the future
growth and sustainability of local and regional
communities.
Going beyond its established role as a key
employer, Yancoal ’ s Community Support
Program is specifically designed to invest in
projects, programs and initiatives capable
of making a difference to the lives of others,
regardless of whether the recipients have a direct
relationship to individual operations.
Each year Yancoal allocates funds at both a
site and corporate level to financially support
community groups and programs operating
across the areas of:
• health
• social and community
• environment
• education and training.
In 2018, the Yancoal Community Support
Program invested more than $800,000 into local
initiatives across Australia.
Community Support Program funding has
enabled the development and implementation
of educational and training projects; supported
critical research into the detection and prevention
of cervical cancer; the rescue and rehabilitation
of protected local wildlife; the sponsorship of
key community events, groups and clubs; the
refurbishment of community facilities; and helped
support disadvantaged community-support
groups who may otherwise struggle to achieve
their funding targets.
Yancoal is proud to be investing into local
and regional Australia, helping build stronger
communities across the country.
As the Company continues to grow, it
also maintains its responsibility of working
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
actively engaged and informed of matters related
to nearby operations.
YANCOAL AUSTRALIA LTD 21
Recent examples of Yancoal-supported
community initiatives:
• Yancoal committed $600,000 over three
years to support the Queensland University of
Technology ’ s Cancer and Ageing Research
Program (CARP). This funding enabled
the employment of two fulltime cancer
researchers within the CARP team to advance
their research and help facilitate cancer clinical
trials, which will benefit all Australians.
• Yancoal ’ s funding enabled over 1000
‘ future scientists ’ to have the opportunity to
experience SMART Science Shows at their
schools and learn about exciting possible
future career choices in Science, Technology,
Engineering and Mathematics (STEM).
• Yancoal completed its second year of a
three-year partnership with the Clontarf
Foundation, providing $100,000 per year to
support indigenous youth education services
throughout regional New South Wales and
West Australia.
• The Mount Thorley Warkworth operation
helped rescued wildlife in the Upper Hunter
Valley by donating funds to Wildlife Aid for
food and animal rehabilitation.
• The Ungooroo Aboriginal Corporation
provides culturally appropriate and holistic
GP, Medical, Allied Health, Mental Health
Services as well as other community services
directly to the Aboriginal community. Mount
Thorley Warkworth (MTW) donated funding to
help support Ungooroo ’ s Mental Health and
Psychology Services programme.
• Yancoal partnered with the Rockhampton
Leagues Club CQ Capras to help support
coaching and development opportunities
for over 8,000 Central Queensland Rugby
League players.
COMMUNITY ANNUAL REPORT 2018 22
The New South Wales region includes
the mines of Mount Thorley Warkworth,
Moolarben, Hunter Valley Operations
and Stratford Duralie. The Queensland
region includes the mines of Yarrabee
and Middlemount.
Yancoal manages the Watagan underground
mines of Ashton and Austar in New South Wales
on behalf of Watagan1.
All 2018 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.2
YARRABEE
MIDDLEMOUNT
CAMEBY DOWNS
MOUNT THORLEY WARKWORTH
STRATFORD DURALIE
ASHTON
HUNTER VALLEY OPERATIONS
DONALDSON
AUSTAR
PREMIER
MOOLARBEN
REVIEW OF
OPERATIONS
YANCOAL AUSTRALIA LTD 23
WATAGAN:
ashton and
austar
Yancoal 100% ownership
Underground
Ashton – Semi-soft coking coal
Austar – Semi-hard coking coal
and thermal coal
2.4Mt
Combined ROM
1.2Mt
Combined Saleable
47Mt
Ashton total recoverable
reserves
December 2018
40Mt
Austar total recoverable
reserves
December 2018
QUEENSLAND:
MiddleMount4
Yancoal ~50% ownership
Open cut
Semi-soft coking coal and
low volatile PCI coal
4.8Mt
ROM
3.8Mt
Saleable
85Mt
Total recoverable
reserves
December 2018
yarrabee:
Yancoal 100% ownership
Open cut
Low volatile PCI coal
3.4Mt
ROM
2.6Mt
Saleable
52Mt
Total recoverable
reserves
December 2018
NEW SOUTH WALES:
Mount thorley
WarkWorth
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
17.6Mt
ROM
12.1Mt
Saleable
315Mt
Total recoverable
reserves
December 2018
hunter Valley
operations3
Yancoal 51%
ownership
Open Cut
Semi-soft coal and
thermal coal
19.0Mt
ROM
13.3Mt
Saleable
796Mt
Total recoverable
reserves
December 2018
Moolarben
Yancoal 85% ownership
Open cut and
Underground
Thermal coal
18.6Mt
ROM
16.5Mt
Saleable
274Mt
Total recoverable
reserves
December 2018
stratford
duralie
Yancoal 100% ownership
Open cut
Thermal coal
0.7Mt
ROM
0.5Mt
Saleable
44Mt
Total recoverable
reserves
Decemeber 2018
1 On 17 February 2016, Yancoal Australia announced a new debt funding arrangement to secure up to US$950 million via the issuing of nine-year secured debt bonds
by a newly established Yancoal subsidiary, Watagan Mining Company Pty Ltd. On and from financial close, effective 31 March 2016, Yancoal ceased to control
Watagan and its subsidiaries, including the underground assets of Ashton, Austar and Donaldson. Donaldson was placed on ‘ care and maintenance ’ in June 2016.
2 Coal Reserves are as at 31 December 2018.
3 Joint venture with Glencore Coal
4 Joint venture with Peabody Coal
ANNUAL REPORT 2018 24
MOOLARBEN
Yancoal 85%1
The Moolarben Coal Complex is an open cut and underground coal asset
located approximately 40 kilometres north of Mudgee in the Western
Coalfields of NSW.
Production of the two open cuts and underground mine achieved total ROM
coal production of 18.6Mt and saleable coal production of 16.5Mt.
Moolarben utilises conventional truck and excavator methods in its open cut
mining areas, and longwall operations in its underground mining areas.
ROM coal from the open cut pits is processed through an on-site coal
preparation plant, while ROM coal from the underground operation is
bypassed, in each case producing thermal coals for sale into the export
market.
Moolarben Coal Operations Pty Ltd is the operator of the Moolarben Coal
Complex on behalf of the Joint Venture (JV). The JV partners are Moolarben
Coal Mines Pty Ltd (85%), a consortium of Korean companies represented
by Kores Australia Moolarben Coal Pty Ltd (5%), and Sojitz Moolarben
Resources Pty Ltd (10%).
Moorlarben
Units
2014
2015
2016
Saleable coal Production
Mt
6.4
6.9
9.3
2017
12.4
2018
16.5
Product coal is exported via the Newcastle Coal Infrastructure Group and
Port Waratah Coal Services loading terminals at Newcastle.
All data shown on 100% basis
HUNTER VALLEY
OPERATIONS
Yancoal 51%
Supplying international markets with high quality thermal and semi-soft
coking coals, Hunter Valley Operations is located 24 kilometres north-west
of Singleton in the Hunter Valley region of New South Wales (NSW).
Hunter Valley Operations is a 51:49 unincorporated joint venture with
Glencore Coal Pty Ltd ( “ Glencore ” ), jointly controlled through a Joint
Venture Management Committee ( “ JVMC ” ).
Hunter Valley Operations is a multi-pit open cut mine, using a dragline truck
and shovel method, operating 24 hours a day. ROM coal is processed
through two on-site coal preparation plants to produce low, medium and
high ash thermal coals and semi-soft coking coal for the export market.
Product coal is shipped via the Port Waratah Coal Terminal and Newcastle
Coal Infrastructure Group in Newcastle.
Hunter Valley Operations achieved ROM coal production of 19.0Mt and
saleable coal production of 13.3Mt for the attributable reporting period.
Hunter Valley Operations
Units
2014
2015
2016
2017
Saleable coal Production
Mt
–
–
–
4.8
2018
13.3
All data shown on 100% basis
Production contribution only shown from 1-Sept-17 following completion of the Coal & Allied transaction
1 Moolarben (81% – up to and including 30 November 2018 and 85% thereafter – reflecting Yancoal ’ s increased ownership in the Moorlarben Joint Venture as announced on 30
November 2018)
YANCOAL AUSTRALIA LTDREVIEW OF OPERATIONS (CONTINUED) 25
MOUNT THORLEY
WARKWORTH
Yancoal 82.9%
A tier-one resource producing semi-soft coking coal and thermal coal,
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.
Mount Thorley Warkworth uses a dragline and truck and shovel methods,
processing its coal through two on-site coal preparation plants to produce
low, medium and high ash thermal coal and semi-soft coking coal for the
export market.
Yancoal manages Mount Thorley Warkworth on behalf of the joint venture
partners:
• Mount Thorley: Yancoal Australia Ltd (80 per cent) and POSCO
Australia Pty Ltd (20 per cent).
• Warkworth: CNA Warkworth Australasia Pty Limited (55.722 per cent),
CNA Resources Limited (28.75 per cent), Nippon Steel Australia Pty
Limited (9.53 per cent) and Mitsubishi Materials (Australia) Pty Limited (6
per cent).
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 17.6Mt and
saleable coal production of 12.1Mt in 2018.
Mount Thorley Warkworth
Units
2014
2015
2016
2017
Saleable coal Production
Mt
–
–
–
3.9
2018
12.1
All data shown on 100% basis
Production contribution only shown from 1-Sept-17 following completion of the Coal & Allied transaction
YARRABEE
Yancoal 100%
Producing ultra-low volatile, semi-anthracite PCI coal, the Yarrabee open cut
mine exports to steelmakers in the Asian region via the Port of Gladstone.
Yarrabee achieved total ROM coal production of 3.4Mt and total saleable
coal production of 2.6Mt.
Yarrabee uses conventional truck and excavator methods, with ROM coal
processed at the site ’ s coal handling preparation plant or bypassed for
crushing only. Approximately 40% of the ROM coal is bypassed due to its
superior in situ quality.
The Yarrabee open cut coal mine is located approximately 40 km north east
of Blackwater in Central Queensland ’ s Bowen Basin, with product coal
exported via the RG Tanna and Wiggins Island Coal Terminals.
Yarrabee
Units
2014
2015
2016
2017
2018
Saleable coal Production
Mt
3.2
2.8
3.1
2.8
2.6
All data shown on 100% basis
2 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.
REVIEW OF OPERATIONS ANNUAL REPORT 2018 26
MIDDLEMOUNT
Yancoal ~50%
A Joint Venture between Peabody Energy and Yancoal, the Middlemount
open cut mine produces low volatile pulverised coal injection (PCI) coal and
hard coking coal for export via Dalrymple Bay Coal Terminal and Abbot
Point Port.
Located 90 km north east of Emerald in Queensland ’ s Bowen Basin,
Middlemount uses conventional truck and excavator methods, with ROM
coal washed at an onsite facility.
Middlemount achieved total annual ROM coal production of 4.8Mt and total
saleable coal production of 3.8Mt.
WATAGAN2
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.
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.
Ashton and Austar achieved a combined total ROM coal production of 2.4Mt
and saleable coal production of 1.2Mt for the year.
STRATFORD/DURALIE
Yancoal 100%
Located within the New South Wales Gloucester Basin, the Stratford Duralie
operation consists of the Stratford and Duralie open cut mines, producing
high fluidity semi-soft coking and thermal coals.
Stratford Duralie uses conventional truck and excavator methods, with ROM
coal processed at the centralised Stratford Coal Handling and Preparation
Plant, washed and blended to produce the required export coking and
thermal product coal specifications.
Product coal is transported to the Port of Newcastle for export.
Stratford Duralie achieved total ROM coal production of 0.7Mt and saleable
coal production of 0.5Mt.
The Stratford extension project has the potential to extract up to 21.5 million
tonnes of ROM coal over 11 years at a rate of up to 2.6 million tonnes per
annum. Development of the project is subject to market conditions.
YANCOAL AUSTRALIA LTDREVIEW OF OPERATIONS (CONTINUED)REVIEW OF OPERATIONS (CONTINUED) 27
Middlemount
Units
2014
2015
2016
2017
2018
Saleable coal Production
Mt
3.6
4.1
4.1
3.9
3.8
All data shown on 100% basis
Stratford Duralie
Units
2014
2015
2016
2017
2018
Saleable coal Production
Mt
2.0
1.4
0.9
0.7
0.5
All data shown on 100% basis
Watagan
Units
2014
2015
2016
2017
2018
Saleable coal Production
Mt
4.8
3.4
2.4
3.0
1.2
All data shown on 100% basis
REVIEW OF OPERATIONS ANNUAL REPORT 2018 28
INFRASTRUCTURE
AND LOGISTICS
Yancoal sells 100% of product into
international markets. Its Rail and Port
capacity arrangements meet the planned
production needs and potential expansions
of existing operations.
INFRASTRUCTURE
Yancoal exports 100% of its product through five
eastern Australian ports into the Asian market,
with current allocations sufficient to meet existing
and potential brownfield expansion needs. The
Group has ownership interests in three of these
ports.
PORT WARATAH COAL SERVICES
( “ PWCS ” ) 30.0%
Yancoal has take-or-pay contracts with PWCS
for the export of coal through the terminals
at Newcastle NSW, with a port allocation of
approximately 35.1Mt (100% basis).
NEWCASTLE COAL INFRASTRUCTURE
GROUP ( “ NCIG ” ) 27%
Yancoal continues to be one of five company
shareholders involved in the NCIG export coal
terminal in Newcastle NSW. Yancoal has an
allocation of approximately 19.6Mt per annum
(100% basis).
WIGGINS ISLAND COAL ExPORT TERMINAL
( “ WICET ” ) 9.4%
With a total capacity of 27.0Mt per annum,
Yancoal is one of five owners of WICET, located
at Golding Point in Queensland. Yancoal ’ s
contracted capacity is 1.5Mt per annum,
allocated to the Yarrabee Mine.
1 All numbers provided on an equity basis.
YANCOAL AUSTRALIA LTD 29
RAIL
Yancoal is supported by the following rail
networks to transport product from mine to port:
– The NSW Hunter Valley Coal Chain:
supporting the Moolarben, Mount Thorley
Warkworth, Hunter Valley Operations, Austar,
Ashton, Stratford Duralie, and Donaldson
operations, with coal transported to the Port
of Newcastle;
– The QLD Blackwater System: supporting the
Yarrabee operation, transporting coal to the
Port of Gladstone; and
– The QLD Goonyella System: supporting the
Middlemount operation, with coal transported
to the Port of Hay Point and Abbot Point Coal
Terminal.
2018 TAKE-OR-PAY1
Yancoal ’ s unutilised take-or-pay exposure
increased from the year prior (2017: $60.7 million;
equity basis) to $84.9 million in rail and port
commitments in excess of shipped sales.
The increase of $24.2 million was attributable
to the take-or-pay exposure acquired from the
former Coal & Allied assets (full year $32.9 million)
and under-utilisation of WICET port capacity
($7.9 million). This was offset by a $16.6 million
reduction from increased utilisation by Moolarben
and trading with third parties.
Yancoal continues to implement strategic
measures to reduce take-or-pay exposure across
the Group by trading between sites and with
other users.
INFRASTRUCTURE AND LOGISTICS ANNUAL REPORT 2018 30
COAL
RESOURCES
AND COAL
RESERVES
STATEMENT
for year ending 31 December 2018
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 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 2018 Life of Mine Plans
to become mining leases in future applications.
Persons listed in this report are independent
consultants, apart from the Coal Resource and
Coal Reserve reports for Yarrabee and the Coal
Reserve reports for Mt Thorley Warkworth,
Moolarben, Austar, Ashton and Donaldson,
which have been compiled by fulltime 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 ’ 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 Competent
Yancoal Australia 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.
On an attributable basis Yancoal ’ s group total
year end 31 December 2018 position is as
follows:
• Measured, Indicated and Inferred Coal
Resources are 6,442Mt(2).
• Recoverable Proved and Probable Coal
Reserves are 1,240Mt(1) (2).
• Marketable Proved and Probable Coal
Reserves are 891Mt(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 2018.
(2) 2018 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.
YANCOAL AUSTRALIA LTD 31
Competent
Person
2018
KP
PH
PH
PE
RD
PH
SW
JB
GJ
RD
RD
The following abbreviations are used throughout this report;
AusIMM
JORC
Met
Semi
PCI
Mt
OC
UG
Australasian Institute of Mining and Metallurgy
Joint Ore Reserves Committee
Metallurgical Coal
Semi-soft coking coal
Pulverised Coal Injection
Million tonnes
Open Cut
Underground
COAL RESOURCES FOR YEAR ENDING 31 DECEMBER 2018
Project
Yancoal
Ownership
% Coal Type
Moolarben (OC & UG)
85% Thermal
Moisture
Basis
%
2018
6.0%
Mt Thorley (OC & UG)
80% Semi/Thermal
6 to 8%
Warkworth (OC & UG)
(1) HVO (OC & UG)
(4) Austar (UG)
(4) Ashton (OC & UG)
Yarrabee (OC)
(2) Gloucester (OC)
(3) Middlemount (OC)
(4) Donaldson (OC & UG)
Monash (UG)
84.47% Semi/Thermal
6 to 8%
51% Semi/Thermal
6 to 8%
100% Met
100% Semi/Thermal
100% PCI/Thermal
100% Met/Thermal
50% Met/Thermal
100% Met/Thermal
100% Met/Thermal
5.0%
6.5%
5.5%
6.0%
5.0%
4.0%
6.0%
Measured
Coal Resources
(Mt)
Indicated
Coal Resources
(Mt)
Inferred
Coal Resources
(Mt)
Total Coal
Resources
(Mt)
2018
710
210
460
704
110
80
95
8
73
190
0
2017
750
32
215
730
70
80
95
11
66
190
0
2018
240
200
550
2017
240
75
715
2018
200
150
460
2017
200
153
528
1,430
1,432
1,654
1,654
40
70
80
195
54
400
17
80
75
80
195
33
400
17
70
110
20
110
8
100
80
70
110
20
110
3
100
80
2018
1,150
560
1,470
3,788
220
260
195
313
135
690
97
8,878
6,442
Total Coal Resources (100% Basis)
2,640
2,239
3,276
3,342
2,962
3,028
Yancoal Attributable Share
Note: 2018 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 (as at 31 December 2018) 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 2018, with the exception of HVO which is as at 30th June 2018 (No production depletions have been applied).
(1) (HVO) Hunter Valley Operations.
(2) Gloucester comprises the Stratford, Duralie and Grant & Chainey deposits.
(3) A new Middlemount JORC Coal Resource report was generated in April 2018 and forms the basis of these reported Coal Resources. The previous report was only in regards to ML703379 which has since been expanded by
472ha after a acquisition with Anglo American Australia in 2017. The new report also includes additional Coal Resources within ML70417 and MDL282.
(4) 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, 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.
ANNUAL REPORT 2018 32
COAL RESOURCES RECONCILIATION OF 2018 TO 2017 YEAR END REPORTING
Measured Resources (Mt)
Reconciliation period 1 January 2018 to 31 December 2018
Project
Production Changes
(2) Production (-)
1 January 2018 –
31 December 2018
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
Total
Project
Production Changes
(2) Production (-)
1 January 2018 –
31 December 2018
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
Total
Moolarben
(OC & UG)
Mt Thorley
(OC & UG)
Warkworth
(OC & UG)
(3) HVO
(OC & UG)
Austar
(UG)
Ashton
(OC & UG)
Yarrabee
(OC)
Gloucester
(OC)
Middlemount
(OC)
Donaldson
(OC & UG)
Monash
(UG)
-40.7
-1.65
-15.54
-26.0
-0.5
-2.54
-3.3
-0.04
0
N/A
-0.54
-0.56
-2.52
-0.83
7.7
-4.1
-2.9
-40.0
-0.09
-0.37
0.75
179.24
263.91
42.1
2.55
0.5
178.0
-3.0
245.0
-26.0
-1.06
40.0
-0.2
0.0
3.3
0.0
-0.44
-3.0
Indicated Resources (Mt)
Reconciliation period 1 January 2018 to 31 December 2018
13.39
-5.32
-0.24
7.0
0.0
0.0
Moolarben
(OC & UG)
Mt Thorley
(OC & UG)
Warkworth
(OC & UG)
(3) HVO
(OC & UG)
Austar
(UG)
Ashton
(OC & UG)
Yarrabee
(OC)
Gloucester
(OC)
Middlemount
(OC)
Donaldson
(UG)
Monash
(UG)
-0.3
-2.0
-0.66
0.03
N/A
2.9
-0.2
-2.7
0.0
127.3
-162.8
-42.1
-2.55
-2.3
125
-1.9
-165.0
2.1
-40.0
-2.45
-5.0
-2.0
0.0
-0.64
-1.4
1.61
-0.31
0.0
16.1
6.1
0.17
21.0
0.0
0.0
YANCOAL AUSTRALIA LTDfor year ending 31 december 2018Coal ResouRCes and Coal ReseRves statement (ContInued)
33
Inferred Resources (Mt)
Reconciliation period 1 January 2018 to 31 December 2018
Moolarben
(OC & UG)
Mt Thorley
(OC & UG)
Warkworth
(OC & UG)
(3) HVO
(OC & UG)
Austar
(UG)
Ashton
(OC & UG)
Yarrabee
(OC)
Gloucester
(OC)
Middlemount
(OC)
Donaldson
(UG)
Monash
(UG)
-10.6
-6.4
17
0.0
1.5
-71.3
-4.5
-3.0
3.3
-68.0
0.0
0.0
0.0
0.0
Total Resources (Mt)
Reconciliation period 1 January 2018 to 31 December 2018
-0.89
0.89
0.0
7
-2
0
5.0
0.0
0.0
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
Total
Project
Moolarben
(OC & UG)
Mt Thorley
(OC & UG)
Warkworth
(OC & UG)
(3) HVO
(OC & UG)
Yancoal Ownership %
Coal Type
85%
Thermal
80%
Semi/
84.47%
Semi/
51%
Semi/
Austar
(UG)
100%
Met
Ashton
(OC & UG)
Yarrabee
(OC)
Gloucester
(OC)
Middlemount
(OC)
Donaldson
(UG)
100%
Met/
100%
PCI/
100%
Met/
50%
Met/
100%
Met/
Monash
(UG)
100%
Met/
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Production Changes
Measured Resources (Mt)
Indicated Resources (Mt)
Non-Production Changes
Measured Resources (Mt)
Indicated Resources (Mt)
Inferred Resources (Mt)
-40.7
0
0.7
0.0
0
-1.65
179.65
125
-3
Totals
-40.0
300.0
Total Coal Resource Changes (100% Basis)
Yancoal Attributable Share
-15.54
-0.3
260.54
-164.7
-68
12.0
-26.0
-2.0
0.0
0
0
-28.0
-0.5
0
40.5
-40
0
0.0
-2.54
0
2.54
-5
0
-5.0
-3.3
0
3.3
0
0
0.0
-0.04
-0.66
-2.96
0.66
0
-3.0
0
0.03
7
20.97
5
33.0
0.0
0
0.0
0
0.0
0.0
N/A
N/A
0
0
0
0.0
269.0
210.4
Note: +ve = increase in reported Coal Resources, -ve = decrease in reported Coal Resources
(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.
(2) Middlemount production depletion (28.66Mt) for the period from 31 December 2012 to 31 December 2017 was applied in 2017 Annual Report, 0.03Mt adjustment made to production depletions in 2018 Annual Reporting to
align with new JORC reporting.
(3) HVO reconciliation is in regards to as at 31 December 2017 to as at 30 June 2018, with production depletions applied to 30 June 2018.
Coal ResouRCes and Coal ReseRves statement ANNUAL REPORT 2018
34
COAL RESERVES FOR YEAR ENDING 31 DECEMBER 2018
Project
Moolarben (OC)
Moolarben (UG)
Yancoal
Ownership
%
85%
85%
Coal Type
Thermal
Thermal
Mount Thorley (OC)
80.0%
Semi/Thermal
Warkworth (OC)
(1) HVO (OC)
(4, 5) Austar (UG)
(4) Ashton (OC)
(4) Ashton (UG)
Yarrabee (OC)
(2) Gloucester (OC)
(3) Middlemount (OC)
84.47% Semi/Thermal
51%
100%
100%
100%
100%
100%
50%
Semi/Thermal
Met
Met/Thermal
Met/Thermal
PCI/Thermal
Met/Thermal
Met/Thermal
(4) Donaldson (UG)
100%
Met/Thermal
Total Coal Reserves (100% Basis) – Rounded
Yancoal Attributable Share
Recoverable Coal Reserve
Marketable Coal Reserve
Proved
Coal Reserves
(Mt)
Probable
Coal Reserves
(Mt)
Total Coal
Reserves
(Mt)
Moisture
Basis
%
Proved
Coal Reserves
(Mt)
Probable
Coal Reserves
(Mt)
Total Coal
Reserves
(Mt)
Ash
%
Competent
Person
2018
199
52
0
180
333
2
0
21
33
0
48
0
868
2017
183
58
6
143
359
2
0
24
37
0
50
0
862
2018
10
13
0
135
463
38
15
11
19
44
37
110
895
2017
13
13
8
191
465
39
15
11
19
44
18
110
946
2018
10%
9%
9%
9%
10%
5%
8%
8.5%
5.5%
8%
10.5%
Coking
9% PCI
8%
2018
209
65
0
315
796
40
15
32
52
44
85
110
1,763
1,240
2018
161
53
0
129
229
2
0
12
26
0
38
0
650
2017
141
58
4
100
247
2
0
13
29
0
38
0
632
2018
8
13
0
97
325
30
7.8
5.7
14
26
27
62
615.5
2017
13
13
5
134
327
30
7.8
5.7
14
26
13
62
651
2018
22%
16%
10-13%
10-13%
10-13%
5.5%
9.5%
9.5%
10%
14%
10%
Coking
11% PCI
17%
2018
169
66
0
226
554
31
7.8
18
40
26
65
62
1,265
891
2018
NC
REH
MH
MH
DS
REH
REH
REH
AL
DL
MB
REH
Note: 2018 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 (as at 31 December 2018) is applied.
Note: Coal Reserves detailed in table are as at 31 December 2018, with the exception of (1) HVO (OC) which is as at 30 June 2018.
(1) Hunter Valley Operations (HVO).
(2) Gloucester comprises the Stratford, Duralie and Grant & Chainey deposits.
(3) 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 10% for Coking & 11% for PCI. Middlemount, which is situated within
ML703379, has been expanded by 472ha after a deal with Anglo American Australia in 2017.
(4) 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.
(5) Coal Reserves have been depleted from the previous reporting period due to ongoing studies and investigations in the stage 3 area during 2018. Austar was subject to prohibition notices issued by the Resource Regulator
that restricted current operations in Bellbird South and investigations by the Resource Regulator are continuing. Ongoing work is being undertaken by Watagan in respect of the very challenging geological and geotechnical
conditions at the Austar mine, including both the Bellbird South and Stage 3 areas that may have a significant adverse impact on future commercial operations. The future prospects of the Austar mine are therefore uncertain,
and will depend upon the work currently being conducted by Watagan and its internal and external advisers. If it is determined that the mine is unable to return to previously forecast levels of production, there may be a need to
proceed to a permanent shutdown. For further details Refer to “ Prospectus for Hong Kong IPO – Part 1 of 5” on 26th October 2018 or “ YAL Full Year Statutory Account and Appendix 4E ” published 25th February 2019.
YANCOAL AUSTRALIA LTDfor year ending 31 december 2018Coal ResouRCes and Coal ReseRves statement (ContInued) 35
COAL RESERVES RECONCILIATION OF 2018 TO 2017 YEAR END REPORTING
Recoverable Coal Reserves (Mt)
Reconciliation period 1 January 2018 to 31 December 2018
Moolarben
OC)
Moolarben
(UG)
Mt Thorley
(OC)
Warkworth
(OC)
(2) HVO
(OC)
Austar
(UG)
Ashton
(OC)
Ashton
(UG)
Yarrabee
(OC)
Gloucester
(OC)
Middlemount
(OC)
Donaldson
(UG)
Monash
(UG)
Project
Production Changes
Production (Since
previous JORC report)
-13.0
-6.1
-14.0
-21.0
-28.0
-0.4
-2.4
-3.5
-0.7
-4.8
N/A
Product Yield
adjustments
Moisture basis modified
Non-Production
Changes
Coal sterilised or
increased recovery
in the mine plan
10.7
0.4
Coal Resource
reclassification
Coal Reserve
reclassification
Mine Plan changes
from Pre-feasibility
studies/Tenement
boundary
Geology model changes
Changes to the Mine
plan/Optimisation
Changed modifying
factors
(1) Change due to
significant figure
rounding
Total
2.4
3.1
9.6
0.2
13.0
0.3
0.3
-0.9
-6.0
-18.4
8.8
17.1
-4.2
-0.5
-0.1
-3.9
25.9
2.4
0.8
-1.8
0
-14
-1.3
-19.0
0
-28
-0.1
-1.0
0
0
0.5
-2
-0.5
-4.0
-0.1
0
-0.8
18.6
0
0.0
0
0
Coal ResouRCes and Coal ReseRves statement ANNUAL REPORT 2018
36
Project
Production Changes
Production (Since
Marketable Coal Reserves (Mt)
Reconciliation period 1 January 2018 to 31 December 2018
Moolarben
(OC)
Moolarben
(UG)
Mt Thorley
(OC)
Warkworth
(OC)
(2) HVO
(OC)
Austar
(UG)
Ashton
(OC)
Ashton
(UG)
Yarrabee
(OC)
Gloucester
(OC)
Middlemount
(OC)
Donaldson
(UG)
Monash
(UG)
previous JORC report)
-11.0
-6.1
-9.0
-14.8
-20.0
-0.4
-1.0
-2.7
-0.5
-3.8
0.0
N/A
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/
Tenement boundary
Geology model changes
Changes to the Mine
plan/Optimisation
Changed modifying
factors
(1) Change due to
significant figure
rounding
Total
1.5
7.4
0.4
2.0
2.6
8.1
5.2
-0.8
15
0.3
0.3
0.1
-5.0
0
-9.0
1.5
6.1
-13.0
6.2
12.0
-6.1
1.1
-7.0
-0.4
0.1
-3.0
18.7
2.0
0.5
-1.4
0
-20.0
-0.2
-1.0
0
0
0.1
-0.8
-0.3
-3.0
0
0.0
1.5
0
14.0
0
0.0
0
0
YANCOAL AUSTRALIA LTDfor year ending 31 december 2018Coal ResouRCes and Coal ReseRves statement (ContInued)
37
Totals (Mt)
Reconciliation period 1 January 2018 to 31 December 2018
Project
Moolarben
(OC)
Moolarben
(UG)
Mt Thorley
(OC)
Warkworth
(OC)
Yancoal Ownership %
85%
85%
Coal Type
Thermal
Thermal
80%
Semi/
84.47%
Semi/
(2) HVO
(OC)
51%
Semi/
Austar
(UG)
100%
Met
Ashton
(OC)
100%
Met/
Ashton
(UG)
100%
Met/
Yarrabee
(OC)
Gloucester
(OC)
Middlemount
(OC)
Donaldson
(UG)
100%
PCI/
100%
Met/
50%
Met/
100%
Met/
Monash
(UG)
100%
Met/
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
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)
-13.0
-6.1
-14.0
-21.0
-28.0
-9.5
-6.1
-9.0
-7.2
-20.0
26
24.5
1.1
1.1
0.0
0.0
2.0
-0.2
0.0
0.0
13.0
-6.0
-14.0
-19.0
-28.0
15.0
-5.0
-9.0
-7.0
-20.0
-0.4
-0.4
-0.6
-0.6
-1.0
-1.0
0.0
0.0
0.0
0.0
0.0
0.0
-2.4
-1.0
0.4
0.1
-2.0
-1.0
-3.5
-2.7
-0.5
-0.3
-4.0
-3.0
-0.7
-0.5
0.7
0.5
0.0
0.0
-4.8
-3.8
21.8
17.8
17.0
14.0
0.0
0.0
0.0
0.0
0.0
0.0
Total Recoverable Coal Reserve Changes (100% Basis)
Yancoal Attributable Share
-44.0
-34.1
Total Marketable Coal Reserve Changes (100% Basis)
Yancoal Attributable Share
0
-17.0
-12.8
Note: +ve = increase in reported Coal Reserves, -ve = decrease in reported Coal Reserves
(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.
(2) HVO reconciliation is in regards to as at 31 December 2017 to as at 30 June 2018, with production depletions applied to 30 June 2018.
(3) Mount Thorley (OC) and Warkworth (OC) production depletion (14Mt & 21Mt) reflects production since the 1st January 2017.
The following table provides details of the Competent Persons for each project.
Initials
COMPETENT PERSON (CP)
TITLE
COMPANY
NC
JB
PE
DS
MB
RD
PH
REH
GJ
AL
KP
DL
SW
MH
Nicholas Craig
Janet Bartolo
Peter Ellis
Doug Sillar
Mark Bryant
Rob Dyson
Paul Harrison
Technical Services Manager – Moolarben OC
Yancoal Australia Ltd
Senior Geologist – Manager Geological Modelling
McElroy Bryan Geological Services Pty
Executive Consultant
Executive Consultant
Principal Mining Consultant
(previously of) RPMGlobal Asia Limited
RPMGlobal Asia Limited
The Minserve Group Pty Ltd
Senior Geologist – General Manager Operations
McElroy Bryan Geological Services Pty
Senior Geologist
McElroy Bryan Geological Services Pty
Raymond Howard
Principal Mining Engineer
Principal Consultant
Yancoal Australia Ltd
JB Mining Services Pty Ltd
Greg Jones
Andrew Lau
Karol Patino
David Lennard
Stuart Whyte
Matthew Hillard
Regional Technical Services Manager – Open Cut
Yancoal Australia Ltd
Operations Eastern Region
Senior Geologist
Consultant Manager
Resource Knowledge Manager
Principal Mining Engineer
McElroy Bryan Geological Services Pty
Xenith Consulting PTY Ltd
Yancoal Australia Ltd
Yancoal Australia Ltd
Coal ResouRCes and Coal ReseRves statement ANNUAL REPORT 2018
38
YANCOAL AUSTRALIA LTD TENEMENTS
PROJECT
TITLE
TENEMENT
TENEMENT
TYPE
PROJECT
TITLE
TENEMENT
TENEMENT
TYPE
HVO
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
MT THORLEY &
WARKWORTH (MTW)
MIDDLEMOUNT
MONASH
YARRABEE
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
GLOUCESTER BASIN
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
ASHTON
ML1412
ML1590
ML1751
ML1752
EL7712
CL219
CCL753
(1) ML1547
ML70379
ML70417
MDL282
EPC1225
EL6123
EL7579
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
MLA552
ML1529
ML1623
ML1533
EL4918
EL5860
ML1696
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
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 Application
Mining Lease
Mining Lease
Mining Lease
Exploration License
Exploration License
Mining Lease
YANCOAL AUSTRALIA LTDfor year ending 31 december 2018Coal ResouRCes and Coal ReseRves statement (ContInued) 39
PROJECT
TITLE
TENEMENT
TENEMENT
TYPE
AUSTAR
MOOLARBEN
DONALDSON
CCL728
CCL752
CML2
ML1388
ML1550
ML1661
ML1666
ML1677
EL6598
ML1605
ML1606
ML1628
ML1691
ML1715
EL6288
EL7073
EL7074
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
MPL0315
Mining Purpose Lease
ML1461
ML1555
ML1618
ML1653
ML1703
ML1756
EL6964
EL5337
EL5497
EL5498
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Exploration License
Exploration License
Exploration License
Exploration License
(1) Partially owned tenements.
Yancoal 2018 Exploration Drilling
Total payments for capitalised exploration and evaluation activities in 2018 was $4 million.
There were no development activities related to mining structures or infrastructure undertake in 2018.
Moolarben
MTW
HVO
Yarrabee
Middlemount
No.of Holes
Total Drilled
(m)
No. of Holes
Total Drilled
(m)
No. of Holes
Total Drilled
(m)
No. of Holes
Total Drilled
(m)
No. of Holes
Total Drilled
(m)
Non-Core Holes
Core Holes
197
40
8,686
2,794
6
14
1,174
5,438
18
7
3,696
1,475
19
107
1,942
19,551
123
8
12,449
1,623
Austar
Ashton
Gloucester
Donaldson
Monash
No. of Holes
Total Drilled
(m)
No. of Holes
Total Drilled
(m)
No. of Holes
Total Drilled
(m)
No. of Holes
Total Drilled
(m)
No. of Holes
Total Drilled
(m)
Non-Core Holes
Core Holes
0
7
0
4,060
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
* Period – 1 Jan to 31 Dec 2018
* Pre-production Drilling is not included
Coal ResouRCes and Coal ReseRves statement ANNUAL REPORT 2018 40
BUSINESS OVERVIEW
Yancoal operates a diversified portfolio of world class assets consisting of
both large-scale open cut and underground mines comprising five coal mine
complexes in Australia.
As a leading low-cost coal producer in the global seaborne market,
Yancoal ’ s coal mining operations produce a mix of premium thermal,
semi-soft coking, and pulverised coal injection (PCI) coals, together with
mid-to-high ash thermal coals.
The Group ’ s financial results are largely dependent on the demand for
thermal and metallurgical coal, which in turn depends on macroeconomic
trends, including regional and global economic activity, and the price and
availability of alternative forms of energy production.
Our customers are located throughout the Asia-Pacific region with Japan,
Singapore, China, South Korea and Taiwan accounting for approximately
81% of our revenue from coal sales in the year ended 31 December 2018.
Thermal coal is primarily used in electricity generation and its ends users
are typically power and utilities companies. Metallurgical coal is primarily
used to produce coke for blast furnace steel production and its end users
are typically steel plants. We also sell coal to customers in the commodities
trading business, who purchase the Group ’ s coal for trading purposes or to
on-sell to their end customers. Commodity traders are similarly exposed to
regional and global demand trends in the coal market.
The Group ’ s export thermal coal is generally priced on either an index
price, an annual fixed price or on a spot price basis. Generally, lower ash
products are priced relative to the GlobalCOAL Newcastle index and higher
ash products are priced relative to the Argus/McCloskey API5 index. Annual
fixed price contracts are mostly priced against the Japanese Power Utility
(JPU) reference price, which is the contract price agreed between major
Australian suppliers and Japanese Power Utilities. The balance of our sales
are priced on a fixed spot price negotiated at the time of settlement that also
reflect the term of the arrangement.
The Group ’ s export metallurgical coal is either priced on a benchmark
or spot price basis. Most term contracts are priced against a benchmark
pricing mechanism which is negotiated on a quarterly basis between major
Australian suppliers and Japanese steel mills. Spot sales are priced relative
to the market at the time and are mostly done on a fixed price basis. The
large majority of the Group ’ s semi-soft coking coal out of Newcastle
and low volatile PCI out of Queensland is priced relative to the quarterly
benchmark.
The Group ’ s coal sales revenue is typically recognised on a Free on Board
(FOB) basis when coal is loaded at the load port in Australia.
The Group ’ s overall average selling price of coal increased by 16% from
A$114 per tonne in 2017 to A$132 per tonne in 2018, mainly as a result
of the increase in global coal market prices during this period, including
low-ash thermal coal prices increasing by approximately US$19 per tonne
and semi-soft metallurgical coal prices increasing by approximately US$15
per tonne. The Group ’ s average selling price of thermal coal increased
from A$102 per tonne to A$123 per tonne, while the average selling price of
metallurgical coal increased from A$165 per tonne to A$182 per tonne.
The Group ’ s overall average cash operating costs excluding government
royalties increased from A$62 per tonne in 2017 to A$63 per tonne in 2018
primarily due to an increase in raw materials and consumables used due to
an increase in diesel costs of 123%, primarily due to increased market prices
for diesel fuel and larger truck fleets at the acquired Coal & Allied Industries
Limited (C&A) mines. The Group ’ s overall cash operating costs including
government royalties increased from A$71 per tonne in 2017 to A$73 per
tonne in 2018 with the increase in royalties driven by higher coal prices.
MANAGEMENT DISCUSSION AND ANALYSISYANCOAL AUSTRALIA LTD 41
The table below sets out the Run of Mine (ROM) and saleable production for each Yancoal owned mine on a 100% basis during the Group ’ s period of
ownership.
Year ended 31 December
ROM production
Moolarben
MTW
HVO
Stratford Duralie
Yarrabee
Middlemount
Watagan
Total – 100% basis
Saleable production
Moolarben
MTW
HVO
Stratford Duralie
Yarrabee
Middlemount
Watagan
Total – 100% basis
Ownership
% (1)
85
82.9
51
100
100
~50
100
85
82.9
51
100
100
~50
100
2018
Mt
18.6
17.6
19.0
0.7
3.4
4.8
2.4
66.5
16.5
12.1
13.3
0.5
2.6
3.8
1.2
50.0
2017
Mt (2)
14.7
5.8
6.2
0.9
3.4
5.3
4.8
41.1
12.4
3.9
4.8
0.7
2.8
3.9
3.0
31.5
Change
%
27%
203%
206%
(22%)
–
(9%)
(50%)
62%
33%
210%
177%
(29%)
(7%)
(3%)
(60%)
59%
(1) Ownership percentage stated as at 31 December 2018
(2) 2017 only includes 4 months of production for the unincorporated MTW and HVO joint ventures from 1 September 2017
ROM coal production was up 62% from 41.1Mt in 2017 to 66.5Mt in 2018. This included an increase in the three tier-one assets of Moolarben, Mount
Thorley Warkworth (MTW) and Hunter Valley Operations (HVO) of 107% from 26.7Mt in 2017 to 55.2Mt in 2018.
Saleable coal production was up 59% from 31.5Mt in 2017 to 50.0Mt in 2018. This included an increase in the three tier-one assets of Moolarben, MTW and
HVO of 99% from 21.1Mt in 2017 to 41.9Mt in 2018.
Moolarben ’ s ROM production increased by 3.9Mt (27%) and its saleable production increased by 4.1Mt (33%) with all the increase in ROM attributable to a
full year ’ s production from the underground mine of 5.6Mt (2017: 1.7Mt). The further increase in saleable production was attributable to an improved yield
due to the underground coal being 100% bypass.
The increases at MTW and HVO were primarily attributable to a full year of production in 2018 compared to only the last four months of 2017.
MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL REPORT 2018 42
The below table sets out the Group ’ s ongoing economic interest in the saleable production for each Yancoal owned mine that contributes to the financial
results of the Group. i.e. excludes Watagan.
Saleable production
Moolarben
MTW
HVO
Stratford Duralie
Yarrabee
Middlemount (equity-accounted)
Total – equity basis
Thermal
Metallurgical
Ownership
% (1)
85
82.9
51
100
100
~50
Year ended 31 December
2018
Mt (3)
13.3
9.7
6.8
0.5
2.6
32.9
1.9
34.8
27.3
7.5
34.8
2017
Mt (2) (3)
10.1
2.5
2.4
0.7
2.8
18.5
1.9
20.4
14.7
5.7
20.4
Change
%
32%
288%
183%
(29%)
(7%)
77%
–
71%
86%
32%
71%
(1) Ownership percentage stated as at 31 December 2018
(2) 2017 only includes 4 months of production for the unincorporated MTW and HVO joint ventures from 1 September 2017
(3) includes saleable production of (i) 81% of the Moolarben unincorporated joint venture up to and including 30 November 2018 and 85% thereafter (ii) 51% of the unincorporated HVO joint venture representing the Group ’ s
ongoing economic interest (iii) 64.1% of the unincorporated MTW joint venture up to and including 28 February 2018 and 82.5% thereafter (iv) 100% of Yarrabee and Stratford Duralie (v) ~50% of Middlemount although equity
accounted.
The Group ’ s saleable coal production, excluding Middlemount, was up 78% from 18.5Mt in 2017 to 32.9Mt in 2018 and including Middlemount was up
71% from 20.4Mt in 2017 to 34.8Mt in 2018. This included an increase in the three tier-one assets of Moolarben, MTW and HVO of 99% from 15.0Mt in
2017 to 29.8Mt in 2018.
The saleable production contribution of the Group ’ s tier-one assets increased from 74% in 2017 to 86% in 2018.
Thermal coal saleable production increased by 86% from 14.7Mt in 2017 to 27.3Mt in 2018 and metallurgical coal saleable production increased by 32%
from 5.7Mt in 2017 to 7.5Mt in 2018. Thermal coal represented 78% of total saleable coal production in 2018 an increase from 72% in 2017.
The key risks affecting the Group ’ s operations and the strategies and measures taken to manage these risks are detailed in the Corporate Governance
Statement of this report.
YANCOAL AUSTRALIA LTDMANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED) 43
FINANCIAL RESULTS REVIEW
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018
For the management discussion and analysis, the Group ’ s operating results for the year ended 31 December 2018 are compared with the operating results
for the year ended 31 December 2017.
All financial numbers included below are stated in Australian dollars (A$ or $) unless otherwise stated.
Year ended 31 December
2018
2017
IFRS Reported
$m
Non-operating
$m
Operating
$m
IFRS Reported
$m
Non-operating
$m
4,850
150
31
(669)
(518)
(537)
(418)
(347)
(332)
(278)
56
1,988
41%
(523)
1,465
30%
(293)
–
1,172
24%
(320)
852
18%
852
–
41
(82)
–
–
–
–
29
–
–
204
–
192
–
192
34%
23(1)
(215)
–
–
–
–
–
4,891
68
31
(669)
(518)
(537)
(389)
(347)
(332)
(74)
56
2,180
45%
(523)
1,657
23%
(270)
(215)
1,172
24%
(320)
852
17%
852
–
2,601
294
115
(290)
7
(349)
(302)
(312)
(274)
(173)
(340)
(330)
32
854
33%
(256)
598
27%
(287)
–
311
12%
(82)
229
9%
229
–
–
–
–
–
33
–
–
276
–
134
–
134
5(1)
(139)
–
–
–
–
–
Operating
$m
2,716
4
7
(349)
(302)
(312)
(241)
(173)
(340)
(54)
32
988
36%
(256)
732
(282)
(139)
311
11%
(82)
229
8%
229
–
Change
%
80%
1600%
343%
92%
72%
72%
61%
101%
(2%)
37%
75%
121%
104%
126%
(4%)
55%
277%
290%
272%
272%
Revenue
Other income
Changes in inventories of finished
goods and work in progress
Raw materials and consumables
Employee benefits
Transportation
Contractual services and plant hire
Government royalties
Coal purchases
Other operating expenses
Share of profit of equity-accounted
investees, net of tax
EBITDA
EBITDA Margin%
Depreciation and amortisation
EBIT
EBIT Margin %
Net finance costs
Non-operating items
Profit before income tax
Profit before income tax %
Income tax expense
Profit after income tax
Profit after income tax %
Attributable to:
– Owners of Yancoal
– Non-controlling interests
(1) Includes the reclassification of interest income of $119 million (2017: $114 million) from Other income to Net finance costs and Bank fees and other charges of $96 million (2017: $109 million) from Other operating expenses to
Net finance costs as these amounts are excluded from Operating EBITDA.
MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL REPORT 2018
44
To supplement the Group ’ s consolidated financial statements, which are presented in accordance with International Financial Reporting Standards (IFRSs)
the Group also uses adjusted Operating EBITDA and Operating EBIT as additional financial measures, as set out in the table above, which are unaudited
and not required by or presented in accordance with, IFRSs. These financial measures are presented because they are used by management to evaluate
the Group ’ s financial performance. These non-IFRSs measures provide additional information to investors and others in understanding and evaluating the
consolidated results of operations in the same manner as they help management compare the financial results across accounting periods with those of our
peer companies, by removing one-off or non-operating items.
As presented by the management, Operating EBITDA represents profit before income tax for the year as adjusted for net finance costs, depreciation and
amortisation and any significant non-operating items, while Operating EBIT represents profit before income tax as adjusted for net finance costs and any
significant non-operating items.
PROFIT ATTRIBUTABLE TO EqUITY HOLDERS OF THE COMPANY
Profit after income tax increased by 272% from $229 million in 2017 to $852 million in 2018 and was fully attributable to the owners of Yancoal with no
non-controlling interests.
Profit attributable to the owners of Yancoal of $852 million was impacted by a number of non-operating items during 2018. These included a gain of
$78 million on the disposal of a 16.6% interest in the HVO joint venture, a $160m fair value loss recycled from the hedge reserve, a $25 million stamp
duty expense, $29 million of transaction costs, a $33m contingent royalty revaluation, a $29 million financial asset revaluation, a $21 million financial
asset impairment and a $4 million royalty revaluation. These are discussed in more detail separately below and have been excluded from the operating
commentary.
OVERVIEW OF OPERATING RESULTS
The below year-on-year comparison of the financial results for the years ended 31 December 2018 and 31 December 2017 is materially impacted by
changes in the Group ’ s portfolio of assets, most significantly:
• The acquisition of C&A from 1 September 2017 (C&A Acquisition);
• The acquisition of a further 28.9% interest in the Warkworth joint venture effective from 1 March 2018; the disposal of a 16.6% interest in the HVO
joint venture from 4 May 2018; the acquisition of a further 4% interest in the Moolarben joint venture from 1 December 2018 (Other Acquisitions and
Disposals); and
• The expansion of the Moolarben mine from 14.7 Mt ROM in 2017 to 18.6 Mt ROM in 2018 (on a 100% basis).
The analysis in this section includes ex-mine sales tonnes and ex-mine revenue comprising (i) 81% of the Moolarben unincorporated joint venture up to and
including 30 November 2018 and 85% thereafter (ii) 67.6% of the unincorporated HVO joint venture up to and including 3 May 2018 and 51% thereafter (iii)
64.1% of the unincorporated MTW joint venture up to and including 28 February 2018 and 82.5% thereafter (iv) 100% of Yarrabee and Stratford Duralie.
The result of HVO includes the 16.6% interest subsequently sold to Glencore Coal Pty Ltd (Glencore) on 4 May 2018 as during the first four months of 2018
the Group included the operating results of the 16.6% in its statement of profit and loss and Balance Sheet. The economic interest of the said 16.6% interest
was effectively transferred to Glencore on 1 September 2017 however this was compensated through an agreed reduced settlement price mechanism.
The results of Middlemount and Watagan are excluded from the line by line commentary below because their results, as incorporated equity-accounted
investments, are included in share of profits of equity-accounted investees, net of tax in the statement of profit and loss and is discussed separately below.
YANCOAL AUSTRALIA LTDMANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED) 45
Change
%
100%
(20%)
(42%)
81%
(12%)
450%
34%
80%
Year ended 31 December
2018
$m
4,416
287
37
4,740
46
66
39
2017
$m
2,204
356
64
2,623
52
12
29
4,891
2,716
REVENUE
Ex-mine coal sales(1)
Sale of purchased coal
Other
Sale of coal
Mining service fees
Sea freight
Other
Revenue
(1) Ex-mine coal sales include only coal that has been produced at one of the Group ’ s mines. They exclude the sale of coal that has been purchased from third parties.
Total revenue increased by 80% from $2,716 million in 2017 to $4,891 million in 2018, primarily due to an 81% increase in coal sales revenue from $2,623
million in 2017 to $4,740 million in 2018. With respect to coal sales revenue, the key factors were:
Year ended 31 December
Thermal coal
Average selling price (A$ per tonne)
Sales volume (Mt)
% of total ex-mine sales volume
Total ex-mine thermal coal revenue (A$ million)
Metallurgical coal
Average selling price (A$ per tonne)
Sales volume (Mt)
% of total ex-mine sales volume
Total ex-mine metallurgical coal revenue (A$ million)
Total coal
Average selling price (A$ per tonne)
Total ex-mine sales volume (Mt)
Total ex-mine coal revenue (A$ million)
2018
123
28.4
85%
3,484
182
5.1
15%
932
132
33.5
4,416
2017
102
15.5
80%
1,585
165
3.8
20%
619
114
19.3
2,204
Change
%
21%
83%
6%
120%
10%
37%
(25%)
51%
16%
74%
100%
An increase in the Group ’ s overall average selling price of coal of 16% from A$114 per tonne in 2017 to A$132 per tonne in 2018, mainly as a result of the
increase in global coal market prices during this period, including low-ash thermal coal prices increasing by approximately US$19 per tonne and semi-soft
metallurgical coal prices increasing by approximately US$15 per tonne. The Group ’ s average selling price of thermal coal increased from A$102 per
tonne to A$123 per tonne, while our average selling price of metallurgical coal increased from A$165 per tonne to A$182 per tonne. Ex-mine thermal sales
represented 85% of total ex-mine sales volume in 2018 an increase from 80% in 2017; and
MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL REPORT 2018 46
An increase in our ex-mine sales volume of coal of 74% from 19.3 Mt in 2017 to 33.5 Mt in 2018, mainly due to (a) the full year effect of the C&A Acquisition
from 1 September 2017; (b) the Other Acquisitions and Disposals completed during 2018 and (c) the expansion of Moolarben from 10.2Mt in 2017 to 13.5Mt
(equity) in 2018.
Japan
Singapore
China
South Korea
Taiwan
Thailand (1)
Australia (1)
Others (2)
Year ended 31 December
2018
Amount
$ ’ m
1,055
861
739
664
518
343
295
265
% of revenue
%
22%
18%
16%
14%
11%
7%
6%
6%
2017
Amount
$ ’ m
489
337
654
415
131
85
237
275
Total revenue from external customers
4,740
100%
2,623
(1) 2017 includes the reclassification of $85 million of revenue on the BLCP contract from Australia to Thailand.
(2) Others includes Malaysia, Germany, Vietnam, India and Switzerland.
% of revenue
%
19%
13%
25%
16%
5%
3%
9%
10%
100%
The Group achieved an increase in revenue from external customers across each of its key geographic markets. In particular, substantial increases in revenue
from 2017 to 2018 from (i) $489 million to $1,055 million in Japan, (ii) $337 million to $861 million in Singapore (iii) $415 million to $664 million in South Korea
and (iv) $131 million to $518 million in Taiwan. The increases in Japan, South Korea and Taiwan was primarily attributable to the C&A Acquisition, with the
quality of coal from the HVO and MTW mines being suitable for these typically higher priced markets.
The increase in the PRC was primarily due to efforts to increase sales of the Group ’ s higher ash products to end users in the PRC.
The increase in Thailand is attributable to the full year effect of a long-term supply contract acquired as part of the C&A Acquisition.
Other income
Net gain on foreign exchange
Sundry income
Other income
Year ended 31 December
2018
$m
61
7
68
2017
$m
–
4
4
Change
%
–
75%
1,600%
Other income increased from $4 million in 2017 to $68 million in 2018, primarily due to a net gain on foreign exchange of $61 million (2017: net loss $8 million
included in Other operating expenses) primarily due to exchange gains recognised on holding US$ cash balances as the Australian dollar weakened during
the year.
Changes in inventories of finished goods and work in progress
Changes in inventories of finished goods and work in progress decreased from $31 million in 2017 to $7 million in 2018.
YANCOAL AUSTRALIA LTDMANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED) 47
PRODUCTION COSTS
All-in total production costs, which include cash and non-cash operating costs, represent costs directly attributable to the production, transportation and
selling of coal as well as indirect corporate costs, in particular, corporate employee costs, but excluding transaction costs. Cash operating costs comprise
the cost of raw materials and consumables used, employee benefits, transportation, contractual services and plant hire. Non-cash operating costs include
depreciation and amortisation.
Per ex-mine sales tonne (1)
Year ended 31 December
Cash operating costs
Raw materials and consumables used
Employee benefits
Transportation
Contractual services and plant hire
Cash operating costs (excluding royalties)
Royalties
Cash operating costs
Non-cash operating costs
Depreciation and amortisation
Total production costs
Total production costs (excluding royalties)
2018
$/t
20
16
16
11
63
10
73
16
89
79
2017
$/t
18
16
16
12
62
9
71
14
85
76
(1) Ex-mine sales tonnes includes (i) 81% of the Moolarben unincorporated joint venture up to and including 30 November 2018 and 85% thereafter (ii) 67.6% of the unincorporated HVO joint venture up to and including 3 May
2018 and 51% thereafter (iii) 64.1% of the unincorporated MTW joint venture up to and including 28 February 2018 and 82.5% thereafter (iv) 100% of Yarrabee and Stratford Duralie.
Raw materials and consumables used
Raw materials and consumables used increased by 92% from $349 million in 2017 to $669 million in 2018, primarily due to the impact of the C&A Acquisition
and the Moolarben expansion that contributed to an 78%% increase in saleable production. In addition, diesel costs increased by 123%, primarily due to
increased market prices for diesel fuel and larger truck fleets at the acquired C&A mines. This contributed to an increase in per ex-mine sales tonne raw
materials and consumables used from $18 to $20 over the same period.
Employee benefits
Employee benefits expenses increased by 72% from $302 million in 2017 to $518 million in 2018, primarily due to the increase in overall headcount as a
result of the C&A Acquisition and the Moolarben expansion. Per ex-mine sales tonne employee benefits expenses remained flat at $16 over the same period.
Transportation
Transportation costs increased by 72% from $312 million in 2017 to $537 million in 2018, primarily due to increased sales volume of coal requiring additional
payments for rail and freight services. Per ex-mine sales tonne transportation costs remained flat at $16 over the same period.
MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL REPORT 2018 48
Contractual services and plant hire
Depreciation and amortisation
Contractual services and plant hire expenses increased by 61% from $241
million in 2017 to $389 million in 2018, primarily due to the C&A Acquisition,
although the level of contractors has been reduced during the year at these
sites. This contributed to a decrease in per ex-mine sales tonne contractual
services and plant hire from $12 to $11 over the same period.
Depreciation and amortisation expenses increased by 104% from $256
million in 2017 to $523 million in 2018, primarily due to an increase in
mining tenements and plant and equipment of $2,456 million and $1,326
million, respectively, from the C&A Acquisition, together with expansionary
capital incurred at Moolarben. Per ex-mine sales tonne depreciation and
amortisation costs increased from $14 to $16 over the same period.
Government royalties
Government royalties expenses increased by 101% from $173 million in
2017 to $347 million in 2018, primarily due to increased royalties levied
on our increased sales revenue, which were driven by both higher prices
and sales volumes. Royalties are determined on an ad valorem basis by
reference to the value of coal sold, the type of mine and the State the mine
is located in and are payable to the appropriate State government. This
contributed to an increase in per ex-mine sales tonne government royalties
from $9 to $10 over the same period.
Operating EBIT and operating EBIT margin
Operating EBIT increased by 126% from $732 million in 2017 to $1,657
million in 2018 primarily due to an 80% increase in operating revenue
partially offset by an increase in cash operating costs (including royalties)
from $71 to $73 per tonne and an increase in depreciation and amortisation
from $14 to $16 per tonne over the same period. Operating EBIT margin as
a percentage of operating revenue increased from 27% in 2017 to 34% in
2018.
Coal purchases
Net finance costs
Coal purchases decreased by 2% from $340 million in 2017 to $332 million
in 2018. Coal purchases as a percentage of operating revenue decreased
from 13% to 7% over the same period, primarily due to a relatively lower
amount of coal blending being undertaken on the C&A sales while we
continue to evaluate and adjust to C&A ’ s customer relationships and their
coal quality needs.
Other operating expenses
Other operating expenses increased by 37% from $54 million in 2017 to $74
million in 2018, primarily as a result of the C&A Acquisition and Moolarben
expansion.
Share of profit of equity-accounted investees, net of tax
Share of profit of equity-accounted investees, net of tax increased by 75%
from $32 million in 2017 to $56 million in 2018 primarily due to the improved
profit after tax performance of the incorporated Middlemount joint venture.
The Group ’ s equity-accounted investment in Watagan is held on the
balance sheet at nil value such that the loss after tax of the Watagan group
of $217 million for the year ended 31 December 2018 is not reflected in the
Group ’ s statement of profit and loss for the same period.
Operating EBITDA and operating EBITDA margin
Operating EBITDA increased by 121% from $988 million in 2017 to $2,180
million in 2018 primarily due to an 80% increase in operating revenue
partially offset by an increase in cash operating costs (including royalties)
from $71 to $73 per tonne over the same period. Operating EBITDA margin
as a percentage of operating revenue increased from 36% in 2017 to 45%
in 2018.
Net finance costs decreased by 4% from $282 million in 2017 to $270
million in 2018, primarily due to (i) an overall reduction in interest-bearing
liabilities during 2018 compared to 2017 following several voluntary loan
repayments and (ii) a reduction in the Yanzhou guarantee fee provided on
the Group ’ s syndicated facility being partially offset by (i) an increase in
LIBOR during the year from an average of 1.17% in 2017 to an average of
2.43% in 2018 and (ii) a decrease in the A$:US$ exchange rate resulting in
an increase in the Australian dollar finance charge. Net finance costs as a
percentage of operating revenue decreased from 9% to 6% over the same
period, primarily due to the C&A Acquisition being equity-funded, which
reduced the Group ’ s overall gearing levels.
Profit before income tax and profit before income tax margin
As a result of the aforementioned reasons, profit before income tax
increased by 277% from $311 million in 2017 to $1,172 million in 2018.
Profit before income tax margin as a percentage of operating revenue
increased from 11% to 24% over the same period.
Income tax expense
Income tax expense increased by 290% from $82 million in 2017 to $320
million in 2018. The effective tax rate was 26.4% and 27.3% in the same
years, respectively, which is lower than the Australian corporate income
tax rate of 30%. In 2018 the lower effective tax rate primarily resulted
from certain non-assessable income items including the Group ’ s share of
equity-accounted profits and part of the gain on the partial disposal of HVO
and an over provision in the prior year. In 2017 the lower effective tax rate
also primarily resulted from certain non-assessable income items including
the Group ’ s share of equity-accounted profits and the gain on the C&A
Acquisition partially offset by non-deductible stamp duty incurred on the
C&A Acquisition.
Profit after income tax and profit after income tax margin
As a result of the aforementioned reasons, profit after income tax increased
by 272% from $229 million in 2017 to $852 million in 2018. Profit after
income tax margin as a percentage of operating revenue increased from 8%
to 17% over the same period.
YANCOAL AUSTRALIA LTDMANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED) OVERVIEW OF NON-OPERATING ITEMS
Non-operating items in the year ended 31 December 2018 and 2017 included the following:
Year ended 31 December
Gain on disposal of interest in joint venture
Fair value losses recycled from hedge reserve
Stamp duty expensed
Transaction costs
Re-measurement of contingent royalty
Re-measurement of financial assets
Impairment of financial assets
Re-measurement of royalty receivable
Gain on acquisition of subsidiaries
Impairment reversal on mining tenements
Receipts from joint venture participant
Non-operating items
2018
$m
78
(160)
(25)
(29)
(33)
(29)
(21)
4
–
–
–
(215)
49
2017
$m
–
(229)
(167)
(33)
–
–
–
8
177
100
5
(139)
Gain on disposal of interest in joint venture of $78 million is a one-off gain recognised on the disposal of a 16.6% interest in the HVO joint venture to Glencore
whereby it was determined that the fair value of the consideration received and receivable exceeded the book value of the assets and liabilities being
de-recognised.
Fair value losses recycled from the hedge reserve of $160 million (2017: $229 million) represent retranslation losses on the Group ’ s US dollar-denominated
loans which are attributable to changes in US$:A$ foreign exchange rates. Under the Group ’ s natural hedge policy, such losses are recycled to the
Statement of profit and loss based on the scheduled loan maturity dates. The amount of any fair value loss or gain recycled from the hedge reserve in a
period is a function of the amount of the hedged US dollar loan scheduled to mature in that period and the respective US$:A$ exchange rates at the time the
hedge was put in place and at the time the loan matured.
Stamp duty of $25 million was recognised on the acquisitions of the further 28.9% interest in the Warkworth joint venture, the further 4% interest in the
Moolarben joint venture together with the final true up on the C&A Acquisition. In 2017 stamp duty of $167 million was recognised on the C&A Acquisition.
Transaction costs of $29 million was recognised on the Hong Kong Initial Public Offering (IPO) (excluding capitalised equity raise costs). In 2017 transaction
costs of $33 million was recognised on the C&A Acquisition and associated equity raise (excluding capitalised equity raise costs).
Re-measurement of contingent royalty of $33 million (2017: nil) represents an increase in the provision recognised on the C&A Acquisition with respect to the
contingent coal price-linked royalty potentially payable to Rio Tinto from 1 September 2020.
Re-measurement of financial assets of $29 million (2017: nil) and impairment of financial assets of $21 million (2017: nil) both related to the decrease in
the carrying value of the Group ’ s investments in the WICET issued E Class Wiggins Island Preference Securities and WICET issued Gladstone Long Term
Securities from $64 million to $14 million recognised during the year as a result of the lead bank syndicate ’ s loan restructure negatively impacting their
assessed fair value/recoverable amount.
Re-measurement of the royalty receivable of $4 million (2017: $8 million) relates to the change in the estimated fair value of the Group ’ s Middlemount royalty
receivable recognised on its right to receive a royalty of 4% of Free on Board Trimmed Sales on 100% of the Middlemount mine coal sales.
In 2017 non-operating items also included a $177m gain on acquisition on the C&A Acquisition, a $100m impairment reversal on the mining tenements at
Moolarben and a $5m one-off joint venture participant receipt.
CASH FLOW ANALYSIS
Net operating cash flows
Net investing cash flows
Net financing cash flows
Net increase in cash
Year ended 31 December
2018
$m
1,747
(55)
(904)
788
2017
$m
408
(3,386)
2,999
21
Change
$m
1,339
3,331
(3,903)
767
MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL REPORT 2018 50
Net operating cash flows
Net operating cash inflows increased by $1,339 million (328%) to $1,747 million mainly reflecting the higher operating EBITDA, positively impacted by the
increase in coal prices and the full year effect of the C&A Acquisition and the Moolarben expansion.
Net investing cash flows
Net investing cash outflows decreased by $3,331 million (98%) to $55 million mainly reflecting the acquisitions and disposals undertaken by the Group. In
2018 investing cash outflows included (i) $353 million paid for a further 28.9% interest in the Warkworth joint venture and a further 4% in the Moolarben joint
venture net of cash acquired (ii) $194 million of capital expenditure and (iii) $123 million provided to Watagan under the Watagan loan facility. These outflows
were partially offset by inflows including (i) $524 million received on the disposal of a 16.6% interest in the HVO joint venture net of cash disposed and (ii)
$117 million received as a loan repayment from the Middlemount joint venture. In 2017 investing cash outflows included (i) $3,247 million paid on the C&A
Acquisition net of cash acquired and (ii) $299 million of capital expenditure.
Net financing cash flows
Net financing cash outflows increased by $3,903 million (130%) to an outflow of $904 million. In 2018 the net financing cash outflow included (i) $1,014
million of voluntary net debt repayments (ii) $130 million interim dividend and (iii) $268 million of gross proceeds received from the Hong Kong IPO. In 2017
the net cash inflow included $3,125 million received on the equity raise undertaken to support the C&A Acquisition.
FINANCIAL RESOURCES AND LIqUIDITY
Current assets
Current liabilities
Net current assets
Total assets
Total liabilities
Total equity
Year ended 31 December
2018
$m
1,922
(913)
1,009
12,408
(6,570)
5,838
2017
$m
1,689
(1,013)
676
12,313
(7,287)
5,026
Change
$m
233
100
333
95
717
812
Net current assets increased by $333 million to $1,009 million at 1 December 2018 reflecting the strong operating cash flows generated during the year.
Total equity increased by $812 million to $5,838 million at 31 December 2018 mainly reflecting the $852 million profit after income tax for the year.
The Group ’ s primary source of liquidity was operating cash flows that contributed $1,747 million during the year ended 31 December 2018. This enabled the
declaration of dividends for the year ended 31 December 2018 of $507 million and the net repayments of interest-bearing liabilities of $1,014 million.
For the year ended 31 December 2019 the primary source of liquidity is expected to continue to be operating cash flows. Historically, the Group ’ s primary
sources of liquidity have consisted of operating cash flows, interest-bearing liabilities, including shareholder loans, and new equity.
The Group ’ s capital structure and gearing ratio is set out in the table below.
Interest-bearing liabilities
Less: cash and cash equivalents
Net debt
Total equity
Net debt + total equity
Gearing ratio (1)
(1) The Group ’ s gearing ratio is defined as net debt (being interest-bearing liabilities less cash and cash equivalents) divided by net debt + total equity.
Year ended 31 December
2018
$m
4,124
(1,031)
3,093
5,838
8,931
0.35
2017
$m
4,723
(207)
4,516
5,026
9,542
0.47
Change
$m
(599)
(824)
(1,423)
812
(611)
YANCOAL AUSTRALIA LTDMANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED) 51
The Group ’ s objective when managing its capital structure is to provide
sustainable dividends to equity holders, pay down interest-bearing liabilities
to a supportable level whilst providing capital towards sustaining capital
expenditure and organic and inorganic expansion opportunities.
CAPITAL ExPENDITURE AND COMMITMENTS
During the year ended 31 December 2018 capital expenditure of the
Group amounted to $212 million comprising $210m of property, plant and
equipment and $2 million of exploration.
The gearing ratio has improved significantly during the year decreasing from
0.47 as at 31 December 2017 to 0.35 as at 31 December 2018.
The Group ’ s Interest-bearing liabilities include secured bank loans of
A$2,572 million (2017: A$3,141 million) and unsecured loans from related
parties of A$1,510 million (2017: A$1,527 million) both denominated in
US dollars and secured lease liabilities of A$42 million (2017: A$55 million)
denominated in Australian dollars.
Secured bank loans carry a floating interest rate calculated with reference
to the three month LIBOR rate for which the average all-in rate for the year
ended 31 December 2018 was 7.10% (2017: 7.93%). Unsecured loans
from related parties carry a fixed interest rate for which the rate for the year
ended 31 December 2018 was 7.00% (2017: 7.00%).
The Group ’ s cash and cash equivalents includes A$282 million (2017: A$68
million), US$395 million (2017: US$108 million) and HK$1,046 million (2017:
HK$ nil).
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 diesel and imported plant and
equipment, which can be priced in US$ or other foreign currencies, and
debt denominated in US$.
The impact of exchange rate movements will vary depending on factors
such as the nature, magnitude and duration of the movements, the extent
to which currency risk is hedged under forward exchange contracts or other
hedging instruments and the terms of these contracts.
The hedging policy of the Company aims to protect against the volatility of
cash expenditures or reduced collection in the abovementioned transactions
as well as to reduce the volatility of profit or loss for retranslation of US dollar
denominated loans at each period end.
Operating foreign exchange risk that arises from firm commitments or highly
probable transactions is managed through the use of bank issued forward
foreign currency contracts and collar option contracts. The Company
hedges a portion of contracted US$ 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 the A$ against the relevant currencies.
More details on interest-bearing liabilities, cash and cash equivalents and
equity including types of instrument used, security provided, maturity
profile of interest-bearing liabilities, interest rates and hedging strategies are
included in notes D2, D4 and D9 to the financial statements in this report.
Available debt facilities
As at 31 December 2018 the Group has no available undrawn debt facilities.
As at 31 December 2018 the Group has $196 million of undrawn bank
guarantee facilities that are provided for operational purposes in favour of
port, rail, government departments and other operational functions in the
normal course of business.
As at 31 December 2018 commitments of the Group comprised capital
commitments of $49 million, non-cancellable operating leases of $88 million
and finance leases of $42 million.
More detail on commitments is included in note F1 to the financial
statements in this report.
SIGNIFICANT INVESTMENTS
No significant inorganic investments are currently planned in the near future
as the Group focuses on organic growth opportunities and business as
usual expenditure.
The Group continues to pursue its long-term strategy for organic growth,
with a commitment to progressing its brownfield expansion and extension
projects.
In the year ahead, the Group will continue to focus on exploration and
expansion works across the tier-one assets of MTW and Moolarben
respectively funded from operating cash flows.
Key projects include the conceptual underground mine at MTW with an
estimated 6 million ROM tonnes per annum, which completed exploration
drilling for the prefeasibility on the target seams at the end of 2018.
The Group received approvals to commence mining activities associated
with the Lot 1 and Lot 2 areas of MTW during the reporting period, enabling
commencement of the extension of the existing West pit on the Warkworth
side in 2019.
Proposed modifications for the Moolarben open cut pits are awaiting
approval, as the Group continues to maximise improved extraction rates in
both the open cut and underground mines.
The above projects are expected to be funded from operating cash flows.
MATERIAL ACqUISITIONS AND DISPOSALS
During the year, the Group made the following material acquisitions and
disposals.
Warkworth acquisition
On 7 March 2018, the Group completed the acquisition of a further 28.9%
interest in the Warkworth unincorporated joint venture (Warkworth) from
Mitsubishi Development Pty Ltd (MDP) for a net cash consideration of $334
million (Warkworth Acquisition). This increased the Group ’ s ownership
of Warkworth from 55.6% to 84.5%. The Warkworth Acquisition was
executed pursuant to a call option that was held in connection with the
C&A Acquisition. As MTW is an integrated operation consisting of the
Mount Thorley mine (owned by the unincorporated Mount Thorley joint
venture, of which the Group own 80.0%) and the Warkworth mine (owned
by the unincorporated Warkworth joint venture), following the Warkworth
Acquisition, the Group ’ s share of coal production from the MTW mining
operations has increased from 64.1% to 82.9%. The Group will continue
to account for the financial results of the MTW mine under the proportional
consolidation method of accounting.
MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL REPORT 2018 52
HVO disposal
On 4 May 2018, the Group completed the disposal of a 16.6% interest in the
unincorporated HVO joint venture to Glencore, reducing the Group ’ s interest
in HVO from 67.6% to 51% and resulting in a 51%:49% unincorporated joint
venture between Yancoal and Glencore. Net cash consideration received
during the year was $524 million with future payments receivable regarding
28% of future non-contingent royalty payments and 49% of any contingent
coal price-linked royalty payments associated with HVO, which are payable
by the Group to Rio Tinto pursuant to the terms of the C&A Acquisition
agreements.
The Group classified the 16.6% interest in HVO to be sold to Glencore as
assets held for sale as at 31 December 2017, based on the determination
that the disposal was likely to be completed. Following completion, the
Group has continued to account for the financial results of the HVO mine
under the proportional consolidation method of accounting.
Moolarben acquisition
On 30 November 2018, the Group completed the acquisition of a further
4% interest in the Moolarben unincorporated joint venture from Kores
Australia Moolarben Coal Pty Limited (Moolarben Acquisition). During the
year net cash of $19 million was paid with a further $42 million payable in
two installments in 2019. The Moolarben Acquisition increased the Group ’ s
interest in the unincorporated Moolarben joint venture to 85%. The Group
will continue to account for the financial results of the Moolarben mine under
the proportional consolidation method of accounting.
INITIAL PUBLIC OFFER
The shares of the Company (New Shares) became listed on the Main Board
of The Stock Exchange of Hong Kong Limited (HKEx) on 6 December 2018
representing a key milestone in the development of the Group. In connection
with the Company ’ s initial public offering (the Global Offering) 59,441,900
New Shares were issued. On 28 December 2018, a further 563,881 New
Shares were issued under the Retail Tranche of the Australian Entitlement
offer and on 3 January 2019 a further 4,361,900 New Shares were issued
under the partial exercise of the Overallotment Option, all in connection with
the Global Offering for HK$23.48 per New Share (approximately A$4.09).
The total amount raised was A$268 million and A$37 million of issue costs
were incurred of which A$8 million was capitalised.
EMPLOYEES
As at 31 December 2018, the Group had 3,060 employees (including casual
labour who are full time equivalents), all located in Australia, in addition
to other contractors and service providers who support the Group ’ s
operations. For the year ended 31 December 2018, the total employee
costs (including the director ’ s emoluments) amounted to $518 million (2017:
$302 million).
Remuneration packages and benefits are determined in accordance with
market terms, industry practice as well as the nature of duties, performance,
qualifications and experience of employees and are reviewed an on annual
basis. Remuneration packages include base wages or salaries, short-term
site production bonuses, short and long-term incentives, non-monetary
benefits, superannuation and long service leave contributions and insurance.
The Group ’ s remuneration policies ensure remuneration is equitable, aligns
with the long-term interests of the Group and Shareholders, comply with
the diversity policy, provide market competitive remuneration to attract
and retain skilled and motivated employees and structure incentives to link
rewards with performance.
Details of the Group ’ s executive short and long-term incentive plans are
included in the Remuneration Report in this report.
The Company believes that capable and competent employees contribute to
the success of the Group. The Group invests in competence development
and assurance programs to ensure statutory compliance and zero harm
to its employees. The Group also contributes to the ongoing professional
development of its employees. This investment contributes to a pipeline of
employees who are ready to transition into new roles as well as creating a
value proposition for new employees looking to join the Group.
EVENTS OCCURRING AFTER THE REPORTING DATE
On 4 January 2019 BOCI Financial Products Limited notified Watagan and
Yankuang Group Co., Ltd (Yankuang) that it was exercising its put option
over US$200 million of bonds. As a consequence, Yankuang will become
the bondholder of the put bonds following completion of the purchase of
those bonds by Yankuang expected to occur on or around 1 April 2019.
No security will be given by Watagan in favour of Yankuang. As the put
bonds represent less than 50.1% of the face value of the bonds, and the
put option was not exercised by the instructing bondholder, the put option
is not deemed to have been exercised as to all the bonds nor has control of
Watagan been regained by the Group such that Watagan continues to be
deconsolidated.
On 25 February 2019, Yancoal announced a final dividend for the financial
year ended 31 December 2018 of A$377 million (A$0.2855 per share to
be comprised of an ordinary dividend of A$0.1596 and a special dividend
of $0.1259), with a record date of 11 March 2019. The final dividend is
expected to be distributed on 30 April 2019.
As announced 25 February 2019, Yancoal will pre-pay a further US$500
million in loans, reducing its total debt liabilities by US$1.4 billion since
September 2017. The pre-payment consists of US$250 million in pre-paid
loans from Bank of China and China Construction Bank, and US$250 million
in pre-paid Yanzhou-related loans.
For a full description of the matters and circumstances that have occurred
subsequent to the end of the financial period please see page 60 in the
Directors Report.
FINANCIAL AND OTHER RISK MANAGEMENT
The Group is exposed to financial risks arising from its operations and the
use of financial instruments. The key financial risks include currency risk,
price risk, interest rate risk, credit risk and liquidity risk. The Board reviews
and agrees policies and procedures for management of these risks.
Currency 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.
See note D9(a)(i) to the financial statements in this report for further details
on foreign currency exposure and a sensitivity analysis of the impact of
hypothetical increases and decreases in the Australian dollar against relevant
foreign currencies.
YANCOAL AUSTRALIA LTDMANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED) 53
Price risk
Liquidity risk
The price risk of the Group includes 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 receivable from Middlemount 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.
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
See note D9(d)(iii) to the financial statements in this report for the royalty
receivable coal price sensitivity analysis.
(iii) may be unable to settle or recover a financial asset at all.
Coal sales are predominately provisionally priced initially. Provisionally
priced sales are those for which price finalisation, referenced to the relevant
index, is outstanding at the reporting date. Provisional pricing mechanisms
embedded within these sales arrangements have the character of a
commodity derivative and are carried at fair value through profit and loss
as part of trade receivables. The final sales price is determined normally 7
to 90 days after delivery to the customer. At 31 December 2018, there are
$234 million of provisionally priced sales. If prices were to increase by 10%
provisionally priced sales would increase by $23 million.
Interest rate risk
The Group is subject to interest rate risk that arises from borrowings and
cash and cash equivalents. 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.
See note D9(a)(iii) to the financial statements in this report for a sensitivity
analysis of the impact of hypothetical increases and decreases in interest
rates.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual
obligations resulting in financial loss to the Group. As at 31 December
2018 the Group ’ s maximum exposure to credit risk which will cause a
financial loss to the Group due to failure to discharge an obligation by the
counterparties and financial guarantees provided by the Group arises from
the carrying amount of the respective recognised financial assets as stated
in the Consolidated Balance Sheet and the amount of contingent liabilities in
relation to financial guarantees issued by the Group.
In order to minimise credit risk, management has delegated a team
responsible for determination of credit limits, credit approvals and other
monitoring procedures to ensure that follow-up action is taken to recover
overdue debts. In addition, the Group reviews the recoverable amount of
each individual trade debt at the end of the reporting period to ensure that
adequate impairment losses are made for irrecoverable amounts. In this
regard, the Directors consider that the Group ’ s credit risk is significantly
reduced. The Group maintains its cash and cash equivalents with reputable
banks. Therefore, the Directors consider that the credit risk for such
amounts are minimal.
See note D9(b) to the financial statements in this report for further details on
the Group ’ s credit risk exposure.
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.
See note D9(c) to the financial statements in this report for further details on
the remaining contractual maturity for the Group ’ s financial liabilities.
CONTINGENT LIABILITIES
The contingent liabilities of the Group as at 31 December 2018 comprise
(i) $875 million of bank guarantees comprising $471 million of performance
guarantees provided to third parties and $404 million of guarantees
provided in respect of the cost of restoration of certain mining leases given
to government departments as required by statute with respect to the
Group ’ s owned and managed mines (ii) a letter of support provided to the
Middlemount Coal Pty Limited joint venture and (iii) a number of claims that
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.
See note D8 to the financial statements in this report for further details on
the Group ’ s contingent liabilities.
CHARGES ON ASSETS
The Group has a Syndicated Bank Guarantee Facility provided by a
syndicate of seven Australian and International banks totaling A$1 billion. As
at 31 December 2018 the facility was drawn to A$808 million.
During 2018 five of the seven banks also provided a Syndicated Term Loan
facility of US$300 million which was fully drawn during the year.
The Syndicated Bank Guarantee and Term Loan facilities are both secured
by the assets of the consolidated group of Yancoal Resources Ltd and Coal
& Allied Industries Ltd (both wholly owned subsidiaries of Yancoal Australia)
with a carrying value of $9,486 million as at 31 December 2018.
FUTURE PROSPECTS
Yancoal will maintain strong cost discipline, with 2019 cash costs (excluding
government royalties) expected to remain flat at around A$62.5/t (2018:
A$63/t).
For 2019 Yancoal is targeting a dividend payout of 50% of net profit after
income tax (adjusted for the impact of foreign exchange hedge reserve
movements and any other non-operating items).
2019 guidance for saleable coal production is approximately 35 million
tonnes (attributable). Expected 2019 capital expenditure is around A$285
million (attributable).
MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL REPORT 2018 54
1. RESULTS FOR ANNOUNCEMENT TO THE MARKET
Revenue from ordinary activities
Profit before income tax (before non-recurring items)
Profit before income tax (after non-recurring items)
Net profit after income tax attributable to members (before non-recurring items)
Net profit after income tax attributable to members (after non-recurring items)
2. EARNINGS PER SHARE(1)
Profit per share (before non-recurring items)
– Basic
– Diluted
Profit per share (after non-recurring items)
– Basic
– Diluted
3. NET TANGIBLE ASSETS PER SECURITY(1)
Net tangible assets per share
4. DISTRIBUTIONS
Ordinary share distributions
31 December
2018
$M
31 December
2017
$M
4,850
1,198
1,172
868
852
2,601
229
311
211
229
% Change
86
423
277
311
272
31 December
2018
cents
31 December
2017
cents
% Change
68.9
68.8
67.6
67.6
47.9
25.8
52.0
28.0
44
167
30
141
31 December
2018
$
31 December
2017
$
4.35
3.92
% Change
11
On 21 September 2018 the Company paid an interim unfranked dividend of $130 million (10.3 cents per share, adjusted for share consolidation on 28
September 2018) for the six months ended 30 June 2018 (2017: nil).
On 25 February 2019, the Directors recommended a final unfranked dividend totaling AU$377 million (28.6 cents per share), with a record date of 11 March
2019 (2017: nil). The final dividend will be paid on 30 April 2019.
Subordinated Capital Note ( “ SCN ” ) distributions
Final distribution paid on 31 January 2018 (31 December 2016 accrual paid on 31 January 2017)
Distribution paid on 31 July 2017
31 December
2018
US$ per SCN
31 December
2017
US$ per SCN
3.50
–
3.50
3.50
3.50
7.00
On 31 January 2018 1,606 SCN ’ s were converted into new ordinary shares and 3,294 SCN ’ s were redeemed for cash. After 31 January 2018 there were
no SCN ’ s on issue.
(1) 2017 figures have been adjusted for the 35 to 1 ordinary share consolidation that occurred on 28 September 2018.
Appendix 4EYANCOAL AUSTRALIA LTD 55
5. ENTITIES OVER WHICH CONTROL HAS BEEN GAINED OR LOST DURING THE PERIOD
a. Acquisitions
No entities were incorporated or acquired during the year.
b. Loss of control
During the period loss of control occurred with the following entities:
HV Operations Pty Ltd
HVO Coal Sales Pty Ltd
HVO Services Pty Ltd
c. 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 Joint Venture
Warkworth Joint Venture (unincorporated)
Mount Thorley Joint Venture (unincorporated)
Hunter Valley Operations Joint Venture (unincorporated)
HVO Entities(a)
Associate entities
Newcastle Coal Infrastructure Group Pty Ltd
Watagan Coal Mining Company Pty Ltd
Port Waratah Coal Services Pty Ltd
(a) HVO Entities consists of the following entities:
HV Operations Pty Ltd
HVO Coal Sales Pty Ltd
HVO Services Pty Ltd
31 December 2018
31 December 2017
Profit
after income
tax contribution
$M
511
Immaterial
46
369
105
337
1
Nil
Nil
9
Holdings
%
85
50
49.9997
84.472
80
51
51
27
100
30
Holdings
%
Profit after income
tax contribution
$M
81
50
49.9997
55.574
80
67.6
N/A
27
100
36.53
290
Immaterial
32
71
47
116
N/A
Nil
Nil
Immaterial
All other information can be obtained from the attached financial statements, accompanying notes and Directors ’ report.
APPENDIX 4E ANNUAL REPORT 2018 56
The Directors present their report on the consolidated entity ( “ Yancoal ” or
“ the Group ” ) consisting of Yancoal Australia Ltd ( “ the Company ” ) and the
entities it controlled at the end of, or during, the year ended 31 December
2018.
Yancoal ’ s improved financial performance continued to be driven by
sustained high production rates at its low-cost tier-one assets, maximising
sales opportunities to meet increasing global demand as metallurgical coal
and thermal coal prices continued to strengthen.
All financial numbers included below are stated in Australia Dollars (AUD or
A$) unless otherwise stated.
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.
Cunliang Lai
Baocai Zhang
Fucun Wang (appointed 8 June 2018)
Fuqi Wang
Gregory James Fletcher
Geoffrey William Raby
Qingchun Zhao
Xiangqian Wu
Xing Feng
Xiyong Li (resigned 8 June 2018)
Vincent O ’ Rourke (resigned 30 January 2018)
Huaqiao Zhang (resigned 30 January 2018)
David James Moult (appointed 30 January 2018)
Helen Jane Gillies (appointed 30 January 2018)
COMPANY SECRETARY
The name of the Company 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
Yancoal employs approximately 4,000 people in addition to the contractors
and service providers who support the Group ’ s operations.
Yancoal Total Recordable Injury Frequency Rate ( “ TRIFR ” ) for the reporting
period was 7.74, an improvement on 10.43 in the previous year.
No significant events were recorded at Yancoal ’ s mine sites for the period,
with sites continuing to operate to legislative and safety standards.
Under the direction of the Health, Safety and Environment Committee,
Yancoal remains committed to operating safely and transparently to achieve
its objective of zero harm.
Yancoal continues to implement its Critical Controls safety training initiative
across all operations, identifying key hazards within the workplace and
instituting effective management and response practices for all people on
site to follow.
Financial performance
Yancoal achieved a total operating earnings before interest and tax ( “ EBIT ” )
of $1,657 million before tax, up $925 million on the year prior.
Yancoal ’ s profit after income tax was $852 million (2017: $229 million) from
revenue of $4,850 million (2017: $2,601 million) for the full year ended 31
December 2018.
1 Syndicate of five domestic and international banks.
Yancoal operations continued to implement cost reduction and efficiency
initiatives throughout 2018, maximising blended products across the New
South Wales operations (both managed and operated) to meet increasing
global market opportunities.
Cash flow
The full year ’ s net operating cash inflow of AU$1,747 million was up
AU$1,339 million on the year prior, the growth directly attributable to the
addition of a full year ’ s production at Mount Thorley Warkworth, Hunter
Valley Operations and the Moolarben underground at a time of sustained
high market prices for thermal and metallurgical coals.
Cash outflows from investing activities was AU$55 million, with the receipt of
AU$524 million for the sell-down of 16.6% in the Hunter Valley Operations
joint venture to Glencore Coal, largely offsetting Yancoal ’ s AU$353 million
purchase of Mitsubishi Development Pty Ltd ’ s ( “ MDP ” ) 28.898% interest
in the Warkworth joint venture and 2018 operating capital expenditure of
AU$194 million.
Cash outflows from financing activities included the net repayment of
AU$1,014 million in interest-bearing liabilities, up from AU$196 million in
2017, using improved cash from operations plus some funds from the
AU$268 million raised as part of the Global Offering associated with its listing
on the HKEx.
Corporate activities
As announced, on 29 November 2018 the Company launched a Global
Offering in connection with its listing on the Main Board of The Stock
Exchange of Hong Kong Limited ( “ HKEx ” ).
On 6 December 2018 the Company issued 59,441,900 new shares
under the Global offering and on 28 December 2018 563,881 new
shares were issued under the Retail Entitlement offer and on 3 January
2019 4,361,900 new shares under partial exercise of the Over Allotment
Option, all in connection with the Global Offering for HK$23.48 per New
Share (approximately A$4.09). The total amount raised was A$268 million
and A$37 million of issue costs were incurred of which A$8 million was
capitalised.
Details of the Shares movements by Yancoal are set out in Note D4(b) and
D7(c) of the financial statements. Other than as disclosed above, during the
year ended 31 December 2018, neither Yancoal nor any of its subsidiaries
purchased, sold or redeemed any of Yancoal ’ s listed securities.
Settlement of the Global Offering, and the issue and commencement of
trading of the shares on the HKEx; occurred 6 December 2018, establishing
Yancoal as Australia ’ s largest pure-play, dual-listed coal producer.
Yancoal continued to reduce its existing debt liabilities in 2018, with net
payments made on interest bearing liabilities of US$900 million since 1
September 2017. In 2018, Yancoal repaid US$125 million of unsecured
loans to Yanzhou Coal Mining Co Ltd and pre-paid loans to Bank of China
and China Construction Bank under its Syndicated Facility Agreement. As at
31 December 2018, Yancoal had pre-paid a total US$1,075 million in loans
under its Syndicated Facility Agreement since completion of Yancoal ’ s
acquisition of Coal & Allied Industries Ltd ( “ Coal & Allied ” ) from Rio Tinto on
1 September 2017. A Syndicated Term Loan1 of US$300 million was taken
out and all proceeds used to repay the Syndicated Facility.
DIRECTORS’ REPORTYANCOAL AUSTRALIA LTD 57
Yancoal paid its inaugural unfranked interim dividend of AU$130 million, with
a record date of 7 September 2018 and payment date of 21 September
2018, representing a payout ratio of 36% of profit after tax for the half year,
consistent with the 25-40% range detailed in the Company ’ s Constitution.
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 were paid to
holders
As announced 30 November 2018, Yancoal acquired an additional 4%
interest in the Moolarben unincorporated joint venture from KORES Australia
Moolarben Coal Pty Ltd, a wholly owned subsidiary of Korea Resources
Corporation ( “ KORES ” ) for AU$84 million, split into four installments
and reduced by a AU$21 million effective date adjustment. Following the
acquisition, Yancoal (through its subsidiary Moolarben Coal Mines Pty Ltd)
holds 85% of the Moolarben Joint Venture.
At an Extraordinary General Meeting in September 2018, Yancoal
shareholders voted in favour of the consolidation of Yancoal shares on the
basis that every 35 fully paid ordinary shares be consolidated into one share,
to establish a more appropriate share capital structure for a company with
Yancoal ’ s market capitalisation.
Yancoal announced on 4 May 2018 that the Company had completed the
establishment of its 51:49 unincorporated joint venture with Glencore Coal
Pty Ltd ( “ Glencore ” ) for the Hunter Valley Operations Joint Venture ( “ HVO
JV ” ), following satisfaction of all remaining conditions precedent.
To establish the joint venture, Glencore acquired:
Yancoal announced a series of changes to its Board in 2018:
•
•
•
•
•
the appointment of Mr Baocai Zhang as Chairman, effective 8 June
2018, following the resignation of former Chairman Mr Xiyong Li;
the appointment of Mr. Fucun Wang as a Director and Vice Chair of
Yancoal effective 8 June 2018. Mr Wang was also appointed as the
new Chair of the Executive Committee ( “ CEC ” ), following Mr. Baocai
Zhang ’ s resignation as CEC.;
the resignation of Mr. Cunliang Lai who resigned as Vice Chair of Yancoal
effective 8 June 2018. Mr Lai continued in his role as a Non-executive
Director;
the appointment of Mr Gregory James Fletcher as Co-Vice Chair of
Yancoal, effective from 1 March 2018;
the appointment of Ms. Helen Gillies and Mr. David Moult as Independent
Non-Executive Directors, following the resignation of Mr. Vincent
O ’ Rourke AM. and Mr. Huaqiao Zhang, effective 30 January 2018.
• a 16.6% interest in the HVO JV from Yancoal for approximately US$429
million before adjustments; and
• a 32.4% interest in the HVO JV directly from Mitsubishi Development Pty
Ltd.
As announced on 7 March 2018, Yancoal completed its purchase of
Mitsubishi Development Pty Ltd ’ s ( “ MDP ” ) 28.898% interest in the
Warkworth joint venture for US$230 million plus a net debt and working
capital adjustment.
As announced on 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.
Mining operations (all figures reported on a 100% basis)
ROM Coal Production Mt
Moolarben
Mount Thorley Warkworth
Hunter Valley Operations
Stratford Duralie
Yarrabee
Middlemount
Watagan (Ashton, Austar and Donaldson)
Total – 100% Basis
Total – Attributable
During the year, the Company did not redeem any of its listed securities
nor did the Company or any of its subsidiaries sell any such securities. On
21 June 2018, CPU Share Plans Pty Ltd, a provider of services in transfer
agency and share registration, employee equity plans, etc. acquired
42,574,974 fully paid ordinary shares in the Company at A$0.12999999
per share (an aggregate of A$5,534,746). The shares were acquired on
the Company ’ s behalf for the purposes of granting special incentives and
transaction bonuses in relation to 2017 performance. On 3 September
2018, 41,482,103 shares were granted to various Company employees.
The share counts and prices referenced above are from before the 35:1
share consolidation (which occurred on 18 September 2018).
Ownership
85%
82.9%
51%
100%
100%
49.9997%
100%
December YTD
2018
18.6
17.6
19.0
0.7
3.4
4.8
2.4
66.5
42.9
2017
14.7
5.8
6.2
0.9
3.4
5.3
4.8
41.1
24.2
Change
27%
203%
206%
(22%)
-%
(9%)
(50%)
62%
77%
Notes:
a. 2017 attributable figures include only four months of attributable production for Hunter Valley Operations and Mount Thorley Warkworth from 1 September.
b. 2018 attributable figures include 81% attributable production for Moolarben up to and including 30 November 2018, and 85% thereafter. This reflects Yancoal ’ s increased ownership in the Moolarben Joint Venture, as
announced 30 November 2018.
c. Attributable figures do not include production from Middlemount (incorporated joint venture and accounted for as an equity-accounted investment) and Watagan (equity-accounted investment and deconsolidated from Yancoal
in March 2016).
d. Attributable figures include Mount Thorley Warkworth 64.1% from 1 September 2017 up to and including 28 February 2018 and 82.9% thereafter.
DIRECTORS’ REPORT ANNUAL REPORT 2018 58
Saleable Coal Production Mt
Moolarben
Mount Thorley Warkworth
Hunter Valley Operations
Stratford Duralie
Yarrabee
Middlemount
Watagan (Ashton, Austar and Donaldson)
Total – 100% Basis
Total – Attributable
Notes:
Ownership
85%
82.9%
51%
100%
100%
49.9997%
100%
December YTD
2018
16.5
12.1
13.3
0.5
2.6
3.8
1.2
50.0
32.9
2017
12.4
3.9
4.8
0.7
2.8
2.9
3.0
31.5
18.5
Change
33%
210%
177%
(29%)
(7%)
(3%)
(60%)
59%
78%
a. 2017 attributable figures include only four months of attributable production for Hunter Valley Operations and Mount Thorley Warkworth from 1 September.
b. Attributable figures do not include production from Middlemount (incorporated joint venture and accounted for as an equity-accounted investment) or Watagan (equity-accounted investment and deconsolidated from Yancoal in
March 2016).
c. 2018 attributable figures include 81% attributable production for Moolarben up to and including 30 November 2018, and 85% thereafter. This reflects Yancoal ’ s increased ownership in the Moolarben Joint Venture, as
announced 30 November 2018.
d. Attributable figures include Mount Thorley Warkworth 64.1% from 1 September 2017 up to and including 28 February 2018 and 82.9% thereafter.
Consistently strong production across Yancoal ’ s tier-one operations
(Moolarben, Mount Thorley Warkworth, Hunter Valley Operations), achieved
a new annual total saleable coal production record of 50.0Mt (32.9Mt
attributable2), up 59% from 31.5Mt (18.5 Mt attributable) in 2017, and total
Run of Mine ( “ ROM ” ) coal production of 66.5Mt (42.9Mt attributable), up
62% from 41.1Mt (24.2Mt attributable) in 2017.
Hunter Valley Operations (Yancoal 51% ownership) achieved ROM
production of 19.0Mt (2017:6.2Mt) and saleable coal production of 13.3Mt
(2017:4.8Mt) for the reporting period.
The Moolarben Complex (Yancoal 85% ownership) achieved total ROM
production of 18.6Mt (2017: 14.7Mt) and saleable coal production of 16.5Mt
(2017: 12.4Mt).
Yancoal achieved total coal sales of 37.1Mt (attributable) for the year (31
December 2017: 22.1Mt), with a sales split (attributable) for the period of
29.9Mt thermal coal (2017: 15.9Mt) and 7.2Mt metallurgical coal (2017:
6.2Mt).
The Stratford Duralie (Yancoal 100% ownership) open cut mine achieved
total ROM coal production of 0.7Mt (2017 0.9Mt) and saleable coal
production of 0.5Mt (2017 0.7Mt) for the reporting period.
Yancoal continued to manage the Cameby Downs and Premier Coal
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 this
report.
Queensland (all figures reported on a 100% basis)
In Queensland ( “ QLD ” ), Yancoal operated the Yarrabee open cut operation
and maintained its near 50% equity interest in Middlemount Coal Pty Ltd
( “ Middlemount ” ) throughout the reporting period.
Yancoal continued to manage the Austar, Ashton and Donaldson operations
on behalf of Watagan Mining Company Pty Ltd ( “ Watagan ” ).
Yarrabee (Yancoal 100% ownership) open cut achieved total ROM coal
production of 3.4Mt (2017: 3.4Mt) and total saleable coal production of 2.6Mt
(2017: 2.8Mt).
New South Wales (all figures reported on a 100% basis)
In New South Wales ( “ NSW ” ), Yancoal operated the Moolarben, Mount
Thorley Warkworth and Stratford Duralie mines and managed the Austar,
Ashton and Donaldson mines on behalf of Watagan.
NSW operations achieved total ROM coal production of 58.3Mt (2017:
32.4Mt) (Yancoal-controlled 55.9Mt, Watagan-controlled 2.4Mt) and
saleable coal production of 43.6Mt (2017: 24.8Mt) (Yancoal-controlled
42.4Mt, Watagan-controlled 1.2Mt) for the period.
Mount Thorley Warkworth, consisting of Mount Thorley (Yancoal 80%
ownership) and Warkworth (Yancoal 84.5% ownership), achieved ROM
production of 17.6Mt (2017: 5.8Mt) and saleable coal production of 12.1Mt
(2017: 3.9Mt) for the reporting period.
The Middlemount joint venture (Yancoal ~50% ownership) achieved
total ROM coal production of 4.8Mt (2017 5.3Mt) and total saleable coal
production of 3.8Mt (2017: 3.9Mt).
Watagan Assets (100% ownership) (all figures reported on a 100%
basis)
Production at the Watagan-owned Ashton and Austar underground mines
produced a combined total ROM coal production of 2.4Mt (2017: 4.8Mt)
and saleable coal production of 1.2Mt (2017: 3.0Mt) for the year.
As previously announced, mining ceased at Donaldson ’ s Abel underground
mine in June 2016.
2 Attributable share is the attributable production as it relates to Yancoal ’ s financial statements and does not include production from Middlemount (incorporated joint venture and accounted for as an equity-accounted
investment) and Watagan (equity- accounted investment and deconsolidated from Yancoal in March 2016). Attributable share includes: Moolarben (85%); Mt Thorley Warkworth (82.9%); Hunter Valley Operations (51%);
Stratford Duralie (100%); and Yarrabee (100%).
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 59
Infrastructure
Yancoal exports 100% of its product through five eastern Australian ports
into the Asian market, with current allocations sufficient to meet existing and
potential brownfield expansion needs. The Group has ownership interests in
three of these ports.
An analysis of the Group ’ s performance during the year using financial key
performance indicators is provided in the Management Discussion and
Analysis on pages 40 to 51 of this annual report.
All references herein to other sections or reports in this annual report form
part of this Report of the Directors.
Port Waratah Coal Services (“PWCS”) 30.0%
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).
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 an
allocation of approximately 19.6Mt per annum (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, Mount Thorley
Warkworth, Hunter Valley Operations, 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-Pay3
Yancoal ’ s unutilised take-or-pay exposure increased from the year
prior (2017: $60.7 million; equity basis) to $84.9 million in rail and port
commitments in excess of shipped sales. The increase of $24.2 million was
attributable to the take-or-pay exposure acquired from the former Coal &
Allied assets (full year $32.9 million) and under-utilisation of WICET port
capacity ($7.9 million). This was offset by a $16.6 million reduction from
increased utilisation by Moolarben and trading with third parties.
Yancoal continues to implement strategic measures to reduce take-or-pay
exposure across the Group by trading between sites and with other users.
A review of the business of the Group during the year and a discussion on
the Group ’ s future business development are provided in the Management
Discussion and Analysis on pages 40 to 53 of this annual report.
Description of possible risks and uncertainties that the Group may be facing
can be found in the Corporate Governance Statement on pages 97 to 106
of this annual report. Also, the financial risk management objectives and
policies of the Group can be found in Note D9 to the consolidated financial
statements.
During the year, the Company was not aware of any non-compliance with
any relevant laws and regulations that had a significant impact on it.
3 All numbers provided on an equity basis.
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 2018, Yancoal contributed $834,649 via its Community Support Program
into local and regional health, environmental, education and community
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.
Greenhouse gas and energy data reporting requirements
As Australia ’ s largest pure play thermal coal producer, we acknowledge we
have a role to play in mitigating the emissions generated by our operations
and supporting investment into low emission technology to assist the
reduction of downstream emissions from the consumption of coal products.
We also understand the growing interest by stakeholders regarding the
potential risks and opportunities posed to our business and the broader
sector as a result of an anticipated global shift towards a lower-carbon
economy.
Recognising this, we continue to consider the adoption of the Taskforce
on Climate-related Financial Disclosures ( “ TCFD ” ) Recommendations,
established by the G20 Financial Stability Board, as the framework to guide
our climate-related disclosures.
This includes the desire for greater transparency in the way we identify and
mitigate potential risks posed by changes to our external environment at a
policy, legal, market demand, reputational and technological perspective.
Governance
Governance of climate-related matters, including risks and opportunities, sits
within Yancoal ’ s governance framework.
The Board has ultimate responsibility for the oversight and approval of risk
management and financial investment decisions, including those relating
to climate change. The Audit and Risk Management Committee and
Health, Safety and Environment Committee are specifically responsible
for the consideration of climate-related risks and related risk management
strategies.
DIRECTORS’ REPORT ANNUAL REPORT 2018 60
The Board regularly considers how climate change may drive changes to
physical, regulatory, commercial, and operating environments to inform the
development of medium-to-long term goals and strategies.
On 25 February 2019, Yancoal announced a final dividend of A$377 million
(A$0.2855 per share to be comprised of an ordinary dividend of A$0.1596
and a special dividend of $0.1259), with a record date of 11 March 2019.
The final dividend and special dividend will be paid on 30 April 2019.
Reporting on our emissions
Yancoal reports its operational direct (scope 1) and indirect (scope 2)
emissions on an annual basis in line with the National Greenhouse and
Energy Reporting legislation.
The Group has implemented systems and processes for the collection and
calculation of the data required and submitted its 2017/2018 S19 Energy
& Emissions Report to the Federal Clean Energy Regulator on 31 October
2018.
Overall, on an operational control basis, our total Scope 1 and Scope 2
emissions for the period ended 30 June 2018 totalled 2,114,527tCO2-e,
a 1% increase on the year prior. The majority of Scope 1 emissions relate
to fugitive emissions associated with the underground and open cut
mining operations, while Scope 2 emissions stem from the consumption of
electricity purchased from the grid.
Summary Greenhouse Emissions
Emissions Reporting
Period
2016/2017*
2017/2018
% Variance
Scope 1
Emissions
(tCO2-e)
1,725,276
1,754,907
1.7%
Scope 2
Emissions
(tCO2-e)
374,635
359,620
-4.0%
Scope 1 and
Scope 2
Emissions
(tCO2-e)
2,099,911
2,114,527
0.7%
* Includes Warkworth and Mount Thorley Operations emissions under RTCA ownership
(tCO2-e: tonnes of carbon dioxide equivalent)
While we do not currently calculate our scope 3 emissions associated
with the consumption of our coal products, we actively support the
development of technologies aimed at reducing the emissions intensity of
these downstream activities. This includes supporting the development and
installation of high efficiency, low emissions technologies in coal fired power
stations and investment in carbon capture and storage technology.
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 the Group.
Matters subsequent to the end of the financial year
On 4 January 2019 BOCI notified Watagan and Yankuang that it was
exercising its put option over US$200 million of bonds. As a consequence,
Yankuang will become the bondholder of the put bonds following
completion of the purchase of those bonds by Yankuang expected to occur
on or around 1 April 2019. No security will be given by Watagan in favour
of Yankuang. As the put bonds represent less than 50.1% of the face
value of the bonds, and the put option was not exercised by the instructing
bondholder, the put option is not deemed to have been exercised as to all
the bonds nor has control of Watagan been regained by the Group such
that Watagan continues to be deconsolidated.
As announced 25 February 2019, Yancoal will pre-pay a further US$500
million in loans, reducing its total debt liabilities by US$1.4 billion since
September 2017. The pre-payment consists of US$250 million in pre-paid
loans from Bank of China and China Construction Bank, and US$250 million
in pre-paid Yanzhou-related loans.
On 4 March 2019, Yancoal issued 1,744,704 performance share rights
(STIP rights), and 1,483,811 performance share rights (LTIP rights) to the
Executive Director, and certain senior executives of the Company.
On 29 March 2019, the Company agreed to enter into four coal sales
agreements with POSCO Australia Pty Ltd and/or its associates pursuant
to which POSCO and/or its associates have agreed to purchase coal from
the Group during the financial year ending 31 December 2019. As POSCO
is interested in 20% of the Mount Thorley JV, a subsidiary of the Company
under the Listing Rules, POSCO is a connected person of the Company
by virtue of being a substantial shareholder of the Company ’ s subsidiary.
The maximum annual transaction amount to be received by the Group
from POSCO and/or its associates for the sale of coal pursuant to the 2019
POSCO Sales Agreements for the year ending 31 December 2019 will not
exceed US$780 million.
Other than as disclosed above, no matters or circumstances have occurred
subsequent to the end of the financial period which have significantly
affected, or may significantly affect, the operations of the Group, the results
of those operations or the state-of-affairs of the Group in the subsequent
financial period.
Likely developments and expected results of operations
Yancoal continues to pursue its long-term strategy for organic growth via the
progression of brownfield expansion and extension projects.
Key projects include the conceptual underground mine at Mount Thorley
Warkworth with an estimated 6Mtpa ROM, with exploration drilling for the
prefeasibility on the target seams having been completed at the end of
2018.
Yancoal received approvals to commence mining activities associated with
the Lot 1 and Lot 2 areas of Mount Thorley Warkworth during the reporting
period, enabling commencement of the expansion of the existing West pit
on the Warkworth side in 2019.
Proposed modifications for the Moolarben open cut pits are awaiting
approval, as Yancoal continues to maximise improved extraction rates in
both the open cut and underground mines.
Yancoal will maintain strong cost discipline, with 2019 cash costs (excluding
government royalties) expected to remain flat at around A$62.5/t (2018:
A$63/t).
Guidance for saleable coal production in 2019 is approximately 35 million
tonnes (attributable). Forecast for 2019 capital expenditure is around
AU$285 million (attributable).
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 61
Fucun Wang. Non-Executive Director (8 June 2018 – 26 June 2018)
Executive Director and Chair of the Executive Committee (8 June
2018 – current), Co-Vice Chairman (26 June 2018 – current). MBA.
Experience and expertise
Mr Fucun Wang, aged 55, started his career in July 1983. He holds a
masters degree and an EMBA degree. Mr Wang is a senior statistician. He
was formerly the Deputy Chief Economist of Yankuang Group and served
concurrently as the Head of the Investment and Development Department
and the Director of the Strategic Planning and Decision Centre of Yankuang
Group. Mr Wang successively served as the Deputy Director of Planning
Department, the Deputy Director and Director of the Department of Planning
and Development of Yankuang Group previously.
Mr Wang holds a master degree and completed a Masters of Business
Administration degree from Hebei Industrial University in China in June 2014.
Other current key directorships
Director of various subsidiaries of Yancoal Australia Ltd
Special responsibilities
Co-Vice Chairman of the Board (8 June 2018 – current)
Chairman of the Executive Committee (8 June 2018 – current)
Member of the Health, Safety and Environment Committee (8 June 2018 –
current)
Interests in shares and options
None
INFORMATION ON DIRECTORS
Baocai Zhang. Non-Executive Director (26 June 2012 – 19 January
2014, 8 June 2018 – current), Co-Vice Chairman (20 December 2013
– 8 June 2018), Executive Director (20 January 2014 – 8 June 2018),
Chairman of the Board (8 June 2018 – current). EMBA.
Experience and expertise
Mr Zhang, aged 51, 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 was appointed as the Chair of the Board of Yancoal on 8 June
2018. 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.
Other current key directorships
Director of Yankuang Group Company Limited
Chairman and Director of Yankuang Group Finance Co., Ltd
Former directorships in last three years
Director of Yanzhou Coal Yulin Neng Hua Co., Ltd (ceased on 28 May 2018)
Director of Inner Mongolia Haosheng Coal Mining Limited (ceased on
28 May 2018)
* Director of Yanzhou Coal Mining Company Limited (1171 HK)
(10 November 2006 – 3 June 2016)
Director of Yancoal International (Holding) Co., Ltd (ceased on 28 May 2018)
Special responsibilities
Chairman of the Board (8 June 2018 – current)
Chairman of the Executive Committee (ceased on 8 June 2018)
Chairman of the Strategy and Development Committee
Member of the Nomination and Remuneration Committee (8 June 2018 –
current)
Interests in shares and options
274,404 fully paid Yancoal ordinary shares
* Listed company
DIRECTORS’ REPORT ANNUAL REPORT 2018 62
Cunliang Lai. Executive Director (18 November 2004 – 19 January
2014), Co-Vice Chairman (26 June 2012 – 6 June 2018),
Non-Executive Director (20 January 2014 – Current). DE, EMBA.
Experience and expertise
Mr Lai, aged 58, 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.
Other current key directorships
* Director of Yanzhou Coal Mining Company Limited (1171 HK) (June 2016
– current)
Director of Zhongyin Financial Leasing Co., Ltd
Director of Shanghai CIFCO Co., Ltd
Director of Yancoal International (Holding) Co.Ltd
Director of Yancoal International Trading Co. Ltd
Director of Yancoal International Resources Co., Ltd
Director of Yancoal International Technology Development Co., Ltd
Chairman of Shanghai Jujiang Asset Management Co., Ltd
Director of Yanzhou Coal Yulin Neng Hua Co., Ltd
Director of Inner Mongolia Haosheng Coal Mining Limited
Director of Yankuang Group Finance Co., Ltd
Chairman of Xinyinlian Co., Ltd
Chairman of Shandong Taiheng Development Co.,Ltd
Mr Lai graduated from Nankai University and the Coal Science Research
Institute. He is a researcher in engineering technology application with a
Doctorate degree in Engineering and an EMBA degree.
Former directorships in last three years
Director of Duanxin Investment Holding (Shenzhen) Co., Ltd
Director of Qingdao Zhongyin International Trade Co., Ltd
Other current key directorships
None
Former directorships in last three years
* Director of Bauxite Resources Limited (ASX:BAU) (7 March 2014 –
21 January 2016)
Special responsibilities
Special responsibilities
Member of the Strategy and Development Committee (8 June 2018 –
current)
Member of the Audit and Risk Management Committee
Interests in shares and options
None
Co-Vice Chairman of the Board (ceased on 8 June 2018)
Member of the Nomination and Remuneration Committee (ceased on
8 June 2018)
Fuqi Wang. Non-Executive Director (23 April 2015 – Current). ME,
EMBA.
Interests in shares and options
None
Qingchun Zhao. Non-Executive Director (28 April 2017 – Current).
EMBA
Experience and expertise
Mr Zhao, aged 50, 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.
Experience and expertise
Mr Fuqi Wang, aged 54, 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 the Health, Safety and Environment Committee
Member of the Strategy and Development Committee
Interests in shares and options
None
* Listed company
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 63
Xiangqian Wu. Non-Executive Director (28 April 2017 – Current). DE
Former directorships in last three years
Experience and expertise
Mr Wu, aged 52, 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. From April 2014 to January 2016, he
was 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 (1171 HK) (14 May
2014 – current)
Director of Yancoal International (Holding) Co. Ltd
Director of Yancoal International Trading Co. ltd
Director of Yancoal International Resources Co., Ltd
Director of Yancoal International Technology Development Co., Ltd
Former directorships in last three years
Director of Yanzhou Coal Ordos Neng Hua Co.,Ltd
Director of Inner Mongolia Haosheng Coal Mining Co., Ltd
Director of Duanxin Investment Holding (Shenzhen) Co., Ltd
Special responsibilities
Member of the Nomination and Remuneration Committee
Interests in shares and options
None
Xing Feng. Non-Executive Director (15 December 2017 – Current).
EMBA
Experience and expertise
Mr Feng, aged 45, started his career with China Cinda Asset Management
Co., Limited (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 an EMBA degree from Peking
University.
Other current key directorships
Director of China Broadcasting and Telecommunications Corporation
Director of China Cinda (Hong Kong) Holdings Company Limited
* Listed company
None
Special responsibilities
Member of the Strategy and Development Committee.
Interests in shares and options
None
Gregory James Fletcher. Independent Non-Executive Director
(26 June 2012 – Current), Co-Vice Chairman (1 March 2018 –
current), BCom, CA.
Experience and expertise
Mr Fletcher, aged 62, 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. Mr Fletcher was elected a Co-Vice
Chairman of Yancoal in 2018.
Prior to 2009 Mr Fletcher was a senior partner of Deloitte for 16 years during
which he held many senior roles as well as working with major Australian
listed companies with operations internationally including the Asia Pacific
region. He also worked closely with organisations in China, Indonesia and
Mongolia in enhancing governance practices.
Since 2009 Mr Fletcher has taken on Board and Audit Committee roles.
He has been a member of the NSW Auditor General ’ s Audit and Risk
Committee, on the Board of Railcorp and WDS Limited and Chairman of the
Roads and Maritime Audit and Risk Committee and City of Sydney Audit
and Risk Committee.
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 Saunders International Limited, Chairman Audit and Risk
Committee and Member of the Remuneration and Nomination Committee
(ASX:SND) (1 July 2015 – current)
Director of TAFE NSW, Member of the Audit and Risk Committee and
Member of the Minister ’ s Priority Implementation Committee
Chairman of NSW Electoral Commission Audit and Risk Committee
Member of Audit and Risk Committee, Railcorp
Member of Audit, Risk and Committee, NSW Health Infrastructure
Member of Audit and Risk Committee NSW State Transit Authority
Former directorships in last three years
Director of Yancoal SCN Limited (ASX:YCN) (21 November 2014 –
30 August 2018)
Special responsibilities
Co-Vice Chairman
Chairman of the Audit and Risk Management Committee
Chairman of the Independent Board Committee
Member of the Nomination and Remuneration Committee (8 June 2018 –
current)
Interests in shares and options
2,100 fully paid Yancoal ordinary shares.
DIRECTORS’ REPORT ANNUAL REPORT 2018 64
Dr Geoffrey William Raby. Independent Non-Executive Director
(26 June 2012 – Current). BEc (Hons), MEc and PhD (Economics).
Helen Jane Gillies. Independent Non-Executive Director (30 January
2018 – Current). MBA, MConstrLaw, LLB(Hons), BCom, AICD
Experience and expertise
Experience and expertise
Dr Geoffrey William Raby, aged 65, was appointed a Director of Yancoal in
2012.
Helen Jane Gillies is an experienced Director and legal, risk and compliance
professional.
Dr Raby was formerly 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 to 2001), Australia ’ s
APEC Ambassador (2003 to 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.
Dr Geoffrey Raby holds a Bachelor of Economics, a Masters of Economics
and a Doctor of Philosophy in Economics.
Ms Gillies, aged 54, 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. Previously, she served as a director of Sinclair Knight
Merz Management Pty Limited from October 2002 to September 2008 and
Sinclair Knight Merz Management Pty Limited from September 2010 to
December 2013; she was the general manager (risk) and general counsel of
Sinclair Knight Merz from 1995 to 2013, and a non-executive director of Civil
Aviation Safety Authority from 2009 to 2014.
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
* Director of OceanaGold Corporation Limited (ASX:OGC) (5 August 2011 –
Other current key directorships
Director of Red Flag Group (Holdings) Limited
* Director of Monadelphous Group Limited (ASX:MND) (5 September 2016
current)
– current)
* Chairman of Wiseway Group (ASX:WWG) (18 July 2018 – current)
Director of BAC Holdings Pty Ltd
Former directorships in last three years
Former directorships in last three years
* Director of Fortescue Metals Group (ASX:FMG) (18 August 2011 –
None
5 December 2016)
* Director of SmartTrans Holding Limited (now Orcoda Limited) (ASX:ODA)
Special responsibilities
(6 August 2011– 1 April 2016)
* Director of YPB Group Ltd (ASX:YPB) (31 July 2014 – 5 March 2016)
* Director of iSentia Group Ltd (ASX:ISD) (9 May 2014 – 20 July 2018)
Special responsibilities
Member of the Strategy and Development Committee (8 June 2018 –
current)
Member of the Health, Safety and Environment Committee
Interests in shares and options
22,858 fully paid Yancoal ordinary shares.
Member of the Nomination and Remuneration Committee (6 February 2018
– 8 June 2018)
Chair of the Nomination and Remuneration Committee (8 June 2018 –
current)
Member of the Audit and Risk Management Committee (8 June 2018 –
current)
Interests in shares and options
None
* Listed company
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 65
David James Moult. Independent Non-Executive Director (30 January
2018 – Current). C. Eng (Mining), MBA, FAusIMM, FIMMM, MAICD
Vincent O ’ Rourke AM. Non-Executive Director (22 December 2009 –
30 January 2018). B. Econ.
Experience and expertise
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
Director of Mater Health Services Brisbane Limited
Chairman of Holy Cross Laundry Pty Ltd
* Director of White Energy Company Limited (ASX:WEC) (29 September
2010 – current)
Director of Queensland Museum Foundation
Former directorships in last three years
Chairman of Rail Innovation Australia Pty Ltd
Chairman of the Queensland Workplace Health and Safety Board
Director of Premier Coal Limited
* Director of Yancoal SCN Limited (ASX:YCN) (21 November 2014 – 30
January 2018)
Interests in shares and options (as at 30 January 2018)
1,119,565 fully paid Yancoal ordinary shares (equivalent to 31,988 fully paid
Yancoal ordinary shares on a 35:1 post- consolidation basis)
David James Moult, aged 62, was appointed as a Director of Yancoal in
January 2018. He has over 40 years ’ global coal mining experience. He
was Managing Director and CEO of Centennial Coal Company Limited from
2011 to 2017, then a non-executive director of Centennial Coal from May
2017 until January 2018. He previously held the position of chief operating
officer of Centennial Coal from 1998 to 2011. 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.
Other current key directorships
Director of Coal Services Pty Ltd
Director of Coal Mines Insurance Pty Ltd
Director of Mines Rescue Pty Ltd
Former directorships in last three years
Non-Executive Director Centennial Coal Company Limited
Managing Director and 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 the Health, Safety and Environment Committee (6 February
2018 – current)
Member of the Nomination and Remuneration Committee (8 June 2018 –
current)
Member of the Audit and Risk Management Committee (8 June 2018 –
current)
Interests in shares and options
None
* Listed company
DIRECTORS’ REPORT ANNUAL REPORT 2018 66
Huaqiao Zhang. Non-Executive Director (15 April 2014 – 30 January
2018). MEc
Xiyong Li. Chairman and Non-Executive Director (12 September 2013
– 8 June 2018). EMBA.
Experience and expertise
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. 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 to 2008, he was an Executive Director and
Chief Operating Officer of Shenzhen Investment Ltd (604 HK).
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 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 in economics of development from the Australian National University
in 1991.
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
Other current key directorships
* Chairman of Yanzhou Coal Mining Company Limited (1171 HK) (September
* Chairman of China Smartpay Group Holdings Ltd (8325 HK) (7 September
2013 – current)
2012 – current)
Chairman and the Secretary of the Party Committee of Yankuang Group
* Independent non-executive director of Fosun International Ltd (656 HK)
(March 2012 – current)
Former directorships in last three years
* Independent non-executive director of Logan Property Holdings Co. Ltd
(3380 HK) (18 November 2013 – current)
* Independent non-executive director of Luye Pharma Group Ltd (2186 HK)
(June 2014 – current)
* Independent non-executive director of China Huirong Financial Holdings
Ltd (1290 HK) (6 October 2013 – current)
* Independent non-executive director of Zhong An Real Estate Ltd (672 HK)
(1 January 2013 – current)
Chairman of Yancoal International (Holding) Co., Ltd
Director of Yancoal International (Sydney) Pty Ltd (ceased on 8 June 2018)
Special responsibilities
Chairman of the Board (ceased on 8 June 2018)
Chairman of the Nomination and Remuneration Committee (ceased on
8 June 2018)
* Independent non-executive director of Sinopec Oil Services Corp (1033
HK) (9 February 2015 – current)
Interests in shares and options
* Non-executive director of Boer Power Holdings Ltd (1685 HK) (November
None
2011 – current)
Former directorships in last three years
* Independent director of Ernest Borel Holdings Ltd (1856 HK) (24 June
2014 – 10 November 2014)
* Director of Nanjing Central Emporium (600280 CH) (February 2013 – May
2015)
* Independent non-executive director of Wanda Hotel Development Co. Ltd
(0169 HK) (October 2014 – May 2018)
Interests in shares and options
None
* Listed company
COMPANY SECRETARY
Laura Ling Zhang (6 September 2005 – Current). BA, MA, AGIA, GAICD
Laura Ling Zhang, aged 41, was appointed as the Company Secretary of
the Company on 6 September 2005.
Ms. Zhang is one of the founding executives of the Company and has
been the Company Secretary and Executive General Manager, Legal
and Compliance of the Company since September 2005 and July 2014
respectively. She oversees the Company ’ s corporate governance, group
legal issues, corporate compliance and shareholder communications.
Ms. Zhang graduated with a Bachelor of Arts degree in English education
from Qufu Normal University in China in July 1999 and a Master of Arts
degree in language and literature and intercultural communication from
China University of Mining and Technology in China in July 2004. Ms. Zhang
was until recently a Fellow of the Governance Institute of Australia (formerly
known as Chartered Secretaries Australia) and since June 2018, is a fellow
member of the Hong Kong Institute of Chartered Secretaries. Ms. Zhang is
a member of the Australian Institute of Company Directors and is currently
studying the EMBA at The University of New South Wales.
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 67
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 2018, and the
numbers of meetings attended by each Director were:
General Meetings
Meetings of the
Board of Directors
Meetings of Committees
Annual General
Meeting
Extraordinary
General Meeting
Full meetings of
Directors
Audit and Risk
Management
Health, Safety and
Environment
Nomination and
Remuneration
Strategy and
Development
Independent Board
Committee*
Xiyong Li
Baocai Zhang
Fucun Wang
Cunliang Lai
Xiangqian Wu
Fuqi Wang
Qingchun Zhao
Gregory James Fletcher
Geoffrey William Raby
Helen Jane Gillies
David James Moult
Xing Feng
Huaqiao Zhang
Vincent O ’ Rourke
A
1
1
0
1
1
1
1
1
1
1
1
0
0
0
B
1
1
0
1
1
1
1
1
1
1
1
1
0
0
A
0
0
1
0
0
0
0
1
0
1
1
0
0
0
B
0
1
1
1
1
1
1
1
1
1
1
1
0
0
A
6
10
4
10
10
10
9
10
9
10
10
10
0
0
B
6
10
4
10
10
10
10
10
10
10
10
10
0
0
A = Number of meetings attended.
A
B
4
5
3
2
2
5
5
3
2
2
A
2
4
4
4
0
B
2
4
4
4
0
A
2
1
2
3
1
3
1
B
2
1
2
3
1
3
1
A
B
4
4
4
4
4
4
4
4
A
3
3
3
1
3
0
B
3
3
3
1
3
0
B = Number of meetings held during the time the Director held office or was a member of the Committee during the year*.
* An Independent Board Committee is established as and when required to manage any related party transactions. A previously constituted Independent
Board Committee met on various occasions during 2018 for the purposes of considering transactions between or involving the Company and its major
shareholder, Yanzhou.
DIRECTORS’ REPORT ANNUAL REPORT 2018 68
REMUNERATION REPORT – AUDITED
Dear Shareholder,
I am pleased to introduce the Yancoal Australia Ltd (the “ Company ” ) and its
controlled entities (the “ Group ” or “ Yancoal ” ) 2018 Remuneration Report.
The Company has continued its transition from a loss-making enterprise
to profit-generating enterprise. Further, in 2018 Yancoal achieved a major
milestone becoming dual listed on the main board of the Stock Exchange of
Hong Kong.
Consequently, over 2018 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 and Hong Kong listed company and for a company of its
size.
In 2018, the Committee engaged the consulting firm Aon Hewitt Limited
( “ Aon Hewitt ” ) to provide independent market benchmarking with respect
to the remuneration of Yancoal executives and non-executive directors.
This included providing remuneration recommendations to better align
management with shareholder interests.
Taking into account the Aon Hewitt recommendations and in order to
maintain executive remuneration arrangements that are competitive,
consistent with contemporary market practice and tailored to align with
Yancoal ’ s short-term and long-term strategic objectives, the Board has
implemented a new Long Term Incentive Plan ( “ LTIP ” ) during the year and
amended the existing Short Term Incentive Plan ( “ STIP ” ). These changes
have been outlined in Section 3 of this report. The key changes aimed to
also strengthen shareholder alignment include:
STIP: 50% of the STIP award will now be deferred over a two-year period
(25% deferred for one year, remaining 25% deferred for two years). These
deferrals will be settled in either cash or equity.
LTIP: In addition to the service condition, LTIP grants for 2018 will also
be subject to performance hurdles (measured over a three-year period) to
assess vesting. Awards will be delivered in performance share rights instead
of cash.
The new plans were developed to reward short-term and long-term
performance and are delivered in cash and equity to further strengthen
shareholder alignment.
This report sets out remuneration information for the Company ’ s Key
Management Personnel for the 12 months ended 31 December 2018.
Yours sincerely,
Helen Gillies,
Chair of the Nomination and Remuneration Committee
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 Operating 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.
Several Board and Committee changes took place during 2018:
• Baocai Zhang was redesignated from an Executive Director to a Non
Executive Director effective 8 June 2018.
• Fucun Wang was appointed as a Non Executive Director on 8 June 2018
and was subsequently redesignated to an Executive Director effective 26
June 2018.
• Xiyong Li resigned from the role of Chairman of the Board effective 8
June 2018 and Baocai Zhang was subsequently appointed to the role
effective 8 June 2018.
• Gregory James Fletcher was appointed to the role of Co-Vice Chairman
of the Board effective 1 March 2018.
• Cunliang Lai and Baocai Zhang both resigned from the role of Co-Vice
Chairman of the Board effective 8 June 2018.
• Fucun Wang was subsequently appointed to this role effective 8 June
2018.
• Baocai Zhang resigned from the role of Chairperson of the Executive
Committee effective 8 June 2018 and Fucun Wang was subsequently
appointed to the role effective 8 June 2018.
• Vincent O ’ Rourke and Huaqiao Zhang both resigned from the role of
Independent Non-Executive Director on 30 January 2018. Helen Jane
Gillies and David James Moult were subsequently appointed to these
roles effective 30 January 2018.
It was also determined during the year that Paul Stringer, in the new role
of Chief Operating Officer from 29 May 2018, should be considered a Key
Management Person.
The Key Management Personnel ( “ KMP ” ) comprise directors of the
Company ( “ Directors ” ) and nominated members of the Executive
Committee ( “ Executive KMP ” ). Details of the KMP are set out in Table 1.
Together, the Executive Directors and Executive KMP are referred to as
“ Executives ” in this report.
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 69
Time in Role
Full year
Until 8 June 2018
From 8 June 2018
TABLE 1: Details of KMP
Name
Position
Time in Role
Name
Position
Full year
From 8 June 2018
Geoffrey
William
Raby
Independent Non-Executive Director
Member of the Health, Safety and
Environment Committee
Member of the Audit and Risk
Management Committee
Member of the Strategy and
Development Committee
Until 8 June 2018
Helen Jane
Gillies
Non-Executive Directors
Baocai
Zhang
Xiyong Li
Cunliang Lai
Chairman of the Strategy and
Development Committee
Director
Chairman of the Board
Member of the Nomination and
Remuneration Committee
Director
Chairman of the Board
Chairman of the Nomination and
Remuneration Committee
Director
Co-Vice Chairman
Member of the Nomination and
Remuneration Committee
Fucun Wang
Director, Co-Vice Chairman
Member of the Health, Safety and
Environment Committee
Full year
Until 8 June 2018
From 8 June 2018
until 26 June
2018 (see
below)
Fuqi Wang
Director
Member of the Health, Safety and
Full year
Qingchun
Zhao
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
Xiang Qian
Wu
Director
Member of the Nomination and
Remuneration Committee
Xing Feng
Director
Member of the Strategy and
Development Committee
Full year
Full year
Full year
Gregory
James
Fletcher
Independent Non-Executive Director
Chairman of the Audit and Risk
Management Committee
Full year
Independent Non-Executive Director
From 30 January
Member of the Nomination and
Remuneration Committee
Chairman of the Nomination and
Remuneration Committee
Member of the Audit and Risk
Management Committee
2018
Until 8 June 2018
From 8 June 2018
David James
Independent Non-Executive Director
From 30 January
Moult
2018
Chairman of the Health, Safety and
From 6 February
Environment Committee
2018
Member of the Nomination and
Remuneration Committee
Member of the Audit and Risk
Management Committee
From 8 June 2018
Vincent
O ’ Rourke
Independent Non-Executive Director Until 30 January
Chairman of the Health, Safety and
2018
Environment Committee
Huaqiao
Zhang
Independent Non-Executive Director Until 30 January
Member of the Strategy and
Development Committee
2018
Executive Directors
Baocai
Zhang
Director, Co-Vice Chairman
Chair of the Executive Committee
Until 8 June 2018
( “ CEC ” )
Fucun Wang
Director, Co-Vice Chairman
Chair of the Executive Committee
From 26 June
2018
( “ CEC ” )
Member of the Health, Safety and
Environment Committee
Co-Vice Chairman
From 1 March
Executive KMP
2018
Member of the Nomination and
Remuneration Committee
From 8 June 2018
Reinhold
Chief Executive Officer ( “ CEO ” )
Full year
Schmidt
Lei Zhang
Chief Financial Officer ( “ CFO ” )
Full year
Paul Stringer Chief Operating Officer ( “ COO ” )
From 29 May 2018
DIRECTORS’ REPORT ANNUAL REPORT 2018 40) Moolarben Coal Mines Pty Limited
41) Moolarben Coal Operations Pty Ltd
42) Moolarben Coal Sales Pty Ltd
43) Mount Thorley Coal Loading Ltd
44) Mount Thorley Operations Pty Limited
45) Namoi Valley Coal Pty Limited
46) Newcastle Coal Company Pty Ltd
47) Nords Wharf Land Pty Ltd
48) Northern (Rhondda) Collieries Pty Ltd
49) Novacoal Australia Pty Limited
50) Oaklands Coal Pty Limited
51) Parallax Holdings Pty Limited
52) Primecoal International Pty Ltd
53) Proserpina Coal Pty Ltd
54) R.W. Miller (Holdings) Limited
55) SASE Pty Ltd
56) Stratford Coal Marketing Pty Ltd
57) Stratford Coal Pty. Ltd.
58) Warkworth Coal Sales Ltd
59) Warkworth Mining Limited
60) Warkworth Pastoral Co Pty Ltd
61) Warkworth Tailings Treatment Pty Ltd
62) Westralian Prospectors N.L.
63) White Mining (NSW) Pty Limited
64) White Mining Limited
65) White Mining Services Pty Limited
66) Yancoal Australia Sales Pty Ltd
67) Yancoal Resources Limited
68) Yarrabee Coal Company Pty. Ltd.
69) Watagan Mining Company Pty Ltd
Interests in shares and options
312,278 fully paid Yancoal ordinary shares
70
INFORMATION ON SENIOR MANAGEMENT
Reinhold Schmidt. Chief Executive Officer (26 August 2013 – current).
ME (Mining Engineering), MSc (Mineral Economics), BE (Mining).
Experience and expertise
Mr Schmidt, aged 53, was appointed as the Chief Executive Officer of the
Company on 26 August 2013.
Mr. Schmidt has over 20 years ’ experience in the mining industry. Prior to
joining the Group, he served as the executive general manager of Wandoan
Project for Xstrata Coal Pty Ltd from February 2008 to February 2009
and the chief operating officer there from March 2009 to June 2013. He
was also formerly the president of the Colombian coal assets of Glencore
International.
Mr. Schmidt graduated with a Bachelor degree in Engineering (Mining)
(cum laude) from the University of Pretoria in South Africa in March 1989,
a Master of Engineering (Mining Engineering) degree and Master of
Science in Engineering (Mineral Economics) degree from the University of
Witwatersrand, Johannesburg, South Africa in June 1991 and December
1991, respectively.
Current directorships and key positions within Group
1) Abakk Pty Ltd
2) Ashton Coal Mines Limited
3) Ashton Coal Operations Pty Limited
4) Athena Coal Operations Pty Ltd
5) Athena Coal Sales Pty Ltd
6) Austar Coal Mine Pty Limited
7) Australian Coal Resources Limited
8) Black Hill Land Pty Ltd
9) Catherine Hill Bay Land Pty Ltd
10) CNA Bengalla Investments Pty Limited
11) CNA Resources Limited
12) CNA Warkworth Australasia Pty Limited
13) CNA Warkworth Pty Ltd
14) Coal & Allied Industries Limited
15) Coal & Allied Mining Services Pty Limited
16) Coal & Allied (NSW) Pty Limited
17) Coal & Allied Operations Pty Ltd
18) CIM Duralie Pty Ltd
19) CIM Mining Pty Ltd
20) CIM Services Pty Ltd
21) CIM Stratford Pty Ltd
22) Donaldson Coal Finance Pty Limited
23) Donaldson Coal Holdings Limited
24) Donaldson Coal Pty Ltd
25) Duralie Coal Marketing Pty Ltd
26) Duralie Coal Pty Ltd
27) Eucla Mining N.L.
28) Felix NSW Pty Ltd
29) Gloucester (SPV) Pty Ltd
30) Gloucester (Sub Holdings 1) Pty Limited
31) Gloucester (Sub Holdings 2) Pty Limited
32) Gloucester Coal Ltd
33) Gwandalan Land Pty Ltd
34) Kalamah Pty Ltd
35) Lower Hunter Land Holdings Pty Ltd
36) Minmi Land Pty Ltd
37) Miller Pohang Coal Co Pty Ltd
38) Monash Coal Holdings Pty Limited
39) Monash Coal Pty Ltd
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 71
37) Namoi Valley Coal Pty Limited
38) Nords Wharf Land Pty Ltd
39) Northern (Rhondda) Collieries Pty Ltd
40) Novacoal Australia Pty Limited
41) Oaklands Coal Pty Limited
42) Parallax Holdings Pty Limited
43) Proserpina Coal Pty Ltd
44) R.W. Miller (Holdings) Limited
45) SASE Pty Ltd
46) Stratford Coal Marketing Pty Ltd
47) Stratford Coal Pty. Ltd.
48) Warkworth Coal Sales Ltd
49) Warkworth Mining Limited
50) Warkworth Pastoral Co Pty Ltd
51) Warkworth Tailings Treatment Pty Ltd
52) Westralian Prospectors N.L.
53) Yancoal Australia Sales Pty Ltd
54) Yancoal Resources Limited
55) Yarrabee Coal Company Pty. Ltd.
– Current key positions (Company Secretary) within Group
1) Abakk Pty Ltd
2) Ashton Coal Mines Limited
3) Ashton Coal Operations Pty Limited
4) Austar Coal Mine Pty Limited
5) Donaldson Coal Finance Pty Limited
6) Donaldson Coal Holdings Limited
7) Donaldson Coal Pty Ltd
8) Gloucester (Sub Holdings 1) Pty Limited
9) Newcastle Coal Company Pty Ltd
10) Primecoal International Pty Ltd
11) White Mining (NSW) Pty Limited
12) White Mining Limited
13) White Mining Services Pty Limited
14) Watagan Mining Company Pty Ltd
Interests in shares and options
68,894 fully paid Yancoal ordinary shares
Paul Stringer. Chief Operating Officer (29 May 2018 – Current).
Experience and expertise
Mr Stringer, aged 64, was appointed as Chief Operating Officer (COO) on
29 May 2018.
Mr Stringer has over 45 years ’ experience in mining and mining related
industries. Prior to being appointed as COO, he served as GM of Syntech
Resources Cameby Downs Mine (since 2012), GM of Yancoal Yarrabee
Mine (since 2013), GM of Yancoal ’ s Queensland/Western Australia Mines
(since 2014), and GM of Yancoal ’ s East Coast Mines (since 2016).
Current directorships and key positions within Group
1) Warkworth Coal Sales Ltd
2) Warkworth Mining Limited
3) Warkworth Pastoral Co Pty Ltd
4) Warkworth Tailings Treatment Pty Ltd
Interests in shares and options
56,131 fully paid Yancoal ordinary shares
Lei Zhang. Chief Financial Officer (31 March 2014 – current). PhD,
MBA.
Experience and expertise
Dr. Lei Zhang (張磊), aged 46, was appointed as the Chief Financial Officer
of the Company on 31 March 2014.
Prior to joining the Group, Dr. Zhang served as the senior vice president
and managing director of SK Great China private equity fund & principal
investment from February 2013 to March 2014, general manager of mergers
and acquisitions and commercial finance at Shell Far East from July 2012 to
March 2013, executive director and chief financial officer of Chinalco Mining
Corp. International from September 2010 to June 2012, vice president and
chief financial officer of Chinalco Overseas Holdings from September 2010
to June 2012, and was with Siemens from April 1997 to September 2010
including serving as vice president of Siemens Ltd. China and cluster chief
financial officer of Siemens Real Estate North East Asia from September
2008 to September 2010.
Dr. Zhang graduated with a Doctor of Economics from Graduate School
of Chinese Academy of Social Sciences in Beijing, China in June 2010,
and a Master of Business Administration degree from Peking University in
China in June 2005, respectively. Dr. Zhang is a qualified Public Accountant
and China Inter-bank Market Dealer and also holds a China Bond Custody
Qualifying Certificate.
Current directorships and key positions within Group
– Current directorships within Group
1) Athena Coal Operations Pty Ltd
2) Athena Coal Sales Pty Ltd
3) Australian Coal Resources Limited
4) Black Hill Land Pty Ltd
5) Catherine Hill Bay Land Pty Ltd
6) CNA Bengalla Investments Pty Limited
7) CNA Resources Limited
8) CNA Warkworth Australasia Pty Limited
9) CNA Warkworth Pty Ltd
10) Coal & Allied Industries Limited
11) Coal & Allied Mining Services Pty Limited
12) Coal & Allied (NSW) Pty Limited
13) Coal & Allied Operations Pty Ltd
14) CIM Duralie Pty Ltd
15) CIM Mining Pty Ltd
16) CIM Services Pty Ltd
17) CIM Stratford Pty Ltd
18) Duralie Coal Marketing Pty Ltd
19) Duralie Coal Pty Ltd
20) Eucla Mining N.L.
21) Felix NSW Pty Ltd
22) Gloucester (SPV) Pty Ltd
23) Gloucester (Sub Holdings 2) Pty Limited
24) Gloucester Coal Ltd
25) Gwandalan Land Pty Ltd
26) Kalamah Pty Ltd
27) Lower Hunter Land Holdings Pty Ltd
28) Minmi Land Pty Ltd
29) Miller Pohang Coal Co Pty Ltd
30) Monash Coal Holdings Pty Limited
31) Monash Coal Pty Ltd
32) Moolarben Coal Mines Pty Limited
33) Moolarben Coal Operations Pty Ltd
34) Moolarben Coal Sales Pty Ltd
35) Mount Thorley Coal Loading Ltd
36) Mount Thorley Operations Pty Limited
DIRECTORS’ REPORT ANNUAL REPORT 2018 72
2. REMUNERATION PRINCIPLES AND FRAMEWORK
The Company ’ s governing principles for remuneration are:
TABLE 2: Remuneration Advisor Fees in 2018
Aon Hewitt
•
•
•
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, 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 KMP other than Directors and other
members of the Executive Committee. On these issues, the Board receives
recommendations from the Nomination and Remuneration Committee.
2018
$
83,500
105,000
188,500
Remuneration recommendations
Other advice received
Total services remuneration
3. ExECUTIVE REMUNERATION
3.1 Objective
Remuneration frameworks for Executives are structured to be market
competitive and to reflect the reward strategy of the Company. 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
The Nomination and Remuneration Committee ’ s objective is to assist the
Board by making recommendations in relation to:
– attracting and retaining high calibre executives.
• Board composition and succession planning for the Board;
• Executive ’ s interests by:
•
•
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;
– 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.
• designing Company remuneration policy and regulations with regard to
corporate governance; and
Details of remuneration for all Executives are set out in Table 10.
• diversity.
3.2 Structure
2.2 Use of external remuneration advisors
From time to time, the Remuneration Committee seeks and considers
advice from external advisors who are engaged by and report directly to
the Remuneration Committee. Such advice will typically cover remuneration
levels, independent benchmarking data and information regarding best
practice, trends and regulatory developments.
In 2018, the Committee engaged the consulting firm Aon Hewitt Limited
( “ Aon Hewitt ” ) to provide independent market benchmarking with respect
to the remuneration of Yancoal executives and non-executive directors. This
included providing recommendations, as defined under the Corporations
Act 2001, on executive remuneration and executive incentive plan design for
the financial year 2018 to the Committee.
The Chairman of the Remuneration Committee and Aon Hewitt are satisfied
that the recommendations, relating to the executive remuneration structure
and executive incentive plan design, have not been subject to any undue
influence by the Executives to whom the recommendations apply.
All remuneration frameworks for Executives are structured as a combination
of fixed and variable remuneration, as follows:
TABLE 3: Executive remuneration structure
Fixed remuneration
Variable remuneration
( ‘ at risk ’ )
Current
• Fixed Annual Remuneration ( “ FAR ” ),
including cash salary, superannuation,
and may include car allowance; and
• Other benefits (see Section 3.4).
• Short-term Incentive ( “ STI ” ) (see
Section 3.5.1); and
• Long-term Incentive ( “ LTI ” ) (see
Section 3.5.2).
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 73
3.3 Remuneration mix at target remuneration
Structure
The chart below illustrates the relative proportion of remuneration entitlement
for Executive KMP that is fixed and that which is linked to individual
or Company performance or both (STIP and LTIP) to the extent target
performance for at-risk components is met
TABLE 4: Components of Target Remuneration for Executive KMP
for 2018
CEO/CEC
Former CEC
CFO/COO
33%
33%
17%
17%
33%
33%
33%
43%
21%
21%
14%
For 2018 the STIP for KMP ’ s comprised two key components:
1. STIP Opportunity – this is expressed as a percentage of the
Executive ’ s FAR. The STIP opportunity is reviewed annually. A
benchmarking exercise is completed against comparable peers in
listed companies, and no changes were proposed for 2018. The CEO,
CEC, CFO and COO have a Target STIP opportunity of 100% of FAR,
with a maximum opportunity of 200% of the Target STIP opportunity.
The Board believes this level of STIP opportunity is reasonable and
competitive for the current environment.
2. STIP Scorecard – this consists of several Key Performance Indicators
Fixed
At risk STI (cash)
At risk STI (deferred)
At risk LTI
( “ KPIs ” ).
Calculations for fixed remuneration entitlement include benefits; but exclude
the value of expatriate benefits, see table 10. The short-term variable
remuneration entitlement is determined pursuant to the STIP (outlined in
section 3.5.1). The LTIP is outlined in section 3.5.2
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 various other benefits. Executives have some
scope to determine the combination of cash (including car allowance) and
various non-monetary benefits by which their FAR is delivered.
Each Senior Executives ’ level of fixed remuneration is reviewed annually to
provide a base level of remuneration which is appropriate to the position and
competitive with companies of similar size in the mining/resources industry.
No Executives are guaranteed an annual increase in FAR.
In 2018 the Remuneration Committee elected to increase remuneration for
certain KMP to ensure remuneration remained competitive and consistent
with contemporary market practice following the benchmarking exercise
conducted by Aon Hewitt.
3.5 Variable remuneration
Variable remuneration is delivered through participation in the STIP (as
outlined in section 3.5.1) whilst certain Executives are also eligible to
participate in a LTIP (as outlined in section 3.5.2).
3.5.1 Short Term Incentive Plan
A new STIP structure was introduced in 2018 that strengthens shareholder
alignment and encapsulates performance measures across several different
metrics. The Board has determined that Company performance goals best
encapsulate KMP performance for the 2018 performance year. As such
individual performance goals do not form part of the performance metrics
for the STIP for 2018 for the executives. The Board maintains discretion
to alter the scorecard outcomes outlined below if the scorecard results
generate any unintended outcomes from a reward perspective considering
the perspectives of various stakeholders including but not limited to
shareholders, employees and communities.
Eligibility
At the start of each year, KPI ’ s 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.
For the Executives named in this report, all KPIs are measured at
the Company level. The STIP Scorecard measures the Company ’ s
performance in respect of the following categories:
KPI
Measure
Weighting
Profitability
Net Profit After Tax ( “ NPAT ” )
Free On Board ( “ FOB ” ) Cash Costs
(excluding royalties)
Run Of Mine tonnes ( “ ROM ” )
Health and Safety Total Recordable Injury Frequency
Rate ( “ TRIFR ” )
Critical Controls Compliance
30%
20%
10%
10%
5%
Strategic
Strategic measures may include special
15%
Objectives
projects, capital management,
growth and culture development.
Environment
Environmental incidents and
10%
complaints
STIP 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.
Performance against the STIP Scorecard is converted to a payout multiplier
(calculated referencing the relevant maximum level of opportunity). The
payout multiplier is applied to the Target STIP opportunity to determine
the actual STIP award. Accordingly, the Executive ’ s STIP award is heavily
influenced by the achievement of Company KPIs.
Timing
For any KMP STIP award:
The STIP applies to Executives as well as other management and employees
of the Company.
• 50% of the award is delivered as a cash payment around April each year.
Objective
The objective of the STIP 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.
• 50% of the award will vest in equal parts over a two-year period (25%
deferred for one year, remaining 25% deferred for two years) subject to
continued employment at the respective deferral dates. The deferred
STIP will be settled in cash or equity.
DIRECTORS’ REPORT ANNUAL REPORT 2018 74
3.5.2 Long Term Incentive Plan
Following the recommendations provided by Aon Hewitt as part of the incentive design review, new LTIP grants for 2018 will also be subject to performance
hurdles (measured over a three-year period) to assess vesting outcomes. Awards will be delivered in performance share rights and were granted on 30 May
2018.
The key characteristics of the LTIP are outlined below:
TABLE 5: LTIP 2018 Structure
Eligibility
Executives and certain senior management are eligible to participate in the LTIP.
Objective
The objective of the LTIP is to reward and retain participants who are in positions to influence the Company ’ s long-term
performance (the LTIP performance period is three years).
Frequency
Each year eligible Executives and certain senior management are considered for an annual LTIP grant.
LTIP opportunity
The Chair of the Executive Committee and the Chief Executive Officer have an annual LTIP opportunity between 100% and 200%
of FAR.
The Chief Financial Officer and Chief Operations Officer have an LTIP opportunity of between 33% and 50% of FAR.
LTIP instrument
The LTIP is issued via a grant of performance share rights for nil consideration. The Company may at its discretion settle an
Executive ’ s and certain senior management ’ s LTIP in cash or shares.
LTIP performance
conditions
The LTIP will vest subject to both service and performance measures over a three-year performance period:
• Earnings Per Share ( “ EPS ” ) Vesting Condition ( “ EPS Awards ” ): 60% of the award will vest subject to an EPS growth
performance hurdle ( “ EPS Hurdle ” ), which compares the EPS performance of the Company with the EPS performance of a
comparator group of companies operating in the Australian resources sectors over the relevant performance period; and
• Costs Target Vesting Condition ( “ Costs Awards ” ): 40% of the award will vest subject to the Company achieving a defined cost
per tonne target ( “ Costs Target Hurdle ” ) over the relevant performance period.
LTIP performance
The EPS Hurdle was chosen because:
conditions – why were
a) It allows for an objective external assessment of the shareholder value created by the Company relative to a group of peers over
they chosen?
a sustained period in view of the low liquidity and limited float of Yancoal shares; and
b) It is a widely-adopted metric that is well understood by markets.
The Costs Target Hurdle was chosen and set at a level which provides a structural incentive to LTI participants to ensure that the
Company remains positioned in the best cost quartile of Australian coal producers. Further, best quartile costs protect and preserve
shareholder value in difficult times and support enhanced returns when commodity cycles recover.
How will the
performance condition
For the EPS Hurdle, the EPS growth of the Company (based on the Company ’ s annual report, adjusted for any share
consolidations or splits) is measured as a percentile ranking compared to the EPS growth for the same period of the comparator
be calculated for the
group of companies operating in the Australian resources sectors.
EPS Hurdle?
The level of vesting will be determined based on the ranking in accordance with the following schedule:
• at the 75th percentile or above – 100% of the EPS Awards vest;
• between the 50th and 75th percentiles – vesting will occur on a pro-rata straight-line basis;
• at 50th percentile – 50% of the EPS Awards vest; and
• below the 50th percentile – no EPS Awards vest.
Performance Period
• Each EPS Award is capable of vesting and becoming exercisable after a three-year performance period with the performance
period commencing on 1 January 2018.
• The Costs Target Awards is based on the FOB cost per saleable tonne achieved on a Company-wide basis for the year ending
30 December 2020 with Costs Target Awards being tested at, or shortly after, the time of publication of the independent
expert ’ s report.
• All awards that do not vest following testing will lapse immediately. There is no re-testing. All vested awards are automatically
exercised.
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 75
Allocation
Methodology
The number of performance rights granted is calculated by dividing the dollar value of the annual LTI opportunity by the volume
weighted average price of the Company ’ s ordinary shares traded on the ASX across a 20-day trading period spread evenly either
side of 31 December 2017.
The number of performance share rights was adjusted due to the 35:1 share consolidation undertaken by the Company in
September 2018.
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 STIP and LTIP.
Cash and equity awards under these new plans continue to be significantly impacted by the overall performance of the Company in order to maintain a link
between performance and shareholder value. See Sections 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.
3.6.1 Overview of Yancoal’s performance
TABLE 6: Yancoal ’ s performance
PBT ($ ’ M)
Basic EPS ($)A
Closing share price ($)A
Ordinary dividend per share ($)A
31 December
2018
31 December
2017
31 December
2016
31 December
2015
31 December
2014
1,172
0.68
3.92
0.10
311
0.52
4.38
–
(312)
(0.23)
10.56
–
(354)
(0.29)
2.15
–
(271)
(0.36)
3.34
–
A Yancoal ’ s share capital was consolidated on a 35-1 basis on 28 September 2018. Restated figures are shown for Closing share price and Ordinary dividend per share.
3.6.2 KMP STIP outcomes in 2018
The table below summarises details in relation to each KPI and their performance levels achieved for 2018.
TABLE 7: Company Performance against KMP STIP Scorecard in 2018
KPI
Profitability
Measure
NPAT
FOB Cash Costs (excluding royalties) ($ per tonne)
Health and Safety
ROM (Mt)
TRIFR
Critical Controls Compliance
Strategic Objectives
Strategic measures may include special projects, capital
management, growth and culture development.
Actual KPI Result
STI Outcome
$879M
$58.9
49.4
8.2
99%
10
Stretch
Stretch
Stretch
Between Threshold and Target
Stretch
Target
Environment
Environmental incidents and complaints
35.7
Between Target and Stretch
The assessed outcomes and average achievement for Yancoal Australia Limited and Yancoal International Holding of 169% reflect the following
achievements in 2018:
a) the overall delivery of Net Profit After Tax of $879M for the Group and the assets managed on behalf of Yancoal International Holdings of $879M;
b) record 2018 total of 49 million tonnes saleable coal production;
c) the dual listing on the Stock Exchange of Hong Kong and associated Hong Kong Public Offering; and
d) the average achievement of 131% for each Business Unit measure.
Details of amounts paid to Executives are outlined in Table 8 of this report.
DIRECTORS’ REPORT ANNUAL REPORT 2018 76
TABLE 8: Executive KMP STIP Outcomes in 2018
Name
Reinhold Schmidt
Lei Zhang
Baocai ZhangC
Fucun Wang
Paul Stringer
Total
STIP Cash $A
STIP Deferred $B
STIP Total $
700,623
119,866
356,707
212,925
594,878
700,623
119,866
–
212,925
594,878
1,401,246
239,732
356,707
425,850
1,189,756
1,984,999
1,628,292
3,613,291
% of STIP
Opportunity
Awarded
% of STIP
Opportunity
Not Awarded
42%
25%
85%
85%
85%
53%
58%
75%
15%
15%
15%
47%
A The 2018 STIP cash figures are to be paid around April 2019.
B The STIP deferred is the value of share rights granted. The number of share rights granted is calculated as 50% of the STIP award divided by the VWAP across a 90-day trading period spread 60 days prior to, and 30 days
after, 31 December 2018.
C Baocai Zhang was an Executive director until 8 June 2018 and has received pro-rata STIP.
The portion of STIP that is deferred will vest in equal parts over a two-year period (25% of total STIP award deferred for one year, remaining 25% of total STIP
award deferred for two years). These deferrals will be settled in either cash or equity.
Details of the remuneration of Executive KMP prepared in accordance with statutory obligations and accounting standards are contained in table 10 of this
Remuneration Report.
3.6.3 Executive KMP LTIP awards granted in 2018
A summary of the LTIP awards granted in 2018 is set out in the table below.
TABLE 9: Details of the LTIP applicable to Executive KMP
Name
Reinhold Schmidt
Lei Zhang
Fucun Wang
Paul StringerB
Total
Face value at
date of grant $A
Number of Performance
Rights granted
3,159,574
225,227
929,573
335,333
4,649,707
668,693
47,667
196,735
70,970
984,065
A The performance share rights noted above have been allocated and will be issued on or after 26 February 2019. The number of performance rights granted is calculated as the maximum LTIP award opportunity divided by the
VWAP across a 20-day trading period spread evenly either side of 31 December 2017. The number of performance share rights was adjusted due to the 35:1 share consolidation undertaken by the Company in September
2018.
B Paul Stringer is considered a KMP from 29 May 2018 to 31 December 2018.
Whilst appointed as CEC, Baocai Zhang was entitled to participate in the LTIP but elected not to.
3.7 Looking forward to 2019
Following the remuneration review and benchmarking undertaken in 2018, and subsequent changes to FAR and incentive frameworks for 2018, the structure
and quantum of remuneration (including incentives) will remain unchanged in 2019 apart from increases to fixed remuneration in accordance with standard
market practice.
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 77
4. REMUNERATION TABLE
4.1 Executive KMP Remuneration
Table 10 sets out the details of remuneration earned by Executive KMP, calculated in accordance with applicable Accounting Standards
TABLE 10: Statutory Remuneration of Executive KMP in 2017 and 2018
Short-term benefits
Post-employment
benefits
STI
Other BonusA
Non-monetary
benefits
Superannuation
benefits
Name
Reinhold Schmidt
Lei Zhang
Baocai ZhangB
Fucun WangC
Paul StringerD
Total
Year
2018
2017
2018
2017
2018
2017
2018
2018
2018
2017
Cash Salary
1,602,234
1,138,553
449,951
394,371
150,573
322,721
162,720
370,544
700,623
1,504,979
119,866
224,842
356,707
634,221
212,925
594,878
–
2,108,389
–
679,980
–
905,381
–
–
2,736,022
1,855,645
1,984,999
2,364,042
–
3,693,750
109,585
134,280
5,644
7,373
2,613
1,612
–
77,278
195,120
143,265
22,766
30,000
20,290
19,832
10,024
19,832
10,266
11,949
75,295
69,664
Long-term
benefits
Long Service
Leave
140,696
81,639
34,729
14,728
–
31,293
137
8,764
184,326
127,660
Share-based payments
STI Deferred
LTI
Total
% performance
related
700,623
–
119,866
–
–
–
212,925
594,878
1,628,292
–
631,915
1,761,642
45,045
60,840
–
–
185,915
67,067
929,941
1,822,482
3,908,443
6,759,482
795,392
1,401,965
519,917
1,915,060
784,887
1,725,357
7,733,995
10,076,507
52%
80%
36%
69%
69%
80%
78%
73%
59%
78%
A Comprise special transaction and break even incentives accrued in 2017 and paid in shares during 2018. The number of shares granted was calculated by dividing the award value by the VWAP across a 20-day trading period
spread evenly either side of 31 December 2017.
B Baocai Zhang was an Executive Director until 8 June 2018.
C Fucun Wang was an Executive Director from 26 June 2018.
D Paul Stringer is considered a KMP from 29 May 2018 to 31 December 2018.
Particulars regarding the Directors ’ , senior management ’ s and Key Management Personnel ’ s remuneration and the five highest paid employees as required
to be disclosed pursuant to Appendix 16 of the HK Listing Rules are set out in note B4 to the financial statements.
During the financial year ended 31 December 2018, no emoluments were paid by the Group to any of the Directors or the five highest paid employees as
an inducement to join or upon joining then Group or as compensation for loss of office as a director of any member of the Group or in connection with the
management of the affairs of any members of the Group.
DIRECTORS’ REPORT ANNUAL REPORT 2018 78
5. SERVICE AGREEMENTS
For Non-Executive Directors, the terms and conditions of their appointment are outlined in a letter of appointment. For Executive KMP, the terms and
conditions of their employment are outlined in their Executive Service Agreement ( “ ESA ” ) with the Company.
Following developments in the Group organisation structure, the 2018 remuneration review and consideration of the remuneration recommendations
received, new ESAs have been put in place effective 2018.
TABLE 11: Certain ESA terms for each of the Executive KMP
Executive KMP
Position
Term of ESA
Notice Period
Termination Benefit
Reinhold Schmidt
Chief Executive Officer
Unlimited
Lei Zhang
Chief Financial Officer
Unlimited
Baocai ZhangC
Executive Director,
Unlimited
Co-Vice Chairman,
Chair of the Executive
Committee
Fucun Wang
Executive Director,
Unlimited
Co-Vice Chairman,
Chair of the Executive
Committee
Paul Stringer
Chief Operating Officer
Unlimited
A Notice period applicable if the Executive resigns.
B Notice period applicable if the Company terminates the Executive.
C Baocai Zhang was an Executive Director until 8 June 2018.
6 monthsA
12 monthsB
3 monthsA
6 monthsB
3 monthsA
6 monthsB
6 monthsA
12 monthsB
3 monthsA
6 monthsB
• Nil for cause or resignation.
•
If ceasing employment for any other reason i.e. as a
‘ Good Leaver ’ , a pro-rata payment in accordance with
STIP or LTIP plan rules is at the Board
• Nil for cause or resignation.
•
If ceasing employment for any other reason i.e. as a
‘ Good Leaver ’ , a pro-rata payment in accordance with
STIP or LTIP plan rules is at the Board ’ s discretion.
• Nil for cause or resignation.
•
If ceasing employment for any other reason i.e. as a
‘ Good Leaver ’ , a pro-rata payment in accordance with
STIP or LTIP plan rules is at the Board ’ s discretion.
• Nil for cause or resignation.
•
If ceasing employment for any other reason i.e. as a
‘ Good Leaver ’ , a pro-rata payment in accordance with
STIP or LTIP plan rules is at the Board ’ s discretion.
• Nil for cause or resignation.
•
If ceasing employment for any other reason i.e. as a
‘ Good Leaver ’ , a pro-rata payment in accordance with
STIP or LTIP plan rules is at the Board ’ s discretion.
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 6. NON-ExECUTIVE DIRECTOR FEES
Objective
TABLE 12: Board and Board Committee fees
The Board seeks to set remuneration for Non-Executive Directors at a level
which:
Board Fees per annum
(including any superannuation)
• provides the Company with the ability to attract and retain Directors of
Chairman of the Board
79
2018
$
Not applicable
330,000
150,000A
30,000
15,000
30,000
15,000
30,000
15,000
Independent 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
Not applicable
Strategy and Development Committee – Member
15,000
A Other than as noted in Table 13: Details of Non-Executive Directors Remuneration
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 2018 was $985,499.
During 2018, Non-Executive Directors were remunerated by way of
fixed fees in the form of cash and superannuation (to the maximum
superannuation guarantee cap). A change was made to the Board and
Board Committee fees from 2017 to 2018 with the Independent Co-Vice
Chairman ’ s remuneration increasing to $330,000. No equity instruments
were issued to Non- Executive Directors over 2018 as part of their
remuneration package. No element of the Non-Executive Director fees is
linked to performance.
Neither Board nor Board Committee fees were paid to:
• Executive Directors Baocai Zhang and Fucun Wang as the responsibilities
of Board Committee membership are considered in determining the
remuneration provided as part of their normal employment conditions.
• Nominee Directors of Yanzhou as the responsibilities of Board or
Board Committee membership were considered part of their role
and remuneration arrangements with their nominating company. The
Directors of Yanzhou and China Cinda (HK) Holdings Company Limited
Group ( “ Cinda ” ) were as follows:
o Xiyong Li
o Cunliang Lai
o Xiang Qian Wu
o Fuqi Wang
o Baocai Zhang
o Fucun Wang
o Qingchun Zhao
o Xing Feng
DIRECTORS’ REPORT ANNUAL REPORT 2018
80
Table 13 sets out the details of remuneration (in the form of Board and Committee fees and other benefits) earned by Non- Executive Directors, that were
eligible for compensation, calculated in accordance with applicable Accounting Standards.
TABLE 13: Details of Non-Executive Directors ’ Remuneration, earned in 2017 and 2018
Name
Huaqiao Zhang
Gregory James Fletcher
Geoffrey William Raby
David James Moult
Helen Jane Gillies
Vincent O ’ Rourke
Total
Short-Term Benefits
Post-Employment Benefits
FeesA
STI or Bonus
Non-Monetary
Benefits
Superannuation
Long Service
Leave
7,296
102,492
398,074
569,089
176,500
267,138
191,972
–
198,494
–
13,163
270,138
985,499
1,208,856
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
725
9,737
19,200
38,585
15,913
15,688
18,237
–
18,857
–
1,307
15,688
74,239
79,698
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Total
8,021
112,229
417,274
607,674
192,413
282,826
210,209
–
217,350
–
14,470
285,826
1,059,738
1,288,554
A Includes the following transaction-specific remuneration paid:
• Huaqiao Zhang – 2017: $10,959. Mr Zhang resigned on 30 January 2018.
• Gregory James Fletcher – 2018: $112,500; 2017: $403,951.
• Geoffrey William Raby – 2018: $11,740; 2017: $102,000.
• David James Moult – 2018: $24,658.
• Helen Jane Gillies – 2018: $43,836.
• Vincent O ’ Rourke – 2017: $105,000. Mr O ’ Rourke resigned on 30 January 2018.
The following Non-Executive Directors received nil fees in 2017 and 2018: Cunliang Lai, Fuqi Wang, Xiangqian Wu, Qingchun Zhao, Xing Feng, Xiyong Li.
7. SHARE TRADING POLICY AND INSIDER TRADING POLICY
The Company ’ s Share Trading Policy prohibits dealing in Company securities or Yanzhou securities by KMP and other relevant employees, as well as
their closely related persons, during specified blackout periods each year and when they are in possession of ‘ inside information ’ . Directors, KMP and
their closely related persons are also prohibited from dealing in securities of a listed company where he or she is in possession of inside information in
relation to those securities. Subject to compliance with the Company ’ s Share Trading Policy and Insider Trading Policy, employees are permitted to deal in
Company securities or Yanzhou securities outside these blackout periods where they are not in possession of inside information; 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. Each Director and KMP is required to provide a
declaration at the end of each financial year certifying that they (and their closely related persons) have complied with the Share Trading Policy and the Insider
Trading Policy for the duration of that financial year.
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 81
8. EqUITY INSTRUMENT DISCLOSURES
The numbers of shares in the Company held during the financial year by each Director of the Company and other KMP of the Group, including their
personally related parties, are set out below.
TABLE 14: Movement in Shares held by KMP in 2018
Name
Gregory James Fletcher
Reinhold SchmidtD
Baocai ZhangE
Vincent O ’ RourkeF
Gregory J O ’ RourkeG
Geoffrey William Raby
Lei Zhang
Ying ZhangH
Paul Stringer
A Or date considered KMP, if later.
Held at
1 January
2018A
24,320
Granted as
compensation
–
3,453,158
7,476,555
5,905,873
3,210,569
1,119,565
39,525
800,000
–
–
–
–
2,411,277
988,142
–
–
1,964,564
Converted
45,070C
–
–
–
–
–
–
–
–
Held at 28 September 2018
Pre-share
consolidation
Post-share
consolidation
Granted as
compensation
69,390
10,929,713
9,116,442
n/a
n/a
80,000
2,411,277
988,142
1,964,564
1,983
312,278
260,471
n/a
n/a
22,857
68,894
28,233
56,131
–
–
–
n/a
n/a
–
–
–
–
Held at
31 December
2018
2,100
312,278
274,404
n/a
n/a
22,857
68,894
28,233
56,131
PurchasedB
117
–
13,933
n/a
n/a
–
–
–
–
B Shares relate to the accelerated pro-rata renounceable retail entitlement offer detailed in the Entitlement Offer Booklet dated 29 November 2018.
C On 31 January 2018, Mr Gregory Fletcher converted 24 Subordinated Capital Notes issued by Yancoal SCN, a wholly owned subsidiary of Yancoal, to 45,070 fully paid ordinary shares in Yancoal.
D During 2018 7,476,555 shares were granted to Reinhold Schmidt as compensation and are held by RSWC Pty Limited, a related party. This holding comprised 213,616 shares post share consolidation and as at 31 December
2018.
E Mr Baocai Zhang ceased as a KMP on 8 June 2018 but remains a Non-Executive Director.
F On 30 January 2018, Mr Vincent O ’ Rourke ceased to be a Director of Yancoal.
G Mr Gregory James O ’ Rourke is a related party of Mr Vincent O ’ Rourke.
H Mrs Ying Zhang is a related party of Mr Lei Zhang.
No other KMP held any shares in respect of Yancoal Australia Ltd or its related entities at or during the year ended 31 December 2018.
TABLE 15: Movement in Other Equity Instruments held by KMP in 2018
The number of performance rights held by KMP in 2018 is outlined in the table below
Name
Instrument
Reinhold Schmidt
Lei Zhang
LTIPA
Special IncentivesB
STIP DeferralC
LTIPA
Special IncentivesB
STIP DeferralC
Baocai ZhangD
Special IncentivesB
Fucun Wang
LTIPA
STIP DeferralC
Paul StringerE
LTIPA
Special IncentivesB
STIP DeferralC
Held at
1 January
2018
–
–
–
–
–
–
–
–
–
–
–
Granted as
compensation
668,693
Vested
during
the year
–
7,476,555
(7,476,555)
209,285
47,667
–
–
2,411,277
(2,411,277)
35,805
–
3,210,569
(3,210,569)
196,735
63,603
70,970
–
–
–
1,964,564
(1,964,564)
177,698
–
Exercised
during year
Lapsed
during year
Held at
31 December
2018
Of which
exercisable
Of which not
vested and not
exercisable
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
668,693
–
209,285
47,667
–
35,805
–
196,735
63,603
70,970
–
177,698
–
–
–
–
–
–
–
–
–
–
–
–
668,693
–
209,285
47,667
–
35,805
–
196,735
63,603
70,970
–
177,698
A Relating to the 2018 LTIP award. The number of performance rights granted is calculated as the maximum LTIP award opportunity divided by the VWAP across a 20-day trading period spread evenly either side of 31 December
2017. The number of performance share rights was adjusted due to the 35:1 share consolidation undertaken by the Company in September 2018.
B Relating to the special incentives and transaction bonuses in relation to 2017 performance which were to be settled in cash, but were settled in equity. Performance rights were granted on 30 May 2018 and vested on
1 September 2018. The number of shares granted was calculated by dividing the award value by the VWAP across a 20-day trading period spread evenly either side of 31 December 2017.
C Relating to the portion of 2018 STIP that is deferred into equity.
D Baocai Zhang was an Executive Director until 8 June 2018.
E Paul Stringer is considered a KMP from 29 May 2018 to 31 December 2018.
DIRECTORS’ REPORT ANNUAL REPORT 2018 82
9. OTHER TRANSACTIONS WITH AND LOANS TO DIRECTORS AND
ExECUTIVES
A number of Directors and Executives 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 KMP 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 E3). There were
no loans provided to Directors and Executives during the year.
Directors ’ Interests in Transactions, Arrangements or Contracts
No transactions, arrangements or contracts of significance in relation to the
Group ’ s business to which any of the Company ’ s subsidiaries and fellow
subsidiaries was a party, and in which a Director or an entity connected with
a Director had a material interest, whether directly or indirectly, subsisted at
any time during the year or at the end of the year.
Insurance of officers or auditors
Rule 10.2 of Yancoal ’ s Constitution requires Yancoal to indemnify, to
the full extent permitted by law, each Officer of the Company against
liability incurred by the Officer as a Director or an Officer of the Company.
The Directors named in this report, along with the Company Secretary,
Chief Executive Officer and Chief Financial Officer, have the benefit of this
requirement, as do individuals who formerly held one of those positions.
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.
• Assistance review and preparation of materials used in connection with
the Hong Kong listing; and
• Agreed upon procedures review of charges between joint ventures.
The Board of Directors have 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:
TABLE 16: Auditor ’ s Fees in 2018
ShineWing Australia
2018
$
2017
$
Audit and review of financial statements
1,808,000
1,258,500
Non-audit services:
Other assurance services
Taxation compliance
Total services remuneration of
ShineWing Australia
982,000
84,000
1,010,000
54,000
2,874,000
2,322,500
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 83.
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.
Non-audit services
This report is made in accordance with a resolution of the Directors.
The Company may decide to employ the auditor on assignments additional
to its 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.
During the year, the auditors provided the following non-audit services to the
Company:
• Preparation of the accountant ’ s report in connection with Hong Kong
listing;
Fucun Wang
Director
Sydney
5 April 2019
YANCOAL AUSTRALIA LTDDIRECTORS’ REPORT (CONTINUED) 83
Take the lead
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 2018 there have been:
1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
2. No contraventions of any applicable code of professional conduct in relation to the audit.
ShineWing Australia
Chartered Accountants
R Blayney Morgan
Partner, Sydney
Monday, 25 February 2019
Brisbane
Level 33
Riparian Plaza
71 Eagle Street
Brisbane QLD 4000
T + 61 7 3085 0888
Melbourne
Level 10
530 Collins Street
Melbourne VIC 3000
T + 61 3 8635 1800
F + 61 3 8102 3400
Sydney
Level 8
167 Macquarie Street
Sydney NSW 2000
T + 61 2 8059 6800
F + 61 2 8059 6899
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.
shinewing.com.au
AUDITOR’S INDEPENDENCE DECLARATIONAUDITOR’S INDEPENDENCE DECLARATION ANNUAL REPORT 2018
84
INTRODUCTION
The Company adopts an approach to corporate governance based
on international best practice as well as Australian and Hong Kong law
requirements. The Board and management are committed to corporate
governance.
ASx CORPORATE GOVERNANCE STATEMENT
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 ASX Recommendations and the main corporate governance
policies and practices adopted by the Company.
HK LISTING AND COMPLIANCE WITH THE HONG KONG CORPORATE
GOVERNANCE CODE
The Company has also adopted the provisions of the Corporate Governance
Code in Appendix 14 (the HK Code) to the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited (the HK Listing
Rules) as part of its corporate governance policy effective upon its listing on
the Main Board of The Stock Exchange of Hong Kong Limited (HKEx) on 6
December 2018 (the HK Listing).
Since the date of the HK Listing, the Company has implemented and applied
the principles contained within the HK Code in conducting the Company ’ s
business, including reflecting those principles in the Company ’ s Board
Charter and relevant policies. In the opinion of the Board, the Company has
complied with the code provisions of the HK Code (in addition to the relevant
principles of the ASX Recommendations) since the HK Listing up to and
including 31 December 2018. The conduct of the Company ’ s compliance
with the principles is discussed further in this statement.
PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND
OVERSIGHT
Role of the Board
The Board is responsible for the overall corporate governance, leadership
and control 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 over the longer-term. Directors
are expected to exercise their decision making in the best interests 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.
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 and provides for a
clear division of responsibility between management and the Board. The
Executive Committee Charter also provides the financial decision authorities
and appropriate approval thresholds at different levels which have been
approved by the Board.
Given the delegation of the day to day management of the Company, it
is the responsibility of management, with the assistance of the Company
Secretary, to provide the Directors with timely, adequate and appropriate
information to assist the Directors in making informed decisions and to be
able to effectively perform their duties and responsibilities.
SENIOR ExECUTIVE CONTRACTS
The Company ’ s senior Executives are employed under employment
contracts that set out the terms of their employment. In 2018, the
Nomination and Remuneration Committee engaged external remuneration
consultants to provide independent market benchmarking with respect
to the remuneration of Yancoal Executives and Non-Executive Directors.
This included providing remuneration recommendations to better align
management with shareholder interests. As a result of this process, all senior
Executives signed new employment contracts during 2018.
Company Secretary
The Company Secretary supports and is accountable to the Board, through
the Chairman of the Board (Chairman), on all matters to do with the proper
functioning of the Board. The Company Secretary facilitates the timely flow
of information within the Board and between the Board and management.
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 and facilitating
induction processes and the ongoing professional development of
Directors;
• ensuring that the Board Charter and relevant policies and procedures are
followed;
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.
• 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.
Corporate GovernanCe StatementYANCOAL AUSTRALIA LTD 85
The Company Secretary is Laura Ling Zhang. Ms Zhang is in the process of
completing at least 15 hours of professional training to update her skills and
knowledge by 30 June 2019, as required by the HKEx.
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, facilitated by the Company Secretary, 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.
In identifying candidates, the Nomination and Remuneration Committee
considers and selects 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, the 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. In carrying out its duties,
the Committee has regard to the ASX Principles and the principles in the HK
Code, in particular, principles A.3 and A.4.
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.
Each non-executive Director has been appointed for an initial term of not
more than 3 years (and will be subject to retirement by rotation at least
once every 3 years under rule 8.1 of the Company ’ s Constitution, pending
re-election by the shareholders at an annual general meeting). Each
independent non-executive Director has been appointed for an initial term of
not more than 3 years and will be subject to retirement by rotation at least
once every 3 years under rule 8.1 of the Company ’ s Constitution, pending
re-election by the shareholders at an annual general meeting.
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 ANNUAL REPORT 2018 86
The measurable objectives adopted for 2018 and the Company ’ s
performance against the measurable objectives are outlined in the table
below:
Objective
Performance
The Yancoal Code of Conduct was reviewed and
a new version was approved in May 2018.
Employees across the Company have access
to the current version of the 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.
1. To increase
employee
awareness and
understanding of
the importance
of diversity by
implementing
training on the
Company ’ s
Diversity Policy
and Workplace
Behaviour and
Anti-Discrimination
Policy.
2. To target a diverse
group of candidates
with recruitment
and selection
procedures that are
merit-based and
non-discriminatory.
Objective
Performance
3. Continue to ensure
our managers are
adept recruiters,
retainers and
motivators of our
diverse workplace.
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 be rolled out
across the Company. The message of continuous
improvement is promoted during recruitment,
induction and performance reviews to promote a
culture that encourages engagement, diversity and
continuous learning.
The Company continues 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.
The Company conducts the following formal
training schemes:
• Leadership Development Program for
managers to develop managerial and
leadership skills. Components of this training
include “ Conversations Our-Way ” and “ Great
Team Frameworks ” ;
• Technical Competency Training is a
competency assurance program for certain
operational roles at mine sites to ensure
that personnel are properly trained in the
competencies they require to safely and
effectively carry out those roles;
• Graduate training program which involves
providing on-the-job training and cadetships
for graduate and student mining engineering
students; and
• Front-line Leadership Program is intended to
prepare employees with the skills required to
advance into supervisory and managerial roles.
4. Communicate
the Company
Recruitment Policy
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.
YANCOAL AUSTRALIA LTDCorporate GovernanCe Statement (ContInUeD) 87
The Board has set the following measurable objectives in relation to gender
diversity for 2019:
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 and 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.
As at 31 December 2018, the proportion of women who were directly
employed by the Company as a whole was 10%: 299 Full-time, 15 Part-
time and 4 Casual. There was no change between 2017 and 2018 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 2018 was 9%:
Women held 1 of 11 senior management roles within the Company.
On and from 30 January 2018, one female Non-Executive Director sits on
the 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. Directors are also expected to
be fully aware of their duties of care and skill, as well as fiduciary duties, as a
Director.
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.
CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT 2018 88
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.
The requirements of the principles set out in the HK Code in respect of
performance of the Directors will be taken into account in undertaking future
Director reviews.
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 2019 (in respect of 2018) in accordance with the process disclosed
above.
PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE
Structure of the Board
Currently, the Board comprises:
• Executive Director: Fucun Wang (appointed as a Non Executive Director
on 8 June 2018 and was subsequently redesignated to an Executive
Director effective 26 June 2018.);
• Non-Executive Directors: Baocai Zhang (redesignated from an Executive
Director to a Non Executive Director on 8 June 2018), Cunliang Lai,
Qingchun Zhao, Xiangqian Wu, Fuqi Wang and Xing Feng; and
•
Independent Non-Executive Directors: Geoffrey William Raby, Gregory
James Fletcher, David James Moult (appointed 30 January 2018) and
Helen Jane Gillies (appointed 30 January 2018).
Xiyong Li resigned from the role of Chairman of the Board and Non-
Executive Director on 8 June 2018.
The following Independent Non-Executive Directors resigned from the
Board: 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 61.
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.
The number of meetings held by the Board during 2018 and each director ’ s
attendance at these meetings is set out in the Directors ’ Report on page 67.
Chairman of the Board
The current Chairman, Baocai Zhang, 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, Fucun Wang and Gregory Fletcher, also represent the Company
in the wider community.
The Chief Executive Officer is Reinhold Schmidt. The CEO is responsible
for conduct and supervision of the management function of the Company,
including implementing strategic objectives, plans and budgets approved by
the Board. The CEO has overall responsibility for the Company ’ s operations
(other than as delegated to the Chairman of the Executive Committee (CEC))
and undertaking such responsibilities as may be delegated to him by the
Board from time to time. The CEO is accountable to the Board and reports
to the Chairman of the Board and the CEC.
The roles of the Chairman and the CEO are separate and assumed by
different individuals to ensure a balance of power and authority, so that
power is not concentrated in any one individual of the Board. There is a clear
division of responsibilities between the Chairman and the CEO.
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.
YANCOAL AUSTRALIA LTDCorporate GovernanCe Statement (ContInUeD) 89
The purpose of each of the Board committees is outlined below.
Committee
Audit and Risk
Management Committee
Purpose
The committee ’ s objectives are to:
• help the Board in relation to the reporting of financial information.
Membership
Independent Non-Executive Directors:
Gregory Fletcher – Chair
David Moult (appointed 8 June 2018)
Helen Gillies (appointed 8 June 2018)
• advise on the appropriate application and amendment of accounting policies;
Geoffrey Raby (resigned on 8 June 2018)
• make evaluations and recommendations to the shareholders of the
Non-Executive Directors:
Company regarding the external auditor;
•
recommend to the Board the remuneration of the external auditor for
Qingchun Zhao
(minimum of three Non-Executive
Directors, a majority of whom are
shareholder approval as required in accordance with the Constitution;
independent)
• 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;
• ensure the systems in place to identify, monitor and assess risk are
appropriate and operating effectively; and
• assess the independence of the external auditor.
During the financial year ended 31 December 2018, work performed by the
committee included:
•
review and endorsement of the Company ’ s Annual Financial Results;
• consideration of external audit reports and approval of external auditor ’ s
audit plan;
• consideration of the Company ’ s asset impairment assessments;
• annual review of the Company ’ s Charters and Policies;
• evaluation of the Company ’ s debt facilities and 2018 debt prepayments
along with consideration of the Company ’ s dividend payments; and
• oversight and endorsement of the Company ’ s listing on the HKEx.
CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT 2018 90
Committee
Purpose
Health, Safety and
The committee assists the Board to:
Environment Committee
Membership
Independent Non-Executive Directors:
David Moult – Chair (appointed 6 February
•
fulfil its responsibilities in relation to the health, safety, environment, social
2018)
and governance (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
Geoffrey Raby
Vincent O ’ Rourke AM (former Chair)
(resigned 30 January 2018)
Non-Executive Directors:
Fuqi Wang
Executive Directors:
• provide necessary focus and guidance on HSE matters across the
Fucun Wang (appointed 8 June 2018)
Company.
(minimum of three Directors)
During the financial year ended 31 December 2018, work performed by the
committee included:
• monitoring the Company ’ s ongoing health and safety and environmental
performance, including significant incidents and regulatory investigations;
• monitored the ongoing integration of the Company ’ s health and safety
systems for the acquired Coal & Allied mine sites.
• overseeing major initiatives, including the Principal Hazard Management
Project, Contractor Management project, MTW Fatigue Management Project
and the Yancoal Community Support Program;
• considering independent environmental assurance audits for various
Company mine sites, including Moolarben, MTW and Ashton; and
• considering the Company ’ s updated Enterprise Risk Management
approach.
YANCOAL AUSTRALIA LTDCorporate GovernanCe Statement (ContInUeD) 91
Committee
Purpose
Membership
Nomination and
The committee assists the Board of the Company by making recommendations
Independent Non-Executive Directors:
Remuneration Committee
in relation to:
• Board composition and succession planning for the Board;
Helen Gillies – Chair (appointed 8 June
2018) and member from 6 February 2018
Gregory Fletcher (appointed 8 June 2018)
David Moult (appointed 8 June 2018)
• Director remuneration (subject to any shareholder approval that is required
in accordance with the Constitution and the ASX Listing Rules) and
Non-Executive Directors:
remuneration arrangements for the Executive Committee and any other
Xiyong Li – former chair (resigned on 8
person nominated as such by the committee from time to time;
June 2018)
Xiangqian Wu
•
the public reporting of remuneration for Directors and the Company ’ s
Executive Committee;
Baocai Zhang (appointed 8 June 2018)
Cunliang Lai (resigned 8 June 2018)
•
the performance assessment of the Executive Committee;
• designing company policy and regulations with regard to corporate
(minimum of three Non-Executive
Directors, a majority of whom are
independent)
governance; and
• diversity.
During the financial year ended 31 December 2018, work performed by the
committee included:
• consideration of re-election of Directors;
• undertaking a review of the Company ’ s organisational structure and
composition of the Executive Committee;
•
review of the 2017 Corporate Governance Statement, including diversity and
measurable objectives;
•
finalisation and endorsement of Company short-term and long-term incentive
plans and Company salary indexation and performance assessment
implementation; and
• annual review of Company Charters and Corporate Governance policies.
CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT 2018 92
Committee
Strategy and
Development Committee
Purpose
Membership
The committee assists the Board in its oversight and review of the Company ’ s
strategic initiatives, including:
Independent Non-Executive Directors:
Geoffrey Raby (appointed 8 June 2018)
• merger and acquisition proposals;
• major capital markets transactions;
• significant investment opportunities; and
Non-Executive Directors:
Baocai Zhang – Chair
Qingchun Zhao
Fuqi Wang
Xing Feng (appointed 6 February 2018)
Huaqiao Zhang (resigned 30 January
• proposals to dispose of significant Company assets.
2018)
(minimum of three Directors)
During the financial year ended 31 December 2018, work performed by the
committee included:
• consideration of capital management issues, including share consolidation,
early debt repayment and dividend decisions;
• evaluation of various acquisition opportunities (including acquisition of a
further joint venture interest in Moolarben) and organic growth opportunities
including possible MTW underground mine development;
• consideration of proposed HK Listing; and
•
review of Stakeholder Engagement Strategy and investor relations issue.
Independent Board
An Independent Board Committee is established by the Board as and when
An Independent Board Committee is
Committees
required to manage any related party transactions.
composed of independent Non-Executive
Directors who do not have a material
A previously constituted Independent Board Committee met on various
interest in the relevant transactions.
occasions during 2018 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.
YANCOAL AUSTRALIA LTDCorporate GovernanCe Statement (ContInUeD) 93
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 (which were revised in October 2018 to provide for relevant
provisions of the HK Listing Rules) are available within the Corporate
Governance section of the Company ’ s website.
The number of meetings held by the Board and each committee during
2018 and each member ’ s attendance at these meetings is set out in the
Directors ’ Report on page 67.
On Preparation for the HK Listing, the Company reviewed the Board
composition and confirmed that the Board met the requirements of the HK
Listing Rules relating to the appointment of at least three Independent Non-
Executive Directors, representing one-third of the Board with one of whom
possesses appropriate professional qualifications or accounting or relevant
management expertise.
The independent Non-Executive Directors have confirmed their
independence in accordance with Rule 3.13 of the HK Listing Rules, and
the Company has received from each of the independent Non-Executive
Directors an annual confirmation on his/her independence as required under
Rule 3.13 of the HK Listing Rules. Accordingly, the Company considers that
the independent Non-Executive Directors continue to be independent.
Other committees may be established by the Board as and when required.
Independence Standard
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
In determining the composition of the Board, the Company has regard to
the balance of Executive and Non-Executive Directors to ensure that there
is a strong independent presence on the Board to exercise independent
judgement.
The Board comprises 11 Directors, of whom four 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)
and Helen Gillies (appointed 30 January 2018). During their appointment,
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.
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) and Rule 3.13 of the
HK Listing Rules. 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, Baocai Zhang, 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.
CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT 2018 94
Board skills matrix
The Board represents a balance of skills, experience and diversity of
perspectives appropriate to the requirements of the Company ’ s business.
The table below sets out the skills and experience that are currently
represented on the Board.
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
4
4
10
4
11
11
8
7
7
9
5
6
5
9
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 Directors duties and
developments in workplace health and safety law.
In preparation for the HK Listing, all Directors undertook training in respect
of matters relating to the HK Listing (including in respect of the principles in
the HK Code) and its interaction with the ASX Listing Rules on 12 June 2018
(English) and 14 June 2018 (Chinese). The training was conducted by the
Company ’ s Hong Kong and Australian based legal advisors.
YAL Directors ’ Training 2018
Directors ’ Full Name
Baocai Zhang
Fucun Wang
Cunliang Lai
Xiangqian Wu
Fuqi Wang
Qingchun Zhao
Xing Feng
Gregory Fletcher
Geoffrey Raby
David Moult
Helen Gillies
Date Conducted
14-Jun-18
14-Jun-18
14-Jun-18
14-Jun-18
14-Jun-18
14-Jun-18
14-Jun-18
12-Jun-18
12-Jun-18
12-Jun-18
12-Jun-18
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.
The key values underpinning the Code of Conduct are:
• our actions must be governed by the highest standards of integrity and
fairness;
• 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,
shareholder and the Company alike.
An updated Code of Conduct was approved by the Board in October 2018
and is being implemented within the business. 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.
YANCOAL AUSTRALIA LTDCorporate GovernanCe Statement (ContInUeD) 95
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 is responsible for preparing the financial statements and accounts
of the Company. The Board has established an Audit and Risk Management
Committee, which 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 also enables the Board to
maintain a transparent relationship with the Company ’ s internal and external
auditors.
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 (which was revised in October 2018 to capture the relevant
provisions of the HK Listing Rules) provides clear terms of reference and 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, David Moult
(appointed 8 June 2018) and Helen Gillies (appointed 8 June 2018). Former
Committee member Geoffrey Raby resigned on 8 June 2018.
The committee consists only of Non-Executive Directors with a majority
being independent. Consistent with the ASX Recommendations and the HK
Listing Rules, 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 61.
The Company has also employed a full time General Manager (GM) of Risk
and Assurance. 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 2018 and the full year ended 31 December
2018, 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.
The statement of the external auditor, ShineWing Australia, about reporting
responsibilities on the financial statements of the Group is set out under
the heading “ Independent Auditor ’ s Report To the Members of Yancoal
Australia Ltd ” in this annual report.
The Directors confirm that, to the best of their knowledge, information
and belief, having made all reasonable enquiries, they are not aware of
any material uncertainties relating to events or conditions that may cast
uncertainties relating to events or conditions that may cast significant doubt
upon the Company ’ s ability to continue as a going concern.
An analysis of remuneration (including details of the amounts paid or
payable) to the auditor for audit and non-audit services provided during the
financial year ended 31 December 2018 are set out in the Director ’ s Report
on page 68.
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.
This policy was revised in October 2018 to capture the relevant disclosure
obligations under the HK Listing Rules. 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.
CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT 2018 96
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 and HKEx platforms 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 making media
briefings available within the Investor section of the Company ’ s website.
The Board considers one of its key responsibilities to be communication
with shareholders and, accordingly, 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 principal and branch share registries,
Computershare Investor Services Pty Limited and Computershare Hong
Kong Investor Services Limited, electronically.
The Company ’ s Shareholder Communication Policy which was reviewed
and approved by the Board in October 2018 to capture the relevant
requirements of the HK Listing Rules, can be found within the Corporate
Governance section of the Company ’ s website.
Paragraph 44 of the HK Joint Policy Statement requires that members
holding a minority stake in an overseas company must be allowed to
convene an extraordinary general meeting and add resolutions to a meeting
agenda. The minimum level of members ’ support required to convene a
meeting must be no higher than 10%.
Under section 249D of the Australia Corporations Act, Shareholders
with at least 5% of the votes that may be cast at a general meeting may
request the Directors to call a general meeting or may convene a general
meeting themselves at their own expense under section 249F of the
Australia Corporations Act. Any such request must be in writing, must
state any resolution to be proposed at the meeting, must be signed by the
shareholder making the request and must be given to the Company.
Under section 249N of the Australia Corporations Act, Shareholders
representing at least 5% of the total votes that may be cast on the resolution
or at least 100 Shareholders who are entitled to vote at a general meeting
may give the Company notice requiring resolutions to be put before a
general meeting. The notice must be in writing, must set out the wording of
the proposed resolution and must be signed by the shareholders proposing
to move the resolution.
Apart from the general meetings, the Company ’ s website is an effective
means of communication with Shareholders.
Any Shareholders who have questions or comments on what the Company
is doing are most welcome to contact the Company at any time through the
website. Shareholders may raise enquiries to the Board by contacting the
Group ’ s Investor Relations team, including at shareholder@yancoal.com.au.
Upon receipt of the enquiries, the Investor Relations team will forward the
Shareholders ’ enquiries and concerns to the Board, Board committees or
the management as appropriate.
Amendments to the Company ’ s Constitution
At a general meeting of Shareholders held on 26 September 2018,
Shareholder approval to amend the Constitution was sought and obtained.
The Constitution was amended by:
a) Amending the definition of “ Exchange ” by replacing the word “ or ” with
the word “ and ” in the first line, so the definition reads:
“ ASX Limited and such other body corporate that is declared by the
Directors to be the company ’ s primary stock exchange for the purposes
of this definition. ”
b) Inserting a new rule 7.9(u) as follows:
“ For the purposes of this rule 7.9, a recognised clearing house (within
the meaning of the Securities and Futures Ordinance (Chapter 571
of the laws of Hong Kong) or its nominee(s) may appoint or authorise
any number of proxy(ies), attorney(s) or Representative(s) to cast votes
attaching to voting shares that it holds in the company, provided that
if 2 or more proxies, attorneys or Representatives are appointed or
authorised to vote at the same general meeting, the proxy form or
authorisation must specify the number and class of voting shares in
respect of which each proxy, attorney or Representative is appointed or
authorised to vote. Each person so authorised under the provisions of
this constitution shall be deemed to have been duly authorised without
further evidence of the facts and be entitled to exercise the same power
on behalf of the recognised clearing house as that clearing house or its
nominee(s) could exercise as if it were an individual shareholder of the
company. ”
c) Inserting a new rule 11.2 as follows:
“ Subject to applicable laws, regulations and the Listing Rules and
notwithstanding any other rules in this constitution, the company or the
Directors may fix any date as the record date for:
(a) determining the members entitled to receive any dividend, distribution,
allotment or issue;
(b) determining the members entitled to receive notice of, and to vote at,
any general meeting of the company; and
(c) any other corporate action requiring a record date to be set. ”
YANCOAL AUSTRALIA LTDCorporate GovernanCe Statement (ContInUeD) 97
The GM of Risk and Assurance is responsible for establishing and managing
the company wide risk management framework, risk management system
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 GM of Risk and Assurance is
responsible for developing a risk matrix and framework and for implementing
related risk-based assurance processes for the Company and its
subsidiaries. The GM of Risk and Assurance annually confirms the continued
effectiveness of the risk framework to the Audit and Risk Management
Committee.
The responsibility for managing risks, risk controls or risk management
action plans is embedded within the business and undertaken as part of
everyday activities. The Board recognises and acknowledges that, while risk
management controls and systems can be effective in managing risks, they
cannot eliminate all risks relevant to the Company achieving its objectives
and cannot provide absolute assurance against material misstatement or
loss.
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, assess and manage any material
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
treatment strategies to manage 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.
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 to enable it to
assess the type and extent of relevant risks in its decision making.
In particular, the Board ensures that:
•
•
the material strategic, operational, financial reporting and compliance
risks are identified and evaluated; and
risk management, control and reporting systems are in place to identify,
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.
In 2018, the Audit and Risk Management Committee had in place a
framework to identify, assess, manage risks that are material to the
business. This framework includes:
•
•
implementation of a corporate risk management standard approved by
the Audit and Risk Management Committee and Board;
identification of material business risk by reference to a corporate risk
register, 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 GM of Risk and Assurance 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 2018 that addressed areas for continuous improvement in line with the
Australian/New Zealand standard for risk management. The framework was
considered effective.
Formal risk identification activities are guided by the Australian/New Zealand
standard for risk management and undertaken on a periodic basis; with
Risk Identification and Analysis undertaken at a functional level, as well as at
each of the Company ’ s mine sites. In addition, where appropriate, project
specific risk assessments are conducted.
CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT 2018 98
The table below identifies risks which are considered to be economic,
environmental and/or social sustainability risks.
Economic
sustainability
risks
Environmental
sustainability
risks
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
Take or pay liabilities
Uncertainty in costs forecast
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
Technology
Key Personnel
Fraud or misconduct
Environmental activism
Changes in government policy,
regulation or legislation
Environment and planning
Litigation
Insurance
Exploration and development
risks
Transport and infrastructure
Environmental risks
Health, safety and hazardous
materials risks
Impairment risks
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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 action,
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 CHPPs 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 cash flow 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 2018, the Company had a loan receivable from
Watagan of A$813 million (re-drawable up to A$1.36 billion) which is subject
to impairment testing. There is a guarantee provided by Yankuang (being
the ultimate parent entity of the Company) to indemnify the Company for any
amounts due and payable under the loan which are not paid by Watagan.
YANCOAL AUSTRALIA LTDCorporate GovernanCe Statement (ContInUeD) 99
Yanzhou ’ s and Yankuang ’ s capacity to meet their respective funding
commitments will depend on their financial position at the time and their
capacity to raise the necessary funds to meet the commitments. Yancoal ’ s
capacity to source further funding from Yanzhou will depend on Yanzhou ’ s
willingness and financial capacity to provide that funding. There can be no
assurance that Yanzhou will be in a position to provide financial support to
Yancoal or that Yankuang will be in a position to meet its obligations under
the guarantee in respect of the Watagan Agreements.
Adverse foreign exchange rate movements
Foreign exchange risk is the risk of the Company sustaining loss through
adverse movements in exchange rates. Such losses can impact the
Company ’ s financial position and performance and the level of additional
funding required to support the Company ’ s businesses.
The liabilities, earnings and cash flows of the Company are influenced
by movements in exchange rates, especially movements in the A$: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 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), changes or variations in coal quality
or geological, hydrologic or other conditions, adverse weather including
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 loan 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.
CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT 2018 100
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.
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.
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.
YANCOAL AUSTRALIA LTDCorporate GovernanCe Statement (ContInUeD) 101
NICG and WICET debt
Joint ventures and reliance on third parties
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 result in the termination of the individual contracts and require the
Company to pay its share of any outstanding senior debt, amortised over
the remaining 10 years of that particular contract. The Company ’ s current
share of the outstanding senior debt is 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 the 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 into the spot market at either index-linked or fixed
price levels. The Company ’ s strategy for 2019 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.
The Company derives a significant portion of its revenue from a limited
number of customers, and the loss of, or a reduction in, sales to any of
these customers could materially and adversely affect its business, financial
condition and results of operations.
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.
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 Company faces competition in all aspects of its business, including
sales and marketing, pricing of coal, production capacity, coal quality and
specifications, transportation capacity, cost structure and brand recognition.
The Company ’ s coal business competes in the domestic and international
markets with other large domestic and international coal producers. 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.
CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT 2018 102
The Company supplies coal as fuel to, among others, the thermal power
generation industry and, as a result, is affected by the demand and growth
of the thermal power industry. Thermal coal as a fuel source competes,
among others, with natural gas, and the price of natural gas can therefore
affect coal sales. The natural gas market has been volatile historically and
prices in this market are subject to wide fluctuations in response to relatively
minor changes in supply and demand. The thermal power generation
industry is also affected by the development of alternative energy sources,
climate change and global environmental factors.
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.
Under the Aboriginal Land Rights Act 1983 (NSW), Aboriginal Land Councils
can claim crown land if certain requirements are met. If a claim is successful,
freehold title over the relevant land is transferred to the claimant council.
Further, Aboriginal Land Councils are afforded certain statutory rights
which can include a requirement to enter into a compensation agreement
prior to the grant of a Mining Lease. This may delay the grant of future
mining tenements over any area of such land. Some of our tenements are
located in areas that are subject to outstanding Aboriginal land claims, and
additional Aboriginal land claims may be made in the future over other areas
in which our tenements are located. Any such claims may result in our ability
to explore or mine for coal in these areas being subject to the decisions
of the relevant Aboriginal Land Councils, which may adversely affect our
ability to develop projects and, consequently, our 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.
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.
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.
Native Title
Enforcement and counterparty insolvency risks
It is possible that, in relation to tenements which we have an interest in or
will in the future acquire, there may be areas over which legitimate native title
rights of Aboriginal Australians may exist. 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 Native Title Act 1993 (Cth) 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.
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 owed by that
counterparty (including under any claim for damages).
YANCOAL AUSTRALIA LTDCorporate GovernanCe Statement (ContInUeD) 103
Coal royalties
Technology
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.
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.
The Company ’ s business relies on the performance, reliability and availability
of its information technology systems. Information and operating technology
may be subject to international cyber security threats. Breaches could result
in (but are not limited to) the loss of sensitive information, unplanned outage
of business-critical system, environmental damage and misappropriation of
company funds. The Company ’ s information technology infrastructure in
general may also be adversely affected by factors such as server damage,
equipment faults, power failure, computer viruses, misuse by employees
or contractors, telecommunications failures, external malicious intervention
such as hacking, terrorism, fire, natural disasters, or weather interventions.
Such events are largely beyond the Company ’ s control, and may affect its
ability to carry on our operations efficiently.
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.
The Company is also dependent on attracting qualified technical employees
to provide services in relation to certain of its coal and other mining
operations. Coal mining is a labour-intensive industry. The Company ’ s
future success will depend greatly on its and its mining contractors ’
continued ability to attract and retain skilled and qualified personnel on
economic terms.
Fraud and misconduct
Any fraud, misrepresentation, money laundering or other misconduct
by the Company ’ s employees, customers, service providers, business
partners or other third parties could result in violations of relevant laws and
regulations by the Company and subject the Company to corresponding
regulatory sanctions. These unlawful activities and other misconduct may
have occurred in the past and may occur in the future, and may result in
civil and criminal liability under increasingly stringent laws or cause serious
reputational or financial harm to the Company. While the Company has in
place and is implementing measures aimed at detecting and preventing
employees ’ and external parties ’ fraud, misrepresentation, money
laundering, commercial bribery and other misconduct, the Company may
not be able to timely detect or prevent such activities, which could subject
the Company to regulatory investigations and criminal and civil liability,
harm our reputation and have a material adverse effect on the Company ’ s
business, financial condition, results of operations and prospects.
CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT 2018 104
Environmental activism
Litigation
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 lead 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.
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. Such claims or proceedings
could divert our management ’ s time and attention and consume financial
resources in their defence or prosecution.
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
The Company ’ s existing coal reserves will decline as mining continues.
Therefore, the Company ’ s growth and long-term success will depend on its
ability to acquire additional coal resources within its exploration areas and to
convert such coal resources into economically recoverable coal reserves.
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.
YANCOAL AUSTRALIA LTDCorporate GovernanCe Statement (ContInUeD) 105
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.
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.
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.
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.
Transport and infrastructure
Coal produced from the Company ’ s mining operations is transported
to customers by a combination of road, rail and sea. Fluctuations in
transportation costs and disruptions to our railway and port linkages could
disrupt the Company ’ s coal deliveries and adversely affect its business,
financial condition and results of operations.
A number of factors could disrupt or restrict access to essential coal
transportation and handling services, including (but not limited to):
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.
• 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;
•
terrorist attacks or other similar events;
• breach of regulatory framework;
• mismatch of below rail capacity, above rail capacity and port capacity;
and
• possible sale of infrastructure,
Extensive environmental regulations in Australia, and in other countries that
could affect the Company ’ s business, may impose costs on its mining
operations, and future regulations could increase those costs, limit its ability
to produce and sell coal, or reduce demand for the Company ’ s our coal
products. In particular, 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 the medium to long
term.
Changes in and future environmental regulations could increase the
standards and costs of compliance, and adversely affect the Company ’ s
ability to generate the expected economic returns from its mining assets
over their useful lives. The Company may not always be able to comply
with future laws and regulations in relation to environmental protection
economically or at all. There can be no assurance that the Company will be
able to fully and economically utilise the entire coal resources of the mines
it operates currently or in the future or that some of its mining assets will
not become “ stranded assets ” that are not able to generate the expected
economic returns over their useful lives.
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.
CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT 2018 106
Health, safety and hazardous materials risks
Internal audit function
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.
The internal audit function is managed by the GM of Risk and Assurance.
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 CEC and the Audit and Risk Management Committee recommends to
the Board the appointment of the GM of Risk and Assurance.
The GM of Risk and Assurance 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 GM Risk and Assurance.
The role of the GM Risk and Assurance 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 control
design and operating effectiveness.
The program includes a review of compliance with the obligations imposed
by the General Rules on Internal Control for Enterprises and the Supporting
Guidelines of Internal Control for Enterprises, jointly issued by five Chinese
ministries.
Periodical status reports on the execution of the plan, including current
findings and actions are provided to the Audit and Risk Management
Committee. This includes key issues and subsequently corrective actions
are monitored, reviewed and reported. Any material findings are reported to
the Board.
Health, Safety and Environment Compliance
The Company has adopted policies to comply with occupational health,
safety, environment and other laws. The Board has a Health, Safety
and Environment Policy in place since May 2016 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, which was reviewed and amended in October 2018 to provide for
relevant provisions of the HK Listing Rules, this committee has a minimum of
at least three members. The current members of this committee are David
Moult (appointed 6 February 2018) (Chair of the committee), Geoffrey Raby,
Fuqi Wang and Fucun Wang (appointed 8 June 2018). 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.
YANCOAL AUSTRALIA LTDCorporate GovernanCe Statement (ContInUeD) 107
Further details of the remuneration of the Non-Executive Directors, Executive
Directors and senior Executives can be found in the Remuneration Report
on page 68.
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 the 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.
The Board approved revisions to its Share Trading Policy in October 2018
with the requirements set out in the Model Code for Securities Transactions
by Directors of Listed Issuers (the Model Code) as set out in Appendix 10 of
the HK Listing Rules to regulate the Directors ’ securities transactions, which
is also applicable to its employees who are likely to be in possession of
unpublished inside information.
Specific enquiry has been made of all the Directors and they have each
confirmed that they have complied with the Company ’ s Share Trading
Policy and Insider Trading Policy (which is more stringent than the Model
Code) since the HK Listing (on 6 December 2018) to 31 December 2018.
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 Corporate Governance Statement has been approved by the Board
and is current as at 25 February 2019.
PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY
Nomination and Remuneration Committee
The Board has established a Nomination and Remuneration Committee.
In accordance with its charter, which was reviewed and amended in
October 2018 to provide for relevant provisions of the HK Listing Rules, this
committee currently has 5 members, Helen Gillies (appointed 8 June 2018)
(Chair of the committee, member since 6 February 2018), Xiangqian Wu
and Gregory Fletcher (appointed 8 June 2018), Baocai Zhang (appointed
8 June 2018 and David Moult (appointed 8 June 2018). Xiyong Li resigned
as the Chair on 8 June 2018 and Cunliang Lai resigned as a member of
the Committee on 8 June 2018. Three of the members of the committee,
including the Chair of the committee, are independent Directors of the
Company, in line with the ASX Recommendations. The Nomination and
Remuneration Committee Charter can be found within the Corporate
Governance section of the Company ’ s website.
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.
In 2018, the committee engaged consulting firm Aon Hewitt (Aon) to provide
independent market benchmarking with respect to the remuneration
of Yancoal Executives and Non-Executive Directors. Aon presented its
recommendations to the committee in Q1 and Q2 2018, which was
endorsed by the committee for Board approval. The Board adopted the
recommendations in May 2018.
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. No Director is involved in determining his or
her own remuneration.
CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT 2018 108
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 of equity-accounted investees, net of tax
Profit before income tax
Income tax expense
Profit 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 (losses)/gains
Fair value losses transferred to profit and loss
Deferred income tax benefit/(expense)
Other comprehensive income, net of tax
Total comprehensive income
Total comprehensive income for the year is attributable to:
Owners of Yancoal Australia Ltd
Non-controlling interests
Total comprehensive income for the year attributable to owners of
Yancoal Australia Ltd arises from:
Continuing operations
Profit per share attributable to the ordinary equity holders of the Company:
Basic profit per share (cents per share)
Diluted profit per share (cents per share)
These financial statements should be read in conjunction with the accompanying notes.
Notes
B2
B3
B4
B5
B5
E2
B6
D7
D7
D7
B7
B7
31 December 2018
$M
31 December 2017
$M
4,850
2,601
150
31
(669)
(518)
(523)
(537)
(418)
(347)
(332)
(278)
(293)
56
1,172
(320)
852
852
–
852
(443)
160
85
(198)
654
654
–
654
654
67.6
67.6
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
Restated
52.0
28.0
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2018 YANCOAL AUSTRALIA LTD 109
31 December 2018
$M
31 December 2017
$M
1,031
552
226
28
7
57
21
1,922
292
2,939
4,218
563
97
1,062
835
165
8
307
–
207
658
150
24
–
613
37
1,689
473
2,832
4,296
565
99
1,219
712
175
-
251
2
10,486
12,408
10,624
12,313
840
13
1
34
25
–
913
4,111
1,029
488
27
2
5,657
6,570
5,838
6,482
(604)
(42)
5,836
2
5,838
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
Notes
C6
C7
C8
C9
D3
C12
C7
C1
C2
C4
C5
B6
D1
C9
D3
E2
C10
D2
C11
D3
C12
D2
B6
C11
D3
D4
D7
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Royalty receivable
Non-contingent royalty receivable
Assets classified as held for sale
Other current assets
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Mining tenements
Exploration and evaluation assets
Intangible assets
Deferred tax assets
Interest-bearing loan to associate
Royalty receivable
Non-contingent royalty receivable
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
Current tax 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.
FINANCIAL STATEMENTS ANNUAL REPORT 2018CONSOLIDATED BALANCE SHEETAS AT 31 DECEMBER 2018 110
Attributable to owners of Yancoal Australia Ltd
Reserves
$M
Accumulated
losses
$M
Notes
Contributed
equity
$M
3,104
–
–
–
Balance at 1 January 2017
Profit after income tax
Other comprehensive income
Total comprehensive income
Transactions with owners in
their capacity as owners:
Issuance of new ordinary shares
D4
5,296
Distribution to subordinated
capital note holders
Subordinated capital notes
redeemed on conversion
Non-controlling interest on
acquisition of subsidiaries
Balance at 31 December 2017
Balance at 1 January 2018
Opening balance adjustment on
adoption of AASB 9
Restated total equity at
1 January 2018
Profit after income tax
Other comprehensive income
Total comprehensive income
Transactions with owners in their
capacity as owners:
Issuance of new ordinary shares
Dividends provided for or paid
Subordinated capital notes
redeemed on conversion
Movements in other reserves
Acquisition of minority interest
Balance at 31 December 2018
–
D4
(2,183)
–
3,113
6,217
6,217
D7
–
D4
D6
6,217
–
–
–
266
–
(1)
–
–
265
6,482
(817)
–
404
404
–
–
–
–
–
(413)
(413)
–
(413)
–
(198)
(198)
–
–
–
7
–
7
(604)
Total
$M
1,352
229
404
633
5,296
(75)
(2,183)
–
3,038
5,023
5,023
17
(935)
229
–
229
–
(75)
–
–
(75)
(781)
(781)
17
(764)
5,040
852
–
852
–
(130)
–
–
–
(130)
(42)
852
(198)
654
266
(130)
(1)
7
–
142
5,836
Non-controlling
interests
$M
Total equity
$M
–
–
–
–
–
–
–
3
3
3
3
–
3
–
–
–
–
–
–
–
(1)
(1)
2
1,352
229
404
633
5,296
(75)
(2,183)
3
3,041
5,026
5,026
17
5,043
852
(198)
654
266
(130)
(1)
7
(1)
141
5,838
These financial statements should be read in conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018 YANCOAL AUSTRALIA LTD
111
Notes
31 December 2018
$M
31 December 2017
$M
F3
E1
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest paid
Interest received
Transaction costs paid
Stamp duty paid
Net cash inflow 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
Receipts from joint operation participants
Receipts of non-contingent royalties
Payment of non-contingent royalties
Payments for acquisition of interest in joint ventures and subsidiaries
(net of cash acquired)
Payment for joint operation call option fee
Proceeds from disposal of interest in joint venture and subsidiaries
(net of cash disposed)
Repayment of loan from joint venture
Repayment of borrowings from associates
Advance of borrowings to associates
Advances from related entities
Dividends received
Cash transferred from restricted accounts
Net cash outflow from investing activities
Cash flows from financing activities
Repayment of interest-bearing liabilities – related entities
Proceeds from interest-bearing liabilities – related entities
Payment for treasury shares
Repayment of interest-bearing liabilities
Proceeds from interest-bearing liabilities
Dividend paid
Payment of subordinated capital notes distribution
Payment of finance lease liabilities
Transaction costs paid
Proceeds from issues of shares and other equity securities
D4
Net cash (outflow)/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
4,847
(2,896)
(236)
96
(34)
(30)
1,747
(194)
(4)
5
–
75
(119)
(353)
–
524
117
254
(377)
–
17
–
(55)
(175)
–
(6)
(1,250)
411
(130)
–
(20)
(2)
268
(904)
788
207
36
Cash and cash equivalents at the end of the year
C6
1,031
These financial statements should be read in conjunction with the accompanying notes.
2,580
(1,897)
(169)
59
(17)
(148)
408
(299)
(3)
1
40
–
–
(3,247)
(13)
–
–
214
(151)
35
6
31
(3,386)
–
188
–
(196)
–
–
(24)
(26)
(68)
3,125
2,999
21
190
(4)
207
FINANCIAL STATEMENTS ANNUAL REPORT 2018CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018
112
These 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.
The financial statements were authorised for issue in accordance with a resolution of the Directors on 25 February 2019.
(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 F6. 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) AUDITOR SIGN-OFF – UNqUALIFIED AND UNMODIFIED
The independent auditor ’ s report of these consolidated financial statements is unqualified and unmodified. Refer to page 206 for further details.
NOTES TO THE FINANCIAL STATEMENTS31 DECEMBER 2018A – BASIS OF PREPARATIONYANCOAL AUSTRALIA LTD 113
(VI) 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.
(VII) NEW AND AMENDED STANDARDS ADOPTED BY THE GROUP
Effective from 1 January 2018 the Group adopted new standards including AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with
Customers. Refer to Note F7 for details.
(VIII) 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 2018 that have not been applied by the
Group are disclosed in Note F8.
(Ix) EARLY ADOPTION OF STANDARDS
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2018 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 in Note F8.
(x) CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements requires the use of certain critical accounting estimates and judgements 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:
Taxation
Mining tenements
Impairment of assets
Exploration and evaluation assets
Royalty receivable
Provisions
Business combinations and disposals
Control of Watagan
Note B6
Note C2
Note C3
Note C4
Note C9
Note C11
Note E1
Note E2
FINANCIAL STATEMENTS ANNUAL REPORT 2018 114
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 recycled from hedge reserve, and the elimination of intersegment transactions and other consolidation adjustments.
(a) Segment information
The segment information for the reportable segments for the year ended 31 December 2018 is as follows:
Coal Mining
31 December 2018
Total segment revenue*
Add: Fair value losses recycled from hedge reserve
Revenue from external customers
Operating EBIT
Operating EBITDA
Material income or expense items
Non-cash items
Remeasurement of royalty receivable
Depreciation and amortisation expense
Gain on disposal of joint operation and subsidiaries
Transactions costs
Stamp duty accrued
Impairment of financial assets
Remeasurement of financial assets
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
4,294
–
4,294
1,698
2,183
–
(483)
–
–
–
–
–
483
–
–
200
9,793
113
191
10,097
qLD
$M
446
–
446
95
127
–
(33)
–
–
–
–
–
33
–
–
10
794
18
–
812
Corporate
$M
(160)
160
–
(136)
(130)
4
(7)
78
(11)
4
(21)
(29)
(18)
(18)
(30)
48
–
452
931
116
1,499
Total
$M
4,580
160
4,740
1,657
2,180
4
(523)
78
(11)
4
(21)
(29)
498
(18)
(30)
48
210
11,039
1,062
307
12,408
31 DECEMBER 2018B – PERFORMANCEYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) B1 SEGMENT INFORMATION (CONTINUED)
(a) Segment information (Continued)
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
Operating EBITDA
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
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
2,163
–
2,163
682
898
–
(215)
–
–
–
100
115
–
–
–
335
8,793
182
191
9,166
qLD
$M
460
–
460
92
126
–
(35)
–
–
–
–
35
–
–
–
4
714
24
–
738
Corporate
$M
(229)
229
–
(42)
(36)
8
(6)
177
(16)
(19)
–
(144)
(17)
(148)
(165)
1
1,336
1,013
60
2,409
115
Total
$M
2,394
229
2,623
732
988
8
(256)
177
(16)
(19)
100
6
(17)
(148)
(165)
340
10,843
1,219
251
12,313
* 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, sea freight, 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 2018 and 31 December 2017 other
than those disclosed above.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 116
B1 SEGMENT INFORMATION (CONTINUED)
(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. Refer to Note B2 for revenue from external customers split by geographical region.
Revenues from the top five external customers were $1,644 million (2017: $813 million) which in aggregate represent approximately 35% (2017: 31%) of the
Group ’ s revenues from the sale of coal. These revenues were attributable to the NSW and Queensland coal mining segments.
Segment revenue reconciles to total revenue as follows:
Total segment revenue
Interest income
Mining services fees
Sea freight
Other revenue
Total revenue (refer to Note B2)
(ii) Operating EBITDA
31 December
2018
$M
31 December
2017
$M
4,580
119
46
66
39
2,394
114
52
12
29
4,850
2,601
The Executive Committee assesses the performance of the operating segments based on a measure of Operating EBITDA. 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.
31 DECEMBER 2018B – PERFORMANCEYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) B1 SEGMENT INFORMATION (CONTINUED)
(b) Other segment information (Continued)
(ii) Operating EBITDA (Continued)
A reconciliation of Operating EBITDA to profit before income tax from continuing operations is provided as follows:
Operating EBITDA
Depreciation and amortisation
Operating EBIT
Interest income
Finance costs
Bank fees and other charges
Gain on disposal of interest in joint operation and subsidiaries
Gain on acquisition of subsidiaries
Impairment reversal of mining tenements (refer Note C3(b))
Stamp duty
Fair value losses recycled from hedge reserve – USD loans
Transaction costs
Remeasurement of financial assets
Remeasurement of contingent royalty
Impairment of financial assets
Remeasurement of royalty receivable
Receipts from joint venture participant
117
31 December
2018
$M
31 December
2017
$M
2,180
(523)
1,657
119
(293)
(96)
78
–
–
(25)
(160)
(29)
(29)
(33)
(21)
4
–
988
(256)
732
114
(287)
(109)
–
177
100
(167)
(229)
(33)
–
–
–
8
5
Profit before income tax from continuing operations
1,172
311
(iii) Segment capitalised expenditure
Amounts with respect to capital expenditure are measured in a manner consistent with that of the financial statements. Reportable segments 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 is not provided to the Executive Committee. The Executive Committee reviews the liabilities of the Group
at a consolidated level.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 118
B2 REVENUE
Accounting Policies
Revenue is recognised when the control of the products or services has transferred to the customer. Revenue is measured at the amount of consideration
to which the Group expects to be entitled in exchange for transferring control of products or services to the customer. Amounts disclosed as revenue are
net of returns, trade allowances, rebates and amounts collected on behalf of third parties.
Descriptions of the Group ’ s performance obligations in contracts with customers and significant judgments applied in revenue recognition are as follows:
(a) Sales revenue
(i) Sale of coal
The Group produces and sells a range of thermal and metallurgical coal products. Revenue from the sale of coal is recognised when control of the
product has transferred to the customer. Control of the product is considered transferred to the customer at the time of delivery, usually on a Free On
Board ( “ FOB ” ) basis or a Cost and Freight ( “ CFR ” ) basis. For CFR contracts the performance obligation relating to freight services is accounted for as a
separate performance obligation. On occasion revenue from 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.
A receivable is recognised when control of the products is delivered as this is the point in time that the consideration is unconditional and only the passage
of time is required before the payment is due. Payment of the transaction price is usually due within 21 days of the date when control of the product is
transferred to the customer. From time to time, the Group receives prepayments before control of the product has transferred to the customer. Such
prepayments are recognised as contract liabilities.
Some of the Group ’ s coal sales contracts are long-term supply agreements which stipulate the nominal annual quantity and price negotiation
mechanism. For those contracts, the actual quantity and transaction price applicable for future shipments are only negotiated or determined prior to the
beginning of, or a date which is after, each contract year or delivery period. The transaction price for a future shipment is based on, or derived from, a
market price prevailing at the time of the future shipment. As the future market price for coal is highly susceptible to factors outside the Group ’ s influence,
the transaction price for a shipment is not readily determinable until or nearing the time of the shipment. As a result, the Group has concluded that a
contract with the customer does not exist for those shipments for which the actual delivery quantity and transaction price have not yet been negotiated or
determined.
The transaction price for a shipment is often linked to a market index for the respective delivery period. For example, the transaction price may be
determined by reference to the average GlobalCOAL Newcastle Index for the delivery period. At the end of each reporting period, the final average index
price may not be available for certain shipments. In those situations, the Group uses “ the expected value ” method to estimate the amount of variable
consideration based on the most recent average index price available for the relevant delivery period as of the end of the reporting periods and for those
shipments, the Group has determined that a significant reversal in the amount of revenue recognised will not occur.
31 DECEMBER 2018B – PERFORMANCEYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 119
B2 REVENUE (CONTINUED)
Accounting Policies (Continued)
(b) Other revenue
(i) 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.
(ii) Mining services fees
The Group provides corporate support services, IT services and mining services which relates to the management of mines. The management and mining
service agreements stipulate a fixed monthly service fee and payment of the service fees is usually due within 21 days after the end of each calendar
month in which the service is rendered. Revenue from providing management and mining services is recognised in each month in which the services are
rendered.
(iii) Sea freight services
When contracts for sale of coal include freight on a CFR basis the performance obligation associated with providing the shipping is separately measured
and recognised as the service is provided.
(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, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can
be measured reliably. 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
Sea freight
Other
31 December
2018
$M
Restated
31 December
2017
$M
4,740
(160)
4,580
119
46
66
39
270
4,850
2,623
(229)
2,394
114
52
12
29
207
2,601
FINANCIAL STATEMENTS ANNUAL REPORT 2018 120
B2 REVENUE (CONTINUED)
Disaggregation of revenue
In the following table, revenue is disaggregated by primary geographical market and major products/service lines. The table also includes a reconciliation of
the disaggregated revenue with the Group ’ s three reportable segments (see Note B1):
31 December 2018
Primary geographical markets
Japan
Singapore
China
South Korea
Taiwan
Thailand
Australia (Yancoal ’ s country of domicile)
All other foreign countries
Total
Major product/service lines
Thermal coal
Metallurgical coal
Total
31 December 2017
Primary geographical markets
China
Japan
South Korea
Singapore
Australia (Yancoal ’ s country of domicile)
Taiwan
All other foreign countries
Total
Major product/service lines
Thermal coal
Metallurgical coal
Total
NSW
$M
946
760
671
546
501
343
283
244
4,294
3,467
827
4,294
NSW
$M
593
380
299
193
307
118
273
2,163
1,442
721
2,163
qLD
$M
109
101
68
118
17
–
12
21
446
7
439
446
qLD
$M
61
109
116
144
15
13
2
460
17
443
460
Corporate
$M
–
–
–
–
–
–
–
–
–
–
–
Corporate
$M
–
–
–
–
–
–
–
–
–
–
–
Total
$M
1,055
861
739
664
518
343
295
265
4,740
3,474
1,266
4,740
Total
$M
654
489
415
337
322
131
275
2,623
1,459
1,164
2,623
In 2018 9.7% of coal sales were attributable to the largest customer and 34.7% to the top five customers (2017: 8.3% and 32.3% respectively).
31 DECEMBER 2018B – PERFORMANCEYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 121
31 December
2018
$M
31 December
2017
$M
442
404
B2 REVENUE (CONTINUED)
Contract balances
The group has recognised the following revenue-related receivables, contract assets and liabilities:
Receivables from contracts with customers
There are no contract assets, liabilities or costs as at 31 December 2018 or 31 December 2017.
Transaction price allocated to the remaining performance obligation
As discussed in Note B2, for long term contracts the Group has concluded that contracts with customers do not exist for those shipments for which the
actual delivery quantity and transaction price have not yet been negotiated or determined. For the remaining shipments where the delivery quantity and
transaction price have been negotiated or determined but are subject to market price movements, the contract durations are within one year or less. As a
result, the Group elects to apply the practical expedient in paragraph 121(a) of AASB 15 and does not disclose information about the remaining performance
obligations in relation to the coal sales contracts. The Group also elects to apply the practical expedient in paragraph 121(b) of AASB 15 and does not
disclose information about the remaining performance obligations in relation to the management and mining service contracts.
B3 OTHER INCOME
Accounting Policy
Gain on acquisition is recognised in line with the accounting for business combinations (refer to Note E1).
Gain on disposal of joint operation and subsidiaries (Note E1)
Gain on acquisition of subsidiaries
Gain on remeasurement of royalty receivable
Net gain on foreign exchange*
Receipts from joint operation participant
Impairment reversal of mining tenements
Sundry income
* There is no impact on the conversion of US dollar denominated interest-bearing liabilities (2017: nil).
31 December
2018
$M
31 December
2017
$M
78
–
4
61
–
–
7
150
–
177
8
–
5
100
4
294
FINANCIAL STATEMENTS ANNUAL REPORT 2018 122
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 under Australian legislation to contribute 9.5% of employees salaries and wages to the employee ’ s 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.
(iv) Equity-settled share-based payments
The grant date fair value of equity-settled share-based payment awards granted to employees is recognised as an expense, with a corresponding
increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which
related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number
of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market
performance conditions, the grant date fair value of the share-based payment is measured using Black – Scholes option pricing model to reflect such
conditions and there is no true-up for differences between expected and actual outcomes.
(a) Employee benefits
Employee benefits
Share-based payments
Superannuation contributions
Total employee benefits
During 2018 $1 million of employee benefits were capitalised (2017: $17 million)
31 December
2018
$M
31 December
2017
$M
464
16
38
518
281
–
21
302
31 DECEMBER 2018B – PERFORMANCEYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 123
B4 EMPLOYEE BENEFITS (CONTINUED)
(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 2018.
The total of remuneration paid to KMP of the Company and the Group during the year was as follows:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
(c) Top five employees
31 December
2018
31 December
2017
5,901,640
149,534
2,742,559
9,265,818
149,362
1,950,142
8,793,733
11,365,322
The five highest paid individuals in the Group include one director (2017 only), and the Chief Executive for each of the years, and details of whose
remuneration are set out in the remuneration report. Details of emoluments of the remaining four (2017: three) highest paid individuals who are neither a
director nor chief executive of the Company are as follows:
Salaries, allowance and other benefits in kind
Retirement benefit scheme contributions
Discretionary bonuses
Their emoluments were within the following bands:
HK$7,000,000 to HK$7,500,000 (A$1,171,548 to A$1,255,230)
HK$8,000,000 to HK$8,500,000 (A$1,338,912 to A$1,422,594)
HK$8,500,000 to HK$9,000,000 (A$1,450,165 to A$1,535,469)
HK$10,000,000 to HK$10,500,000 (A$1,706,077 to A$1,791,381)
HK$11,000,000 to HK$11,500,000 (A$1,876,685 to A$1,961,989)
31 December
2018
$M
31 December
2017
$M
2
–
5
7
1
–
3
4
31 December
2018
31 December
2017
–
–
1
1
2
2
1
–
–
–
FINANCIAL STATEMENTS ANNUAL REPORT 2018 124
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
(b) Other operating expenses
Bank fees and other charges
Stamp duty
Remeasurement of contingent royalty
Remeasurement of financial assets
Impairment of financial assets
Information and technology expenses
Insurance
Duties and other levies
Travel and accommodation
Net loss on disposal of property, plant and equipment
Rental expense
Net loss on foreign exchange
Other operating expenses
Total other operating expenses
(c) Largest suppliers
31 December
2018
$M
31 December
2017
$M
3
17
273
–
293
4
63
229
(9)
287
31 December
2018
$M
31 December
2017
$M
96
25
33
29
21
14
13
18
9
9
4
-
7
109
167
-
-
-
9
6
12
8
4
3
8
4
278
330
In 2018 7.6% of total operating expenses related to one supplier and 23.5% to the top five suppliers (2017 5.6% and 21.5% respectively).
31 DECEMBER 2018B – PERFORMANCEYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 125
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 substantively 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 substantively 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 especially in
relation to position adopted that may have an uncertain outcome. 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.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 126
B6 TAxATION (CONTINUED)
(a) Income tax expense
(i) Net tax expenses
Income tax expense
Income tax over provision in respect of prior years
Net tax expense is attributable to:
Continuing operations
(ii) Income tax expense
Deferred tax expense
Deferred tax expense included in income tax benefit comprises:
Net over provision in respect of prior years
Decrease in deferred tax assets (refer to Note B6(b)(ii))
Increase in deferred tax liabilities (refer to Note B6(c)(ii))
(iii) Reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before tax
Tax at the Australian tax rate of 30% (2017 – 30%)
Tax effect of amounts which are not deductible/taxable in calculating taxable income:
Over provision in prior years
Movements in financial assets
Stamp duty expensed
Share of profit of equity-accounted investees not deductible
Gain on acquisition of subsidiaries
Gain on disposal of interest in joint operation
Denial of debt deductions
Other
Income tax expense
(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
Adjustment on adoption of AASB 9
Transaction costs associated with share issuances
31 December
2018
$M
31 December
2017
$M
(340)
20
(320)
(320)
(84)
2
(82)
(82)
31 December
2018
$M
31 December
2017
$M
(320)
20
(301)
(39)
(320)
(82)
2
(34)
(50)
(82)
31 December
2018
$M
31 December
2017
$M
1,172
(352)
20
(15)
(7)
16
–
14
–
4
(320)
311
(95)
2
(1)
(50)
10
53
–
(1)
–
(82)
31 December
2018
$M
31 December
2017
$M
(85)
7
–
(78)
173
–
(20)
153
31 DECEMBER 2018B – PERFORMANCEYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 127
31 December
2018
$M
31 December
2017
$M
1,062
1,219
Tax losses
and offsets
$M
Provisions
$M
Trade
and other
payables
$M
Finance
lease
liabilities
$M
973
(44)
(73)
(20)
1
2
839
839
41
(321)
–
66
–
625
38
1
49
–
–
89
177
177
(25)
(23)
(7)
–
7
129
15
–
(1)
–
–
14
28
28
–
6
–
–
–
34
20
–
(4)
–
–
–
16
16
–
(3)
–
–
–
13
Cash flow
hedges
$M
288
–
–
(153)
–
–
135
135
11
–
85
–
–
231
Other
$M
5
–
(1)
20
–
–
24
24
(30)
40
–
–
(4)
30
Total
$M
1,339
(43)
(30)
(153)
1
105
1,219
1,219
(3)
(301)
78
66
3
1,062
B6 TAxATION (CONTINUED)
(b) Deferred tax assets
(i) Deferred tax assets
Deferred tax assets from income tax
(ii) Income tax
Movements
At 1 January 2017
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
At 1 January 2018
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 2018
The Group ’ s tax consolidated group includes Watagan Mining Company Pty Ltd and its controlled subsidiaries, refer to E2b(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 $9 million (2017: capital tax
losses $2 million). There is no expiry date on these tax losses.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 128
B6 TAxATION (CONTINUED)
(c) Deferred tax liabilities
(i) Deferred tax liabilities
Deferred tax liabilities from income tax
(ii) Income tax
Movements
At 1 January 2017
Under/over provision in prior year
Charged/(credited)
– to profit or loss
– other
Acquisition of subsidiaries
At 31 December 2017
At 1 January 2018
Under/over provision in prior year
Charged/(credited)
– to profit or loss
– to other
Acquisition of subsidiaries
At 31 December 2018
31 December
2018
$M
31 December
2017
$M
1,029
1,030
Property,
plant and
equipment
$M
Intangible
assets
$M
Inventories
$M
Mining
tenements
and
exploration
and
evaluation
assets
$M
Unrealised
foreign
exchange
gains
$M
80
(6)
78
–
(9)
143
143
–
57
–
(15)
185
2
–
1
–
–
3
3
–
6
–
1
10
8
–
7
–
(2)
13
13
–
14
–
–
27
551
(4)
3
–
300
850
850
(23)
(71)
–
1
757
97
(31)
(71)
–
2
(3)
(3)
–
3
–
–
–
Other
$M
24
–
32
(11)
(21)
24
24
–
30
(4)
–
50
Total
$M
762
(41)
50
(11)
270
1,030
1,030
(23)
39
(4)
(13)
1,029
31 DECEMBER 2018B – PERFORMANCEYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 129
B7 EARNINGS PER SHARE
Accounting Policies
(a) Basic earnings per share
Calculated as net earnings 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 earnings per share
Calculated as net earnings 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.
(a) Basic and diluted earnings per share
From continuing operations
Total basic earnings per share (cents per share)
Total diluted earnings per share (cents per share)
(b) Reconciliation of earnings used in calculating profit per share
Basic and diluted earnings per share
Earnings used in calculating the basic and diluted earnings per share:
From continuing operations
(c) Weighted average number of shares used in calculating profit per share
Weighted average number of ordinary shares used as the denominator in calculating basic earnings
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
31 December
2018
Restated
31 December
2017
67.6
67.6
52.0
28.0
31 December
2018
$M
31 December
2017
$M
852
852
229
229
31 December
2018
Number
Restated
31 December
2017
Number
1,259,815,749
438,720,937
–
–
10%
1,923,674
Weighted average number of shares used as the denominator in calculating the basic earnings per share
1,259,815,749
440,644,611
Number of diluted shares associated with bonus factor
Other adjustments to denominator used in calculating the diluted earnings per share
–
36,758,879
1,365,383
342,530,314
Weighted average number of shares used as the denominator in calculating the diluted earnings per share
1,261,181,131
818,010,129
As required by AASB 133 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%.
A share consolidation of 35 ordinary shares into 1 ordinary share of the Company has been completed on 28 September 2018. The weighted average
number of ordinary shares for the purpose of basic and diluted earnings per share has been adjusted for the share consolidation on 28 September 2018. The
2017 share numbers have been restated for the share consolidation of 35 ordinary shares to 1 ordinary share.
As disclosed in Note D4 18,000,181,437 shares were issued during 2017 for the conversion of SCN ’ s and are included in the basic and diluted weighted
average calculation for 2017. At 31 December 2017 there were 4,900 SCNs on issue that were redeemed on 31 January 2018.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 130
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, trade and other receivables, trade and other
payables, 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.
31 DECEMBER 2018C – OPERATING ASSETS AND LIABILITIESYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 131
C1 PROPERTY, PLANT AND EqUIPMENT (CONTINUED)
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.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 132
C1 PROPERTY, PLANT AND EqUIPMENT (CONTINUED)
Assets under
construction
$M
Freehold land
& buildings
$M
Mine
development
$M
Plant and
equipment
$M
Leased plant
and equipment
$M
Year ended 31 December 2017
Opening net book amount
Transfer assets 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 or fair value
Accumulated depreciation
Net book amount
Year ended 31 December 2018
Opening net book amount
Transfer assets under construction
Other additions
Transfer from exploration and evaluation
Acquisition through business combinations
Other disposals
Depreciation
Closing net book amount
At 31 December 2018
Cost
Accumulated depreciation
Net book amount
324
(576)
303
33
–
–
(3)
81
81
–
81
81
(177)
190
–
8
–
–
102
102
–
102
170
27
–
96
–
(4)
(15)
274
330
(56)
274
274
21
1
–
22
–
(8)
310
376
(66)
310
381
308
21
353
–
(45)
(51)
967
1,310
(343)
967
967
222
10
10
61
–
(85)
1,185
1,613
(428)
1,185
569
240
12
844
(17)
(98)
(116)
1,434
2,910
(1,476)
1,434
1,434
(66)
4
–
136
(9)
(229)
1,270
2,975
(1,705)
1,270
82
–
9
–
(7)
(8)
–
76
105
(29)
76
76
–
5
–
–
–
(9)
72
110
(38)
72
Total
$M
1,526
(1)
345
1,326
(24)
(155)
(185)
2,832
4,736
(1,904)
2,832
2,832
–
210
10
227
(9)
(331)
2,939
5,176
(2,237)
2,939
During the year ended 31 December 2018 $1 million of depreciation and amortisation was capitalised (2017: $8 million) and no interest was capitalised (2017:
$9 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.
31 DECEMBER 2018C – OPERATING ASSETS AND LIABILITIESYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 133
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
Impairment reversal
Amortisation
Transfer to assets classified as held for sale
Closing net book amount
Critical accounting estimates and judgements
Coal reserves and resources
31 December
2018
$M
31 December
2017
$M
4,296
128
6
–
(188)
(24)
4,218
2,128
2,456
26
100
(103)
(311)
4,296
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 Securities 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 long term forecast coal price data from multiple external sources.
The external sources have determined their benchmark coal price forecasts having regard to the latest International Energy Agency (IEA) base scenario
and the Nationally Determined Contributions agreed under the Paris Agreement in 2015. This contemplates the global seaborne demand for thermal coal
will remain relatively consistent until 2040 whilst the global seaborne demand for metallurgical coal will increase up to 2040.
A more rigorous international response to climate change under the Paris Agreement could negatively impact the Recoverable Reserves by lowering the
forecast sales prices.
Additionally 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. 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.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 134
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. From 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 CGU ’ s due to location and ownership structure.
31 DECEMBER 2018C – OPERATING ASSETS AND LIABILITIESYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 135
C3 IMPAIRMENT OF ASSETS (CONTINUED)
(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 of mine (18 – 42 years). The fair
value model adopted has been categorised as level 3 in the fair value hierarchy.
The key assumptions in the model include:
Key assumptions
Coal prices
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 US$67 – US$104 per tonne (2017: US$65 – US$101 per tonne)
for thermal and US$112 – US$217 per tonne (2017: US$110 – US$190 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.
The external sources have determined their benchmark coal price forecasts having regard to the latest International Energy
Agency (IEA) New Policy Scenario, the Nationally Determined Contributions submitted in the lead-up to the Paris Agreement
in 2015 and National Energy Policies. This contemplates the global seaborne demand for thermal coal will remain relatively
consistent until 2040 whilst the global seaborne demand for metallurgical coal will increase up to 2040. Key risks to the
outlooks are increasing decarbonisation trends, trade disputes, protectionism, import control policies in China and investor
behaviour to coal project financing.
The Group has considered the impacts of a more rigorous international response to climate change under the Paris Agreement
and notes that the average mine life required for the recoverable amount to continue to exceed the book value, holding all
inputs constant, including coal prices, is 7, 7 and 3 years for the NSW, Yarrabee and Middlemount CGUs, respectively. The
NSW CGU has a 80% exposure to thermal coal and 20% exposure to metallurgical coal whilst Yarrabee and Middlemount are
both metallurgical coal mines.
The Group concludes that whilst a more rigorous international response to climate change could reduce the future demand for
coal the likely impact of any such actions are not expected to materially impact during the time periods noted above and hence
would not result in the recoverable amount falling below book value.
For both thermal and metallurgical coal the Group ’ s forecast coal price is within the range of external price forecasts.
Foreign exchange rates
The long term AUD/USD forecast exchange rate of $0.75 (2017: $0.75) is based on external sources. The year-end AUD/USD
exchange rate was $0.71 per the Reserve Bank of Australia.
Production and capital costs 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.
Coal reserves and resources See discussion at Note C2 Mining tenements for how the coal reserves and resources are determined.
Discount rate
The Group has applied a post-tax discount rate of 10.5% (2017: 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
FINANCIAL STATEMENTS ANNUAL REPORT 2018 136
C3 IMPAIRMENT OF ASSETS (CONTINUED)
(b) Assessment of fair value (Continued)
Based on the above assumptions at 31 December 2018 the recoverable amount is determined to be above book value for all CGU ’ s resulting in no further
impairment.
At 31 December 2017, the remaining impairment provision at Moolarben of $100 million was reversed. Management 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 was recognised through the profit and loss.
Impairment provisions recorded as at 31 December 2018 is $72 million for Stratford and Duralie. Stratford and Duralie is included in the NSW region CGU.
Management may consider reversals of the impairment provision previously recognised if there is either an increase in the average long term real revenue
over the life of the mine due to either an increase in USD coal prices, or a weakening of the AUD/USD foreign exchange rate or a combination of both, or
reductions in the current and life of mine operating costs, capital expenditure requirements, or an increase in the reserves.
In determining the value assigned to each key assumption, management has used: external sources of information; the expertise of external consultants;
as well as the experience of experts within the Group to validate entity specific assumptions such as coal reserves and resources. Additionally various
sensitivities have been determined and considered with respect to each of the key assumptions, further supporting the above fair value conclusions.
Key sensitivity
The most sensitive input in the fair value model is forecast revenue, which is primarily dependent on estimated future coal prices and the AUD/USD forecast
exchange rate.
Book Value
Recoverable Amount
Head Room
US$ Coal Price (i)
+10%
-10%
Exchange Rate (ii)
+5 cents
-5 cents
Discount Rate (iii)
+50 bps
-50 bps
(i) This represents the change in recoverable amount due to a +/- 10% change to our coal price assumption.
(ii) This represents the change in recoverable amount due to a +/- 5 cents change to the long-term US$:A$ foreign exchange rate adopted.
(iii) This represents the change in recoverable amount due to a +/- 50bps change in discount rate adopted.
NSW
$M
5,590
12,668
7,078
2,361
(2,347)
(1,526)
1,879
(512)
568
2018
Yarrabee
$M
Middlemount
$M
396
605
209
289
(299)
(176)
215
(20)
17
324
629
305
146
(163)
(96)
110
(11)
9
31 DECEMBER 2018C – OPERATING ASSETS AND LIABILITIESYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 137
C3 IMPAIRMENT OF ASSETS (CONTINUED)
(b) Assessment of fair value (Continued)
Key sensitivity (Continued)
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 $90 million. If the AUD/USD long term forecast exchange rate was $0.80 the recoverable amount would exceed book value for all CGUs with the
exception of Yarrabee who exceed the recoverable amount by $6 million.
Goodwill
The Yarrabee goodwill was not subject to an impairment charge as the recoverable amount is greater than the carrying value for this CGU.
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 to mine development
Transfer to assets classified as held for sale
Closing net book amount
31 December
2018
$M
31 December
2017
$M
565
12
2
(6)
(10)
–
563
498
108
3
(26)
–
(18)
565
FINANCIAL STATEMENTS ANNUAL REPORT 2018 138
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) Water rights
Water rights have been recognised at cost and are assessed annually for impairment or more frequently if events or changes in circumstances indicate
that they might be impaired. The water rights have been determined to have an indefinite useful life as there is no expiry date on the licences.
(iv) Other
Other intangibles include access rights, other mining licenses and management rights associated with the Group ’ s right to manage Port Waratah Coal
Services. These intangibles have a finite useful life and are carried at cost less any accumulated amortisation and impairment losses. Amortisation of these
other intangibles is calculated as the shorter of the life of the mine or agreement and using a units of production basis in tonnes, or on a straight-line basis.
The estimated useful lives vary from 10 to 25 years.
At 1 January 2017
Cost
Accumulated amortisation
Net book amount
Goodwill
$M
60
–
60
Computer
software
$M
Water rights
$M
25
(15)
10
–
–
–
Other
$M
–
–
–
Total
$M
85
(15)
70
31 DECEMBER 2018C – OPERATING ASSETS AND LIABILITIESYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 139
Goodwill
$M
Computer
software
$M
Water rights
$M
Other
$M
Total
$M
60
–
–
–
–
60
60
–
60
60
–
–
–
60
60
–
60
10
–
–
(2)
–
8
25
(17)
8
8
2
–
(3)
7
27
(20)
7
–
22
–
–
(4)
18
18
–
18
18
–
(1)
–
17
17
–
17
–
13
1
(1)
–
13
14
(1)
13
13
1
–
(1)
13
14
(1)
13
70
35
1
(3)
(4)
99
117
(18)
99
99
3
(1)
(4)
97
118
(21)
97
C5 INTANGIBLES (CONTINUED)
Year ended 31 December 2017
Opening net book amount
Acquisition through business combination
Transfers – assets under construction
Amortisation charge
Transfer to assets classified as held for sale
Closing net book amount
At 31 December 2017
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2018
Opening net book amount
Acquisition through business combination
Other disposals
Amortisation charge
Closing net book amount
At 31 December 2018
Cost
Accumulated amortisation
Net book amount
The goodwill at 31 December 2018 relates to the acquisition of Yancoal Resources Limited (formally known as Felix Resources Limited) from an independent
third party in an arms 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 2018. 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.
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 on hand
Deposits at call
Cash and cash equivalents
31 December
2018
$M
31 December
2017
$M
690
341
1,031
207
–
207
As disclosed in Note D2(a)(i) the minimum average balance of AU$25 million per day and at month end AU$50 million is required to be held in the Lender
Accounts of the Syndicated Facility which is not available for use on those days.
(a) Risk exposure
The Group ’ s exposure to interest rate risk and credit risk is discussed in Note D9. 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.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 140
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 apart from Wiggins Island Preference
Shares ( “ WIPS ” ) which are classified as fair value through profit and loss. Refer to Note F5(b) for detailed policies in relation to recognition, measurement,
impairment and derecognition of trade and other receivables.
Current
Trade receivables from contracts with customers
Other trade 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
2018
$M
31 December
2017
$M
442
70
–
40
552
218
15
59
292
404
217
1
36
658
332
61
80
473
(i) As part of the equity raising completed in 1 September 2017 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 $233 million. From 1 January 2019 the shareholders of Middlemount agreed to make the loan interest
free for 24 months. At 31 December 2018 this loan has been revalued using the effective interest rate method to $218 million with the difference being recognised as a contribution to the joint venture.
(iii) Receivables from other entities includes the Group ’ s investment in securities issued by Wiggins Island Coal Export Terminal Pty Ltd ( ‘ WICET ” ). These include E Class WIPS of nil (2017: $29 million) and Gladstone Island Long
Term Securities ( “ GiLTS ” ) of $14 million (2017: $32 million). At 31 December 2018 the WIPS were revalued to nil, the GiLTS were impaired by $17 million to a carrying value of $14 million, and a trade and other receivable
unpaid deferred distribution from WICET of $4 million was fully impaired.
31 DECEMBER 2018C – OPERATING ASSETS AND LIABILITIESYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 141
C7 TRADE AND OTHER RECEIVABLES (CONTINUED)
The Group does not have a standardised and universal credit period granted to its customers, and the credit period of individual customer is considered on a
case-by-case basis, as appropriate. The following is an aged analysis of trade receivables based on the invoice dates at the reporting dates:
0-90 days
91-180 days
181-365 days
Over 1 year
Total
(a) Past due but not impaired
31 December
2018
$M
31 December
2017
$M
439
–
2
1
442
395
4
1
4
404
The ageing analysis of the Group ’ s and the Company ’ s trade receivables, that were past due but not yet impaired as at 31 December 2018 and 2017, is as
follows:
0-90 days
91-180 days
181-365 days
Over 1 year
Total
31 December
2018
$M
31 December
2017
$M
3
–
2
1
6
23
4
1
4
32
The Group does not hold any collateral over these balances. Management closely monitors the credit quality of trade receivables and considers the balance
that are neither past due or impaired to be of good quality.
(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 D9.
(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
D9 for more information on the risk management policy of the Group and the credit quality of the Group ’ s trade receivables.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 142
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
(a) Inventory expense
31 December
2018
$M
31 December
2017
$M
136
86
4
226
87
59
4
150
Write downs of inventories to net realisable value recognised as a provision at 31 December 2018 amounted to $1 million (2017: $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.
31 DECEMBER 2018C – OPERATING ASSETS AND LIABILITIESYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 143
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
2018
$M
31 December
2017
$M
199
(31)
21
4
193
28
165
193
199
(29)
21
8
199
24
175
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 D9.
C10 TRADE AND OTHER PAYABLES
Accounting Policy
Refer to Note F6(b) for detailed policies in relation to recognition, classification, measurement and derecognition of trade and other payables.
Trade payables
Payroll costs payable
Other payables
Tax sharing and funding payables to Watagan
31 December
2018
$M
31 December
2017
$M
423
100
209
108
840
487
107
120
44
758
FINANCIAL STATEMENTS ANNUAL REPORT 2018 144
C10 TRADE AND OTHER PAYABLES (CONTINUED)
The following is an aged analysis of trade payable based on the invoice dates at the reporting date:
0-90 days
91-180 days
181-365 days
Over 1 year
Total
31 December
2018
$M
31 December
2017
$M
421
1
1
–
423
486
1
–
–
487
The average credit period for trade payable is 90 days. The Group has financial risk management policies in place to ensure that all payables are within the
credit timeframe.
C11 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.
2018
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
Disposal of interest in joint operation
Closing net book amount
Split between:
Current
Non-current
Total
Employee
benefits
provision
$M
100
Sales
contract
$M
121
Rehab-
ilitation
$M
218
–
(2)
–
–
(24)
74
6
68
74
2
(37)
3
–
(18)
71
15
56
71
8
–
18
10
–
254
–
254
254
Take or pay
$M
Other
provisions
$M
62
3
(21)
–
–
1
45
12
33
45
46
–
(1)
5
33
(5)
78
1
77
78
Total
$M
547
13
(61)
26
43
(46)
522
34
488
522
31 DECEMBER 2018C – OPERATING ASSETS AND LIABILITIESYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 145
C11 PROVISIONS (CONTINUED)
Provision
Description
Employee benefits
The provision for employee benefits represents long service leave and annual leave entitlements and other incentives accrued
by employees.
Rehabilitation costs
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 calculated 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 managements ’ 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.
Take or pay
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.
Sales contract
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.
Other provisions
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 Industries Ltd ( “ 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.
Key estimate and judgement:
The provision is recognised and estimated based on management ’ s assessment of future market prices of coal.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 146
C12 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
2018
$M
31 December
2017
$M
–
–
57
57
–
–
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, was sold for US$20 million and completed in 2018.
(ii) Interest in joint ventures
On 27 July 2017 the Company announced that it had 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 paid cash consideration of US$429 million to the Group for a 16.6% interest in HVO, and this amount was reduced by the net cash flows generated by the 16.6% HVO interest from 1 September
2017 to the date of completion. The consideration 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. In 2018 the
sale was completed on 4 May 2018.
(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 future sale. These were acquired as part of the acquisition of Coal & Allied at fair value.
31 DECEMBER 2018C – OPERATING ASSETS AND LIABILITIESYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 147
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, 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. Refer to Note F6(b) for detailed policies in relation to recognition, measurement, impairment and derecognition of interest-bearing loan to
associate.
Opening balance
Repayments
Drawdowns
Closing balance
31 December
2018
$M
31 December
2017
$M
712
(254)
377
835
775
(214)
151
712
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 D7). Refer to Note F6(b) for detailed policies in relation to recognition, classification, measurement and derecognition of interest-bearing liabilities.
(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.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 148
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
31 December
2018
$M
31 December
2017
$M
13
13
2,572
29
1,510
4,111
4,124
17
17
3,141
38
1,527
4,706
4,723
AU$ ’ M Facilities
Secured bank loan
Loans from related parties
Finance leases
Total interest-bearing liabilities
Balance
31 Dec 2017
Debt
drawdown
Debt
repayment
Leases
repayment
New Lease
Non-
Substantial
Modification
Foreign
exchange
movements
Balance
31 Dec 2018
3,141
1,527
55
4,723
411
–
–
(1,250)
(175)
–
411
(1,425)
–
–
(20)
(20)
–
–
7
7
(13)
–
–
(13)
283
158
–
441
2,572
1,510
42
4,124
Interest costs incurred on finance leases, amounted to $3 million to 31 December 2018 (31 December 2017: $3 million).
On the adoption of AASB 9 Financial Instruments the secured bank loans were adjusted as a result of a refinancing during 2017. Refer to Note F7 for details
on the adjustment. The initial recognition of AU$31 million less AU$7 million amortised in 2017 was taken to retained earnings. During 2018 AU$10 million
was amortised to amortisation of non-substantial loan refinance in finance costs. This amount will continue to amortise up to the date of maturity/repayment,
at which time the full face value of the secured bank loans will be recognised.
(a) Secured bank loans
The secured bank loans are made up of the following facilities:
Secured bank loans
Syndicated Facility (i)*
Syndicate Term Loan (ii)
* Facility balance excludes the remaining fair value adjustment balance of AU$13m recorded at 31 December 2018.
31 December 2018
31 December 2017
Facility
US $M
1,525
300
1,825
Facility
$M
2,161
425
2,586
Utilised
$M
2,161
425
2,586
Facility
$M
3,141
–
3,141
Utilised
$M
3,141
–
3,141
31 DECEMBER 2018D – CAPITAL STRUCTURE AND FINANCINGYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 149
D2 INTEREST-BEARING LIABILITIES (CONTINUED)
(a) Secured bank loans (Continued)
(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 2018 US$925 million (31 December 2017: US$150 million) was
repaid reducing the facility to US$1,525 million (31 December 2017: 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 Industries Ltd on 1 September 2017 the financial covenants were adjusted from that date. The Syndicated Facility
includes the following financial covenants to be tested half-yearly:
(a) The interest cover ratio is greater than 1.40;
(b) The gearing ratio of the Group will not exceed 0.75; and
(c) The consolidated net worth of the Group are greater than AU$3,000 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 AU$25 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 AU$50 million.
There was no breach of covenants at 31 December 2018.
(ii) Syndicated Term Loan
In 2018 a Syndicated Term Loan of US$300 million was taken out and all proceeds were used to partially repay the Syndicated Facility.
The Syndicated Term Loan is secured by the assets of the consolidated group of Yancoal Resources Ltd and Coal & Allied Industries Ltd with carrying value
of $9,486 million.
The Syndicated Term Loan includes the following financial covenants based on consolidated results of Yancoal Resources Ltd Group and Coal & Allied
Group to be tested half-yearly:
(a) The interest cover ratio is greater than 5.0 times;
(b) The finance debt to EBITDA ratio is less than 3.0 times; and
(c) The net tangible assets is greater AU$1,500 million.
There was no breach of covenants at 31 December 2018.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 150
D2 INTEREST-BEARING LIABILITIES (CONTINUED)
(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
US $M
AU $M Utilised AU $M Security
Syndicate of seven Australian
–
1,000
808 Secured by the assets of the consolidated groups of Yancoal Resources Ltd and
and international banks*
Coal & Allied Industries Ltd with carrying value of $9,486 million. Facility expires on
Bank of China*
Total
50
50
* This facility can be drawn in both A$ and US$.
23 August 2021.
71
67 Parent corporate guarantees from Yanzhou to Bank of China for the full amount of
the facility. Facility expires on 16 December 2019.
1,071
875
The Syndicated Bank Guarantee Facility includes the following financial covenants based on the combined consolidated results of Yancoal Resources Ltd
and Coal & Allied to be tested half-yearly. As part of the acquisition of Coal & Allied the Syndicated Bank Guarantee Facility was increased to AU$1 billion and
the financial covenants were adjusted from 1 September 2017:
(a) The interest cover ratio is greater than 5.0 times;
(b) The finance debt to EBITDA ratio is less than 3.0 times; and
(c) The net tangible assets are greater than AU$1,500 million.
There was no breach of covenants at 31 December 2018.
The Bank of China bank guarantee facility includes the following financial covenants to be tested half-yearly:
(a) The interest cover ratio will not be less than 1.40;
(b) The gearing ratio of the Group will not exceed 0.75; and
(c) The consolidated net worth of the Group is not less than AU$3,000 million.
The calculation of the above covenants include certain exclusions with regard to unrealised gains and losses including foreign exchange gains and losses.
The Bank of China bank guarantee 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 AU$25 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 AU$50 million.
There was no breach of covenants at 31 December 2018.
(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 no additional amounts have been drawn down and US$9 million was repaid (31 December 2017: nil). In total US$823 million (AU$1,166
million) was drawn down as at 31 December 2018 (31 December 2017: US$832 million (AU$1,066 million)).
• Facility 2: US$807 million – the purpose of the facility was to fund the coupon payable on subordinated capital notes. During the period no additional
amounts have been drawn down. After the redemption of outstanding SCN ’ s on 31 January 2018 no furthur redraws are available on this facility. In total
US$243 million (AU$344 million) was drawn down as at 31 December 2018 (31 December 2017: US$243 million (AU$312 million)).
Both the facilities have a term of ten years (with the principal repayable at maturity) and are provided on an unsecured and subordinated basis with no
covenants.
31 DECEMBER 2018D – CAPITAL STRUCTURE AND FINANCINGYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 151
D2 INTEREST-BEARING LIABILITIES (CONTINUED)
(c) Unsecured loans from related parties (Continued)
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, and during 2018 the remaining balance of the loan of US$116
million was repaid leaving the loan facility fully repaid as at 31 December 2018.
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. Refer to Note F6(b) for detailed policies in relation to
recognition, classification, measurement and derecognition of non-contingent royalty.
Opening balance
Initial recognition
Receipts/payments
Unwind of discount
Foreign exchange
Closing balance
Current
Non-current
Total
Asset
Liability
31 December
2018
31 December
2017
31 December
2018
31 December
2017
–
87
(75)
1
2
15
7
8
15
–
–
–
–
–
–
–
–
–
160
–
(119)
5
6
52
25
27
52
–
283
(142)
13
6
160
112
48
160
As part of the acquisition of Coal & Allied on 1 September 2017 US$240 million of the purchase price is to be paid over five years from completion. During
2018 US$90 million (2017: US$110 million) of the non-contingent royalties were paid.
As part of the Glencore acquisition of the 16.6% interest in HVO, Glencore will pay to Yancoal 27.9% of the paid and future payable non-contingent royalty
payments.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 152
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. Refer to Note F6(b) for detailed policies in relation to recognition, classification and measurement of contributed equity.
(a) Contributed equity
(i) Share capital
Ordinary shares (note D4(b))
1,320,434,437 43,959,446,612
6,219
5,953
31 December
2018
Number
31 December
2017
Number
31 December
2018
$M
31 December
2017
$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
Subordinated capital notes redeemed for cash
Ordinary shares issued under global offering
Transaction costs, net of tax
Closing balance
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
31 December
2018
Number
31 December
2017
Number
31 December
2018
$M
31 December
2017
$M
–
4,900
–
263
263
1
263
264
6,482
6,217
31 December
2018
$M
31 December
2018
$M
Ordinary shares Other share capital
5,953
–
–
268
(2)
6,219
1
–
(1)
–
–
–
31 December
2017
$M
31 December
2017
$M
Ordinary shares Other share capital
657
2,183
2,971
190
(48)
5,953
2,184
(2,183)
–
–
–
1
31 DECEMBER 2018D – CAPITAL STRUCTURE AND FINANCINGYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) D4 CONTRIBUTED EqUITY (CONTINUED)
(a) Contributed equity (Continued)
(iv) Movements of Ordinary Share Capital
Opening balance
Ordinary shares issued under institutional offer
Ordinary shares issued under retail entitlement offer
Ordinary shares to be issued under over allotment option
Ordinary shares issued under entitlement offer
Subordinated capital notes converted to ordinary shares
Share consolidation
Ending balance *
153
31 December
2018
Number
31 December
2017
Number
43,959,446,612
994,276,659
59,441,900
1,500,000,000
563,881
–
4,361,900
–
– 23,464,929,520
3,015,976 18,000,240,433
–
(42,706,390,832)
1,320,439,437 43,959,446,612
* There is a difference between the ending balance and the monthly return lodged with the securities exchanges due to the exercise of the Over Allotment Option on 28 December 2018 which resulted in 4,361,900 which were
issued on 3 January 2019.
(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 2017 58,490 ordinary shares were issued
on conversion of the SCNs in addition to 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.
A share consolidation of 35 ordinary shares to 1 ordinary share of the Company was completed on 28 September 2018.
As announced on 29 November 2018 the Company launched a Global Offering in connection with its dual listing on the Hong Kong Stock Exchange which
commenced on 6 December 2018. On 6 December 2018 the Company issued 59,441,900 new shares under the Global offering and on 28 December
2018 563,881 new shares were issued under the Retail Entitlement offer and on 3 January 2019 4,361,900 new shares under partial exercise of the Over
Allotment Option, all in connection with the dual listing for HK$23.48 per New Share. The total amount raised was AU$268 million and AU$37 million of issue
costs were incurred of which AU$8 million was capitalised. The proceeds are going to be used to retire debt, finance the 4% acquisition of Moolarben Joint
Venture and other potential acquisitions, and fund working capital.
(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 (SCNs) at
US$100 each. Each SCN is convertible into 1,000 Yancoal Australia Limited ordinary shares. During 2016 60 SCNs and in 2017 31 SCNs were converted
into 58,490 ordinary shares of the Company in accordance with the terms of the SCNs, and as described above in Note D4(b) 18,000,181,437 new shares
were issued on conversion of 18,000,111 SCN ’ s. 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 US$100 per note. The subordinated capital
notes entitle holders to receive fixed rate distribution payments, payable semi-annually in arrears unless deferred. The distribution rate is set at 7% per
annum, the rate is resettable to the 5 year US$ 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. On 31 January 2018 1,606 SCN ’ s were converted into new shares and 3,294 SCN ’ s were
redeemed for cash. At 31 December 2018 there were no SCN ’ s on issue.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 154
D4 CONTRIBUTED EqUITY (CONTINUED)
(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 less cash and cash equivalents. 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 2018 and 31 December 2017 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
2018
$M
31 December
2017
$M
4,124
(1,031)
3,093
5,838
8,931
34.6%
4,723
(207)
4,516
5,026
9,542
47.3%
31 DECEMBER 2018D – CAPITAL STRUCTURE AND FINANCINGYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 155
D5 SHARE-BASED PAYMENTS
Accounting Policy
Refer to Note B4(iv) for the accounting policy on share-based payments.
During 2018 share-based payments were made to KMP and other executives. As at 31 December 2018, there were 3,093,010 performance rights to
acquire shares (31 December 2017: nil). These performance rights are exercisable as follows:
Details
Date of measurement/grant
Number of Rights*
Date of Expiry
Conversion Price ($)
Management performance rights 2018 Short Term
31 December 2018
804,599
1 January 2020
Incentive Plan ( “2018 STIP ” )
2018 STIP
2018 Long Term Incentive Plan ( “2018 LTIP ” )
Special Incentive Scheme ( “ SIS ” ), Breakeven Bonus
and Transaction Bonus
31 December 2018
30 May 2018
30 May 2018
1 January 2021
1 January 2021
3 September 2018
804,599
1,483,812
1,216,428
4,309,438
Nil
Nil
Nil
Nil
Nil
* The number of rights issued has been adjusted by the 35:1 share consolidation which was completed on 28 September 2018.
Balance at beginning of the year
Granted/Expected grant for services performed (i)
Exercised during the year
Expired during the year
Forfeited during the year
Balance at the end of year
2018 No. of Rights
2017 No. of Rights
–
4,309,438
(1,185,203)
–
(31,225)
3,093,010
–
–
–
–
–
–
(i) These rights relate to the SIS bonus, exercised on 1 September 2018. The weighted average closing price on the date immediately preceding exercise, 31 August 2018, adjusted for the share consolidation, was $4.375.
FINANCIAL STATEMENTS ANNUAL REPORT 2018
156
D5 SHARE-BASED PAYMENTS (CONTINUED)
Fair value of performance rights granted/expected grant in the year
2018 STIP and 2018 LTIP
During the year ended 31 December 2018, 3,093,010 performance rights were granted or expected to be granted to Key Management Personnel and
executives as part of incentive plans for services performed during the year. Of the 3,093,010 performance rights, 1,609,198 relate to the 2018 STIP where
25% of the total 2018 STIP payable is deferred until two years after the start of the service period, 31 December 2019, and 25% is deferred until three years
after the start of the service period, 31 December 2020. They will expire on 1 January 2020 and 1 January 2021 respectively if these deferral conditions are
not met.
During the year ended 31 December 2018, 1,483,812 performance rights were granted for the 2018 LTIP and will vest on 31 December 2020 on satisfaction
of certain vesting conditions. The 2018 LTIP performance rights will expire on 1 January 2021 if these vesting conditions are not met.
The purpose of the 2018 STIP and 2018 LTIP has been detailed in the Remuneration Report, contained within the Directors ’ Report and have been granted
or are expected to be granted to all Key Management Personnel and executives. Under the 2018 STIP and 2018 LTIP, there are a maximum of 3,093,010
shares available for issue, which, if issued as new shares, would represent 0.2% of share capital in issue at 31 December 2018.
The fair value of the 2018 STIP and 2018 LTIP performance rights has been determined using the following assumptions:
Number of performance rights
Measurement/grant date
Post-consolidation share price at measurement/grant date ($)
Expected dividend yield
Vesting conditions
Value per performance right ($)
STIP
LTIP
1,609,198
1,483,812
31 December 2018
30 May 2018
3.66
8%
(a)
3.36
4.94
0%
(b)
4.94
The STIP has been valued using the volume weighted average price of Yancoal ’ s ordinary shares across a 10 day trading period before measurement date,
31 December 2018.
The LTIP has been valued using the volume weighted average price of Yancoal ’ s ordinary shares across a 10 day trading period before grant date, 30 May
2018.
(a) The 2018 STIP performance rights will vest on satisfaction of service conditions. Executives must remain in employment at the relevant dates in order for
the rights to vest.
(b) The 2018 LTIP performance rights will vest dependent upon the outcome of a cost and Earnings Per Share target. The rights are split 40% and 60%
respectively to these conditions. The targets have been defined in more detail in the Remuneration Report, contained within the Directors ’ Report.
31 DECEMBER 2018D – CAPITAL STRUCTURE AND FINANCINGYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 157
D5 SHARE-BASED PAYMENTS (CONTINUED)
Special Incentive Scheme Breakeven Bonus and Transaction Bonus
On 30 May 2018, the Yancoal Board agreed to pay the Special Incentive Scheme Breakeven Bonus and Transaction Bonus in performance rights instead
of a cash payment. The Special Incentive Scheme Breakeven Bonus and Transaction Bonus performance rights vested on 1 September 2018, and would
have expired 3 September 2018. The purpose of this scheme has been detailed in the 31 December 2017 Annual Report and were granted to the Key
Management Personnel and executives. Under the Special Incentive Scheme Breakeven Bonus and Transaction Bonus, there was a maximum of 1,216,428
shares available for issue, which, if they were issued as new shares, represents 0.01% of share capital on issue at 31 December 2018. The performance
rights were settled through issuance of treasury shares purchased off-market during 2018 by the Employee Share Plan Trust, refer to Note D6(b) for further
details.
The fair value of these performance rights has been determined using the following assumptions:
Number of performance rights
Grant date
Post-consolidation share price at grant date ($)
Expected dividend yield
Value per performance right ($)
1,216,428
30 May 2018
4.94
0%
4.94
The performance rights have been valued using the volume weighted average price of Yancoal ’ s ordinary shares across a 10 day trading period before grant
date, 30 May 2018.
D6 DISTRIBUTIONS
(a) Ordinary share dividends
On 21 September 2018 the Company paid an interim unfranked dividend of $130 million which represents 36% of profit after tax for the six months ended
30 June 2018.
(b) SCN distributions
Interim distribution on 31 July 2017
Final distribution paid on 31 January 2017
2018
Total
US$ ’ M
–
–
% per SCN
7%
7%
Total
AU$ ’ M
% per SCN
–
–
–
7%
7%
–
2017
Total
US$ ’ M
63
–
63
Total
AU$ ’ M
82
–
82
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 decreased by AU$4 million from the 31 December 2016 accrual.
(c) Franking credits
31 December
2018
$M
31 December
2017
$M
Franking credits available for subsequent reporting periods based on an income tax rate of 30% (2017 – 30%)
8
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.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 158
D7 RESERVES
Accounting Policies
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.
Shares held by the Group sponsored Employee Share Plan Trust are recognised as treasury shares and deducted from equity.
The fair value of equity plans granted is recognised in the employee compensation reserve over the vesting period. This reserve will be reversed against
treasury shares when the underlying shares vest and transfer to the employee at the fair value. The difference between the fair value at grant date and the
amount received against treasury shares is recognised in retained earnings (net of tax).
(a) Reserve balances
Hedging reserve
Treasury shares reserve
Employee compensation reserve
31 December
2018
$M
31 December
2017
$M
(611)
–
7
(604)
(413)
–
–
(413)
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 2018, losses of $160 million were transferred from other comprehensive income to profit or loss in respect of the
hedging reserve (31 December 2017 a loss of $229 million).
(b) Hedging reserve
Movements:
Hedging reserve – cash flow hedges
Opening balance
(Loss)/profit recognised on USD interest bearing liabilities
Recycled to profit or loss
Deferred income tax (expense)/benefit
Closing balance
31 December
2018
$M
31 December
2017
$M
(413)
(443)
160
85
(611)
(817)
348
229
(173)
(413)
31 DECEMBER 2018D – CAPITAL STRUCTURE AND FINANCINGYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
159
D7 RESERVES (CONTINUED)
(b) Hedging reserve (Continued)
If interest-bearing liabilities that are a natural hedge to future coal sales are repaid prior to the original designated date the hedge gain/loss incurred prior to
repayment will be released to the profit or loss in line with the original sales to which they were designated. This has resulted in the following pre-tax release
profile as at 31 December 2018:
Hedge loss to be recycled in future periods
Of which:
Hedges related to loans repaid prior to designated
repayment date
Hedges related to loans yet to be repaid
Deferred income tax expense
Closing balance
(c) Treasury share reserve
2019
$M
190
190
–
2020
$M
172
–
172
2021
$M
159
–
159
2022
$M
240
223
17
2023
$M
–
–
–
2024
$M
113
–
113
Total
$M
874
413
461
874
(263)
611
On 28 February 2018, the establishment of an employee incentive share scheme was approved by the Company ’ s Board of Directors. Pursuant to the
scheme, the Group has set up a trust for the purpose of administering the incentive share scheme and holding the shares before they vest. The Company
shall pay the trustee monies and give directions to the trustee to apply such monies and/or such other net amount of cash derived from shares held as part
of the fund of the trusts to acquire shares from the market, and/or to allot and issue shares to the trustee, to satisfy any award made to selected participants.
The Company shall select eligible persons from time to time and determine the number of shares to be awarded to such eligible persons.
During the year 42,574,974 shares were purchased off market by the trust for $6 million and as noted below in Note D6(c) 41,482,103 shares were
provided to certain employees on 1 September 2018 for $6 million, leaving 1,092,871 shares in the trust after the award. On 28 September 2018 the share
consolidation of 35 ordinary shares for 1 ordinary share left the balance remaining in the trust as at 31 December 2018 of 31,225 ordinary shares.
(d) Employee compensation reserve
The fair value of equity plans granted is recognised in the employee compensation reserve over the vesting period. This reserve will be reversed against
treasury shares when the underlying shares vest and transfer to the employee at the fair value. The difference between the fair value at grant date and the
amount received against treasury shares is recognised in retained earnings (net of tax).
During the year ended 31 December 2018, a total of 41,482,104 shares of the Company based on A$0.141 (pre share consolidation) per share or $6 million,
have been awarded to certain employees of the Group respectively at no consideration which vested on 1 September 2018. With respect to this award of
shares to eligible employees, there are no service or performance vesting conditions.
In addition $7 million (net of tax) has been recognised in relation to the current year LTIP and deferred STIP as discussed in the remuneration report.
FINANCIAL STATEMENTS ANNUAL REPORT 2018
160
D8 CONTINGENCIES
Contingent liabilities
The Group had contingent liabilities at 31 December 2018 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)
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(e) 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
2018
$M
31 December
2017
$M
208
113
321
144
236
380
119
55
174
875
352
80
432
195
248
443
109
57
166
1,041
(ii) 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.
(iii) 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.
31 DECEMBER 2018D – CAPITAL STRUCTURE AND FINANCINGYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 161
D9 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 (including WIPS);
(iii) Trade and other payables;
(iv) Interest-bearing liabilities, including bank loans and finance leases;
(v) Available-for-sale investments;
(vi) Royalty receivable;
(vii) Non-contingent royalty receivable;
(viii) Non-contingent royalty payable;
(ix) Derivative financial instruments; and
(x) Interest-bearing loan from associate.
Financial assets
Cash and cash equivalent
Loans and receivables – amortised cost
Trade and other receivables
Non-contingent royalty receivable
Interest bearing loan to associates
Assets at fair value through profit and loss
Royalty receivable
WIPS
Financial liabilities
Amortised cost
Trade and other payables
Interest-bearing liabilities
Non-contingent royalty payable
31 December
2018
$M
31 December
2017
$M
1,031
844
15
835
193
–
2,918
840
4,124
52
5,016
207
1,131
–
712
199
29
2,278
758
4,723
160
5,641
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.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 162
D9 FINANCIAL RISK MANAGEMENT (CONTINUED)
(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. The Group hedges a portion of contracted US dollar sales receivables 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 (2017: $nil).
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 which was completed 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.
31 DECEMBER 2018D – CAPITAL STRUCTURE AND FINANCINGYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 163
D9 FINANCIAL RISK MANAGEMENT (CONTINUED)
(a) Market risk (Continued)
(i) Foreign exchange risk (Continued)
Non contingent royalty payable and receivable
As part of the acquisition of Coal & Allied in 2017 the Company has agreed to make deferred other to Rio Tinto Plc ( “ Rio Tinto ” ) in US dollars. As described
in Note E1 27.9% of non-contingent royalty payable is received from Glencore.
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 and other receivables
Other assets
Non-contingent royalty receivable
Trade and other payables
Interest bearing liabilities
Non-contingent royalty payable
Net Exposure
Sensitivity
31 December 2018
31 December 2017
USD
$M
560
375
48
193
(295)
(4,096)
(52)
(3,267)
HKD
$M
189
–
–
–
–
–
–
189
USD
$M
139
432
49
199
(249)
(4,668)
(167)
(4,265)
HKD
$M
–
–
–
–
–
–
–
–
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.
2018
Cash and cash equivalents
Trade and other receivables
Non-contingent 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 before tax and equity
2017
Cash and cash equivalents
Trade and other receivables
Non-contingent 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 before tax and equity
10% depreciation of AUD/USD
10% appreciation of AUD/USD
Profit before
income tax
$M
Equity
$M
Profit before
income tax
$M
Equity
$M
58
29
19
4
110
(23)
–
(4)
(27)
83
11
34
17
4
66
(19)
–
(13)
(32)
34
–
–
–
–
–
–
(319)
–
(319)
(319)
–
–
–
–
–
–
(363)
–
(363)
(363)
(48)
(24)
(16)
(3)
(91)
19
–
4
23
(68)
(9)
(28)
(19)
(38)
(94)
26
–
11
37
(57)
–
–
–
–
–
–
261
–
261
261
–
–
–
–
–
–
297
–
297
297
FINANCIAL STATEMENTS ANNUAL REPORT 2018 164
D9 FINANCIAL RISK MANAGEMENT (CONTINUED)
(a) Market risk (Continued)
(i) Foreign exchange risk (Continued)
Sensitivity (Continued)
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 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. Refer to Note D9(d)(iii) for the royalty receivable coal price sensitivity analysis.
Coal sales are predominately provisionally priced initially. Provisionally priced sales are those for which price finalisation, referenced to the relevant index, is
outstanding at the reporting date. Provisional pricing mechanisms embedded within these sales arrangements have the character of a commodity derivative
and are carried at fair value through profit and loss as part of trade receivables. The final sales price is determined normally 7 to 90 days after delivery to
the customer. At 31 December 2018 there are $234 million of provisionally priced sales. If prices were to increase by 10% provisionally priced sales would
increase by $23 million.
(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
Interest-bearing loan to associate
Sensitivity
31 December 2018
31 December 2017
Weighted average
interest rate
%
1.4
–
5.9
9.1
Balance
$M
1,030
–
2,572
835
Weighted average
interest rate
%
1.3
3.0
5.0
8.9
Balance
$M
207
1
3,141
712
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.
31 DECEMBER 2018D – CAPITAL STRUCTURE AND FINANCINGYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 165
-25 bps
+25 bps
Profit after
income tax
$M
Equity
$M
Profit after
income tax
$M
Equity
$M
(1)
(1)
5
3
(1)
6
5
–
–
–
–
–
–
–
1
1
(5)
(3)
1
(6)
(5)
–
–
–
–
–
–
–
D9 FINANCIAL RISK MANAGEMENT (CONTINUED)
(a) Market risk (Continued)
(iii) Interest rate risk (Continued)
Sensitivity (Continued)
2018
Cash and cash equivalents
Interest-bearing loan to associate
Interest-bearing liabilities
2017
Interest-bearing loan to associate
Interest-bearing liabilities
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. As at 31 December 2018 the
Group ’ s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties and
financial guarantees provided by the Group is arising from the carrying amount of the respective recognised financial assets as stated in the Consolidated
Balance Sheet and the amount of contingent liabilities in relation to financial guarantees issued by the Group as disclosed in Note D8.
In order to minimise credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other
monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each
individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the
Directors consider that the Group ’ s credit risk is significantly reduced. The Group maintains its cash and cash equivalents with reputable banks. Therefore,
the Directors consider that the credit risk for such amounts are minimal.
In assessing the Expected Credit Losses ( “ ECL ” ) of trade receivables management assesses historical write offs of trade receivables, aging of debtors and
whether sufficient credit enhancement is provided by customers (letters of credit and bank guarantees). If the aging of trade receivables significantly increased
then the recognition of ECL would need to be reassessed.
Receivables will only be written off if there is demonstrable evidence that there is no reasonable expectation of recovery.
There was no provision for lifetime or 12 month ECL recognised for trade receivables as at 31 December 2018 as there are minimal aged debts.
The credit risk on cash and cash equivalents is limited as the counterparties are banks with credit-ratings assigned by international credit-rating agencies that
are at least investment grade.
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.
As disclosed in Note D2(a)(i) the minimum average balance of AU$25 million per day and at month end AU$50 million is required to be held in the Lender
Accounts of the Syndicated Facility which is not available for use on those days.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 166
D9 FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Credit risk (Continued)
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
2018
$M
31 December
2017
$M
1,031
844
1,875
207
1,131
1,338
Included in trade and other receivables are significant customers located in Singapore, Australia, Japan and Taiwan that account for 18%, 17%, 16% and
14% of trade receivables respectively (2017: Singapore 30%, Japan 23%, Australia 14% and Hong Kong 8%).
The top five customers included in trade receivables with the largest gross receivable balance as at 31 December 2018 account for 33% of trade receivables
(2017: 27%).
(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 and interest payments for all
liabilities.
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.
At 31 December 2018
Non-derivatives
Trade and other payables
Non-contingent royalty
Interest-bearing liabilities
Total non-derivatives
At 31 December 2017
Non-derivatives
Trade and other payables
Non-contingent royalty
Interest-bearing liabilities
Total non-derivatives
Less than
1 year
$M
Between
1 and 2 years
$M
Between
2 and 5 years
$M
Greater than
5 years
$M
840
26
319
1,185
–
13
1,533
1,546
–
13
1,799
1,812
–
–
1,660
1,660
Less than
1 year
$M
Between
1 and 2 years
$M
Between
2 and 5 years
$M
Greater than
5 years
$M
758
115
369
1,242
–
26
384
410
–
26
4,116
4,142
–
–
1,612
1,612
Total
contractual
cash flow
$M
840
52
5,311
6,203
Total
contractual
cash flow
$M
758
167
6,481
7,406
Carrying
amount
$M
840
52
4,124
5,016
Carrying
amount
$M
758
167
4,723
5,648
31 DECEMBER 2018D – CAPITAL STRUCTURE AND FINANCINGYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 167
D9 FINANCIAL RISK MANAGEMENT (CONTINUED)
(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 2018 and 31
December 2017:
31 December 2018
Assets
Royalty receivable
WIPS
Total assets
Liabilities
Other derivatives
Total liabilities
31 December 2017
Assets
Royalty receivable
WIPS
Total assets
Liabilities
Other derivatives
Total liabilities
Level 1
$M
Level 2
$M
Level 3
$M
–
–
–
–
–
–
–
–
–
–
193
–
193
–
–
Level 1
$M
Level 2
$M
Level 3
$M
–
–
–
–
–
–
–
–
–
–
199
29
228
–
–
Total
$M
193
–
193
–
–
Total
$M
199
29
228
–
–
(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
and WIPS.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 168
D9 FINANCIAL RISK MANAGEMENT (CONTINUED)
(d) Fair value measurements (Continued)
(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 2018:
Opening balance
Cash received/receivable
Unwinding of the discount
Remeasurement of the royalty receivable recognised in profit and loss
Closing balance
Royalty receivable
31 December
2018
Royalty
Receivable
$M
31 December
2017
Royalty
Receivable
$M
199
(31)
21
4
193
199
(29)
21
8
199
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 10.0%.
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.
Sensitivity
The following tables summarise the sensitivity analysis of royalty receivable. This analysis assumes that all other variables remain constant.
31 December
2018
Fair value
increase/
(decrease)
$M
31 December
2017
Fair value
increase/
(decrease)
$M
15
(15)
(16)
19
(4)
4
18
(18)
(17)
19
(5)
5
Coal price
+10%
-10%
Exchange rates
+10%
-10%
Discount rates
+10%
-10%
(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
31 DECEMBER 2018D – CAPITAL STRUCTURE AND FINANCINGYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 169
This section explains significant aspects of the Groups structure including interests in other entities, related party transactions, parent entity information,
controlled entities and the deed of cross guarantee.
E1 BUSINESS COMBINATIONS AND DISPOSALS
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 including 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 judgment 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.
(a) Acquisition of 4% of Moolarben
(i) Summary of acquisition
On 30 November 2018, Moolarben Coal Mine Pty Ltd a 100% owned subsidiary of Yancoal Australia Ltd acquired a 4% interest in Moolarben Coal Joint
Venture ( “ Moolarben JV ” ) from Kores Australia Moolarben Coal Pty Ltd ( “ Kores ” ). The Moolarben JV is accounted for as a joint operation. With the 4%
acquisition the Group now holds an 85% interest in the Moolarben JV. The cash consideration paid and payable was $84 million, split over four instalments
of $21 million each, and reduced by a $21 million effective date adjustment whereby the cash consideration was reduced by 4% of the Moolarben JV ’ s net
cash inflow from the date of the sales agreement (15 April 2018) to completion.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 170
E1 BUSINESS COMBINATIONS AND DISPOSALS (CONTINUED)
(a) Acquisition of 4% of Moolarben (Continued)
(ii) Assets and liabilities acquired
Details of the purchase consideration and the net assets and liabilities acquired of the additional interest in the Moolarben JV are as follows:
Purchase consideration:
Purchase price
Effective date adjustment
Total consideration
Gain on acquisition of interest in joint operation
Fair value of net identifiable assets acquired
The assets and liabilities recognised as a result of the acquisition are as follows:
Cash
Trade and other receivables
Inventories
Other current assets
Property, plant and equipment
Mining tenements
Trade and other payables
Provisions
Deferred tax assets
Fair value of net identifiable assets acquired
Net assets acquired
$M
84
(21)
63
–
63
Fair value
$M
2
2
3
1
52
1
(5)
(2)
9
63
63
The accounting for the acquisition has been determined on a provisional basis at 31 December 2018. Any adjustments to the provisional values as a result
of completion 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.
(iii) Revenue and profit contribution
The acquired interest contributed revenue of $6 million and net profit of $1 million to the Group for the period from 1 December 2018 to 31 December 2018.
If the acquisition had occurred on 1 January 2018, consolidated revenue and net profit before tax for the period ended 31 December 2018 would have been
$78 million and $40 million respectively. These amounts have been calculated using the Group ’ s accounting policies.
31 DECEMBER 2018E – GROUP STRUCTUREYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 171
E1 BUSINESS COMBINATIONS AND DISPOSALS (CONTINUED)
(b) Disposal of 16.6% interest in Hunter Valley Operation to Glencore
(i) Summary of disposal
On 4 May 2018, the Company announced that it had completed the establishment of a 51%:49% unincorporated joint venture with Glencore Coal Pty Ltd
( “ Glencore ” ) in relation to Hunter Valley Operations ( “ HVO JV ” ) as was previously announced on 27 July 2017 and held a 51%:49% shareholding in HVO
Services Pty Ltd, HV Operations Pty Ltd and HVO Coal Sales Pty Ltd (together the “ HVO entities ” ).
Glencore paid cash consideration of US$1,139 million for 49% of HVO JV and the HVO entities, of which US$710 million was paid to Mitsubishi Development
Pty Ltd ( “ MDP ” ) for its 32.4% interest and US$429 million was paid to a wholly owned subsidiary of Yancoal, Coal & Allied Operations Pty Ltd, for its 16.6%
interest, adjusted for a net debt and working capital adjustment and an adjustment for the net cash inflows of HVO since 1 September 2017.
Yancoal will also receive from Glencore a 27.9% share of the US$240 million non-contingent royalties payable by Yancoal to Rio Tinto Plc ( “ Rio Tinto ” )
resulting from the acquisition of Coal & Allied Industries Ltd, which occurred on 1 September 2017. The US$429 million includes US$20 million associated
with the transfer of shares in Newcastle Coal Shippers held by Coal & Allied Industries Limited and Warkworth Coal Sales Limited to a Glencore subsidiary.
Glencore acquired MDP ’ s 32.4% HVO interest directly from MDP in place of Yancoal ’ s tag-along offer. From 4 May 2018 Yancoal continues to
proportionately consolidate its 51% interest in the HVO JV, deconsolidated the HVO entities and continued to account for these entities as joint ventures.
Details of the sale proceeds, the net identifiable assets disposed of and the gain on disposal of the interest in joint venture and subsidiaries are as follows:
Disposal consideration:
Disposal price
Non-contingent royalties
Working capital and share of net cash outflows adjustment
Total consideration
Gain on disposal of interest in joint operation and subsidiaries (Note B3)
Fair value of net identifiable assets and liabilities disposed of (refer to b(ii) below)
(ii) Assets and liabilities disposed
The assets and liabilities recognised as a result of the disposal are as follows:
Cash
Trade and other receivables
Inventories
Assets classified as held for sale
Other assets
Property, plant and equipment
Mining tenements
Exploration and evaluation assets
Intangible assets
Trade and other payables
Provisions
Fair value of net identifiable assets acquired
$M
569
87
(36)
620
(78)
542
Fair value
$M
13
175
12
26
1
186
335
18
4
(172)
(56)
542
FINANCIAL STATEMENTS ANNUAL REPORT 2018 172
E1 BUSINESS COMBINATIONS AND DISPOSALS (CONTINUED)
(c) Acquisition of 28.898% interest in Warkworth Joint Venture
(i) Summary of acquisition
As announced on 7 March 2018 and effective from 1 March 2018 CNA Warkworth Australasia Pty Ltd, a subsidiary of the Company, acquired a 28.898%
interest in the Warkworth Joint Venture from Mitsubishi Development Pty Ltd ( “ MDP ” ) for US$230 million, plus a net debt and working capital adjustment.
The acquisition also included MDP ’ s shareholding in the following companies, Warkworth Coal Sales Pty Ltd, Warkworth Mining Ltd, Warkworth Pastoral Co
Pty Ltd and Warkworth Tailings Treatment Pty Ltd.
Purchase consideration:
Acquisition price
Net debt and working capital adjustment
Total consideration
Gain on acquisition of interest in joint operation and subsidiaries
Fair value of net identifiable assets acquired (refer to c(ii) below)
(ii) Assets and liabilities acquired
The assets and liabilities recognised as a result of the acquisition are as follows:
Cash
Trade and other receivables
Inventories
Other assets
Property, Plant and equipment
Mining tenements
Exploration and evaluation assets
Intangible assets
Trade and other payables
Provisions
Deferred tax assets
Non-controlling interest
Fair value of net identifiable assets acquired
$M
295
58
353
–
353
Fair value
$M
6
72
13
1
178
127
12
2
(44)
(16)
1
1
353
The accounting for the acquisition has been determined on a provisional basis at 31 December 2018. 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.
(iii) Revenue and profit contribution
The acquired interest contributed revenue of $285 million and net profit of $137 million to the Group for the period from 1 March 2018 to 31 December 2018.
If the acquisition had occurred on 1 January 2018, consolidated revenue and net profit before tax for the period ended 31 December 2018 would have been
$333 million and $160 million respectively. These amounts have been calculated using the Group ’ s accounting policies.
(d) Update on acquisition of Coal and Allied Industries Ltd
On 1 September 2017, the Group acquired the shares in Coal & Allied from wholly owned subsidiaries of Rio Tinto. The total consideration payable was $3,547
million. The accounting for the Coal & Allied acquisition was determined on a provisional basis at 31 December 2017.
During the current year, adjustments have been made to the provisional acquisition accounting of Coal & Allied. This resulted in an increase in provisions of
$8 million offset by increases in mining tenements of $1 million and intangible assets of $1 million together with the resulting deferred tax impacts. Deferred
tax assets increased by $2 million and deferred tax liabilities decreased by $4 million. The changes have resulted from further analysis of agreements and the
nature and status of assets that existed as at the acquisition date that, if known, would have affected the measurement of the amounts recognised as at the
date of acquisition.
The accounting for the acquisition is now final as at 31 December 2018.
31 DECEMBER 2018E – GROUP STRUCTUREYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 173
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.
Investments in associates and joint ventures
When the Group ’ s share of losses in a joint venture or associate equals or exceeds its interest in the joint venture or associate (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 or associate.
Unrealised gains on transactions between the Group and its joint ventures or associate are eliminated to the extent of the Group ’ s interest in the
joint ventures or associate. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of the joint ventures or associate have been changed where necessary, to ensure consistency with the policies adopted by the Group.
Critical accounting 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.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 174
E2 INTERESTS IN OTHER ENTITIES (CONTINUED)
(a) Joint operations
A controlled entity, Moolarben Coal Mines Pty Limited, has an 85% (2017: 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 51% (2017: 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 Operations Pty Ltd has a 80% (2017: 80%) interest in the Mount Thorley Joint Venture whose principal activity is the
development and operation of open-cut coal mines.
Controlled entities, CNA Warkworth Associates Pty Ltd and CNA Resources Ltd, have a combined 84.5% (2017: 55.6%) interest in the Warkworth 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% (2017: 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 2018. 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
Australia
Australia
Australia
Australia
Australia
Australia
Australia
% of ownership interest
2018
%
100
30
27
2017
%
100
30
27
Nature of
relationship
Associate
Associate
Associate
Measurement
method
Equity method
Equity method
Equity method
49.9997
49.9997
Joint Venture
Equity method
51
51
51
N/A
N/A
N/A
Joint Venture
Equity method
Joint Venture
Equity method
Joint Venture
Equity method
Carrying amount of
investment
2018
$M
–
190
–
116
1
–
–
307
2017
$M
–
191
–
60
N/A
N/A
N/A
251
Name of entity
Watagan Mining Company Ltd
Port Waratah Coal Services Ltd
Newcastle Coal Infrastructure Group Pty Ltd
Middlemount Coal Pty Ltd
HVO Coal Sales Pty Ltd
HVO Operations Pty Ltd
HVO Services Pty Ltd
Total
(i) Investment in associates
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 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. As a result of the terms of the Watagan Agreements, it was determined that the Bondholders obtained
accounting control of Watagan; accordingly, the Group de-consolidated Watagan.
31 DECEMBER 2018E – GROUP STRUCTUREYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 175
E2 INTERESTS IN OTHER ENTITIES (CONTINUED)
(b) Interests in associates and joint ventures (Continued)
(i) Investment in associates (Continued)
Watagan Mining Company Pty Ltd (Continued)
This change in accounting control was determined to occur on the issuance date of the bonds on the basis that the Bondholders obtained power over the
key operating and strategic decisions of Watagan and no longer resided 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 change in accounting control resulted in the Group de-consolidating the 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, given the Group retains significant influence in Watagan.
On 4 January 2019 BOCI (one of the Bondholders) notified Watagan and Yankuang that it was exercising its put option over US$200 million of bonds. As a
consequence, Yankuang will become the bondholder of the put bonds following completion of the purchase of those bonds by Yankuang expected to occur
on or around 1 April 2019. No security will be given by Watagan in favour of Yankuang. As the put bonds represent less than 50.1% of the face value of the
bonds, and the put option was not exercised by the instructing bondholder, the put option is not deemed to have been exercised as to all the bonds, nor has
the group regained accounting control of Watagan. Accordingly, the Group continues to equity account its interest in Watagan.
Whilst Watagan is equity accounted rather than consolidated for accounting purposes, as a result of the Group ’ s ongoing 100% equity ownership it remains
within the Group ’ s tax consolidated group.
The book value of Watagan ’ s net assets has declined since inception and at 31 December 2018 the book value of liabilities exceeded the book value of
assets by $438 million. These losses have not been recognised as the accumulated losses exceeds the value of the investment by the Group.
The book value of Watagan ’ s non-current assets of $1,654 million includes, $743 million, $390 million and $388 million for the Ashton, Austar and
Donaldson mines, respectively.
As noted in the directors ’ report Austar was subject to prohibition notices issued by the Resource Regulator that restricted current operations in Bellbird
South, however as announced on 7 August 2018 these notices have now been lifted. Ongoing work is being undertaken by Watagan in respect of the
very challenging geological and geotechnical conditions at the Austar mine, including both the Bellbird South and Stage 3 areas that may have a significant
adverse impact on future commercial operations. The future prospects of the Austar mine are therefore uncertain, and its future carrying value will depend
upon the work currently being conducted by Watagan and its internal and external advisors (Austar Review). If it is determined that the mine is unable to
return to previously forecast levels of production, there is a need to proceed to a permanent shutdown, or there are materially negative changes to other
operating assumptions, including coal prices, exchange rates, operating costs or capital expenditure, it is likely that the fair value of that mine, and therefore
of Watagan, would be reduced materially. In that event, a material impairment charge may be recognized. Donaldson remains on care and maintenance and
work remains ongoing to explore potential future mining operations.
The value of the non-current assets in the Watagan balance sheet have thus been assessed on an aggregated basis, including that:
• Austar returns to normal development and production in the Stage 3 area on completion of mining in Bellbird South, this position will have to be
reassessed on completion of the Austar Review; and
• Donaldson will recommence operations at some time in the future which is management ’ s current intention.
The key assumptions in the fair value model of Watagan are consistent with those disclosed in Note C3 noting that; (i) the Group ’ s assessment of the long
term coal prices of USD67 – USD125 per tonne for thermal coal and USD112 – USD150 per tonne from metallurgical coal for Watagan mines is at the top of
the range of external forecasts, and (ii) to reflect the increased operational risks when determining the recoverable amount of the Watagan mines a 3.5% risk
premium has been applied to the discount rate, increasing to 14%.
If it is determined that either or both, Austar or Donaldson, are unable to restart operations or return to previously forecast levels of production or there
are materially negative changes to other operating assumptions, impacting all three mines, including coal prices, exchange rates, operating costs, capital
expenditure, geological conditions, approvals or changes to existing lease conditions or regulatory outcomes it is likely that the fair value of these mines
would be reduced materially. Any impairment of these assets of Watagan would increase Watagan ’ s net asset deficit.
In that event, an impairment may be recognised by the Group on its loan receivable from Watagan, refer to Note D1 for details on the loan, or on the future
reconsolidation of Watagan.
Sensitivities
Apart from the geological and geotechnical issues noted at Austar and the ongoing work on recommencing mining at Donaldson that directly impact the
physical and cost inputs, the most sensitive inputs to the fair value model of Watagan is forecast revenue, which is primarily dependent on estimated future
coal prices and the AUD:USD forecast exchange rate, and the discount rate
FINANCIAL STATEMENTS ANNUAL REPORT 2018 176
E2 INTERESTS IN OTHER ENTITIES (CONTINUED)
(b) Interests in associates and joint ventures (Continued)
(i) Investment in associates (Continued)
Watagan Mining Company Pty Ltd (Continued)
Book Value
Recoverable Amount
Head Room
US$ Coal Price (i)
+10%
-10%
Exchange Rate (ii)
+5 cents
-5 cents
Discount Rate (iii)
+50 bps
-50 bps
2018
Watagan
$M
1,046
1,073
27
371
(373)
(228)
269
(52)
55
(i) This represents change in recoverable amount due to +/- 10% change to our coal price assumption.
(ii) This represents the change in recoverable amount due to a +/- 5 cents change to the long-term US$:A$ foreign exchange rate adopted.
(iii) This represents the change in recoverable amount due to a +/- 50bps change in discount rate adopted.
Port Waratah Coal Services Ltd
The Group holds a direct shareholding in Port Waratah Coal Services Ltd ( “ PWCS ” ) of 30% (2017: 30%). Under the shareholder agreement between the
Group and other shareholders, the Group has 30% 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.
Newcastle Coal Infrastructure Group Pty Ltd
The Group holds 27% (2017: 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.
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.
31 DECEMBER 2018E – GROUP STRUCTUREYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 177
E2 INTERESTS IN OTHER ENTITIES (CONTINUED)
(b) Interests in associates and joint ventures (Continued)
(i) Investment in associates (Continued)
Summarised financial information of associates (Continued)
Watagan
PWCS
NCIG
31 December
2018
$M
31 December
2017
$M
31 December
2018
$M
31 December
2017
$M
31 December
2018
$M
31 December
2017
$M
Cash and cash equivalents
Other current assets
Current assets
Property, plant and equipment
Mining tenements
Exploration and evaluation assets
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
Group ’ s ownership interest in the
Net Assets
Revenue
Management fees (Yancoal Australia Ltd)
Interest paid/payable (Bondholders)
Interest paid/payable (Yancoal Australia Ltd)
Other interest expenses
Depreciation & amortisation expenses
(Loss)/gain on foreign exchange
Other expenses
Income tax benefit/(expense)
(Loss)/profit from continuing operations
after tax
Other comprehensive income/(expense)
Total comprehensive (expense)/income
Group ’ s ownership interest in (loss)/
profit after tax
109
55
164
865
319
298
172
1,654
1,818
54
349
1,853
2,202
2,256
(438)
(438)
311
(51)
(74)
(67)
(5)
(69)
(89)
(263)
90
(217)
–
(217)
(217)
103
184
287
843
330
298
59
1,530
1,817
99
183
1,756
1,939
2,038
(221)
(221)
625
(56)
(102)
(67)
(5)
(136)
55
(382)
10
(58)
–
(58)
(58)
51
56
107
47
32
79
1,462
1,553
–
–
25
1,487
1,594
235
78
649
727
962
632
190
362
–
–
–
(33)
(112)
–
(174)
(14)
29
–
29
9
–
–
23
1,576
1,655
351
64
603
667
1,018
637
191
132
–
–
–
(14)
(47)
–
(101)
28
(2)
–
(2)
(1)
51
41
92
2,158
–
500
2,658
2,750
53
99
3,850
3,949
4,002
73
42
115
2,258
–
399
2,657
2,772
49
101
3,643
3,744
3,793
(1,252)
(1,021)
(338)
388
–
–
–
(228)
(106)
(329)
(83)
111
(247)
–
(247)
(67)
(276)
399
–
–
–
(205)
(115)
274
(110)
(108)
135
–
135
36
FINANCIAL STATEMENTS ANNUAL REPORT 2018 178
E2 INTERESTS IN OTHER ENTITIES (CONTINUED)
(b) Interests in associates and joint ventures (Continued)
(i) Investment in associates (Continued)
Movements in carrying amounts
The Group ’ s share of Watagan and NCIG ’ s profit/(loss) after tax has not been recognised for the years ended 31 December 2018 and 31 December 2017
since the Group ’ s share of Watagan and NCIG ’ s accumulated losses exceeds its interest in Watagan and NCIG at 31 December 2018 and at 31 December
2017.
As the Group does not have contractual agreements or a contractual obligation to contribute to these associates no additional liabilities have been
recognised.
Movements in PWCS carrying amounts
Opening balance
Acquisition of interest in associate
Share of profit/(loss) of equity-accounted investees, net of tax
Dividends received
Closing net book amount
(ii) Interest in joint venture
Middlemount Coal Pty Ltd
31 December
2018
$M
31 December
2017
$M
191
–
9
(10)
190
–
197
(1)
(5)
191
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.
HVO entities
On completion of the establishment of the 51%:49% unincorporated joint venture with Glencore on 4 May 2018, the Group holds 51% of the shares in HVO
Coal Sales Pty Ltd, HVO Operations Pty Ltd and HVO Services Pty Ltd ( “ HVO Entities ” ). From this date the Group has determined that it no longer controls
these companies. From 4 May 2018 the Group equity accounts the financial results of these companies.
Summarised financial information of joint venture
The following table provides summarised financial information for the HVO Entities and Middlemount. 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.
31 DECEMBER 2018E – GROUP STRUCTUREYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 179
HVO Entities
Middlemount
31 December
2018
$M
31 December
2017
$M
31 December
2018
$M
31 December
2017
$M
6
113
119
36
115
115
38
38
2
1
–
–
–
–
–
–
–
–
–
–
14
81
95
868
97
97
162
472
634
232
116
3
156
159
977
125
125
680
211
891
120
60
HVO Entities
Middlemount
31 December
2018
$M
31 December
2017
$M
31 December
2018
$M
31 December
2017
$M
–
–
–
–
2
2
–
2
1
–
–
–
–
–
–
–
–
–
–
–
755
(38)
(541)
(37)
(48)
91
21
112
46
10
663
(61)
(460)
(41)
(37)
64
46
110
32
23
E2 INTERESTS IN OTHER ENTITIES (CONTINUED)
(b) Interests in associates and joint ventures (Continued)
(ii) Interest in joint venture (Continued)
Summarised financial information of joint venture (Continued)
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
Group ’ s ownership interest in net assets
Revenue
Depreciation and amortisation
Other expenses
Interest expenses
Income tax benefit/(expense)
Profit from continuing operations after tax
Movements in reserves, net of tax
Total changes in equity
Group ’ s ownership interest in profit after tax
Group ’ s ownership interest in reserve movements
The liabilities of Middlemount include an interest-bearing liability of $218 million (face value of $233 million) due to the Group at 31 December 2018 (31
December 2017: $331 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 which were fully repaid during 2018 (31 December 2017: $16
million). The liabilities of Middlemount also included a royalty payable of $9 million due to the Group at 31 December 2018 (31 December 2017: $11 million).
FINANCIAL STATEMENTS ANNUAL REPORT 2018 180
E2 INTERESTS IN OTHER ENTITIES (CONTINUED)
(b) Interests in associates and joint ventures (Continued)
(ii) Interest in joint venture (Continued)
Movements in carrying amounts
Opening net book amount
Share of profit of equity-accounted investees, net of tax
Movements in reserves, net of tax
Closing net book amount
Middlemount
31 December
2018
$M
31 December
2017
$M
60
46
10
116
5
32
23
60
(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 and HVO Entities as at 31 December 2018.
There were no commitments in respect of the Group ’ s interest in Middlemount at 31 December 2018. Middlemount is subject to a taxation audit which may
result in derecognition of deferred tax assets. Other contingent liabilities in respect of the Group ’ s interest in Middlemount are set out in Note D8(ii).
E3 RELATED PARTY TRANSACTIONS
(a) Parent entities
The parent entity within the Group is Yancoal Australia Ltd. The Group ’ s majority shareholder 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) Yancoal International Holding Co. Ltd
Yancoal International Holding Co. Ltd is a wholly owned subsidiary of Yanzhou and has the following subsidiaries: Yancoal Technology Development
Holdings Pty Ltd, Athena Holdings Pty Ltd, Tonford Holdings Pty Ltd, Wilpeena Holdings Pty Ltd, Premier Coal Holdings Pty Ltd, Premier Coal Ltd, Yancoal
Energy Pty Ltd and Syntech Resources Pty Ltd ( “ Yancoal International Group ” ). The Company manages these entities on behalf of Yanzhou.
31 DECEMBER 2018E – GROUP STRUCTUREYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) E3 RELATED PARTY TRANSACTIONS (CONTINUED)
(c) Transactions with other related parties
The following transactions occurred with related parties:
Sales of goods and services
Sales of coal to Noble Group Limited (i)
Sales of coal to Watagan Mining Company Pty Ltd
Sales of coal to Yancoal International (Holding) Co., Ltd (ii)
Provision of marketing and administrative services to Watagan Group
Provision of marketing and administrative services to Yancoal International Group (iii)
Purchases of goods and services
Purchase of coal from Watagan Group
Purchases of coal from Syntech Resources Pty Ltd (ii)
Advances/loans to and repayment of advances
Advances of loan to Watagan Mining Company Pty Ltd
Repayments of loan from Watagan Mining Company Pty Ltd (iii)
Repayments of loans from Middlemount Coal Pty Ltd
Interest income capitalised into loan receivable from Middlemount Coal Pty Ltd
Repayments of loan from Premier Coal Holdings Pty Ltd
Equity subscription, debt repayment and debt provision
Loans from Yanzhou Coal Mining Company Ltd (iii)
Repayments of loan from Yanzhou Coal Mining Company Ltd (iii)
Finance costs
Interest expenses on loans from Yancoal International Resources Development Co., Ltd (iii)
Interest expenses on loans from Yanzhou Coal Mining Company Ltd (iii)
Interest expenses on loans from Yancoal International (Holding) Co., Ltd
Interest expenses on loans from Yancoal International Trading Co., Ltd (iii)
Other costs
Corporate guarantee fee to Yanzhou Coal Mining Company Ltd (iii)
Port charges to NCIG Holdings Pty Limited
Port charges to PWCS
Arrangement fee on loans from Yancoal International Resources Development Co., Ltd (iii)
181
31 December
2018
$
31 December
2017
$
–
195,466,360
36,853,608
76,188,812
225,951,918
5,704,524
7,899,544
6,409,512
5,653,000
8,081,338
276,409,594
291,799,022
(47,301,570)
(27,158,727)
(161,481,064)
(38,731,161)
(74,460,297)
(200,212,225)
(377,091,053)
(150,977,470)
254,356,412
213,816,105
117,070,781
–
(14,951,931)
(33,087,208)
–
35,000,000
20,615,791
(64,751,427)
–
(174,786,617)
329,615,625
–
(174,786,617)
329,615,625
(20,305,020)
(65,352,062)
(9,282,305)
(20,354,308)
(8,737,410)
(56,804,616)
(8,508,055)
(16,553,447)
(115,293,695)
(90,603,528)
(65,089,839)
(93,928,450)
(137,628,096)
(116,178,885)
(38,449,188)
(15,537,116)
(1,503,042)
(1,936,564)
(242,670,165)
(227,581,015)
FINANCIAL STATEMENTS ANNUAL REPORT 2018
182
E3 RELATED PARTY TRANSACTIONS (CONTINUED)
(c) Transactions with other related parties (Continued)
Finance income
Interest income from Premier Coal Holdings Pty Ltd
Interest income from loan to Watagan Mining Company Pty Ltd
Interest income released from loan receivable with Middlemount Coal Pty Ltd
Other income
Mining services fees charged to Watagan Group
Royalty income charged to Middlemount Coal Pty Ltd
Bank guarantee fee charged to Yancoal International Group (iii)
Bank guarantee fee charged to Watagan Group
Longwall hire fee charged to Austar Coal Mine Pty Ltd
Dividend income received from PWCS
31 December
2018
$
31 December
2017
$
263,820
1,658,494
67,178,577
66,809,559
18,186,750
17,927,465
85,629,147
86,395,518
46,002,805
31,398,128
2,859,808
1,573,791
3,000,000
13,126,075
51,853,076
27,572,213
1,299,740
1,236,782
3,000,000
6,409,247
97,960,607
91,371,058
(d) 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 (i)
Royalty receivable from Middlemount Coal Pty Ltd
Other receivable from Yankuang Entities
Promissory Notes receivable from Oz Star Ningbo Trading Co Ltd
Interest income receivable from Watagan Mining Company Pty Ltd
Non-current assets
Advances to joint venture and associate
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
31 December
2018
$
31 December
2017
$
3,790,545
9,417,029
–
9,403,196
35,000
39,671,295
–
10,966,329
–
42,267,396
11,171,154
24,188
35,897,436
16,292,548
62,317,065
116,619,051
217,850,129
331,686,091
834,896,006
712,161,365
1,052,746,135
1,043,847,456
31 DECEMBER 2018E – GROUP STRUCTUREYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
183
E3 RELATED PARTY TRANSACTIONS (CONTINUED)
(d) Outstanding balances arising from transactions with related parties (Continued)
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 Yancoal International Trading Co., Ltd
Tax sharing and funding arrangement with Watagan Group
Payables to Watagan Group
Non-current liabilities
Other payables
Payable to Yancoal International Resources Development Co., Ltd being an unsecured, interest-bearing loan (iii)
Payable to Yancoal International (Holding) Co., Ltd being an unsecured, interest-bearing loan (iii)
Payable to Yancoal International Trading Co., Ltd being an unsecured, interest-bearing loan (iii)
Payable to Yanzhou Coal Mining Company Limited being an unsecured, interest-bearing loan (iii)
31 December
2018
$
31 December
2017
$
159,153,851
81,065,644
5,612,401
3,973,859
8,938,269
107,618,406
–
1,368,984
3,761,855
7,523,709
44,487,215
31,775,584
285,296,786
169,982,991
191,272,315
128,927,317
304,618,872
885,064,505
321,790,897
128,205,128
275,641,026
800,869,906
1,509,883,009
1,526,506,957
(i) From 9 November 2017, on the resignation of William Randle as a Director of the Group, Noble Group Ltd is no longer deemed a related party.
(ii) Continuing connected transaction under Chapter 14A of the HKEx Listing Rules.
(iii) Fully exempt continuing connected transaction under Chapter 14A of the HKEx Listing Rules.
(e) 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 Ltd
Tonford Holdings Pty Ltd
Athena Joint Venture
Ashton Coal Mines Ltd
Austar Coal Mine Pty Ltd
Donaldson Coal Pty Ltd
Yankuang Resources Pty Ltd
Refer to Note D8(i) for details of the natures of the guarantees provided.
31 December
2018
$
31 December
2017
$
84,693,965
84,693,965
49,000
49,000
29,000,000
29,000,000
10,000
2,500
15,466,654
36,640,142
7,952,712
45,324
10,000
2,500
15,466,954
29,325,000
7,372,000
45,324
173,860,297
165,964,743
FINANCIAL STATEMENTS ANNUAL REPORT 2018 184
E3 RELATED PARTY TRANSACTIONS (CONTINUED)
(f) 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). During 2018 this loan was fully repaid.
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 2018 US$9 million
was repaid (2017: US$150 million was drawn) (Note D2(c)). As at 31 December 2018 a total of US$823 million has been drawn.
On 31 December 2014 an AU$807 million facility was provided by Yanzhou at a fixed interest rate of 7% on any amounts drawn. During 2018 no amounts
were drawn (2017: US$83 million was drawn) (Note D2(c)). As at 31 December 2018 a total of US$243 million has been drawn.
Yanzhou has 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 1.5% from 1 April 2018 (2.5% before 1 April 2018)
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 AU$100 million. This corporate guarantee was cancelled on 30
September 2017.
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.
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.
31 DECEMBER 2018E – GROUP STRUCTUREYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 185
E4 PARENT ENTITY FINANCIAL INFORMATION (CONTINUED)
(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
Distributable profits
Accumulated losses
Capital and reserves attributable to the owners of Yancoal Australia Ltd
Profit for the year
Other comprehensive income
Total comprehensive income
(b) Guarantees entered into by the parent entity
31 December 2018
$M
31 December 2017
$M
1,120
9,947
11,067
1,198
4,066
6,064
5,003
6,482
(604)
486
(1,361)
5,003
616
(198)
418
361
9,850
10,211
1,134
4,651
5,785
4,426
6,217
(413)
–
(1,378)
4,426
(550)
376
(174)
As at 31 December 2018, the parent entity had contingent liabilities in the form of a bank guarantee amounting to $875 million (2017: $1,041 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 2018, except for those described in Note D8.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 186
E5 CONTROLLING INTERESTS
(a) Significant investments in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following principal subsidiaries:
Issued and
fully paid
share capital
1
100
446,409,065
100
1
2
2
2
9,650,564
92,080
1
1
1
Name of entity1
The Company
Yancoal Australia Ltd (i)
Controlled entities
Yancoal SCN Ltd
Principal activities
Holding company of subordinate capital notes
Yancoal Australia Sales Pty Ltd (i) (iii)
Coal sales
Yancoal Resources Limited (iii)
Coal investment holding company
Yancoal Mining Services Pty Ltd (i)
Provide management services to underground mines
Moolarben Coal Mines Pty Ltd (iii)
Coal business development
Moolarben Coal Operations Pty Ltd (i)
Management of coal operations
Moolarben Coal Sales Pty Ltd
Felix NSW Pty Ltd
SASE Pty Ltd
Coal sales
Investment holding
Dormant
Yarrabee Coal Company Pty. Ltd. (iii)
Coal mining and sales
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)
Holding company
Dormant
Dormant
Coal resource exploration development
719,720,808
Holding company
Coal mining
Holding company
Holding company
Coal mining
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Coal exploration
Coal mining
Coal sales
93,001
2
665
2
2
2
2
30,180,720
100
21,558,606
8,400,000
100
10
10
Equity holding
2018
%
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
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
1 Unless otherwise stated, all subsidiaries principally operate and are incorporated in Australia.
31 DECEMBER 2018E – GROUP STRUCTUREYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) E5 CONTROLLING INTERESTS (CONTINUED)
(a) Significant investments in subsidiaries (Continued)
Name of entity
Paway Ltd2
Coal & Allied Industries Ltd (iii)
Kalamah Pty Ltd
Principal activities
Dormant
Coal investment Holding company
Holding company
Coal & Allied (NSW) Pty Ltd
Employment company for Mount Thorley mine
Australian Coal Resources Ltd
Coal investment holding company
and Warkworth mine
Issued and
fully paid
share capital
1
86,584,735
1
10,000
5
Coal & Allied Operations Pty Ltd (iii)
Coal mining and related coal preparation and marketing
17,147,500
Lower Hunter Land Holdings Pty Ltd
Management company of lower Hunter land entities
Oaklands Coal Pty Ltd
Novacoal Australia Pty Ltd
CNA Resources Ltd (iii)
CNA Warkworth Pty Ltd
Coal exploration
Holding company
Holding company
Coal mining
Coal & Allied Mining Services Pty Ltd
Employment company for Mount Thorley Co Venture
RW Miller (Holdings) Ltd
Holding company
Mount Thorley Coal Loading Ltd
Operation of Mount Thorley coal loading facility
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
Holding company
Hold land for development
Hold land for future development
Hold land for future development
Hold land for future development
Holding company
CNA Warkworth Australasia Pty Ltd (iii)
Coal mining
CNA Bengalla Investments Pty Ltd
Holding company
Mount Thorley Operations Pty Ltd (iii)
Coal mining
Northern (Rhondda) Collieries Pty Ltd
Holding company
Miller Pohang Coal Company Pty Ltd
Coal sales
Warkworth Mining Ltd
Mine management
Warkworth Pastoral Company Pty Ltd
Pastoral company for Warkworth JV
Warkworth Tailings Treatment Pty Ltd
Tailings company for the Warkworth JV
Warkworth Coal Sales Ltd
Parallax Holdings Pty Ltd
Sales company for Warkworth JV
Holding company
1
5,005
530,000
14,258,694
1
10,000
42,907,017
3,990,000
1
1
1
1
1
8,400,000
2
12
24,214
62,082
80
100
100
100
100
100
187
2017
%
100
100
100
100
100
100
100
100
100
100
100
100
100
66
100
100
100
100
100
100
100
100
100
100
80
56
56
56
56
100
Equity holding
2018
%
100
100
100
100
100
100
100
100
100
100
100
100
100
66
100
100
100
100
100
100
100
100
100
100
80
85
85
85
85
100
2 Incorporated in the British Virgin Islands.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 188
E5 CONTROLLING INTERESTS (CONTINUED)
(a) Significant investments in subsidiaries (Continued)
Name of entity
Principal activities
Non controlled entities (iv)
Watagan Mining Company Pty Ltd
Austar Coal Mine Pty Limited
White Mining Limited
Holding company
Coal mining and sales
Holding company and mine management
White Mining Services Pty Limited
Holding company
White Mining (NSW) Pty Limited
Coal mining and sales
Ashton Coal Operations Pty Limited
Mine management
Ashton Coal Mines Ltd
Gloucester (Sub Holdings 1) Pty Ltd
Donaldson Coal Holdings Ltd
Donaldson Coal Pty Ltd
Donaldson Coal Finance Pty Ltd
Abakk Pty Ltd
Newcastle Coal Company Pty Ltd
Primecoal International Pty Ltd
HV Operations Pty Ltd
HVO Coal Sales Pty Ltd
HVO Services Pty Ltd
Coal sales
Holding company
Holding company
Coal mining and sales
Finance company
Holding company
Coal mining
Holding company
Managing entity of Hunter Valley Operations
Coal sales company for Hunter Valley
Operations Holding company
Issued and
fully paid
share capital
100
64,000,000
3,300,200
2
10
5
5
2
204,945,942
6,688,782
10
6
2,300,999
1
1
1,000
100
Equity holding
2018
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
51
51
2017
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
68
100
(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) On 31 March 2016 the Group lost control of Watagan Mining Company Pty Ltd and its subsidiaries. On 4 May 2018 the Group lost control of the HVO Entities. For furthur information refer to Note E2.
(v) All subsidiaries included in the table above are incorporated and operate in Australia, except for Paway Ltd which is incorporated in the British Virgin Islands.
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 Watagan which is 33% being the current proportion of board
members. The country of incorporation or registration is also their principal place of business.
31 DECEMBER 2018E – GROUP STRUCTUREYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 189
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 Consolidated Statement of Profit or Loss and Other Comprehensive Income and a summary of movements in consolidated accumulated
losses for the year ended 31 December 2018 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 purchase
Transportation expenses
Contractual services and plant hire expenses
Government royalties expense
Other operating expenses
Finance costs
Profit/(loss) before income tax
Income tax benefit
Profit/(loss) for the year
31 December
2018
$M
1,465
100
(5)
(14)
(122)
(29)
(408)
(126)
(76)
(4)
(350)
(272)
159
312
471
31 December
2017
$M
354
26
(5)
(13)
(118)
(25)
(312)
(55)
(76)
(6)
(227)
(244)
(701)
156
(545)
FINANCIAL STATEMENTS ANNUAL REPORT 2018 190
E6 DEED OF CROSS GUARANTEE (CONTINUED)
(a) Consolidated statement of profit or loss and other comprehensive income (Continued)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Cash flow hedges:
Fair value (losses)/gains taken to equity
Fair value losses transferred to profit or loss
Deferred income tax benefit/(expense)
Other comprehensive (expense)/income for the period, net of tax
Total comprehensive income/(expense) for the year
Summary of movements in consolidated accumulated losses
Accumulated losses at the beginning of the financial year
Dividends provided for or paid
Opening retained earnings attributable to new members
Profit/(loss) after income tax
Distributions to SCN holders
Opening balance adjustment on adoption of AASB 9
Accumulated losses at the end of the financial year
31 December
2018
$M
31 December
2017
$M
(443)
160
85
(198)
273
(1,318)
(130)
13
471
–
17
348
229
(173)
404
(141)
(698)
–
–
(545)
(75)
–
(947)
(1,318)
31 DECEMBER 2018E – GROUP STRUCTUREYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 191
E6 DEED OF CROSS GUARANTEE (CONTINUED)
(b) Consolidated balance sheet
Set out below is a consolidated balance sheet as at 31 December 2018 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.
31 December
2018
$M
31 December
2017
$M
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Non contingent 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
Non contingent royalty receivable
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest-bearing liabilities
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
881
302
11
9
7
1,210
21
6,791
330
271
835
961
–
254
23
8
9,494
10,704
1,805
12
10
25
1,852
3,687
140
67
27
3,921
5,773
4,931
6,219
(341)
(947)
4,931
164
492
11
10
–
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
FINANCIAL STATEMENTS ANNUAL REPORT 2018 192
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
(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
Later than five years
31 December
2018
$M
31 December
2017
$M
49
49
33
33
31 December
2018
$M
31 December
2017
$M
29
41
18
88
38
149
–
187
The Group leases mining equipment, office space and small items of office equipment under operating leases. The leases typically run for one month to five
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
2018
$M
31 December
2017
$M
15
31
46
(4)
42
13
29
42
19
42
61
(6)
55
17
38
55
31 DECEMBER 2018f – Other InfOrmatIOnYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 193
31 December
2018
$000
31 December
2017
$000
1,808
982
84
2,874
1,259
1,010
54
2,323
31 December
2018
$000
820
31 December
2017
$000
–
F2 REMUNERATION OF AUDITORS
(a) ShineWing Australia
Audit and review of financial statements
Other assurance services
Tax compliance services
Total remuneration of ShineWing Australia
(b) ShineWing (HK) CPA Ltd
Other assurance services
(c) Other audit providers
During the year ended 31 December 2018 the Company paid Ernst & Young fees for services provided relating to the audit and review of Middlemount ’ s
financial statements of $35,000 (2017: $36,000). The Company will also pay Deloitte $49,000 for the 31 December 2018 services relating to the audit and
review of HVO JV financial information
F3 RECONCILIATION OF PROFIT AFTER INCOME TAx TO NET CASH INFLOW FROM OPERATING ACTIVITIES
31 December
2018
$M
31 December
2017
$M
Profit 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
Remeasurement of financial assets
Net loss on disposal of property, plant and equipment
Impairment of financial assets
Stamp duty accrual
Impairment reversal of mining tenements
Fair value losses recycled from hedge reserve
Foreign exchange (gains)/losses
Unwind of non-substantial loan refinance
Gain on disposal of joint operation and subsidiaries
Finance lease interest expenses
Remeasurement of contingent royalty
Gain on acquisition of subsidiaries
Gain on remeasurement of royalty receivables
Unwind of discount on non-contingent royalty
Share of profit of equity-accounted investees, net of tax
Changes in assets and liabilities:
Decrease in deferred tax assets
Increase in inventories
Decrease/(increase) in operating receivables
Increase in operating payables
Decrease/(increase) in prepayments
Decrease in deferred tax liabilities
Net cash inflow from operating activities
852
523
(59)
(18)
(21)
13
29
9
21
–
–
160
(9)
10
(78)
3
33
–
(4)
4
(56)
315
(61)
85
44
5
(53)
1,747
229
256
(86)
(18)
(21)
50
–
4
–
9
(100)
229
20
–
–
4
–
(177)
(8)
13
(32)
445
(11)
(148)
124
(10)
(364)
408
FINANCIAL STATEMENTS ANNUAL REPORT 2018 194
F4 HISTORICAL INFORMATION
The published results, assets and liabilities for the last five years at 31 December are:
RESULTS
Revenue
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) after tax
Profit/(loss) is attributable to:
Owners of Yancoal Australia Ltd
Non-controlling interests
ASSETS AND LIABILITIES
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
2018
$M
2017
$M
2016
$M
2015
$M
2014
$M
4,850
2,601
1,238
1,319
1,432
1,172
(320)
852
852
–
1,922
10,486
12,408
913
5,657
6,570
5,838
311
(82)
229
229
–
1,689
10,624
12,313
1,013
6,274
7,287
5,026
(312)
85
(227)
(227)
–
738
6,922
7,660
499
5,809
6,308
1,352
(354)
63
(291)
(291)
–
2,125
5,745
7,870
638
5,543
6,181
1,689
(271)
(83)
(354)
(354)
–
669
6,811
7,480
346
4,646
4,992
2,488
F5 EVENTS OCCURRING AFTER THE REPORTING PERIOD
No matters or circumstances have occurred subsequent to the end of the financial year which have significantly affected, or may significantly affect, the
operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial periods except for the following matters:
– Exercise of the Watagan bond put option by BOCI to Yankung as described in Note E2(b)
– On 25 February 2019, Yancoal announced a final dividend totalling AU$377 million (28.6 cents per share), with a record date of 11 March 2019. The final
dividend will be paid on 30 April 2019.
– As announced 25 February 2019, Yancoal pre-paid a further US$500 million in loans, reducing its total debt liabilities by US$1.4 billion since September
2017. The pre-payment consists of US$250 million in pre-paid loans from Bank of China and China Construction Bank, and US$250 million in pre-paid
Yanzhou-related loans.
F6 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.
31 DECEMBER 2018f – Other InfOrmatIOnYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 195
F6 OTHER SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Financial instruments
Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial
assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
(i) Financial assets
All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases
or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial
assets.
Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost:
•
the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
•
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding.
Amortised cost and effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.
For financial instruments the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or
received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding ECL, through the expected life
of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition.
The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the
cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss
allowance. On the other hand, the gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance
Interest income is recognised using the effective interest method for debt instruments measured subsequently at amortised cost. For financial instruments
interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have
subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the
effective interest rate to the amortised cost of the financial asset. If, in subsequent reporting periods, the credit risk on the credit-impaired financial instrument
improves so that the financial asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross carrying
amount of the financial asset.
Interest income is recognised in profit or loss and is included in the “ other revenue ” line item.
Financial assets at FVTPL
Financial assets that do not meet the criteria for being measured at amortised cost or fair value through other comprehensive income ( “ FVTOCI ” ) are
measured at FVTPL. Specifically:
•
Investments in equity instruments are classified as at FVTPL, unless the Group designates an equity investment that is neither held for trading nor
contingent consideration arising from a business combination as at FVTOCI on initial recognition.
• Debt instruments that do not meet the amortised cost criteria or the FVTOCI criteria are classified as at FVTPL. In addition, debt instruments that
meet either the amortised cost criteria or the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or
significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains and losses
on them on different bases. The Group has not designated any debt instruments as at FVTPL.
Financial assets at FVTPL are measured at fair value, with changes in fair value arising from remeasurement recognised in profit or loss. The net gain or loss
recognised in profit or loss excludes any dividend or interest earned on the financial assets and is included in the ‘ other income ’ line item.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 196
F6 OTHER SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Financial instruments (Continued)
(i) Financial assets (Continued)
Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default
occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition.
In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical
experience and forward-looking information that is available without undue cost or effort. Forward-looking information considered includes the future
prospects of the industries in which the Group ’ s debtors operate, obtained from economic expert reports, financial analysts, governmental bodies, relevant
think-tanks and other similar organisations, as well as consideration of various external sources of actual and forecast economic information that relate to the
Group ’ s core operations.
In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:
• an actual or expected significant deterioration in the financial instrument ’ s external (if available) or internal credit rating;
• significant deterioration in external market indicators of credit risk for a particular financial instrument, e.g. a significant increase in the credit spread, the
credit default swap prices for the debtor, or the length of time or the extent to which the fair value of a financial asset has been less than its amortised
cost;
• existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor ’ s ability
to meet its debt obligations;
• an actual or expected significant deterioration in the operating results of the debtor;
• significant increases in credit risk on other financial instruments of the same debtor; and
• an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant
decrease in the debtor ’ s ability to meet its debt obligations
Irrespective of the outcome of the above assessment, the Group presumes that the credit risk on a financial asset has increased significantly since initial
recognition when contractual payments are more than 30 days past due, unless the Group has reasonable and supportable information that demonstrates
otherwise.
Despite the foregoing, the Group assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial
instrument is determined to have low credit risk at the reporting date. A financial instrument is determined to have low credit risk if i) the financial instrument
has a low risk of default, ii) the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and iii) adverse changes in
economic and business conditions in the longer term may, but will not necessarily, reduce
the ability of the borrower to fulfill its contractual cash flow obligations. The Group considers a financial asset to have low credit risk when it has an internal or
external credit rating of ‘ investment grade ’ as per globally understood definition.
The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as
appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.
Definition of default
The Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that
receivables that meet either of the following criteria are generally not recoverable.
• when there is a breach of financial covenants by the counterparty; or
•
information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full (without
taking into account any collaterals held by the Group).
Irrespective of the above analysis, the Group considers that default has occurred when a financial asset is more than 90 days past due unless the Group has
reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.
31 DECEMBER 2018f – Other InfOrmatIOnYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 197
F6 OTHER SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Financial instruments (Continued)
(i) Financial assets (Continued)
Credit-impaired financial assets
A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have
occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:
a) significant financial difficulty of the issuer or the borrower;
b) a breach of contract, such as a default or past due event;
c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower ’ s financial difficulty, having granted to the borrower a
concession(s) that the lender(s) would not otherwise consider; or
d) it is becoming probable that the borrower will enter into bankruptcy or other financial reorganisation.
Measurement and recognition of ECL
The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at
default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described
above. As for the exposure at default, for financial assets, this is represented by the assets ’ gross carrying amount at the reporting date.
For financial assets, the ECL is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and
all the cash flows that the Group expects to receive, discounted at the original effective interest rate.
Where lifetime ECL is measured on a collective basis to cater for cases where evidence of significant increases in credit risk at the individual instrument level
may not yet be available, the financial instruments are grouped on the following basis:
• Nature of financial instruments;
• Past-due status;
• Nature, size and industry of debtors; and
• External credit ratings where available.
The grouping is regularly reviewed by management to ensure the constituents of each group continue to share similar credit risk characteristics.
If the Group has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines
at the current reporting date that the conditions for lifetime ECL are no longer met, the Group measures the loss allowance at an amount equal to 12 month
ECL at the current reporting date.
The Group recognises an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount
through a loss allowance account.
Impairment of trade receivables
The Group has applied the simplified approach to measuring expected credit losses to trade and other receivables using a life-time expected loss allowance.
The Group has also used the practical expedient of a provisions matrix using fixed rates to approximate the expected credit losses. These provisions are
considered representative across all business and geographic segments of the Group based on historical credit loss experience and considered future
information.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 198
F6 OTHER SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Financial instruments (Continued)
(ii) Financial liabilities and equity instruments
Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual
arrangements and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Financial liabilities
The Group ’ s financial liabilities include trade and other payables, non-contingent royalty payable,
interest-bearing liabilities which are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest method.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees paid or points paid or received that form an
integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where
appropriate, a shorter period, to the net carrying amount on initial recognition. Interest expense is recognised on an effective interest basis.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by
the Company are recognised at the proceeds received, net of direct issue costs.
SCN issued by the Group, which includes no contractual obligation for the Group to deliver cash or another financial asset to the holders or to exchange
financial assets or financial liabilities with the holders under conditions that are potentially unfavourable to the Group, are classified as equity instruments and
are initially recorded at the proceeds received.
Accounting for derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value at the date when a derivative contract is entered into and are subsequently remeasured at their fair value at the
end of the reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain
derivatives as either: (i) hedges of the fair value of recognised assets or liabilities (fair value hedge); and (ii) hedges of highly probable forecast transactions (cash
flow hedge).
The fair values of various derivative instruments used for hedging purposes are disclosed in Note D9. The full fair value of a hedging derivative is classified as
a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months and as a current asset or liability when the remaining
maturity of the hedged item is less than 12 months.
At the inception of the hedging relationship the Group documents the relationship between the hedging instrument and the hedged item, along with its risk
management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the
Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of
the hedged item.
(i) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive
income and accumulated in cash flow hedge reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.
Amounts previously recognised in other comprehensive income and accumulated in cash flow hedge reserve in equity are reclassified to profit or loss in the
periods when the hedged item is recognised in profit or loss.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or
when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time remains
in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to
occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.
(ii) Derivatives that do not qualify for hedge accounting and those not designated as hedging instruments
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting and those not designated as hedges are recognised
immediately in the profit or loss.
31 DECEMBER 2018f – Other InfOrmatIOnYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 199
F6 OTHER SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Financial instruments (Continued)
(ii) Financial liabilities and equity instruments (Continued)
Derecognition
A financial asset is derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another entity.
On derecognition of a financial asset in its entirety, the difference between the asset ’ s carrying amount and the sum of the consideration received and
receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in investment revaluation reserve is
recognised in profit or loss.
A financial liability is derecognised when, and only when, the Group ’ s obligations are discharged, cancelled or expire. The difference between the carrying
amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
F7 NEW AND AMENDED STANDARDS ADOPTED BY THE GROUP
(i) New and amended standards adopted by the Group
Effective from 1 January 2018 the Group adopted the new standards including AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with
Customers. The impact of adopting these standards is as follows:
AASB 9 Financial Instruments:
The adoption of AASB 9 Financial Instruments resulted in the following changes:
Financial Assets
All financial assets that were classified as loans and receivables were classified as assets held at amortised cost except for the Wiggins Island Preferences
Shares ( “ WIPS ” ) which have been revalued to nil at 31 December 2018 (31 December 2017: $29 million). These have been reclassified as assets held at fair
value through profit or loss ( “ FVTPL ” ). The valuation at 31 December 2017 did not need adjusting as the fair value approximated the carrying amount. The
WIPS are still classified as trade and other receivables.
Financial Liabilities
Classification of financial liabilities remains the same as under the old accounting standards. The measurement of financial liabilities has required an
adjustment to non-current interest-bearing liabilities as there was a non-substantial modification to the Bank of China facilities completed in August 2017.
This involved modifying the terms of this loan to change the interest structure from US Libor +2.8% increasing to US Libor +5% over time, adjusted to US
Libor +3.1% applicable from June 2017 and adjustments to agency fees over the remaining loan life.
Under AASB 9, a key determinant of whether a modification is considered substantial or non-substantial is a quantitative assessment of whether the
discounted cash flows under the new terms using the original effective interest rate, is at least 10% different from the discounted remaining cash flows of the
original financial liability.
Qualitatively the modification is non-substantial because there has been no change in the counterparty to the loan and a quantitative assessment has been
performed. The modification in 2017 is non-substantial, or less than 10% of the net present value of the original loan balance, with the net present value of
the changes being a $31 million reduction in cash flows or 0.9% over the life of the loan. This adjustment is recognised as a gain in other income and will be
unwound as an interest expense on an effective interest rate basis with immediate unwinds occurring on loan repayments. The unwind for the year ending
31 December 2017 would have been $7 million which included an immediate unwind associated with the repayment of US$150 million of the facilities in
December 2017.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 200
F7 NEW AND AMENDED STANDARDS ADOPTED BY THE GROUP (CONTINUED)
(i) New and amended standards adopted by the Group (Continued)
AASB 9 Financial Instruments: (Continued)
As the Group is applying AASB 9 retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of
retained earnings, accordingly comparative financial information is not being restated. The adjustment to the balance sheet and profit or loss for the year
ended 31 December 2017 is outlined below:
Balance Sheet
Non-current interest bearing liabilities
Deferred tax liability
Total liabilities impact
Net asset impact
Accumulated losses
Total equity
Profit or loss
Other income
Finance costs
Income tax expense
Profit after income tax
Total comprehensive income
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
AASB 15 Revenue from Contracts with Customers
As reported
31 December 2017
$M
Non-substantial
loan modification
$M
Opening balance
1 January 2018
$M
4,706
1,030
7,287
5,026
(413)
5,026
294
(287)
(82)
229
633
52.0
28.0
(24)
7
(17)
17
17
17
31
(7)
(7)
17
17
4,682
1,037
7,270
5,043
(396)
5,043
325
(294)
(89)
246
650
55.8
30.1
The updated accounting policies for the new accounting standard AASB 15 Revenue from Contracts with Customers have been disclosed in Note B2(a) and
the presentation has been updated to reflect the disclosure requirements of the new standard.
There is one additional category of revenue being recognised for freight services, this will change the revenue reported from coal sales in the 31 December
2017 period from $2,635 million to $2,623 million with the corresponding difference of $12 million being recognised as freight services in other revenue.
There is no adjustment required to opening retained earnings as the timing or value of revenue recognised on contracts with customers has not changed.
Other amending accounting standards and interpretations
Other relevant accounting standards and amendments and interpretations effective for the current reporting period include:
• AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions;
• AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration
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.
31 DECEMBER 2018f – Other InfOrmatIOnYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 201
F8 NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2018 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 16
Leases
Application date for the Group
1 January 2019
The Group is required to adopt AASB 16 Leases from 1 January 2019. The Group
has assessed the estimated impact that initial application of AASB 16 will have on its
consolidated financial statements, as described below. The actual impacts of adopting the
standard on 1 January 2019 may change because:
a the Group has not finalised the testing and assessment of controls over its new IT
systems; and
b the new accounting policies are subject to change until the Group presents its first
financial statements that include the date of initial application.
AASB 16 introduces a single, on-balance sheet lease accounting model for lessees.
A lessee recognises a right-of-use asset representing its right to use the underlying
asset and a lease liability representing its obligation to make lease payments. There
are recognition exemptions for short-term leases and leases of low-value items. Lessor
accounting remains similar to the current standard - i.e. lessors continue to classify leases
as finance or operating leases.
AASB 16 replaces existing leases guidance, including AASB 117 Leases, IFRIC 4
Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases –
Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form
of a Lease.
The Group plans to apply AASB 16 initially on 1 January 2019, using the modified
retrospective approach. The Group plans to apply the practical expedient to grandfather
the definition of a lease on transition. This means that it will apply AASB 16 to all contracts
entered into before 1 January 2019 and identified as leases in accordance with AASB 117
and IFRIC 4.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 202
F8 NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED)
Reference and Title
Details of New Standard/Amendment/Interpretation
Application date for the Group
Impact:
Leases in which the Group is a lessee
The Group will recognise new assets and liabilities for its operating leases. The nature of
expenses related to those leases will now change because the Group will recognise a
depreciation charge for right-of-use assets and interest expense on lease liabilities.
Previously, the Group recognised operating lease expense on a straight-line basis over the
term of the lease, and recognised assets and liabilities only to the extent that there was a
timing difference between actual lease payments and the expense recognised.
No significant impact is expected for the Group ’ s finance leases. Based on the information
currently available, the Group estimates that it will recognise additional lease liabilities of
$111 million and right of use assets of $92 million as at 1 January 2019. The Group does not
expect the adoption of AASB 16 to impact its ability to comply with the revised maximum
leverage threshold loan covenants described in Note D2.
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.
Leases in which the Group is lessor
The Group will reassess the classification of sub-leases in which the Group is a lessor. Based
on the information currently available, the Group expects that it will reclassify sub-leases as
finance leases, resulting in recognition of a finance lease receivable of $19 million as at 1
January 2019.
AASB 2017-6
Amendments to Australian Accounting Standards – Prepayment Features with Negative
Compensation
1 January 2019
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.
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.
31 DECEMBER 2018f – Other InfOrmatIOnYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 203
F8 NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED)
Reference and Title
Details of New Standard/Amendment/Interpretation
Application date for the Group
AASB 2017-7
Amendments to Australian Accounting Standards – Long-term Interests in Associates and
Joint Ventures
1 January 2019
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:
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.
AASB 2018-1
Annual Improvements to IFRS Standards 2015-2017 Cycle
1 January 2019
The amendments clarify certain requirements in:
a) IFRS 3 Business Combinations and IFRS 11 Joint Arrangements – previously held interest
in a joint operation
b) IAS 12 Income Taxes – income tax consequences of payments on financial instruments
classified as equity
c) IAS 23 Borrowing Costs – borrowing costs eligible for capitalisation.
Impact:
The Directors anticipate that the adoption of AASB 2018-1 will have no impact on the
recognition of amounts in the Group ’ s financial statements, but there will be additional
disclosures required
AASB Interpretation 23, and
relevant amending standards
Uncertainty over Income Tax Treatments
1 January 2019
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
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.
FINANCIAL STATEMENTS ANNUAL REPORT 2018 204
F8 NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED)
Reference and Title
Details of New Standard/Amendment/Interpretation
Application date for the Group
Not yet issued by the AASB Conceptual Framework for Financial Reporting, and relevant amending standards
1 January 2020
The revised Conceptual Framework includes some new concepts, provides updated
definitions and recognition criteria for assets and liabilities and clarifies some important
concepts. It is arranged in eight chapters, as follows:
Chapter 1 – The objective of financial reporting
Chapter 2 – Qualitative characteristics of useful financial information
Chapter 3 – Financial statements and the reporting entity
Chapter 4 – The elements of financial statements
Chapter 5 – Recognition and derecognition
Chapter 6 – Measurement
Chapter 7 – Presentation and disclosure
Chapter 8 – Concepts of capital and capital maintenance
Amendments to References to the Conceptual Framework in IFRS Standards has also been
issued, which sets out the amendments to affected standards in order to update references
to the revised Conceptual Framework. The changes to the Conceptual Framework may
affect the application of IFRS in situations where no standard applies to a particular
transaction or event. In addition, relief has been provided in applying IFRS 3 and developing
accounting policies for regulatory account balances using IAS 8, such that entities must
continue to apply the definitions of an asset and a liability (and supporting concepts) in the
2010 Conceptual Framework, and not the definitions in the revised Conceptual Framework.
Impact:
The Directors anticipate that the adoption of these updates will have no impact on the
recognition of amounts in the Group ’ s financial statements, but there will be additional
disclosures required.
AASB 2014-10
Amendments to Australian Accounting Standards – Sale or Contribution of Assets between
an Investor and its Associate or Joint Venture
1 January 2022
The amendments clarify that a full gain or loss is recognised when a transfer to an associate
or joint venture involves a business as defined in AASB 3 Business Combinations. Any gain
or loss resulting from the sale or contribution of assets that does not constitute a business,
however, is recognised only to the extent of unrelated investors ’ interests in the associate
or joint venture. AASB 2015-10 deferred the mandatory effective date (application date) of
AASB 2014-10 so that the amendments were required to be applied for annual reporting
periods beginning on or after 1 January 2018 instead of 1 January 2016. AASB 2017-5
further defers the effective date of the amendments made in AAS SB 2014-10 to periods
beginning on or after 1 January 2022
Impact:
The Directors anticipate that the adoption of this amendment will have no impact on the
recognition of amounts in the Group ’ s financial statements, but there will be additional
disclosures required.
31 DECEMBER 2018f – Other InfOrmatIOnYANCOAL AUSTRALIA LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
205
In the Directors ’ opinion:
(a) the financial statements and notes set out on pages 108 to 204 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 2018 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.
Fucun Wang
Director
5 April 2019
ANNUAL REPORT 2018DIRECTORS DECLARATION 206
Take the lead
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF YANCOAL AUSTRALIA LTD
Report on the Audit of the Financial Statements
Opinion
We have audited the fi nancial statements of Yancoal Australia Ltd (the Company) and its controlled entities
(the Group), which comprises the consolidated balance sheet as at 31 December 2018, the consolidated
statement of profi t or loss and other comprehensive income, the consolidated statement of changes in equity
and the consolidated statement of cash fl ows for the year then ended, notes comprising a summary of
signifi cant accounting policies and other explanatory information, and the directors’ declaration.
In our opinion:
1. the accompanying fi nancial statements of the Group are in accordance with the Corporations Act 2001,
including:
1.1 giving a true and fair view of the Group’s fi nancial position as at 31 December 2018 and of its
performance for the year then ended; and
1.2 complying with Australian Accounting Standards and the Corporations Regulations 2001.
2. the fi nancial statements also comply with International Financial Reporting Standards (IFRS)
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 fi nancial statements are free from material misstatement.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the Audit of the
Financial Statements 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 fi nancial statements in
Australia. We have also fulfi lled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our
opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most signifi cance in our audit of
the fi nancial statements for the year ended 31 December 2018. These matters were addressed in the context of
our audit of the fi nancial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
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INDEPENDENT AUDITOR’S REPORTYANCOAL AUSTRALIA LTD 207
Key Audit Matter
How the matter was addressed during the audit
Watagan Mining Company Pty Ltd (Watagan) Control assessment
(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.
The assessment under the accounting standards is continuous
and it 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 Watagan.
Impairment of interest-bearing loan to Watagan
Our audit procedures included, among others:
Considering the requirements of the accounting
standard AASB 10 Consolidated Financial Statements
to assess whether Yancoal controlled Watagan during
the year ended 31 December 2018. In performing
these procedures we have reviewed and challenged
management’s control assessment which includes but
is not limited to an analysis of the relationship between
the Group, Watagan and its bondholders; as well as
Watagan’s board composition and dynamics.
(Note D1)
As at 31 December 2018 Yancoal was owed $835 million by
Watagan. This loan receivable must be assessed for impairment
as required by the accounting standard AASB 9 Financial
Instruments. As the underlying cash flows of Watagan do not
support the recovery of this receivable in full, the Group has
assessed whether sufficient credit enhancement is in place to
ensure the receivable is recoverable.
Our audit procedures included, among others:
• Considering the underlying loan asset impairment
test against the criteria of AASB 9 Financial
Instruments
• Assessing the validity of the guarantee that has
been provided by Yankuang
• Assessing the ability of Yankuang to satisfy the
guarantee in the future.
The loan receivable hasn’t been impaired as Yankuang Group
Co., Ltd (Yankuang), the ultimate parent of the Company, has
guaranteed the loan receivable.
Due to the size of the loan receivable outstanding and the nature
of the guarantee provided the loan receivable is considered to be
a key audit matter.
INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 2018 208
Key Audit Matter
How the matter was addressed during the audit
Impairment of non-current assets of Watagan
Our audit procedures included, among others:
• Reviewing and challenging the position papers
prepared by management for the assessment
of the carrying value of the underlying Watagan
assets
• Evaluating managements’ key valuation
assumptions and estimates used in the
impairment testing. This includes, documenting
the skills and experience of the experts preparing
the valuation workings to consider whether we
can rely on the work they performed
• Performing sensitivity analysis on key inputs
• Reviewing the Group’s disclosures included in the
financial statements for Watagan’s impairment
testing
• Engaging our corporate finance specialists to
review the impairment model and various inputs.
(Note E2(b)(i))
As the Group does not control Watagan but has significant
influence, Watagan is accounted for as an associate. The ongoing
losses of Watagan are not recognised by the Group as it does
not have contractual agreements or a constructive obligation to
contribute to Watagan. A disclosure of the summarised financial
position and results of Watagan are included in the financial
statements in note E2(b)(i).
As at 31 December 2018 Watagan had total property, plant and
equipment, and mining tenements of $1.184 billion. Disclosed in
note E2(b)(i) there is significant operational uncertainty due to
Donaldson being on care and maintenance and Austar having
ongoing operational issues.
The Group as the operator of Watagan has performed an
impairment assessment as to the recoverability of these assets
and has concluded that these assets are not impaired as at
31 December 2018. In preparing the impairment assessment,
management has used a set of key assumptions which differ from
the assumptions used by the Group in performing impairment
assessments for its other assets subject to impairment testing.
The impairment assessment is complex and involves significant
judgment.
Watagan’s financial position and performance are not
consolidated by the Group, however, disclosure is required
to reflect the underlying financial position and financial
performance of Watagan in the notes to the financial statements.
As Watagan may be reconsolidated by the Group in the future, a
material impairment may be required at such time. As a result, it
is considered to be a key audit matter.
Acquisition of additional 28.9% of Warkworth Associates and disposal of 16.6% of HVO Joint Venture
(Note E1)
In September 2017 the Group acquired Coal & Allied Industries
Limited (Coal & Allied). The acquisition accounting was finalised
during 2018.
In completing the acquisition of Coal & Allied, the Group entered
into agreements to acquire a further 28.9% interest in the
Warkworth Associates Joint Venture (Warkworth), and divesting
a 16.6% interest in HVO Joint Venture. These transactions were
completed in 2018. The Warkworth acquisition consideration of
US$230 million has been allocated to the identifiable assets and
liabilities of Warkworth. The divestment of HVO has recorded a
gain on disposal of A$78 million.
There is a high level of judgement and estimation involved in
calculating the fair values of assets and liabilities acquired by
the Group. The disposal accounting has involved estimates and
judgement to allocate the identifiable assets and liabilities of
Coal & Allied to its business units. Given the extent of judgement
required and significant estimates involved, we consider this a key
audit matter.
Our audit procedures included, among others:
•
• Assessing the source and appropriateness of
key assumptions made in the purchase price
allocation
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 with the
taxation valuation to check the deferred taxation
calculations to consider whether deferred
taxation balances were recognised appropriately
• Agreeing the consideration paid to supporting
documentation
• Assessing the Group’s acquisition accounting
disclosures.
YANCOAL AUSTRALIA LTDINDEPENDENT AUDITOR’S REPORT (CONTINUED) 209
How the matter was addressed during the audit
Our audit procedures included, among others:
• Assessing the determination of the Group’s Cash-
Generating Units
• Considering the assessment of impairment
indicators which require an impairment test
• Evaluating the forecast commodity prices
including comparison to available market
information
• Comparing estimated operating costs and capital
expenditure used in the impairment assessment
with the latest approved mine plans and budgets
• Comparing the life of mine plan used in
impairment with reserves and resources reported
by internal geological experts. Evaluating the
competency and objectivity of the experts by
considering their professional qualifications and
experience
• Working with our valuation specialists to compare
key assumptions such as discount rates and
foreign exchange rates to market information
• Performing sensitivity analysis on the key
assumptions
• Assessing the Group’s impairment disclosures.
Our audit procedures included, among others:
• Engaging the use of our taxation experts to assist
The ACA calculation
The tax calculation
with:
»
»
» Considering any uncertain taxation positions
» Assessing transfer pricing arrangements
»
Evaluating the COT assessment
• Assessing the Group’s taxation disclosures.
Key Audit Matter
Impairment of non-current assets
(Note C3)
A substantial portion of the value of the Group’s non-current
assets are tangible and intangible assets which are subject to
an impairment assessment and revaluations in accordance with
AASB 136 Impairment of Assets or AASB 9 Financial Instruments.
These assets include property plant and equipment (note C1),
mining tenements (note C2), intangible assets (note C5), royalty
receivable (note C9) and long-term receivables from joint
ventures (note C7).
Asset valuation was a key audit matter due to the size of the
balances, being 72% of the Group’s non-current assets, and
the level of judgement required to be applied to prepare the
impairment assessment.
Taxation
(Note B6)
The Group is subject to income taxes in Australia. Significant
judgement is required in determining the provision for income
taxes and associated deferred taxation balances. The Group
estimates its tax liabilities based on the Group’s interpretation of
taxation laws and regulations. Where the final outcome of these
matters is different from the amounts that were initially recorded
such differences will impact the current and deferred tax assets
and liabilities in the period in which such a determination is
made.
The Company must comply with the provisions of the Continuity
of Ownership Test (COT) to continue to carry forward deferred
tax assets of A$624 million that are associated with prior period
losses. With the acquisitions completed by the Group there is a
high degree of complexity associated with the Allocable Cost
Amount (ACA) calculations associated with these acquisitions.
Furthermore, the Group is involved in a significant value
and quantity of related party transactions which must be in
compliance with the transfer pricing provisions of international
taxation laws and regulations.
Significant judgement is required to calculate taxation balances,
including assessing the recognition and measurement of taxation
balances where there is a range of possible outcomes due to
different interpretations of taxation law and regulations. Due to
the size of the deferred tax balances on a gross basis we consider
this to be a key audit matter.
INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 2018 210
Information other than the Financial Statements and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the information in the
Group’s fi nancial report for the year ended 31 December 2018, but does not include the fi nancial statements and our
auditor’s report thereon.
Our opinion on the fi nancial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the fi nancial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the fi nancial statements 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 Statements
The directors of the Company are responsible for the preparation of fi nancial statements that give 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 fi nancial statements that give a true and fair
view and are free from material misstatement, whether due to fraud or error.
In preparing the fi nancial statements, 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 fi nancial reporting process. In Note A(i), the directors also
state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the fi nancial
statements comply with IFRS.
Auditor’s responsibilities for the Audit of the Financial Statements
Our responsibility is to express an opinion on the fi nancial statements based on our audit. Our objectives are to obtain
reasonable assurance about whether the fi nancial statements as a whole are 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 infl uence the
economic decisions of users taken on the basis of these fi nancial statements.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and
maintain professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the fi nancial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is suffi cient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the eff ectiveness of the
Group’s internal control. However, we will communicate to you in writing concerning any signifi cant defi ciencies
in internal control relevant to the audit of the fi nancial statements that we have identifi ed during the audit.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
YANCOAL AUSTRALIA LTDINDEPENDENT AUDITOR’S REPORT (CONTINUED) 211
• 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
signifi cant 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 fi nancial
statements 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 fi nancial statements, including the disclosures,
and whether the fi nancial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
• Obtain suffi cient appropriate audit evidence regarding the fi nancial information of the entities or business
activities within the Group to express an opinion on the fi nancial statements. 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
signifi cant audit fi ndings, including any signifi cant defi ciencies 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 signifi cance in
the audit of the fi nancial statements 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 benefi ts of such
communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 68 to 82 of the directors’ report for the year ended 31
December 2018. In our opinion, the Remuneration Report of Yancoal Australia Ltd, for the year ended 31 December
2018, 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
Monday, 25 February 2019
INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 2018 212
CONTINUING CONNECTED TRANSACTIONS
The Group has entered into certain transactions with connected persons of the Company which constitute continuing connected transactions of the
Company under the HK Listing Rules. These non-exempt continuing connected transactions, in respect of which the Company has complied with the
relevant requirements under Chapter 14A of the HK Listing Rules, are set out below.
1. Sale of Coal by the Group
From time to time, Yanzhou (the controlling shareholder of the Company who is interested in approximately 62.26% of the Shares in the Company) and/or its
subsidiaries (excluding the Group) may purchase coal from the Group primarily for their own trading purposes. The Company entered into a framework coal
sales agreement with Yanzhou (the “ Yanzhou Framework Coal Sales Agreement ” ) on 8 October 2018 to govern all existing and future sale of coal by
the Group to Yanzhou and/or its subsidiaries (excluding the Group). The Yanzhou Framework Coal Sales Agreement provides that all transactions in relation
to the sale of coal by the Group to Yanzhou and/or its subsidiaries (excluding the Group) must be (i) in the ordinary and usual course of business of the
Group, (ii) on an arm ’ s length basis, (iii) on normal commercial terms with the sale price being determined with reference to market indices, adjusted for coal
characteristics and an optional analysis to ensure the price is negotiated on an arm ’ s length basis and (iv) in compliance with, amongst other things, the HK
Listing Rules and applicable laws.
The Yanzhou Framework Coal Sales Agreement expires on 31 December 2020 and is automatically renewable for successive periods of three years
thereafter, subject to compliance with the then applicable provisions of the HK Listing Rules, unless terminated earlier by not less than three months ’ prior
notice or otherwise in accordance with the terms of the Yanzhou Framework Coal Sales Agreement.
The maximum annual transaction amount to be received by the Group from Yanzhou and/or its subsidiaries (excluding the Group) for the three years ending
31 December 2018, 2019 and 2020 will not exceed US$250.0 million, US$250.0 million and US$250.0 million, respectively. During the year ended 31
December 2018, the transaction amount received by the Group was approximately US$171.6 million, which was below the annual cap.
2. Purchase of Coal by the Group
The Group has purchased and may, from time to time, purchase coal from Yanzhou and/or its subsidiaries, in particular Australian based subsidiaries of
Yanzhou holding mines which are managed by the Group, for back-to-back on sale to end customers in order to fulfil customer requirements and maintain
customer relationships.
The Company entered into a framework coal purchase agreement with Yanzhou (the “ Framework Coal Purchase Agreement ” ) on 8 October 2018 to
govern all existing and future purchases of coal by the Group from Yanzhou and/or its subsidiaries (excluding the Group). The Framework Coal Purchase
Agreement provides that all transactions in relation to the purchase of coal by the Group from Yanzhou and/or its subsidiaries (excluding the Group) must be (i)
in the ordinary and usual course of business of the Group, (ii) on an arm ’ s length basis, (iii) on normal commercial terms with the sale price being determined
with reference to industry index prices and coal quality characteristics under the respective contracts and (iv) in compliance with, amongst other things, the
HK Listing Rules and applicable laws.
The Framework Coal Purchase Agreement expires on 31 December 2020 and is automatically renewable for successive periods of three years thereafter,
subject to compliance with the then applicable provisions of the HK Listing Rules, unless terminated earlier by not less than three months ’ prior notice or
otherwise in accordance with the terms of the Framework Coal Purchase Agreement.
The maximum annual transaction amount to be paid by the Group to Yanzhou and/or its subsidiaries (excluding the Group) for the three years ending 31
December 2018, 2019 and 2020 will not exceed US$65.0 million, US$65.0 million and US$65.0 million, respectively. During the year ended 31 December
2018, the transaction amount paid by the Group was approximately US$20.8 million, which was below the annual cap.
3. Provision of Management Services by the Company
As one of the conditions imposed by the Foreign Investment Review Board of the Australian Government in relation to the merger of the Company with
Gloucester in 2012, a management and transitional services agreement (the “ Management and Transitional Services Agreement ” ) was entered into
between the Company and the following entities (the “ Existing Recipients ” ), comprising (i) Yanzhou, (ii) Yancoal Technology Development Holdings Pty
Ltd, (iii) Premier Coal Holdings Pty Ltd, (iv) Athena Holdings Pty Ltd, (v) Tonford Holdings Pty Ltd, (vi) Wilpeena Holdings Pty Ltd and (vii) Yancoal Energy Pty
Limited, in 2012, pursuant to which the Company has agreed to provide to the Existing Recipients each Services (as described below) in respect of certain
assets owned by the Existing Recipients. Each of the Existing Recipients is a wholly owned subsidiary of Yanzhou (other than Yanzhou itself). Yanzhou is a
Controlling Shareholder of the Company and is interested in approximately 62.26% of the Shares in the Company.
On 7 December 2016, a deed of variation, accession and termination agreement of the Management and Transitional Services Agreement was entered into
among the Existing Recipients, Yankuang Resources Pty Ltd ( “ Yankuang Resources ” ), Yankuang (Australia) Metal Mining Pty Ltd. ( “ Yankuang (Australia)
Metal Mining ” , together with Yankuang Resources and the Existing Recipients, the “ Recipients ” ) and the Company, pursuant to which Yankuang
Resources and Yankuang (Australia) Metal Mining became parties to the Management and Transitional Services Agreement and are entitled to all rights and
benefits of an Existing Recipient under the Management and Transitional Services Agreement. Yankuang Resources and Yankuang (Australia) Metal Mining
are both wholly-owned subsidiaries of Yankuang. Yankuang is, directly and indirectly, interested in approximately 52.86% of the shares in Yanzhou and is a
controlling shareholder of the Company.
AdditionAl HKEx compliAncE rEquirEmEnts YANCOAL AUSTRALIA LTD 213
Details of the terms of the Management and Transitional Services Agreement are set out below.
(I) Services
The Services provided to each Recipient and each of their respective subsidiaries (excluding the Group and Yanzhou) include
(i) General Corporate services, which comprise HR services, treasury services, financial accounting/reporting services, compliance services, marketing
and logistic services, corporate communications services, government and industry relations services, business development services and other general
corporate services,
(ii) Operations Services, which comprise carrying out exploration programs, preparing business plans, monitoring and reporting on environmental issues,
using all reasonable endeavours to meet business KPIs, preparing plans of operations as may be required by laws and other operational services and
(iii) IT Services, which comprise the granting of the permission to use the Company ’ s hardware or software and the provision of IT support services.
During the term, each party may request that the Company provide an additional service or the Company may change or modify the provision of an existing
service by notifying the parties in writing. Following receipt of the notice, representatives of each party must promptly meet to discuss in good faith the
proposed new services or modified services.
(II) Services Fees
The services fees for provision of the Services are charged on the basis of cost plus a 5% margin, except for any third party charges attributable to the
provision of the relevant services which are charged at cost. The cost base upon which 5% margin is applied is determined on the basis of management ’ s
reasonable estimate of such costs at the commencement of each calendar year having regard to certain principles, including (i) in respect of coal-mining
operations, the total budgeted corporate administration costs of the Company and the budgeted proportion of overall product tonnes of the relevant
mining operation, (ii) in respect of non-coal mining businesses, the estimated management hours and the hourly rate for such work and (iii) in respect of
disbursement, full recovery of any hard disbursements incurred by the Company.
At the end of each financial year (or such other times as the parties may agree), the parties will undertake a reconciliation of the fees charged during that
financial year against the actual cost and services provided. The Company will refund the excess charges or the Recipients will pay the shortfall charges to
the Company, in each case, within 14 days of determination of the fee adjustment required.
(III) Payment of the Services Fees
The Company will invoice the Recipients quarterly in arrears for services provided and the Recipients must pay to the Company within 30 days after the
receipt of the invoice.
Notwithstanding that the term of the Management and Transitional Services Agreement may exceed three years, the Company has set the annual caps for
the transactions under the Management and Transitional Services Agreement for a term of three years and will re-comply with the applicable requirements of
the HK Listing Rules after the expiry of the initial three years. The maximum annual transaction amount to be charged by the Group from the Recipients for
the three years ending 31 December 2018, 2019 and 2020 will not exceed A$15 million, A$15 million and A$15 million, respectively. During the year ended
31 December 2018, the transaction amount charged by the Group was approximately A$7.9 million, which was below the annual cap.
4. Loan Facility Provided by the Company
Premier Coal Holdings Pty Ltd, an indirect wholly-owned subsidiary of Yanzhou ( “ Premier Coal ” ) (as the borrower), entered into a loan agreement with the
Company (as lender) on 15 June 2016 in relation to an A$50 million uncommitted revolving loan with a fixed interest rate of 7% per annum (the “ Premier
Coal Loan Agreement ” ). Pursuant to the Premier Coal Loan Agreement, the Company may terminate or cancel the facility at any time and draws already
advanced to Premier Coal prior to the termination or cancellation are required to be repaid immediately. The termination date will be the date 12 months
after the date of the Premier Coal Loan Agreement, subject to automatic extension on a rolling 12 months basis, or any earlier date on which the facility is
terminated or cancelled in full or on which all the money owing becomes due and payable.
The maximum daily drawn-down principal of the loan under the Premier Coal Loan Agreement (including the interest accrued thereon) for the three years
ending 31 December 2018, 2019 and 2020 will not exceed A$53.5 million, A$53.5 million and A$53.5 million, respectively. The annual caps represent the
facility limit under the Premier Coal Loan Agreement and the maximum interest to be received. As at 31 December 2018, no amount remained drawn down
under the Premier Coal Loan Agreement.
AdditionAl HKEx compliAncE rEquirEmEnts ANNUAL REPORT 2018 214
5. Bank Guarantees Provided in favour of Yanzhou ’ s Subsidiaries
Yancoal Resources Limited ( “ Yancoal Resources ” ), a wholly-owned subsidiary of the Company, entered into a syndicated facility agreement (as most
recently amended on 31 August 2017) (the “ Local Banks Secured Syndicated Facility Agreement ” ) with financiers who are independent third party
commercial banks, on 11 October 2005, pursuant to which the financiers have agreed to grant to the borrowers, being Yancoal Resources and any new
borrowers as agreed by the financiers, a dollar contingent liability facility (which may also be drawn in US$), under which, the financiers will issue credit
support documents, including bank guarantee and letter of credit, in the name of the borrowers. Subject to amendment and restatement from time to time,
the Local Banks Secured Syndicated Facility Agreement is for a term of three years.
The Company manages certain mines on behalf of Yanzhou. In the ordinary and usual course of business, the subsidiaries of Yanzhou holding the managed
mines may require credit support documents issued by commercial banks for their respective business operations. Given the relevant commercial banks can
issue credit support documents pursuant to existing facility agreements generally within 5 business days after receiving a request, which is a much shorter
period of time and simpler process as compared to those required by other commercial banks to issue credit support documents without an existing facility
agreement and the relationship between the Company and the managed mines, as an integral part of the management services rendered by the Company
in support of the operation of the managed mines, the subsidiaries of Yanzhou holding the managed mines will use the overall bank guarantee facilities,
including the Syndicated Facility and the facility under the Local Banks Secured Syndicated Facility Agreement, and pay the Company bank guarantee fees,
which are equal to the fees to be paid by the Company to the commercial banks.
The aggregate maximum daily outstanding principal and the bank guarantee fees to be received under the credit support documents issued by commercial
banks in favour of the subsidiaries of Yanzhou (excluding the Group) for the three years ending 31 December 2018, 2019 and 2020 will not exceed A$123.4
million, A$128.6 million and A$133.7 million, respectively. During the year ended 31 December 2018, the aggregate maximum daily outstanding principal and
the bank guarantee fees was approximately A$71.7 million, which was below the annual cap.
6. Purchase of Coal by Glencore
From time to time, Glencore Coal Pty Ltd ( “ Glencore ” ) and/or its associates may purchase coal from the Group for on sale to end customers, in order to
maintain customer relationships or to meet specific customer requirements. The Company entered into a framework coal sales agreement with Glencore
(the “ Glencore Framework Coal Sales Agreement ” ) on 29 June 2018 to govern all existing and future sales of coal by the Group to Glencore and/
or its subsidiaries and/or related entities. The Glencore Framework Coal Sales Agreement provides that all transactions in relation to the sale of coal by the
Group to Glencore and/or its subsidiaries and/or related entities must be (i) in the ordinary and usual course of business of the Group, (ii) on an arm ’ s length
basis, (iii) on normal commercial terms with the sale price being determined with reference to the prevailing market price for the relevant type of coal and
(iv) in compliance with, amongst other things, the HK Listing Rules and applicable laws. The Company will take into account relevant industry benchmarks
and indices when determining the market price. Glencore wholly owns Anotero Pty Ltd ( “ Anotero ” ). Anotero is a substantial shareholder of subsidiaries of
the Company under the HK Listing Rules. Glencore is a connected person of the Company by virtue of being a substantial shareholder of the Company ’ s
subsidiary (through Anotero).
The Glencore Framework Coal Sales Agreement expires on 31 December 2020 and is automatically renewable for successive periods of three years
thereafter, subject to compliance with the then applicable provisions of the HK Listing Rules, unless terminated earlier by not less than three months ’ prior
notice or otherwise in accordance with the terms of the Glencore Framework Coal Sales Agreement.
The maximum annual transaction amount to be received by the Group from Glencore and/or its subsidiaries and/or its related entities for the three years
ending 31 December 2018, 2019 and 2020 will not exceed US$350 million, US$350 million and US$350 million, respectively. During the year ended 31
December 2018, the transaction amount received by the Group was approximately A$297.4 million, which was below the annual cap.
7. Purchase of Coal by Sojitz
From time to time, Sojitz Moolarben Resources Pty Ltd ( “ Sojitz ” ) and/or its subsidiaries may purchase coal from the Group primarily for their own trading
purposes and for sale to end customers, typically into Japan. Specifically, Moolarben Coal Sales Pty Ltd has entered into a coal supply contract for a term
of three years with Sojitz Corporation in March 2016 for onward supply of coal to a major industrial user in Japan. This contract is likely to be renewed and it
is expected that this business will be ongoing. Sojitz is a substantial shareholder of the Moolarben joint venture, a subsidiary of the Company under the HK
Listing Rules. Sojitz is a connected person of the Company by virtue of being a substantial shareholder of the Company ’ s subsidiary.
The coal sales agreement between the Company and Sojitz (the “ Sojitz Coal Sales Agreement ” ) dated 6 August 2018 governs all existing and future
sales of coal by the Group to Sojitz and/or its subsidiaries. The Sojitz Coal Sales Agreement provides that all transactions in relation to the sale of coal by
the Group to Sojitz and/or its subsidiaries must be (i) in the ordinary and usual course of business of the Group, (ii) on an arm ’ s length basis, (iii) on normal
commercial terms with the sale price being determined with reference to market indices, coal quality and an optional analysis to ensure the price is negotiated
on an arm ’ s length basis and (iv) in compliance with, amongst other things, the HK Listing Rules and applicable laws.
YANCOAL AUSTRALIA LTDAdditionAl HKEx compliAncE rEquirEmEnts (continuEd) 215
The Sojitz Coal Sales Agreement expires on 31 December 2020 and is automatically renewable for successive periods of one year thereafter, subject to
compliance with the then applicable provisions of the HK Listing Rules, unless terminated earlier by not less than three months ’ prior notice or otherwise in
accordance with the terms of the Sojitz Coal Sales Agreement.
The maximum annual transaction amount to be received by the Group from Sojitz and/or its subsidiaries for the three years ending 31 December 2018, 2019
and 2020 will not exceed US$100 million and US$100 million, respectively. During the year ended 31 December 2018, the transaction amount received by
the Group was approximately US$54.6 million, which was below the annual cap.
8. Sales of Coal by the Group to POSCO and/or its Associates
From time to time, POSCO Australia Pty Ltd (previously known as Pohang Steel Australia Pty Ltd) ( “ POSCO ” ) and/or its associates may purchase coal
from the Group for their own utilisation in the manufacturing of steel or generation of electricity. POSCO is a substantial shareholder of the subsidiaries of the
Company under the HK Listing Rules.
The Group entered into five coal sales agreements with POSCO group companies that govern the sale of coal by the Group to POSCO and/or its associates
on 21 December 2017 (the “ POSCO Coal Sales Agreements ” ). As POSCO is interested in 20% of the Mount Thorley JV, a subsidiary of the Company
under the Listing Rules, POSCO is a connected person of the Company by virtue of being a substantial shareholder of the Company ’ s subsidiary.
The POSCO Coal Sales Agreements provide that all transactions in relation to the sale of coal by the Group to POSCO and/or its associates must be (i) in
the ordinary and usual course of business of the Group, (ii) on an arm ’ s length basis, (iii) on normal commercial terms with the sale price being negotiated
between the parties on an arm ’ s length market related basis relative to market benchmarks and reflecting coal quality, and (iv) in compliance with, amongst
other things, the HK Listing Rules and applicable laws. The Group has been supplying POSCO and/or its associates for several years under annual contracts
which are renewed annually, but where volume and price are renegotiated annually.
The maximum annual cap in respect of the POSCO Coal Sales Agreements for the year ended 31 December 2018 was US$780 million. During the year
ended 31 December 2018, the transaction amount received by the Group was approximately US$428.1 million, which was below the annual cap.
As the POSCO Coal Sales Agreements are renewed annually, the Company will set an annual cap for the transactions under the POSCO Coal Sales
Agreements for a further term of one year and will re-comply with the applicable requirements of the HK Listing Rules when the relevant agreements are
renewed. As disclosed in the announcement of the Company dated 29 March 2019,, the parties formally agreed to enter into four coal sales agreements
with POSCO and/or its associates (the “2019 POSCO Coal Agreements ” ) on 29 March 2019. The maximum annual cap for the year ending 31 December
2019 is US$780 million.
9. Purchase of Coal from Glencore
From time to time, the Group may purchase coal from Glencore and/or its associates for on sale to end customers, in order to maintain customer
relationships or to meet specific customer requirements. The Company entered into a framework coal purchase agreement with Glencore (the “ Glencore
Framework Coal Purchase Agreement ” ) on 6 August 2018 to govern all existing and future purchase of coal by the Group from Glencore and/or its
subsidiaries. The Glencore Framework Coal Purchase Agreement provides that all transactions in relation to the purchase of coal by the Group from Glencore
and/or its associates must be (i) in the ordinary and usual course of business of the Group, (ii) on an arm ’ s length basis, (iii) on normal commercial terms with
the sale price being determined with reference to the prevailing market price for the relevant type of coal and (iv) in compliance with, amongst other things,
the HK Listing Rules and applicable laws. The Company will take into account relevant industry benchmarks and indices when determining the market price.
Glencore wholly owns Anotero which is a substantial shareholder of subsidiaries of the Company under the HK Listing Rules. Glencore is a connected person
of the Company by virtue of being a substantial shareholder of the Company ’ s subsidiary.
The Glencore Framework Coal Purchase Agreement expires on 31 December 2020 and is automatically renewable for successive periods of three years
thereafter, subject to compliance with the then applicable provisions of the HK Listing Rules, unless terminated earlier by not less than three months ’ prior
notice or otherwise in accordance with the terms of the Glencore Framework Coal Purchase Agreement.
The maximum annual transaction amount to be paid by the Group to Glencore and/or its subsidiaries for the three years ending 31 December 2018, 2019
and 2020 will not exceed US$350 million, US$350 million and US$350 million, respectively. During the year ended 31 December 2018, the transaction
amount paid by the Group was approximately US$105.2 million, which was below the annual cap.
AdditionAl HKEx compliAncE rEquirEmEnts ANNUAL REPORT 2018 216
10. Purchase of Coal from Anotero
As part of the Glencore Transaction, CNAO, a wholly-owned subsidiary of the Company, HVO Coal Sales Pty Ltd (the “ SalesCo ” ) and Anotero entered into
a sales contract – Hunter Valley Operations Joint Venture on 4 May 2018 (the “ HVO Sales Agreement ” ). The relevant mining and exploration licences of
HVO are held directly by CNAO and Anotero as tenants in common in proportion to their respective participating interest in the HVO JV. Pursuant to the
HVO Sales Agreement, (i) each of CNAO and Anotero agrees to sell all of its entitled portion of finished coal product in saleable form that is produced by the
tenements held by the HVO JV to the SalesCo only and the SalesCo agrees to purchase each of CNAO ’ s and Anotero ’ s entitled portion of coal product; (ii)
the amount payable to each of CNAO and Anotero by the SalesCo shall be the total amount received by the SalesCo for that portion of product under each
sales contract entered into between the SalesCo and its customers; and (iii) payment by the SalesCo to CNAO and Anotero shall be no later than 3 business
days after receipt by the SalesCo of payment from its customers. Anotero is a substantial shareholder of subsidiaries of the Company under the HK Listing
Rules. Anotero is a connected person of the Company by virtue of being a substantial shareholder of the Company ’ s subsidiary.
The HVO Sales Agreement shall commence on the date of the HVO Sales Agreement and terminate upon the termination of the joint venture agreement in
relation to the HVO JV in accordance with its terms.
Notwithstanding that the term of the HVO Sales Agreement may exceed three years, the Company has set the estimated maximum annual transaction
amounts for the transactions under the HVO Sales Agreement for a term of three years and will re-comply with the applicable requirements of the HK Listing
Rules after the expiry of the initial three years. The maximum annual transaction amount to be distributed by the SalesCo to Anotero for the three years
ending 31 December 2018, 2019 and 2020 will not exceed US$750 million, US$750 million and US$750 million, respectively. During the year ended 31
December 2018, the transaction distributed by the SalesCo to Anotero was approximately US$551 million, which was below the annual cap.
11. Purchase of Coal from POSCO
The participants of the unincorporated joint venture in relation to Mt Thorley (the “ MT JV ” ) namely POSCO and Mount Thorley Operations Pty Ltd (previously
known as R. W. Miller & Co. Pty Limited) ( “ MT Operations ” ), a wholly-owned subsidiary of the Company holding the relevant mining and exploration
licences of Mount Thorley on behalf of the MT JV, entered into a sales contract with Miller Pohang Coal Co. Pty Limited (the “ MT SalesCo ” ) on 10
November 1981 (the “ MT Sales Agreement ” ), respectively. MT SalesCo is a company jointly controlled by MT Operations and POSCO with MT Operations
and POSCO holding 80% and 20% of its interest, respectively. Both the MT SalesCo and the MT JV are subsidiaries of the Company under the HK Listing
Rules. As POSCO holds more than 10% of the interest in the MT SalesCo and has more than 10% participating interest in the MT JV, POSCO is a connected
person of the Company by being a substantial shareholder of the subsidiaries of the Company. Accordingly, the transaction between the MT SalesCo and
POSCO constitutes a continuing connected transaction of the Company under the HK Listing Rules.
Pursuant to the MT Sales Agreement: (i) each of POSCO and MT Operations agrees to sell all of its entitled portion of finished coal product in saleable
form that is produced by the tenements held by the MT JV to the MT SalesCo only and the MT SalesCo agrees to purchase each of POSCO ’ s and MT
Operations ’ entitled portion of coal product; (ii) the amount payable to each of POSCO and MT Operations shall be the total amount received by the MT
SalesCo for that portion of product under each sales contract entered into between the MT SalesCo and its customers; and (iii) payment by the MT SalesCo
to POSCO and MT Operations shall be no later than 7 days after receipt by the MT SalesCo of payment from its customers.
The MT Sales Agreement was entered into on 10 November 1981 and will last during the economic life of the Mount Thorley coal mine.
Notwithstanding that the term of the MT Sales Agreement may exceed three years, the Company has set the estimated maximum annual transaction
amounts for the transactions under the MT Sales Agreement for a term of three years and will re-comply with the applicable requirements of the HK Listing
Rules after the expiry of the initial three years. The maximum annual transaction amount to be distributed by the MT SalesCo to POSCO for the three
years ending 31 December 2018, 2019 and 2020 will not exceed US$90 million, US$90 million and US$90 million, respectively. During the year ended 31
December 2018, the transaction amount distributed by the MT SalesCo to POSCO was approximately US$89.5 million, which was below the annual cap.
Review on continuing connected transactions
Pursuant to Rule 14A.55 of the HK Listing Rules, the Directors (including independent non-executive Directors) have reviewed the above continuing
connected transactions in the year ended 31 December 2018. The independent non-executive Directors hereby confirmed that the above continuing
transactions have been entered into:
1. in the ordinary and usual course of business of the Group;
2. on normal commercial terms or better; and
3. in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interest of Shareholders as a whole.
In accordance with the requirement of Rule 14A.56 and 14A.71(6)(b) of the HK Listing Rules, the Company has engaged the independent auditor of the
Company to report on the continuing connected transactions of the Group.
YANCOAL AUSTRALIA LTDAdditionAl HKEx compliAncE rEquirEmEnts (continuEd) 217
Based on the results of procedures performed and in accordance with the aforesaid HK Listing Rules, the independent auditor has provided a letter to the
Board confirming that nothing has come to their attention that cause them to believe that the continuing connected transactions:
(i) have not been approved by the Board;
(ii) were not, in all material respects, in accordance with the pricing policies of the Group;
(iii) were not entered into, in all material respects, in accordance with the relevant agreements governing such transactions; and
(iv) have exceeded their respective annual caps for the financial year ended 31 December 2018 set out in the prospectus of the Company.
In accordance with paragraph 14A.57 of the Listing Rules, a copy of the independent auditor ’ s letter has been provided by the Company to the HK Stock
Exchange.
The Company confirms that it has complied with the requirements of Chapter 14A of the HK Listing Rules in relation to all connected transactions and
continuing connected transactions to which any Group member was a party during the year ended 31 December 2018. Please refer to Note E3 to the
financial statements for a summary of the related party transactions entered into by the members of the Group for the year ended 31 December 2018. Other
than those transactions disclosed in the section headed “ Continuing Connected Transactions ” above, none of these transactions constitutes a disclosable
connected transaction as defined under the HK Listing Rules.
DIRECTORS ’ CONFIRMATIONS
Director ’ s Interest in Competing Business
Except for (i) Baocai Zhang, who is a non-executive director and also a director of Yankuang Group Company Limited (Yankuang) and (ii) Xiangqian Wu
and Qingchun Zhao, who are non-executive directors and also the directors of Yanzhou, none of the directors is interested in any business apart from the
Group ’ s business which competes with or is likely to compete, either directly or indirectly, with the Group ’ s business during the year ended 31 December
2018.
Letters of appointment and service contracts
Each Director has entered into a letter of appointment in relation to his/her role as a director of the Company, which is subject to termination by the Director
or the Company in accordance with the terms of the letter of appointment, the requirements of the Listing Rules and the provisions relating to the retirement
and rotation of the Directors under the Constitution.
Pursuant to the terms of the letter of appointment entered into between each Director (on the one part) and the Company (on the other part), (a) the Executive
Director and the non-executive Directors are not entitled to receive any director ’ s fees; (b) the annual director ’ s fees payable by the Company to each
Independent Non-executive Director are A$150,000 (save for Greg Fletcher who receives fees as set out in (e) below); (c) an Independent Non-executive
Director (save for Greg Fletcher) will receive from the Company an additional fee of A$30,000 for being the chairman of the audit and risk management
committee, the nomination and remuneration committee or the health, safety and environment committee, (d) an Independent Non-Executive Director (save
for Greg Fletcher) will receive from the Company an additional fee of A$15,000 for being a member of the audit and risk management committee, the health,
safety and environment committee, the nomination and remuneration committee or the strategy and development committee, and certain additional fees on
a per day basis as approved by the Board for the role on an independent board committee for any major related party transactions, and (e) Greg Fletcher
will receive A$330,000 including superannuation in aggregate for his role as a Co-Vice Chair of the Board, chairman of the audit and risk management
committee, member of the nomination and remuneration committee and chair of the independent board committee.
Each Director is entitled to be indemnified by the Company (to the extent permitted under the Constitution and applicable laws) and to be reimbursed by the
Company for all necessary and reasonable out-of-pocket expenses properly incurred in connection with the performance and discharge of his/her duties
under his/her letter of appointment.
None of the Directors proposed for re-election at the forthcoming annual general meeting has a service contract with the Company or any of its subsidiaries
which is not determinable by the Group within one year without payment of compensation, other than statutory compensation.
Save as disclosed above, none of the Directors has entered into any service contracts as a director with any member of the Group (excluding contracts
expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).
AdditionAl HKEx compliAncE rEquirEmEnts ANNUAL REPORT 2018 218
INTERESTS AND POSITIONS IN SHARES
1. Interests of the Directors and Chief Executive of the Company
As at 31 December 2018, the interests and/or short positions (as applicable) of the Directors and the chief executive of the Company in the Shares
and debentures of the Company and any interests and/or short positions (as applicable) in shares or debentures of any of the Company ’ s associated
corporations (within the meaning of Part XV of the Securities and Futures Ordinance (SFO)) which (i) have to be notified to the Company and the Hong
Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and/or short positions (as applicable) which they are taken or
deemed to have under such provisions of the SFO), (ii) are required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or (iii)
are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the HK Listing Rules, to be
notified to the Company and the Hong Kong Stock Exchange, are as follows:
Name of Director or Chief Executive
Number of Shares
Nature of Interest
Approximate Percentage
Baocai Zhang
Gregory James Fletcher
Geoffrey William Raby
Reinhold Schmidt
274,404
Beneficial owner
2,100
22,858
Beneficial owner
Beneficial owner
312,278
Beneficial owner
0.02078%
0.00016%
0.00174%
0.02374%
Save as disclosed above, none of the Directors or the chief executive of the Company have an interest and/or short position (as applicable) in the Shares or
debentures of the Company or any interests and/or short positions (as applicable) in the shares or debentures of the Company ’ s associated corporations
(within the meaning of Part XV of the SFO) which (i) have to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7
and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO), (ii) are
required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or (iii) are required, pursuant to the Model Code for Securities
Transactions by Directors of Listed Issuers as set out in Appendix 10 to the HK Listing Rules, to be notified to the Company and the Hong Kong Stock
Exchange.
2. Interests of persons other than Directors and Chief Executive of the Company
As at 31 December 2018, the following persons (other than a Director or chief executive of the Company) have an interest and/or short position (as
applicable) in the Shares or underlying Shares which were recorded in the register required to be kept under section 336 of the SFO:
Name of Shareholder
Yanzhou
Yankuang1
Cinda International HGB Investment (UK) Limited
China Agriculture Investment Limited
International High Grade Fund B, L.P.
Cinda International GP Management Limited
China Cinda (HK) Asset Management Co., Ltd
Cinda Strategic (BVI) Limited
Cinda International Holdings Limited
China Cinda (HK) Holdings Company Limited
China Cinda Asset Management Co., Ltd2
Glencore Coal Pty Ltd
Glencore Holdings Pty Limited
Glencore plc3
CSIL4
Shandong Lucion Investment Holdings Group Co., Ltd
Capacity
Beneficial interest
Interest in controlled entity
Beneficial interest
Interest in controlled entity
Interest in controlled entity
Interest in controlled entity
Interest in controlled entity
Interest in controlled entity
Interest in controlled entity
Interest in controlled entity
Interest in controlled entity
Beneficial interest
Interest in controlled entity
Interest in controlled entity
Beneficial interest
Interest in controlled entity
Number of Shares
Held or Interested
Approximate
Percentage (%)
822,157,715
822,157,715
209,800,010
209,800,010
209,800,010
209,800,010
209,800,010
209,800,010
209,800,010
209,800,010
209,800,010
84,497,858
84,497,858
84,497,858
71,428,572
71,428,572
62.26
62.26
15.89
15.89
15.89
15.89
15.89
15.89
15.89
15.89
15.89
6.40
6.40
6.40
5.41
5.41
1 Yankuang is deemed to be interested in the 822,157,715 Shares which Yanzhou is interested in as beneficial owner as it is entitled to exercise or control the exercise of more than one-third of the voting power at general
meetings of Yanzhou.
2 Cinda International HGB Investment (UK) limited, an indirect wholly owned subsidiary of China Cinda Asset Management Co., Ltd, is interested in 209,800,010 Shares which are held by J P Morgan Nominees Australia Limited
as nominee. China Cinda Asset Management Co., Ltd., China Cinda (HK) Holdings Company Limited, Cinda International Holdings Limited, Cinda Strategic (BVI) Limited, China Cinda (HK) Asset Management Co., Ltd, Cinda
International GP Management Limited, International High Grade Fund B, L.P. and China Agriculture Investment Limited are each deemed to be interested in the 209,800,010 Shares which Cinda International HGB Investment (UK)
Limited is interested in as beneficial owner.
3 Glencore plc and Glencore Holdings Pty Limited are deemed to be interested in the 84,497,858 Shares which Glencore Coal Pty Ltd is interested in as beneficial owner. Glencore plc wholly owns Glencore Holdings Pty Ltd
which in turn wholly owns Glencore Coal Pty Ltd.
4 CSIL, a wholly owned subsidiary of Shandong Lucion Investment Holdings Group Co., Ltd, is interested in 71,428,572 Shares which are held by HSBC Custody Nominees (Australia) Limited – A/C 2 as nominee.
YANCOAL AUSTRALIA LTDAdditionAl HKEx compliAncE rEquirEmEnts (continuEd) 219
RELATIONSHIP WITH CONTROLLING SHAREHOLDERS
As at the date of this Report:
a) Yankuang is, directly and indirectly, interested in approximately 52.86% of the shares in Yanzhou and Yanzhou is interested in approximately 62.26%
of the Shares in the Company; Yankuang is principally engaged in the production and sale of coal, coal chemicals and aluminium, power generation,
machinery manufacturing and financial investments. Yanzhou is principally engaged in the production of coal and coal chemicals, manufacturing of
mechanical and electrical equipment and power and heat generation.
b) the Company is a non-wholly owned subsidiary of Yankuang and Yanzhou; and
c) Yankuang and Yanzhou are controlling shareholders of the Company (Controlling Shareholders).
Operational Independence
The Group holds all the relevant licenses, qualifications and permits required for conducting the Group ’ s business independently of the Controlling
Shareholders. The Group has its own organisational structure comprising various departments that function and make decisions independently from
the Controlling Shareholders. The Group maintains a set of internal control procedures and has adopted corporate governance practices that satisfy the
applicable legal and regulatory requirements. The Group is able to formulate and execute operational decisions independently.
The Yankuang Group does not have any interests in mines in Australia other than through its interests in the Yanzhou Group and the Group.
The mining assets of Yanzhou located in Australia, other than through its interest in the Group, are managed and operated by the Company. These mining
assets of Yanzhou comprise (i) the Cameby Downs mine located in Queensland, Australia, (ii) the Premier mine located in Western Australia (the “ Managed
Mines ” ), and (iii) exploration projects not currently in production. Pursuant to a long-term management services agreement, the Company is responsible for,
among others, HR, treasury and the operations, exploration and development of the Managed Mines.
The Directors are of the view that the connected transaction entered into with the Yanzhou Group as described above will not have any material impact on
the Group ’ s ability to operate independently and the Group ’ s operations are independent from the Controlling Shareholders.
Financial Independence
As at 31 December 2018, except for the guarantee provided by Yankuang in respect of the obligations of Watagan (a wholly owned subsidiary of the
Company) under a loan facility agreement between the Company and Watagan, of which A$835 million remained drawn-down, there are no loans or
guarantees which are provided by the Yankuang Group to or for the benefit of the Group.
Since 31 December 2018, the Company has not drawn down or utilised any of the loan facilities or guarantees mentioned above and has no intention to
further draw down on such loan facilities or guarantees before the Listing.
The Group has obtained financing from third party sources on a standalone basis without any credit support from the Yanzhou Group or the Yankuang
Group or any of their respective associates. The Directors are therefore of the view that the Group is able to operate financially independently from the
Controlling Shareholders.
Independence of Administrative Capability
All essential administrative functions (such as finance and accounting, administration and operations, information technology, human resources and
compliance functions) are carried out by the Group without the support of the Controlling Shareholders. Accordingly, the Directors are of the view that the
Group is administratively independent from the Controlling Shareholders.
AdditionAl HKEx compliAncE rEquirEmEnts ANNUAL REPORT 2018 220
COMMUNICATION WITH SHAREHOLDERS
The Company believes in high standards of transparent corporate disclosure and is committed to disclose to its shareholders, the information in a timely and
fair manner via ASX and HKExnews. Where there is inadvertent disclosure made to a selected group, the Company will make the same disclosure publicly to
all others as soon as practicable. Communication is mainly made through:
• annual reports that are prepared and sent to all shareholders. The Board ensures that the Annual Report includes all relevant material information about
the Company and the Group, including future developments and other disclosures required by the Corporations Act 2001 (Cth), the ASX listing rules, the
Companies Ordinance of the Laws of Hong Kong and the Hong Kong Listing Rules;
•
interim reports containing a summary of the financial information and affairs of the Group for that period;
• quarterly production reports containing a summary of the Group ’ s production output and coal sales for the reporting period
• notices of explanatory memoranda for AGMs and extraordinary general meetings (if any) that are prepared and sent to all shareholders.
The Company does not practice selective disclosure. Price sensitive information is first publicly released through ASX and HKExnews. All shareholders of the
Company will receive the Annual Report and the notice of AGM by post.
Shareholders can access all of the Company ’ s announcements published on the ASX and HKExnews on the Company ’ s website at www.yancoal.com.au.
DIVIDENDS AND DIVIDEND POLICY
Subject in each case to applicable laws, the ongoing cash needs of the business, the statutory and common law duties of the Directors and shareholders ’
approval, the Directors may pay interim and/or final dividends, and in accordance with the Company ’ s Constitution must:
(i) subject to (ii) below, pay as interim and/or final dividends not less than 40% of net profit after tax (pre-abnormal items) in each financial year; and
(ii) if the Directors determine that it is necessary in order to prudently manage the Company ’ s financial position, pay as interim and/or final dividends not less
than 25% of net profit after tax (pre-abnormal items) in any given financial year.
Yancoal paid its maiden interim dividend totalling A$130 million on 21 September 2018. On 25 February 2019, the Company announced a final dividend of
A$377 million and special dividend of A$166 million, which will be paid on 30 April 2019.
For 2019, the Company is targeting a dividend payout of 50% of net profit after tax (adjusted for the impact of foreign exchange hedge reserve movements
and any other non-operating items as determined by the Directors).
FINANCIAL CALENDAR
2018 Final Results Announcement
25 February 2019
Record Date
7.30pm (Sydney time)/4.30pm (Hong Kong time) on 11 March 2019
Payment Date for 2018 Final Dividend
30 April 2019
Annual General Meeting
On or before 31 May 2019
PRE-EMPTIVE RIGHTS ON NEW ISSUES OF SHARES
Under the Corporations Act 2001 (Cth), shareholders do not have the right to be offered any Shares which are newly issued for cash before those Shares
can be offered to non-Shareholders.
YANCOAL AUSTRALIA LTDAdditionAl HKEx compliAncE rEquirEmEnts (continuEd) 221
PUBLIC FLOAT
Rule 8.08(1)(a) of the HK Listing Rules requires that at least 25% of an issuer ’ s total issued share capital must at all times be held by the public. The
Company obtained a waiver under Rule 8.08(1)(d) of the HK Listing Rules to accept a lower public float percentage and the Company ’ minimum public float
is approximately 15.37%. Due to an inadvertent oversight, the minimum public float percentage was incorrectly stated as approximately 15.39% (instead of
15.37%) in the Company ’ s announcement of the partial exercise of the over-allotment option dated 31 December 2018.
Based on the information that is publicly available to the Company and within the knowledge of the Directors as at the date of this report, the Company has
maintained the minimum public float of approximately 15.37% under the HK Listing Rules.
FULFILMENT OF CONDITIONS AND UNDERTAKINGS
The Company confirms that it has complied with the conditions and undertakings imposed by The Stock Exchange of Hong Kong Limited during the
period from 6 December 2018 (the date on which dealings in the Shares were permitted to take place on the Main Board of the HKEx in Hong Kong) to 31
December 2018.
USE OF IPO PROCEEDS
In connection with the global offering in Hong Kong, which was completed on 3 January 2019 (the “ Global Offering ” ), the Company allotted and issued
59,441,900 new shares on 6 December 2018, 563,881 new shares on 28 December 2018 and 4,361,900 new shares on 3 January 2019 at a price
of HK$23.48 per share and raised HK$1,511 million (A$268 million) in total gross proceeds. The net proceeds from the Global Offering amounted to
approximately HK$1,305 million after deduction of related expenses of approximately HK$206 million (the “ Net Proceeds ” ).
The following table sets out the breakdown of the use of proceeds from the HK Listing as at the date of this Annual Report:
S/N
Purpose of Net Proceeds
1
2
3
4
Debt Repayment (48%)
Future M&A (30%)
Moolarben JV Acquisition (12%)
General Working Capital (10%)
Total (Net Proceeds)
Amount Allocated
HK$ ’000
Amount Utilised
HK$ ’000
626,507
391,567
156,627
130,522
1,305,223
Balance
HK$ ’000
–
626,507
–
391,567
156,627
130,522
913,656
–
–
391,567
The above utilisations are in accordance with the intended use of the net proceeds and percentage allocated, as stated in the Company ’ s prospectus for the
Global Offering dated 26 November 2018. The Company expects to utilise the balance Net Proceeds of approximately HK$392 million in the next 24 months.
The Board will continue to update in periodic announcements on the utilisation of the balance of the proceeds from the HK Listing as and when the proceeds
are materially disbursed and provide a status report on such use in its annual report and its quarterly and full year results announcements.
MANAGEMENT CONTRACTS
No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or
existed during the year ended 31 December 2018.
TAx RELIEF
The Company is not aware of any relief on taxation available to the Shareholders by reason of their holdings of the Shares. If the Shareholders are unsure
about the taxation implications of purchasing, holding, disposing of, dealing in, or exercising of any rights in relation to the Shares, they are advised to consult
an expert.
AdditionAl HKEx compliAncE rEquirEmEnts ANNUAL REPORT 2018 222
Rank
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
YANZHOU COAL MINING COMPANY LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
GLENCORE COAL PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2
HKSCC NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
EVERCHARM INTERNATIONAL INVESTMENT LIMITED
SINGAPORE TAIZHONG ENERGY PTE LTD
CORANAR OVERSEAS LTD
NATIONAL NOMINEES LIMITED
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