Registered and Principal Office Level 2, Aquila Centre 1 Preston Street COMO WA 6152 Telephone: +61 8 9423 0111 Resourceful Partnership Facsimile: +61 8 9423 0133 Email: [email protected] www.aquilaresources.com.au Resourceful Partnership Annual Report Aquila Resources Limited
2008 For personal use only use personal For
COAL RESOURCEFUL PARTNERSHIPS Aquila’s growth is built on our
greatest asset : our people. For personal use only use personal For CONTENTS CORPORATE DIRECTORY
Corporate Directory 1 DIRECTORS AUDITORS Chairman’s Review 3 Tony Poli (Executive Chairman) KPMG Board and Management 4 Charles B Bass (Non-Executive) Level 31, Central Park Derek T Cowlan (Non-Executive) 152-158 St George’s Terrace Highlights 6 Gordon T Galt (Non-Executive) Perth WA 6000 Review of Operations 8 COMPANY SECRETARY Telephone +61 8 9263 7171 Facsimile: +61 8 9263 7129 Schedule of Tenements 30 J Raymond Wood SHARE REGISTRY Directors’ Report 33 AUSTRALIAN BUSINESS Computershare Investor Services Pty Ltd Auditor’s Independence NUMBER (ABN) Level 2, Reserve Bank Building Declaration 44 81 092 002 769 45 St George’s Terrace Income Statements 45 Perth WA 6000 REGISTERED & PRINCIPAL OFFICE Telephone: +61 8 9323 2000 Balance Sheets 46 Level 2, Aquila Centre Facsimile: +61 8 9323 2044 Statements of Changes in Equity 47 1 Preston Street SOLICITORS Como WA 6152 Statements of Cash Flows 48 Mallesons Stephen Jaques Notes to the Financial Telephone: +61 8 9423 0111 Level 10, Central Park Facsimile: +61 8 9423 0133 Statements 49 152-158 George's Terrace Email: [email protected] Perth WA 6000 Directors’ Declaration 92 Website: www.aquilaresources.com.au Telephone: +61 8 9269 7000 Independent Audit Report 93 POSTAL ADDRESS Facsimile: +61 8 9269 7999 Shareholder Information 95 PO Box 1038 BANKERS South Perth WA 6951 Westpac Banking Corporation OTHER OFFICES Level 17, 109 St George’s Terrace Perth WA 6000 Queensland ANZ Banking Group Limited Level 10, 241 Adelaide Street Level 7, 77 St George’s Terrace Brisbane Qld 4000 Perth WA 6000 Telephone: +61 7 3414 6888 Facsimile: +61 7 3414 6887 South Africa Thabazimbi C/O Platina & Lood Avenue Thabazimbi 0380 Telephone: +27 14 772 3337 Facsimile: +27 14 772 3337 Northern Cape Stand 585 Opwag Groblershoop, Northern Cape Telephone: +27 798 816 459
Facsimile: +27 866 838 065 For personal use only use personal For HOME EXCHANGE Australian Stock Exchange 2 The Esplanade Perth WA 6000 ASX Trading Code: AQA
Annual Report 2008: Aquila Resources Limited 1 For personal use only chairman’s review 2008
I am pleased to report that 2008 has been another year of extraordinary development for our Company in which significant progress was made in the advancement of our portfolio of coal, iron ore and manganese projects.
In particular, I would like to highlight the following key achievements In addition to these meaningful developments, our team has continued to during the last twelve months: focus on the advancement of the Company’s earlier stage coal, iron ore and •➢ Our Isaac Plains Coal Mine accomplished practical completion for its manganese exploration interests in Queensland and Southern Africa. Coal Handling and Preparation Plant. This will facilitate a ramp-up Initial JORC resource statements were calculated for the wholly-owned in production levels to the mine’s nameplate capacity of 3.6Mtpa Washpool and Red Hill Coal Projects in Queensland, resulting in the of run-of-mine coal during calendar 2009 to produce 2.8Mtpa of commencement of Concept Studies to evaluate the potential for the coal saleable coal, subject to the receipt of all regulatory approvals and resources to support the establishment of mining operations. completion of the expansion of the Dalrymple Bay Coal Terminal. In the Republic of South Africa exploration activities continued on our iron Whilst production to date has been limited by the availability of port ore and manganese projects, in both the Limpopo and Northern Cape capacity, we are confident that the expansion will be completed as provinces, with particularly encouraging high grade manganese results planned, allowing coal producers in the region to meet the growing received from our Avontuur Project located in the Northern Cape. needs of our customers. As a consequence the Isaac Plains Coal Subsequent to year-end, two coal prospecting rights have been offered for Mine is expected to generate earnings before interest, tax and grant within the highly prospective Waterberg Coalfield in the Republic of depreciation of A$110-120 million for the year to 30 June 2009, South Africa and the on-going appraisal of our Asenjo Energy Coal Project which will be used to fund the development of the Company’s in Botswana continued with the commencement of a significant drilling growing asset portfolio. programme earlier this year. •➢ At the Eagle Downs Coal Project the completion of further drilling In financial terms, the divestment of coal interests in Mozambique was programmes resulted in the increase of our total JORC coal resources completed during the year, resulting in a profit of A$121 million, which to 780Mt, providing a substantial resource base from which to evaluate combined with the receipt of US$45 million from Vale for the exercise of its potential mining scenarios. The Eagle Downs Pre-Feasibility Study was Belvedere purchase option, has enabled the Company to increase its cash completed with our partner Vale and it is currently envisaged that Eagle reserves and liquid investments to A$229 million at 30 June 2008. This Downs could be profitably developed as a longwall underground mining provides the Company with a sound financial position in these uncertain operation, producing some 4Mtpa of high quality coking coal. times on financial markets where access to capital for project development ➢• Similarly, the Belvedere Coal Project also significantly increased its total will be more challenging. JORC resource base to 3,866Mt and following the exercise of Vale’s initial Our achievements during the last twelve months are a result of the hard purchase options last year, the joint venture is currently conducting a work and dedication of the many stakeholders in our business, particularly risk assessment and Pre-Feasibility Study in respect of a multi-longwall the Company’s staff. I would like to take this opportunity to thank our team operation potentially producing up to 9Mtpa of coking and PCI coal. for their valuable contribution during the past year and I look forward to •➢ In Western Australia, the Company holds an interest in the West Pilbara working with you during 2009. Iron Ore Project which is presently the focus of a Definitive Feasibility Study after the Pre-Feasibility Study was completed in May 2008 and Kind regards confirmed the technical and financial viability of the proposed 25Mtpa direct ship iron ore operation encompassing new rail and port facilities. Importantly, this evaluation indicates that the initial project development could be expanded to at least 30Mtpa with only a marginal increase in capital expenditure. It is expected that the Definitive Feasibility Study will
be only use personal For completed by mid-2009 and subject to its conclusions, is anticipated to provide the basis for the Company to establish itself as a significant Tony Poli participant in the iron ore export industry. Executive Chairman
Annual Report 2008: Aquila Resources Limited 3 BOARD & MANAGEMENT Resourceful Partnership
BOARD OF DIRECTORS Left to right: Tony Poli, Charles Bass, Derek Cowlan, Gordon Galt
Tony Poli Derek Thomas Cowlan B.Com, CPA, MAICD Non-Executive Director Executive Chairman Derek has a wealth of experience in financial and business management. Tony has completed a double major at the University of Western He currently presides as the Chairman of the Ross North Group, a large Australia where he graduated with a Bachelor of Commerce. project home building company operating in Western Australia. Following graduation, Tony spent some fifteen years working as a qualified accountant initially working for Deloitte Haskin and Sells Gordon Thomas Galt and later as a partner in private practice. G.Eng(Mining, Hons), As an accountant he had extensive general management, corporate B.Com, GDip AppFin(Finsia), MAusIMM, MAICD and directorial experience. Non-Executive Director Tony was the Executive Chairman of Eagle Mining Corporation NL which discovered, developed and operated the Nimary Gold Mine until Gordon is a senior mineral resources executive and an experienced it was acquired by Great Central Mines Limited in 1997. Director with international mineral industry experience. During his career, Gordon has worked in senior management, technical and operational roles across a wide range of commodities, primarily in gold, Charles Bennett Bass coal, magnesium and copper/lead/zinc. Gordon is by training, a mining B.Sc(Geol), MSc(Mining & Mineral Processing), FAusIMM, FAIG, MASEG, MAICD engineer with post-graduate qualifications in finance. Both degrees are from the University of Queensland. Non-Executive Director During the past ten years Gordon has worked mainly as the Managing After graduating with a major in geology and minor in mineral processing, Director of companies engaged in the development and operation Charles worked as an exploration geologist in northern Canada before of large resource projects, and he has also spent a period of time in becoming Plant Metallurgist at Patino’s copper-gold mine in Quebec. banking. Gordon is currently engaged in funds management and Charles was involved with the earliest computerised ore reserves and mine corporate advisory work. planning systems for iron, molybdenum and copper projects. Coming to Australia 30 years ago to initially work with Mt Newman, Charles founded the ore reserves and mine planning consultancy, Metech Pty Ltd. His longonly use personal For term client list, where he was closely involved with feasibility through to operations, included Australmin, BHP Iron Ore, Boddington, BP Minerals, Chevron, CSR (Yandicoogina), Outokumpu, Perseverance, and Robe River Iron Associates. Commodities included iron ore, gold, mineral sands, nickel and rare earths. Charles was a Director of Eagle Mining Corporation NL which discovered, developed and operated the Nimary Gold Mine until 1997 when it was acquired by Great Central Mines Limited. SENIOR MANAGEMENT Top: Geoff Pigott, Howard Rae, Andrew Matheson Bottom: Russell Tipper, Brent Green, Ray Wood
Andrew Matheson B.Eng, MAusIMM General Manager – Coal Andrew graduated as a Geological Engineer from RMIT in 1987 and has approximately 20 years professional experience within the mining and engineering sectors. During this time he has gained broad experience in a range of disciplines from exploration, project development and construction to infrastructure management and underground and open cut mining operations. He has worked on projects in Australia, Africa, Indonesia, New Caledonia and Europe. Andrew is based in Brisbane and manages Aquila’s coal portfolio.
Russell Tipper B.Eng, MBA, MAusIMM General Manager – Iron Ore Russell has 30 years experience in mining operations, finance and project development throughout Australia. A mining engineer, Russell has worked in senior management and operational roles in steel raw materials operations producing iron ore, coal and manganese for both Geoff Pigott Robe River and BHP Billiton. BA (Hons) Geology, MA Following a short period as Group Treasurer for North Limited which involved funding, mergers and acquisitions and risk management, Russell Head of Exploration has led project teams in producing bankable feasibility studies for projects Geoff has 35 years of experience as a professional geologist since such as Hope Downs Iron Ore, for Hancock Prospecting Pty Ltd and Kumba graduating from Trinity College Dublin. He has worked in Europe, Resources of South Africa, and the Karara Magnetite and Mungada South Africa and Australia with a number of major mining companies Haematite Projects for Thiess in alliance with Gindalbie Metals. including the RTZ/CRA Group, Anglo-American, Freeport McMoran, Newmont and Newcrest Mining. He has experience in the gold, coal Brent E. Green and metal industries in a career that encompasses mineral exploration, resource development and mining. Recent positions include the MSc (Hons), M.A.I.G., M.S.E.G position of Manager – Exploration and Development with Eagle Mining New Business Manager Corporation NL, where he oversaw the delineation and development Brent Green is a qualified geologist with 20 years experience in the mining of the Nimary gold deposit, and Chief Geologist with Kinross Gold industry. Brent is skilled as a manager actively involved in the identification Australia, where he was responsible for the overall supervision of project of new projects and the establishment of new mineral businesses. activities and the assessment of potential new business opportunities. He has been the Head of Exploration for Aquila since 2003. Brent previously held technical positions with Asarco Australia and Wiluna Mines and is experienced in the management of exploration teams searching predominantly for gold, copper-gold, base metals, coal Howard Rae and iron ore mineralisation in reconnaissance to advanced exploration B.Com, CA project settings. Chief Financial Officer Howard is a qualified Chartered Accountant and has 20 years experience J. Raymond Wood across the accounting profession and resources industry, with expertise LL.B (Hons), MBA in the areas of commercial management, mineral project evaluation, Barrister & Solicitor corporate development and debt and equity financing. After graduating from the University of Western Australia, he spent the early part of his General Counsel and Company Secretary careeronly use personal For with Ernst & Young, before joining the ASX listed Aurora Gold Ray has over 30 years legal experience, including over 20 years in senior Limited with financial management responsibilities as it expanded its in-house roles in the resources industry. He also has over 10 years operations into Indonesia, via the financing and development of the experience as a commercial partner in private practice advising on a Mt Muro gold and silver mine in Kalimantan. wide range of commercial matters. His resources experience includes More recently he spent nine years in strategy and business development the management of the legal function for Hamersley Iron’s Pilbara with South African listed Kumba Resources Limited, managing growth operations in the role of Chief Legal Officer and Company Secretary of opportunities in the Australasian region, which included the development the Hamersley Holdings Group of Companies and more recently as part of the Hope Downs Iron Ore Project, acquisition of mineral sands miner of a small management team in Hancock Prospecting Pty Ltd involved Ticor Limited and the ASX listing of nickel producer Mincor Resources NL. in the negotiation and finalisation of the Hope Downs joint venture between Rio Tinto and Hancock Prospecting Pty Ltd.
Annual Report 2008: Aquila Resources Limited 5 HIGHLIGHTS 2008 Financial Year
coal iron ore
AUSTRALIA AUSTRALIA
Isaac Plains Coal Mine Eagle Downs Coal Project Belvedere Coal Project West Pilbara Iron • 232% increase in run-of-mine • Indicated and inferred JORC • US$45 million received from Ore Project coal reserves coal resource base upgraded Vale for exercise of initial • Pre-Feasibility Study completed • Total coal sales of 1,057,000 to 780Mt purchase option confirming the technical and tonnes in year to 30 June • Pre-Feasibility Study completed • Updated indicated and financial viability of a 25Mtpa • Practical Completion achieved assessing four mining scenarios inferred JORC coal resources mining operation for the Coal Handling and • Preferred development scenario total 3,866Mt • Indicated and inferred JORC iron Preparation Plant to include two longwall units • Pre-Feasibility Study ore resources increased to 493Mt • Bucyrus-Erie 1370 dragline producing 7Mtpa of hard commenced to evaluate • Definitive Feasibility Study relocated from the US and coking coal multi-longwall mining commenced to evaluate the ready for reassembly • Mine life in excess of 37 years operation producing up to establishment of a 30Mtpa • Expansion of operations to • Mining Lease under application 9Mtpa of hard coking and direct ship Stage 1 project include southern resource PCI coal • Exploration programme • Mining Leases under accelerated to build inventory application for subsequent expansion to
45Mtpa For personal use only use personal For exploration Corporate
AUSTRALIA SOUTHERN AFRICA
• Drilling and coal quality • Iron ore exploration • Asenjo exploration • Consolidation of strategic programmes completed at the programmes commenced in the programme and shareholdings in Red Hill Iron Washpool and Red Hill coal Thabazimbi and Northern Cape Pre-Feasibility Study Limited, Cullen Resources projects in the Bowen Basin regions of South Africa commenced to evaluate Limited and Helix Resources region of Queensland • Initial manganese exploration potential for thermal coal Limited • Washpool and Red Hill coal in the Northern Cape mining operation and • Cash and liquid investments at projects initial indicated and region identifies high grade associated power plant year end total A$229 million inferred JORC coal resources mineralisation of up to 59%Mn • Planning advanced for the amount to 138Mt and 75Mt • Asenjo Energy Coal Project Waterberg Coal Project respectively finalised in Botswana with exploration programme in Sentula Mining Limited and South Africa Jonah Capital (BVI) Limited comprising the Western Mmamabula, Dukwe and Lechana-Tshimoyapula coal
deposits For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 7 review of operations 2008
The Isaac Plains Coal Mine is expected to generate considerable earnings and cashflow for the Company over the coming years with which to fund the development of its growing asset portfolio.
Bowen AbbotAbbot Point PointPoint River
Blenheim Stragglers Blenheim DalrympleDalrympleDalrymple Bay Bay Bay Extension HayHayHay Point Point Point BOWE Exevale MissingMissing Link Link Red N Red Mt Gotthardt South HillHill ISAAC PLAINS
Isaac River EAGLE DOWNS Wilpeena
WashpoolWashpool Adler Downs
Walton
Duaringa R.GR.G.T.T.T.Tannaanna WigginsWigginsIslandWiggins Island Island (Proposed) (Proposed) Speculation Creek
Mt Crocker N I S A B BELVEDERE
Springvale Box Creek Bendoba Dawson Vale
For personal use only use personal For Cabbagetree
Forest Vale
Cornwall SURAT BrisbaneBrisbane BASIN
BRISBANEBRISBANE
20080428-163-11-AQA OutRayGIS COAL AUSTRALIA Overview
ISAAC PLAINS COAL MINE RESERVES: 65.5 MILLION TONNES
Page 11
EAGLE DOWNS COAL PROJECT RESOURCES: 780 MILLION TONNES
Page 15
BELVEDERE COAL PROJECT RESOURCES: 3,866 MILLION TONNES
Page 19
Aquila Exploration Limited 100% Aquila Exploration Limited 50%
For personal use only use personal For Other Coal Tenure Region of Known Coal Measures Port Facilities Railway Proposed Railway
150 KILOMETRES
Annual Report 2008: Aquila Resources Limited 9 Review of Operations
COAL For personal use only use personal For ISAAC PLAINS: at a glance
Aquila Interest 50% Location 7km south east of Moranbah in Queensland’s Bowen Basin region Reserves (JORC) 26.0Mt Proven 39.5Mt Probable Projected Production Rate 2.8Mtpa Products 25% semi-hard coking coal 50% PCI coal 25% thermal coal Estimated Mine Life +17 years Manager Isaac Plains Coal Management Pty Ltd, a company owned equally by Aquila and Vale, on behalf of the Isaac Plains Coal Joint Venture
ISAAC PLAINS COAL MINE
The Isaac Plains Coal Mine is located approximately 7 kilometres south dewatering efficiency as the key area for improving plant throughput. east of the town of Moranbah in the Bowen Basin region of central This resulted in a plan by which Downer agreed to replace the belt filter Queensland. It is comprised of the Isaac Plains North and Isaac Plains South presses with higher capacity Phoenix units. This work was completed in coal deposits, separated by a distance of approximately 15 kilometres. January 2008 and has contributed to an overall improvement in CHPP Mining operations were initially commenced at the Isaac Plains North performance during the remainder of the year. In June 2008 the CHPP deposit in late 2006 and included the construction of coal processing achieved Practical Completion for its nameplate capacity of 500tph, facilities and associated power, water, road and rail infrastructure. which is sufficient to enable the mine to operate at its projected Employee, contractor and visitor safety is a key priority for the joint production rate of 2.8Mtpa in accordance with increasing port capacity venture and the communication of required safe working practices, over the next year. regular training and effective coordination between contractors on site In anticipation of the ramp-up of CHPP production volumes, it was are important areas for improvement over the next year. decided to evaluate new tenders for its operation and Ascentis, Overburden removal and mining operations to date have been the operations and maintenance division of Ausenco Limited, was conducted by contractor Cooks Construction Pty Ltd at two pits within appointed to the role in late January 2008. Ausenco is internationally the Isaac Plains North deposit. Total overburden removed during recognised for its expertise in the provision of engineering and project the year amounted to 7.86 million bcm which was approximately 6% management services to the global mining and mineral processing below budget, although this was offset by a lower than forecast mining industries and its involvement has led to the significant improvement stripping ratio, resulting in mining volumes achieving target for the year in operational efficiency of the CHPP over the last six months. of 1.5Mt. Management of product specifications has also been improved with A review of the performance of the Coal Handling and Preparation completion of the construction of an on-site coal quality laboratory Plant (CHPP) was conducted with the operator at the time Downer to provide the operation with more timely data for optimising CHPP EDI Mining Pty Ltd (Downer) which identified tailings and product performance.
MININGonly use personal For VOLUMES FOR THE YEAR REACHED THE TARGET OF 1.5MT
Annual Report 2008: Aquila Resources Limited 11 Review of Operations COAL
Year ended 30 June 2008 30 June 2007 Heavy rains in the region during early 2008 had only a minimal impact on operations due to the build-up of stock piles in December 2007 prior ROM Coal Production 1,529,000t 631,000t to the CHPP maintenance shutdown. Saleable Coal Production 1,229,000t 520,000t Substantial progress was made during the year on the Integrated Coal Sales Isaac Plains Project, which involves the expansion of operations to Semi Hard Coking Coal 146,000t n/a incorporate the Isaac Plains South deposit, some 15 kilometres south PCI Coal 540,000t 161,000t of the Isaac Plains North mine. The Bucyrus-Erie 1370 dragline was Thermal Coal 371,000t 249,000t relocated from the United States to Mackay and refurbishment is in
Total Sales 1,057,000t (i) 410,000t progress with a view to its initial introduction next year at Isaac Plains North, subsequently relocating to Isaac Plains South in the latter part (i) Two shipments were in the process of loading at year end and will be included in sales figures for the forthcoming year. of the mine life. Isaac Plains South will be developed over the next twelve months, resulting in mining operations at both deposits using a combination of truck-and-shovel and dragline methods, with processing and railing occurring at the existing Isaac Plains North facilities.
Project Overview Integrated Isaac Plains Project 2 0 2
kilometres
ML Boundary (ML70342) Drainage Proposed ML Boundary 50m Contour MLA Boundary (including KDA) Road EPC Boundary Haul Road PL Boundary Access/Haul Road EPP Boundary Out-of-pit spoil Pit Outline Additional Pit / Out-of-pit Pit / Out-of-pit spoil Spoil Potential Out-of-pit Spoil
Dump Extension For personal use only use personal For For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 13 Review of Operations
COAL For personal use only use personal For EAGLE DOWNS: at a glance
Aquila Interest 50% Location 25km south east of Moranbah in Queensland’s Bowen Basin region Resources (JORC) 190Mt Indicated 590Mt Inferred Projected Production Rate 7Mtpa from two longwalls Products hard coking coal Estimated Mine Life +37 years Manager Bowen Central Coal Management Pty Ltd, a company owned equally by Aquila and Vale, on behalf of the Bowen Central Coal Joint Venture
EAGLE DOWNS COAL PROJECT
The Eagle Downs Coal Project is located some 7 kilometres south of Eagle Downs Coal Project – JORC Coal Resources (Mt) the Isaac Plains Coal Project and is immediately adjacent to BMA’s Peak Downs Coal Mine in the Bowen Basin region of Queensland. Seam Indicated Inferred Total Indicated Coal resources have been delineated within the Q seam, Harrow and Inferred Creek Upper (HCU) seam, Harrow Creek Lower (HCL) seam and Dysart Q 14 70 84 (DY) seam of the Permian Moranbah Coal Measures. The exploration HCU 40 120 160 programmes undertaken on the Eagle Downs Coal Project to date have HCL 90 240 330 comprised of several phases: DY 46 160 206 • Stage 1 – preliminary drilling and coal quality testing activities in order to provide data for an initial resource estimate; Total 190 590 780
• Stage 2 – follow-up exploration and coal quality assessment, including The estimates of Coal Resources for the Eagle Downs Coal Project presented in this report have been carried out in accordance with the Australasian Code for Reporting of Exploration the 2-D seismic testing of structures, to provide data for the purposes Results, Mineral Resources and Ore Reserves (JORC code), 2004, prepared by the Joint Ore of further resource definition and the determination of potential Reserves Committee of the Australasian Institute of Mining and Metallurgy and the Australasian coal product qualities; and Institute of Geoscientists and Minerals Council of Australia, December 2004. The information in this report that relates to the Eagle Downs Coal Resources is compiled by • Stage 3/4 – further evaluation of coal quality, gas, structure and Mr Graeme Hewitt and Mr Mal Blaik who are members of the Australasian Institute of Mining and Metallurgy. Mr Hewitt is a full time employee of Vale Australia and is seconded to the geotechnical data to enable the analysis of various matters such as Bowen Central Coal Joint Venture to manage the exploration and evaluation of a series of geochemical properties, spontaneous combustion, in-situ stress and project interests held by Aquila Resources Limited and Vale Australia. Mr Hewitt is a qualified Geologist (BSc (Hons) University of NSW, MBA (University of Queensland)) and a Fellow of permeability characteristics. the Australasian Institute of Mining and Metallurgy and as such qualifies as a Competent Person under the JORC Code. Mr Hewitt holds shares in Aquila Resources Limited. Mr Blaik is During the year JB Mining Services Pty Ltd was commissioned to a Principal Consultant of JB Mining Services Pty Ltd. Mr Blaik is a qualified geologist (BSc App Geol (Hons) University of QLD, 1979) and is a member of the Australasian Institute of Mining complete an updated JORC resource statement for the northern zone of and Metallurgy and as such qualifies as a Competent Person under the JORC Code. Mr Hewitt the project based on data obtained from the Stage 1 and 2 exploration and Mr Blaik consent to the inclusion in the report of the matters based on their information programmes. Further coal quality data was pending at year end, as part in the form and context in which it appears. of the Stage 3/4 programme and will be incorporated into subsequent resource updates. The southern resource area is not included in the currentonly use personal For project evaluation work and remains prospective for future exploration programmes. Following these exploration results, with coal seams present at depths of 150-600m over the proposed northern resource mining area, a Mining Lease application was lodged in November 2007 with the Queensland Department of Mines and Energy.
Annual Report 2008: Aquila Resources Limited 15 Review of Operations COAL
Proposed Mine Layout Eagle Downs Coal Project
0 1 2
kilometres
1 These facilities will include 4 Coal will be crushed, sized administration buildings, and washed at the CHPP workshop, warehouse and employee facilities 5 Product coal will be transported via the Norwich 2 Access to the underground Park Branch Railway to port workings will be provided for export through two vertical shafts 6 Coal rejects will be 3 Conveyors will transport disposed of in dry rejects coal from the mine to a coal emplacement areas. The handling and preparation project does not include any plant (CHPP) conventional tailings dams
A significant focus over the last twelve months has been the completion Case 2 : Pre-Feasibility Study Costing Estimates of the Eagle Downs Pre-Feasibility Study which has built on the outcomes of the 2007 Conceptual Mining Study conducted by IMC
Mining Solutions. Capital Cost (A$M)(i),(ii) The four mining configurations evaluated by the Pre-Feasibility Study Pre-Production Studies 60 are summarised below. Mine Infrastructure 169 Capital and operating cost estimates were evaluated for each of these Underground Access 97 scenarios, with Case 2 below identified as an attractive first stage of Longwall Unit and Belt Conveyors 210 development, enabling the earlier delivery of Eagle Downs Coal Project Mine Development Equipment 63 hard coking coal into the export market and providing significant cashflow to fund the installation of a second longwall in orderto Coal Handling, Preparation and Train Loadout 293 increase production to 7Mtpa in line with the projected expansion of Total Capital Costs 892 port capacity.
Operating Cost (A$/tonne) (iii) Eagle Downs – Mining Configurations Mining and Processing 38.89 Rail 12.35 Mining Scenario Nominal Mine Port Processing and Handling 4.60 Production Life Marketing and Project Management 1.50 Case 1 Single longwall mining of all 4Mtpa 90yrs Operating Costs 57.34 seams sequentially Royalties and Levies 14.46 Case 2 Single longwall mining of 4Mtpa 73yrs Total Operating Costs 71.80 HCU, HCL and DY seams only (excludes Q seam) (i) Includes EPCM and a contingency of 5-25%. (ii) Expansion capital for an additional longwall unit is estimated to be A$413 million.
Caseonly use personal For 3 Two longwall units 7Mtpa 46yrs (iii) Operating cost per tonne produced. mining all seams Case 4 Two longwall units mining 7Mtpa 37yrs Although this scenario excludes the Q seam, the potential for the Q seam the HCU, HCL and DY seams to provide a premium hard coking coal will necessitate further study work only (excludes Q seam) aimed at achieving incremental or supplementary production volumes with which to further enhance the overall project economics. On the basis of the encouraging outcomes from the Pre-Feasibility Study, additional resource evaluation, infrastructure and mine design studies have been commenced with the objective of achieving first coal sales from the Eagle Downs Coal Project in 2012. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 17 Review of Operations
COAL For personal use only use personal For BELVEDERE: at a glance
Aquila Interest 24.5% Location 180km west of the port of Gladstone in the southern part of Queensland’s Bowen Basin region Resources (JORC) 1,526Mt Indicated 2,340Mt Inferred Projected Production Rate 7-9Mtpa from two longwalls Products hard coking coal PCI coal Estimated Mine Life +40 years Manager Belvedere Coal Management Pty Ltd, a company owned by Vale, on behalf of the Belvedere Coal Joint Venture
BELVEDERE COAL PROJECT
The Belvedere Coal Project is located 7 kilometres north-east of Moura in two longwall mining operation producing 7Mtpa of hard coking the southern part of the Bowen Basin region of Queensland. It is close to coal and PCI coal products, with the potential to increase up to well established infrastructure including rail, power, water, sealed roads 9Mtpa for export via the planned Wiggins Island Coal terminal and local mining communities. The Belvedere Coal Project is a hard coking near Gladstone. coal resource within the Baralaba Coal Measures that is potentially suited Subsequent to year end, three Mining Lease applications to large scale development. were lodged over areas proposed for the development of The project attracted the interest of Vale (formerly Companhia Vale mining operations. The Mining Lease applications are an integral do Rio Doce) in 2005 which resulted in an agreement whereby Vale stage in the advancement of the Belvedere Coal Project and planning conducted a detailed Exploration Study of the geology, coal quality and is underway for the commencement of environmental baseline mining potential of the Belvedere Coal Project in return for options to studies and related community consultation activities with all key acquire a participating interest. On completion of the Exploration Study stakeholders in this significant project development. costing A$17 million, Vale elected to exercise its option to acquire a 51% Subject to completion of all necessary feasibility studies and receipt of interest in the project by paying US$45 million to each of Aquila and relevant regulatory approvals, the Belvedere Coal Project is planned to AMCI. Vale also has further options to acquire the remaining project commence exporting coal in 2014. interests at fair market value in the future. Based on the Exploration Study results SRK Consulting was commissioned by the joint venture to produce an updated JORC resource statement. Belvedere Coal Project – JORC Coal Resources (Mt) SRK Consulting estimated the in-situ resource to be in excess of 3.8 billion tonnes, representing an increase of 1.2 billion tonnes on the Seam Indicated Inferred Total Indicated initial resource estimate calculated in 2005. and Inferred The resource comprises of five primary seams within the Baralaba Coal A 93 210 303 Measures at depths of 60-800m below surface. Based on the drilling, B 240 525 765 seismic and coal quality analysis work to date, SRK Consulting is of the C 694 735 1,429 opinion that the Belvedere Coal Project has the potential to produce D 447 705 1,152 cokingonly use personal For coal products and it is classified as a high rank, medium volatile bituminous coal. E 52 165 217 Following the completion of the initial Exploration Study, additional Total 1,526 2,340 3,866 exploration activities were commenced during the year for the The estimates of Coal Resources for the Belvedere Coal Project presented in this report have purposes of a Pre-Feasibility Study in order to further evaluate the been carried out in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code), 2004, prepared by the Joint Ore Reserves resource potential and determine the preferred mining scenario for the Committee of the Australasian Institute of Mining and Metallurgy and the Australasian commencement of operations. Institute of Geoscientists and Minerals Council of Australia, December 2004. The information in this report that relates to the Belvedere Coal Resources is based on The Pre-Feasibility Study initially involves an extensive drilling, 3-D information reviewed by Mr Pat Hanna, who is a Fellow of the Australasian Institute of Mining and Metallurgy and was previously an employee of SRK. Mr Hanna has sufficient experience seismic and coal quality testing programme to assess the resource which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person under the JORC Code. Mr and define product specifications. The current development Hanna consents to the inclusion in the report of the matters based on their information in the strategy recommended by the Exploration Study consists of a form and context in which it appears.
Annual Report 2008: Aquila Resources Limited 19 Review of Operations
IRON ORE For personal use only use personal For WEST PILBARA IRON ORE PROJECT: at a glance
Aquila Interest 50% Location 70km south of Pannawonica in the Pilbara region of Western Australia Resources (JORC) 56.1 Mt Measured 261.7Mt Indicated 174.9Mt Inferred Projected Production Rate 25-30Mtpa Products direct ship pisolitic iron ore Estimated Mine Life +20 years Manager API Management Pty Ltd, a company owned equally by Aquila and AMCI, on behalf of the Australian Premium Iron Joint Venture
WEST PILBARA IRON ORE PROJECT
Since the formation of the Australian Premium Iron Joint Venture (the West Pilbara Iron Ore Project – Stage 1 : API Joint Venture) in February 2005, various commercial arrangements have been entered into with third parties to explore for, and develop, Pre-Feasibility Study Costing Estimates iron ore resources in prospective areas located adjacent to, or in reasonable commercial proximity to, mineral licences initially acquired by Aquila in the western and central Pilbara regions of Capital Cost (A$ million) Western Australia. Mine Processing and Infrastructure 822 The West Pilbara Iron Ore Project - Stage 1 represents the proposed initial Railway 692 development of iron ore mining operations by the API Joint Venture and Rolling Stock 173 is comprised of a series of mesa type channel iron deposits (CID), located across an axis of approximately 60 kilometres in an area to the south-west Port Processing, Materials Handling, 1,328 of Pannawonica in Western Australia’s Pilbara region. These deposits, Jetty and Wharf, Dredging and together with 63Mt of bedded iron deposit at the Hardey Project, form a Ancillaries JORC resource base of approximately 493Mt of direct shipping iron ore. Direct Capital Costs 3,015 The CID resources lie predominantly within tenements controlled EPCM 452 under two joint ventures in which the API Joint Venture has earned Contingency 594 majority participating interests. The Red Hill Iron Ore Joint Venture is Owners’ Costs 91 between the API Joint Venture (60% earning up to 80%) and Red Hill Total Capital Costs 4,152 Iron Limited (40% reducing to 20%) and the Mount Stuart Iron Ore Joint Venture is comprised of the API Joint Venture (70%) and Cullen Resources Limited (30%). Operating Cost (A$/tonne)(i) In May 2008, Aquila announced the positive results from the Pre-Feasibility Mining and Processing 9.03 Study of the West Pilbara Iron Ore Project – Stage 1 being developed by Rail 2.38 the API Joint Venture. The key focus of the Pre-Feasibility Study was the Port Processing and Handling 3.99 selection of preferred port options, development of the iron product, Marketing and Project Management 0.60 definitiononly use personal For of infrastructure at the proposed mine areas and development of the mine-to-port transport corridors. Operating Costs 16.00
The Pre-Feasibility Study confirmed the technical and financial viability (i) Operating cost per tonne produced, including contingency of 10-25%. of a development based on a 25Mtpa iron ore operation, with 160 kilometres of new railway to a new open-access, deep-water port facility at Cape Preston, subject to commercial agreement with other parties with interests in this port. Sensitivity analyses indicate that the project is capable of producing 30Mtpa in Stage 1 with only a marginal increase in capital expenditure.
Annual Report 2008: Aquila Resources Limited 21 Review of Operations IRON ORE
West Pilbara Iron Ore Project – Channel Iron Deposit JORC Resources (Average Grade)
Resource Classification Tonnes (Mt) Fe % SiO2 % Al2O3 % P % S % LOI % Mn % MgO % Measured 56.1 58.17 5.49 3.16 0.080 0.02 7.60 0.02 0.05 Indicated 241.9 56.74 5.96 3.60 0.068 0.02 8.63 0.05 0.11 Inferred 131.8 56.51 5.77 3.60 0.068 0.01 9.17 0.04 0.11 Total 429.8 56.86 5.84 3.54 0.070 0.02 8.66 0.04 0.10 Hardey Project – Bedded Iron Deposit JORC Resources (Average Grade)
Resource Classification Tonnes (Mt) Fe % SiO2 % Al2O3 % P % S % LOI % Mn % MgO % Indicated 19.8 61.24 3.66 2.66 0.128 0.011 5.69 0.063 0.069 Inferred 43.1 61.38 3.82 2.44 0.123 0.010 5.56 0.061 0.088 Total 62.9 61.33 3.77 2.51 0.125 0.010 5.60 0.062 0.082
The estimates of Iron Ore Resources for the West Pilbara Iron Ore Project presented in this report have been carried out in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code), 2004, prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy and the Australasian Institute of Geoscientists and Minerals Council of Australia, December 2004. The information in this report that relates to the West Pilbara Iron Ore Resources is based on information compiled by Mr Stuart H Tuckey, Dr Sia Khosrowshahi and Mr Jani Kalla who are members of the Australasian Institute of Mining and Metallurgy. Mr Tuckey is a full time employee of the Australian Premium Iron Joint Venture. Dr Khosrowshahi and Mr Kalla are employees of Golder Associates Pty Ltd. Messers Tuckey, Khosrowshahi and Kalla have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as Competent Persons under the JORC Code. Mr Tuckey, Dr Khosrowshahi and Mr Kalla consent to the inclusion in the report of the matters based on their information in the form and context in which it appears.
Of the estimated capital expenditure, approximately A$1.8 billion material for the bulk sample testing programmes and support a subsequent relates to scalable rail and port infrastructure. Significant opportunities expansion of planned mine production to 45Mtpa. exist for the API Joint Venture to optimise these construction costs This work is based on the updated JORC resource calculations through third party co-development and access arrangements. undertaken by Golder and Associates Pty Ltd during the year which Operating costs derived during the Pre-Feasibility Study for the project resulted in an increase of approximately 90% to the initial resource at a production level of 25Mtpa are estimated to be A$16.00 per tonne statement released in May 2007. FOB, excluding royalties. Following the completion of this work, Aquila Although the exploration programmes to date have concentrated on has approved an API Joint Venture budget for the forthcoming year of some 2,800km2 of tenement area, there remains a further approximately A$84.4 million in order to complete a Definitive Feasibility Study based on 5,400km2 of iron ore tenement area that is highly prospective for both the establishment of a 30Mtpa direct ship iron ore project. channel iron and bedded iron deposits similar to those currently being In addition to mining, infrastructure and environmental studies, the mined in the region by BHP Billiton and Rio Tinto. As a result, the potential Definitive Feasibility Study also includes a significant exploration exists to discover significant additional resources to allow increased programme of approximately 55,000m in order to substantially increase throughput on the infrastructure installed for Stage 1 of the West Pilbara the resource inventory of the West Pilbara Iron Ore Project, provide Iron Ore Project.
RECENTonly use personal For RESOURCE CALCULATIONS REPRESENT AN INCREASE OF 90% ON THOSE OF MAY 2007 West Pilbara Iron Ore Project – Stage 2
Iron Ore Deposits Channel Iron Deposits Marra Mamba Formation Brockman Formation
0 25 50
kilometres For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 23
EXPLORATION PROJECTS australia For personal use only use personal For the company holds 7,500km2 of wholly-owned coal exploration projects in this region
BOWEN BASIN COAL PROJECTS
The Company holds wholly-owned coal exploration projects in the Bowen 4Mtpa of moderate ash coking coal for export through the planned Wiggins and Surat Basin regions of Queensland covering some 7,500km2. Island Coal Terminal near Gladstone. While the majority of these projects are at the preliminary exploration In the northern part of the Bowen Basin is the Red Hill Coal Project, approximately stage, initial JORC resource statements have been calculated for the 45 kilometres north of the Company’s Isaac Plains Coal Mine and adjacent to Washpool Coal Project and the Red Hill Coal Project in the Bowen BMA’s Goonyella operations. The exploration programme completed during Basin region based on drilling and coal quality programmes completed the year targeted the open-cut and underground potential of the Leichhardt during the year. Upper (LU) and Vermont Lower (VL) seams of the Rangal Coal Measures, similar At the Washpool Coal Project the primary coal resources occur in the to the resources mined at Isaac Plains, resulting in the calculation of an initial Scorpio and Centaur seams contained within the Upper Burngrove JORC resource statement for the project. Formation which occurs beneath the Rangal Coal Measures that host the Based on this work, the evaluation of potential underground mining adjacent Curragh and Blackwater mining operations. options was commenced and a Concept Study is in progress. This study The resources occur in a shallow raised basin at a depth of up to approximately is considering a number of development configurations including bord 60m, outcropping on either side and a Concept Study has been commenced and pillar and short longwall options to evaluate the potential for an to evaluate the potential for an open cut mining operation producing up to operation producing up to 2Mtpa of metallurgical and thermal coal for export via the Abbot Point Coal Terminal. Washpool Coal Project – JORC Coal Resources (Mt) Seam Indicated Inferred Total Indicated Red Hill Coal Project – JORC Coal Resources (Mt) and Inferred Seam Indicated Inferred Total Indicated A 5.6 10.0 15.6 and Inferred B 8.6 13.6 22.2 LU - 35.3 35.3 C 6.0 11.0 17.0 LU1 - 0.6 0.6 D 7.3 17.3 24.6 LU2 - 2.1 2.1 E 6.3 12.8 19.1 LU3 - 0.3 0.3
F only use personal For - 39.6 39.6 Total LU - 38.3 38.3 Total 33.8 104.3 138.1 VU - 18.1 18.1
The estimates of Coal Resources for the Washpool and Red Hill Coal Projects presented in VM - 5.4 5.4 this report have been carried out in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code), 2004, prepared by the VL - 13.0 13.0 Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy and the Australasian Institute of Geoscientists and Minerals Council of Australia, December 2004. VL1 - 0.1 0.1 The information in this report that relates to the Washpool and Red Hill Coal Resources is compiled by Mr Blair Richardson and modelled and reviewed by Mr Lyon Barrett. Mr Richardson is a full VL2 - 0.1 0.1 time employee of Aquila Resources Limited, with 25 years experience in geology and over 15 years experience in resource evaluation. Mr Barrett is a full time employee of Salva Resources and has Total Vermont - 36.7 36.7 over 15 years experience in geology and over 10 years experience in resource evaluation. Messers Richardson and Barrett are members of the Australasian Institute of Mining and Metallurgy and Total - 75.0 75.0 have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as Competent Persons under the JORC Code. Mr Richardson holds shares in Aquila Resources Limited. Mr Richardson and Mr Barrett consent to the inclusion in the report of the matters based on their information in the form and context in which it appears.
Annual Report 2008: Aquila Resources Limited 25
EXPLORATION PROJECTS southern africa For personal use only use personal For the company has secured a significant property holding in the thabazimbi iron ore field
THABAZIMBI NORTHERN CAPE Iron Ore Project Iron Ore and Manganese Projects
The Company’s Thabazimbi Iron Ore Project, in which it has a 74% In the Northern Cape Province of South Africa the Company has a participating interest with its Black Economic Empowerment partner 74% interest in various iron ore and manganese projects with its Black Rakana Consolidated Mining (Pty) Ltd (Rakana), is located in the Economic Empowerment partner Rakana, comprising three new order Limpopo Province of South Africa, some 180 kilometres north-west prospecting rights (Avontuur, Kathu and Orange River) together with of Pretoria. The project area comprises three new order prospecting two further applications in progress, the grant of which is pending. rights (Rotterdam, Klipgat and Vlaknek) with a fourth tenement under These exploration rights were acquired after field validation of application. anomalies identified from remote sensing studies and the interpretation Aquila has secured a significant property holding in the Thabazimbi of geological data. Two of the granted rights (Avontuur and Kathu) iron ore field and its tenements surround the leases where Kumba Iron are situated to the north of Kumba’s Sishen Iron Ore Mine and bracket Ore Limited (Kumba) is currently mining to produce 62.5%Fe lump the Kalahari Manganese Field to the north and south. The Orange River iron and 63%Fe fine iron products after beneficiation. The iron ore right lies to the south and follows the Asbestos Hills iron formation, deposits forming the Thabazimbi mining centre occur within the Penge while the exploration rights under application are located adjacent to Iron Formation. the Beeshoek Iron Ore Mine and Kumba’s Sishen South iron ore mine Exploration activities during the year have focussed on geological development. mapping, target identification, scout drilling and percussion drilling Exploration activities during the year have been focussed primarily on the three granted tenements with the preliminary results most on the drilling of the manganese targets on the Avontuur tenement, encouraging from the Rotterdam tenement, where beneficiation where encouraging high grade manganese intercepts of up to 59%Mn testwork indicates that a fine iron product can be produced atan have been reported in April and July this year. This project is located acceptable yield. Further drilling on all tenements is planned in the near to the existing manganese mining operations of Samancor forthcoming year, in conjunction with the completion of an aeromagnetic and Assmang, with a rail head just 9 kilometres to the south of the survey and preliminary infrastructure and mining studies. prospecting right. Further drilling on all tenements is planned over the next twelve months, together with the completion of aeromagnetic and geophysical surveys
and an assessment of potential rail and port infrastructure options. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 27
EXPLORATION PROJECTS southern africa For personal use only use personal For following the grant of prospecting rights, an extensive exploration programme is planned for the Waterberg Coal Project
ASENJO WATERBERG Energy Coal Project Coal Project
The Company holds the Western Mmamabula, Dukwe and Lechana- Aquila’s Waterberg Coal Project, in which it has a 74% interest with its Tshimoyapula large thermal coal projects in Botswana, collectively Black Economic Empowerment partner Semaka Investment Company known as the Asenjo Energy Coal Project. During the year it reached (Pty) Ltd, is located within the Waterberg Coalfield in the Limpopo agreement with a consortium comprising Jonah Capital (BVI) Limited Province of South Africa. and Sentula Mining Limited in terms of which the consortium may earn The project comprises applications for two prospecting rights on ten a 50% interest in the three projects by undertaking a US$10 million properties totalling approximately 12,000 hectares. The project area exploration programme. The purpose of the programme is to complete is situated immediately north of the regional centre of Lephalale a Pre-Feasibility Study level of assessment in respect of the development (formerly Ellisras) and access to the region is very good, consisting of of one or more of the projects. The exploration programme includes: bitumen and secondary gravel covered roads. A major coal mine, the • approximately 30,000m of percussion and diamond drilling across Grootegeluk Colliery operated by Exxaro Resources Limited, is situated the tenements; approximately 10 kilometres to the south of the project and there is a • completion of JORC resource statements for at least two of the dedicated power station adjacent to the existing coal mine, which also project areas; and has well developed rail and supporting infrastructure. • completion of a Pre-Feasibility Study on one or more of the project Following the grant of the prospecting rights, an extensive exploration areas which contemplates the development of a large scale thermal programme is planned for the Waterberg Coal Project that will include coal mine. aeromagnetic surveys, detailed geological field mapping, exploration drilling, coal quality assessment and resource definition, leading to the Exploration activities during the year included 13,000m of drilling on the commencement of preliminary mine scoping studies. Dukwe Project, together with coal quality test work and aeromagnetic surveys over all of the project areas and additional drilling has recently
commenced at the Western Mmamabula Project. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 29 SCHEDULE OF TENEMENTS
Tenement No. Project Name Mineral Notes Ownership
WESTERN AUSTRALIA E45/2603 Mount Grant All minerals 1 100% E45/2647 Lever Well All minerals 1 100% E47/1376 Mount Bruce All minerals 1 100% E47/1411 Turner All minerals 1 100% E47/1412 Rocklea All minerals 1 100% E47/1413 Hardey All minerals 1 100% E47/1414 Hancock Range All minerals 1 100% E47/1415 Austin Creek East All minerals 1 100% E47/1416 Nammuldi All minerals 1 100% E47/1417 Meteorite Bore All minerals 1 100% E47/1495 Juna All minerals 1 100% E52/1747 Snowy Mountain All minerals 1 100% E52/1775 Western Creek All minerals 1 100% E52/1776 Innawalley Pool All minerals 1 100% E47/1932 Duck Creek All minerals 1,2 100% E47/1933 Duck Creek All minerals 1,2 100% E47/1107 Chichester All Minerals excluding Diamonds 1 100% E47/1108 Chichester All Minerals excluding Diamonds 1 100% E47/1110 Chichester All Minerals excluding Diamonds 1 100% E47/1129 Balmoral All Minerals excluding Diamonds 1 100% E47/1130 Balmoral All Minerals excluding Diamonds 1 100% E47/1255 Balmoral All Minerals excluding Diamonds 1,2 100% E47/1256 Balmoral All Minerals excluding Diamonds 1 100% E47/1257 Balmoral All Minerals excluding Diamonds 1,2 100% E47/1258 Balmoral All Minerals excluding Diamonds 1,2 100% E47/1259 Balmoral All Minerals excluding Diamonds 1,2 100% E47/1260 Balmoral All Minerals excluding Diamonds 1,2 100% E47/1261 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1262 Hamersley Range All Minerals excluding Diamonds 1 100% E47/1263 Hamersley Range All Minerals excluding Diamonds 1 100% E47/1264 Hamersley Range All Minerals excluding Diamonds 1 100% E47/1265 Hamersley Range All Minerals excluding Diamonds 1 100% E47/1266 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1267 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1278 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1279 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1280 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1281 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1282 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1283 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1284 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1285 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1286 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1287 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1503 Balmoral All Minerals excluding Diamonds 1,2 100% E47/1504 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1505 Hamersley Range All Minerals excluding Diamonds 1,2 100% E47/1506 Hamersley Range All Minerals excluding Diamonds 1,2 100% E08/1135 Yanks Bore Iron Ore 1 70% E08/1292 Mount Stuart Iron Ore 1 70% E08/1330 Catho Well Iron Ore 1 70% E08/1341 Cardo Bore Iron Ore 1 70% E08/1375 Mount Stuart Iron Ore 1 70% E47/1169 Yalleen Iron Ore 1 70% E47/1170 Yalleen Iron Ore 1 70% E47/1171 Yalleen Iron Ore 1 70% E08/1227 Cardo Iron Ore 1,3 60%, earning up to 80% E08/1283 Cane River Iron Ore 1,3 60%, earning up to 80% E08/1289 Red Hill North Iron Ore 1,3 60%, earning up to 80% E08/1293 White Gate Iron Ore 1,3 60%, earning up to 80% E08/1294 Red Hill North Iron Ore 1,3 60%, earning up to 80% E08/1295 Red Hill Iron Ore 1,3 60%, earning up to 80% E08/1301 Peters Creek Iron Ore 1,3 60%, earning up to 80% E08/1430 Red Hill Iron Ore 1,3 60%, earning up to 80% E08/1473 Red Hill Iron Ore 1,3 60%, earning up to 80% E08/1503 Kens Bore East Iron Ore 1,2,3 60%, earning up to 80% For personal use only use personal For E08/1514 Mt Stuart Iron Ore 1,3 60%, earning up to 80% E08/1516 Red Hill / Mt Stuart Iron Ore 1,3 60%, earning up to 80% E08/1537 Red Hill Iron Ore 1,3 60%, earning up to 80% E47/1141 Upper Cane Iron Ore 1,3 60%, earning up to 80% E47/1693 Duck Creek Iron Ore 1,3 60%, earning up to 80% P47/1271 Madala Bore Iron Ore 1,3 60%, earning up to 80% Tenement No. Project Name Mineral Notes Ownership
QUEENSLAND EPC 783 Belvedere Coal 24.5% EPC 1100 Belvedere Coal 24.5% MLa 80148 Belvedere No 1 Coal 2 24.5% MLa 80149 Belvedere No 2 Coal 2 24.5% MLa 80150 Belvedere No 3 Coal 2 24.5% EPC 752 Exevale Coal 50% EPC 755 Moranbah East Coal 50% EPC 795 Peak Downs East Coal 50% MLa 70389 Eagle Downs Coal 2 50% EPC 830 Isaac River Coal 50% EPC 883 Mount Gotthardt Coal 50% EPC 954 Mount Gotthardt South Coal 50% EPC 1077 Peak Downs East Extension Coal 50% ML 70342 Isaac Plains Coal 50% MLa 70361 Isaac Plains South Coal 2 50% MLa 70380 Isaac Plains South 2A Coal 2 50% MLa 70381 Isaac Plains South 3 Coal 2 50% MLa 70382 Isaac Plains South Access Coal 2 50% EPC 958 Washpool Coal 100% MDLa 403 Washpool Coal 2 100% EPC 959 Wilpeena Coal 100% EPC 960 Duaringa Coal 100% EPC 965 Spring Vale Coal 100% EPC 966 Mt Crocker Coal 100% EPC 968 Bowen River Coal 100% EPC 985 Red Hill Coal 100% EPC 995 Dawson Vale Coal 100% EPC 1013 Walton Coal 100% EPC 1032 Speculation Creek Coal 100% EPC 1153 Adler Downs Coal 100% EPC 1190 Bendoba Coal 100% EPC 1191 Box Creek Coal 100% EPC 1192 Cornwall Coal 100% EPC 1203 Forest Vale Coal 100% EPCa 1211 Blenheim Coal 2 100% EPCa 1214 Stragglers Coal 2 100% EPCa 1219 Blenheim Ext Coal 2 100% EPCa 1412 Cabbagetree Coal 2 100% BOTSWANA P 53/2005 Lechana Coal 100% P 54/2005 Tshimoyapula Coal 100% P 55/2005 Dukwe Coal 100% P 56/2005 W Mmamabula B Coal 100% P 57/2005 W Mmamabula A Coal 100% P 222/2007 Kodibeleng Coal 100% SOUTH AFRICA LP30/5/1/1/2/547 Rotterdam Iron Ore 74% LP30/5/1/1/2/613 Klipgat Iron Ore 74% LP30/5/1/1/2/614 Vlaknek Iron Ore 74% LP30/5/1/1/2/1301 Donkerpoort Iron Ore 2 74% LP30/6/1/1/2/1703 Hartbeestbuilt Iron Ore 2 74% LP30/6/1/1/2/1730 Wachteenbietjiesdraai Iron Ore 2 74% NC30/5/1/1/2/478 Avontuur Iron Ore 74% NC30/5/1/1/2/479 Kathu Iron Ore/Manganese 74% NC30/5/1/1/2/1023 Blackridge Iron Ore/Manganese 2 74% NC30/5/1/1/2/1048 Orange River Iron Ore/Manganese 74% NC30/5/1/1/2/1450 Japies Rust Iron Ore/Manganese 2 74% LP30/5/1/1/2/1022 Blinkwater Coal 2 74% LP30/5/1/1/2/1023 Windhoek Coal 2 74%
Notes 1 Australian Premium Iron Joint Venture (The Company – 50%). The Joint Venture’s interest is only in relation to iron ore.
2 only use personal For Under application. 3 The Company’s interest is being earned via the Australian Premium Iron Joint Venture and the interest shown is that to be earned by the Joint Venture.
Annual Report 2008: Aquila Resources Limited 31 The Directors present their report together with the financial report of Aquila Resources Limited (“Aquila” or “the Company”) and of the consolidated entity, being the Company and its controlled entities, for the year ended 30 June
2008, and the auditor’s report thereon. For personal use only use personal For directors’ report
table of contents
1 Directors 34 9 Likely developments 39 2 Company Secretary 34 10 Directors’ interests 39 3 Directors’ meetings 34 11 Share options 39 4 Corporate Governance Statement 35 12 Indemnification and insurance of Officers 39 - Board of Directors 35 13 Non-audit services 40 - Nomination Committee 36 14 Auditor’s independence declaration 40 - Remuneration Committee 36 - Audit Committee 36 15 Rounding off 40 - Risk management 36 16 Remuneration report 40 - Ethical standards 37 16.1 Remuneration policies 41 - Communication with shareholders 37 16.2 Directors’ and Executive officers’ 5 Principal activities 38 remuneration 42 16.3 Analysis of movements in option 6 Operating and financial review 38 holdings - granted as compensation 43 7 Dividends 38
8 Events subsequent to balance date 39 For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 33 DIRECTORS’ REPORT
1. DIRECTORS The Directors of the Company at any time during or since the end of the financial year are:
Name, qualifications and Age Experience & special responsibilities independence status
Tony Poli 49 A Director since 14 March 2000, Mr Poli is a qualified accountant and has B.Com, CPA, MAICD extensive general management, corporate and directorial experience. He has the Executive Chairman responsibility for the operations of the Company and has overseen the growth of the Company.
Charles Bennett Bass 59 A Director since 14 March 2000, Mr Bass is a qualified geologist and mining B.Sc(Geol), MSc(Mining & Mineral Processing), engineer with 30 years experience in mineral exploration, development and FAusIMM, FAIG, MASEG, MAICD production in Australia, Canada and the United States. Non-Executive Director
Derek Thomas Cowlan 74 A Director since 14 March 2000, Mr Cowlan has a wealth of experience in financial Non-Executive Director and business management. He currently presides as the Chairman of the Ross North Group, a large project home building company operating in Western Australia.
Gordon Thomas Galt 57 A Director since 22 August 2007, Mr Galt is a senior mineral resources executive G.Eng(Mining, Hons), and an experienced Director. He has worked in senior management, technical and B.Com, GDip AppFin(Finsia), MAusIMM, MAICD operational roles and across a wide range of commodities, primarily in coal, gold Non-Executive Director and magnesium, and to a lesser extent in copper, lead and zinc.
2. COMPANY SECRETARY Mr J Raymond Wood was appointed Company Secretary on 1 October 2007. Mr Wood has significant legal experience in the resources industry, both as an in-house counsel and as a partner in private practice.
3. DIRECTORS’ MEETINGS The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the Directors of the Company during the financial year are:
Board Meetings Audit Committee
Name of Director Number of Number of Number of Number of meetings held meetings attended meetings held meetings attended
Tony Poli 6 6 2 2
Charles Bass 6 6 2 1
Derek Cowlan 6 6 2 2
Gordon Galt 6 6 2 2
For personal use only use personal For 4. CORPORATE GOVERNANCE Independent professional advice and access to information In fulfilling their obligations, each Director has the right of STATEMENT access to all relevant information held by the Company and to This statement outlines the main corporate governance practices the Company’s Executives and, subject to prior consultation with in place throughout the financial year, which comply with the the Chairman, may seek independent professional advice from a Australian Securities Exchange Corporate Governance Council’s suitably qualified adviser at the consolidated entity’s expense. (Council) recommendations, unless otherwise stated. The Director must consult with an adviser suitably qualified in the relevant field, and obtain the Chairman’s approval of the fee payable BOARD OF DIRECTORS for the advice before proceeding with the consultation which will Role of the Board not be unreasonably withheld. A copy of the advice received by the The Board’s primary role is to guide and monitor the business and Director is made available to all members of the Board. affairs of the consolidated entity on behalf of the shareholders Composition of the Board by whom they are elected and to whom they are accountable The names of the Directors of the consolidated entity in office at the including the protection and enhancement of long-term date of this report are set out in the Directors’ Report on page 34. shareholder value. The composition of the Board is determined applying the following To fulfill this role, the Board is responsible for the overall corporate principles and guidelines: governance of the consolidated entity including: • Directors appointed by the Board are subject to election by • overseeing corporate strategy; shareholders at the following Annual General Meeting and • appointing, remunerating and performance assessment of the thereafter are subject to re-election every 3 years; Chief Executive Officer (CEO); • the Board shall comprise at least three Directors, increasing where • approving major capital expenditures, acquisitions, divestments additional expertise is considered desirable in certain areas; and and capital management programmes; • the Board should comprise Directors with an appropriate range of • monitoring the achievement of corporate objectives; qualifications and expertise. • ensuring the implementation of appropriate risk management The Board periodically reviews its composition to consider procedures; and whether it has the appropriate mix of Directors with the expertise • approving financial reports. and experience suitable for the purpose of fulfilling its collective responsibilities on behalf of shareholders. Where a vacancy The Board has delegated responsibility for the day to day exists, for whatever reason, or where it is considered that the operational, corporate and administrative activities of the Board would benefit from the services of a new Director with consolidated entity to the CEO (who is also the Chairman of the particular skills, the Board will select candidates with the relevant Board) and executive management. Contrary to the Council’s qualifications, skills and experience. recommendations 2.2 and 2.3, which recommends that the Chairman should be independent and that the role of the Chairman Notwithstanding the Council’s recommendation that the majority and CEO should not be the same individual, the Board does not of the Board should consist of independent Directors, the Board consider it appropriate to comply with the recommendations at is of the opinion that the objectives and current strategy of the this point in time as it is of the opinion that the objectives and consolidated entity are best served and achievable by a majority of current strategy of the consolidated entity are best served by the persons associated with the consolidated entity since its inception, same person in the dual role of CEO/Chairman, irrespective of his irrespective of their degree of independence. degree of independence. It is the Board’s intention to continue to review and assess the Board process benefits associated with the introduction of additional external The Board currently holds regular meetings each year, plus any independent Non-Executive Directors. extraordinary meetings at such other times as may be necessary to address significant matters that may arise and Executives are regularly invited to participate in Board discussions. The agenda for meetings is prepared by the Company Secretary and/or the Executive Chairman and includes standing items such as financial and operational reports, strategic matters, governance and compliance. Board papers are circulated to the Directors in
advance of all scheduled meetings. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 35 DIRECTORS’ REPORT
4. CORPORATE GOVERNANCE RISK MANAGEMENT Oversight of the risk management system STATEMENT (cont.) The Board monitors and receives advice on areas of operational and financial risk, and considers strategies for appropriate risk NOMINATION COMMITTEE management arrangements. The Directors believe that the size of the Board does not currently Operational, financial reporting and regulatory compliance risks justify the establishment of a Nomination Committee of the Board of are continually assessed, monitored and managed at management Directors as recommended by the Council’s recommendation 2.4. level, and any specific areas of significant risk are dealt with at All matters which might otherwise be dealt with by a Nomination Board level. Committee are considered at meetings of the full Board of Directors. Whilst the Board acknowledges that it is responsible for the overall The Board will continue to review the necessity to establish a internal control framework, it is also cognisant that no cost-effective Nomination Committee. internal control system will preclude all errors and irregularities. To manage the Company’s risk profile, the Board has established REMUNERATION COMMITTEE an internal control framework that can be described as follows: The Directors believe that the size of the Board does not currently • financial reporting accuracy and compliance with the financial justify the establishment of a Remuneration Committee of the Board reporting regulatory framework: of Directors as recommended by the Council’s recommendation 8.1. - there is a comprehensive budgeting system with an annual All reviews of remuneration packages and policies applicable budget approved by the Directors. Monthly financial results are to Executive Directors and Non-Executive Directors which might reported against budget and revised forecasts for the remainder otherwise be conducted on an annual basis by a Remuneration of the year prepared when necessary; Committee are dealt with by the full Board of Directors. The - cash flow statements are also prepared on a regular basis; responsibility for remuneration matters relating to Senior Executives has been delegated by the Board to the CEO. - half-yearly and annual statutory reports which are reviewed and audited respectively by the Company’s external auditors The Board will continue to review the necessity to establish a and reported to the ASX; Remuneration Committee. • risk exposures relating to foreign exchange and interest rate fluctuations are managed in accordance with the Company’s AUDIT COMMITTEE Foreign Exchange and Interest Rate Risk Management Policy The Board has constituted an Audit Committee pursuant to ASX (Policy). In accordance with the Policy, a Risk Management Listing Rule 12.7 with effect from September 2006. The Audit Committee has been established, comprising of Mr Charles Bass Committee is comprised of Messrs Cowlan, Bass and Galt, with (also the Chair), the CEO and the CFO. The Risk Management Mr Cowlan also acting as its Chair. Committee meets regularly to determine, with the assistance The operation of the Audit Committee is governed by a Charter of external treasury advisers, appropriate foreign exchange and interest rate hedging strategies to manage these risks and which specifies that its key responsibilities include: ensure that such activities are conducted in compliance with • assessing significant risks faced by the Company and the the Company’s Policy; effectiveness of procedures implemented by management to • all business transactions of a material nature are properly authorised mitigate such risks; and executed; and • monitoring compliance with regulatory requirements, including • the recruitment and retention of personnel with due experience, the Corporations Act 2001, ASX Listing Rules and other commitment and integrity. statutory obligations; • evaluating the adequacy of the accounting system and associated The financial reporting risk management framework and internal controls; associated internal controls have been assessed and found to be operating effectively and efficiently. The operational risk • reviewing the annual and half-year financial reports; and management procedures are reviewed on an ongoing basis to • considering the effectiveness and independence of the ensure they appropriately support corporate objectives. external auditors. Environmental regulation The CEO and the Chief Financial Officer (CFO) have declared in The consolidated entity is committed to ensuring that safe and writing to the Board that the financial records of the Company for sound environmental practices are carried out while undertaking the financial year have been properly maintained, the Company’s exploration and mining activities and that such practices comply financial reports for the year ended 30 June 2008 comply with with relevant statutory requirements under both Commonwealth accounting standards and present a true and fair view of the and State legislation. The Board is not aware of any significant Company’s financial condition and operational results. This breaches of environmental requirements during the period statement is required annually.
covered by this report. For personal use only use personal For ETHICAL STANDARDS COMMUNICATION WITH SHAREHOLDERS All Directors and employees are expected to act with the utmost The Board provides shareholders with information via its comprehensive integrity and objectivity and to comply at all times with the existing Continuous Disclosure process which involves identifying matters that laws governing its operations. In addition, they are also expected may have a material effect on the price of the Company’s securities, to conduct the Company’s activities in keeping with the highest notifying these matters to the ASX, posting them on the Company’s legal, moral and ethical standards. website and issuing media releases. Conflict of interest In summary, the Continuous Disclosure process operates as follows: In accordance with the Corporations Act 2001 and the Company’s • the CEO and the Company Secretary are responsible for Continuous Constitution, Directors must keep the Board advised, on an Disclosure compliance and where necessary, informing the Board ongoing basis, of any interest that could potentially conflict with of relevant matters; those of the Company. • the CEO is responsible for all communications with the ASX; Where the Board believes that a significant conflict exists for • the annual report, which includes relevant information about the a Director on a Board matter, the Director concerned does not operations and financial results of the consolidated entity during receive the relevant Board papers and is not present at the the year, changes in the state of affairs and details of future meeting whilst the item is considered. developments, is distributed electronically to all shareholders in Details of Director related entity transactions with the Company and October each year, unless a shareholder has specifically requested consolidated entity are set out in Note 32 to the financial statements. to receive a hard copy annual report; Code of conduct • the half-yearly report, which contains summarised financial All employees and Directors are required at all times to act in information and a brief review of the operations of the consolidated accordance with the consolidated entity’s Code of conduct, which entity during the period, is lodged with the ASX in March each year prescribes standards of behaviour to be maintained in relation to: and is electronically delivered to any shareholders who request a copy; • compliance with laws and regulations; • the quarterly reports, containing a review of the operations and cash • political contributions; flow statement of the consolidated entity are reported and lodged • unacceptable payments; with the ASX in January, April, July and October each year and are • giving and/or receiving gifts; electronically delivered to any shareholder who requests a copy; • protection of assets; • proposed major changes to the consolidated entity which may impact on share ownership rights are submitted to a vote of shareholders; • proper accounting; • all announcements made to the market and related information • dealing with auditors; (including information provided to analysts or the media during • conflicts of interest; briefings) are placed on the Company’s website after their • the use of inside information; release to the ASX; • share trading; • the full texts of notices of meetings and associated explanatory material are placed on the Company’s website; and • alcohol and drug abuse; • the external auditor is requested to attend the Annual General • equal opportunity and discrimination; Meetings to answer any questions concerning the audit and the • environmental responsibilities; contents of the auditor’s report. • occupational health and safety; and All of the above information, including that of previous years, is made • economy and efficiency. available on the Company’s website within two business days of the Share trading public release and is emailed to all shareholders who lodge their email Whilst the Board encourages its Directors and employees to own contact details with the Company. Information on lodging email securities in the Company, it is also mindful of its responsibility addresses with the Company is available on the Company’s website. that the consolidated entity comply with the Corporations Act The Board encourages full participation of shareholders at the 2001 pertaining to “insider trading” and “its proper duties in Annual General Meeting, to ensure a high level of accountability relation to the use of inside information”. and identification with the consolidated entity’s strategy and To ensure compliance with the relevant requirements of the goals. All important issues are presented to the shareholders Corporations Act 2001, the Company has established policies as single resolutions. on share trading in the Company’s securities by Directors and employees which require that: • Directors and employees must notify the CEO of their intent to trade the Company’s shares and confirm that they are not in possession of any material inside information; • trading in the Company’s shares is prohibited at the following times: - 10 days prior to the release of any quarterly report by the Company, which is normally one month following the end of For personal use only use personal For each calendar quarter; and - when in possession of unpublished price sensitive information (“inside information”) which might or might not be generally available, that may materially affect the price or value of the Company’s shares; and • active trading in the Company’s shares, with a view to derive profit related income, is prohibited at all times.
Annual Report 2008: Aquila Resources Limited 37 DIRECTORS’ REPORT
• On 30 November 2007, the Company announced a “one for every 5. PRINCIPAL ACTIVITIES five” bonus issue of shares to all shareholders of the Company. The principal activities of the consolidated entity during the course 34,316,060 shares were issued for nil consideration pursuant to of the financial year consisted of exploration and mining of coal this issue. and iron ore resources. • On 8 January 2008, the Company announced the sale of its The consolidated entity’s objective is to enhance shareholder value interests in two coal tenements in the Surat Basin, Queensland, to through systematic exploration, evaluation and development of Cockatoo Coal Limited for $1.5 million. its mineral projects. • On 4 February 2008, the Company announced an increase in the run-of-mine coal reserves of the Isaac Plains Coal Project, in which the 6. OPERATING AND FINANCIAL REVIEW Company and Vale each have a 50% interest, to 65.5 million tonnes. • On 7 March 2008, the Company announced an increase in the Overview of the consolidated entity: JORC compliant resource to 493 million tonnes for the West The net consolidated profit for the financial year attributable Pilbara Iron Ore Project held by its 50% owned Australian Premium to members of the Company after income tax expense was Iron Joint Venture. $97,269,000 [2007: loss of $12,527,000]. • On 26 March 2008 the Company announced an increase in the Review of operations: coking coal resource of its Eagle Downs Coal Project (formerly A review of operations and exploration activities of the known as Peak Downs East), in which the Company and Vale each consolidated entity for the year are set out in the Chairman’s have a 50% interest, to 780 million tonnes. Review and Review of Operations which are included with these • On 6 May 2008, the Company announced the completion of the financial statements. Pre-Feasibility Study (PFS) of the first stage of the West Pilbara Iron Significant changes in the state of affairs: Ore Project (the Project). Significant changes in the state of affairs of the consolidated The PFS has confirmed the technical and financial viability ofa entity during the year were as follows: development based on a 25 Mtpa iron ore operation, with 160 • On 19 July 2007, Vale provided notice of exercise of its purchase kilometres of new railway to a new open-access, deep-water option to acquire a 51% interest in the Belvedere Coal Joint port facility at Cape Preston. Sensitivity analyses indicate that the Venture. Pursuant to the terms of the agreement between Project is capable of producing 30Mtpa in Stage 1 with a marginal the parties, Vale paid US$45 million each to subsidiaries of increase in capital expenditure. the Company and AMCI, who each previously held 50% • On 6 May 2008, the Company announced a “one for shares in the Project. every five” bonus issue of shares to all shareholders ofthe Under the terms of the Belvedere Coal Joint Venture, Vale have Company. 41,179,199 shares were issued for nil consideration further options to acquire the remaining 49% interest in the pursuant to this issue. Project at fair market value. • On 23 May 2008, the Company announced the proposed demerger • On 8 August 2007, the Company announced the sale of all of of certain of the Company’s exploration interests. Under this its Moçambique coal exploration tenements to Riversdale Mining arrangement, the consolidated entity’s current exploration assets, Limited. Proceeds from this sale comprised A$26 million in cash which principally comprise the southern African coal, iron ore and and 10 million Riversdale ordinary shares, which based on the manganese exploration interests, together with the wholly-owned closing price upon the day of the transaction valued the sale at Queensland coal exploration projects, will be consolidated under a A$59.2 million. These shares were later sold at an average price of new holding entity, Aquila Exploration Limited (AEL), which will be $9.62 per share. listed on the Australian Securities Exchange. • On 3 September 2007, the Company announced the signing of • On 11 June 2008, the Company announced an increase to the a Shareholders Agreement with Jonah Capital (BVI) Limited and resource statement for the Belvedere Coal Project, in which the Sentula Mining Limited to accelerate the commercialisation of the Company has a 24.5% interest, to 3.866 billion tonnes. Company’s coal tenement holdings in Botswana. • On 18 June 2008, the Company announced that the High Court Under the terms of the Shareholders Agreement, Jonah Capital of Australia had refused to grant the Company Special Leave to (BVI) Limited and Sentula Mining Limited may earn an aggregate appeal against the decision of the Court of Appeal of the Supreme 50% interest in the Botswana tenements by undertaking a US$10 Court of Queensland, which had previously decided against million exploration programme. Aquila’s “Change in Control” case against AMCI. • On 4 September 2007, the Company announced that the • On 19 June 2008, the Company announced an initial JORC resource Supreme Court of Queensland had handed down a decision that of 75 million tonnes for its wholly owned Red Hill Coal Project. the restructuring of AMCI’s interests in the Australian Premium Iron Joint Venture and the Belvedere Coal Joint Venture did not constitute a Change in Control under the terms of the respective 7. DIVIDENDS joint venture agreements. There was no dividend paid or declared by the Company since The Company elected to lodge an appeal against the decision, the end of the previous financial year and the Directors do
For personal use only use personal For which was ultimately unsuccessful. not recommend the payment of a dividend in respect of the current financial year. • On 27 November 2007, the Company announced that its wholly- owned subsidiary Aquila Steel Pty Ltd had agreed to subscribe for 72 million ordinary fully paid shares in Cullen Resources Limited (Cullen) at a price of 10 cents each, which represented 15% of Cullen’s issued share capital following the placement. 8. EVENTS SUBSEQUENT TO 11. SHARE OPTIONS BALANCE DATE Unissued shares under option • On 19 August 2008, the Company announced that the Scheme At the date of this report, details of unissued ordinary shares of Booklet for the proposed demerger of certain of the consolidated the Company under option are as follows: entity’s exploration interests into a new company, Aquila Expiry date Exercise price Number of shares Exploration Limited, had been lodged with the Australian Securities and Investments Commission (ASIC) for its review. 31 December 2008 (i) $4.00 6,336,000 The proposed demerger is subject to approval at a meeting of 31 August 2010 (ii) $5.50 792,000 Aquila shareholders scheduled for 31 October 2008. 31 December 2010 (i) $4.00 15,840,000 • As at 12 September 2008, the aggregate fair value of the consolidated entity’s investment in listed securities available 22,968,000 for sale has fallen by $12,918,000 (18%) to $56,943,000. This carrying value remains significantly above the original cost of these All vested options expire on the earlier of their expiry date or investments of $28,571,000. termination of the employee’s employment. The decrease in value has arisen due to ongoing volatility in both (i) Number of shares includes participation in the 1 for 10 Bonus Issue domestic and international equity markets. on 2 December 2005, the 1 for 1 Bonus Issue on 11 December 2006, the 1 for 5 Bonus Issue on 12 December 2007, and the 1 for 5 Bonus Issue on 15 May 2008. 9. LIKELY DEVELOPMENTS (ii) Number of shares includes participation in the 1 for 5 Bonus Issue on The consolidated entity will continue to explore and mine its coal and 12 December 2007, and the 1 for 5 Bonus Issue on 15 May 2008. iron ore projects and evaluate related acquisition opportunities. Shares issued on exercise of options Disclosure of further information regarding likely developments During or since the end of the financial year, the Company issued in the operations of the consolidated entity in future years and ordinary shares as a result of the exercise of options as follows: the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity and accordingly, Number of Number of shares Exercise price has not been included in this report. options exercised issued (i) per option 1,033,334 2,500,668 $1.00 10. DIRECTORS’ INTERESTS 183,333 516,268 $2.50 The relevant interest of each Director in the ordinary share capital (i) There were no amounts unpaid on the shares issued. of the Company as notified by the Directors to the Australian Stock Exchange in accordance with Section 205G(1) of the Corporations Act 2001, at the date of this report, is as follows: 12. INDEMNIFICATION AND
Name of Director Number of fully Number of options INSURANCE OF OFFICERS paid ordinary over ordinary Indemnification shares shares The Company has entered into an Agreement indemnifying the Tony Poli 75,297,898 5,000,000 Directors of the Company, against all liabilities to another person (other than the Company or a related body corporate) that may arise from Charles Bass 32,834,152 - their position as Directors of the Company and its controlled entities, Derek Cowlan 9,943,368 - with the exception of conduct involving a wilful breach of duty or Gordon Galt - - improper use of information to gain a personal advantage. The Agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. Insurance premiums No details of the nature of the liabilities covered and the amount of premium paid in respect of the Directors’ and Officers’ Liability Insurance policy has been disclosed, as such disclosure is
prohibited under the terms of the policy. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 39 DIRECTORS’ REPORT
13. NON-AUDIT SERVICES 16. REMUNERATION REPORT During the year, KPMG, the Company’s auditor, has performed The following were key management personnel of the consolidated certain other services in addition to their statutory duties. entity at any time during the reporting period and unless otherwise The Board has considered the non-audit services provided during indicated were key management personnel for the entire period: the year by the auditor and is satisfied that the provision of those Executive Director non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence Mr T Poli (Executive Chairman and Chief Executive Officer) requirements of the Corporations Act 2001 for the following Non-executive Directors reasons: Mr C B Bass • all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by Mr D T Cowlan the Audit Committee to ensure they do not impact the integrity Mr G T Galt and objectivity of the auditor; and Executives • the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Mr A M Matheson (General Manager – Coal) Code of Ethics for Professional Accountants, as they did not involve Mr G F Pigott (Head of Exploration) reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate Mr H C Rae (Chief Financial Officer) for the Company or jointly sharing risks and rewards. Mr R Tipper (General Manager – Iron Ore) Details of the amounts paid to the auditor of the Company, appointed 23 May 2007 KPMG, for audit and non-audit services provided during the year are set out below. Mr K Watters (Manager Development – Iron Ore) appointed 1 November 2006 Consolidated Mr J R Wood (Company Secretary) appointed 1 September 2007 2008 2007 $ $ Audit services: Audit and review of financial reports 148,117 116,108 Services other than statutory audit: Non-statutory assurance services 60,898 30,500
14. AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 The auditor’s independence declaration is set out on page 44 and forms part of the Directors’ Report for the year ended 30 June 2008.
15. ROUNDING OFF The consolidated entity is of a kind referred to in ASIC Class Order 98/100 and, in accordance with that Class Order, amounts in the Financial Report have been rounded to the nearest thousand
dollars, unless otherwise stated. For personal use only use personal For 16.1 Remuneration policies Remuneration levels are competitively set to attract and retain appropriately qualified and experienced Directors and Executives. Where necessary, the Board will obtain independent advice on the appropriateness of remuneration packages. Executive remuneration policies Remuneration of Executives constitute a balance between fixed and incentive pay, reflecting short and long term performance objectives appropriate to the Company’s circumstances and objectives. They are structured in a manner designed to link reward to corporate and individual performances. Contracts of employment requiring more than 12 months notice must be brought to the attention of the Board. Non-executive remuneration policies Fees paid to Non-Executive Directors are within the aggregate amount approved by shareholders. Recommendations are made by the Board with respect to this aggregate amount at the Company’s Annual General Meeting. Compensation for Non-Executive Directors are set with reference to fees paid to other Non-Executive Directors of comparable companies. This remuneration is made by way of fees (in the form of cash and superannuation benefits). There are no retirement benefits paid to Non-Executive Directors (other than statutory superannuation benefits) and there isno entitlement for participation in equity based remuneration schemes that are used to remunerate Executives from time to time. Total remuneration for all Non-Executive Directors, last approved by shareholders at a meeting in November 2007, is not to exceed $300,000 per annum. Non-Executive Directors do not receive performance related compensation. Directors’ fees cover all main Board activities and membership of Board committees. Performance linked compensation Performance linked compensation includes both short-term incentives and long-term incentives and is designed to reward key management personnel for reaching or exceeding specific objectives or as recognition for strong individual performance. Short-term incentives Short-term incentives are available for all eligible staff of the consolidated entity and are comprised of cash bonuses, determined on a discretionary basis by the CEO and the Board in conjunction with an annual review of the individual’s overall achievements and contribution to the performance of the consolidated entity. Long-term incentives Long-term incentives are comprised of share options, which are granted from time to time to encourage exceptional performance in the realisation of strategic outcomes and growth in shareholder wealth. Options are granted for no consideration and do not carry voting or dividend entitlements. The exercise price of the options is determined after taking into account the underlying share price performance during the period leading up to the date of grant and any applicable performance conditions attached to the share options. Subject to specific vesting conditions, each option is convertible into one ordinary share. Refer to Note 23 of the financial statements for vesting conditions attached to share options granted. Service contracts All key management personnel are employed by standard employment agreements which run for indefinite lengths, do not provide termination payments and are able to be terminated after statutory notice periods, with the following exception: (i) The consultancy agreement with Omega Management Services Pty Ltd (Omega), a company associated with Tony Poli, has a one year term which is due for expiry on 30 April 2009. Under this agreement, Omega is to provide the services of Mr Poli (or another approved employee) to act as Executive Chairman of the Company. Consequences of performance on shareholders wealth Performance in respect of the current financial year and the previous four financial years is detailed in the table below:
2008 AIFRS 2007 AIFRS 2006 AIFRS 2005 AIFRS 2004 AGAAP Net profit (loss) $97,269,000 ($12,527,000) $3,363,000 ($3,157,000) ($1,374,000) Dividends paid - - - - - Total Shareholder Return (TSR) 297% 79% 169% 373% 52%
TSR includes the increase (decrease) in the Company’s share price, after adjusting for the effect of bonus issues. The Company’s performance is impacted not only by market factors, but also by employee performance. The measures of performance of the Company set out in the table above have been taken into consideration in the determination of appropriate levels
of remuneration. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 41 DIRECTORS’ REPORT
16. REMUNERATION REPORT (cont.) 16.2 Directors’ and Executive officers’ remuneration The following table provides the remuneration details of all Directors of the Company (Specified Directors) and each of the named Executives of the Company with the highest remuneration (Specified Executives), being all key management personnel, including the nature and amount of the elements of their remuneration for the year ended 30 June 2008. All cash bonuses included in remuneration represent the amounts that were granted to Specified Executives following the annual review of that Executive’s overall performance by the CEO, there are no amounts yet to vest associated with current year bonuses.
Post Equity Performance Short-term employment compensation related Value of bonus as options as Salary/ Directors Cash Super Value of proportion of proportion of Name Year fees fees bonus Total benefits options Total remuneration remuneration $ $ $ $ $ $ $ % % Specified Directors Executive Mr T Poli 2008 410,000 45,872 75,000 530,872 4,128 5,628,783 6,163,783 1% 91% (Executive Chairman/ 2007 355,340 22,018 35,000 412,358 1,982 294,511 708,851 5% 42% CEO) Non-Executive Mr C B Bass 2008 - 45,872 - 45,872 4,128 - 50,000 - - 2007 - 22,018 - 22,018 1,982 - 24,000 - - Mr D T Cowlan 2008 - 45,872 - 45,872 4,128 - 50,000 - - 2007 - 22,018 - 22,018 1,982 - 24,000 - - Mr G T Galt 2008 - 39,638 - 39,638 3,567 - 43,205 - - (appointed 22 2007 ------August 2007) Total 2008 410,000 177,254 75,000 662,254 15,951 5,628,783 6,306,988 1% 89% 2007 355,340 66,054 35,000 456,394 5,946 294,511 756,851 5% 39% Specified Executives Mr A M Matheson 2008 252,294 - 41,250 293,544 22,707 100,227 416,478 10% 24% (General Manager 2007 220,078 - 33,100 253,178 20,707 2,538 276,423 12% 1% – Coal) Mr G F Pigott 2008 174,899 - 37,500 212,399 74,831 41,127 328,357 11% 13% (Head of Exploration) 2007 96,000 - 21,000 117,000 115,566 77,113 309,679 7% 25% Mr H C Rae 2008 257,000 - 66,250 323,250 18,000 100,227 441,477 15% 23% (Chief Financial 2007 212,000 - 33,000 245,000 20,578 2,538 268,116 12% 1% Officer) Mr R Tipper 2008 350,000 - 67,500 417,500 100,000 - 517,500 13% - (General Manager - 2007 27,466 - - 27,466 23,957 - 51,423 - - Iron Ore, appointed 23 May 2007) Mr K Watters 2008 263,530 - 75,000 338,530 34,618 - 373,148 20% - (Manager 2007 165,138 - 150,000 315,138 14,842 - 330,000 45% - Development - Iron Ore, appointed 1 November 2006) Mr J R Wood 2008 132,596 - 59,500 192,096 75,769 - 267,865 22% - (Company Secretary, 2007 ------appointed 1 September 2007) Total 2008 1,430,319 - 347,000 1,777,319 325,925 241,581 2,344,825 15% 10% 2007 720,682 - 237,100 957,782 195,670 82,189 1,235,641 19% 7% Total compensation:
For personal use only use personal For Key management 2008 1,840,319 177,252 422,000 2,439,571 341,878 5,870,364 8,651,813 5% 68% personnel – 2007 1,076,022 66,054 272,100 1,414,176 201,616 376,700 1,992,492 14% 19% Company and consolidated 16.3 Analysis of movements in option holdings – granted as compensation Vested Vested and Held at 1 Granted as Other Held at 30 during the exercisable at Name July 2007 remuneration Exercised changes (i) June 2008 year 30 June 2008 Specified Directors Mr T Poli 5,000,000 - - - 5,000,000 2,500,000 5,000,000 Specified Executives Mr A M Matheson 150,000 - - - 150,000 50,000 50,000 Mr G F Pigott 1,000,000 - 1,000,000 - - 333,334 - Mr H C Rae 150,000 - - - 150,000 50,000 50,000
No options held by Specified Directors or Specified Executives are vested but not exercisable. (i) Other changes represent options that expired or were forfeited during the year.
Dated at Perth this 25th day of September 2008. Signed in accordance with a resolution of the Directors.
Tony Poli
Executive Chairman For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 43 AUDITOR’S INDEPENDENCE DECLARATION
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To: the Directors of Aquila Resources Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2008 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
T R HART Partner
Perth
25 September 2008 For personal use only use personal For INCOME STATEMENTS for the year ended 30 June 2008
Consolidated The Company Note 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Revenue from sale of product 46,500 14,597 - - Cost of sales (44,676) (19,881) - - Gross profit (loss) 1,824 (5,284) - -
Other income 3 174,132 2,586 120,949 1,281 Exploration and evaluation expenses (23,057) (11,421) - - Corporate, legal and administration expenses (8,889) (3,539) (8,680) (3,526) Doubtful debts – impairment of loans to subsidiaries - - (3,913) (1,873) Share based payment expense (6,065) (544) (6,065) (544) Profit (loss) from operating activities 136,121 (18,202) 102,291 (4,662)
Financial income 6,645 3,331 6,557 3,249 Financial expenses (2,308) (2,255) (1,290) (374) Net finance income 6 4,337 1,076 5,267 2,875
Profit (loss) before income tax 142,282 (17,126) 107,558 (1,787) Income tax (expense) benefit (45,013) 4,599 (34,777) 232 Profit (loss) for the period 97,269 (12,527) 72,781 (1,555) Profit (loss) attributable to members of the parent entity 97,269 (12,527) 72,781 (1,555) Basic earnings (loss) per share 9 $0.501 ($0.096) Diluted earnings (loss) per share 9 $0.464 ($0.096)
The Income Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 49 to 91. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 45 DIRECTORSBALANCE S’H REPORTEETS as at 30 June 2008
Consolidated The Company Note 2008 2007 2008 2007 $’000 $’000 $’000 $’000
CURRENT ASSETS Cash assets 10 159,416 34,160 153,808 31,960 Trade and other receivables 11 11,848 8,570 1,560 421 Inventories 12 4,511 3,731 - - Investments 13 69,861 29,519 7,872 10,153 Other assets 14 324 193 132 83 Total current assets 245,960 76,173 163,372 42,617
NON-CURRENT ASSETS Receivables 11 2,183 1,764 27,960 28,453 Investments 13 - - - - Deferred tax assets 17 - - - 304 Property, plant and equipment 18 38,914 31,176 351 269 Exploration and evaluation expenditure 19 2,920 2,782 - - Intangible assets 20 118 49 42 32 Other assets 14 2,715 1,383 - - Total non-current assets 46,850 37,154 28,353 29,058 TOTAL ASSETS 292,810 113,327 191,725 71,675
CURRENT LIABILITIES Trade and other payables 21 15,209 10,315 2,093 1,097 Interest bearing liabilities 22 5,882 20,183 - - Current tax payable 17 43,483 - 43,483 - Employee benefits 23 334 213 179 80 Total current liabilities 64,908 30,711 45,755 1,177
NON-CURRENT LIABILITIES Interest bearing liabilities 22 9,453 102 - - Employee benefits 23 - 14 - 14 Deferred tax liabilities 17 14,839 4,071 136 - Provisions 24 919 573 - - Total non-current liabilities 25,211 4,760 136 14 TOTAL LIABILITIES 90,119 35,471 45,891 1,191 NET ASSETS 202,691 77,856 145,834 70,484
EQUITY Issued capital 25 74,124 72,632 74,124 72,632 Reserves 26 47,484 21,410 14,278 13,201 Retained earnings 27 81,083 (16,186) 57,432 (15,349) TOTAL EQUITY 202,691 77,856 145,834 70,484
The Balance Sheets are to be read in conjunction with the Notes to the Financial Statements set out on pages 49 to 91. For personal use only use personal For STATEMENTS OF CHANGES IN EQUITY for the year ended 30 June 2008
Consolidated The Company Note 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Total equity at the beginning of the period 77,856 76,281 70,484 65,888
Gain on revaluation of available-for-sale financial assets - recognised in income statement (43,885) (469) (43,668) (469) - recognised in fair value reserve 59,536 13,313 38,680 5,751 Increase in fair value of cash flow hedges - recognised in income statement (3,903) (1,590) - - - recognised in hedging reserve 8,261 1,979 - - Amounts recognised directly in equity 20,009 13,233 (4,988) 5,282 Profit (loss) for the period 97,269 (12,527) 72,781 (1,555) Total recognised income and expense for the period 117,278 706 67,793 3,727
Transactions with equity holders in their capacity as equity holders: Exercise of options 25 1,492 325 1,492 325 Equity settled share based payment transactions 6,065 544 6,065 544 Total equity at the end of the period 26 202,691 77,856 145,834 70,484
Total recognised income and expense for the period attributable to equity holders of the parent 117,278 706 67,793 3,727
The above amounts are stated net of tax where applicable.
The Statements of Changes in Equity are to be read in conjunction with the Notes to the Financial Statements set out on pages 49 to 91. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 47 STATEMENTS OF CASH FLOWS for the year ended 30 June 2008
Consolidated The Company Note 2008 2007 2008 2007 $’000 $’000 $’000 $’000
CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts in the course of operations 51,287 10,499 423 549 Cash payments in the course of operations (52,738) (19,531) (8,195) (3,360) Cash payments for exploration and evaluation expenditure (16,163) (10,268) - - Cash receipts from legal settlement - 14,000 - - Interest received 5,388 3,352 5,265 3,274 Interest paid (1,716) (1,704) - - Net cash provided by (used in) operating activities 31(b) (13,942) (3,652) (2,507) 463
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of mineral properties 78,939 - 26,000 - Proceeds from sale of equity investments 96,441 867 96,016 - Proceeds from farm-out of mineral properties - 87 - - Proceeds from disposal of property, plant and equipment - 6,931 - - Payments for equity investments (18,861) (8,277) (5,061) (375) Payments for mineral properties (138) (1,320) - - Payments for property, plant and equipment (including intangible assets) (13,245) (16,834) (184) (219) Loans (to) from related entities - - 6,092 (18,667) Payments for security deposits (283) (1,710) - (1,574) Net cash provided by (used in) investing activities 142,853 (20,256) 122,863 (20,835)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares 25 1,492 325 1,492 325 Proceeds from borrowings - 5,147 - - Repayment of borrowings (5,147) - - - Net cash provided by (used in) financing activities (3,655) 5,472 1,492 325 Net increase (decrease) in cash held 125,256 (18,436) 121,848 (20,047) Cash at the beginning of the financial year 34,160 52,596 31,960 52,007 Cash at the end of the financial year 31(a) 159,416 34,160 153,808 31,960
The Statements of Cash Flows are to be read in conjunction with the Notes to the Financial Statements set out on pages 49 to 91. For personal use only use personal For NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
table of contents
1. Summary of significant accounting policies 50 20. Intangible assets 67 2. Financial risk management 56 21. Trade and other payables 68 3. Other income 57 22. Interest-bearing loans and borrowings 68 4. Other expenses 57 23. Employee benefits 69 5. Personnel expenses 58 24. Provisions 71 6. Finance income and expense 58 25. Contributed equity 72 7. Auditors’ remuneration 58 26. Reserves 73 8. Income tax 59 27. Retained earnings 74 9. Earnings per share 60 28. Controlled entities 74 10. Cash assets 60 29. Financial instruments 75 11. Trade and other receivables 61 30. Commitments 81 12. Inventories 61 31. Notes to statements of cash flows 82 13. Investments 62 32. Key management personnel disclosure 84 14. Other assets 62 33. Non-key management personnel related party disclosure 88 15. Investments accounted for using the equity method 62 34. Events subsequent to balance date 89 16. Interests in joint venture operations 63 35. Segment reporting 90 17. Tax assets and liabilities 64 18. Property, plant and equipment 66
19. Exploration and evaluation expenditure 67 For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 49 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
1. SUMMARY OF SIGNIFICANT Associates Associates are those entities for which the consolidated ACCOUNTING POLICIES entity has significant influence, but not control, over the financial and operating policies. The consolidated financial Aquila Resources Limited (“the Company”) is a company statements include the consolidated entity’s share of the domiciled in Australia. total recognised gains and losses of associates on an equity The consolidated financial report of the Company for the accounted basis from the date that significant influence financial year ended 30 June 2008 comprises the Company commences until the date that significant influence ceases. and its subsidiaries (together referred to as the “consolidated When the consolidated entity’s share of losses exceeds its entity”) and the consolidated entity’s interest in jointly controlled interest in an associate, the consolidated entity’s carrying operations and entities. amount is reduced to nil and recognition of further losses is discontinued except to the extent that the consolidated The financial report was authorised for issue by the Directors on entity has incurred legal or constructive obligations or made 22 September 2008. payments on behalf of an associate. (a) Statement of compliance Joint ventures The financial report is a general purpose financial report Joint ventures are those entities over whose activities which has been prepared in accordance with Australian the consolidated entity has joint control, established by Accounting Standards (AASBs), adopted by the Australian contractual agreement. Accounting Standards Board (AASB) and the Corporations Act 2001. Jointly controlled entities The financial report also complies with International In the consolidated financial statements, investments Financial Reporting Standards (IFRS) and interpretations of in jointly controlled entities, including partnerships, the International Accounting Standards Board. are accounted for using equity accounting principles. Investments in joint venture entities are carried at the lower The consolidated entity is of a kind referred to in ASIC of the equity accounted amount and recoverable amount. Class Order 98/100 dated 10 July 1998 and, in accordance with that Class Order, amounts in the financial report have The consolidated entity’s share of the jointly controlled been rounded to the nearest thousand dollars, unless entity’s net profit or loss is recognised in the consolidated otherwise stated. income statements from the date joint control commenced until the date joint control ceases. Other movements in (b) Basis of preparation reserves are recognised directly in consolidated reserves. The financial report is presented in Australian dollars. It has been prepared on the historical cost basis, except Jointly controlled operations and assets for derivative financial instruments and financial investments The interest of the consolidated entity in unincorporated classified as available-for-sale, which are recorded at joint ventures and jointly controlled assets are brought to fair value. account by recognising in its financial statements the assets it controls and the liabilities that it incurs, and the expenses The preparation of a financial report in conformity with it incurs and its share of income that it earns from the sale Australian Accounting Standards requires management to of goods or services produced by the joint venture. make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets Transactions eliminated on consolidation and liabilities, income and expenses. Intragroup balances, and any unrealised gains and losses or These estimates and associated assumptions are based income and expenses arising from intragroup transactions, are on historical experience and various other factors that are eliminated in preparing the consolidated financial statements. believed to be reasonable under the circumstances, the (d) Revenue recognition results of which form the basis of making the judgements Sale of goods about carrying values of assets and liabilities that are not Revenue from the sale of coal is recognised (net of penalties, readily apparent from other sources. Actual results may returns, discounts, allowances and hedging gains/losses) differ from these estimates. in the income statement when the significant risks and The estimates and underlying assumptions are reviewed on rewards of ownership have been transferred to the buyer. an ongoing basis. Revisions to accounting estimates are No revenue is recognised if: recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of (i) there are significant uncertainties regarding recovery the revision and future periods if the revision affects both of the consideration due; current and future periods. (ii) the costs incurred or to be incurred cannot be The accounting policies set out below have been applied measured reliably; consistently to all periods presented in these consolidated (iii) there is a risk of return of goods; or financial statements. (iv) there is continuing management involvement with The accounting policies have been applied consistently the goods. throughout the consolidated entity for the purposes of this (e) Finance income and expenses financial report. Finance income comprises interest income, which is
(c) Principles of consolidation recognised as it accrues, using the effective interest rate. For personal use only use personal For Subsidiaries Finance expense comprises interest expenses on borrowings, Subsidiaries are entities controlled by the Company. unwinding of the discount on provisions, and foreign Control exists when the Company has the power, directly currency losses. All borrowing costs are recognised in profit or indirectly, to govern the financial and operating policies or loss using the effective interest rate. of any entity so as to obtain benefits from its activities. (f) Goods and services tax In assessing control, potential voting rights that presently Revenue, expenses and assets are recognised net of the amount are exercisable or convertible are taken into account. of goods and services tax (GST), except where the amount of The financial statements of subsidiaries are included in GST incurred is not recoverable from the taxation authority. In the consolidated financial statements from the date that these circumstances, the GST is recognised as part of the cost of control commences until the date that control ceases. acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of Any current tax liabilities (or assets) and deferred tax GST included. The net amount of GST recoverable from, or assets arising from unused tax losses assumed by the head payable to, the ATO is included as a current asset or liability entity from the subsidiaries in the tax-consolidated group in the statement of financial position. are recognised as amounts receivable or payable to other Cash flows are included in the statement of cash flows on a entities in the tax-consolidated group in conjunction with gross basis. The GST components of cash flows arising from any tax funding arrangement amounts (refer below). investing and financing activities which are recoverable The Company recognises deferred tax assets arising from from, or payable to, the ATO are classified as operating unused tax losses of the tax-consolidated group to the cash flows. extent that it is probable that future taxable profits of the (g) Foreign currency tax-consolidated group will be available against which the Transactions in foreign currencies are translated at the asset can be utilised. foreign exchange rate ruling at the date of the transaction. Any subsequent period adjustments to deferred tax assets Monetary assets and liabilities denominated in foreign arising from unused tax losses assumed from subsidiaries currencies at the balance sheet date are translated to are recognised by the head entity only. Australian dollars at the foreign exchange rate ruling at that Tax funding and sharing agreements date. Foreign exchange differences arising on translation The members of the tax-consolidated group have entered are recognised in the income statement. Non-monetary into a funding arrangement that sets out the funding assets and liabilities that are measured in terms of historical obligations of members of the tax-consolidated group in cost in a foreign currency are translated using the exchange respect of tax amounts. The tax funding arrangements rate at the date of the transaction. require payments to/from the head entity equal to the Non-monetary assets and liabilities denominated in foreign current tax liability (asset) assumed by the head entity and currencies that are stated at fair value are translated to any tax-loss deferred tax asset assumed by the head entity, Australian dollars at foreign exchange rates ruling at the resulting in the head entity recognising an inter-entity dates the fair value was determined. receivable (payable) in the separate financial statements (h) Income tax of the members of the tax-consolidated group equal in Income tax on the income statement for the periods amount to the tax liability (asset) assumed. The inter-entity presented comprises current and deferred tax. Income tax receivables (payables) are at call. is recognised in the income statement except to the extent The head entity recognises the assumed current tax that it relates to items recognised directly in equity, in which amounts as current tax liabilities (assets), adding to its own case it is recognised in equity. current tax amounts, since they are also due to or from the Current tax is the expected tax payable on the taxable same taxation authority. The current tax liabilities (assets) income for the year, using tax rates enacted or substantially are equivalent to the tax balances generated by external enacted at the balance sheet date, and any adjustment to transactions entered into by the tax-consolidated group. tax payable in respect of previous years. Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing Deferred tax is provided using the balance sheet liability of the head entity’s obligation to make payments for tax method, providing for temporary differences between the liabilities to the relevant tax authorities. carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The The members of the tax-consolidated group have also amount of deferred tax provided is based on the expected entered into a tax sharing agreement. The tax sharing manner of realisation or settlement of the carrying amount of agreement provides for the determination of the allocation assets and liabilities, using tax rates enacted or substantively of income tax liabilities between the entities should the enacted at the balance sheet date. head entity default on its tax payment obligations. No amounts have been recognised in the financial statements A deferred tax asset is recognised only to the extent that in respect of this agreement as payment of any amounts it is probable that future taxable profits will be available under the tax sharing agreement is considered remote. against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that (i) Earnings per share the related tax benefit will be realised. Basic earnings per share Basic earnings per share is calculated by dividing the profit Tax consolidation attributable to equity holders of the Company, excluding The Company and its wholly-owned Australian resident any costs of servicing equity other than ordinary shares, entities have formed a tax-consolidated group with effect by the weighted average number of ordinary shares from 1 July 2003 and are therefore taxed as a single entity outstanding during the year. from that date. The head entity within the tax-consolidated group is Aquila Resources Limited. Diluted earnings per share Diluted earnings per share is calculated by dividing basic Current tax expense/income, deferred tax liabilities and earnings per share (adjusted by the after tax effect of deferred tax assets arising from temporary differences of financing costs associated with dilutive potential ordinary the members of the tax-consolidated group are recognised shares and the effect of revenues and expenses associated in the separate financial statements of the members of the with the conversion to ordinary shares of dilutive potential tax-consolidated group using the ‘stand alone taxpayer’ For personal use only use personal For ordinary shares) by the weighted average number of approach by reference to the carrying amounts in the ordinary shares and dilutive potential ordinary shares. separate financial statements of each entity and the tax values applying under tax consolidation. (j) Cash and cash equivalents Current tax liabilities and assets and deferred tax assets arising Cash and cash equivalents comprise of cash balances and call from unused tax losses and tax credits of the members of the deposits with an original maturity of three months or less. tax-consolidated group are recognised by the Company (as Bank overdrafts that are repayable on demand and form an head entity in the tax-consolidated group). integral part of the consolidated entity’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Annual Report 2008: Aquila Resources Limited 51 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
1. SUMMARY OF SIGNIFICANT Depreciation Depreciation is charged to the income statement on a ACCOUNTING POLICIES (cont.) straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is (k) Acquisition of assets not depreciated. Mining property and development assets The purchase method of accounting is used to account are depreciated over the life of economically recoverable for all acquisitions of assets regardless of whether equity reserves. The estimated useful lives in the current and instruments or other assets are acquired. Cost is measured comparative periods are as follows: as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange, • plant and equipment 2 years to life of mine together with costs directly attributable to the acquisition. • buildings and infrastructure 10 years to life of mine Where equity instruments are issued in an acquisition, the • mine property and development life of mine value of the instruments is their published market price as The residual values, the useful lives and the depreciation at the date of exchange, unless it can be demonstrated that methods used are reassessed annually. the published price at the date of exchange is an unreliable Development expenditure indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Once a development decision has been taken, all capitalised exploration and evaluation expenditure, together with Transaction costs arising on the issue of equity instruments development costs, are carried forward to the extent that it are recognised directly in equity. is reasonably assured that they will be recouped from revenue Where settlement of any part of the consideration is to be derived from the sale of production of minerals from the deferred, the amounts payable in the future are discounted relevant area of interest. No depreciation or amortisation is to their present value as at the date of exchange. The provided for in relation to development expenditure until the discount rate used is the consolidated entity’s incremental commencement of production. borrowing rate, being the rate at which a similar borrowing The carrying value of capitalised development costs could be obtained from an independent financier under associated with each area of interest is reviewed for comparable terms and conditions. impairment each reporting period. Sale of non-current assets Joint venture assets Sales of non-current assets are recognised at the date Expenditure on property, plant and equipment comprising control of the assets passes to the buyer, usually when an part of unincorporated joint ventures in which the unconditional contract of sale is signed. consolidated entity has an interest are accounted for in The gain or loss on disposal is calculated as the difference accordance with the policy detailed above. between the carrying amount of the asset at the time of (m) Mineral properties disposal and the net proceeds on disposal, and disclosed Exploration and evaluation expenditure as other income. Exploration and evaluation costs are only carried forward as (l) Property, plant and equipment an asset where rights to tenure are current and the costs: Owned assets (i) relate to acquisitions and activities have not yet reached Items of property, plant and equipment are stated at a stage which permits reasonable assessment of the cost or deemed cost less accumulated depreciation (see existence of economically recoverable reserves; or below) and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour, and an (ii) are expected to be recouped through successful appropriate proportion of production overheads. The cost development and exploitation of the area of interest of self-constructed assets and acquired assets includes (i) or by its sale. the initial estimate at the time of installation and during the Expenditure on exploration and evaluation activities in period of use, when relevant, of the costs of dismantling relation to areas of interest which have not yet reached and removing the items and restoring the site on which a stage which permits reasonable assessment of the they are located, and (ii) changes in the measurement of existence or otherwise of economically recoverable reserves existing liabilities recognised for these costs resulting from are expensed as incurred. changes in the timing or outflow of resources required to Identifiable exploration assets acquired are accounted settle the obligation or from changes in the discount rate. for in accordance with the consolidated entity’s policy on Where parts of an item of property, plant and equipment acquisition of assets. have different useful lives, they are accounted for as Where an area of interest has been relinquished, abandoned separate items of property, plant and equipment. or sold or the Directors decide that it is not commercial, any Leased assets carrying costs in respect of that project area are written off Leases where the consolidated entity assumes substantially in the year the decision is made. all of the risks and rewards of ownership are classified as The carrying value of exploration and evaluation assets is finance leases. Assets under finance lease are stated at assessed annually in accordance with AASB 6 Exploration an amount equal to the lower of their fair value and the for and Evaluation of Mineral Resources and the Company’s present value of the minimum lease payments at inception policy in relation to impairment. For personal use only use personal For of the lease, less accumulated depreciation (see below) and (n) Overburden in advance impairment losses. Expenditure incurred to remove overburden or waste material Subsequent costs from coal deposits is deferred to the extent it gives rise to The consolidated entity recognises in the carrying amount of future economic benefits and charged to operating costs an item of property, plant and equipment the cost of replacing on a units of production basis using the estimated average part of such an item when that cost is incurred if it is probable stripping ratio for the area being mined. Changes in estimates that the future economic benefits embodied within the item of average stripping ratios are accounted for prospectively. will flow to the consolidated entity and the cost of the item For the purpose of assessing impairment, overburden in can be measured reliably. All other costs are recognised in the advance is grouped with other assets of the relevant cash income statement as an expense as incurred. generating unit. (o) Intangible assets Measurement Intangible assets that are acquired by the consolidated Financial assets are initially recognised at fair value plus, in the entity are stated at cost less accumulated amortisation and case of items not carried at fair value through profit and loss, impairment losses. transaction costs directly attributable to the acquisition. Expenditure on internally generated goodwill and brands Subsequent to initial recognition, financial assets at fair is recognised in the income statement as an expense value through profit and loss and available-for-sale financial as incurred. assets are carried at fair value. Loans and receivables and Subsequent expenditure held-to-maturity investments are recorded at amortised cost (using the effective interest method). Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic Realised and unrealised gains and losses arising from benefits embodied in the specific asset to which it relates. changes in the fair value of financial assets at fair value All other expenditure is expensed as incurred. through profit and loss are included in the income statement in the period in which they arise. Amortisation Amortisation is charged to the income statement on Unrealised gains and losses arising from changes in the fair a straight-line basis over the estimated useful lives of value of available-for-sale financial assets are recognised in intangible assets unless such lives are indefinite. Goodwill equity in the available-for-sale fair value reserve, until the and intangible assets with an indefinite useful life are financial asset is sold or impaired, at which point the cumulative systematically tested for impairment at each reporting gain or loss is transferred to the income statement. date. Other intangible assets are amortised from the date Where financial assets are interest-bearing, interest they are available for use. The estimated useful lives in the calculated using the effective interest method is recognised current and comparative periods are as follows: in the income statement. • software and software licences 2-3 years Impairment losses arising in relation to financial assets are (p) Inventories recognised in the income statement. Inventories are stated at the lower of cost and net realisable The fair value of quoted financial assets is based on their value. Net realisable value is the estimated selling price in bid price at the balance sheet date, however in the case the ordinary course of business, less the estimated costs of of financial assets without active markets, fair value is completion and selling expenses. established using relevant valuation techniques. The cost of mining inventories is determined using a (r) Derivative financial instruments weighted average basis. Cost includes direct material, The consolidated entity uses derivative financial instruments overburden removal, mining, processing, labour, related to hedge its exposure to foreign exchange risks arising transportation costs to the point of sale, mine rehabilitation from operating activities. The consolidated entity does not costs incurred in the extraction process and other fixed and hold derivative financial instruments for trading purposes. variable overhead costs directly related to mining activities. However, derivatives that do not qualify for hedge (q) Other financial assets accounting are accounted for as trading instruments. Classification Derivative financial instruments are initially recognised at fair Other financial assets are classified into the following value. Subsequent to initial recognition, derivative financial categories: instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in (a) financial assets at fair value through profit and loss profit or loss. However, where derivates qualify for hedge This category includes financial assets held for trading accounting, the effective component of any resultant gain or and those designated at fair value through profit and loss loss is recognised directly in equity and then is subsequently on initial recognition. A financial asset is classified in this recognised in profit or loss in the period during which the category if acquired principally for the purpose of selling hedge transaction affects profit or loss. in the short term or, if so designated, where there exists (s) Hedging the possibility it will be sold in the short term and the financial asset is subject to frequent changes in fair value. On entering into a hedging relationship, the consolidated Derivatives are categorised as held for trading unless they entity formally designates and documents the hedge are designated as hedges. relationship and the risk management objective and strategy for undertaking the hedge. The documentation includes (b) loans and receivables identification of the hedging instrument, the hedged item Loans and receivables are non-derivative financial assets or transaction, the nature of the risk being hedged and how with fixed or determinable payments that are not quoted the entity will assess the hedging instrument’s effectiveness in an active market. in offsetting the exposure to changes in the hedged item’s (c) Held-to-maturity investments fair value or cash flows attributable to the hedged risk. Such Held-to-maturity investments are non-derivative financial assets hedges are expected to be highly effective in achieving with fixed or determinable payments and fixed maturities that offsetting changes in cash flows and are assessed on an are intended and able to be held-to-maturity. ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods (d) available-for-sale financial assets for which they are designated. Available-for-sale financial assets are non-derivative Where a derivative financial instrument is designated as a For personal use only use personal For financial assets, such as marketable equity securities, that are either designated in this category or are not classified in hedge of the variability in cash flows of a highly probable any of the other categories. forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly Recognition in equity in the hedging reserve. Financial assets classified as held for trading or available-for- The associated cumulative gain or loss is subsequently sale are recognised/derecognised by the consolidated entity removed from equity and recognised in the income statement on the date it commits to purchase/sell the investments. Held- in the same period or periods during which the forecast hedge to-maturity investments are recognised/derecognised on the transaction affects profit or loss. The ineffective part of any day they are transferred to/by the consolidated entity. gain or loss on the derivative financial instrument is recognised in the income statement.
Annual Report 2008: Aquila Resources Limited 53 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
the impairment loss was recognised in profit or loss, the 1. SUMMARY OF SIGNIFICANT impairment loss shall be reversed, with the amount of the ACCOUNTING POLICIES (cont.) reversal recognised in the income statement. (s) Hedging (cont.) In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine When a hedging instrument expires or is sold, terminated or the recoverable amount. exercised, or the consolidated entity revokes designation of the hedge relationship, but the forecast hedged transaction An impairment loss is reversed only to the extent that the is still expected to occur, the cumulative gain or loss at that asset’s carrying amount does not exceed the carrying amount point remains in equity and is recognised in accordance that would have been determined, net of depreciation or with the above policy when the transaction occurs. If the amortisation, if no impairment loss had been recognised. hedged transaction is no longer expected to take place, the (u) Payables cumulative unrealised gain or loss recognised in equity is Trade and other payables are initially stated at fair value recognised immediately in the income statement. and subsequently stated at amortised cost. (t) Impairment (v) Provisions The carrying amounts of the consolidated entity’s assets, A provision is recognised in the balance sheet when the other than deferred tax assets, are reviewed at each consolidated entity has a present legal or constructive reporting date to determine whether there is any indication obligation as a result of a past event, and it is probable of impairment. If any such indication exists, the asset’s that an outflow of economic benefits will be required to recoverable amount is estimated. settle the obligation. If the effect is material, provisions are An impairment loss is recognised whenever the carrying determined by discounting the expected future cash flows amount of an asset or its cash generating unit exceeds its at a pre-tax rate that reflects current market assessments of recoverable amount. Impairment losses are recognised in the time value of money and, when appropriate, the risks the income statement. specific to the liability. Impairment losses recognised in respect of cash-generating Mine rehabilitation and restoration units are allocated first to reduce the carrying amount of Provisions are made for the estimated cost of rehabilitation goodwill (if any) allocated to the cash-generating unit (group relating to areas disturbed during exploration and development of units) and then, to reduce the carrying amount of the activity up to reporting date but not yet rehabilitated. Provision other assets in the unit (group of units) on a pro rata basis. has been made in full for all disturbed areas at the reporting When a decline in the fair value of an available-for-sale date based on current estimates of costs to rehabilitate such financial asset has been recognised directly in equity and areas, discounted to their present value based on expected there is objective evidence that the asset is impaired, the future cashflows. The estimated cost of rehabilitation includes cumulative loss that had been recognised directly in equity the current cost of recontouring, topsoiling and revegetation is recognised in profit or loss even though the financial asset employing legislative requirements. Changes in estimates are has not been derecognised. The amount of the cumulative dealt with on a prospective basis as they arise. loss that is recognised in profit or loss is the difference Significant uncertainty exists as to the amount of between the acquisition cost and current fair value, less rehabilitation obligations which will be incurred due to any impairment loss on that financial asset previously the impact of changes in environmental legislation. The recognised in profit or loss. amount of the provision relating to rehabilitation of mine Calculation of recoverable amount infrastructure and dismantling obligations is recognised The recoverable amount of the consolidated entity’s at the commencement of the mining project and/or investments in held-to-maturity securities and receivables construction of the assets where a legal or constructive carried at amortised cost is calculated as the present obligation exists at that time. The provision is recognised as value of estimated future cash flows, discounted at the a non-current liability with a corresponding asset included original effective interest rate (i.e. the effective interest rate in mine development assets. computed at initial recognition of these financial assets). At each reporting date the rehabilitation liability is re- Receivables with a short duration are not discounted. measured in line with changes in discount rates, and the Impairment of receivables is not recognised until objective timing or amount of the costs to be incurred. Changes in evidence is available that a loss event has occurred. Significant the liability relating to rehabilitation of mine infrastructure receivables are individually assessed for impairment. and dismantling obligations are added to or deducted from the related asset, other than the unwinding of the The recoverable amount of other assets is the greater of discount, which is recognised as a finance cost in the their fair value less costs to sell and value in use. In assessing income statement as it occurs. value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that If the change in the liability results in a decrease in the reflects current market assessments of the time value of liability that exceeds the carrying amount of the asset, the money and the risks specific to the asset. For an asset that asset is written-down to nil and the excess is recognised does not generate largely independent cash inflows, the immediately in the income statement. If the change in the recoverable amount is determined for the cash-generating liability results in an addition to the cost of the asset, the unit to which the asset belongs. recoverability of the new carrying amount is considered. Where there is an indication that the new carrying amount Reversal of impairment For personal use only use personal For is not fully recoverable, an impairment test is performed An impairment loss in respect of a held-to-maturity security with the write-down recognised in the income statement or receivable carried at amortised cost is reversed if the in the period in which it occurs. subsequent increase in recoverable amount can be related The amount of the provision relating to rehabilitation of objectively to an event occurring after the impairment loss environmental disturbance caused by ongoing production was recognised. and extraction activities is recognised in the income An impairment loss in respect of an investment in an equity statement as incurred. Changes in the liability are charged instrument classified as available-for-sale is not reversed to the income statement as rehabilitation expense, other through profit or loss. If the fair value of a debt instrument that the unwinding of the discount, which is recognised as classified as available-for-sale increases and the increase a finance cost. can be objectively related to an event occurring after (w) Employee benefits • AASB 8 Operating Segments replaces the presentation Wages and salaries and annual leave requirements of segment reporting in AASB 114 Liabilities for employee benefits for wages, salaries and Segment Reporting. AASB 8 is applicable for annual annual leave represent present obligations resulting from reporting periods beginning on or after 1 January employees’ services provided to reporting date, calculated 2009 and is not expected to have an impact on the at undiscounted amounts based on remuneration wage financial results of the Company or consolidated entity and salary rates that the consolidated entity expects to as the standard is only concerned with disclosures. pay as at reporting date including related on-costs, such as • AASB 2007-3 Amendments to Australian Accounting workers compensation insurance and payroll tax. Standards arising from AASB 8 makes amendments Long service leave to AASB 5 Non-current Assets Held for Sale and Discontinued Operations, AASB 6 Exploration for The consolidated entity’s net obligation in respect of long- and Evaluation of Mineral Resources, AASB 102 term service benefits, other than pension plans, is the Inventories, AASB 107 Cash Flow Statements, AASB amount of future benefit that employees have earned 119 Employee Benefits, AASB 127 Consolidated and in return for their service in the current and prior periods. Separate Financial Statements, AASB 134 Interim The obligation is calculated using expected future increases Financial Reporting, AASB 136 Impairment of Assets, in wage and salary rates including related on-costs and AASB 1023 General Insurance Contracts and AASB expected settlement dates, and is discounted using the rates 1038 Life Insurance Contracts. AASB 2007-3 is attached to the Commonwealth Government bonds at the applicable for annual reporting periods beginning balance sheet date which have maturity dates approximating on or after 1 January 2009 and must be adopted to the terms of the consolidated entity’s obligations. in conjunction with AASB 8 Operating Segments. Retirement benefits This standard is only expected to impact disclosures Obligations for contributions to defined contribution contained within the financial report. superannuation plans are recognised as an expense in the • AASB 123 Borrowing Costs removes the option income statement as incurred. of immediately recognising all borrowing costs as (x) Interest-bearing borrowings an expense, which was previously the benchmark Interest-bearing borrowings are recognised initially at treatment. The revised standard prospectively requires fair value less attributable transaction costs. Subsequent that borrowing costs directly attributable to the to initial recognition, interest-bearing borrowings are acquisition, construction or production of a qualifying stated at amortised cost with any difference between cost asset are capitalised as part of the cost of that asset. and redemption value being recognised in the income AASB 123 is applicable for reporting periods beginning statement over the period of the borrowings on an effective on or after 1 January 2009. The adoption of AASB interest basis. 123 is not expected to have an impact on the financial (y) Share based payments results of the Company or consolidated entity. The fair value of options granted is recognised as an • AASB 2007-6 Amendments to Australian expense with a corresponding increase in equity. Accounting Standards arising from AASB 123 makes consequential amendments to AASB 1 The fair value is measured at grant date and spread over First-time Adoption of Australian Equivalents to the period during which the option holders become International Financial Reporting Standards, AASB unconditionally entitled to the options. The fair value of 101 Presentation of Financial Statements, AASB the options granted is measured using an option pricing 107 Cash Flow Statements, AASB 111 Construction model, taking into account the exercise price, the term Contracts, AASB 116 Property, Plant and Equipment, of the option, the vesting and performance criteria, the AASB 138 Intangible Assets, Interpretation 1 Changes impact of dilution, the share price at the date of grant, the in Existing Decommissioning, Restoration and Similar expected volatility of the underlying share, the expected Liabilities and Interpretation 12 Service Concession dividend yield and the risk-free interest rate for the term Arrangements. AASB 2007-6 is applicable for of the option. reporting periods beginning on or after 1 January The fair value of the options granted includes market 2009. The adoption of AASB 2007-6 is not expected performance conditions such as the target price of the to have an impact on the financial results of the underlying share. Non-market vesting conditions such Company or consolidated entity. as project generation criteria, are taken into account in • Revised AASB 101 Presentation of Financial Statements assumptions regarding the number of options that are introduced the concept of “Total Comprehensive expected to become exercisable. At each reporting date, Income” and results in reclassification of certain the consolidated entity revises its estimate of the number financial statement items. Revised AASB 101 is of options that are expected to become exercisable. applicable for annual reporting periods beginning on The amount recognised as an expense is adjusted to reflect or after 1 January 2009 and is expected to only impact the actual number of share options that vest except where disclosure and presentation within the consolidated forfeiture is only due to share prices not achieving the financial report. threshold for vesting. • Revised IFRS 2 Share-based Payment clarifies the (z) Comparatives definition of vesting conditions and introduces For personal use only use personal For Certain comparative disclosures have been reclassified to the concept of “non-vesting conditions”, which conform with the classification of the current year’s balances. are conditions other than service or performance (aa) New standards and interpretations not conditions in relation to share-based payments. The yet adopted AASB is yet to introduce an Australian equivalent The following standards, amendments to standards and amending standard. Revised IFRS 2 is applicable interpretations have been identified as those which may for annual reporting periods beginning on or after impact the consolidated entity in the period of initial 1 January 2008 and is not expected to have an application. They are available for early adoption at 30 impact on the financial results of the Company or June 2008, but have not been applied in preparing this consolidated entity. financial report.
Annual Report 2008: Aquila Resources Limited 55 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
2. FINANCIAL RISK MANAGEMENT Credit risk Credit risk represents the loss that would be recognised if The consolidated entity’s activities expose it to a variety of financial counterparties fail to perform as contracted. risks such as market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The maximum exposure to credit risk in relation to each class of recognised financial asset is the carrying value of those assets. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Transactions involving derivative financial instruments are with Operational, financial reporting and compliance risks are counterparties with whom the consolidated entity has signed netting continually assessed, monitored and managed at management agreements and that maintain strong credit ratings. As a result, level and any specific areas of risk which are classified as material management does not expect any counterparty to fail to meets its are considered and dealt with at Board level. obligations in relation to derivative financial instrument transactions. Market risk Credit risk, with respect to cash, is managed by depositing funds only with recognised financial institutions that maintain strong credit (i) Currency risk ratings and by limiting amounts held with any one institution. The consolidated entity manages currency risk arising from various currency exposures. Currency risk arises Credit risk relating to trade debtors is minimised through only when transactions and recognised assets and liabilities selling coal to customers that are well known in the industry with are denominated in a currency that is not the entity’s an appropriate credit history. functional currency. Liquidity risk The consolidated entity’s functional currency is Australian Prudent liquidity risk management implies maintaining sufficient dollars and its significant liabilities and its hedging cash and marketable securities, the availability of funding through commitments have been incurred in Australian dollars to an adequate amount of committed credit facilities and the ability to reduce foreign currency exposure. close-out market positions. The consolidated entity manages liquidity The consolidated entity is exposed to foreign currency risk risk by continuously monitoring forecast and actual cash flows and on forecast sales of coal from the Isaac Plains Coal Mine matching the maturity profiles of financial assets and liabilities. that are denominated in United States dollars. Surplus funds when available are only invested in instruments The consolidated entity may hedge up to 90 per cent of its that are tradeable in highly liquid markets. estimated foreign currency exposure in respect of forecast Capital management sales in accordance with its Foreign Exchange and Interest Rate Risk Management Policy. The consolidated entity The Board’s policy is to maintain a strong capital base and net uses derivative financial instruments to hedge its foreign asset position, so as to maintain investor, creditor and market currency risk. confidence and to sustain future development of the business. The consolidated entity classifies its forward exchange The ultimate objective of managing the Company’s equity is to contracts hedging forecast transactions as cash flow hedges enable an adequate Total Shareholder Return (TSR). TSR includes and states them at fair value. the total increase (decrease) in the consolidated entity’s share The consolidated entity also holds monetary assets and liquid price, after adjusting for the effects of bonus issues. investments which are denominated in other currencies, During the year, the Company announced an on-market share primarily South African Rand, United States dollars and buyback of up to 5 million of its ordinary shares during the period Canadian dollars. The consolidated entity ensures that its from 16th October 2007 to 15th March 2008 inclusive, at prevailing exposure to foreign currency risk on these assets are kept market prices. As a result of the Company’s share price subsequently to an acceptable level by minimising its holdings in the exceeding the price cap set by the Board for this purpose, no foreign currency where practicable. shares were bought back under this arrangement. Other than this (ii) Price risk arrangement, there were no changes in the consolidated entity’s The consolidated entity and the Company are exposed to approach to capital management during the year. equity securities price risk. This arises from investments The Company is not subject to externally imposed capital classified on the balance sheet as available-for-sale. All of the requirements. IP Coal Pty Ltd (IP Coal), a subsidiary of the Company, consolidated entity’s and the Company’s equity investments has certain capital restrictions under a Syndicated Multi-Option are publicly traded on the Australian Securities Exchange Facility Agreement entered into in March 2006 (refer to Note 22 for (ASX) or Toronto Stock Exchange (TSX). further information about this facility). These restrictions require (iii) Interest rate risk prior consent by the bank syndicate for any reductions of share Interest rate risk arises from the consolidated entity’s capital such as share buybacks or redemption of redeemable shares borrowings. When managing interest rate risk the by IP Coal. All other subsidiaries in the consolidated entity are not consolidated entity seeks to minimise its overall cost of subject to externally imposed capital requirements. funds with a preference for variable interest rate exposures. The consolidated entity’s borrowings at variable rates were denominated in Australian dollars. Borrowings at variable rates expose the consolidated entity to cash flow interest rate risk while borrowings at fixed For personal use only use personal For rates expose the consolidated entity to fair value interest rate risk. The Company has no borrowings. 3. OTHER INCOME
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Gain on sale of project interests (i) (ii) (iii) 111,244 - 58,371 - Net gain on disposal of equity investments (iv) 62,693 469 62,383 469 Gain on farm-out of mineral properties (v) - 1,305 - - Administration overheads charged 162 699 162 699 Other income 33 113 33 113 Total other income 174,132 2,586 120,949 1,281
(i) Following completion of an Exploration Study on the Belvedere Coal Project by Rio Doce Australia Pty Ltd (RDA), a wholly owned subsidiary of Vale, RDA exercised its purchase option to acquire a 51% interest in the Belvedere Coal Joint Venture by payment of US$45 million each to subsidiaries of the Company and AMCI, who had previously held equal shares in the project. RDA have further options to acquire the remaining 49% at fair market value. (ii) During the year, the consolidated entity completed the sale of its Moçambique coal exploration tenements to Riversdale Mining Limited (Riversdale). Proceeds from this sale comprised A$26 million in cash and 10 million Riversdale ordinary shares, which based on the closing price upon the day of the transaction resulted in a gain of A$58,371,000. (iii) During the year, the consolidated entity sold its interests in two coal tenements in the Surat Basin, Queensland to Cockatoo Coal Ltd resulting in a gain of $1,500,000. (iv) During the year the consolidated entity sold its 10 million shares in Riversdale Mining Limited at an average price of $9.62 per share. A gain of $62,606,000 has been recognised from these transactions. (v) In the 2007 financial year, following satisfaction of third party farm-in expenditure obligations in the comparative period relating to the Australian Premium Iron Joint Venture, the consolidated entity commenced cash contributions towards the joint venture and recognised a net gain of $1,305,000 on the joint venture farm-out transaction, being the disposal of a 50% interest in the mineral properties held by the joint venture. These gains represent the net assets acquired within the joint venture during the period for which the consolidated entity was not required to contribute funding amounts.
4. OTHER EXPENSES
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Profit (loss) from ordinary activities before income tax expense has been arrived at after charging (crediting) the following items: Net expense from movements in provision for: - employee benefits 107 109 85 49 - doubtful debts - - 3,913 1,873 Operating lease rental 400 350 250 233
For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 57 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
5. PERSONNEL EXPENSES
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Wages and salaries 4,862 2,623 2,440 1,118 Other associated personnel expenses 671 151 378 121 Management fees 410 355 410 355 Contributions to defined contribution superannuation funds 864 589 560 474 Annual leave expense 145 106 99 46 Long-service leave expense (14) 3 (14) 3 Equity-settled share-based payment transactions 6,065 544 6,065 544 Total personnel expenses 13,003 4,371 9,938 2,661
6. FINANCE INCOME AND EXPENSE
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Interest income on bank deposits 6,645 3,331 6,557 3,249 Financial income 6,645 3,331 6,557 3,249
Interest expense on financial liabilities measured at amortised cost (1,758) (1,841) - - Net foreign exchange loss (550) (414) (1,290) (374) Financial expense (2,308) (2,255) (1,290) (374) Net finance income 4,337 1,076 5,267 2,875
7. AUDITORS’ REMUNERATION
Consolidated The Company 2008 2007 2008 2007 $ $ $ $ Amounts received or due and receivable by auditors of the Company (KPMG Australia) for: Audit and review of financial reports 148,117 116,108 97,617 91,608 Other services 60,898 30,500 57,898 25,000
Total auditor’s remuneration 209,015 146,608 155,515 116,608 For personal use only use personal For 8. INCOME TAX Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 (a) Income tax benefit (expense) Current tax (42,886) 256 (32,265) (1,101) Deferred tax (2,127) 4,343 (2,512) 1,333 (45,013) 4,599 (34,777) 232
Deferred income tax (benefit) expense included in income tax expense comprises: Origination and reversal of temporary differences (2,127) 3,927 (2,512) 917 (Under) over provision in prior periods - 416 - 416 (2,127) 4,343 (2,512) 1,333 (b) Reconciliation of income tax benefit (expense) to prima facie tax payable Profit (loss) before income tax expense 142,282 (17,126) 107,558 (1,787) Tax (expense) benefit at the Australian tax rate of 30% (2007: 30%) (42,685) 5,138 (32,267) 536 Tax effect of amounts which are not (deductible) assessable in calculating taxable income: Non-deductible foreign expenditure - (575) - - Share based payment expense (1,820) (163) (1,820) (163) Other (non-deductible) assessable items 796 (28) (690) (557) (43,709) 4,372 (34,777) (184) Tax losses not recognised Southern African subsidiaries (1,304) (189) - - (Under) over provision in prior periods - 416 - 416 Total income tax benefit (expense) (45,013) 4,599 (34,777) 232
(c) Amounts recognised directly in equity Aggregate current and deferred tax arising in the reporting period and not recognised in the profit or loss but directly debited or credited to equity
Net deferred tax debited (credited) directly to equity 8,641 5,619 (2,072) 2,211 For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 59 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
9. EARNINGS PER SHARE Basic earnings per share The calculation of basic earnings per share at 30 June 2008 was based on the profit attributable to ordinary shareholders of $97,269,000 (2007: loss of $12,527,000) and a weighted average number of ordinary shares outstanding during the year ended 30 June 2008 of 194,214,730 (2007: 131,049,905), calculated as follows: Profit (loss) attributable to ordinary shareholders Consolidated 2008 2007 $’000 $’000 Profit (loss) attributable to ordinary shareholders 97,269 (12,527)
Weighted average number of ordinary shares Consolidated 2008 2007 Issued ordinary shares at 1 July 168,933,477 84,298,072 Effect of shares issued by means of exercise of options 1,616,308 56,588 Effect of shares issued by means of bonus issue 23,664,945 46,695,245 Weighted average number of ordinary shares at 30 June 194,214,730 131,049,905
Diluted earnings per share The calculation of diluted earnings per share at 30 June 2008 was based on profit attributable to ordinary shareholders of $97,269,000 (2007: loss of $12,527,000) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares calculated as follows:
Profit (loss) attributable to ordinary shareholders (diluted) Consolidated 2008 2007 $’000 $’000 Profit (loss) attributable to ordinary shareholders 97,269 (12,527)
Weighted average number of ordinary shares (diluted) Consolidated 2008 2007 Weighted average number of ordinary shares on issue 194,214,730 131,049,905 Effect of share options on issue 15,404,766 - Weighted average number of ordinary shares (diluted) 209,619,496 131,049,905
10. CASH ASSETS Consolidated The Company 2008 2007 2008 2007
For personal use only use personal For $’000 $’000 $’000 $’000 Cash at bank and on hand 159,416 34,160 153,808 31,960 Total cash assets 159,416 34,160 153,808 31,960 11. TRADE AND OTHER RECEIVABLES Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Current: Trade receivables 1,404 6,002 2 263 Interest receivable 1,353 61 1,353 61 Unrealised gains on foreign exchange contracts (i) 7,150 925 - - Other debtors 1,941 1,582 205 97 Total current receivables 11,848 8,570 1,560 421
Non-current: Security deposits 2,183 1,764 1,438 1,574 Loans to controlled entities - - 34,419 33,151 less – provision for impairment losses - - (7,897) (6,272) Total non-current receivables 2,183 1,764 27,960 28,453
(i) The consolidated entity enters into foreign exchange forward contracts in order to manage future exchange exposures on forecast sales in US dollars. The consolidated entity classifies foreign exchange forward contracts as cash flow hedges and measures them at fair value. The fair value recognised of foreign exchange forward contracts on the balance sheet as an asset at 30 June 2008 was $7,150,000 (2007: $925,000) of which $5,005,000 (2007: $647,000) is the after tax amount recorded as a cash flow hedge in the hedging reserve.
12. INVENTORIES Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Coal stocks – at cost 4,511 3,731 - - Total inventories 4,511 3,731 - -
In the 2007 year, the write-down of inventories to net realisable value amounted to $1,545,000. This write-down is included in cost of sales.
There were no write-downs to net realisable value in the 2008 year. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 61 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
13. INVESTMENTS Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Current: Investment in listed entities – at fair value (i) 69,861 29,519 7,872 10,153 Total current investments 69,861 29,519 7,872 10,153
Non-current: Investment in controlled entities At cost - - 39 39 less – provision for impairment loss - - (39) (39) - - - - Investment in associated entities At equity accounted value - - - - Total non-current investments - - - -
(i) Fair value is based on the quoted market price at balance sheet date. These investments are classified as available-for-sale.
14. OTHER ASSETS Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Current: Prepayments 324 193 132 83 324 193 132 83 Non-current: Overburden in advance 2,715 1,383 - - 2,715 1,383 - -
15. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Investments in jointly controlled entities The consolidated entity has the following investments in jointly controlled entities: Ownership Principal activities 2008 2007 Isaac Plains Coal Management Pty Ltd Manages the operations of the Isaac Plains Coal Joint Venture 50% 50% Bowen Central Coal Management Pty Ltd Manages the operations of the Bowen Central Coal Joint Venture 50% 50% Belvedere Coal Management Pty Ltd Manages the operations of the Belvedere Coal Joint Venture - (i) 50%
API Management Pty Ltd Manages the operations of the Australian Premium Iron Joint Venture 50% 50% For personal use only use personal For Australian Premium Iron Pty Ltd Preserves the name Australian Premium Iron 50% 50%
The entities above have incurred neither a profit nor a loss in the period since acquisition and as a result there are no equity accounting adjustments. (i) When RDA exercised its purchase option to acquire a 51% interest in the Belvedere Coal Joint Venture (as per Note 3(i)), RDA also obtained a 100% interest in Belvedere Coal Management Pty Ltd as part of the option agreement. 16. INTERESTS IN JOINT VENTURE OPERATIONS The consolidated entity has entered into joint ventures for the exploration and development of coal resources in Queensland (namely the Isaac Plains Coal Joint Venture, Bowen Central Coal Joint Venture and Belvedere Coal Joint Venture), the exploration and development of iron ore resources in Western Australia (Australian Premium Iron Joint Venture), and the exploration and development of iron ore resources in South Africa (Thabazimbi Joint Venture). In accordance with the Company’s accounting policies, the consolidated entity’s interest in joint venture operations are proportionally accounted for and reported in the financial statements. For the financial year ended 30 June 2008, the contribution of these joint ventures to the operating result of the consolidated entity was a profit of $36,476,000 (2007: loss of $7,342,000) and to the Company of $NIL (2007: $NIL). Included in the assets and liabilities of the consolidated entity’s interest are the following assets and liabilities employed in joint ventures:
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Current assets Cash assets 1,451 1,986 - - Trade and other receivables 1,889 6,516 - - Inventories 4,511 3,731 - - Other assets 192 109 - - Total current assets 8,043 12,342 - -
Non-current assets Receivables 669 - - - Property, plant and equipment 38,558 30,777 - - Intangible assets 73 - - - Other assets 2,715 1,383 - - Total non-current assets 42,015 32,160 - - Total assets 50,058 44,502 - -
Current liabilities Trade and other payables 12,118 7,499 - - Interest-bearing liabilities 41 35 - - Employee benefits 144 126 - - Total current liabilities 12,303 7,660 - -
Non-current liabilities Interest-bearing liabilities 60 102 - - Provisions 919 573 - - Total non-current liabilities 979 675 - -
Total liabilities 13,282 8,335 - - For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 63 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
17. TAX ASSETS AND LIABILITIES Current tax liability The current tax liability for the consolidated entity of $43,483,000 (2007: $Nil) and for the Company of $43,483,000 (2007: $Nil) represent the amount of income tax payable in respect of current and prior financial periods. This liability includes the income tax payable by all members of the tax consolidated group. Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 Consolidated Cash assets - - 73 73 73 73 Trade and other receivables - - 2,740 486 2,740 486 Investments - - 12,355 5,582 12,355 5,582 Other assets - - 823 462 823 462 Property, plant and equipment - - 1,161 971 1,161 971 Exploration and evaluation expenditure - - 497 687 497 687 Trade and other payables (2,414) (1,558) - - (2,414) (1,558) Interest-bearing liabilities (49) (49) - - (49) (49) Employee benefits (91) (57) - - (91) (57) Issued capital (256) (385) - - (256) (385) Tax value of loss carry-forwards recognised - (2,141) - - - (2,141) Tax (assets) liabilities (2,810) (4,190) 17,649 8,261 14,839 4,071 Set off of tax 2,810 4,190 (2,810) (4,190) - - Net tax (assets) liabilities - - 14,839 4,071 14,839 4,071
The Company Trade and other receivables - - 406 18 406 18 Investments - - 269 2,341 269 2,341 Trade and other payables (230) (111) - - (230) (111) Employee benefits (53) (26) - - (53) (26) Issued capital (256) (385) - - (256) (385) Tax value of loss carry-forwards recognised - (2,141) - - - (2,141) Tax (assets) liabilities (539) (2,663) 675 2,359 136 (304) Set off of tax 539 2,359 (539) (2,359) - -
Net tax (assets) liabilities - (304) 136 - 136 (304) For personal use only use personal For Movement in temporary differences during the year
Consolidated The Company
Balance Recognised Recognised Balance Balance Recognised Recognised Balance 1 July 06 in income in equity 30 June 07 1 July 06 in income in equity 30 June 07 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Cash assets 46 27 - 73 - - - - Trade and other receivables 4,014 (3,695) 167 486 26 (8) - 18 Investments 130 - 5,452 5,582 130 - 2,211 2,341 Other assets 3 459 - 462 - - - - Property, plant and equipment 1,058 (87) - 971 - - - - Exploration and evaluation expenditure (103) 790 - 687 - - - - Trade and other payables (1,014) (544) - (1,558) (9) (102) - (111) Interest bearing liabilities - (49) - (49) - - - - Employee benefits (23) (34) - (57) (13) (13) - (26) Issued capital (641) 256 - (385) (641) 256 - (385) Tax value of loss carry-forwards (recognised) derecognised (675) (1,466) - (2,141) (675) (1,466) - (2,141) 2,795 (4,343) 5,619 4,071 (1,182) (1,333) 2,211 (304)
Consolidated The Company Balance Recognised Recognised Balance Balance Recognised Recognised Balance 1 July 07 in income in equity 30 June 08 1 July 07 in income in equity 30 June 08 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Cash assets 73 - - 73 --- - Trade and other receivables 486 386 1,868 2,740 18 388 - 406 Investments 5,582 - 6,773 12,355 2,341 - (2,072) 269 Other assets 462 361 - 823 --- - Property, plant and equipment 971 190 - 1,161 --- - Exploration and evaluation expenditure 687 (190) - 497 --- - Trade and other payables (1,558) (856) - (2,414) (111) (119) - (230) Interest bearing liabilities (49) - - (49) --- - Employee benefits (57) (34) - (91) (26) (27) - (53) Issued capital (385) 129 - (256) (385) 129 - (256) Tax value of loss carry-forwards (recognised) derecognised (2,141) 2,141 - - (2,141) 2,141 - -
4,071 2,127 8,641 14,839 (304) 2,512 (2,072) 136 For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 65 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
18. PROPERTY, PLANT AND EQUIPMENT Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Buildings and infrastructure – at cost 15,418 13,783 - - Accumulated depreciation (2,475) (492) - - 12,943 13,291 - -
Mine properties – at cost 6,328 5,945 - - Accumulated amortisation (884) (147) - - 5,444 5,798 - -
Plant and equipment – at cost 11,329 10,526 562 400 Accumulated depreciation (1,864) (608) (211) (131) 9,465 9,918 351 269
Capital works in progress 11,062 2,169 - - Total property, plant and equipment 38,914 31,176 351 269
Reconciliation A reconciliation of the carrying amounts for each class of property, plant and equipment is set out below.
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Buildings and infrastructure Carrying amount at the beginning of the year 13,291 7 - - Additions 16 - - - Transfers from capital works in progress 1,619 13,776 - - Depreciation (1,983) (492) - - Carrying amount at the end of the year 12,943 13,291 - - Mine properties Carrying amount at the beginning of the year 5,798 2,270 - - Additions 172 131 - - Transfers from capital works in progress 211 3,544 - - Amortisation (737) (147) - - Carrying amount at the end of the year 5,444 5,798 - - Plant and equipment Carrying amount at the beginning of the year 9,918 96 269 89
For personal use only use personal For Additions 768 856 162 219 Transfers from capital works in progress 35 9,476 - - Depreciation (1,256) (510) (80) (39) Carrying amount at the end of the year 9,465 9,918 351 269 Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Capital works in progress Carrying amount at the beginning of the year 2,169 24,131 - - Additions 10,780 11,134 - - Transfers to buildings and infrastructure (1,619) (13,776) - - Transfers to mine properties (211) (3,544) - - Transfers to plant and equipment (35) (9,476) - - Disposals (22) (6,300) - - Carrying amount at the end of the year 11,062 2,169 - -
As per Note 22, the consolidated entity’s interest in the assets held by the Isaac Plains Coal Joint Venture, which are carried at $37,651,000 (2007: $30,384,000), has been pledged as security for the bank facility made available to the consolidated entity.
19. EXPLORATION AND EVALUATION EXPENDITURE Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Total capitalised exploration and evaluation expenditure at beginning of year 2,782 150 - - add – exploration costs incurred 23,195 14,053 - - less – exploration and evaluation costs expensed (23,057) (11,421) - - Total exploration and evaluation expenditure 2,920 2,782 - -
20. INTANGIBLE ASSETS Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000
IT licenses and software 193 69 63 41 Accumulated amortisation (75) (20) (21) (9) Total intangible assets 118 49 42 32
Reconciliation A reconciliation of the carrying amounts for each class of intangible asset is set out below.
Consolidated The Company 2008 2007 2008 2007
$’000 $’000 $’000 $’000 For personal use only use personal For IT licenses and software Carrying amount at the beginning of the year 49 14 32 12 Additions 124 46 22 26 Amortisation (55) (11) (12) (6) Carrying amount at the end of the year 118 49 42 32
Annual Report 2008: Aquila Resources Limited 67 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
21. TRADE AND OTHER PAYABLES Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Trade creditors 2,789 2,285 360 998 Accrued interest payable - 182 - - Other creditors and accruals 12,420 7,848 1,733 99 Total trade and other payables 15,209 10,315 2,093 1,097
22. INTEREST-BEARING LOANS AND BORROWINGS This note provides information about the contractual terms of the consolidated entity’s interest-bearing loans and borrowings. For more information about the consolidated entity’s exposure to interest rate and foreign currency risk, refer Note 29.
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Current liabilities Cash advance facility 6,000 20,647 - - Deferred borrowing costs (159) (499) - - Finance lease liabilities 41 35 - - 5,882 20,183 - - Non-current liabilities Cash advance facility 9,500 - - - Deferred borrowing costs (107) - - - Finance lease liabilities 60 102 - - 9,453 102 - - Financing facilities Cash advance facility (i) 20,647 20,647 - - Financial guarantee facility (i) 12,853 12,853 - - 33,500 33,500 - - Facilities utilised at reporting date Cash advance facility 15,500 20,647 - - Financial guarantee facility 12,853 12,853 - - 28,353 33,500 - - Facilities not utilised at reporting date Cash advance facility 5,147 - - - Financial guarantee facility - - - - 5,147 - - -
For personal use only use personal For Bank facility (i) A Syndicated Multi-Option Facility Agreement between IP Coal Pty Ltd (IP Coal) and a bank syndicate comprising Investec Bank (Australia) Limited, Société Générale Australia and BOS International (Australia) Limited was executed in March 2006 in which a $41,295,000 cash advance facility, $25,705,000 financial guarantee facility and related foreign exchange hedging facilities were provided to the Isaac Plains Coal Mine, in which the Company, through IP Coal, has a 50% interest. The facility is provided subject to security over assets and undertakings, guarantees and indemnities from the Company and the Isaac Plains Coal Joint Venture. At the comparative period balance sheet date, IP Coal was technically in breach of the required Debt Service Coverage Ratio associated with this facility as a result of the slower than expected ramp-up of mine production due to initial construction delays and the failure of the coal handling and preparation plant to reach expected operating performance levels. Subsequent to 30 June 2007, the lenders confirmed to IP Coal that they will waive this technical breach. As a result of the breach, the entire balance of the cash advance facility was required to be classified as a current liability in the comparative period, notwithstanding that the consolidated entity did not expect any accelerated repayments to be necessary, above and beyond the contractually agreed loan repayment schedule.
Finance lease facility The consolidated entity’s lease liabilities are secured by leased assets of $111,000 (2007: $144,000), as in the event of default, the leased assets revert to the lessor.
Finance lease liabilities Finance lease liabilities of the consolidated entity are payable as follows:
Minimum Interest Principal Minimum Interest Principal Lease Lease Payments Payments 2008 2008 2008 2007 2007 2007 $’000 $’000 $’000 $’000 $’000 $’000 Less than one year 47 6 41 44 9 35 Between one and five years 61 1 60 109 7 102 108 7 101 153 16 137
Under the terms of the lease agreements, no contingent rents are payable. The Company has no finance lease liabilities.
23. EMPLOYEE BENEFITS Consolidated The Company (a) Aggregate liability for employee entitlements, including on-costs 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Employee benefits: Provision (current) 334 213 179 80 Provision (non-current) - 14 - 14
(b) Share based payments Share options are granted from time to time to certain personnel as part of incentivisation and retention strategies for executives, employees and contractors. Share options may also be issued to organisations as part of commercial transactions. Options are granted for no consideration and do not carry voting or dividend entitlements. The exercise price of the options is determined after taking into account the underlying share price performance during the period leading up to the date of grant and any applicable performance conditions attached to the share options. Subject to vesting conditions, each option is convertible into
one ordinary share. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 69 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
23. EMPLOYEE BENEFITS (cont.)
(b) Share based payments (cont.) Options are expensed over the period of expected vesting, taking into account the value of option at the date of grant and its related performance conditions.
Set out below are summaries of share options outstanding during the current and comparative reporting periods.
No. No. No. granted exercised No. expired exercisable Exercise No. at start during during during No. at end at end of Grant date Expiry date price of period period period period of period period Consolidated and the Company - 2008 1 Nov 04 31 Dec 07 $1.00 1,033,334 - (1,033,334) (i) - - - 1 Jun 05 31 Dec 08 $2.50 216,667 - (183,333) (ii) (33,334) - - 1 Jun 05 31 Dec 08 $4.00 1,000,000 - - - 1,000,000 - 1 Jun 05 31 Dec 08 $4.00 1,000,000 - - - 1,000,000 500,000 23 Nov 05 31 Dec 10 $4.00 2,500,000 - - - 2,500,000 2,500,000 23 Nov 05 31 Dec 10 $4.00 2,500,000 - - - 2,500,000 2,500,000 19 Jun 07 31 Aug 10 $5.50 450,000 - - - 450,000 150,000 19 Jun 07 31 Aug 10 $5.50 100,000 - - - 100,000 - 8,800,001 - (1,216,667) (33,334) 7,550,000 5,650,000
(i) The closing share price of the Company’s shares on the Australian Securities Exchange on the date of exercise of these options was $9.20. (ii) The closing share price of the Company’s shares on the Australian Securities Exchange on the date of exercise of these options was $16.56.
No. No. No. granted exercised No. expired exercisable Exercise No. at start during during during No. at end at end of Grant date Expiry date price of period period period period of period period Consolidated and the Company - 2007 1 Nov 04 31 Dec 07 $1.00 1,073,334 - (33,333) (i) (6,667) 1,033,334 666,666 1 Jun 05 31 Dec 08 $2.50 150,000 - - (150,000) - - 1 Jun 05 31 Dec 08 $2.50 333,334 - (116,667) (ii) - 216,667 66,667 1 Jun 05 31 Dec 08 $4.00 1,000,000 - - - 1,000,000 - 1 Jun 05 31 Dec 08 $4.00 1,000,000 - - - 1,000,000 333,334 23 Nov 05 31 Dec 10 $4.00 2,500,000 - - - 2,500,000 2,500,000 23 Nov 05 31 Dec 10 $4.00 2,500,000 - - - 2,500,000 - 19 Jun 07 31 Aug 10 $5.50 - 450,000 - - 450,000 - 19 Jun 07 31 Aug 10 $5.50 - 100,000 - - 100,000 - 8,556,668 550,000 (150,000) (156,667) 8,800,001 3,566,667
(i) The closing share price of the Company’s shares on the Australian Securities Exchange on the date of exercise of these options was $3.37. For personal use only use personal For (ii) The closing share price of the Company’s shares on the Australian Securities Exchange on the date of exercise of these options was $6.00. Vesting conditions attaching to the share options are as follows:
No. of share Grant date options Vesting conditions % vested 1 Jun 05 1,000,000 Commencement of commercial production of iron ore from an iron ore project in which the Nil consolidated entity is a participant and oversees the day to day management of API Management Pty Ltd, being the manager. 1 Jun 05 1,000,000 Identification of an approved acquisition opportunity, or entitlement to 500,000 share options, one 50% third of which vest on each anniversary. 23 Nov 05 2,500,000 Share price to be at/above $5.00 for five consecutive trading days and receipt of shareholder 100% approval at the 2005 Annual General Meeting. 23 Nov 05 2,500,000 Share price to be at/above $5.00 for five consecutive trading days, approval to proceed with a 100% feasibility study on a project of significant value and receipt of shareholder approval at the 2005 Annual General Meeting. 19 Jun 07 450,000 One third of options vest on each anniversary. 33.33% 19 Jun 07 100,000 Identification of an approved development project. Nil
Fair value of options granted The assessed fair value at grant date of the options is determined using binomial, or where market performance conditions exist, trinomial, option pricing models which incorporate the following inputs:
The Company The Company and and Consolidated Consolidated
2008 2007 Term - 3 years Exercise price - $5.50 Underlying share price at the date of grant, being the date of agreement to issue the options, or, where - $5.50 applicable, the date of shareholder approval Expected share price volatility over the term of the options - 40% Risk-free rate for the term of the options (based on the Government bond rate) - 6.70%
The assessed fair value of the share options issued during the 2007 year was $1.47 each. There were no share options issued during the year ended 30 June 2008. During the current financial year, the Company and consolidated entity recognised share based payments expenses of $6,065,000 (2007: $544,000).
24. PROVISIONS Minesite rehabilitation and restoration 2008 2007 $’000 $’000 Consolidated Balance as at 1 July 573 443 Provisions made during the period 299 85 Unwind of discount 47 45
Balance at 30 June 919 573 For personal use only use personal For
The Company Balance as at 1 July - - Balance as at 30 June - -
Annual Report 2008: Aquila Resources Limited 71 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
25. CONTRIBUTED EQUITY Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Share capital 247,445,672 fully paid ordinary shares (2007: 168,933,477) 76,148 74,656 76,148 74,656 less – issue costs (2,024) (2,024) (2,024) (2,024) Total contributed equity 74,124 72,632 74,124 72,632
Issued and paid-up capital Balance at beginning of year: 168,933,477 ordinary shares (June 2006: 84,298,072) 72,632 72,238 72,632 72,238 Ordinary shares issued during the year: - 40,333 ordinary shares by means of the exercise of 33,333 options at - 33 - 33 $1.00 per option - 220,000 ordinary shares by means of the exercise of 116,666 options at - 292 - 292 $2.50 per option - 84,375,072 ordinary shares issued at no cost by means of a bonus issue - - - - of 1 share for every 1 share held (11 December 2006) - 2,500,668 ordinary shares by means of the exercise of 1,033,334 options at 1,033 - 1,033 - $1.00 per option - 516,268 ordinary shares by means of the exercise of 183,333 options at 459 - 459 - $2.50 per option - 34,316,060 ordinary shares issued at no cost by means of a bonus issue - - - - of 1 share for every 5 shares held (18 December 2007) - 41,179,199 ordinary shares issued at no cost by means of a bonus issue - - - - of 1 share for every 5 shares held (15 May 2008) Transfer from share based payment reserve upon exercise of options. - 69 - 69 Balance at end of period: 247,445,672 ordinary shares (June 2007: 168,933,477) 74,124 72,632 74,124 72,632
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
Options: As at 30 June 2008, the following options remain outstanding: - 2,000,000 options exercisable at $4.00 each on or before 31 December 2008, for 6,336,000 shares. - 550,000 options exercisable at $5.50 each on or before 31 August 2010, for 792,000 shares. - 5,000,000 options exercisable at $4.00 each on or before 31 December 2010, for 15,840,000 shares.
Refer to Note 23 for details of the vesting conditions of these options. These options do not entitle the holders to participate in any share issue of the Company. However, in the event of a bonus issue during the currency of the options, the holder is entitled, upon subsequent exercise, to receive the number of ordinary shares which would have been issued to the holder
had the options been exercised (and shares issued) prior to the record date of the bonus issue. For personal use only use personal For 26. RESERVES Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 (a) Reserves Available-for-sale fair value reserve 29,234 13,583 1,033 6,021 Share based payment reserve 13,245 7,180 13,245 7,180 Hedging reserve – cash flow hedges 5,005 647 - - 47,484 21,410 14,278 13,201
(b) Reconciliation of movements in capital and reserves
Available- for-sale Share based Share fair value payment Hedging Retained capital reserve reserve reserve earnings Total Consolidated $’000 $’000 $’000 $’000 $’000 $’000 Balance 1 July 2006 72,238 739 6,705 258 (3,659) 76,281 Total recognised income and expense - 12,844 - 389 (12,527) 706 Shares issued 325 - - - - 325 Equity settled transactions - - 544 - - 544 Transfer on exercise of share options 69 - (69) - - - Balance 30 June 2007 72,632 13,583 7,180 647 (16,186) 77,856
Balance 1 July 2007 72,632 13,583 7,180 647 (16,186) 77,856 Total recognised income and expense - 15,651 - 4,358 97,269 117,278 Shares issued 1,492 - - - - 1,492 Equity settled transactions - - 6,065 - - 6,065 Balance 30 June 2008 74,124 29,234 13,245 5,005 81,083 202,691
The Company Balance 1 July 2006 72,238 739 6,705 - (13,794) 65,888 Total recognised income and expense - 5,282 - - (1,555) 3,727 Shares issued 325 - - - - 325 Equity settled transactions - - 544 - - 544 Transfer on exercise of share options 69 - (69) - - - Balance 30 June 2007 72,632 6,021 7,180 - (15,349) 70,484
Balance 1 July 2007 72,632 6,021 7,180 - (15,349) 70,484 Total recognised income and expense - (4,988) - - 72,781 67,793 Shares issued 1,492 - - - - 1,492
For personal use only use personal For Equity settled transactions - - 6,065 - - 6,065 Balance 30 June 2008 74,124 1,033 13,245 - 57,432 145,834
Annual Report 2008: Aquila Resources Limited 73 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
26. RESERVES (cont.) (c) Nature and purpose of reserves (i) Available-for-sale fair value reserve Unrealised gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in the available-for-sale fair value reserve, until the asset is sold or impaired, at which point the cumulative gain or loss is transferred to the income statement. (ii) Share based payment reserve The share based payment reserve is used to recognise the value as at grant date of options or equity instruments issued. (iii) Hedging reserve – cash flow hedges The hedging reserve is used to record gains or losses on the effective portion of cash flow hedges that are recognised directly in equity. Amounts are transferred to the income statement when the associated hedged transaction is recognised in profit and loss.
27. RETAINED EARNINGS Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Retained earnings at beginning of year (16,186) (3,659) (15,349) (13,794) Net profit (loss) attributable to members of the parent entity 97,269 (12,527) 72,781 (1,555) Retained earnings at end of year 81,083 (16,186) 57,432 (15,349)
28. CONTROLLED ENTITIES Ownership Country of Date incorporated interest incorporation 2008 2007 (a) Particulars in relation to controlled entities: Parent entity: Aquila Resources Limited 14 March 2000 Controlled entities: Penoir Pty Ltd 5 January 2001 100% 100% Australia Aquila Coal Pty Ltd 10 August 2001 100% 100% Australia Aquila Steel Pty Ltd 13 August 2001 100% 100% Australia BT.X Pty Ltd 25 January 2002 100% 100% Australia Aquila Coal (Africa) Pty Ltd 14 July 2004 - 100% Australia BD Coal Pty Ltd 1 April 2005 100% 100% Australia IP Coal Pty Ltd 12 May 2005 100% 100% Australia Aquila Steel (SA) Pty Ltd 30 August 2005 100% 100% Australia Aquila Steel (S Africa) (Pty) Ltd 19 June 2005 100% 100% South Africa Aquila Energy (S Africa) (Pty) Ltd 30 January 2007 100% 100% South Africa Aquila Energy Holdings (Mauritius) Pty Ltd 20 August 2007 100% - Mauritius African Energy (Mauritius) Pty Ltd 23 August 2007 100% - Mauritius Aquila Steel (Mauritius) Pty Ltd 16 August 2007 100% - Mauritius African Energy (Botswana) Pty Ltd 13 September 2007 100% - Botswana Aquila Exploration Limited 24 January 2008 100% - Australia Argos Energy (Offshore) Pty Ltd 25 January 2008 100% - Australia
Argos Steel (Offshore) Pty Ltd 25 January 2008 100% - Australia For personal use only use personal For Argos (WA) Pty Ltd 25 January 2008 100% - Australia Argos (Qld) Pty Ltd 25 January 2008 100% - Australia Aquila Energy (Swaziland) Pty Ltd 30 May 2008 100% - Swaziland Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 (b) Incorporation of controlled entities: During the financial year the consolidated entity incorporated Aquila Energy Holdings (Mauritius) Pty Ltd, African Energy (Mauritius) Pty Ltd, Aquila Steel (Mauritius) Pty Ltd, African Energy (Botswana) Pty Ltd, Aquila Exploration Limited, Argos Energy (Offshore) Pty Ltd, Argos Steel (Offshore) Pty Ltd, Argos (WA) Pty Ltd, Argos (Qld) Pty Ltd and Aquila Energy (Swaziland) Pty Ltd. (2007: Aquila Energy (S Africa) (Pty) Ltd). Details of the incorporation of controlled entities were as follows: - consideration paid - - - - - cash acquired - - - - Net cash consideration - - - -
29. FINANCIAL INSTRUMENTS (a) Interest rate risk The consolidated entity’s exposure to interest rate risk for classes of financial assets and financial liabilities, at the reporting date is set out below:
Floating Fixed interest maturing in Non- interest interest Consolidated rate 1 year or less 1 – 5 years bearing Total
30 June 2008 $’000 $’000 $’000 $’000 $’000 Financial assets Cash assets 14,409 145,007 - - 159,416 Receivables 2,183 - - 11,848 14,031 Investments - - - 69,861 69,861
Financial liabilities Payables - - - (15,209) (15,209) Interest-bearing liabilities (15,500) - (101) - (15,601) Net financial assets (liabilities) 1,092 145,007 (101) 66,500 212,498
30 June 2007 Financial assets Cash assets 2,352 31,808 - - 34,160 Receivables 1,764 - - 8,570 10,334 Investments - - - 29,519 29,519
Financial liabilities Payables - - - (10,315) (10,315)
For personal use only use personal For Interest-bearing liabilities (20,647) - (137) - (20,784) Net financial assets (liabilities) (16,531) 31,808 (137) 27,774 42,914
Annual Report 2008: Aquila Resources Limited 75 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
29. FINANCIAL INSTRUMENTS (cont.) (a) Interest rate risk (cont.) The Company’s exposure to interest rate risk for classes of financial assets and financial liabilities at the reporting date is set out below:
Floating Fixed interest maturing in Non- interest interest The Company rate 1 year or less 1 – 5 years bearing Total
30 June 2008 $’000 $’000 $’000 $’000 $’000 Financial assets Cash assets 8,808 145,000 - - 153,808 Receivables 1,438 - - 28,082 29,520 Investments - - - 7,872 7,872
Financial liabilities Payables - - - (2,093) (2,093) Interest-bearing liabilities - - - - - Net financial assets (liabilities) 10,246 145,000 - 33,861 189,107
30 June 2007 Financial assets Cash assets 2,352 31,800 - - 34,152 Receivables 1,574 - - 27,300 28,874 Investments - - - 10,153 10,153
Financial liabilities Payables - - - (1,097) (1,097) Interest-bearing liabilities - - - - - Net financial assets (liabilities) 3,926 31,800 - 36,356 72,082
Fair value sensitivity analysis for fixed rate instruments The consolidated entity does not account for any fixed rate financial assets and liabilities at fair value through profit and loss. Therefore a change in interest rates at the reporting date would not affect the carrying values of fixed rate financial assets and liabilities in a manner that would impact the profit or loss. Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rate at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same
basis for 2007. For personal use only use personal For Interest Rate Risk
100bp increase 100bp decrease
Profit Equity Profit Equity
Consolidated $’000 $’000 $’000 $’000 30 June 2008 Variable rate instruments 11 - (11) - 30 June 2007 Variable rate instruments (164) - 164 -
The Company
30 June 2008 Variable rate instruments 102 - (102) - 30 June 2007 Variable rate instruments 40 - (40) -
(b) Fair values of financial assets and liabilities The carrying values of financial assets and liabilities of the consolidated entity and the Company approximate their fair values. Determination of fair values Fair values for financial assets and liabilities have been determined for measurement and/or disclosure purposes based on the following methods: Investments in equity and debt securities The fair value of financial assets at fair value through profit or loss and available-for-sale financial assets is determined by reference to their quoted market price at the reporting date. Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. Derivatives The fair value of forward exchange contracts is calculated by external treasury advisers and are based on the current market exchange rates using the forward curve method. Fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements.
(c) Currency risk The consolidated entity’s asset (liability) exposure to foreign currency risk at balance date was as follows, based on notional amounts:
2008 2007
Consolidated USD ZAR USD ZAR
In AUD equivalent $’000 $’000 $’000 $’000 Cash assets - 195 - 187
For personal use only use personal For Trade receivables 972 - 4,001 - Security Deposits 1,347 - 1,487 - Derivatives – designated as cashflow hedges Foreign exchange contracts (50,859) - (9,344) - Gross balance sheet asset (liability) exposure (48,540) 195 (3,856) 187
Annual Report 2008: Aquila Resources Limited 77 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
29. FINANCIAL INSTRUMENTS (cont.) (c) Currency risk (cont.) The Company’s asset (liability) exposure to foreign currency risk at balance date was as follows, based on notional amounts:
2008 2007
The Company USD ZAR USD ZAR
In AUD equivalent $’000 $’000 $’000 $’000 Security Deposits 1,347 - 1,487 - Gross balance sheet asset (liability) exposure 1,347 - 1,487 -
The following significant exchange rates applied during the year: Average Rate Reporting date spot rate
2008 2007 2008 2007 USD : 1 AUD 0.8965 0.7859 0.9615 0.8488 ZAR : 1 AUD 6.5648 5.6710 7.6579 6.0062
Sensitivity Analysis A 10 percent strengthening/weakening of the Australian dollar against the total amount of financial assets held in all currencies at 30 June 2008 and 30 June 2007 would have increased (decreased) equity and profit or loss by the amounts shown below, assuming that all other variables, in particular interest rates, remain constant.
Foreign Currency Risk
-10% +10%
Carrying Amount Profit Equity Profit Equity
Consolidated $’000 $’000 $’000 $’000 $’000 30 June 2008 Financial assets Cash assets 159,416 22 - (18) - Security deposits 2,183 150 - (122) - Derivatives – designated as cashflow hedges Foreign exchange contracts 7,150 - (5,393) - 4,435
30 June 2007 Financial assets Cash assets 34,160 21 - (17) - Security deposits 1,764 164 - (134) - Derivatives – designated as cashflow hedges
Foreign exchange contracts 925 - (589) - 482 For personal use only use personal For Foreign Currency Risk
-10% +10%
Carrying Amount Profit Equity Profit Equity
The Company $’000 $’000 $’000 $’000 $’000 30 June 2008 Financial assets Security deposits 1,438 150 - (122) -
30 June 2007 Financial assets Security deposits 1,574 164 - (134) -
(d) Liquidity risk The table below sets out the consolidated entity’s financial liabilities into relevant maturity groupings, based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows, including the estimated interest payments.
Carrying Amount (assets)/ Contractual Less than liabilities cash flows 12 mths 1 – 2 years 2 – 5 years
Consolidated $’000 $’000 $’000 $’000 $’000 30 June 2008 Non-derivative financial liabilities Cash advance facility 15,500 (17,777) (6,791) (5,741) (5,245) Finance lease liabilities 101 (108) (47) (61) - Trade and other payables 15,209 (15,209) (15,209) - - Derivative financial liabilities Forward foreign exchange contracts used for hedging (i): AUD equivalent outflows - (50,859) (50,859) - - AUD inflows (7,150) 59,827 59,827 - - 23,660 (24,126) (13,079) (5,802) (5,245)
30 June 2007 Non-derivative financial liabilities Cash advance facility 20,647 (24,634) (6,856) (6,791) (10,987) Finance lease liabilities 137 (153) (44) (47) (62) Trade and other payables 10,315 (10,315) (10,315) - - Derivative financial liabilities Forward foreign exchange contracts used for hedging (i):
For personal use only use personal For AUD equivalent outflows - (9,344) (9,344) - - AUD inflows (925) 10,991 10,991 - - 30,174 (33,455) (15,568) (6,838) (11,049)
(i) The cashflows associated with derivatives that are cashflow hedges are expected to occur and impact profit and loss in the same period as the underlying hedged contract cashflows.
Annual Report 2008: Aquila Resources Limited 79 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
29. FINANCIAL INSTRUMENTS (cont.) (d) Liquidity risk (cont.) The Company The financial liabilities of the Company comprises trade and other payables. These contractual cash flows, all of which are expected to be settled within six months, equate to the book value of the financial liabilities. The Company seeks to mitigate liquidity risk by prudent cash flow management, maintaining sufficient cash to meet operating requirements of the business.
(e) Credit risk Exposure to credit risk There were no significant concentrations of credit risk at the reporting date. The maximum exposure to credit risk is represented by the carrying value of the consolidated entity and the Company’s financial assets in the balance sheet. The maximum exposure to credit risk at reporting date was:
Consolidated The Company
Carrying Amount Carrying Amount 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Cash assets 159,416 34,160 153,808 31,960 Available-for-sale financial assets 69,861 29,519 7,872 10,153 Receivables 14,031 10,334 29,520 28,874 Forward exchange contracts used for hedging: Assets 7,150 925 - - 250,458 74,938 191,200 70,987
(f) Impairment losses None of the financial assets of the consolidated entity or the Company are past due (2007: Nil). There has been no allowance for impairment in respect of the financial assets of the consolidated entity during the year (2007: Nil). The movement in the allowance for impairment in respect of loans to controlled entities during the year are as follows:
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Provision at the beginning of the year - - 6,272 4,399 add – allowance for impairment losses - - 3,913 1,873 less – impairment losses written off - - (2,288) -
Provision at the end of the year - - 7,897 6,272 For personal use only use personal For 30. COMMITMENTS (a) Exploration and mining lease expenditure commitments: The consolidated entity has certain statutory obligations to undertake a minimum level of exploration activity in order to maintain rights of tenure to its exploration licences. In respect of joint venture arrangements, all joint venture participants are required to meet the conditions under which the tenements are granted. These obligations may vary from time to time in accordance with the type of tenements held and are expected to be fulfilled in the normal course of operations of the consolidated entity to avoid forfeiture of any tenement.
Consolidated The Company These exploration commitments are not provided for in the financial report and 2008 2007 2008 2007 are payable: $’000 $’000 $’000 $’000 Within one year 3,934 2,460 - - One year or later and not later than five years 6,225 5,614 - - Later than five years 877 1,315 - - 11,036 9,389 - -
(b) Operating lease commitments The consolidated entity has leased office premises under an operating lease which is due to expire on 30 April 2011. The operating lease provides the consolidated entity with a right of renewal. Lease payments comprise a base amount plus an incremental rental linked to movements in the Consumer Price Index.
Consolidated The Company These operating lease obligations are not provided for in the financial report and 2008 2007 2008 2007 are payable: $’000 $’000 $’000 $’000 Within one year 326 302 244 234 One year or later and not later than five years 305 294 224 221 631 596 468 455
(c) Capital commitments – joint ventures The participants in the Isaac Plains Coal Joint Venture have entered into contractual agreements for the development and construction of infrastructure and plant associated with the expansion of the Isaac Plains Coal Mine.
Consolidated The Company The consolidated entity’s share of these commitments is not provided for in the 2008 2007 2008 2007 financial report and is payable: $’000 $’000 $’000 $’000 Within one year 28,323 - - -
28,323 - - - For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 81 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
30. COMMITMENTS (cont.) (d) Operating commitments – joint ventures The participants in the Isaac Plains Coal Joint Venture have commitments arising from contractual agreements with water, rail and port service providers for the Isaac Plains Coal Mine.
Consolidated The Company The consolidated entity’s share of these commitments is not provided for in the 2008 2007 2008 2007 financial report and is payable: $’000 $’000 $’000 $’000 Within one year 9,363 7,101 - - One year or later and not later than five years 46,886 35,151 - - Later than five years 37,212 23,724 - - 93,461 65,976 - -
(e) Other commitments A consultancy agreement with Omega Management Services Pty Ltd, a company associated with a Director, is due to expire on 30 April 2009. The agreement is subject to certain rights of termination by either party.
Consolidated The Company These future consultancy obligations are not provided for in the financial report 2008 2007 2008 2007 and are payable: $’000 $’000 $’000 $’000 Within one year 417 292 417 292 417 292 417 292
31. NOTES TO STATEMENTS OF CASH FLOWS (a) Reconciliation of cash: For the purpose of the statements of cash flows, cash includes cash on hand and at bank and short term deposits at call, net of outstanding bank overdrafts. Cash as at the end of the financial year as shown in the statements of cash flows is reconciled to the related items in the balance sheets as follows:
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Net cash assets 159,416 34,160 153,808 31,960 For personal use only use personal For (b) Reconciliation of profit (loss) from ordinary activities after income tax to net cash provided by operating activities:
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Profit (loss) for period 97,269 (12,527) 72,781 (1,555) Add (less) – non cash items: Share based payment expense 6,065 544 6,065 544 Provision for doubtful debts - - 3,913 1,873 Depreciation and amortisation 3,909 1,160 162 45 Gain on farm-out of mineral properties - (1,305) - - Profit on sale of equity investments (62,693) (469) (62,383) (469) Profit on sale of mineral properties (111,244) - (58,371) - Net cash provided by (used in) operating activities before change in assets and liabilities (66,694) (12,597) (37,833) 438 Add (less) – change in assets and liabilities (Increase) decrease in receivables 2,947 7,676 (1,139) (166) (Increase) decrease in inventories (780) (3,731) - - (Increase) decrease in other assets (1,463) (1,526) (49) (59) (Increase) decrease in deferred tax assets - - 304 (232) Increase (decrease) in trade and other creditors 8,063 10,721 1,347 433 Increase (decrease) in income tax payable 43,483 - 34,789 - Increase (decrease) in deferred tax liabilities 395 (4,343) (11) - Increase (decrease) in employee benefit provisions 107 148 85 49
Net cash provided by (used in) operating activities (13,942) (3,652) (2,507) 463 For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 83 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
32. KEY MANAGEMENT PERSONNEL DISCLOSURE Directors The following were key management personnel of the consolidated entity at any time during the reporting period and unless otherwise indicated were key management personnel for the entire period:
Executive Director Non-executive Directors Mr T Poli (Executive Chairman and Chief Executive Officer) Mr C B Bass Mr D T Cowlan Mr G T Galt Executives Mr A M Matheson (General Manager – Coal) Mr G F Pigott (Head of Exploration) Mr H C Rae (Chief Financial Officer) Mr R Tipper (General Manager – Iron Ore) appointed 23 May 2007 Mr K Watters (Manager Development – Iron Ore) appointed 1 November 2006 Mr J R Wood (Company Secretary) appointed 1 September 2007
(a) Key management personnel compensation The key management personnel compensation included in ‘employee benefits expense’ and ‘share based payment expense’ is as follows:
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Short-term employee benefits 2,440 1,414 2,440 1,414 Post-employment benefits 342 202 342 202 Equity compensation benefits 5,870 376 5,870 376 8,652 1,992 8,652 1,992
(b) Individual Directors and executives compensation disclosures Information regarding individual Directors and executives compensation and certain equity instrument disclosures as permitted by Corporations Regulations 2M.3.03 and 2M.6.04 is provided in the Remuneration report section of the Directors’ report on pages 40 to 43. Apart from the details disclosed in this Note, no Director has entered into a material contract with the Company or the consolidated entity since the
end of the previous financial year and there were no material contracts involving Directors’ interests existing at year-end. For personal use only use personal For (c) Equity instruments Equity holdings and transactions The movement during the reporting period in the number of ordinary shares of Aquila Resources Limited held, directly, indirectly or beneficially, by each Specified Director and Specified Executive (key management personnel), including their personally-related entities is as follows:
Received Received via Held at Held at via bonus exercise of Other 30 June 2008: 1 July 2007 Purchases issue options Sales changes 2008 Specified Directors Mr T Poli 52,290,210 - 23,007,688 - - - 75,297,898 Mr C B Bass 22,718,162 - 9,115,990 - (2,000,000) 3,000,000 (i) 32,834,152 Mr D T Cowlan 6,919,354 - 3,044,514 - (20,500) - 9,943,368 Specified Executives Mr A M Matheson 2,200 - 968 - - - 3,168 Mr G F Pigott 1,205,000 - 1,485,000 2,420,000 (250,000) - 4,860,000 Mr K Watters 7,000 - 3,080 - - - 10,080
Received Received via Held at Held at via bonus exercise of Other 30 June 2007: 1 July 2006 Purchases issue options Sales changes 2007 Specified Directors Mr T Poli 26,145,105 - 26,145,105 - - - 52,290,210 Mr C B Bass 13,359,081 - 11,359,081 - - (2,000,000) (ii) 22,718,162 Mr D T Cowlan 3,397,177 125,000 3,397,177 - - - 6,919,354 Specified Executives Mr A M Matheson 1,100 - 1,100 - - - 2,200 Mr G F Pigott 605,000 - 605,000 - (5,000) - 1,205,000 Mr K Watters 3,500 - 3,500 - - - 7,000
No shares were granted as compensation to key management personnel during the reporting period.
(i) Represents return of shares that had previously been transferred to a third party as collateral for lending arrangements. The balance of shares still held by the third party as collateral totals 2,760,000 shares.
(ii) Represents shares transferred to a third party as collateral for lending arrangements. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 85 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
32. KEY MANAGEMENT PERSONNEL DISCLOSURE (cont.) (c) Equity instruments (cont.) Option holdings The movement during the reporting period in the number of options over ordinary shares in the Company held directly, indirectly or beneficially, by each Specified Director and Specified Executive, including their personally-related entities is as follows:
Vested and Held at Vested exercisable Held at Granted as Other 30 June during the at 30 June 2008: 1 July 2007 renumeration Exercised changes (ii) 2008 year 2008 Specified Directors Mr T Poli 5,000,000 - - - 5,000,000 2,500,000 5,000,000 Mr C B Bass ------Mr D T Cowlan ------Specified Executives Mr A M Matheson 150,000 - - - 150,000 50,000 50,000 Mr G F Pigott 1,000,000 - (1,000,000) (i) - - 333,334 - Mr H Rae 150,000 - - - 150,000 50,000 50,000
Vested and Held at Vested exercisable Held at Granted as Other 30 June during the at 30 June 2007: 1 July 2006 renumeration Exercised changes (ii) 2007 year 2007 Specified Directors Mr T Poli 5,000,000 - - - 5,000,000 - 2,500,000 Mr C B Bass ------Mr D T Cowlan ------Specified Executives Mr A M Matheson - 150,000 - - 150,000 - - Mr G F Pigott 1,000,000 - - - 1,000,000 333,333 666,666 Mr H Rae - 150,000 - - 150,000 - - No options held by Specified Directors or Specified Executives are vested but not exercisable. (i) The options exercised by Mr Pigott consisted of 1,000,000 options with an exercise price of $1.00 that were granted in the 2005 financial year. After adjustments for Bonus Issues that have been announced since these options were granted, they were valued at $21,264,000 at the exercise date. This amount was calculated as the market price of the shares received on the Australian Securities Exchange, after deducting the price paid to exercise the options.
(ii) Other changes represent options that expired or were forfeited during the year. For personal use only use personal For (d) Key management personnel transactions with the Company or its controlled entities Details of transactions between the reporting entity and its related parties are as follows:
Related parties: Tony Poli, Charles Bennett Bass, Derek Thomas Cowlan and Gordon Thomas Galt Type of transaction: Deed of Access, Insurance and Indemnity Transaction details: The Deed of Access, Insurance and Indemnity is substantially identical in form and has been entered into by the Company with each of the above Directors of the Company. Each Deed indemnifies the Directors to the extent permitted by law, against any liability, which he may incur whilst carrying out his duties as a Director of the Company and against any costs and expenses incurred in defending legal proceedings brought against him as a Director. The Deed requires the Company to maintain in force Directors’ and Officers’ Liability Insurance, with an agreed cover level for the duration of the Directors’ term of office and a period of 8 years thereafter. The Deed also provides for each Director to have access to Company documents (including Board papers) for a period of 8 years after he ceases to be a Director, subject to certain confidentiality and other requirements being observed.
Related party: Omega Management Services Pty Ltd Nature of relationship: Director related entity (Tony Poli) Type of transaction: Consultancy Agreement Transaction details: Under this Agreement, Omega Management Services Pty Ltd (Omega), a company associated with Mr Poli, agreed to provide the services of Mr Poli (or another approved employee) to act as Executive Chairman and also in the provision of associated services to the Company. This Agreement is due to expire on 30 April 2009. Omega receives a consultancy fee at a rate of $500,000 per annum, together with reimbursement of out of pocket expenses incurred in the course of providing services under that Agreement. During the year, Omega charged the Company $410,000 (2007: $355,340) in management fees.
Related party: Elite Developments (WA) Pty Ltd Nature of relationship: Director related entity (Tony Poli) Type of transaction: Overheads fee Transaction details: Elite Developments (WA) Pty Ltd, a company associated with Mr Poli, is being charged a fee of $1,000 per calendar month (2007: $1,000) for the use of office space, secretarial services and amenities.
Consolidated The Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Assets and liabilities arising from the above transactions Current receivables Trade debtors 2 2 2 2 less - provision for doubtful debts - - - - 2 2 2 2 Current payables
Trade creditors 46 - 46 - For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 87 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
33. NON-KEY MANAGEMENT PERSONNEL RELATED PARTY DISCLOSURE Details of transactions between the reporting entity and its related parties (controlled entities and jointly controlled operations) are as follows:
Related party: Aquila Coal Pty Ltd Nature of relationship: Controlled entity Type of transaction: Intercompany loans Transaction details: During the year, the Company provided interest free loans totalling $3,026,000 (2007: $1,933,000) to Aquila Coal Pty Ltd to fund ongoing exploration and evaluation activities.
Related Party: IP Coal Pty Ltd Nature of relationship: Controlled entity Type of transaction: Intercompany loans Transaction details: During the year, the Company provided interest free loans totalling $10,543,000 (2007: $11,908,000) to IP Coal Pty Ltd to fund development activities and ongoing operating costs and exploration activities on the Isaac Plains Coal Mine.
Related Party: BD Coal Pty Ltd Nature of relationship: Controlled entity Type of transaction: Intercompany loans Transaction details: During the year, the Company was provided with interest free loans totalling $34,260,000 (2007: loan to BD Coal Pty Ltd of $326,000) by BD Coal Pty Ltd following the US$45 million received from Vale for a 24.5% interest in Belvedere Coal Joint Venture, with offsetting effects from ongoing funding of exploration and evaluation activities.
Related Party: BT.X Pty Ltd Nature of relationship: Controlled entity Type of transaction: Intercompany loans Transaction details: During the year, the Company provided interest free loans totalling $3,915,000 (2007: $7,000) to BT.X Pty Ltd to fund corporate and administration activities.
Related party: Penoir Pty Ltd Nature of relationship: Controlled entity Type of transaction: Intercompany loans Transaction details: During the year, the Company provided interest free loans totalling $1,975,000 (2007: loan from Penoir Pty Ltd of $10,382,000) to Penoir Pty Ltd to fund corporate and administration activities.
Related party: Aquila Steel Pty Ltd Nature of relationship: Controlled entity Type of transaction: Intercompany loans Transaction details: During the year, the Company provided interest free loans totalling $14,140,000 (2007: $12,207,000) to Aquila Steel Pty Ltd to fund ongoing pre-feasibility studies, exploration activities and investment activities.
Related party: Aquila Steel (SA) Pty Ltd Nature of relationship: Controlled entity Type of transaction: Intercompany loans Transaction details: During the year, the Company was repaid $3,000 relating to prior year’s interest free loans of $5,000 provided to Aquila Steel (SA) Pty Ltd to fund corporate costs.
Related party: Aquila Steel (S Africa) (Pty) Ltd
For personal use only use personal For Nature of relationship: Controlled entity Type of transaction: Intercompany loans Transaction details: During the year, the Company provided interest free loans totalling $3,198,000 (2007: $1,544,000) to Aquila Steel (S Africa) (Pty) Ltd to fund ongoing exploration activities. Related party: Aquila Energy (S Africa) (Pty) Ltd Nature of relationship: Controlled entity Type of transaction: Intercompany loans Transaction details: During the year, the Company provided interest free loans totalling $207,000 (2007: $94,000) to Aquila Energy (S Africa) (Pty) Ltd to fund ongoing exploration activities.
Related party: Aquila Exploration Limited Nature of relationship: Controlled entity Type of transaction: Intercompany loans Transaction details: During the year, the Company provided interest free loans totalling $1,223,000 (2007: $NIL) to fund ongoing exploration, investment and corporate activities.
Related party: Australian Premium Iron Joint Venture Nature of relationship: Jointly controlled operation (the Company 50%) Type of transaction: Reimbursement of expenditure Transaction details: During the year, the Company charged the Joint Venture a total of $164,000 (2007: $890,000). This amount was in respect of the reimbursement of expenses relating to the Joint Venture that were paid by the Company including office occupancy, employee secondments and support services.
The Company 2008 2007 $’000 $’000
Receivables Aggregate amounts receivable from non-key management personnel related parties: Amounts receivable other than trade debts Wholly-owned controlled entities 34,419 33,151 less – allowance for impairment (7,897) (6,272) 26,522 26,879 All loans to controlled entities are interest free and repayable at call.
34. EVENTS SUBSEQUENT TO BALANCE DATE • On 19 August 2008, the Company announced that the Scheme Booklet for the proposed demerger of certain of the consolidated entity’s exploration interests into a new company, Aquila Exploration Limited, had been lodged with the Australian Securities and Investments Commission (ASIC) for its review. The proposed demerger is subject to approval at a meeting of Aquila shareholders scheduled for 31 October 2008. • As at 12 September 2008, the aggregate fair value of the consolidated entity’s investment in listed securities available for sale has fallen by $12,918,000 (18%) to $56,943,000. This carrying value remains significantly above the original cost of these investments of $28,571,000.
The decrease in value has arisen due to ongoing volatility in both domestic and international equity markets. For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 89 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2008
35. SEGMENT REPORTING Segment information is presented in respect of the consolidated entity’s business and geographical segments. The primary format, business segments, is based on the consolidated entity’s management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to the segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise income earning assets and revenues, interest-bearing loans and corporate assets and expenses.
Coal Iron Ore Other Minerals Consolidated
Primary reporting – business segments: 2008 $’000 $’000 $’000 $’000 Revenue: Segment revenue 46,500 - - 46,500 Other unallocated revenue - Total revenue 46,500 - - 46,500
Result: Segment result 166,063 (13,354) (1,494) 151,125 Unallocated corporate result (8,933) Profit (loss) from ordinary activities before income tax 142,282 Income tax (expense) benefit (45,013) Net profit (loss) 97,269
Individually significant items Gain on sale of project interests 111,244 - - 111,244 Share based payment expense (6,065) Segment depreciation and amortisation expense (3,713) (226) - (3,939) Unallocated depreciation and amortisation expense (92)
Assets: Segment assets 60,100 67,603 6,701 134,404 Unallocated corporate assets 158,406 Consolidated total assets 292,810
Acquisition of non-current assets: Segment assets 10,992 580 - 11,572 Unallocated corporate assets 162
Liabilities: Segment liabilities 29,766 11,726 - 41,492 Unallocated corporate liabilities 48,627 Consolidated total liabilities 90,119
Australia Africa Consolidated For personal use only use personal For Secondary reporting – geographical segments: 2008 $’000 $’000 $’000 Segment revenue 46,500 - 46,500 Segment assets 291,998 812 292,810 Acquisition of non-current assets 11,441 293 11,734
The consolidated entity operates in two geographical segments, Australia and Africa. Coal Iron Ore Other Minerals Consolidated
Primary reporting – business segments: 2007 $’000 $’000 $’000 $’000 Revenue: Segment revenue 14,597 - - 14,597 Other unallocated revenue - Total revenue 14,597 - - 14,597
Result: Segment result (14,206) (2,936) (154) (17,296) Unallocated corporate result 170 Profit (loss) from ordinary activities before income tax (17,126) Income tax (expense) benefit 4,599 Net profit (loss) (12,527)
Individually significant items Gain on farm-out of mineral properties - 1,305 - 1,305 Share based payment expense (544) Segment depreciation and amortisation expense (1,044) (71) - (1,115) Unallocated depreciation and amortisation expense (45)
Assets: Segment assets 47,045 24,440 9,923 81,408 Unallocated corporate assets 31,919 Consolidated total assets 113,327
Acquisition of non-current assets: Segment assets 11,266 636 - 11,902 Unallocated corporate assets 219
Liabilities: Segment liabilities 28,040 1,174 365 29,579 Unallocated corporate liabilities 5,892 Consolidated total liabilities 35,471
Australia Africa Consolidated
Secondary reporting – geographical segments: 2007 $’000 $’000 $’000 Segment revenue 14,597 - 14,597 Segment assets 113,003 324 113,327
Acquisition of non-current assets 11,981 140 12,121 For personal use only use personal For The consolidated entity operates in two geographical segments, Australia and Africa.
Annual Report 2008: Aquila Resources Limited 91 DIRECTORS’ DECLARATION
1. In the opinion of the Directors of Aquila Resources Limited (the “Company”): (a) the financial statements and notes (including remuneration disclosures that are contained in sections 16.1, 16.2 and 16.3 of the Remuneration report in the Directors’ report) set out on pages 33 to 91 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of the Company and the consolidated entity as at 30 June 2008 and of their performance, as represented by the results of their operations and their cash flows, for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the remuneration disclosures that are contained in sections 16.1, 16.2 and 16.3 of the Remuneration report comply with the Australian Accounting Standard AASB 124 Related Party Disclosures. (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2008 pursuant to Section 295A of the Corporations Act 2001.
Dated at Perth this 25th day of September 2008. Signed in accordance with a resolution of the Directors:
Tony Poli Executive Chairman
For personal use only use personal For
INDEPENDENT AUDIT REPORT For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 93
INDEPENDENT AUDIT REPORT For personal use only use personal For SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 23 September 2008. (a) Distribution of listed ordinary shares (i) Analysis of number of shareholders by size of holding:
Distribution Number of shareholders 1 - 1,000 1,093 1,001 - 5,000 877 5,001 - 10,000 187 10,001 - 100,000 296 100,001 and over 89 Total 2,542
(ii) There were 33 shareholders who hold less than a marketable parcel. (iii) The percentage of the total holding of the twenty largest holders of ordinary shares was 85.46%.
(b) Twenty largest shareholders
Total number of shares on issue – 247,445,672
Name Number of shares held 1. Mr Tony Poli 74,643,246 2. UBS Wealth Management Australia Nominees Pty Ltd 18,511,831 3. HSBC Custody Nominees (Australia) Limited 18,314,800 4. National Nominees Limited 16,167,088 5. Mr Charles Bass 12,296,160 6. Quartz Mountain Mining Pty Ltd 11,452,384 7. Ashmy Pty Ltd 9,021,364 8. Mr Charles Bass & Mrs Sylvia Bass 8,064,000 9. Fortis Clearing Nominees Pty Ltd 5,709,094 10. Citicorp Nominees Pty Limited 5,544,542 11. Merrill Lynch (Australia) Nominees Pty Limited 4,883,492 12. Mr Geoffrey Francis Pigott 4,860,000 13. HSBC Custody Nominees (Australia) Limited 4,536,433 14. Mr Neil Lithgow 4,083,750 15. Mrs Milvia Poli 3,210,036 16. JP Morgan Nominees Australia Limited 3,047,304 17. Triangle Resources Fund (Australia) LP 2,267,712 18. Tennereef Pty Ltd 1,800,475 19. Invia Custodian Pty Ltd 1,530,000 20. Tinkler Investments Pty Ltd 1,521,302
Total 211,465,013 For personal use only use personal For
Annual Report 2008: Aquila Resources Limited 95 SHAREHOLDER INFORMATION
(c) Substantial shareholders Set out below, as extracted from the Company’s register, are the number of fully paid ordinary shares held by substantial shareholders as at the date on which the last Substantial Shareholder Notice was lodged with the Company.
Date of Substantial Number of shares Voting interest Name Shareholder Notice at relevant date at relevant date Mr Tony Poli 16 May 2006 26,145,105 31.06% Mr Charles Bass 26 June 2008 32,834,152 13.29% AMCI Investments Pty Ltd 29 March 2007 14,017,524 8.30% Merrill Lynch & Co., Inc. 14 August 2008 15,237,146 6.16% Seamans Capital Management Limited 31 January 2007 10,031,783 5.94%
(d) Voting rights The voting rights attaching to ordinary shares are: On a show of hands, every member present in person or by proxy shall have one vote and upon a poll each share shall have a vote. (e) Unquoted equity securities The following classes of unquoted equity securities are on issue:
Number of Type of securities securities % held % vested (i) • 2,000,000 options to subscribe for fully paid ordinary shares exercisable at $4.00 per option, with an expiry date of 31 December 2008, for 6,336,000 shares Persons holding 20% or more: - Mr Stuart Tuckey 1,000,000 50% Nil - Mr Michael Davies 1,000,000 50% 50% • 5,000,000 options to subscribe for fully paid ordinary shares exercisable at $4.00 per option, with an expiry date of 31 December 2010, for 15,840,000 shares Persons holding 20% or more: - Mr Tony Poli 5,000,000 100% 100% • 550,000 options to subscribe for fully paid ordinary shares exercisable at $5.50 per option, with an expiry date of 31 August 2010, for 792,000 shares Persons holding 10% or more: - Mr Howard Rae 150,000 27.27% 33.33% - Mr Andrew Matheson 150,000 27.27% 33.33% - Mr Brent Green 250,000 45.46% 20%
(i) Refer to page 71 for details of option vesting conditions.
(f) On Market Buy Back
There is no current on-market buy back. For personal use only use personal For IRON ORE
Registered and Principal Office Level 2, Aquila Centre 1 Preston Street COMO WA 6152 Telephone: +61 8 9423 0111 Resourceful Partnership Facsimile: +61 8 9423 0133 Email: [email protected] www.aquilaresources.com.au Resourceful Partnership Annual Report Aquila Resources Limited
2008 For personal use only use personal For
COAL