for personal use only al iron ore2011/10/27 · management in the steel industry. in 2002, he was...

Annual Report 2011: Aquila Resources Limited 1

annual report 2011

mAngAnesecoAL iRon oRe

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DIRECTORSTony Poli (Executive Chairman)Charles B. Bass (Non-Executive)Derek T. Cowlan (Non-Executive)Gordon T. Galt (Non-Executive)Zhihao Dai (Non-Executive)

COMPANY SECRETARYJ. Raymond Wood

AUSTRALIAN BUSINESS NUMBER (ABN)81 092 002 769

REGISTERED & PRINCIPAL OFFICELevel 2, Aquila Centre1 Preston StreetComo WA 6152Telephone: +61 8 9423 0111Facsimile: +61 8 9423 0133Email: [email protected]: www.aquilaresources.com.au

POSTAL ADDRESSPO Box 1038South Perth WA 6951

HOME EXCHANGEAustralian Securities Exchange2 The EsplanadePerth WA 6000ASX Trading Code: AQA

OTHER OFFICESQueenslandLevel 18, 10 Eagle StreetBrisbane QLD 4000Telephone: +61 7 3229 5630Facsimile: +61 7 3229 5631

South Africa JohannesburgBlock C, Ground Floor 28 Sloane StreetBryanston 2191 Telephone: +27 11 463 1340Facsimile: +27 11 463 5083

ThabazimbiC/O Lood & Platina AvenueThabazimbi 0380Telephone: +27 14 772 3337Facsimile: +27 86 644 1367

Northern CapeStand 585 OpwagGroblershoop 8850Telephone: +27 54 833 0027Facsimile: +27 86 683 8065

IndonesiaWisma Rahaja, Level 2 Zone BJL. TB. Simatupang, Kav. 1Jakarta Selatan 12560 Telephone: +62 21 7884 7214Facsimile: +62 21 7884 7215

AUDITORSKPMG235 St Georges TerracePerth WA 6000Telephone: +61 8 9263 7171Facsimile: +61 8 9263 7129

SHARE REGISTRYComputershare Investor Services Pty LtdLevel 2, Reserve Bank Building45 St Georges TerracePerth WA 6000Telephone: +61 8 9323 2000Facsimile: +61 8 9323 2044

SOLICITORSMallesons Stephen JaquesLevel 10, Central Park152 - 158 St Georges TerracePerth WA 6000Telephone: +61 8 9269 7000Facsimile: +61 8 9269 7999

BANKERS

National Australia Bank Limited Level 4, 100 St Georges Terrace Perth WA 6000

Commonwealth Bank of Australia Level 3, 150 St Georges Terrace Perth WA 6000

Westpac Banking CorporationLevel 17, 109 St Georges TerracePerth WA 6000

ANZ Banking Group LimitedLevel 7, 77 St Georges TerracePerth WA 6000

Corporate DireCtory

iron oreA world class iron ore project in the Pilbara region of Western Australia.

CoalResumption of production at the isaac Plains coal mine following the record wet season in Queensland.A world class underground coal mine for the eagle Downs Hard coking coal Project in the Bowen Basin region.

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Annual Report 2011: Aquila Resources Limited 1 1

Chairman’s Review ............................................2

Our People .........................................................4

Sustainability Matters .......................................6

Financing and Corporate Review .....................8

Our Markets .......................................................9

Operational Highlights

Iron Ore .........................................................10

Coal ..............................................................18

Manganese ....................................................32

Schedule of Tenements ...................................36

Directors’ Report .............................................40

Auditor’s Independence Declaration .............51

Consolidated Statement of Comprehensive Income ...................................52

Consolidated Balance Sheet ...........................53

Consolidated Statement of Changes in Equity ............................................54

Consolidated Statement of Cash Flows .........55

Notes to the Consolidated Financial Statements .......................................56

Directors’ Declaration .....................................89

Independent Audit Report .............................90

Shareholder Information ................................91

Contents

manganeseA high quality manganese project in the Kalahari region of south Africa.

Corporatecash and liquid investments of $210.9 million as at 30 June 2011.

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Chairman’s review 2011tony poliexecutive chairman

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Strategically, the Directors have made the decision to focus the Company’s future plans on the development of its interests in the West Pilbara Iron Ore Project and the Eagle Downs Hard Coking Coal Project.

These exciting developments are large capital intensive projects with long mine lives and significant scalability with which to build the foundation for strong earnings growth for the Company.

In order to fund the construction of these projects, management has established strategic relationships with key banking partners, including China Development Bank and more recently, National Australia Bank and the Commonwealth Bank of Australia.

Over the last twelve months, the Company has executed new funding arrangements with both National Australia Bank and the Commonwealth Bank of Australia, relating to a $250m cash advance loan facility and $80m guarantee and performance bond facility. Such relationships with financiers are important to ensure that our Company has the financial flexibility to obtain maximum value from its advancing portfolio of mineral projects.

After an extensive review, it was determined that the construction of the West Pilbara Iron Ore Project would be predominantly funded through limited recourse project finance and at the time of writing this review, negotiations are well advanced to secure a debt facility on this basis in excess of US$2 billion.

Baosteel, the Company’s third largest shareholder, has provided strong support in our project financing negotiations and discussions are being held with Baosteel about other synergies relating to our key mine developments.

From an operational perspective, our Company has had a challenging year with production at the Isaac Plains Coal Mine being severely affected by flooding at its Queensland operations.

At year end, dewatering was continuing and encouraging progress was being made towards finalising the insurance claim for damages and loss of earnings. It is anticipated that this insurance process will take some time to conclude, however the Company expects to fully recoup its financial loss arising from the flood event.

Regrettably, the Company’s relationship with Vale has deteriorated further following its continuing refusal to execute rail and port logistics contracts for the Company’s preferred mine development solution for the Eagle Downs Hard Coking Coal Project. As a consequence, this significant project is still without a contracted rail and port logistics solution. Despite Vale’s recent appeal against an injunction, our Company will continue to make every effort to allow this large scale underground mine to be developed with a contracted logistics solution in place.

In relation to the Belvedere Hard Coking Coal Project, the decision by the Supreme Court of Queensland on 20 June 2011 to strike out in its entirety, the claim in the proceedings commenced by Vale last year, has subsequently been appealed by Vale. Whilst the proceedings are delaying the settlement of the sale transaction, the Company expects the matter to be concluded by the end of the current financial year, resulting in Vale paying Fair Market Value determined as set out in the Belvedere Joint Venture Agreement for the Company’s interest in the Belvedere Hard Coking Coal Project.

Looking forward, the Company will be focussed on the development of the West

Pilbara Iron Ore Project and the Eagle Downs Hard Coking Coal Project and is progressing the divestment of its Washpool Hard Coking Coal Project in Queensland’s Bowen Basin region and the Avontuur Manganese Project in South Africa. Following an increasing level of interest expressed by potential acquirers of these projects during the year, the Company appointed investment banks to coordinate discussions relating to possible sale transactions.

A divestment of these advanced projects will enable the Company to concentrate on ensuring the prudent and timely completion of operational mine, rail and port facilities for its key iron ore and coal mine developments in Western Australia and Queensland.

Construction is expected to commence on both projects during 2012 and in doing so, significantly advance the Company towards its goal of becoming an important supplier of raw materials to the global steel industry.

Over the medium term, it is forecast that commodity prices will continue to be “stronger for longer” thereby underwriting the repayment of the associated debt funding facilities for these world class project developments and enabling payment of dividends to our shareholders.

On behalf of our Board, I would like to thank our employees for their contribution and dedication, all stakeholders and our shareholders and I look forward to an exciting period of transformation for our Company over the next 12 months.

Tony Poli

Executive Chairman

i am pleased to report on our company’s activities for the financial year and the progress we have made subsequent to year end.

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tony poli B.com, cPA, mAicD executive chairman and chief executive officer

Tony completed a double major at the University of Western Australia graduating with a Bachelor of Commerce. After graduating, Tony spent 15 years working as an accountant; initially at Deloitte Haskin and Sells, and later as a partner in a private practice. During this time, he gained extensive general management and corporate experience.

Tony was the Executive Chairman of Eagle Mining Corporation NL, which discovered, developed and operated the Nimary Gold Mine until it was acquired by Great Central Mines Limited in 1997.

Tony has been the Executive Chairman of the Company since its formation and listing on the Australian Securities Exchange in 2000.

Charles BassB.sc (geol), m.sc (mining & mineral Processing), FAusimm, FAig, mAicDnon-executive Director

Charles has over 35 years experience in exploration, development and production in Australia, Canada and the United States.

He was an Executive Director and co-founder 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.

Charles is a co-founder of the Company and a Non-Executive Director of ASX-listed Geopacific Resources Limited, which is exploring for copper and gold in Fiji. He is a Director and CEO of ESI Exploration Syndicate Inc, a North American unlisted company exploring for copper and other base metals.

gorDon galtB.eng (mining, Hons), B.com, gDip AppFin (Finsia), mAusimm, mAicDindependent non-executive Director

Gordon is a senior mineral resources executive and experienced Director with international mineral industry experience. Throughout his career, Gordon has worked in executive, management, technical and operational roles in mining companies with a focus on coal and gold. He also spent a period in the banking industry, servicing the wider mining sector. Gordon is currently engaged in funds management and corporate advisory activities and is a Director of five public companies.

Derek Cowlanindependent non-executive Director

Derek has considerable experience in financial and business management and currently presides as the Chairman of the Ross North Group, a large project home building company operating in Western Australia.

Zhihao DaiB.eng (metallic materials engineering), m.Arts (economics)non-executive Director

After graduating with a major in Metallic Materials Engineering from Shanghai Jiao Tong University, Mr Dai joined Baosteel in 1983, where he acquired substantial experience in production, marketing and management in the steel industry.

In 2002, he was appointed as Deputy General Manager of Baoshan Iron and Steel Co. Ltd, a publicly listed company and steel production centre of the Baosteel Group. Since then, he has held several senior positions within the Baosteel Group, including CEO of Baosteel International Economic & Trading Co. Ltd. In 2007, he was appointed Vice President of Baosteel Group Corporation, where he is now primarily responsible for Baosteel’s marketing and overseas investment.

Chairman anD DireCtorsFrom left to right: Zhihao Dai, tony poli, charles Bass, Gordon Galt, Derek cowlan.

our people

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martin alCiaturi B.sc (eng) (Hons), cAgeneral manager – Finance and corporate

Martin’s experience in corporate finance spans more than 20 years. He was Director at Macquarie Capital Advisers from 2006 where he headed the Perth business, and was involved in a number of capital markets and M&A transactions in the resources sector.

Prior to that, Martin was the partner-in-charge of Ernst & Young’s corporate finance practice in Western Australia for 10 years. He is a qualified Chartered Accountant, a Senior Fellow of FINSIA and a member of the Federal Government’s Takeovers Panel.

russell tipper B.eng (mining), mBA, mAusimmgeneral manager – iron ore

During his career of more than 30 years, Russell has worked in mining operations, finance and project development throughout Australia. As a mining engineer, he held senior management and operational roles in steel raw materials operations producing iron ore, coal and manganese for Rio Tinto, Robe River and BHP Billiton.

Russell also has experience in leading project teams in producing bankable feasibility studies for projects such as the Hope Downs Iron Ore Project and the Karara Magnetite Project.

stephen pilCherB.eng (mining, Hons), B.ecgeneral manager – coal

Stephen has over 25 years experience in mining operations and project development in the coal industry.

Before joining the Company, he was Executive General Manager - Project Development for Vale Coal in Australia. Prior to that, Stephen was Business Development Manager with AMCI. He also held operational roles managing a number of underground coal mines, including West Cliff Colliery, Kestrel Mine and Oaky North Mine.

Jason pavyLL.B (Hons), B.comgeneral manager - Legal

Jason is a legal practitioner admitted in Western Australia, New South Wales and Victoria. He has over 10 years of in-house experience with Rio Tinto, where he worked on a wide range of activities in corporate, M&A, joint ventures, exploration, procurement, IT, shipping and treasury areas.

Jason was also a key member of Rio Tinto’s team responsible for negotiation of the Investment Agreement for the Oyu Tolgoi Copper Project in Mongolia. Immediately prior to joining the Company, he was the Legal Manager for Ivanhoe Australia, establishing and leading the legal function of that business.

Brent green m.sc (Hons), mAig, msegHead of exploration

Brent is a qualified geologist with over 20 years experience in the mining industry. His roles have encompassed the identification of new projects and establishment of new mineral businesses.

Brent previously held technical positions with Asarco Australia and is experienced in managing exploration teams across a broad range of commodities.

howarD rae B.com, cAchief Financial officer

Howard is a qualified Chartered Accountant with over 20 years experience in financial management across the resources industry. His expertise covers commercial management, mineral project evaluation, corporate development and debt and equity financing. Howard spent the early part of his career with Ernst & Young, later joining Aurora Gold Limited, where he was responsible for financial management as the company expanded operations into Indonesia.

More recently he was involved in strategy and business development with Kumba Resources Limited for nine years, managing growth opportunities across Australasia.

ray wooD LL.B (Hons), mBABarrister & solicitor, general counsel and company secretary

Ray’s legal experience comprises over 20 years in senior in-house roles in the resources industry and more than 10 years as a commercial partner in a private practice, advising on a wide range of commercial matters.

His experience includes management of the legal function for Hamersley Iron’s Pilbara operations as Chief Legal Officer and Company Secretary of the Hamersley Holdings Group of Companies. More recently, he was part of a small management team in Hancock Prospecting Pty Ltd, which was involved in the finalisation of the Hope Downs joint venture between Rio Tinto and Hancock Prospecting Pty Ltd.

key managementFrom left to right: Jason pavy, howard rae, Brent Green, ray Wood, russell tipper, martin alciaturi, Stephen pilcher.

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safety managementThe Company is committed to providing a safe working environment for all employees and the ongoing maintenance of an injury, illness and disease free workplace.

The continued company-wide focus on improving the Occupational Health and Safety (OHS) processes and policies contributed to a strong OHS performance during the year with only one lost time injury across the entire Company.

Specific milestones included:

• company-wide communicationof keyOHSdocuments, namely:the OHS Policy, OHS Standards and Management System Manual;

• completionofacomprehensivereviewofOHSindustrystandardsand legal obligations to ensure the Company OHS Management System remains current;

• increasingthenumberofqualifiedSiteSeniorExecutivesundertheQueensland Coal Mining Safety and Health Act from one to four;

• anannualstatutorycomplianceauditoftheOHSManagementPlanfor operations in Queensland, forming the basis of a continuous action plan;

• developmentofaBusinessRiskRegisterandaLegalComplianceRegister to identify any OHS issues and ensure continuous safety performance improvement;

• recruitment of a Senior Health, Safety, Environmental andCommunity (HSEC) Adviser in Queensland and a Senior OHS Adviser in South Africa;

• implementationofaContractorOHSManagementProgramacrossprojects in South Africa; and

• strengthening safety knowledge among management throughtheir participation in mine health and safety training courses in respect of South Africa’s Mine Health and Safety Act and Regulations.

CarBon managementThe Company acknowledges that it is important to understand the sources and scope of greenhouse gas emissions across its operations and believes it is possible to reduce emissions from mining activities and from the use of mined minerals.

The Company has identified Carbon Management as one of its corporate priorities and is committed to:

• ongoing measurement of carbon emissions across all of itsoperations;

• ensuringthatemissionsdatacollectionandreportingistransparent,accurate and compliant with all legislation;

• reportingoncarbonemissionsinternallyandexternally;

• identifyingcostsandrisksrelatedtocarbonintheCompany’svaluechains;

• communicatingtheCompany’sapproachtoCarbonManagementand seeking stakeholder involvement;

• identifyingopportunitiesforreducingenergyuseandgreenhousegas emissions and implementing appropriate changes;

• fosteringacompanyculturethatsupportsenergyefficiency;

• participating in, supporting and contributing to research anddevelopment of technologies that lead to the safe, sustainable production and use of mineral resources; and

• identifying abatement projects and quantifying their carbonreduction benefits and costs.

Key achievements during the year include:

• formationofaCarbonManagementCommittee;

• developmentofaCarbonManagementPolicy;

• participationintheCarbonDisclosureProject;

• registration of the Isaac Plains Coal Mine to participate in theEnergy Efficiency Opportunities Program;

• carbonemissionmodellingfortheEagleDownsHardCokingCoalProject; and

• greenhousegasstudiesontheWestPilbaraIronOreProjectandthe Washpool Hard Coking Coal Project as part of environmental impact assessment processes.

sustainaBility mattersaquila is committed to safety and sustainability across the entire company and within the communities in which it operates.

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environmentThe Company is determined to minimise its impact on the environment and is committed to operating in line with environmental best practice in order to reduce its environmental impact by:

• delayingorstoppingactivitieswherethereareinadequateeffectiveenvironmental controls;

• assessing thepotential environmental impact of all projects andoperations in which it participates and implementing strategies that minimise environmental risks;

• minimisingemissions,discharges,wastes,energyuseandresourceconsumption;

• complyingwithallapplicableenvironmentallegislation;

• promoting environmental awareness amongst employees andcontractors;

• maintainingsystematicenvironmentalmanagementframeworks;

• settingandreviewingenvironmentalobjectivesandtargets;

• monitoringenvironmentalperformanceandtakingactionwherenecessary;

• communicating the Company’s environmental performance tostaff, shareholders, other stakeholders and the community; and

• fostering a culture that encourages employees and contractorsto follow the Company’s Environmental Policy and sustainability values.

The Company will continue to develop programs and processes to ensure responsible management of its business activities.

Significant environmental milestones during the year were:

• managing flood water in compliance with the temporaryenvironmental permit conditions at the Isaac Plains Coal Mine during flooding in central Queensland;

• receipt of Environmental Approval for the Eagle Downs HardCoking Coal Project;

• completion of the Washpool Hard Coking Coal ProjectEnvironmental Impact Statement;

• completionoftheWestPilbaraIronOreProjectPublicEnvironmentalReview for the mine, rail and port developments; and

• submission of the Environmental Impact Assessment and theEnvironmental Management Program Report for the Avontuur Manganese Project Mining Right Application.

Community affairsThe Company is committed to supporting the communities in which it operates. The Company openly communicates with communities, governments and other stakeholders, ensuring appropriate community involvement, with the aim of:

• enhancingtransparencyandpublicaccountability;

• facilitatingcommunityinclusivedecisionmaking;

• ensuringthatstrategicplanning,projectdevelopmentandservicedelivery meet community needs and expectations; and

• improvingorganisationalefficienciesbyenhancingpublictrust.

The Company aims to conduct its business with transparency, integrity and respect for the community by:

• buildingconstructive,collaborativerelationshipswithcommunitiesand stakeholders;

• ensuringthatcommunityinvolvementsupportsequityanddiversityof input;

• considering community needs and interests when developingcommunity involvement processes;

• promotingthevalueofcommunityinvolvementintheCompany’sactivities and decision making;

• allocatingresourcesforcommunityinvolvement;and

• integratingtheoutcomesofcommunityinvolvementintodecisions.

Highlights during the year included:

• commencementofimplementationofnewlandaccesslegislativerequirements in Queensland for interactions between explorers and landowners;

• appointmentofaCommunityRelationsManagerandtheopeningof an office in Karratha to ensure consultation with stakeholders in the West Pilbara Iron Ore Project and to identify opportunities for community partnerships and support;

• ongoingrelationshipbuildingwiththeTraditionalOwnersoflandcomprising the proposed West Pilbara Iron Ore Project, including collaborative environmental surveys, commencement of field staff recruitment from each group and consideration of joint management proposals for heritage and conservation value areas;

• recruitmentofaSustainabilityOfficerfortheCorporateOfficeinSouth Africa; and

• ratificationofSocialandLabourPlanprojectsbytheJoeMorolongLocal Municipality for the Avontuur Manganese Project in the Northern Cape Province of South Africa.

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the Company’s projected share of product

iRon oRe up to 27mtpa

coAL9.25mtpa

mAngAneseup to 2mtpa

West Pilbara and Hardey up to 25mtpa

Thabazimbi 2mtpa

isaac Plains 1.4mtpa

eagle Downs 2.25mtpa

Washpool 2.6mtpa

Talwood 3mtpa

Avontuur up to 2mtpa

The decision was taken early in the year that the scale and strategic significance of the West Pilbara Iron Ore Project was such that retention and funding of this project interest was a priority for the Company.

A combination of factors, including the magnitude of the funding required and reduced liquidity in western financial markets have meant that the Company has focused its debt funding activities primarily on the Chinese market where the vast majority of the project’s product is expected to be sold. Extensive negotiations and due diligence activities took place during the year (and continue) aimed at establishing a substantial limited recourse project finance facility before the scheduled commencement of construction in mid 2012.

The decision was also taken during the year that, subject to price outcomes, the Washpool Hard Coking Coal (Washpool) and Avontuur Manganese (Avontuur) Projects would be divested in order to help generate the Company’s equity contribution required for development of the West Pilbara Iron Ore Project. Both the Washpool and Avontuur Projects have been progressing through the final stages of the feasibility study process and broad-reaching sales processes have been progressed in parallel with this. Final bids are due for Washpool in the final quarter of calendar 2011 and the sales process for Avontuur is expected to conclude by early 2012.

During the year, a significant amount of effort had to be devoted to various disputes with Vale. Further, it is disappointing to note that as a result of Court action pursued by Vale, the expeditious price-discovery process as set out in the Belvedere Joint Venture Agreement is yet to be finalised, notwithstanding that Vale exercised its option to purchase the Company’s interest in that project over a year ago.

Eagle Downs Hard Coking Coal Project remains the Company’s other major development asset and whilst the vast majority of studies for this project have now been completed with preliminary interest expressed by a number of banks, project funding for this asset cannot commence in earnest until a clear logistics pathway has been secured.

The next few months promise to see substantial progress towards simplifying the Company’s portfolio and funding of the West Pilbara Iron Ore Project.

the 2011 financial year has seen a significant amount of activity on a number of financing matters which are expected to reach their conclusion within the next few months.

finanCing anD Corporate review 2011martin alCiaturi General manaGer – Finance anD corporate

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Queensland

south america

europe

india

ChinaJapan

taiwan

isaac plains Coal sales by Destination 2010/11

Pci 56%

Thermal 23%

coking 21%

isaac plains Coal sales financial year 2010/2011

our markets

Japan 45%

china 21%

india 10%

south America 9%

other Asia 8%

Taiwan 5%

europe 2%

The company assumed responsibility for marketing and selling its share of coal from the isaac Plains coal mine in november 2010 and has since committed the majority of its sales of that coal to long term contracts.

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iron ore

PAnnAWonicA

PRoPoseD RAiL Line

cAPe LAmBeRTAnKeTeLL PoinT

PARABuRDoo

HARDey

sTAge 1

resourCes & reserves (JorC)1.22Bt Resources: 264mt measured; 500mt indicated; 459mt inferred 445mt Proved and Probable Reserves

loCationstage 1 of the Project is 70km south of Pannawonica in the Pilbara region of Western Australia and the Hardey Deposit is 60km north-west of Paraburdoo

estimated mine Life: more than 20 years

proDuCtsDirect ship channel iron and bedded iron fines

aQuila interest 50%

proJeCteD proDuCtion rateup to 50 mtpa from stage 1 and Hardey

WesT PiLBARA iRon oRe PRoJecT

a WorlD claSS iron ore proJect

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> updated Resource (JoRc) for the West Pilbara iron ore Project increased to 1.22Bt.

> maiden Reserve statement of 445mt of Proved and Probable Reserves (JoRc) issued for stage 1 of the West Pilbara iron ore Project.

> mine development conditionally approved for stage 1 of the West Pilbara iron ore Project.

> exploration continues with drilling programs at the Hardey Deposit and the Weckl, Downey, Farquhar and Buckland Hills prospects.

> Public environmental Review documents for the West Pilbara iron ore Project mine, rail and port facilities have completed their public comment periods.

> 40 memoranda of understanding have now been signed with chinese, Korean, Japanese and Taiwanese steel mills for testing of the West Pilbara iron ore Project ore.

> A positive Prefeasibility study completed for the Hardey Deposit proposing a 10mtpa direct ship fines project expanding upon the infrastructure built for stage 1.

highlights 2011 the West pilbara iron ore project (the project) is based on a substantial tenement holding in the West pilbara region of Western australia, highly prospective for iron ore presenting as Bedded, Detrital and channel iron mineralisation.

The 30Mtpa Stage 1 development of the Project involves eight mesa-type Channel Iron Deposits south-west of Pannawonica and a 282km railway line from the mine site to a new port on the Pilbara coast at Anketell Point.

The Project is underwritten by a Resource (JORC) of 1.22Bt. The Resource contains Proved and Probable Reserves (JORC) of 445Mt in the eight Stage 1 deposits, ensuring an initial 15-year mine life at target production of 30Mtpa.

DevelopmentAdditional testing of the West Pilbara Fines (WPF®) has consistently reinforced the economic addition of up to 20% of WPF® in the sinter feed blends of Asian steel mills.

There are now 40 Memoranda of Understanding signed with steel mills from China, Korea, Japan and Taiwan for the testing of WPF®. The Company expects to contact these steel mills shortly to review the results of all test work and to commence negotiations for Letters of Intent to take ore from the Stage 1 development.

miningThe Company has developed an optimised mining and blending schedule for the Reserves identified for the Stage 1 mine development. The infrastructure proposed for Stage 1 has been designed to facilitate blending operations as proposed in the mining schedule. This entails production of a consistent product throughout the life of the Stage 1 mine, with more marginal material stockpiled for sale at the end of Stage 1 or for blending with additional resources identified by future exploration activities.

west pilBara iron ore proJeCt

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ViLLAge & AiRsTRiPmine site personnel will commute on a fly-in fly-out basis, using a jet capable airstrip to be built adjacent to the mine village. the village will accommodate 1,400 personnel during construction and 700 personnel during operations.

minePRoPoseD inFRAsTRucTuReto enable the mine to produce 30mtpa of iron ore fines, significant infrastructure is required to provide accommodation and air services for personnel, a pipeline connecting to the Dampier to Goldfields gas pipeline to deliver gas to an on-site power station and a bore field to deliver both process and potable water.

there is also a requirement for processing facilities, rail facilities, buildings and workshops, as well as an access road connecting with the nanutarra-munjina road and an extensive network of site roads.

iron oreWesT PiLBARA iRon oRe PRoJecT

cenTRAL PRocessing FAciLiTy (cPF)ore will be transported to the cpF by truck from the central deposits and by rail shuttles from the northern and southern deposits. ore from all of the deposits will be blended to create a final product at the mine site.

TRAin LoADouTafter blending and processing through the cpF, product stockpiled at the mine will be reclaimed at a rate of 10,000tph and loaded into trains consisting of two locomotives and 126 ore cars. the journey to the anketell port, 282km away, will take approximately four hours.

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approvalsThe 30Mtpa Stage 1 development of the West Pilbara Iron Ore Project has received Joint Venture Participant conditional approval.

The mine and rail Public Environmental Review (PER) was completed without receiving major objections and responses were submitted to the Office of the Environmental Protection Authority (OEPA). The EPA Report, which recommended approval of the mine and rail subject to a number of conditions, was released on 3 August 2011.

The port PER has also completed its public comment period, with responses to the OEPA under preparation.

The Project team continues to liaise with Government to secure the development role for Stage 1 port facilities and will commence negotiations on a State Rail Agreement, which will be an Act of Parliament, requiring the assent of both Houses of the Parliament of Western Australia.

geology anD resourCeExploration continues at a number of sites, including Weckl, Downey, Farquhar and Buckland Hills, with potential for further resources to use the infrastructure installed for Stage 1.

harDey proJeCtA Prefeasibility Study of the Hardey Deposit indicates the potential to increase production by 10Mtpa by extending the Stage 1 rail and port infrastructure.

hardey prefeasibility costsCapital a$ million

mine 570

rail 700

port 140

subtotal 1,410

epcm 60

contingency 130

total 1,600

operating a$ per tonne

mining 8.90

processing 4.90

rail 3.80

port 2.70

administration 1.70

total 22.00

These results are based on the evaluation of the Hardey Deposit as an incremental expansion of the Stage 1 development, achieving economies of scale from increased throughput on the installed Stage 1 rail and port infrastructure.

Further studies will evaluate alternative development scenarios for the delivery of ore to the Stage 1 railway.

stage 1 Development proved and probable reserve statement

JorC Classificationtonnes

mtfe%

sio2%

al2o3%

p%

loi %

Proved 166 58.0 5.11 3.38 0.08 7.99Probable 279 56.5 6.13 3.48 0.06 8.90total 445 57.1 5.75 3.44 0.07 8.56

west pilBara iron ore proJeCt – iron ore resourCe statement

Channel iron resource


mtfe%

sio2%

al2o3%

p%

s%

loi %

measured 209 57.8 5.29 3.55 0.079 0.017 7.95indicated 440 56.3 6.19 3.69 0.064 0.018 8.90inferred 418 56.0 8.13 3.12 0.101 0.016 7.89total 1,067 56.5 6.77 3.44 0.081 0.017 8.32

Bedded iron resource


mtfe%

sio2%

al2o3%

p%

s%

loi %

measured 55 61.8 3.31 2.43 0.143 0.006 5.33indicated 60 61.4 3.76 2.45 0.132 0.007 5.36inferred 41 61.0 3.98 2.46 0.123 0.010 5.67total 156 61.5 3.66 2.45 0.134 0.008 5.43

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TRAin unLoADeRloaded ore cars will be tipped two at a time through a two-celled rotary tippler. ore from under the train unloader will be conveyed to stockpiles in the port at a rate of 10,000tph. an unloader of this kind is capable of up to 50mtpa of throughput.

RAiL WoRKsHoPs

a total fleet of 15 locomotives and 520 mainline ore cars will be serviced and maintained at rail workshops located in the port area. arrival and departure tracks will allow loaded trains to be held ready for unloading and empty trains prepared for the return journey to the mine.

anketell pointPRoPoseD inFRAsTRucTuReanketell point has been identified by the State as a suitable site for a new deep-water, bulk loading port for the West pilbara area.

the West pilbara iron ore project has completed extensive technical and environmental studies to develop an expandable facility, capable of growing to 350mtpa capacity as required.

the initial development contemplates the construction of a 20km deep-water channel to allow capesize vessels of up to 250,000dwt to depart the port fully laden. a causeway and jetty is required to transport ore from the mainland to the ship loader at the end of the jetty.

there is also a requirement for stockpile facilities to store ore unloaded from trains arriving from the mine site. train operations and maintenance facilities are also planned.

a small desalination plant is proposed for the supply of process and potable water and power for the site will be drawn from the north West grid.

iron oreWesT PiLBARA iRon oRe PRoJecT

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PRoDucT sTocKPiLesore is stacked in longitudinal stockpiles of around 200,000 tonnes each. When a ship arrives at the loading berth, a bucket wheel reclaimer will recover the ore at rates of over 12,500tph for transfer through a sample plant and along the jetty, where it will be loaded onto the ship.

JeTTy AnD sHiP LoADeR

a 2.6km causeway and driven pile jetty will transport the ore from the stockpiles to a ship loader that is capable of loading ships at rates of over 12,500tph. the berth pocket, dredged to 20m depth, will allow a loaded vessel to wait for the high tide to access the channel to depart the port.

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iron ore

resourCes (JorC)48mt: 16mt indicated; 32mt inferred

loCationAdjacent to the township of Thabazimbi in the Limpopo Province of south Africa

proDuCtsDirect ship lump and fine hematite products

aQuila interest 74%

potential proDuCtion rate2mtpa

THABAzimBi iRon oRe PRoJecT

meLeTse ResouRceTHABAzimBi

thaBaZimBi iron ore proJeCt

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The Company holds the tenements on behalf of a joint venture with Rakana Consolidated Mines (Proprietary) Limited, a Black Economic Empowerment company.

sCoping stuDyThe Company completed a Scoping Study (the Study) for the development of the Meletse Deposit. The Study contemplates a 2Mtpa development of the current deposit, either for export through the port of Maputo, located on the east coast of Africa in Mozambique, or for domestic sale.

The Study also recognises that a larger ore body could support higher production rates (up to 4Mtpa), benefiting the Project through economies of scale.

Geotechnical studies are underway to gather information to support future mine planning. Environmental baseline studies and geo-hydrology were completed to support the environmental impact assessment for this project. The Company will undertake further mine studies following the upgraded Resource Statement expected in calendar 2012.

geology anD resourCeThe Company has continued drilling on the Meletse Deposit located to the east of Thabazimbi, completing 70 drill holes totalling 19,897 metres. The Meletse Deposit Resource Statement was upgraded during the year, resulting in a Resource (JORC) of 47.6Mt

the thabazimbi iron ore project (the project) is situated near thabazimbi, an established township and iron ore production area in the limpopo province of South africa.

resource Classificationtonnes

mtfe %

sio2

%al2o3

%p %

s %

mno %

mgo %

loi %

indicated 15.9 63.6 6.22 1.07 0.031 0.045 0.783 0.076 1.00inferred 31.7 62.5 8.89 0.82 0.044 0.041 1.078 0.054 1.19total 47.6 62.9 8.00 0.91 0.040 0.043 0.979 0.061 1.13

meletse Deposit resource statement

at 62.9% Fe. This deposit remains open both at depth and along strike, with exploration drilling ongoing and an upgraded Resource Statement anticipated next year.

The Company has purchased the Donkerpoort farm, which hosts the current resource and also finalised the purchase of the neighbouring Randstephne farm, which is expected to host the down dip extension of the Meletse Deposit.

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TALWooD isAAc PLAins

eAgLe DoWns

WAsHPooL

queenSlanD coal proJectS

Coal

50 0 50

Kilometres

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resourCes & reserves (JorC)

proDuCts aQuila interest

loCation

isAAc PLAins coAL mine

eAgLe DoWns HARD coKing coAL PRoJecT

7km east of moranbah in Queensland’s Bowen Basin region

estimated mine Life 15 years

25km south-east of moranbah in Queensland’s Bowen Basin region


resources (JorC) isaac Plains north 39.1mt: 23.7mt measured; 5.6mt indicated; 9.8mt inferred

isaac Plains south 88.8mt: 32.3mt measured; 33.1mt indicated; 23.4mt inferredreserves (JorC) isaac Plains north 19.1mt: 17.5mt proved; 1.6mt probableisaac Plains south 30.6mt probable run of mine (rom)

resources (JorC) 959mt: 648mt measured; 171mt indicated; 140mt inferred

reserves (JorC) 254mt: 206.6mt proved; 47.5mt probable

semi-hard coking coal, Pci coal and thermal coal

Hard coking coal

50%

50%

2.8mtpa (saleable coal)

initially up to 5.1mtpa and an average of 4.5mtpa from one underground longwall over the first 10 years

WAsHPooL HARD coKing coAL PRoJecT

24km north-west of Blackwater in Queensland’s Bowen Basin region


resources (JorC) 196.7mt: 124.9mt measured; 9.7mt indicated; 62.1mt inferred

reserves (JorC) 108.2mt: 94.7mt proved; 13.5mt probable

Hard coking coal 100% 2.6mtpa

proJeCteD proDuCtion rate

TALWooD coKing coAL PRoJecT

24km north of moranbah in Queensland’s Bowen Basin region

resources (JorC) 246.5mt: 137.1mt indicated; 109.4mt inferred

semi-hard coking coal and thermal coal

100% 3mtpa

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Coal

isaaC plains Coal mine

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safetyThe Isaac Plains Coal Mine had a rolling 12 month Lost Time Injury Frequency Rate of zero for the second consecutive year.

proDuCtionTwo principal contractors performed site operations during the year; John Holland Queensland Pty Ltd (John Holland), which manages the mining operations and Ausenco Pty Ltd, which manages the coal beneficiation operations. The Ausenco contract was extended for 18 months to June 2012 to coincide with the completion of the John Holland contract.

Overburden volume of 25.74Mbcm was moved during the financial year, only slightly down on the previous record year, despite the impact of flooding. However, increased stripping of overburden in advance due to the wet conditions limited run of mine (ROM) production to 2.16Mt for the year. This was washed at an average yield of 76% to produce 1.64Mt of product coal.

The Bucyrus Erie 1370W dragline, commissioned in May 2011, was assembled by G&S Engineering and began operating in June 2011. The Company expects that the new dragline will further improve material movement efficiency and the site’s performance compared to existing truck and excavator operations.

year ended June 2011 2010 2009 2008 2007

overburden (‘000bcm) 25,741 26,721 15,340 7,870 4,870

Rom coal Production(‘000t)

2,160 2,849 1,984 1,529 631

saleable coal Production(‘000t)

1,638 2,120 1,375 1,229 520

coal sales (‘000t) 1,562 2,478 1,271 1,057 410

> The isaac Plains coal mine achieved a strong safety performance during very challenging circumstances, including flood recovery works.

> Heavy rainfall from november 2010 to march 2011 resulted in flooding at a number of pits and significantly affected coal production. Temporary environmental Plans were submitted to the Department of environment and Resource management, enabling removal of water from the flood-affected areas.

> Total mine production was 1.64mt.

> Total coal sales were 1.56mt.

> The company assumed responsibility for marketing and sale of its share of coal enabling term contracts to be achieved for the majority of that coal.

> The dragline erection and commissioning was completed within budget during the last quarter of the year.

highlights 2011 the isaac plains coal mine (the mine) is an operating open-cut coal mine located east of moranbah in the Bowen Basin in central queensland in which the company holds a 50% interest. it produces a mix of metallurgical and thermal coals, which are exported through the Dalrymple Bay coal terminal.

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CoalisAAc PLAins coAL mine

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semi HARD coKing coAL Pci coAL THeRmAL coAL

isaac plains Coal sales By financial year

Coal transport anD logistiCsThe Isaac Plains Coal Mine has contracts with Dalrymple Bay Coal Terminal, Queensland Rail and Pacific National to transport the Mine’s coal production capacity of 2.8Mtpa.

Coal salesCoal sales from the Mine for the year were 1.56Mt, representing a 37% decline in annual sales volume from the previous year, mainly due to flooding and to a lesser degree, the dispute with Vale.

In the coming year, it is anticipated that the Mine will increase production to 3.6Mtpa ROM to produce 2.8Mtpa of product coal, which is in line with the revised Environmental Approval. The Company’s entitlement will be 1.4Mtpa of product coal.

approvalsThe process to obtain a Mining Lease for the Isaac Plains South Deposit continued throughout the year. The joint venture participants are currently considering a plan to construct infrastructure to access this low stripping ratio area and commence mining operations at Isaac Plains South in 2013.

2007

2008

2009

2010

2011

Semi-harD cokinG coal 299pci coal 362thermal coal 610


Semi-harD cokinG coal -pci coal 161thermal coal 249

Semi-harD cokinG coal 664pci coal 634thermal coal 1,180


total = 1,271

total = 1,057

total = 410

total = 2,478

total = 1,562

‘000t 0 250 500 750 1000 1250

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Coal

eagle Downs harD Coking Coal proJeCt

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DevelopmentThe Company’s preferred development schedule is driven by the first available port capacity that the Project is likely to contract, which is through the proposed Wiggins Island Coal Terminal (WICET) in Gladstone.

The schedule is based on commencing construction of the mine to ensure the initial development production is aligned with the anticipated commissioning of WICET in the September 2015 Quarter. This would require Project sanction and the commencement of construction in April 2012. This schedule provides sufficient certainty that the Project will be able to deliver the coal product to the market. The costs presented in this report are based on this schedule.

The estimated construction duration is 28 months from the date of the Project commitment. The key dates for construction and production under the schedule are shown in the table below.

milestone scheduled Date

Potential project sanction Apr 2012

construction of surface infrastructure complete Jun 2014

Drifts complete:- First access to coal

(Aligns with WiceT mechanical completion)- cHPP commissioning

oct 2015

Practical completion Dec 2015

Longwall production oct 2016

miningThe mine will be an underground multi-seam longwall mine, initially producing up to 5.1Mtpa and an average of 4.5Mtpa of hard coking coal from one longwall over the first 10 years of operation. The mine plan involves systematic recovery of coal from the Harrow Creek Upper (HCU), Harrow Creek Lower (HCL) and Dysart (DY) seams over a 48-year life of mine.

The mine design has been optimised using the results of the extensive exploration program, including a 3D seismic program, conducted over the mining area. Technical studies were also undertaken in relation to ventilation, gas drainage, geotechnical design and hydrogeology. Production schedules for the mine layout have been developed and benchmarked against leading Australian longwall coal mines.

Capital CostsThe Study released in May 2011 indicates that under the schedule, the Project can be developed for a capital cost of $1,254 million, which includes a contingency of $85 million.

area Capital Cost ($m)

mine and processing costs 1,130ePcm costs 39contingency 85total 1,254

Capital estimates are based on tendered prices for the Project work packages, with appropriate allowances for contingency required for this level of study.

operating CostsThe results of the Study indicate that, under the schedule, the mine will produce coal for approximately $94/tonne (FOB operating cost excluding State Royalties) with a mine life of approximately 48 years.

area operating Cost ($ per tonne)

mining operating costs 47Processing and support costs 27Logistics costs 20total 94

The operating costs are based on the best estimates of logistics costs as no firm contracts are currently in place.

eagle Downs hard coking coal project (the project) is a proposed underground longwall coal mine located to the south of moranbah in the Bowen Basin and adjacent to and down dip of Bhp Billiton mitsubishi alliance’s peak Downs mine.

> Release of an upgraded Resource statement.

> Release of an upgraded Reserve statement.

> completion of a study confirming the technical and financial viability of the Project, conditional upon securing rail and port logistics.

highlights 2011

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CoaleAgLe DoWns HARD coKing coAL PRoJecT

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Coal transport anD logistiCsApplications for port capacity at the proposed expansion for WICET Stage 2 have been made and the Manager of the Project is also preparing applications for the proposed development of the Dudgeon Point expansion adjacent to the Dalrymple Bay Coal Terminal.

market assessmentThe proposed coal product has been assessed as low-volatile, standard-grade hard coking coal and the coal is expected to be well received in the global metallurgical coal markets.

geology anD resourCeThe Project area contains a Resource (JORC) of 959Mt, of which 648Mt is classified as Measured, 171Mt is classified as Indicated and 140Mt is classified as Inferred.

resource Statement

seammeasured

mtindicated

mt

total measured &

indicated mt

inferred mt

total measured

indicated & inferred

mt

Q 73 20 93 15 108

Hcu 123 35 158 31 189

HcL 281 70 351 49 400

HcL “pci” - 3 3 8 11

Dy 164 13 177 16 193

Dy “pci” 7 30 37 21 58

total 648 171 819 140 959

This Resource contains a Reserve (JORC) of 254Mt ROM coal, as detailed below:

reserve Statement

Categoryrom

mt

Harrow creek upper seam (Hcu)

Proved 60.1

Probable 13.5

JorC reserves 73.6

Harrow creek Lower seam (HcL)

Proved 91.1

Probable 21.9

JorC reserves 113.0

Dysart seam (Dy)

Proved 55.4

Probable 12.1

JorC reserves 67.5

Total

Proved 206.6

Probable 47.5

JorC reserves 254.1

The mine Reserves are classified as predominantly hard coking coal.

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washpool harD Coking Coal proJeCt

CoalF

or p

erso

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washpool harD Coking Coal proJeCt

the Washpool hard coking coal project (the project) is a proposed open-cut coal mine located north-west of Blackwater in the Bowen Basin. once operational, the mine will produce 2.6mtpa of saleable hard coking coal for export through the proposed Wiggins island coal export terminal at Gladstone.

highlights 2011

The Definitive Feasibility Study (the DFS), which presents a business case and Project Execution Plan, has confirmed the Project’s technical and financial viability.

DevelopmentSubject to approvals, which are on schedule, construction and production can commence in mid-2012 and 2013 respectively. The key dates identified for construction and production are as follows:

milestone scheduled Date

Definitive Feasibility study – Final Report sept 2011

environmental impact studies Dec 2011

mining Lease Approval mar 2012

commencement of construction may 2012

Hard coking coal production Apr 2013

miningThe DFS proposes a contractor-operated, open-cut mine producing 2.6Mtpa of hard coking coal using cast, doze and excavate mining methods. The mine will target the Scorpio seams of the Burngrove Coal Measures and will employ selective mining techniques to minimise mining dilution. The expected life of mine is 16 years, inclusive of the initial ramp-up in production. There is also an opportunity to extend the life by 2–3 years by developing the deposit to the east.

It is proposed that a large excavator fleet will mine the upper tertiary material, with a smaller dedicated coal fleet selectively mining the coal plies to reduce dilution.

Coal BenefiCiation The proposed Coal Handling and Preparation Plant (CHPP) has been designed to produce a single product using a three-stage process at a plant feed rate of 1,060tph. Fine tailings will be dewatered and combined with the coarse tailings to be deposed of in the mined overburden, reducing the amount of water required to operate the CHPP.

Coal transport anD logistiCsThe Project is one of the eight Stage 1 participants in the development of the WICET. During the June 2011 Quarter, WICET progressed negotiations for the financing of the port development and subsequent to year end has completed this process, which included the allocation of a 1.6Mtpa capacity entitlement to the Project.

The collective negotiations with Queensland Rail for the construction of necessary rail infrastructure to support the new coal terminal are well advanced with negotiations for the rail haulage services expected to be concluded in the December 2011 Quarter.

approvalsThe Public Review period for the Environmental Impact Statement (EIS) ended on 20 June 2011. The Department of Environment and Resource Management has forwarded all submissions, which are being addressed through a Supplementary Report. The Mining Lease approval remains on schedule for March 2012.

geology anD resourCeThe target mining seam in the Project area is the Scorpio seam, which forms part of the Burngrove Coal Formation. The deposit lies within a perched basin, where the Scorpio seam continues, dipping at 3-5 degrees from the margins and flattening out towards the centre of the basin.

The basin extends approximately 7km along its east-west axis and approximately 4km along its north-south axis. The coal seam is typically 6m thick and is intersected at an approximate depth of cover of 20m at the edges of the basin and a maximum depth of cover of 67m in the central portion of the perched basin. This will make the Project one of the shallowest coal mining projects in Australia.

The Resource Statement (July 2011) has recently been upgraded and now totals 196.7Mt. It benefits from further knowledge gained in the exploration drilling program during the year. The Measured Resource (JORC) has increased from 108.8Mt (May 2010) to 124.9Mt as a result of infill drilling and ongoing coal quality analysis.

The present Reserves (JORC) as at May 2010 are 108.2Mt consisting of 94.7Mt of Proved and 13.5Mt of Probable coal. An updated reserves statement is yet to be completed on the new resources.

> completion of the Definitive Feasibility study.> Release of an upgraded Resource statement.

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Coal

talwooD Coking Coal proJeCt

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the talwood coking coal project (the project) is a proposed underground longwall mine located in the Bowen Basin in queensland, adjacent to and down dip from the Bhp Billiton mitsubishi alliance’s operating Goonyella riverside and Broadmeadow coal mines. the company holds 100% of the project.

> completion of the first stage exploration program with identification of prospective mining horizons in both the Rangal and moranbah coal measures in the Bowen Basin.

> Release of an upgraded Resource statement.

> completion of the concept study.

highlights 2011

The Concept Study (the Study) contemplates a potential underground longwall operation (a north and south mine with two separate access points), producing an average of 4.4Mtpa of ROM coking coal from one longwall unit in the Upper Leichhardt coal seam of the Rangal Coal Measures.

As a result of the positive outcomes produced from the Study, the Company has decided to progress to a Prefeasibility Study which will include a detailed exploration program targeting further definition of both the Rangal and Moranbah Coal Measures.

miningThe mining target in the Study was limited to the Upper Leichhardt Seam, where the longwall would operate in panels between 900m and 3.3km in length and in a seam thickness ranging from 2m to 3.3m, with a designed panel width of 265m. There are northern and southern mining areas, each of which will have independent access due to the relatively shallow depth of the seam in the western area of the tenement.

The Study contemplates annual production rates between 3.4Mtpa and 5.7Mtpa ROM (an average of 4.4Mtpa), with variation dependent on the number of longwall moves per year.

Coal BenefiCiation The proposed Coal Handling and Preparation Plant has been designed to produce two coal products using a three-stage process at a proposed plant feed rate of 800tph.

Coal transport anD logistiCsThe Project area is situated within 20km of the Goonyella – Abbot Point Queensland Rail infrastructure. The Study proposes the Goonyella – Abbot Point Expansion rail and the Abbot Point Coal Terminal as the currently preferred logistics solution for the Project.

The Prefeasibility Study will consider both Abbot Point and Dalrymple Bay Coal Terminals in future studies to determine the optimum solution.

geology anD resourCeThe exploration program identified three prospective coal seams with mineable targets within the Talwood exploration tenement, the Leichhardt and Vermont Seams from the Rangal Coal Measures and the thick Middle Goonyella seam from the Moranbah Coal Measures.

The Study targeted the Upper Leichhardt seam as the preferred mining horizon. The Leichhardt seam is at a depth of 50m at its shallowest point and dips at approximately 1 in 10 throughout much of the tenement. Initial washability tests indicate that this seam would produce a coking coal and a thermal coal.

The coal in the Middle Goonyella seam is a hard coking coal.

The total coal Resource (JORC) for the Project is 246.5Mt, with 137.1Mt of Indicated Resource and 109.4Mt of Inferred Resource.

resource Statement

seamindicated

mt

total measured &

indicated mt

inferred mt

total measured, indicated & inferred

mt

upper Leichhardt 50.3 50.3 10.6 60.9

Vermont 68.3 68.3 32.5 100.8

middle goonyella 18.5 18.5 66.3 84.8

total 137.1 137.1 109.4 246.5

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gRAVenHAge ResouRce

eeRsBeginT ResouRce

HoTAzeL

avontuur manganese proJeCt

resourCes (JorC) proDuCt aQuila interest

loCation

25km north of Hotazel in the northern cape Province of south Africa

109mt:26mt measured; 35mt indicated; 48mt inferred

High grade oxide manganese

74% up to 2mtpa (saleable product)

potential proDuCtion rate

manganese

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resource statement

Categorytonnes

mtmn%

fe%

sio2%

loi%

Cao%

mgo%

al2o3%

k2o %

p%

gravenhage manganese Deposit

measured 26.2 39.25 12.48 8.96 8.06 6.82 3.48 0.34 0.19 0.03

indicated 34.5 38.70 12.24 9.65 8.24 6.93 3.63 0.32 0.18 0.03inferred 46.3 37.95 11.41 10.31 8.68 7.38 3.94 0.33 0.14 0.03

subtotal 107.0 38.51 11.94 9.77 8.39 7.10 3.73 0.33 0.16 0.03

eersBegint manganese Deposit

inferred 1.8 45.50 13.00 4.63 3.70 na na 0.52 0.01 0.01

total 108.8 38.63 11.96 9.69 8.31 na na 0.33 0.16 0.03

The Company holds the tenement on behalf of a joint venture with Rakana Consolidated Mines (Proprietary) Limited, a Black Economic Empowerment company that has exercised an option to participate up to 26% in the development of the Gravenhage Deposit.

DevelopmentA Definitive Feasibility Study is in progress for the development of the Gravenhage Deposit, with mine studies considering the optimal open pit design for the start of production.

Underground operations are planned to commence later in the life of the mine and the underground section of the ore body will be accessible by declines from the final open pit.

A Mining Right Application was submitted to the Department of Mineral Resources (DMR) in South Africa, which contains a Social and Labour Plan that has been ratified by the Joe Morolong Local Municipality Council. The Company also submitted an Environmental Impact Assessment Report to the DMR, as required under the Mining Right Application process. The Mining Right grant is expected by the end of calendar 2011.

The Project is pre-qualified to participate in a reallocation of both the existing and increased capacity on the Port Elizabeth export corridor, the major transportation route for manganese ores destined for the export market. This allocation process is for production commencing in 2013, the target date for first production from the Project.

The Company is also participating in the Ore Line Expansion Project, a study to assess the viability of expanding the Saldanha Bay export corridor to cater for increased iron ore and manganese exports.

geology anD resourCeThe Company has completed resource drilling on the Gravenhage Deposit, with 92 holes totalling 11,003 metres drilled. The deposit has an upgraded manganese Resource (JORC) of 107Mt at 38.5% Mn, of which 56% is in the Measured and Indicated category.

Exploration drilling is continuing south of the Gravenhage Deposit at targets within the Avontuur Basin, which is wholly contained within the Company’s Avontuur Prospecting Right. Further south, within the lease and at the northern extents of the Kalahari Manganese Basin, exploration drilling is testing extensions of the Eersbegint Manganese Deposit.

the avontuur manganese prospecting right is located 25km north-west of hotazel in the kalahari manganese Field of the northern cape province of South africa.

na - not modelled

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west pilBara iron ore proJeCt• The information in this report that relates toMineral Resources

within the West Pilbara Iron Ore Project was prepared under the supervision of Mr Stuart Tuckey, who is a member of the Australasian Institute of Mining and Metallurgy. Mr Tuckey is a full-time employee of API Management Pty Ltd. Mr Tuckey has sufficient experience that 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 as defined in the 2004 Edition of the Australasian Code of Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code). Mr Tuckey consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

• TheinformationinthisreportthatrelatestotheWestPilbaraIronOre Project Ore Reserves is based on information compiled by Mr Steve Craig, Managing Director of ORElogy (Mining Consultants). Mr Craig is a Member of the Australasian Institute of Mining and Metallurgy and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking, to qualify as a Competent Person as defined in the JORC Code. Mr Craig consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

thaBaZimBi iron ore proJeCtThe estimates of iron ore Resources for the Meletse Deposit presented in this report have been prepared in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004. The estimates are based on information compiled by Mr Brent Green who is a member of the Australian Institute of Geoscientists and a full-time employee of the Company. Mr Green has sufficient experience that 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 as defined in the JORC Code. Mr Green holds shares in Aquila Resources Limited. Mr Green consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

isaaC plains Coal mine• TheinformationinthisreportthatrelatestotheIsaacPlainsCoal

Mine Resource Statement has been compiled by Mr Mal Blaik. Mr Blaik is a Principal Consultant of JB Mining Services Pty Ltd. Mr Blaik is a qualified geologist (BSc App Geol (Hons) University of Queensland, 1979) with over 30 years experience in coal geology and over 20 years experience in resource evaluation. Mr Blaik is a Member of the Australasian Institute of Mining and Metallurgy and as such, qualifies as a Competent Person under the JORC code. The Resource Statement has been prepared under the guidelines of the December 2004 edition of the Australasian Code for Reporting of Mineral Resources and Ore Reserves (the JORC Code). Fees for the preparation of this report are on a time and materials basis.

• TheinformationinthisreportthatrelatestotheReservesEstimatefor the Isaac Plains Coal Mine has been prepared by Mr Mark Bowater. The estimates of Coal Reserves for Isaac Plains North (ML 70342) and Isaac Plains South (MLa 70361) have been carried out in accordance with the 2004 edition of the Australasian Code for Reporting of Mineral Resources and Ore Reserves (the JORC Code). Mr Bowater is the Director of Echelon Mining Services Consultants Pty Ltd. Mr Bowater has a Bachelor Degree in Civil Engineering from Queensland University of Technology and a Bachelor Degree in Business from the University of South Queensland. Mr Bowater has over 20 years experience in the open cut mining industry, including 19 years in Queensland coal.

Mr Bowater has substantial experience in mining operations, financial evaluations, including previously conducted Reserves Statements. Mr Bowater is a Member of the Australasian Institute of Mining and Metallurgy and as such, qualifies as a Competent Person under the JORC Code. Fees for the preparation of this report are on a time and materials basis.

eagle Downs harD Coking Coal proJeCt• TheinformationinthisreportthatrelatestotheEagleDownsHard

Coking Coal Project Resource Statement has been compiled by Mr Mal Blaik. Mr Blaik is a Principal Consultant of JB Mining Services Pty Ltd. Mr Blaik is a qualified geologist (BSc App Geol (Hons) University of Queensland, 1979) with over 30 years experience in

CompetenCy statements

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coal geology and over 20 years experience in resource evaluation. Mr Blaik is a Member of the Australasian Institute of Mining and Metallurgy and, as such, qualifies as a Competent Person under the JORC code. The Resource Statement has been prepared under the guidelines of the December 2004 edition of the Australasian Code for Reporting of Mineral Resources and Ore Reserves (the JORC Code). Mr Blaik has consented to the inclusion in the report of the matters based on the information in the form and context in which it appears.

• TheinformationinthisreportthatrelatestotheEagleDownsHardCoking Coal Project Reserves Statement has been prepared under the guidelines of the December 2004 edition of the Australasian Code for Reporting of Mineral Resources and Ore Reserves (the JORC Code). The information in this report to which this Statement is attached that relates to Coal Reserves, is based on information reviewed by Mr J Steenekamp, who is a Fellow of the Australasian Institute of Mining and Metallurgy. Mr Steenekamp has sufficient experience 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 as defined in the 2004 edition of the JORC Code. Mr Steenekamp is a full time employee of Mining Consultancy Services (Australia) Pty Ltd and holds the position of Managing Director. Mr Steenekamp has consented to the inclusion in the report of the matters relating to Coal Reserves based on the information he has reviewed in the form in which it appears.

washpool harD Coking Coal proJeCt• TheinformationinthisreportthatrelatestotheWashpoolHard

Coking Coal Project Resource Statement has been based on information compiled by Mr Rod Doyle, who is a full-time employee of the Company. He is a qualified Geologist (BSc Geology UOW 1978 and MAppSc UNSW 1988) with some 30 years experience in coal geology, coal mining and resource evaluation. He is a member of the Australasian Institute of Mining and Metallurgy and qualifies as a Competent Person under the JORC Code. Mr Doyle holds shares in Aquila Resources Limited. Mr Doyle consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

• TheinformationinthisreportthatrelatestotheWashpoolHardCoking Coal Reserves Statement was prepared by Mr Ross Haupt who is a Director of Xenith Consulting Pty Ltd. He has a Bachelor Degree in Mining Engineering from the University of Queensland with over 25 years experience in the open cut coal mining industry and substantial experience in mining operations. Mr Haupt is a Member of the Australasian Institute of Mining and Metallurgy and as such, qualifies as a Competent Person under the JORC Code. Mr Haupt consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

talwooD Coking Coal proJeCtThe information in this report that relates to the Talwood Coking Coal Resource Statement has been based on information compiled by Mr Rod Doyle. He is a full-time employee of the Company and is a qualified Geologist (BSc Geology UOW 1978 and MAppSc UNSW 1988) with some 30 years experience in coal geology, coal mining and resource evaluation. He is a member of the Australasian Institute of Mining and Metallurgy and as such, qualifies as a Competent Person under the JORC Code. Mr Doyle holds shares in Aquila Resources Limited.Mr Doyle consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

avontuur manganese proJeCtThe information in this report that relates to the Gravenhage Manganese Resource was prepared under the supervision of Mr Brent Green, who is a member of the Australian Institute of Geoscientists and is a full-time employee of the Company. Mr Green has sufficient experience that 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 as defined in the JORC Code. Mr Green holds shares in Aquila Resources Limited. Mr Green consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

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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%

E47/1129 Balmoral All Minerals excluding Diamonds 1 100%


E47/1255 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%
















SchEdULE Of TENEMENTS

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WESTERN AUSTRALIA (cONT.)





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%

E47/1169 Yalleen Iron Ore 1 70%



E08/1227 Cardo Iron Ore 1 60%, earning up to 80%

E08/1283 Cane River Iron Ore 1 60%, earning up to 80%

E08/1289 Red Hill North Iron Ore 1 60%, earning up to 80%

E08/1293 White Gate Iron Ore 1 60%, earning up to 80%

E08/1294 Red Hill North Iron Ore 1 60%, earning up to 80%

E08/1295 Red Hill Iron Ore 1 60%, earning up to 80%



E08/1516 Red Hill / Mt Stuart Iron Ore 1 60%, earning up to 80%


E47/1141 Upper Cane Iron Ore 1 60%, earning up to 80%

E47/1693 Duck Creek Iron Ore 1 60%, earning up to 80%

P47/1271 Madala Bore All minerals 1,2 100%

E08/2089 Chuerdoo Pool All minerals 1,2 100%

E08/2140 Cheela Plains North All minerals 1,2 100%

E45/3562 Yowarda Pool All minerals 1 100%

E47/2205 Horse Well All minerals 1,2 100%

E47/2218 Boolgeega Creek South All minerals 1 100%

E47/2332 Cheela Plains Central All minerals 1,2 100%

E47/2341 Hamersley Range A All minerals 1,2 100%

E47/2342 Hamersley Range B All minerals 1,2 100%

E47/2375 Mango Bore All minerals 1,2 100%

E52/2596 Windell Pool All minerals 1,2 100%

E47/2501 Beasley River All minerals 1,2 100%

E47/2595 Cathedral Gorge All minerals 1,2 100%

E47/2596 Kalgan Creek A All minerals 1,2 100%

E47/2597 Kalgan Creek B All minerals 1,2 100%

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QUEENSLANd

EPC 783 Belvedere Coal 24.5%

EPC 1035 Belvedere West Coal 24.5%

EPC 1075 Belvedere South Coal 24.5%

EPC 1100 Belvedere Coal 24.5%

MLa 80148 Belvedere No 1 Coal 2 24.5%








PLa 269 Belvedere No 1 Petroleum 2 24.5%






MDLa442 Exevale Coal 2 50%

MDLa444 Isaac River Coal 2 50%

EPC 752 Exevale Coal 50%

EPC 755 Moranbah East Coal 50%

EPC 795 Peak Downs East Coal 50%

MLa 70389 Eagle Downs Coal 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%

MDL 403 Washpool Coal 100%

MLa 80164 Washpool Coal 2 100%

MLa 80176 Washpool B Coal 2 100%

MLa 80177 Washpool C 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 Talwood Coal 100%

SchEdULE Of TENEMENTS

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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%

EPC 1211 Blenheim Coal 100%

EPC 1214 Stragglers Coal 100%

EPC 1219 Blenheim Ext Coal 100%

EPC 1412 Cabbagetree Coal 100%

EPCa 2179 Washpool West Coal 2 100%

EPC 2302 Walton North Coal 100%

EPCa 2467 Cabbagetree West Coal 2 100%

NORThERN TERRITORY

EL28180 Argadargada All minerals 100%

EL28181 Lake Nash All minerals 100%

EL28182 Mt Hogarth All minerals 100%

BOTSWANA

P 53/2005 Lechana Coal 50%

P 54/2005 Tshimoyapula Coal 50%

P 55/2005 Dukwe Coal 50%

P 56/2005 W Mmamabula B Coal 50%

P 57/2005 W Mmamabula A Coal 50%

SOUTh AfRIcA

LP30/5/1/1/2/547 Rotterdam Iron Ore 3 100%

LP30/5/1/1/2/613 Klipgat Iron Ore 3 100%

LP30/5/1/1/2/614 Vlaknek Iron Ore 3 100%

LP30/5/1/1/2/1301 Donkerpoort Iron Ore 3 100%

LP30/6/1/1/2/1730 Wachteenbietjiesdraai Iron Ore 3 100%

NC30/5/1/1/2/478 Avontuur Manganese 3 100%

NC30/5/1/1/2/479 Kathu Iron Ore/Manganese 3 100%

NC30/5/1/1/2/1023 Blackridge Iron Ore/Manganese 3 100%

NC30/5/1/1/2/1048 Orange River Iron Ore 3 100%

MR Farm703/114 Gravenhage Iron Ore/Manganese 2,3 100%

NOTES

1 Australian Premium Iron Joint Venture (The Company – 50%). The Joint Venture’s interest is only in relation to iron ore.

2 Under application.

3 The Company holds these tenements on behalf of the Thabazimbi Joint Venture in which the Company holds a 74% interest.


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1 Directors .....................................................................41

2 Company Secretary ....................................................41

3 Directors’ meetings ....................................................41

4 Corporate Governance Statement ............................42 - Board of Directors ....................................................42 - Nomination Committee ...........................................42 - Remuneration Committee .......................................42 - Audit Committee .....................................................43 - Risk management ....................................................43 - Ethical standards ......................................................43 - Communication with shareholders .........................44

5 Principal activities ......................................................44

6 Operating and financial review ................................45 - Coal ...........................................................................45 - Iron Ore ....................................................................45 - Manganese ...............................................................46

7 Dividends ....................................................................46

8 Events subsequent to the reporting date ................46

9 Likely developments ..................................................46

10 Directors’ interests .....................................................46

11 Share options .............................................................47

12 Indemnification and insurance of Officers ...............47

13 Non-audit services .....................................................47

14 Auditor’s independence declaration ........................47

15 Rounding off ..............................................................47

16 Remuneration report – Audited ................................48 16.1 Remuneration policies .....................................48 16.2 Directors’ and Executive Officers’

remuneration ...................................................49 16.3 Analysis of bonuses included in

remuneration - granted as compensation .......50 16.4 Analysis of movements in option

holdings - granted as compensation ................50 16.5 Analysis of exercise of option

holdings - granted as compensation ................50

The DirecTors of AquilA resources limiTeD (“The compAny”) presenT Their reporT TogeTher wiTh The consoliDATeD finAnciAl sTATemenTs for The consoliDATeD enTiTy, being The compAny AnD iTs conTrolleD enTiTies, for The yeAr enDeD 30 June 2011, AnD The AuDiTor’s reporT Thereon.

cONTENTS

dIREcTORS’ REPORT

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1. dIREcTORSThe Directors of the Company at any time during or since the end of the financial year are:

Name, qualifications and independence status Age Experience and special responsibilities

Directorships of external listed companies held in the previous three years

Tony PoliB.Com, CPA, MAICDExecutive Chairman and Chief Executive Officer

52 A Director since 14 March 2000, Mr Poli is a qualified accountant and has extensive general management, corporate and directorial experience. He has responsibility for the operations of the consolidated entity and has overseen the growth of the consolidated entity.

Nil

Charles Bennett BassB.Sc(Geol), M.Sc(Mining Eng.), FAusIMM FAIG, MAICDNon-Executive Director

61 A Director since 14 March 2000, Mr Bass is a qualified geologist and mining engineer with 40 years experience in mineral exploration, development and production in Australia, Canada and the United States. Mr Bass is the Chairman of the Risk Management Committee.

Exploration Syndicate, Inc. Geopacific Resources NL

Derek Thomas CowlanIndependentNon-Executive Director

77 A Director since 14 March 2000, Mr Cowlan has a wealth of experience in financial and business management. He currently presides as the Chairman of the Ross North Group, a large project home building company operating in Western Australia. Mr Cowlan is the Chairman of the Audit Committee.

Nil

Gordon Thomas GaltB. Eng (Mining, Hons), B.Com, MAusIMM, MAICD Independent Non-Executive Director

60 A Director since 22 August 2007, Mr Galt is a senior mineral resources executive and an experienced Director. He has worked in senior management, technical and operational roles and across a wide range of commodities, primarily in coal, gold and magnesium, and to a lesser extent in copper, lead and zinc. Mr Galt is the Chairman of the Remuneration Committee.

Navigator Resources Ltd.Discovery Metals Ltd.NuCoal Resources NLUS Masters Holdings Ltd.Delta SBD Ltd.

Zhihao DaiB. Eng (Metallic Materials Eng.), M.Arts (Econ.)Non-Executive Director

48 A Director since 27 November 2009, Mr Dai is a qualified engineer with substantial experience in the production, marketing and management functions of iron and steel enterprises. He joined Baosteel in 1983 and has held numerous roles within the Baosteel Group prior to being appointed Vice President of Baosteel Group Corporation in 2007.

Baoshan Iron & Steel Co. Ltd. Baosteel Group Corporation

2. cOMPANY SEcRETARYMr J R Wood (LLB (Hons), MBA), the Company’s General Counsel, was appointed as the Company Secretary on 1 September 2007. Mr Wood, an Australian Legal Practitioner, has significant legal experience in the resources industry, both as an in-house counsel and as a partner in private practice.

3. dIREcTORS’ MEETINGSThe 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 year are:

Board Meetings Audit CommitteeRisk Management

Committee Remuneration Committee

Name of Director

Number of meetings

held

Number of meetings attended

Number of meetings

held


Number of meetings

held(ii)

Number of meetings

attended(ii)

Number of meetings

held


Mr T Poli 5 5 -(iii) 1(i) 2 1 -(iii) -

Mr C B Bass 5 5 2 2 2 2 1 1

Mr D T Cowlan 5 4 2 2 -(iii) - 1 1

Mr G T Galt 5 5 2 2 -(iii) - 1 1

Mr Zhihao Dai 5 2 -(iii) - -(iii) - -(iii) -

(i) Attended meeting by invitation of the relevant Committee.

(ii) The Company’s Chief Financial Officer (CFO), Mr Howard Rae, is also a member of the Risk Management Committee. Mr Rae attended both meetings of this Committee held during the year.

(iii) Messrs Poli and Dai are not members of the Audit Committee, Messrs Cowlan, Galt and Dai are not members of the Risk Management Committee and Messrs Poli and Dai are not members of the Remuneration Committee.

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dIREcTORS’ REPORT

4. cORPORATE GOVERNANcE STATEMENTThis statement outlines the main corporate governance practices in place throughout the financial year, which comply with the Australian Securities Exchange (ASX) Corporate Governance Council’s (Council) recommendations, unless otherwise stated.

BOARd Of dIREcTORSRole of the BoardThe Board’s primary role is the protection and enhancement of long-term shareholder value. It guides and monitors the business and affairs of the consolidated entity on behalf of the shareholders by whom they are elected and to whom they are accountable.

To fulfill this role, the Board is responsible for the overall corporate governance of the consolidated entity including:

• overseeingcorporatestrategy;

• appointing,remuneratingandperformanceassessmentoftheChiefExecutiveOfficer(CEO);

• approvingmajorcapitalexpenditures,acquisitions,divestmentsandcapitalmanagementprogrammes;

• monitoringtheachievementofcorporateobjectives;

• reviewing,ratifyingandmonitoringsystemsofinternalcompliance,risk management and legal compliance, ensuring the integrity and effectivenessofthosesystems;and

• approvingtheconsolidatedfinancialstatements.

The Board has delegated responsibility for the day-to-day operational, corporate and administrative activities of the consolidated entity to the CEO (who is also the Chairman of the Board) and executive management. Contrary to the Council’s recommendations 2.2 and 2.3, which recommends that the Chairman should be independent and that the role of the Chairman and the CEO should not be the same individual, the Board has elected not to comply with these recommendations at this point in time as it is of the opinion that the objectives and current strategy of the consolidated entity are best served by the same person in the dual role of CEO/Chairman, irrespective of his degree of independence.

Board processThe Board currently holds regular meetings each year, plus any extraordinary meetings at such other times as may be necessary to address significant matters that may arise. 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.

directors’ educationThe Company has a process to educate new Directors about the nature of the business, current issues, the corporate strategy, the culture and values of the Company and the expectations of the Company concerning the performance of Directors.

Directors are encouraged to undertake continuing education and professional development, relevant to discharging their duties. All reasonable costs of continuing Directors’ education and professional development are met by the Company.

Independent professional advice and access to informationIn fulfilling their obligations, each Director has the right of access to all relevant information held by the Company and to the Company’s Executives and, subject to prior consultation with the Chairman, may seek independent professional advice from a suitably qualified adviser at the consolidated entity’s expense.

The Director must consult with an adviser suitably qualified in the relevant field, and obtain the Chairman’s approval of the fee payable for the advice before proceeding with the consultation. This approval will not be unreasonably withheld. A copy of the advice received by the Director is made available to all members of the Board.

composition of the BoardThe names of the Directors of the Company in office at the date of this report are set out in the Directors’ Report on page 41.

The composition of the Board is determined by applying the following principles and guidelines:

• Directors appointed by the Board are subject to election byshareholders at the following Annual General Meeting and thereafter aresubjecttore-electioneverythreeyears;

• The Board has resolved, pursuant to the Company’s Constitution,that the Board shall comprise five Directors. The Board may resolve to increase this number if additional expertise is considered desirable incertainareas;and

• TheBoardshouldcompriseDirectorswithanappropriaterangeofqualifications and expertise.

The Board periodically reviews its composition to consider whether it has the appropriate mix of Directors with the expertise and experience suitable for the purpose of fulfilling its collective responsibilities on behalf of shareholders. Where a vacancy exists, for whatever reason, or where it is considered that the Board would benefit from the services of a new Director with particular skills, the Board will select candidates with the relevant qualifications, skills and experience.

Of the five Directors, Mr Cowlan and Mr Galt are considered by the Board to constitute Independent Directors. Notwithstanding the Council’s recommendation 2.1 that the majority of the Board should consist of Independent Directors, the Board is of the opinion that the objectives and current strategy of the consolidated entity are currently best served and achievable by maintaining on the Board a majority of persons associated with the consolidated entity since its inception, irrespective of their degree of independence.

It is the Board’s intention to continue to review and assess the benefits associated with the introduction of additional external Independent Non-Executive Directors.

NOMINATION cOMMITTEEThe Directors believe that the size of the Board does not currently justify the establishment of a separate Nomination Committee of the Board of Directors as recommended by the Council’s recommendation 2.4.

All matters which might otherwise be dealt with by a Nomination Committee are considered at meetings of the full Board of Directors.

The Board will continue to review the necessity to establish a Nomination Committee.

REMUNERATION cOMMITTEEThe Board established a Remuneration Committee effective August 2010, the composition of which is consistent with the Council’s recommendation 8.1. This Committee is comprised of Messrs Galt, Bass and Cowlan, with Mr Galt acting as its Chair.

The Remuneration Committee reviews and makes recommendations to the Board on remuneration packages and policies applicable to Executive Directors and Non-Executive Directors and the annual Remuneration Report. This responsibility extends to incentive performance packages, share option schemes, termination entitlements and legal and regulatory compliance associated with remuneration matters.

The Remuneration Committee meets as required. The CEO and the General Manager – Finance and Corporate attend the Remuneration Committee meetings by invitation, but are not present when their remuneration is considered or discussed.

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AUdIT cOMMITTEEThe Company has had a separate Audit Committee since September 2006, pursuant to the ASX Listing Rule 12.7 and consistent with the Council’s recommendation 4.1. The structure of the Audit Committee, as recommended by the Council’s recommendation 4.2, is comprised of Messrs Cowlan, Bass and Galt, with Mr Cowlan acting as its Chair.

The operation of the Audit Committee is governed by a Charter which specifies that its key responsibilities include:

• monitoring compliance with new and existing regulatoryrequirements, including the Corporations Act 2001, ASX Listing Rulesandotherstatutoryobligations;

• reviewing the Company’s risk management systems in relationto audit, accounting, taxation and financial reporting risks and obligations;

• evaluatingtheadequacyoftheaccountingsystemandtheassociatedinternalcontrolframework;

• reviewingtheannualandhalf-yearconsolidatedfinancialstatements;

• approvingtheappointment,reappointment,rotationorreplacementoftheexternalauditors;

• reviewingtheoverallscopeoftheexternalaudit;and

• considering the effectiveness and independence of the externalauditors.

The CEO and the CFO have declared in writing to the Board that the financial records of the consolidated entity for the financial year have been properly maintained and that the consolidated entity’s financial statements for the year ended 30 June 2011 comply with accounting standards and present a true and fair view of the consolidated entity’s financial condition and operational results. This statement is required annually.

RISK MANAGEMENTRisk Management committeeThe Board established a Risk Management Committee effective June 2006. Its structure is comprised of Messrs Bass, Poli and Rae, with Mr Bass acting as its Chair.

The key responsibilities of the Risk Management Committee include:

• managing and overseeing an enterprise wide Risk ManagementPolicyandRiskManagementSystem;

• assessingandmonitoringsignificantrisksfacedbytheconsolidatedentity and the effectiveness of procedures implemented by managementtomitigatesuchrisksonanongoingbasis;

• reviewing and assessing material changes to risks faced by theconsolidatedentity;

• reviewing the Risk Management System and Risk Register on aregularbasis;and

• ensuring risk exposures relating to foreign exchange and interestrate fluctuations are managed in accordance with the consolidated entity’s Foreign Exchange and Interest Rate Risk Management Policy by determining, with the assistance of external treasury advisers, appropriate foreign exchange and interest rate hedging strategies to manage these risks and ensure that such activities are conducted in compliance with this policy.

Risk Management SystemThe consolidated entity’s Risk Management System aims to ensure that risk management is undertaken in a holistic, co-ordinated approach in order to add value to the business. It is designed to identify, assess, monitor and manage risks and monitor any material changes to risks faced by the consolidated entity. It was adopted to establish oversight and management of significant business risks faced by the consolidated entity, pursuant to the Council’s recommendation 7.1 and 7.2.

The system includes a Risk Register, where all material risks faced by the consolidated entity are identified and assessed, the accountabilities

for the management of the risk and risk mitigation actions and plans, and the framework by which the monitoring, assessing and reviewing will be undertaken and communicated to the relevant stakeholders on a regular basis.

The management of the Risk Management System, including assessing the effectiveness of the risk management processes and activities, is the responsibility of the Risk Management Committee.

Board oversight of Risk ManagementThe Board monitors and receives reports from the Chairman of the Risk Management Committee on risk matters (operational and financial risk areas) addressed by the Risk Management Committee via a standing agenda item at each Board Meeting, and considers strategies for appropriate risk management arrangements. Matters determined by the Risk Management Committee are submitted to the full Board as recommendations for Board decisions as appropriate.

Operational, financial reporting and regulatory compliance risks are continually assessed, monitored and managed at management level, and any specific areas of significant risk are dealt with at Board level.

Whilst the Board acknowledges that it is responsible for the overall internal control framework, it is also cognisant that no cost-effective internal control system will preclude all errors and irregularities.

To manage the consolidated entity’s risk profile, the Board has established an internal control framework comprising:

• monitoringtheRiskManagementCommittee;

• monitoring financial reporting accuracy and compliance with thefinancial reporting regulatory framework:

– there is a comprehensive budgeting system with an annual budget approved by the Directors. Monthly financial results are reported against budget and forecasts for the remainder of the year are revisedmonthly;

– cash flow statements are prepared and included within a package ofinformationreportedtoDirectorsonamonthlybasis;and

– half-yearly and annual statutory reports, which are reviewed and audited respectively by the Company’s external auditors and reportedtotheASX;

• allbusinesstransactionsofamaterialnatureareproperlyauthorisedandexecuted;and

• the recruitment and retention of personnel with due experience,commitment and integrity.

The financial reporting risk management framework and associated internal controls are monitored by management to ensure they are operating effectively. The operational risk management procedures are reviewed on an ongoing basis to ensure they appropriately support corporate objectives.

Environmental regulationThe consolidated entity is committed to ensuring that safe and sound environmental practices are carried out while undertaking exploration, development and mining activities and that such practices comply with relevant statutory requirements under Commonwealth, State and relevant overseas legislation. The Board is not aware of any significant or material breaches of environmental requirements during the period covered by this report.

EThIcAL STANdARdSAll Directors and employees are expected to act with the utmost integrity and objectivity and comply at all times with laws governing the consolidated entity’s operations. In addition, they are also expected to conduct the consolidated entity’s activities in keeping with the highest legal, moral and ethical standards.

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44

dIREcTORS’ REPORT

4. cORPORATE GOVERNANcE STATEMENT (cONT.)EThIcAL STANdARdS (cONT.) code of conductAll Directors and employees are required at all times to act in accordance with the consolidated entity’s Code of Conduct, which prescribes standards of behaviour to be maintained in relation to:

• compliancewithlawsandregulations;• politicalcontributions;• unacceptablepayments;• givingand/orreceivinggifts;• protectionofassets;• properaccounting;• dealingwithauditors;• publicstatements;• conflictsofinterest;• theuseofinsideinformation;• sharetrading;• alcoholanddrugabuse;• equalopportunityanddiscrimination;• environmentalresponsibilities;• occupationalhealthandsafety;and• economyandefficiency.

conflict of interestIn accordance with the Corporations Act 2001 and the Company’s Constitution, Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the Board believes that a significant conflict exists for a Director on a Board matter, the Director concerned does not receive the relevant Board papers and is not present at the meeting whilst the item is considered. Details of Director related party transactions with the consolidated entity are set out in Note 32 to the consolidated financial statements.

Share tradingThe Board encourages its Directors and employees to own securities in the Company but is also mindful of its responsibility that the consolidated entity complies with the Corporations Act 2001 pertaining to “insider trading”.

To ensure compliance with the relevant requirements of the Corporations Act 2001 and the Listing Rules of the ASX, the consolidated entity has established a policy on share trading in the Company’s securities by Directors and employees which requires that:

• Directors and employeesmust notify the Executive Chairman andthe Company Secretary of their intent to trade the Company’s shares and confirm that they are not in possession of any material inside information;

• tradingintheCompany’ssharesisprohibitedatthefollowingtimes:

– ten days prior to the release of any quarterly report by the Company, which is normally one month following the end of each calendarquarter;

– four weeks prior to the release of the Company’s interim and full-yearfinancialstatements;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’sshares;and

• activetradingintheCompany’sshares,withaviewtoderiveprofitrelated income, is prohibited at all times.

cOMMUNIcATION WITh ShAREhOLdERSThe Board provides shareholders with information via its comprehensive Continuous Disclosure process which involves identifying matters that may have a material effect on the price of the Company’s securities, notifying these matters to the ASX, posting them on the Company’s website and issuing media releases.

The Continuous Disclosure process operates as follows:

• theCEOandtheCompanySecretaryareresponsibleforContinuousDisclosurecomplianceandinformingtheBoardofrelevantmatters;

• theCEOisresponsibleforallcommunicationswiththeASX;

• the annual report, which includes relevant information about theoperations and financial results of the consolidated entity during the year, changes in the state of affairs and details of future developments, is distributed electronically to all shareholders in October each year, unless a shareholder has specifically requested to receiveahardcopyannualreport;

• the half-yearly report, which contains summarised financialinformation and a brief review of the operations of the consolidated entity during the period, is lodged with the ASX in March each year andiselectronicallydeliveredtoallshareholderswhorequestacopy;

• the quarterly reports, containing a review of the operations andstatement of cash flows of the consolidated entity are reported and lodged with the ASX in January, April, July and October each year and areelectronicallydeliveredtoallshareholderswhorequestacopy;

• proposedmajorchangestotheconsolidatedentitywhichmayimpactonshareownershiprightsaresubmittedtoavoteofshareholders;

• all announcements made to the market and related information(including information provided to analysts or the media during briefings) are placed on the Company’s website after their release to theASX;

• the full text of notices of meetings and associated explanatorymaterialareplacedontheCompany’swebsite;and

• the external auditor is requested to attend the Annual GeneralMeetings to answer any questions concerning the audit and the contents of the auditor’s report.

The above information is made available on the Company’s website within two business days of public release and is emailed to all shareholders who lodge their email contact details and consent to receiving electronic communication from the Company. Information on lodging email addresses with the Company is available on the Company’s website.

The Board encourages attendance and participation by shareholders at the Annual General Meeting, to ensure a high level of accountability and identification with the consolidated entity’s strategy and goals. All important issues are presented to the shareholders as specific resolutions.

5. PRINcIPAL AcTIVITIESThe principal activities of the consolidated entity during the course of the year consisted of exploration for coal, iron ore and manganese resources and mining of coal resources. There were no significant changes in the nature of these activities of the consolidated entity during the year.

The consolidated entity’s objective is to enhance shareholder value through systematic exploration, evaluation and development of its mineral projects.

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6. OPERATING ANd fINANcIAL REVIEW

OVERVIEW Of ThE cONSOLIdATEd ENTITYThe net consolidated loss for the year attributable to members of the Company after income tax was $64,558,000 (2010: $33,072,000).

REVIEW Of OPERATIONSCOAL

Isaac Plains Coal Mine(Aquila Resources Limited -50%)

The consolidated entity has achieved a gross profit from the 50% owned Isaac Plains Coal Mine of $29,659,000 (2010: $11,230,000). This result was achieved despite a 37% decrease in annual sales volumes relative to the 2010 financial year, with 1.56Mt shipped (2010: 2.48Mt).

Coal production for the year was heavily impacted by adverse weather conditions in Queensland. Force majeure was declared in December 2010 due to the inability of the mine to process and deliver coal while recovery and repairs from significant flooding were undertaken. A significant dewatering program was necessary in the second half of the financial year, which has also made a negative contribution to operating costs. Work is continuing on a significant insurance claim which covers both property damage and business interruption.

The 12-month rolling average Lost Time Injuries (LTI) Frequency Rate has continued to be maintained at zero LTI per million man hours worked.

The Isaac Plains dragline was brought into production in June 2011, with operations commencing in the N1 pit following successful commissioning trials. The dragline construction project was completed within budget and suffered only minor delays as a result of the poor weather conditions encountered over the construction period.

Eagle Downs Hard Coking Coal Project(Aquila Resources Limited -50%)

The major milestone achieved during the year has been the completion of the project Study which has confirmed the technical and financial viability of the Eagle Downs Hard Coking Coal Project, subject to securing rail and port capacity and firm offtake agreements.

The Eagle Downs Hard Coking Coal Project has an estimated mine life of 48 years and a total JORC compliant resource of 959Mt (648Mt Measured, 171Mt Indicated and 140Mt Inferred) and a reserve of 254Mt run of mine coal. The mine, once constructed with the longwall installed in the Harrow Creek Upper Seam, will produce an average of 4.5Mtpa of hard coking coal over the initial ten years of production. The coal product has been assessed as low-volatile, standard-grade hard coking coal and the brand is expected to be well received in the global metallurgical coal market.

The information in this report that relates to the Eagle Downs Resource Statement is based on information verified by Mr Phillip Sides (BAppSc (Geology), MAIG). Mr Sides is a Senior Geologist employed by JB Mining Services Pty Ltd and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and as such qualifies as a Competent Person under the JORC Code. Mr Sides has consented to the inclusion in the report of the matters based on the information in the form and context in which it appears.

The information in this report that relates to the Eagle Downs Reserves Statement has been prepared under and in accordance with the Guidelines of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, prepared by the Joint Ore Reserves Committee, December 2004. The information in this report to which this Statement is attached that relates to Coal Reserves, is based on information reviewed by Mr J Steenekamp, who is a Fellow of the Australasian Institute of Mining and Metallurgy. Mr Steenekamp has sufficient experience 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 as defined in the 2004 edition of the JORC Code. Mr Steenekamp is a full time employee of Mining Consultancy Services (Australia) Pty Ltd and holds the position of Managing Director. Mr Steenekamp has consented to the inclusion in the report of the matters relating to Coal Reserves based on the information he has reviewed in the form in which it appears.

Talwood Coking Coal Project(Aquila Resources Limited -100%)

The Talwood Coking Coal Project has a total JORC compliant resource of 246.5Mt (137.1Mt Indicated and 109.4Mt Inferred) following a first stage exploration program with identification of prospective mining horizons in both Rangal and Moranbah Measures in the Bowen Basin. A completed Concept Study has identified a business case and the Company has approved the progression to the next stage of development, being a Pre-Feasibility Study.

The information in this report that relates to the Talwood Resource Statement has been based on information compiled by Mr Rod Doyle. He is a full-time employee of Aquila Resources Limited. He is a qualified Geologist (BSc Geology UOW 1978 and MAppSc UNSW 1988) with some 30 years experience in coal geology, coal mining and resource evaluation. He is a member of the Australasian Institute of Mining and Metallurgy and qualifies as a Competent Person under the JORC Code. Mr Doyle consents to the inclusion of the information in this report, where the information presented is in the form and context in which it appears.

Washpool Hard Coking Coal Project(Aquila Resources Limited -100%)

During the financial year, the JORC compliant resource was increased from 185.4Mt (108.8Mt Measured, 23.9Mt Indicated and 52.7Mt Inferred) (in May 2010) to 196.7Mt (124.9Mt Measured, 9.7Mt Indicated and 62.1Mt Inferred). The Definitive Feasibility Study was completed after the end of the current financial year and has confirmed Washpool Hard Coking Coal Project’s technical and financial viability for production of 2.6Mtpa of hard coking coal over the mine life of 15 years.

The information in this report that relates to the Washpool Resource Statement has been based on information compiled by Mr Rod Doyle, who is a full-time employee of Aquila Resources Limited. He is a qualified Geologist (BSc Geology UOW 1978 and MAppSc UNSW 1988) with some 30 years experience in coal geology, coal mining and resource evaluation. He is a member of the Australasian Institute of Mining and Metallurgy and qualifies as a Competent Person under the JORC Code. Mr Doyle holds shares in Aquila Resources Limited. Mr Doyle consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

IRON ORE

West Pilbara Iron Ore Project(Aquila Resources Limited -50%)

The Definitive Feasibility Study for Stage 1 of the West Pilbara Iron Ore Project (the WPIOP) has been progressing during the year, with the outcomes of this study expected to be released during 2011. The Stage 1 resource contains Proven and Probable Reserves of 445Mt in the eight Stage 1 iron ore deposits, providing an initial 15 years of mine life at a target production of 30Mtpa.

The Company and its co-venturer have agreed to undertake the mine development for the Stage 1 development, subject to certain conditions. Significant progress has been made towards key milestones during the year including a recommendation for environmental approval of the proposed mine and rail facilities from the Environmental Protection Authority (subject to conditions), as well as substantial progress towards project financing and native title agreements.

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46

6. OPERATING ANd fINANcIAL REVIEW (cONT.)REVIEW Of OPERATIONS (cONT.)IRON ORE (CONT.)

West Pilbara Iron Ore Project (cont.)The ongoing consultation with the Traditional Owners in the areas of mine and rail facilities has been progressing and it is anticipated that an agreement with the Traditional Owners will be reached during the second quarter of the new financial year. The preferred Project Managing Contractor has been identified and the award of the contract is scheduled in the second quarter of the new financial year. Expressions of interest have also been sought from experienced contractors for certain early start activities under the Project Execution Plan.

Discussions are continuing with the State Government with respect to the design and award of port proponency of the proposed multi-user Anketell Port, with environmental approval of the Public Environmental Review scheduled before the end of the 2011 calendar year.

Exploration activity continues at a number of targets, with potential for additional resources to utilise the infrastructure servicing Stage 1 of the WPIOP.

The information in this report that relates to the West Pilbara Iron Ore Project Ore Reserves is based on information compiled by Mr Steve Craig, Managing Director of ORElogy (Mining Consultants). Mr Craig is a Member of the Australasian Institute of Mining and Metallurgy and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration, and to the activity he is undertaking, to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr Craig consents to the inclusion of the matters based on his information in the form and context in which it appears.

Thabazimbi Iron Ore Project(Aquila Resources Limited -74%)

In South Africa, the Meletse Iron Ore Deposit resource has been upgraded to 48Mt at 62.9% Fe, with exploration drilling ongoing to extend the deposit. A positive Scoping Study for the development of the Meletse Iron Ore Deposit indicated that it is viable to undertake a 2Mtpa operation based on the current known resource, with the potential to expand the initial production to 4Mtpa in the expectation of a larger ore body.

The estimates of iron ore Resources for the Meletse Iron Ore Deposit presented in this report have been prepared in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004. The estimates are based on information compiled by Mr Brent E Green who is a member of the Australian Institute of Geoscientists and a full-time employee of the Company. Mr Green has sufficient experience that 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 as defined in the JORC Code. Mr Green consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

MANGANESE

Avontuur (Gravenhage) Manganese Project(Aquila Resources Limited -74%)

The Feasibility Study for development of the Gravenhage Deposit is progressing towards completion during 2011. Mine studies are underway to optimise the open pit design for the start of production. The production level of saleable product is expected to be up to 2Mtpa.

During the year, the Social and Labour Plan projects for Gravenhage were ratified by the Joe Morolong Local Municipality and a Mining Right application was submitted to the Department of Mineral Resources in

South Africa. As part of the Mining Right application, the Environmental Impact Assessment and the Environmental Management Program Report were submitted to the Department of Mineral Resources on 21 June 2011. The grant of the Mining Right is expected by the end of the calendar year 2011.

In addition to the Company’s participation in the Manganese Industry Forum, which deals with expansion of manganese export corridors from the Northern Cape Province, the Company is involved in the Pre-Feasibility Study for the Ore Line Expansion Project. This study assesses the opportunity of expanding the Saldanha Bay export corridor to cater for the increase in iron ore and manganese exports.

SIGNIfIcANT chANGES IN ThE STATE Of AffAIRSThere were no significant changes in the state of affairs of the consolidated entity during the financial year.

7. dIVIdENdSThere was no dividend paid or declared by the Company since the end of the previous financial year and the Directors do not recommend the payment of a dividend in respect of the current financial year (2010: Nil).

8. EVENTS SUBSEQUENT TO ThE REPORTING dATEOn 8 August 2011, 1,420,000 options were issued to employees of the consolidated entity under its Employee Share Option Plan, with an exercise price of $8.71 and which vest over a four-year period.

On 24 August 2011, the consolidated entity paid a compensation payment of $5,851,000 pursuant to a land access agreement that had been agreed with the land owner for one of the consolidated entity’s coal projects in Queensland.

As at the date of this report, there have been no events occurring subsequent to the reporting date, other than the matters above, which would have a material impact on the consolidated entity or require disclosure in this financial report.

9. LIKELY dEVELOPMENTSThe consolidated entity will continue to explore and mine its coal, iron ore and manganese projects and evaluate related corporate opportunities.

Disclosure of further information regarding likely developments in the operations of the consolidated entity in future years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity and accordingly, has not been included in this report.

10. dIREcTORS’ INTERESTSThe relevant interest of each Director in the ordinary share capital of the Company as notified by the Directors to the ASX in accordance with Section 205G(1) of the Corporations Act 2001, at the date of this report, is as follows:

Name of Directors

Number of fully paid

ordinary shares

Number of options over

ordinary shares

Tony Poli 108,276,852 -

Charles B Bass 42,877,681 -

Derek T Cowlan 10,368,974 -

Gordon T Galt - -

Zhihao Dai - -

dIREcTORS’ REPORT

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11. ShARE OPTIONSOptions granted to directors and Officers of the companyDuring or since the end of the financial year, the Company granted options for no consideration over unissued ordinary shares in Aquila Resources Limited to the following of the five most highly remunerated Officers of the Company as part of their remuneration:

Name

Number of options granted

Exercise price Grant date Expiry date

Mr M N Alciaturi 600,000 $11.40 2 July 2010 1 July 2014

Mr J A Pavy 600,000 $8.71 8 August 2011 7 August 2015

Unissued shares under optionAt the date of this report, details of unissued ordinary shares of the Company under option are as follows:

Expiry date Exercise price Number of shares

21 June 2013(i) $7.65 3,502,950

1 July 2014(ii) $11.40 1,749,000

7 August 2015 $8.71 1,420,000

6,671,950

All vested options expire on the earlier of their expiry date or 30 days after cessation of the employee’s employment.

(i) Number of shares includes participation in the 1 for 10 Bonus Issue on 23 December 2009 and the 1 for 10 Bonus Issue on 23 December 2010.

(ii) Number of shares includes participation in the 1 for 10 Bonus Issue on 23 December 2010.

Analysis of shares issued on exercise of optionsDuring the financial year, the consolidated entity issued ordinary shares of the Company as a result of the exercise of options as follows (there are no amounts unpaid on the shares issued):

Number of options exercised

Amount paid per option

Number of shares issued

366,666 $5.50 580,800

5,000,000 $4.00 19,166,400

52,500 $7.65 62,700

12. INdEMNIfIcATION ANd INSURANcE Of OffIcERS

IndemnificationThe Company has entered into agreements indemnifying the Directors and certain Executives of the Company and/or its controlled entities against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as Directors of the Company and/or its controlled entities, with the exception of conduct involving a wilful breach of duty or improper use of information to gain a personal advantage.

The agreements stipulate that the Company will meet the full amount of any such liabilities, including costs and expenses.

Insurance premiumsNo details of the nature of the liabilities covered and the amount of premium paid in respect of the Directors’ and Officers’ Liability Insurance policy have been disclosed, as such disclosure is prohibited under the terms of the policy.

13. NON-AUdIT SERVIcESDuring the year, KPMG, the Company’s auditor, has performed certain other services in addition to their statutory duties.

The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:

• all non-audit services were subject to the corporate governanceprocedures adopted by the Company and were reviewed by the Audit Committee to ensure they do not impact the integrity and objectivityoftheauditor;and

• the non-audit services provided do not undermine the generalprinciples relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards.

Details of the amounts paid to the auditor of the Company, KPMG, for audit and non-audit services provided during the year are set out in Note 9 to the consolidated financial statements.

14. AUdITOR’S INdEPENdENcE dEcLARATION UNdER SEcTION 307c Of ThE cORPORATIONS AcT 2001

The auditor’s independence declaration is set out on page 51 and forms part of the Directors’ Report for the year ended 30 June 2011.

15. ROUNdING OffThe Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the consolidated financial statements and Directors’ Report have been rounded to the nearest thousand dollars, unless otherwise stated.


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dIREcTORS’ REPORT

48

16. REMUNERATION REPORT - AUdITEdThe 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

Mr T Poli (Executive Chairman and Chief Executive Officer)

Non-Executive Directors

Mr C B Bass

Mr D T Cowlan

Mr G T Galt

Mr Zhihao Dai

Executives

Mr R G Tipper (General Manager – Iron Ore)

Mr S J Pilcher (General Manager – Coal)

Mr M N Alciaturi (General Manager – Finance and Corporate, commenced on 19 July 2010)

Mr H C Rae (Chief Financial Officer)

Mr J A Pavy (General Manager – Legal, commenced on 8 August 2011)

Mr J R Wood (General Counsel/Company Secretary)

Mr B E Green (Head of Exploration)

16.1 REMUNERATION POLIcIESRemuneration levels are competitively set to attract and retain appropriately qualified and experienced Directors and Executives. Company policy is to set fixed annual remuneration at the market median, with the Company’s short-term incentive program providing the opportunity for high performing staff to earn total remuneration in the upper quartile relative to the market. Where necessary, the Remuneration Committee will obtain independent advice on the appropriateness of remuneration packages.

Non-Executive remuneration policiesFees paid to Non-Executive Directors are within the aggregate amount approved by shareholders. Recommendations are made by the Board with respect to the approval of this aggregate amount at the Company’s Annual General Meeting.

Compensation for Non-Executive Directors is 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 they do not participate 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 2009, is not to exceed $500,000 per annum. As per section 16.2, $288,000 was paid to Non-Executive Directors for the year (2010: $213,984).

Non-Executive Directors do not receive performance related compensation. Directors’ fees cover all main Board activities and membership of Board committees.

Executive remuneration policiesRemuneration of Executives comprises a combination of fixed and incentive pay and is 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.

Performance linked compensationPerformance linked compensation includes both short-term and long-term incentives and is designed to reward personnel in a manner that aligns with the Company’s business objectives and as recognition for strong individual performance.

Short-term incentivesThe Company’s short-term incentive program is comprised of cash bonuses, determined following an annual review of the individual’s achievements of key performance indicators relevant to their role as well as their contribution to the performance of the consolidated entity.

The maximum cash bonus levels are set at between 10% and 50% of the employee’s total fixed remuneration. Milestones and key performance indicators for eligible employees are reviewed and set annually between the employee and their immediate manager. These milestones must be appropriate for the relevant role and must in all cases be approved by the CEO.

Long-term incentivesLong-term incentives are presently comprised of share options, which are granted from time to time to encourage sustained strong 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 applicable vesting conditions relating to the share options. Subject to specific vesting conditions, each option is convertible into one ordinary share. Refer to Note 24 of the consolidated financial statements for vesting conditions attached to share options granted.

Key management personnel are not permitted to enter into arrangements that limit their exposure to risk in relation to an element of that person’s remuneration that depends on a performance condition.

Service contractsAll 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 exception of the consultancy agreement with Omega Management Services Pty Ltd (“Omega”), a company associated with the CEO, which is due to expire on 30 April 2012. Under this agreement, Omega provides the services of Mr Poli (or another approved employee) to act as Executive Chairman of the Company. Certain Executives also have a contractual entitlement to additional redundancy payments in the event that their position is terminated as a direct result of a takeover of the Company.

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consequences of performance on shareholders wealthPerformance in respect of the current year and the previous four years is detailed in the table below:

2011 2010 2009 2008 2007

$’000 $’000 $’000 $’000 $’000

Net profit (loss) ($64,558) ($33,072) ($26,162) $97,269 ($12,527)

Increase (decrease) in share price 0% 50% (65%) 297% 79%

The increase (decrease) in the Company’s share price noted above has been adjusted to reflect the impact of bonus issues.

During the years noted above, there were no dividends paid or other returns of capital made by the Company to shareholders.

The consolidated entity’s performance is impacted not only by market factors, but also by employee performance. The measures of performance of the consolidated entity set out in the table above have been taken into consideration in the determination of appropriate levels of remuneration.

16.2 dIREcTORS’ ANd ExEcUTIVE OffIcERS’ REMUNERATIONThe following table provides the remuneration details of all Directors of the Company (“Specified Directors”) and each of the named Executives of the Company and the consolidated entity 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 2011.

Name Year

Short-termPost

employmentEquity

compensation

Total

Performance related

bonus as proportion of remuneration

Value of options as proportion of

remuneration Salary/

feesDirectors

feesCash

bonus TotalSuper

benefitsValue of options(i)

$ $ $ $ $ $ $ % %

Specified DirectorsExecutiveMr T Poli(ii) 2011 500,000 49,542 - 549,542 22,458 - 572,000 - -(Executive Chairman/CEO) 2010 500,000 - - 500,000 57,500 - 557,500 - -Non-ExecutiveMr C B Bass 2011 - 22,000 - 22,000 50,000 - 72,000 - -

2010 - - - - 57,500 - 57,500 - -Mr D T Cowlan 2011 - 72,000 - 72,000 - - 72,000 - -

2010 - 57,500 - 57,500 - - 57,500 - -Mr G T Galt 2011 - 72,000 - 72,000 - - 72,000 - -

2010 - 65,000 - 65,000 - - 65,000 - -Mr Zhihao Dai 2011 - 72,000 - 72,000 - - 72,000 - -

2010 - 33,984 - 33,984 - - 33,984 - -Total – Executive Director 2011 500,000 49,542 - 549,542 22,458 - 572,000 - -

2010 500,000 - - 500,000 57,500 - 557,500 - -Total – Non-Executive Directors 2011 - 238,000 - 238,000 50,000 - 288,000 - -

2010 - 156,484 - 156,484 57,500 - 213,984 - -Total – Specified Directors 2011 500,000 287,542 - 787,542 72,458 - 860,000 - -

2010 500,000 156,484 - 656,484 115,000 - 771,484 - -Specified ExecutivesMr R G Tipper 2011 400,000 - 117,000 517,000 50,000 425,388 992,388 12% 43%(General Manager - Iron Ore) 2010 400,000 - 45,000 445,000 50,000 462,154 957,154 5% 48%Mr S J Pilcher 2011 425,000 - 135,000 560,000 25,000 340,310 925,310 15% 37%(General Manager – Coal) 2010 275,229 - 120,000 395,229 24,771 369,723 789,723 15% 47%Mr M N Alciaturi 2011 456,410 - 175,000 631,410 25,000 560,873 1,217,283 14% 46%(General Manager – Finance and Corporate, appointed 19 July 2010 )

2010 - - - - - - - - -

Mr H C Rae 2011 332,000 - 61,250 393,250 18,000 141,796 553,046 11% 26%(Chief Financial Officer) 2010 297,000 - 31,500 328,500 18,000 178,831 525,331 6% 34%Mr J R Wood 2011 267,499 - 15,000 282,499 50,000 141,796 474,295 3% 30%(General Counsel/Company Secretary)

2010 265,000 - 31,500 296,500 50,000 154,051 500,551 6% 31%

Mr B E Green 2011 243,119 - 51,675 294,794 21,881 141,796 458,471 11% 31%(Head of Exploration) 2010 229,358 - 75,000 304,358 20,642 188,123 513,123 15% 37%Total – Specified Executives 2011 2,124,028 - 554,925 2,678,953 189,881 1,751,959 4,620,793 12% 38%

2010 1,466,587 - 303,000 1,769,587 163,413 1,352,882 3,285,882 9% 41%Total compensation – Key Management Personnel

2011 2,624,028 287,542 554,925 3,466,495 262,339 1,751,959 5,480,793 10% 32%2010 1,966,587 156,484 303,000 2,426,071 278,413 1,352,882 4,057,366 7% 33%

(i) The fair values of the options are calculated at the date of grant using a binomial option pricing model and allocated to each reporting year over the period from grant date to vesting date. The values disclosed are the portion of the fair values of the options recognised in this reporting year. Refer to Note 24 of the consolidated financial statements.

(ii) The remuneration for Mr Poli, who acts as Executive Chairman and CEO of the Company, is included in the remuneration for Specified Directors, but not in the remuneration for Specified Executives.

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dIREcTORS’ REPORT

16. REMUNERATION REPORT - AUdITEd (cONT.)16.3 ANALYSIS Of BONUSES INcLUdEd IN REMUNERATION – GRANTEd AS cOMPENSATION

Cash bonuses awarded as remuneration to the relevant Specified Executives were granted following the attainment of specific performance targets agreed upfront between the Executive and the CEO in accordance with the Company’s short-term incentive program or on a discretionary basis based upon an annual review of the Executive’s overall achievements and performance for the year. Mr Rae’s bonus was paid on 14 July 2011. All other bonuses paid to key management personnel were paid on 12 August 2011.

The cash bonuses awarded as remuneration to the relevant Specified Executives were fully vested in the year ended 30 June 2011 and none were forfeited during the current or prior year.

16.4 ANALYSIS Of MOVEMENTS IN OPTION hOLdINGS – GRANTEd AS cOMPENSATION

NameHeld at

1 July 2010Granted as

remuneration ExercisedOther

changes(i) Held at

30 June 2011

Vested during

the year

% vested during the

year

Vested and exercisable at 30 June 2011

Specified Director

Mr T Poli 5,000,000 - (5,000,000) - - - - -

Specified Executives

Mr R G Tipper(iii) 750,000 - - - 750,000 150,000 20% 262,500

Mr S J Pilcher(iii) 600,000 - - - 600,000 120,000 20% 210,000

Mr M N Alciaturi(ii) - 600,000 - - 600,000 - - -

Mr H C Rae(iii) 400,000 - (187,500) - 212,500 50,000 24% 50,000

Mr J R Wood(iii) 250,000 - - - 250,000 50,000 20% 87,500

Mr B E Green(iii) 500,000 - (216,666) (33,334) 250,000 50,000 20% 87,500

(i) Other changes represent options that were forfeited or expired during the financial year.

(ii) 600,000 options were granted to Mr Alciaturi on 2 July 2010, with an exercise price of $11.40 and an expiry date of 1 July 2014. 15% of these options vested on 1 July 2011. Subject to continued employment, a further 20% of these options vest on 1 July 2012, a further 25% vest on 1 July 2013 and the remaining 40% vest on 1 July 2014. The fair value of each option is $2.69.

(iii) For the unvested options held by Messrs Tipper, Pilcher, Rae, Wood and Green, 38% will vest on 21 June 2012, with the remaining 62% vesting on 21 June 2013, subject to continued employment.

No options held by the Specified Director or the Specified Executives are vested but not exercisable.

16.5 ANALYSIS Of ExERcISE Of OPTION hOLdINGS - GRANTEd AS cOMPENSATIONDuring the reporting period, the following shares were issued on the exercise of options granted as compensation:

Name Date of exercise

Number of options exercised

Amount paid per option

Number of shares issued

Market price per share

Value derived at exercise date

Specified Director

Mr T Poli 10 December 2010 350,000 $4.00 1,341,648 $10.01 12,029,896

Mr T Poli 30 December 2010 4,650,000 $4.00 17,824,752 $9.87 157,330,302


Mr H C Rae 24 August 2010 150,000 $5.50 237,600 $8.30 1,147,080

Mr H C Rae 11 April 2011 37,500 $7.65 45,375 $9.76 155,985

Mr B E Green 17 August 2010 150,000 $5.50 237,600 $8.69 1,239,744

Mr B E Green 24 August 2010 66,666 $5.50 105,600 $8.30 509,817

Dated at Perth this 14th day of September 2011.

Signed in accordance with a resolution of the Directors.

Tony Poli

Executive Chairman

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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 2011 there have been:

(i) nocontraventionsoftheauditorindependencerequirementsassetoutintheCorporationsAct2001inrelationtotheaudit;and

(ii) no contraventions of any applicable code of professional conduct in relation to the audit.

KPMG

Trevor Hart

Partner

Perth 14 September 2011

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

AUdITOR’S INdEPENdENcE dEcLARATION

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Note 2011 2010

$’000 $’000

Revenue from sale of product 133,453 129,841

Cost of sales (103,794) (118,611)

Gross profit 29,659 11,230

Other income 5 507 2,679

Exploration and evaluation expenses (104,227) (60,209)

Corporate, legal and administration expenses (18,981) (12,367)

Profit (loss) from operating activities 6 (93,042) (58,667)

Finance income 14,316 10,082

Finance expense (6,486) (1,013)

Net finance income 8 7,830 9,069

Profit (loss) before income tax (85,212) (49,598)

Income tax benefit 10(b) 20,654 16,526

Profit (loss) for the year (64,558) (33,072)

Other comprehensive income (loss)

Net change in fair value of available-for-sale financial assets (1,860) (2,985)

Net change in fair value of cash flow hedges 1,067 (1,556)

Foreign currency translation differences for foreign operations 1,837 26

Other comprehensive income (loss) for the year, net of income tax 1,044 (4,515)

Total comprehensive income (loss) for the year (63,514) (37,587)

Profit (loss) attributable to owners of the Company (64,558) (33,072)

Total comprehensive income (loss) attributable to owners of the Company (63,514) (37,587)

Earnings per share

Basic earnings (loss) per share 11(a) ($0.177) ($0.099)

Diluted earnings (loss) per share 11(b) ($0.177) ($0.099)

The Consolidated Statement of Comprehensive Income is to be read in conjunction with the Notes to the Consolidated Financial Statements.

cONSOLIdATEd STATEMENT Of cOMPREhENSIVE INcOME for the year ended 30 June 2011

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Note 2011 2010

$’000 $’000

CURRENT ASSETS

Cash and cash equivalents 12 184,547 281,174

Trade and other receivables 13 18,302 16,334

Inventories 14 10,699 8,168

Other assets 15 25,443 10,779

Total current assets 238,991 316,455

NON-CURRENT ASSETS

Receivables 13 1,968 13,169

Investments 16 26,317 25,387

Deferred tax assets 18 45,914 25,008

Property, plant and equipment 19 75,975 64,166

Exploration and evaluation expenditure 20 12,442 4,026

Intangible assets 21 4,371 200

Total non-current assets 166,987 131,956

TOTAL ASSETS 405,978 448,411

CURRENT LIABILITIES

Trade and other payables 22 31,307 24,140

Loans and borrowings 23 - 6,209

Employee benefits 24(a) 871 486

Total current liabilities 32,178 30,835

NON-CURRENT LIABILITIES

Loans and borrowings 23 - 6,587

Provisions 25 6,516 5,859

Total non-current liabilities 6,516 12,446

TOTAL LIABILITIES 38,694 43,281

NET ASSETS 367,284 405,130

EQUITY

Issued capital 26 384,194 361,776

Reserves 27 25,799 21,505

Retained earnings (accumulated losses) (42,709) 21,849

TOTAL EQUITY 367,284 405,130

The Consolidated Balance Sheet is to be read in conjunction with the Notes to the Consolidated Financial Statements.

cONSOLIdATEd BALANcE ShEETAs at 30 June 2011

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NoteIssued capital

Available- for-sale

fair value reserve

Share- based

payment reserve

Hedging reserve

Foreign currency

translation reserve

Retained earnings

(accumulated losses) Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000

Balance at 1 July 2010 361,776 6,972 15,574 (1,067) 26 21,849 405,130

Loss for the year - - - - - (64,558) (64,558)


Net change in fair value of available-for-sale financial assets

- (1,860) - - - - (1,860)

Net change in fair value of cash flow hedge - - - 1,067 - - 1,067

Foreign currency translation differences - - - - 1,837 - 1,837

Total other comprehensive income (loss) - (1,860) - 1,067 1,837 - 1,044

Total comprehensive income (loss) for the year - (1,860) - 1,067 1,837 (64,558) (63,514)

Transactions with owners, recorded directly in equity:

Issue of ordinary shares 26 22,418 - - - - - 22,418

Share-based payments - - 3,250 - - - 3,250

Balance at 30 June 2011 384,194 5,112 18,824 - 1,863 (42,709) 367,284

Balance at 1 July 2009 76,124 9,957 13,285 489 - 54,921 154,776

Loss for the year - - - - - (33,072) (33,072)


Net change in fair value of available-for-sale financial assets

- (2,985) - - - - (2,985)

Net change in fair value of cash flow hedges - - - (1,556) - - (1,556)

Foreign currency translation differences - - - - 26 - 26

Total other comprehensive income (loss) - (2,985) - (1,556) 26 - (4,515)

Total comprehensive income (loss) for the year - (2,985) - (1,556) 26 (33,072) (37,587)

Transactions with owners, recorded directly in equity:

Issue of ordinary shares 26 285,652 - - - - - 285,652

Share-based payments - - 2,289 - - - 2,289

Balance at 30 June 2010 361,776 6,972 15,574 (1,067) 26 21,849 405,130

The above amounts are stated net of tax where applicable.

The Consolidated Statement of Changes in Equity is to be read in conjunction with the Notes to the Consolidated Financial Statements.

cONSOLIdATEd STATEMENT Of chANGES IN EQUITYfor the year ended 30 June 2011

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Note 2011 2010

$’000 $’000

CASH FLOWS FROM OPERATING ACTIVITIES

Cash receipts in the course of operations 135,845 119,104

Cash payments in the course of operations (126,628) (117,767)

Cash payments for exploration and evaluation expenditure (104,870) (66,773)

Interest received 16,619 7,430

Interest paid (801) (1,268)

Net cash used in operating activities 31 (79,835) (59,274)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of equity investments 37 2,974

Payments for exploration assets (8,533) (702)

Payments for equity investments (4,042) (57)

Payment for property, plant and equipment (18,553) (5,017)

Payment for intangible assets (4,344) (12)

Refund of (payments for) security deposits 10,864 (7,366)

Net cash used in investing activities (24,571) (10,180)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issue of shares 26 22,418 285,652

Repayment of borrowings (5,000) (7,500)

Payment of finance lease liabilities (9,238) (1,385)

Net cash provided by financing activities 8,180 276,767

Net (decrease) increase in cash and cash equivalents held (96,226) 207,313

Cash and cash equivalents at the beginning of the year 281,174 73,522

Effect of foreign exchange rate fluctuations on cash held (401) 339

Cash and cash equivalents at the end of the year 12 184,547 281,174

The Consolidated Statement of Cash Flows is to be read in conjunction with the Notes to the Consolidated Financial Statements.

cONSOLIdATEd STATEMENT Of cASh fLOWSfor the year ended 30 June 2011

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1. Reporting entity .................................................. 57

2. Basis of preparation ............................................ 57

3. Summary of significant accounting policies ...... 58

4. Financial risk management ................................. 64

5. Other income ....................................................... 65

6. Loss from operating activities ............................ 65

7. Personnel expenses ............................................. 65

8. Net finance income ............................................. 65

9. Auditors’ remuneration....................................... 66

10. Income tax ............................................................ 66

11. Earnings per share ............................................... 67

12. Cash and cash equivalents .................................. 68

13. Trade and other receivables ................................ 68

14. Inventories ........................................................... 68

15. Other assets ......................................................... 68

16. Investments .......................................................... 68

17. Interests in joint ventures ................................... 69

18. Tax assets and liabilities ...................................... 70

19. Property, plant and equipment .......................... 71

20. Exploration and evaluation expenditure ........... 73

21. Intangible assets .................................................. 73

22. Trade and other payables ................................... 73

23. Loans and borrowings......................................... 74

24. Employee benefits ............................................... 75

25. Provisions ............................................................. 76

26. Issued capital ....................................................... 76

27. Reserves ............................................................... 77

28. Controlled entities ............................................... 78

29. Financial instruments .......................................... 79

30. Commitments ....................................................... 82

31. Reconciliation of cash flows from operating activities .............................................. 83

32. Related parties ..................................................... 84

33. Events subsequent to the reporting date .......... 87

34. Operating segments ............................................ 87

35. Parent entity disclosure ....................................... 88

cONTENTS

NOTES TO ThE cONSOLIdATEd fINANcIAL STATEMENTS

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19. Property, plant and equipment .......................... 71

20. Exploration and evaluation expenditure ........... 73

21. Intangible assets .................................................. 73

22. Trade and other payables ................................... 73

23. Loans and borrowings......................................... 74

24. Employee benefits ............................................... 75

25. Provisions ............................................................. 76

26. Issued capital ....................................................... 76

27. Reserves ............................................................... 77

28. Controlled entities ............................................... 78

29. Financial instruments .......................................... 79

30. Commitments ....................................................... 82

31. Reconciliation of cash flows from operating activities .............................................. 83

32. Related parties ..................................................... 84

33. Events subsequent to the reporting date .......... 87

34. Operating segments ............................................ 87

35. Parent entity disclosure ....................................... 88

1. REPORTING ENTITYAquila Resources Limited (“the Company”) is a company domiciled in Australia.

The consolidated financial statements of the Company for the financial year ended 30 June 2011 comprises the Company and its controlled entities (together referred to as “the consolidated entity”) and the consolidated entity’s interest in jointly controlled operations and jointly controlled entities.

The consolidated financial statements were authorised for issue by the Directors on 14 September 2011.

2. BASIS Of PREPARATION(a) Statement of compliance The consolidated financial statements are general purpose financial

statements which have been prepared in accordance with Australian Accounting Standards (AASBs) (including Australian Interpretations), adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001.

The consolidated financial statements comply with International Financial Reporting Standards (IFRSs) and interpretations of the International Accounting Standards Board.

(b) Basis of measurement The consolidated financial statements have been prepared on a

historical cost basis, except for derivative financial instruments and financial assets classified as available-for-sale financial assets, which are measured and recorded at fair value.

The methods used to measure fair values are included in Note 29(b).

(c) functional and presentation currency The consolidated financial statements are presented in Australian

dollars, which is the Company’s functional currency and the functional currency of the majority of the entities comprising the consolidated entity.

The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and, in accordance with that Class Order, amounts in the consolidated financial statements have been rounded to the nearest thousand dollars, unless otherwise stated.

(d) Use of estimates and judgements The preparation of consolidated financial statements in conformity

with Australian Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.

These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are discussed below.

Key sources of estimation uncertainty and judgements Minesite rehabilitation and restoration provisions Certain assumptions are required to be made in determining the

amount the consolidated entity is expected to incur to settle its obligations in relation to rehabilitation and restoration of areas disturbed by exploration, development and production activity. The discounted value reflects a combination of management’s assessment of the cost of performing the work required, the impact of changes in technology, the timing of future cash flow estimates, the life of the mine (based on economically recoverable reserves at the Isaac Plains North Deposit of 27.7 million tonnes (2010: 28 million tonnes) and the discount rate of 6.25% (2010: 6.0%) applied. Refer to Note 3(t) for relevant accounting policy and Note 25 for further detail.

Recoverability of non-current assets Certain assumptions are required to be made in order to assess the

recoverability of non-current assets where there is an impairment indicator. Key assumptions include the future commodity price, future cash flows, future capital requirements, appropriate discount rate and estimates of recoverable reserves. Refer to Note 3(r) for relevant accounting policy.

Overburden in advance The consolidated entity defers overburden costs that give rise to

future economic benefits during the production stage of its coal mining operations. This calculation requires the use of judgements and estimates such as estimates of tonnes of waste to be removed over the life of the mining strip and economically recoverable reserves extracted as a result. Changes in the life of the mine and its design will usually result in changes to the estimates of average stripping ratios (waste to coal reserves ratio). These changes are accounted for prospectively. Refer to Note 3(l) for relevant accounting policy.

Reserve estimates Reserves are estimates of the amount of product that can be

economically and legally extracted from the consolidated entity’s properties. In order to calculate reserves, estimates and assumptions are required about a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates.

The consolidated entity determines and reports ore reserves in Australia under the principles incorporated in the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004 (the JORC Code).

Because the economic assumptions used to estimate reserves change from period to period, and because additional geological data is generated during the course of operations, estimates of reserves may change from period to period. Changes in reported reserves may affect the consolidated entity’s financial results and financial position in a number of ways including the following:

• depreciationandamortisation charged to theprofitor loss andagainst assets’ carrying amounts may change where such charges are determined by the units of production basis, or where the usefuleconomiclivesofassetschange;

• overburdenremovalcosts recordedontheconsolidatedbalancesheet or charged to the profit or loss may change due to changes instrippingratiosortheunitsofproductionbasisofdepreciation;

• minesite rehabilitation and restoration provisions may changewhere changes in estimated reserves affect expectations about thetimingorcostoftheseactivities;

• theamountofany impairmenttobechargedtotheprofitor lossmay change where changes in estimated reserves affect expectations about the quantities of product that can be economically extracted fromtheconsolidatedentity’sproperties;and

• theamountofdeferredtaxassetstoberecognised,includingtaxlosses may change due to changes in expected future cash flows.

NOTES TO ThE cONSOLIdATEd fINANcIAL STATEMENTSfor the year ended 30 June 2011

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2. BASIS Of PREPARATION (cONT.)(d) Use of estimates and judgements (cont.) Exploration and evaluation expenditure Determining the recoverability of exploration and evaluation

expenditure capitalised in accordance with the consolidated entity’s accounting policy (refer to Note 3(k)) requires estimates and assumptions as to whether successful development and commercial exploitation, or alternatively sale, of the respective areas of interest will be achieved. This assessment requires estimates and assumptions about the reserves (refer to the above), the timing of expected cash flows, exchange rates, commodity prices and future capital requirements. If, after having capitalised the expenditure under accounting policy Note 3(k), a judgement is made that recovery of expenditure is unlikely, an impairment loss is recognised in the profit or loss in accordance with accounting policy Note 3(r).

Recognition of tax losses In accordance with the consolidated entity’s accounting policy for

deferred taxes (refer to Note 3(f)), a deferred tax asset is recognised for unused tax losses only if it is probable that future taxable profits will be available to utilise those losses. Determination of future taxable profits requires certain assumptions. The key assumptions are future commodity prices, future cash flows, future capital requirements, estimates of recoverable reserves and exchange rates.

Share-based payments The fair value of options granted to employees is measured using a

binomial option pricing model, taking into account the terms and conditions upon which the options were granted. Measurement inputs include share price on grant date, exercise price of the option, estimated future volatility, estimated employee turnover and the risk-free interest rate. Refer to Note 3(w) for relevant accounting policy and Note 24 for further detail.

(e) changes in accounting policies The consolidated entity has adopted the new and amended

Australian Accounting Standards that were effective from 1 July 2010 including:

• AASB 127 Consolidated and Separate Financial Statements (Revised)

Consequential amendments have been made to AASB 127 as a result of the issue of the revised AASB 3. The amendments relate to the accounting for changes in the non-controlling interest in a subsidiary and the loss of control in a subsidiary. The consolidated entity’s accounting policies have incorporated the changes regarding the loss of control in a subsidiary.

The change in the accounting policy was applied prospectively and did not have any impact on the financial statements of the consolidatedentity;and

• AASB131 Interests in Joint Ventures

The amendments to AASB 131 relate to the accounting for the loss of joint control in a jointly controlled entity. It clarifies that any retained interest in the former jointly controlled entity is recognised at its fair value at the date that joint control is lost, with a gain or loss recognised in the profit or loss. The consolidated entity’s accounting policies have incorporated these changes regarding the loss of joint control in a jointly controlled entity.

The change in the accounting policy was applied prospectively and did not have any impact on the financial statements of the consolidated entity.

The consolidated entity has not elected to early adopt any new or amended Standards or Interpretations that are issued but not yet effective.

3. SUMMARY Of SIGNIfIcANT AccOUNTING POLIcIES

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by the consolidated entity, except as explained in Note 2(e), which addresses changes in accounting policies.

(a) Principles of consolidation Subsidiaries Subsidiaries are entities controlled by any member of the consolidated

entity. Control exists when a member of the consolidated entity has the power, directly or indirectly, to govern the financial and operating policies of any entity so as to obtain benefits from its activities.

In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the consolidated entity.

Joint ventures Joint ventures are those entities over whose activities the consolidated

entity has joint control, established by contractual agreements.

Jointly controlled operations, entities and assets The interest of the consolidated entity in jointly controlled operations

(including unincorporated joint ventures), jointly controlled entities and jointly controlled assets are brought to account by recognising in its consolidated financial statements the assets it controls and the liabilities that it incurs, and the expenses it incurs and its share of income that it earns from the sale of goods produced by the joint venture.

Transactions eliminated on consolidation Intragroup balances (including balances related to jointly controlled

operations and assets) and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in preparing the consolidated financial statements.

Loss of control in a subsidiary Upon the loss of control in a subsidiary, the consolidated entity

derecognises the assets and liabilities of the subsidiary. Any surplus or deficit arising on the loss of control is recognised in the profit or loss. If the consolidated entity retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained.

Loss of joint control in a jointly controlled entity On loss of joint control in a jointly controlled entity, any retained

interest in the former entity is recognised at its fair value at the date that joint control is lost. A gain or loss arising on the loss of joint control is recognised in the profit or loss.

(b) Revenue Sale of goods Revenue from the sale of coal is recognised (net of penalties,

returns, discounts, allowances and hedging gains/losses) in the profit or loss when the significant risks and rewards of ownership have been transferred to the buyer, being the bill of lading date when the commodity has been delivered for shipment. No revenue is recognised if:

(i) there are significant uncertainties regarding recovery of the considerationdue;

(ii) thecostsincurredortobeincurredcannotbemeasuredreliably;

(iii)thereisariskofreturnofgoods;and

(iv) there is continuing management involvement with the goods.

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In cases where the terms of the sales agreement allow for an adjustment to the sales price based on survey or analysis of the product by the customer (for instance, an assay for impurity content), recognition of the revenue is based on the most recently determined estimate of product specifications.

(c) finance income and expenses Finance income comprises interest income, foreign currency gains

and gains on hedging instruments that are recognised in the profit and loss. Interest income is recognised as it accrues, using the effective interest rate.

Finance expenses comprise interest expenses on borrowings, unwinding of any discount on provisions, foreign currency losses, impairment losses recognised on financial assets (other than trade receivables) and losses on hedging instruments.

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset (refer to Note 3(j)). All other borrowing costs are recognised in the profit or loss, using the effective interest rate.

Foreign currency gains and losses and gains and losses on hedging instruments are both reported on a net basis.

(d) Goods and services tax (GST) Revenue, expenses and assets are recognised net of the amount

of GST or overseas equivalent, except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as a current asset or liability in the consolidated balance sheet.

Cash flows are included in the consolidated statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the taxation authority are classified as operating cash flows.

(e) foreign currency Foreign currency transactions Transactions in foreign currencies are translated to Australian

dollars at the foreign exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rate at the date of the transaction.

Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at the foreign exchange rates ruling at the dates the fair value was determined.

Foreign operations The assets and liabilities of foreign operations are translated to

Australian dollars at the foreign exchange rates as at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at the foreign exchange rates at the dates of the transactions.

Foreign currency differences arising upon translation of foreign operations are recognised in other comprehensive income and presented in the foreign currency translation reserve (FCTR) within equity.

When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the FCTR related to that foreign operation is transferred to the profit or loss as part of the gain or loss on disposal. In the case of a partial disposal

that does not result in the consolidated entity losing control over a subsidiary that includes a foreign operation, the relevant proportion of the cumulative amount in the FCTR is reattributed to non-controlling interests and is not recognised in the profit or loss. For all other partial disposals, the relevant proportion of the cumulative amount in the FCTR is transferred to the profit or loss.

When the settlement of a monetary item of receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, unrealised foreign exchange gains and losses on these monetary items are recognised in other comprehensive income and presented in the FCTR in equity.

(f) Income tax Income tax comprises current and deferred tax. Income tax is

recognised in the profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Tax consolidation The Company and its wholly-owned Australian resident entities

formed a tax-consolidated group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Aquila Resources Limited.

Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘stand alone taxpayer’ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation.

Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group).

Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses assumed by the head entity from the subsidiaries in the tax-consolidated group are recognised as amounts receivable or payable to other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts.

The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised.

Any subsequent period adjustments to deferred tax assets arising from unused tax losses assumed from subsidiaries are recognised by the head entity only.

Annual Report 2011: Aquila Resources Limited 59Annual Report 2011: Aquila Resources Limited 59

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3. SUMMARY Of SIGNIfIcANT AccOUNTING POLIcIES (c0NT.)

(f) Income tax (cont.) Tax funding and sharing agreements The members of the tax-consolidated group have entered into

a funding arrangement that sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the current tax liability (asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable (payable) in the separate financial statements of the members of the tax-consolidated group equal in amount to the tax liability (asset assumed. The inter-entity receivables (payables) are at call.

The head entity recognises the assumed current tax amounts as current tax liabilities (assets), adding to its own current tax amounts, since they are also due to or from the same taxation authority. The current tax liabilities (assets) are equivalent to the tax balances generated by external transactions entered into by the tax-consolidated group. Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities.

The members of the tax-consolidated group have also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the consolidated financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote.

(g) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable

to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share Diluted earnings per share is calculated by dividing basic earnings per

share (adjusted by the after tax effect of financing costs associated with dilutive potential ordinary shares and the effect of revenues and expenses associated with the conversion to ordinary shares of dilutive potential ordinary shares) by the weighted average number of ordinary shares and dilutive potential ordinary shares.

(h) cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits

with an original maturity of three months or less.

(i) Acquisition of assets The purchase method of accounting is used to account for all

acquisitions of assets regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange, together with costs directly attributable to the acquisition.

Where equity instruments are issued in an acquisition, the value of the instruments is their published market price as at the date of exchange, unless it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value.

Transaction costs arising on the issue of equity instruments are recognised directly in equity.

Where settlement of any part of the consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the consolidated

entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

Sale of non-current assets Sales of non-current assets are recognised at the date control of the

assets passes to the buyer, usually when an unconditional contract of sale is signed.

The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the net proceeds on disposal, and disclosed as other income.

(j) Property, plant and equipment Owned assets Items of property, plant and equipment are stated at cost or deemed

cost less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. The cost of self-constructed assets and acquired assets includes (i) the initial estimate at the time of installation and during the period of use, when relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, (ii) changes in the measurement of existing liabilities recognised for these costs resulting from changes in the timing or outflow of resources required to settle the obligation or from changes in the discount rate, and (iii) capitalised borrowing costs.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised on a net basis within other income in the profit and loss.

Development assets Development expenditure relates to costs incurred to access a mineral

resource. It represents costs incurred after the technical feasibility and commercial viability of extracting the mineral resource has been demonstrated. Capitalisation of development expenditure ceases once the mining property is capable of commercial production, at which point it is depreciated in accordance with the consolidated entity’s accounting policy in relation to depreciation.

Leased assets Leases, where the consolidated entity assumes substantially all of

the risks and rewards of ownership, are classified as finance leases. Assets under finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.

Subsequent costs The consolidated entity recognises in the carrying amount of an

item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other costs are recognised in the profit or loss as an expense as incurred.

Depreciation and amortisation Depreciation is calculated over the depreciable amount, which is the

cost of an asset, or other amount substituted for cost, less its residual value.


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Depreciation is recognised in the profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, except for the following:

• leasedassetsaredepreciatedover theshorterof the lease termandtheirusefullives;

• landisnotdepreciated;and

• miningpropertyanddevelopmentassetsaredepreciatedoverthelives of economically recoverable reserves.

The estimated useful lives in the current and comparative years are as follows:

• plantandequipment: 2 to 13 years or based upon reserves on a unit of production basis

• buildingsandinfrastructure: 8 to 10 years or based upon reserves on a unit of production basis

• minepropertyanddevelopment: baseduponreservesonaunitof production basis

The reserves, the residual values, the useful lives and the depreciation methods used are reviewed annually and adjusted, if appropriate, on a prospective basis.

(k) Exploration and evaluation expenditure Expenditure on exploration and evaluation activities in relation to

areas of interest which have not yet reached a stage which permits reasonable assessment of the existence or otherwise of economically recoverable reserves are expensed as incurred. An area of interest is an individual geological area which is considered to constitute a favourable environment for the presence of a mineral deposit or has been proved to contain such a deposit.

Identifiable exploration assets acquired are accounted for in accordance with the consolidated entity’s policy on acquisition of assets.

The carrying amount of exploration and evaluation assets is assessed annually in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources (AASB 6) and the consolidated entity’s policy in relation to impairment. In accordance with AASB 6, exploration and evaluation assets are tested for impairment when any of the following facts and circumstances exist:

• Thetermofanexplorationlicenceinthespecificareaofinteresthas expired during the reporting period or will expire in the near futureandisnotexpectedtoberenewed;

• Substantiveexpenditureonfurtherexplorationforandevaluationof mineral resources in the specific area are not budgeted nor planned;

• Explorationforandevaluationofmineralresourcesinthespecificarea have not led to the discovery of commercially viable quantities of mineral resources and the decision was made to discontinue suchactivitiesinthespecifiedarea;or

• Sufficientdataexiststoindicatethat,althoughadevelopmentinthe specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

Where a potential impairment is indicated, an assessment is performed for each cash-generating unit which is no larger than the area of interest. The consolidated entity performs impairment testing in accordance with its accounting policy in relation to impairment.

Farm-out arrangements Arrangements whereby an external party earns an ownership interest

in an exploration or development property via the sole-funding of a specified exploration, evaluation or development program or by injection of funds to be utilised for such a program, will be accounted for so that the consolidated entity recognises its share of assets, liabilities and equity associated with the property. Any gain or loss upon initial recognition of these items is recognised in the profit or loss.

(l) Overburden in advance Expenditure incurred to remove overburden or waste material from

coal deposits is deferred to the extent it gives rise to future economic benefits and charged to operating costs on a unit of production basis using the estimated average stripping ratio for the area being mined. Changes in estimates of average stripping ratios are accounted for prospectively. For the purpose of assessing impairment, overburden in advance is grouped with other assets of the relevant cash-generating unit.

(m) Intangible assets Intangible assets that are acquired by the consolidated entity are

stated at cost less accumulated amortisation and impairment losses.

Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised

only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

Amortisation Amortisation is charged to the profit or loss on a straight-line basis

over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives in the current and comparative years are as follows:

• softwareandsoftwarelicences: 2to3years

• contractbasedintangibleassets: basedupon reservesonaunit of production basis

(n) Inventories Inventories are stated at the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The cost of mining inventories is determined using a weighted average basis. Cost includes direct material, overburden removal, mining, processing, labour, related transportation costs to the point of sale, mine rehabilitation costs incurred in the extraction process and other fixed and variable overhead costs directly related to mining activities.

(o) Non-derivative financial assets The consolidated entity has the following non-derivative financial

assets:

Loans and receivables Loans and receivables are non-derivative financial assets with fixed

or determinable payments that are not quoted in an active market. Such assets are initially recognised at fair value plus transaction costs directly attributable to the acquisition.

Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method less any impairment losses.

Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets,

such as marketable equity securities, that are either designated as available-for-sale or are not classified in any of the other categories, identified in AASB 139 Financial Instruments: Recognition and Measurement.

Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in equity is transferred to the profit or loss.

The fair value of quoted financial assets is based on their bid price at the reporting date, however in the case of financial assets without active markets, fair value is established using relevant valuation techniques.


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62

3. SUMMARY Of SIGNIfIcANT AccOUNTING POLIcIES (cONT.)

(p) derivative financial instruments The consolidated entity uses derivative financial instruments from

time to time to hedge its exposure to foreign exchange risks arising from operating activities. The consolidated entity does not hold derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Derivative financial instruments are initially recognised at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the profit or loss. However, where derivatives qualify for hedge accounting, the effective component of any resultant gain or loss is recognised directly in equity and then is subsequently recognised in the profit or loss in the period during which the hedge transaction affects the profit or loss.

(q) hedging On entering into a hedging relationship, the consolidated entity

formally designates and documents the hedge relationship and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they are designated.

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity in the hedging reserve.

The associated cumulative gain or loss is subsequently removed from equity and recognised in the profit or loss in the same period or periods during which the forecast hedge transaction affects the profit or loss. The ineffective part of any gain or loss on the derivative financial instrument is recognised in the profit or loss.

When a hedging instrument expires or is sold, terminated or exercised, or the consolidated entity revokes designation of the hedge relationship, but the forecast hedged transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised immediately in the profit or loss.

(r) Impairment The carrying amounts of the consolidated entity’s assets, other than

inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of goodwill (if any) allocated to the cash-generating unit (group of cash-generating units) and then, to reduce the carrying amount of the other assets in the cash-generating unit (group of cash-generating units) on a pro rata basis.

When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective

evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is recognised in the profit or loss even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in the profit or loss is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in the profit or loss.

Calculation of recoverable amount The recoverable amount of the consolidated entity’s receivables

carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of these financial assets). Receivables with a short duration are not discounted.

Impairment of receivables is not recognised until objective evidence is available that a loss event has occurred. Significant receivables are individually assessed for impairment.

The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Reversal of impairment An impairment loss in respect of receivables carried at amortised cost

is reversed through the profit or loss if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.

An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through the profit or loss. If the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in the profit or loss.

In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(s) Payables Trade and other payables are initially stated at fair value and

subsequently stated at amortised cost.

(t) Provisions A provision is recognised in the consolidated balance sheet when

the consolidated entity has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance expense.

Mine rehabilitation and restoration Provisions are made for the estimated cost of rehabilitation relating

to areas disturbed during exploration and development activity up to reporting date but not yet rehabilitated. Provision has been made in full for all disturbed areas at the reporting date based on current estimates of costs to rehabilitate such areas, discounted to their present value based on expected future cashflows. The estimated cost of rehabilitation includes the current cost of recontouring, topsoiling and revegetation employing legislative requirements. Changes in estimates are dealt with on a prospective basis as they arise.

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Significant uncertainty exists as to the amount of rehabilitation obligations which will be incurred due to the impact of changes in environmental legislation over time. The amount of the provision relating to rehabilitation of mine infrastructure and dismantling obligations is recognised at the commencement of the mining project and/or construction of the assets where a legal or constructive obligation exists at that time. The provision is recognised as a non-current liability with a corresponding asset included in mine development assets.

At each reporting date, the rehabilitation liability is re-measured in line with changes in discount rates and the timing or amount of the costs to be incurred. Changes in the liability relating to rehabilitation of mine infrastructure and dismantling obligations are added to or deducted from the related asset, other than the unwinding of the discount, which is recognised as a finance expense in the profit or loss as it occurs.

If the change in the liability results in a decrease in the liability that exceeds the carrying amount of the asset, the excess is recognised immediately in the profit or loss. If the change in the liability results in an addition to the cost of the asset, the recoverability of the new carrying amount is considered. Where there is an indication that the new carrying amount is not fully recoverable, an impairment test is performed with the write-down recognised in the profit or loss in the period in which it occurs.

The amount of the provision relating to rehabilitation of environmental disturbance caused by ongoing production and extraction activities is recognised in the profit or loss as incurred. Changes in the liability are charged to the profit or loss as rehabilitation expense, other than the unwinding of the discount, which is recognised as a finance expense.

(u) Employee benefits Wages and salaries and annual leave Liabilities for employee benefits for wages, salaries and annual leave

represent present obligations resulting from employees’ services provided to the reporting date, calculated at undiscounted amounts based on remuneration wage and salary rates that the consolidated entity expects to pay as at the reporting date including related on-costs, such as workers compensation insurance and payroll tax.

Long service leave The consolidated entity’s net obligation in respect of long-term

service benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the reporting date which have maturity dates approximating the terms of the consolidated entity’s obligations.

Cash bonuses Cash bonuses are expensed once the related service has been

provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus if the consolidated entity has a present legal or constructive obligation to pay this amount as a result of past service provided by the Director or employee and the obligation can be estimated reliably.

Retirement benefits Obligations for contributions to defined contribution superannuation

plans are recognised as an expense in the profit or loss as incurred.

Severance benefits Certain employees are entitled to severance benefits as regulated by

the Labour Act applicable in Botswana. Severance benefits are not considered to be a retirement benefit plan as the benefits are payable on completion of each 60-month period of continuous employment or on termination of employment after a continuous employment of 60 months. These benefits are recognised when they are accrued to employees and a provision is made for the estimated liability as a result of services provided by the employee up to the reporting date.

(v) Loans and borrowings Loans and borrowings are recognised on the date they are originated.

Such liabilities are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, loans and borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the profit or loss over the period of the borrowings using the effective interest rate method.

(w) Share-based payments The fair value of options granted is recognised as an expense with a

corresponding increase in equity.

The fair value is measured at grant date and spread over the period during which the option holders become unconditionally entitled to the options. The fair value of the options granted is measured using an option pricing model, taking into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the share price at the date of grant, the expected volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

Non-market vesting conditions, such as project generation criteria, are taken into account in assumptions regarding the number of options that are expected to become exercisable. At each reporting date, the consolidated entity revises its estimate of the number of options that are expected to become exercisable.

The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting.

(x) Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly

attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any related income tax benefit.

Dividends Dividends are recognised as a liability in the period in which they are

declared.

(y) comparatives Certain comparative disclosures have been reclassified to conform

with current year’s presentation.

(z) New standards and interpretations not yet adopted The following standards, amendments to standards and

interpretations have been identified as those which may impact the consolidated entity in the period of initial application. They are available for early adoption at 30 June 2011, but have not been applied in preparing these consolidated financial statements.

• AASB9Financial Instruments (AASB 9) includes requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the project to replace AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 will become mandatory for the consolidated entity’s 30 June 2014 consolidated financial statements. Retrospective application is generally required, although there are exceptions, particularly if the consolidated entity adopts the standard for the year ended 30 June 2012 or earlier. The consolidated entity has not yet determined the potential effect of the standard.

• AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Process affect various AASBs resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory for the consolidated entity’s 30 June 2012 consolidated financial statements, are not expected to have significant impact on the consolidated financial statements.

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64

3. SUMMARY Of SIGNIfIcANT AccOUNTING POLIcIES (cONT.)

(z) New standards and interpretations not yet adopted (cont.) • AASB 11 Joint Arrangements, which becomes mandatory for

the consolidated entity’s 30 June 2014 consolidated financial statements and could change the classification and measurement of investments in jointly controlled entities. The consolidated entity does not plan to adopt this standard early and the extent of the impact has not been determined.

• AmendedAASB119Employee Benefits, which becomes mandatory for the consolidated entity’s 30 June 2014 consolidated financial statements and could change the definition of short-term and other long-term employee benefits and some disclosure requirements. The consolidated entity does not plan to adopt this standard early and the extent of the impact has not been determined.

4. fINANcIAL RISK MANAGEMENTThe consolidated entity’s activities expose it to a variety of financial risks such as market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Operational, financial reporting and compliance risks are continually assessed, monitored and managed at management level and any specific areas of risk which are classified as material are considered and dealt with at Board level.

Market risk Currency riskThe consolidated entity manages currency risk arising from various currency exposures. Currency risk arises when transactions and recognised assets and liabilities are denominated in a currency other than the respective functional currencies of the Company and the entities comprising the consolidated entity.

The functional currency of the Company and the majority of the entities comprising the consolidated entity is Australian dollars. To reduce foreign currency exposure, hedging commitments are denominated in Australian dollars.

The consolidated entity is exposed to foreign currency risk on forecast sales of coal from the Isaac Plains Coal Mine that are denominated in United States dollars.

The consolidated entity may hedge up to 90 per cent of its estimated foreign currency exposure in respect of forecast sales in accordance with its Foreign Exchange and Interest Rate Risk Management Policy. The consolidated entity uses derivative financial instruments from time to time to hedge its foreign currency risk.

The consolidated entity classifies its forward exchange contracts as cash flow hedges and states them at fair value.

The consolidated entity also holds monetary assets and liquid investments which are denominated in other currencies, primarily South African Rand, United States Dollars, Botswana Pula and Indonesian Rupiah. The consolidated entity ensures that its exposure to foreign currency risk on these assets is kept to an acceptable level by minimising its holdings in the foreign currency, where practicable.

Price risk The consolidated entity is exposed to equity securities price risk. This arises from investments classified on the consolidated balance sheet as available-for-sale financial assets. All of the consolidated entity’s equity investments in other companies are publicly traded on the Australian Securities Exchange.

Interest rate risk When managing interest rate risk the consolidated entity seeks to minimise its overall cost of funds with a preference for variable interest rate exposures. Borrowings at variable interest rates expose the consolidated entity to cash flow interest rate risk while borrowings at fixed interest rates expose the consolidated entity to fair value interest rate risk.

credit risk Credit risk represents the loss that would be recognised if counterparties fail to perform as contracted. The maximum exposure to credit risk in relation to each class of recognised financial asset is the carrying amount of those assets.

Transactions involving derivative financial instruments are with counterparties with whom the consolidated entity has signed netting agreements and that maintain strong credit ratings. As a result, management does not expect any counterparty to fail to meet its obligations in relation to derivative financial instrument transactions.

Credit risk, with respect to cash, is managed by depositing funds only with recognised financial institutions that maintain strong credit ratings and by limiting amounts held with any one institution.

Credit risk relating to trade receivables is minimised by only selling coal to customers that are established in the industry with an appropriate credit history.

Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close-out market positions. The consolidated entity manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

capital management The Board’s policy is to maintain a strong capital base and net asset position, so as to maintain investor, creditor and market confidence and to sustain future development of the business.

In the event that management consider that the consolidated entity would benefit from strengthening its capital base and/or net asset position, multiple options would be considered, for example raising additional capital and/or introduction of strategic investors into the mineral project portfolio. The Directors would assess such options that are expected to be the most beneficial for shareholders.

The ultimate objective of managing the consolidated entity’s equity is to enable an adequate Total Shareholder Return (TSR). TSR includes the total increase (decrease) in the Company’s share price, after adjusting for the effects of bonus issues and dividends.

There were no changes in the consolidated entity’s approach to capital management during the year.

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5. OThER INcOME2011 2010

$’000 $’000

Net gain on disposal of equity investments 26 2,287

Administration overheads charged 400 392

Other income 81 -

Total other income 507 2,679

6. LOSS fROM OPERATING AcTIVITIES2011 2010

$’000 $’000

Loss from operating activities before income tax benefit has been arrived at after charging the following items

Net expense from movements in provision for employee benefits 385 32

Depreciation and amortisation 8,073 6,723

Operating lease rental 4,238 3,960

Flood related expenses(i) 4,258 -

(i) The consolidated entity incurred these expenses due to severe flooding in central Queensland. These expenses relate to direct repair and recovery costs associated with damage to equipment and infrastructure.

7. PERSONNEL ExPENSES2011 2010

$’000 $’000

Wages and salaries 14,486 9,015

Other associated personnel expenses 1,064 866

Management fees 500 500

Contributions to defined contribution superannuation funds 1,004 710

Annual leave expense 117 204

Long-service leave expense 127 27

Equity-settled share-based payment to employees 3,250 2,289

Total personnel expenses 20,548 13,611

8. NET fINANcE INcOME 2011 2010

$’000 $’000

Interest income 14,316 10,082

Finance income 14,316 10,082

Interest expense on financial liabilities measured at amortised cost (2,374) (1,347)

Impairment loss on listed investments (567) -

Net foreign exchange (loss)(i) gain (3,545) 334

Finance expense (6,486) (1,013)

Net finance income 7,830 9,069

(i) On consolidation, intragroup monetary liabilities denominated in a currency other than Australian dollars were translated to Australian dollars, resulting in unrealised foreign exchange losses recognised in the profit or loss.F

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9. AUdITORS’ REMUNERATION2011 2010

$ $

Audit services

Auditors of the Company – KPMG Australia

Audit and review of financial statements 157,731 144,956

Audit of joint venture operations 106,000 78,805

Overseas KPMG firms


355,137 284,410

Other auditors


361,438 289,352

Other services

Auditors of the Company – KPMG Australia

Other assurance services - 1,500

Taxation services - 1,500

Other services 10,182 -

Overseas KPMG firms

Taxation services 5,756 5,872

15,938 8,872

10. INcOME TAx2011 2010

$’000 $’000

(a) Income tax benefitCurrent tax (24) -

Deferred tax 20,678 16,526

Total income tax benefit 20,654 16,526

Deferred income tax benefit included in income tax benefit comprises origination and reversal of temporary differences including recognition of deferred tax assets arising from tax losses that are available to be offset against future taxable income.

2011 2010

$’000 $’000

(b) Reconciliation of income tax benefit to prima facie tax payableLoss before income tax benefit (85,212) (49,598)

Tax benefit at the Australian tax rate of 30% (2010: 30%) 25,564 14,879

Tax effect of amounts which are not assessable (deductible) in calculating taxable income:

Non-deductible foreign income and expenditure (12) (20)

Impact of impairment losses - 492

Share-based payment expense (975) (687)

Impact of research and development tax concession 2,279 4,228

Other (non-deductible) non-assessable items (644) 482

26,212 19,374

Impact of overseas subsidiaries

Tax losses not recognised (4,906) (2,355)

Impact of differing foreign jurisdiction tax rates (652) (493)

Total income tax benefit 20,654 16,526

2011 2010

$’000 $’000

(c) Amounts recognised directly in other comprehensive incomeAvailable-for-sale financial assets (684) (605)

Cash flow hedges 456 (456)

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11. EARNINGS PER ShARE(a) Basic earnings per share

The calculation of basic earnings per share at 30 June 2011 was based on the loss attributable to ordinary shareholders of $64,558,000 (2010: $33,072,000) and a weighted average number of ordinary shares outstanding during the year ended 30 June 2011 of 364,710,091 (2010: 335,752,499), calculated as follows:

Loss attributable to ordinary shareholders

2011 2010

$’000 $’000

Loss attributable to ordinary shareholders (64,558) (33,072)

Weighted average number of ordinary shares

2011 2010

Issued ordinary shares at 1 July 322,273,136 249,029,672

Effect of shares issued by means of exercise of options 10,151,492 -

Effect of shares issued via placement - 26,849,452

Effect of shares issued by means of bonus issue 32,285,463 59,873,375

Weighted average number of ordinary shares at 30 June(i) 364,710,091 335,752,499

(i) Prior year weighted average number of ordinary shares has been adjusted to reflect the 1 for 10 Bonus Issue on 23 December 2010.

(b) diluted earnings per shareThe calculation of diluted earnings per share at 30 June 2011 was based on the loss attributable to ordinary shareholders of $64,558,000 (2010: $33,072,000) and a weighted average number of ordinary shares outstanding during the year ended 30 June 2011 of 364,710,091 (2010: 335,752,499). Potential ordinary shares on issue are not considered dilutive as the consolidated entity made a loss for the year ended 30 June 2011 and the exercise of potential ordinary shares would not increase that loss.

Loss attributable to ordinary shareholders (diluted)

2011 2010

$’000 $’000

Loss attributable to ordinary shareholders (64,558) (33,072)

Weighted average number of ordinary shares (diluted)

2011 2010

Weighted average number of ordinary shares on issue 364,710,091 335,752,499

Effect of share options on issue - -

Weighted average number of ordinary shares (diluted)(i) 364,710,091 335,752,499

(i) Prior year weighted average number of ordinary shares has been adjusted to reflect the 1 for 10 Bonus Issue on 23 December 2010.

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12. cASh ANd cASh EQUIVALENTS2011 2010

$’000 $’000

Cash at bank and on hand 39,643 30,927

Call deposits 144,904 250,247

Total cash and cash equivalents 184,547 281,174

13. TRAdE ANd OThER REcEIVABLES2011 2010

$’000 $’000

Current

Trade receivables 9,257 10,810

Interest receivable 391 2,612

GST/VAT receivable 3,671 2,348

Other receivables(i) 4,983 564

Total current receivables 18,302 16,334

(i) Includes amounts which the consolidated entity has provided to a third party to conduct a feasibility study into the potential development of a coal export terminal. This amount is interest-free and is repayable in the next 12 months.

Non-current

Security deposits 1,968 13,169

Total non-current receivables 1,968 13,169

14. INVENTORIES2011 2010

$’000 $’000

Coal stocks – at cost 10,699 8,168

Total inventories 10,699 8,168

15. OThER ASSETS2011 2010

$’000 $’000

Prepayments 418 483

Overburden in advance 25,025 10,296

Total other assets 25,443 10,779

16. INVESTMENTS2011 2010

$’000 $’000

Investments in listed entities – at fair value(i) 26,317 25,387

Total investments 26,317 25,387

(i) Fair value is based on the quoted market price at reporting date. These investments are classified as available-for-sale.

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Annual Report 2011: Aquila Resources Limited 69Annual Report 2011: Aquila Resources Limited 69

17. INTERESTS IN JOINT VENTURESThe consolidated entity has the following interests in joint venture operations and jointly controlled entities that are proportionally accounted for and reported in the consolidated financial statements.

Consolidated entity interest

Joint venture operations Principal activities 2011 2010

Isaac Plains Coal Joint Venture Operation of open cut coal mine in Queensland 50% 50%

Bowen Central Coal Joint Venture Exploration and development of coal resources in Queensland 50% 50%

Belvedere Coal Joint Venture Exploration and development of coal resources in Queensland 24.5% 24.5%

Australian Premium Iron Joint Venture Exploration and development of iron ore resources in Western Australia 50% 50%

Red Hill Iron Ore Joint Venture Exploration and development of iron ore resources in Western Australia 30% 30%

Mt Stuart Iron Ore Joint Venture Exploration and development of iron ore resources in Western Australia 35% 35%

Yalleen Iron Ore Joint Venture Exploration and development of iron ore resources in Western Australia 35% 35%

Thabazimbi Joint Venture Exploration and development of iron ore and manganese resources in South Africa 74% 74%

Asenjo Energy Joint Venture Exploration and development of coal resources in Botswana 50% 50%

Consolidated entity interest

Jointly controlled entities Principal activities 2011 2010

Isaac Plains Coal Management Pty Ltd Manages the operations of the Isaac Plains Coal Joint Venture 50% 50%

Eagle Downs Coal Management Pty Ltd (formerly known as Bowen Central Coal Management Pty Ltd)

Manages the operations of the Bowen Central Coal Joint Venture 50% 50%

API Management Pty Ltd Manages the operations of the Australian Premium Iron Joint Venture, Red Hill Iron Ore Joint Venture, Mt Stuart Iron Ore Joint Venture and Yalleen Iron Ore Joint Venture

50% 50%

Australian Premium Iron Pty Ltd Preserves the name Australian Premium Iron 50% 50%

African Energy (Mauritius) Pty Ltd Holding company of African Energy (Botswana) Pty Ltd 50% 50%

African Energy (Botswana) Pty Ltd Manages the operations of the Asenjo Energy Joint Venture 50% 50%

The following amounts are included in the consolidated entity’s financial statements, consistent with the consolidated entity’s accounting policies:

2011 2010

$’000 $’000

Current assets 62,693 42,888

Non-current assets 84,237 69,667

Current liabilities 23,748 21,815

Non-current liabilities 6,516 12,446

Income 136,150 131,390

Expenses (183,791) (162,397)


Included within the amounts above are trade receivables of $8,554,000 (2010: $10,317,000), sales revenue of $133,453,000 (2010: $129,841,000), and expenses of $7,658,000 (2010: $1,563,000) which are attributable to wholly-owned subsidiaries of the Company which hold the consolidated entity’s interests in joint ventures.

Vale Belvedere purchase option over the consolidated entity’s interest in the Belvedere Coal Joint VentureIn June 2010, the consolidated entity was notified by Vale Belvedere Pty Ltd (“Vale Belvedere”), a wholly-owned subsidiary of Vale, of the exercise of its option over the consolidated entity’s 24.5% interest in the Belvedere Coal Joint Venture. Vale Belvedere is obliged to pay Fair Market Value for the consolidated entity’s interest. The determination and payment of the consideration for the consolidated entity’s interest has been delayed by proceedings that were instituted by Vale Belvedere. Vale Belvedere’s Statement of Claim on this matter was struck out in its entirety by the Supreme Court of Queensland on 20 June 2011. Subsequent to year end, Vale Belvedere advised the consolidated entity that it was appealing this decision.

The exercise of this option has not resulted in a change in the accounting treatment of the consolidated entity’s interest in the Belvedere Coal Joint Venture. Subsequent to the date that Vale Belvedere exercised its purchase option in respect of the consolidated entity’s interest in the Belvedere Coal Joint Venture, the consolidated entity has provided as an expense, further cash call funding, up to 30 June 2011, of $4,021,000 in respect of its 24.5% participating interest.

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18. TAx ASSETS ANd LIABILITIESdeferred tax assets and liabilitiesDeferred tax assets arising from tax losses are only recognised in respect of the consolidated entity’s Australian activities. Management consider that it is probable that the operations of the consolidated entity will generate sufficient future taxable profits in future years to utilise these Australian tax losses. These are expected to be realised as a result of profits from the consolidated entity’s Isaac Plains Coal Mine as well as the capital gain expected to be derived from the sale of the consolidated entity’s 24.5% interest in the Belvedere Hard Coking Coal Project to Vale at Fair Market Value, following Vale’s exercise of its purchase option in respect of this project.

Overseas jurisdiction tax losses relating to the consolidated entity’s overseas subsidiaries are not recognised as deferred tax assets as the activities to date have not reached a stage whereby it can be reliably forecast that there are likely to be sufficient probable future taxable profits derived in the relevant jurisdictions to utilise these losses.

Recognised deferred tax assets and liabilitiesDeferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net

2011 2010 2011 2010 2011 2010

$’000 $’000 $’000 $’000 $’000 $’000

Cash and cash equivalents - - 72 72 72 72

Trade and other receivables - - 215 1,008 215 1,008

Investments (1,460) (605) - - (1,460) (605)

Other assets - - 7,515 3,476 7,515 3,476

Property, plant and equipment - - 3,633 3,607 3,633 3,607

Exploration and evaluation expenditure - - 686 686 686 686

Trade and other payables (4,278) (2,845) - - (4,278) (2,845)

Loans and borrowings (2,519) (2,397) - - (2,519) (2,397)

Employee benefits (215) (105) - - (215) (105)

Issued capital - - - - - -

Tax loss carry-forwards (49,563) (27,905) - - (49,563) (27,905)

Tax (assets) liabilities (58,035) (33,857) 12,121 8,849 (45,914) (25,008)

Set off of tax 12,121 8,849 (12,121) (8,849) - -

Net tax (assets) liabilities (45,914) (25,008) - - (45,914) (25,008)

Movement in temporary differences during the year

Balance1 July 2009

Recognised in income

Recognised in equity

Balance30 June 2010

Recognised in income

Recognised in equity

Balance30 June 2011

$’000 $’000 $’000 $’000 $’000 $’000 $’000

Cash and cash equivalents 76 (4) - 72 - - 72

Trade and other receivables 492 516 - 1,008 (793) - 215

Investments - - (605) (605) (171) (684) (1,460)

Other assets 2,513 963 - 3,476 4,039 - 7,515

Property, plant and equipment 4,041 (434) - 3,607 26 - 3,633

Exploration and evaluation expenditure

686 - - 686 - - 686

Trade and other payables (2,834) 445 (456) (2,845) (1,889) 456 (4,278)

Loans and borrowings (2,791) 394 - (2,397) (122) - (2,519)

Employee benefits (115) 10 - (105) (110) - (215)

Issued capital (128) 128 - - - - -

Tax loss carry-forwards (9,278) (18,627) - (27,905) (21,658) - (49,563)

(7,338) (16,609) (1,061) (25,008) (20,678) (228) (45,914)

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19. PROPERTY, PLANT ANd EQUIPMENT2011 2010

$’000 $’000

Buildings and infrastructure – at cost 27,258 17,470

Accumulated depreciation (8,097) (6,626)

19,161 10,844

Mine properties – at cost 13,547 13,319

Accumulated amortisation (5,939) (2,796)

7,608 10,523

Plant and equipment – at cost 54,057 15,335

Accumulated depreciation (8,417) (6,094)

45,640 9,241

Leased assets – at cost - 12,387

Accumulated depreciation - (3,274)

- 9,113

Land – at cost 240 240

Capital works in progress 3,326 24,205

Total property, plant and equipment 75,975 64,166

A reconciliation of the carrying amounts for each class of property, plant and equipment is set out below.

2011 2010

$’000 $’000

Buildings and infrastructure

Carrying amount at 1 July 10,844 12,814

Additions - -

Transfers from capital works in progress 1,548 227

Transfers from leased assets 8,240 -

Depreciation (1,471) (2,197)

Carrying amount at 30 June 19,161 10,844

Mine properties


Additions 228 3,437

Amortisation (3,143) (1,219)


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19. PROPERTY, PLANT ANd EQUIPMENT (cONT.)2011 2010

$’000 $’000

Plant and equipment


Additions 1,758 918

Disposals - (79)

Transfers from capital works in progress 36,968 859

Depreciation (2,323) (2,296)

Currency translation differences (4) -


Leased assets(i)


Additions 90 -

Transfers to buildings and infrastructure (8,240) -

Depreciation (963) (881)

Carrying amount at 30 June - 9,113

Land

Carrying amount at 1 July 240 240

Additions - -

Disposals - -

Carrying amount at 30 June 240 240

Capital works in progress


Additions 17,637 3,692

Transfers to buildings and infrastructure (1,548) (227)

Transfers to plant and equipment (36,968) (859)


(i) The participants in the Isaac Plains Coal Joint Venture (in which the consolidated entity has a 50% interest) have an agreement with Queensland Rail which has been recognised as a finance lease arrangement consistent with AASB Interpretation 4 – Determining whether an arrangement contains a lease, notwithstanding that the relevant arrangement does not take the legal form of a lease. Following the settlement of the lease liability during 2011, the leased assets have been reclassified to buildings and infrastructure.

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20. ExPLORATION ANd EVALUATION ExPENdITURE2011 2010

$’000 $’000

Capitalised exploration and evaluation expenditure at 1 July 4,026 3,324

Add – exploration assets acquired 8,934 702

Less – currency translation differences (518) -

Capitalised exploration and evaluation expenditure at 30 June 12,442 4,026

21. INTANGIBLE ASSETS2011 2010

$’000 $’000

IT licenses and software – at cost 689 521

Accumulated amortisation (494) (321)

195 200

Contract based intangible assets – at cost(i) 4,176 -

Accumulated amortisation - -

4,176 -

Total intangible assets 4,371 200

(i) During the year ended 30 June 2011, the consolidated entity purchased a contractual entitlement to an allocation of water to be provided by SunWater Limited in respect of its future requirements for one of its coal projects in Queensland. These rights will be amortised over the life of the relevant project upon commencement of operations.

A reconciliation of the carrying amounts of the intangible assets is set out below.

2011 2010

$’000 $’000

IT licenses and software

Carrying amount at 1 July 200 318

Additions 168 12

Amortisation (173) (130)

Carrying amount at 30 June 195 200

Contract based intangible assets

Carrying amount at 1 July - -

Additions 4,176 -

Amortisation - -

Carrying amount at 30 June 4,176 -

22. TRAdE ANd OThER PAYABLES2011 2010

$’000 $’000

Trade payables 5,675 6,649

Unrealised loss on foreign exchange contracts(i) - 1,525

Other payables and accruals 25,632 15,966

Total trade and other payables 31,307 24,140

(i) The consolidated entity enters into foreign exchange forward contracts from time to time in order to manage future exchange rate exposures on forecast sales in United States dollars. The consolidated entity classifies foreign exchange forward contracts as cash flow hedges and measures them at fair value. As at 30 June 2011, there were no such foreign exchange forward contracts in place. The after tax amount recorded as a cash flow hedge in the hedging reserve was nil (2010: $1,067,000).

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23. LOANS ANd BORROWINGSThis note provides information about the contractual terms of the consolidated entity’s loans and borrowings. For more information on the consolidated entity’s exposure to interest rate and foreign currency risk, refer to Note 29.

2011 2010

$’000 $’000

Current

Cash advance facility - 5,000

Deferred borrowing costs - (29)

Finance lease liabilities - 1,238

Total current loans and borrowings - 6,209

Non-current

Finance lease liabilities - 6,587

Total non-current loans and borrowings - 6,587

Financing facilities

Corporate contingent instrument facility(i) 38,556 -

Cash advance facility(ii) - 5,000

Financial guarantee facility(ii) - 12,705

38,556 17,705

(i) During the year, the consolidated entity executed new funding arrangements with the National Australia Bank Limited and the Commonwealth Bank of Australia relating to the provision of performance bonds and guarantees in respect of its various project developments. The new unsecured corporate facilities comprise an initial $60,000,000 committed facility that will provide the consolidated entity with access to various forms of financial instruments for general business purposes. The facilities also provide the consolidated entity with an additional $20,000,000 uncommitted facility.

(ii) A Syndicated Multi-Option Facility Agreement between the participants in the Isaac Plains Coal Joint Venture and a bank syndicate comprising Investec Bank (Australia) Limited, Société Générale Australia and BOS International (Australia) Limited that 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. The consolidated entity, through IP Coal Pty Ltd, has a 50% interest in this joint venture. The facility was provided subject to security over assets and undertakings, guarantees and indemnities from the consolidated entity and the Isaac Plains Coal Joint Venture. The consolidated entity has repaid all borrowings under this facility as at 30 June 2011 and the facility has now expired.

2011 2010

$’000 $’000

Financing utilised at reporting date

Corporate contingent instrument facility 38,556 -

Cash advance facility - 5,000

Financial guarantee facility - 12,705

38,556 17,705

Facilities not utilised at reporting date

Corporate contingent instrument facility – committed facility 21,444 -

Corporate contingent instrument facility – uncommitted facility 20,000 -

41,444 -

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finance lease liabilitiesAs per Note 19, an agreement with Queensland Rail in relation to the rail loop servicing the Isaac Plains Coal Mine was classified as a finance lease for accounting purposes. During the current year, in accordance with the terms of the Access Facilitation Deed, Queensland Rail requested a mandatory prepayment of all rail loop access charges for the remaining life of the agreement. Deemed finance lease expense of $2,054,000 (2010: $782,000) associated with this treatment was recognised in finance expense.

Minimum Lease

Payments Interest Principal

Minimum Lease

Payments Interest Principal

2011 2011 2011 2010 2010 2010

$’000 $’000 $’000 $’000 $’000 $’000

Less than one year - - - 2,020 782 1,238

Between one and five years - - - 8,081 3,128 4,953

More than five years - - - 2,693 1,059 1,634

- - - 12,794 4,969 7,825

24. EMPLOYEE BENEfITS2011 2010

$’000 $’000

(a) Aggregate liability for employee entitlements, including on-costsProvision - current 871 486

(b) Share-based payments

Share options are granted to eligible employees from time to time as part of the consolidated entity’s Employee Share Option Plan. 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 grant date and applicable vesting conditions relating to the share options. Subject to vesting conditions, each option is convertible into one ordinary share.

Options are expensed over the period of expected vesting, taking into account the value of option at the grant date and its related vesting conditions.

The number of share options outstanding during the current and comparative reporting years is set out below.

Grant date

Expiry date

Exercise price

At start of the year

Granted during the

yearExercised during

the year(i)Expired during

the yearAt end of the year

Exercisable at end of the

year

2011

23 Nov 05 31 Dec 10 $4.00 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 $5.50 300,000 - (300,000) - - -

19 Jun 07 31 Aug 10 $5.50 100,000 - (66,666) (33,334) - -

22 Jun 09 21 Jun 13 $7.65 2,940,000 - (45,000) - 2,895,000 984,000

2 July 10 1 July 14 $11.40 - 1,650,000 - (60,000) 1,590,000 -

8,340,000 1,650,000 (5,411,666) (93,334) 4,485,000 984,000

(i) The weighted average share price at the date of exercise of these options was $9.84 (2010: no options were exercised).

Grant date

Expiry date

Exercise price

At start of the year

Granted during the

yearExercised during

the yearExpired during

the yearAt end of the year

Exercisable at end of the

year

2010

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 $5.50 300,000 - - - 300,000 300,000

19 Jun 07 31 Aug 10 $5.50 100,000 - - - 100,000 -

22 Jun 09 21 Jun 13 $7.65 3,105,000 - - (165,000) 2,940,000 441,000

8,505,000 - - (165,000) 8,340,000 5,741,000

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24. EMPLOYEE BENEfITS (cONT.)(b) Share-based payments (cont.)

Vesting conditions attaching to the share options are as follows:

Grant dateNumber of share

options Vesting conditions

% vested at end of the

year

22 June 2009 2,895,000 Options vest 15% after one year, 20% after two years, 25% after three years and remaining 40% at the end of four years.

34%

2 July 2010 1,590,000 Options vest 15% after one year, 20% after two years, 25% after three years and remaining 40% at the end of four years.

Nil

fair value of options grantedThe 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:

2011 2010

Term 4 years -Exercise price $11.40 -Underlying share price at the grant date $7.59 -Expected share price volatility over the term of the options 55% -Risk-free rate for the term of the options (based on the Government bond rate) 4.69% -

The assessed fair value of the share options issued during the year ended 30 June 2011 was $2.69 each. There were no share options issued during the year ended 30 June 2010.

During the current financial year, the consolidated entity recognised share-based payments expense of $3,250,000 (2010: $2,289,000).

25. PROVISIONSMinesite rehabilitation

and restoration

2011 2010

$’000 $’000

Balance at 1 July 5,859 2,485

Provisions made during the year 229 3,240

Unwind of discount 428 134

Balance at 30 June 6,516 5,859

In accordance with legislative requirements, a provision has been recognised for mine rehabilitation and restoration works throughout the life of the Isaac Plains Coal Mine. The provision has been made in full for all disturbed areas as at reporting date, based on current estimates of costs to rehabilitate the area, discounted to their present value based on expected future cash flows.

26. ISSUEd cAPITAL2011 2010

$’000 $’000

374,368,499 fully paid ordinary shares (2010: 322,273,136) 386,218 363,800

Less – share issue costs (2,024) (2,024)

Total issued capital 384,194 361,776For

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2011 2010 2011 2010

Shares Shares $’000 $’000

Movement in fully paid ordinary shares

Balance at 1 July 322,273,136 249,029,672 361,776 76,124

Issued during the year

Ordinary shares issued at $6.50 each - 43,946,413 - 285,652

Ordinary shares issued by means of the exercise of 366,666 options at $5.50 per option

580,800 - 2,017 -

Ordinary shares issued by means of the exercise of 5,000,000 options at $4.00 per option

19,166,400 - 20,000 -

Ordinary shares issued by means of the exercise of 52,500 options at $7.65 per option

62,700 - 401 -

Bonus issue of 1 share for every 10 ordinary shares held 32,285,463 29,297,051 - -

Balance at 30 June 374,368,499 322,273,136 384,194 361,776

The Company does not have authorised capital or par value in respect of its issued shares. 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.

OptionsAs at 30 June 2011, the following options remain outstanding:• 2,895,000optionsexercisableat$7.65eachonorbefore21June2013,for3,502,950shares.• 1,590,000optionsexercisableat$11.40eachonorbefore1July2014,for1,749,000shares.

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 term 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 details of the vesting conditions of these options, refer to Note 24.

27. RESERVES2011 2010

$’000 $’000

(a) ReservesAvailable-for-sale fair value reserve 5,112 6,972

Share-based payment reserve 18,824 15,574

Hedging reserve - cash flow hedges - (1,067)

Foreign currency translation reserve 1,863 26

Total reserves 25,799 21,505

(b) Nature and purpose of reservesAvailable-for-sale fair value reserveUnrealised 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 profit or loss.

Share-based payment reserveThe share-based payment reserve represents accrued employee entitlements under the Employee Share Option Plan that have been charged to the profit or loss.

Hedging reserve – cash flow hedgesThe 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 profit or loss when the associated hedged transaction is recognised in the profit or loss.

Foreign currency translation reserveThe foreign currency translation reserve comprises foreign currency differences arising from the translation of the financial statements of foreign operations.F

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28. cONTROLLEd ENTITIESDate

incorporated

Ownership interest Country of incorporationcontrolled entities 2011 2010

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

BD Coal Pty Ltd 1 April 2005 100% 100% Australia

IP Coal Pty Ltd 12 May 2005 100% 100% Australia

Aquila Steel (S Africa) (Pty) Ltd 17 June 2005 100% 100% South Africa

Aquila Steel (SA) Pty Ltd 30 August 2005 100% 100% Australia

Aquila Energy (S Africa) (Pty) Ltd 30 January 2007 100% 100% South Africa

Aquila Steel (Mauritius) Pty Ltd 16 August 2007 100% 100% Mauritius

Aquila Energy Holdings (Mauritius) Pty Ltd 20 August 2007 100% 100% Mauritius

Aquila Exploration Pty Ltd 24 January 2008 100% 100% Australia

Argos Energy (Offshore) Pty Ltd 25 January 2008 100% 100% Australia

Argos Steel (Offshore) Pty Ltd 25 January 2008 100% 100% Australia

Argos (Qld) Pty Ltd 25 January 2008 100% 100% Australia

Argos (WA) Pty Ltd 25 January 2008 100% 100% Australia

Aquila Coal (S Africa) (Pty) Ltd 7 June 2008 100% 100% South Africa

Aquila (Washpool) Pty Ltd 13 October 2009 100% 100% Australia

Washpool Coal Pty Ltd 13 October 2009 100% 100% Australia

Aquila Energy EK (Singapore) (Pte.) Ltd 5 November 2009 100% 100% Singapore

Aquila Energy Holdings (Singapore) (Pte.) Ltd 5 November 2009 100% 100% Singapore

Aquila Energy Services (Singapore) Pte. Ltd 4 December 2009 100% 100% Singapore

PT Aquila Energy Development Indonesia 9 April 2010 100% 100% Indonesia

Aquila Steel Northern Cape (S Africa) (Pty) Ltd 16 April 2010 100% 100% South Africa

Aquila Steel Thabazimbi (S Africa) (Pty) Ltd 16 April 2010 100% 100% South Africa

Aquila Steel Northern Cape (Mauritius) Pty Ltd 27 April 2010 100% 100% Mauritius

Aquila Steel Thabazimbi (Mauritius) Pty Ltd 27 April 2010 100% 100% Mauritius

Aquila Energy Mitra (Singapore) (Pte.) Ltd 8 October 2010 100% - Singapore

Aquila Energy Bara (Singapore) (Pte.) Ltd 8 October 2010 100% - Singapore

Aquila (Talwood) Pty Ltd 16 November 2010 100% - Australia

Talwood Coal Pty Ltd 16 November 2010 100% - Australia

West Pilbara Iron Management Pty Ltd 8 March 2011 100% - Australia

Eagle Downs Pty Ltd 31 March 2011 100% - Australia

Isaac Plains Coal Marketing Pty Ltd 6 April 2011 100% - Australia

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29. fINANcIAL INSTRUMENTS(a) Interest rate risk

At the reporting date, the interest rate profile of the consolidated entity’s interest-bearing financial instruments was:

Carrying amount

2011 2010

$’000 $’000

Fixed rate instruments

Financial assets

Cash and cash equivalents 144,904 250,250

Financial liabilities

Loans and borrowings - (7,825)

144,904 242,425

Variable rate instruments

Financial assets


Receivables 1,968 13,169


Loans and borrowings - (5,000)

36,717 36,848

Fair value sensitivity analysis for fixed rate instrumentsThe consolidated entity does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect the carrying amounts of fixed rate financial assets and liabilities in a manner that would impact the profit or loss.

Cash flow sensitivity analysis for variable rate instrumentsA change of 100 basis points (2010: 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 2010.

100bp (2010: 100bp) Increase 100bp (2010: 100bp) Decrease

Profit or loss Equity Profit or loss Equity

$’000 $’000 $’000 $’000

30 June 2011

Variable rate instruments 367 - (367) -30 June 2010

Variable rate instruments 369 - (369) -

(b) fair values of financial assets and liabilities

The carrying amounts of financial assets and liabilities of the consolidated entity 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 securitiesThe fair value of available-for-sale financial assets is determined by reference to their quoted market price at the reporting date.

Trade and other receivablesThe 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.

DerivativesThe fair value of forward exchange contracts is calculated by external treasury advisers and is 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 current forward price for the residual maturity of the contract using a risk-free interest rate.

Non-derivative financial liabilitiesFair 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.

Fair value hierarchy

The consolidated entity classifies balance sheet items carried at fair value using a fair value hierarchy that reflects the significance of the inputs used in determining that value. The table below analyses financial instruments carried at fair value, by valuation method. The different levels in the hierarchy have been defined as follows:• Level1:quotedpricesinactivemarketsforidenticalassetsorliabilities.• Level2:inputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectlyorindirectly.• Level3:inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata.

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29. fINANcIAL INSTRUMENTS (cONT.)(b) fair values of financial assets and liabilities (cont.)

Level 1 Level 2 Level 3 Total

$’000 $’000 $’000 $’000

30 June 2011

Investments in listed entities 26,317 - - 26,317

Unrealised losses on foreign exchange contracts

- - - -

26,317 - - 26,317

30 June 2010

Investments in listed entities 25,387 - - 25,387

Unrealised losses on foreign exchange contracts

- (1,525) - (1,525)

25,387 (1,525) - 23,862

(c) Price riskThe consolidated entity is exposed to equity securities price risk, which arises from investments classified on the consolidated balance sheet as available-for-sale financial assets.

Sensitivity analysis

A 10 percent (2010: 10 percent) increase (decrease) of the share price for the equity securities at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown in the following analysis. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

10% (2010: 10%) Increase 10% (2010: 10%) Decrease

Profit or loss Equity Profit or loss Equity

$’000 $’000 $’000 $’000

30 June 2011

Available-for-sale financial assets(i) - 2,632 - (2,632)

30 June 2010

Available-for-sale financial assets(i) - 2,539 - (2,539)

(i) Decreases in a particular investment which are significant or prolonged are classified as impaired and would be reflected in the profit or loss.

(d) currency riskThe consolidated entity’s asset (liability) exposure to foreign currency risk at the reporting date was as follows, based on notional amounts converted to Australian dollars (“AUD”) from United States dollars (“USD”), South African Rand (“ZAR”) and Indonesian Rupiah (“IDR”).

2011 2010

USD ZAR IDR USD ZAR IDR

In AUD equivalent $’000 $’000 $’000 $’000 $’000 $’000

Cash and cash equivalents 5,922 252 - 2,475 3,223 -

Trade receivables 8,554 - - - - -

Security deposits 1,259 - 8 1,549 - -

Derivatives – designated as cash flow hedges Foreign exchange contracts - - - (93,990) - -

Gross balance sheet asset (liability) exposure 15,735 252 8 (89,966) 3,223 -

The consolidated entity also holds minimal levels of cash that are denominated in Botswana Pula (“BWP”).

The following significant exchange rates applied during the year:

Average rateReporting date spot

rate

2011 2010 2011 2010

AUD : USD 0.9889 0.8822 1.0595 0.8567

AUD : ZAR 6.8962 6.7076 7.2360 6.5559

AUD : IDR 8,707.02 8,353.27 9,122.38 7,852.09

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Sensitivity analysis

A 10 percent (2010: 10 percent) (strengthening) weakening of the AUD against the total amount of financial assets held in all currencies at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown in the following analysis, assuming that all other variables, in particular interest rates, remain constant.

Carrying amount

10% Increase 10% Decrease

Profit or loss Equity

Profit or loss Equity

$’000 $’000 $’000 $’000 $’000

30 June 2011

Financial assets

Cash and cash equivalents 184,547 - (561) - 686

Trade receivables 9,257 (778) - 950 -

Security deposits 1,968 - (115) - 141


Derivatives – designated as cash flow hedges Foreign exchange contracts - - - - -

30 June 2010

Financial assets

Cash and cash equivalents 281,174 - (587) - 490

Security deposits 13,169 - (172) - (141)


Derivatives – designated as cash flow hedges Foreign exchange contracts 1,525 - (10,410) - 8,529

(e) Liquidity riskThe 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

liabilitiesContractual cash flows

Less than 12 months 1 – 2 years 2 – 5 years

More than 5 years

$’000 $’000 $’000 $’000 $’000 $’000

30 June 2011

Non-derivative financial liabilities

Cash advance facility - - - - - -

Finance lease liabilities - - - - - -

Trade and other payables 31,307 (31,307) (31,307) - - -

Derivative financial liabilities

Forward foreign exchange contracts used for hedging:

AUD equivalent outflows - - - - - -

AUD inflows - - - - - -

31,307 (31,307) (31,307) - - -

30 June 2010

Non-derivative financial liabilities

Cash advance facility 5,000 (5,165) (5,165) - - -

Finance lease liabilities 7,825 (12,794) (2,020) (2,020) (6,061) (2,693)

Trade and other payables 22,615 (22,615) (22,615) - - -

Derivative financial liabilities

Forward foreign exchange contracts used for hedging(i):

AUD equivalent outflows 1,525 (93,990) (93,990) - - -

AUD inflows - 93,950 93,950 - - -

36,965 (40,614) (29,840) (2,020) (6,061) (2,693)

(i) The cash flows associated with derivatives that are cash flow hedges are expected to occur and impact the profit or loss in the same period as the underlying hedged contract cash flows.

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29. fINANcIAL INSTRUMENTS (cONT.)(f) credit risk

Exposure to credit risk

The maximum exposure to credit risk is represented by the carrying amount of the consolidated entity’s financial assets in the consolidated balance sheet. The maximum exposure to credit risk at the reporting date was:

Carrying amount

2011 2010

$’000 $’000


Available-for-sale financial assets 26,317 25,386

Receivables 20,270 29,503

231,134 336,063

The consolidated entity’s most significant customer (23% of sales revenue) accounts for $8,554,000 of the receivables carrying amount at 30 June 2011 (2010: $5,578,000).

30. cOMMITMENTS(a) Exploration and mining lease expenditure commitments

The consolidated entity has certain statutory requirements 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 requirements 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.

2011 2010

$’000 $’000

These exploration commitments are not provided for in the consolidated financial statements and are payable

Within one year 12,934 12,217

One year or later and not later than five years 17,299 10,946

Later than five years 829 548

31,062 23,711

(b) Operating lease commitmentsThe consolidated entity has entered into operating leases in respect of its various office premises. These operating leases provide the consolidated entity with a right of renewal. Lease payments comprise a base amount plus an incremental rental linked to movements in the applicable Consumer Price Index.

The participants in the Isaac Plains Coal Joint Venture have leased minesite accommodation under operating leases which expire on 13 July 2013. Lease payments are subject to incremental increases linked to the Consumer Price Index.

2011 2010

$’000 $’000

The consolidated entity’s share of these commitments is not provided for in the consolidated financial statements and is payable



10,959 8,498

(c) capital expenditure commitments2011 2010

$’000 $’000



2,372 13,270

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(d) Operating commitments – joint venturesThe Isaac Plains Coal Joint Venture has commitments arising from contractual agreements. These predominantly relate to water, rail and port service providers for the Isaac Plains Coal Mine.

2011 2010

$’000 $’000




Later than five years 54,554 30,536

153,024 120,661

(e) Other commitmentOther commitment relates to a consultancy agreement with Omega Management Services Pty Ltd, a company associated with a Director, that is due to expire on 30 April 2012. The agreement is subject to certain rights of termination by either party.

2011 2010

$’000 $’000


Within one year 417 -One year or later and not later than five years - -Later than five years - -

417 -

31. REcONcILIATION Of cASh fLOWS fROM OPERATING AcTIVITIES2011 2010

$’000 $’000

Profit (loss) for year (64,558) (33,072)

Adjustments for

Share-based payment expense 3,250 2,289

Depreciation and amortisation 8,073 6,723

Impairment losses on listed investments 567 -

Unwind of discount on minesite rehabilitation and restoration 428 134

Net foreign exchange loss (gain) 3,545 (334)

Profit on sale of equity investments (26) (2,287)

Net cash used in operating activities before changes in assets and liabilities (48,721) (26,547)

Add (less) – change in assets and liabilities

(Increase) decrease in receivables (1,968) (12,540)

(Increase) decrease in inventories (2,531) 6,646

(Increase) decrease in other assets (14,664) (2,044)

(Increase) decrease in deferred tax assets (20,678) (16,526)

Increase (decrease) in trade and other payables 8,342 (8,295)

Increase (decrease) in employee benefit provisions 385 32

Net cash used in operating activities (79,835) (59,274)

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32. RELATEd PARTIES (a) Key management personnel disclosure

The following were key management personnel of the consolidated entity at any time during the reporting year and unless otherwise indicated were key management personnel for the entire reporting year:

Executive Director

Mr T Poli (Executive Chairman and Chief Executive Officer)

Non-Executive Directors

Mr C B BassMr D T CowlanMr G T GaltMr Zhihao Dai

Executives

Mr R G Tipper (General Manager – Iron Ore) Mr S J Pilcher (General Manager – Coal) Mr M N Alciaturi (General Manager – Finance and Corporate, commenced on 19 July 2010)Mr H C Rae (Chief Financial Officer)Mr J R Wood (General Counsel/Company Secretary)Mr B E Green (Head of Exploration)

Key management personnel compensationThe key management personnel compensation included in ‘employee benefits expense’ and ‘share-based payment expense’ is as follows:

2011 2010

$’000 $’000

Short-term employee benefits 3,467 2,318

Post-employment benefits 262 278

Equity compensation benefits 1,752 1,353

5,481 3,949

Individual directors and Executives compensation disclosuresInformation regarding individual Directors and Executives compensation and certain equity instrument disclosures as permitted by the Corporations Regulations 2M.3.03 is provided in the Remuneration Report section of the Directors’ Report.

Apart from the details disclosed in this note, no Director has entered into a material contract with the consolidated entity since the end of the previous financial year and there were no material contracts involving Directors’ interests existing at year-end.

Equity instrumentsEquity holdings and transactionsThe movement of the number of ordinary shares of the Company held, directly, indirectly or beneficially, by each Specified Director and Specified Executive (key management personnel), including their personally-related entities during the reporting year is as follows:

2011Name

Held at 1 July 2010 Purchases

Received via bonus issue(i)

Received via exercise of

options SalesOther

changesHeld at

30 June 2011

Specified Directors

Mr T Poli 82,827,687 - 8,282,768 19,166,400 (2,000,000) - 108,276,852

Mr C B Bass 38,995,166 - 3,899,515 - (17,000) - 42,877,681

Mr D T Cowlan 10,562,704 - 1,056,270 - (1,250,000) - 10,368,974


Mr R G Tipper 11,000 - 1,100 - - - 12,100

Mr S J Pilcher 27,500 - 2,750 - - - 30,250

Mr H C Rae - - 23,760 282,975 - - 306,735

Mr B E Green - - 20,220 343,200 (141,000) - 222,420

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2010Name

Held at 1 July 2009 Purchases

Received via bonus issue(i)

Received via exercise of

options SalesOther

changesHeld at

30 June 2010

Specified Directors

Mr T Poli 75,297,898 - 7,529,789 - - - 82,827,687

Mr C B Bass 35,450,152 - 3,545,014 - - - 38,995,166

Mr D T Cowlan 9,943,368 - 969,336 - (350,000) - 10,562,704


Mr R G Tipper 10,000 - 1,000 - - - 11,000

Mr S J Pilcher 25,000 - 2,500 - - - 27,500

(i) Details regarding bonus issue are contained in Note 26.

No shares were granted as compensation to key management personnel during the reporting year.

Option holdings

The movement of 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 during the reporting year is as follows:

2011Name

Held at 1 July 2010

Granted as remuneration Exercised

Other changes(i)

Held at 30 June 2011

Vested during the

year

Vested and exercisable at 30

June 2011

Specified Directors

Mr T Poli 5,000,000 - (5,000,000) - - - -


Mr R G Tipper 750,000 - - - 750,000 150,000 262,500

Mr S J Pilcher 600,000 - - - 600,000 120,000 210,000

Mr M N Alciaturi - 600,000 - - 600,000 - -

Mr H C Rae 400,000 - (187,500) - 212,500 50,000 50,000

Mr B E Green 500,000 - (216,666) (33,334) 250,000 116,666 87,500

Mr J R Wood 250,000 - - - 250,000 50,000 87,500

2010Name

Held at 1 July 2009

Granted as remuneration Exercised

Other changes(i)

Held at 30 June 2010

Vested during the

year

Vested and exercisable at 30 June 2010

Specified Directors

Mr T Poli 5,000,000 - - - 5,000,000 - 5,000,000


Mr R G Tipper 750,000 - - - 750,000 112,500 112,500

Mr S J Pilcher 600,000 - - - 600,000 90,000 90,000

Mr H C Rae 400,000 - - - 400,000 87,500 187,500

Mr B E Green 500,000 - - - 500,000 87,500 187,500

Mr J R Wood 250,000 - - - 250,000 37,500 37,500

(i) Other changes represent options that were expired or forfeited during the reporting year.

No options held by Specified Directors or Specified Executives are vested but not exercisable.

Key management personnel transactions with the company or its controlled entitiesDetails of transactions between the Company and its related parties are as follows:

Related parties: Tony Poli, Charles B. Bass, Derek T. Cowlan, Gordon T. Galt, Zhihao Dai, Russell G. Tipper, Howard C. Rae and Brent E. Green

Type of transaction: Deed of Access, Insurance and Indemnity

Transaction details: Deeds of Access, Insurance and Indemnity that are substantially identical in form have been entered into by the Company with each of the above key management personnel, who are each either Directors of the Company or of one or more of its controlled entities.

Each Deed indemnifies the relevant individual to the extent permitted by law, against any liability, which he may incur whilst carrying out his duties as a Director of the Company (or as a Director of any of its subsidiaries) 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 stated period thereafter.

The Deed also provides for each Director to have access to Company documents (including Board papers) for a stated period after he ceases to be a Director, subject to certain confidentiality and other requirements being observed.

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32. RELATEd PARTIES (cONT.)(a) Key management personnel disclosure (cont.)

Key management personnel transactions with the company or its controlled entities (cont.)

Related parties: Veromas Pty Ltd (“Veromas”)

Nature of relationship: Director related entity (Gordon T. Galt)

Type of transaction: Consultancy Agreement

Transaction details: Under this agreement, Veromas, a company associated with Mr Galt, agreed to provide the services of Mr Galt to act as an independent director of the Company.

Veromas receives a consultancy fee at a rate of $72,000 (2010: $65,000) per annum, together with reimbursement of out of pocket expenses incurred in the course of providing services under that agreement.

Related party: Omega Management Services Pty Ltd (“Omega”)

Nature of relationship: Director related entity (Tony Poli)

Type of transaction: Consultancy Agreement

Transaction details: Under this agreement, which is to expire on 30 April 2012, 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 continues to operate on a monthly basis until renewed or renegotiated.

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 $500,000 (2010: $500,000) in consulting 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 charged a fee of $1,000 per calendar month (2010: $1,000) for the use of office space, secretarial services and amenities.

2011 2010

$’000 $’000

Assets and liabilities arising from the above transactionsCurrent receivables

Elite Developments (WA) Pty Ltd 2 2

Less – impairment loss recognised - -

2 2

Current payables

Omega Management Services Pty Ltd 46 83

(b) Other related party transactionsDuring the financial year, the Company charged the Australian Premium Iron Joint Venture a total of $388,000 (2010: $380,000). This amount was in respect of the reimbursement of expenses relating to the Australian Premium Iron Joint Venture that were paid by the Company including office occupancy and support services.

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33. EVENTS SUBSEQUENT TO ThE REPORTING dATE On 8 August 2011, 1,420,000 options were issued to employees of the consolidated entity under its Employee Share Option Plan, with an exercise price of $8.71 and which vest over a four-year period.

On 24 August 2011, the consolidated entity paid a compensation payment of $5,851,000 pursuant to a land access agreement that had been agreed with the land owner for one of the consolidated entity’s coal projects in Queensland.

As at the date of this report, there have been no events occurring subsequent to the reporting date, other than the matters above, which would have a material impact on the consolidated entity or require disclosure in these consolidated financial statements

34. OPERATING SEGMENTSOperating segments are determined in a manner consistent with internal reporting provided to the CEO, who is the consolidated entity’s chief operating decision maker.

The consolidated entity’s operating segments comprise the following:

• Coal–encompassingmining,development,feasibilityandexplorationactivitiesattheconsolidatedentity’scoalprojectsinQueensland(includingthe Isaac Plains Coal Mine, Eagle Downs Hard Coking Coal Project, Belvedere Hard Coking Coal Project, Washpool Hard Coking Coal Project and TalwoodCokingCoalProject),Botswana(theAsenjoEnergyCoalProject)andIndonesia;

• Ironore–encompassingfeasibilityandexplorationactivitiesattheconsolidatedentity’s ironoreprojectsinAustralia(theWestPilbaraIronOreProject)andSouthAfrica(theMeletseIronOreProjectandtheNorthernCapeIronOreProject);and

• Manganese – encompassing feasibility and exploration activities at the consolidated entity’smanganeseproject in SouthAfrica (theAvontuur(Gravenhage) Manganese Project).

Information regarding the results of each reportable segment is included in the following table.

Coal Iron Ore ManganeseCorporate and

unallocated items Consolidated

2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000Revenue

Revenue from external customers

133,453 129,841 - - - - - - 133,453 129,841

Cost of sales(i) (103,794) (118,611) - - - - - - (103,794) (118,611)

Gross profit 29,659 11,230 - - - - - - 29,659 11,230

Gain on sale of equity investments

- - - - - - 26 2,287 26 2,287

Share-based payment expense

- - - - - - (3,250) (2,289) (3,250) (2,289)

Depreciation and amortisation

(158) (595) (876) (520) (155) (144) (236) (131) (1,425) (1,390)

Other income (expenses) (46,057) (24,357) (56,234) (34,005) (7,245) (3,600) (8,516) (6,543) (118,052) (68,505)

Profit (loss) from operating activities

(16,556) (13,722) (57,110) (34,525) (7,400) (3,744) (11,976) (6,676) (93,042) (58,667)

Finance income - - - - - - 14,316 10,082 14,316 10,082

Finance expenses (2,747) (1,013) (567) - - - (3,172) - (6,486) (1,013)

Profit (loss) before income tax

(19,303) (14,735) (57,677) (34,525) (7,400) (3,744) (832) 3,406 (85,212) (49,598)

Income tax benefit 20,654 16,526


Segment assets 181,179 101,116 36,618 54,211 326 408 187,855 292,676 405,978 448,411

Acquisition of non-current assets

21,959 8,071 10,545 732 122 - 365 202 32,991 9,005

Segment liabilities 23,121 36,668 7,697 4,169 - - 7,876 2,444 38,694 43,281

(i) Cost of sales includes depreciation and amortisation on the Isaac Plains Coal Mine assets of $6,648,000 (2010: $5,333,000). Therefore, total depreciation and amortisation was $8,073,000 (2010: $6,723,000).

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34. OPERATING SEGMENTS (cONT.)Geographical informationThe consolidated entity operates predominantly in Australia. All segment assets from ordinary activities relate to operations in Australia, Africa or Asia. In presenting information on the basis of geographical segments (refer to the table below), segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of assets.

2011 2010

RevenueNon-current

assets RevenueNon-current

assets

$’000 $’000 $’000 $’000

Australia - 157,456 - 130,419

South Africa - 8,950 - 1,472

Japan 59,659 - 26,796 -

China 26,606 - 44,545 -

India 13,598 - 24,777 -

Taiwan 6,921 - 17,392 -

Other Asia 11,288 - 9,605 -

South America 12,428 - 3,246 -

Europe 2,953 - 3,480 -

Other - 581 - 65

133,453 166,987 129,841 131,956

Significant customer disclosureRevenues from two customers of the consolidated entity’s coal segment represent approximately $30,648,000 and $15,381,000 respectively (2010: one customer totalling $19,300,000) of the consolidated entity’s total revenue.

35. PARENT ENTITY dIScLOSUREAs at, and throughout, the financial year ended 30 June 2011, the parent company of the consolidated entity was Aquila Resources Limited. The results, financial position and total equity of the Company for the year ended and as at 30 June 2011 are as follows:

2011 2010

$’000 $’000

Result of the Company


Other comprehensive income (loss) (565) 308

Total comprehensive income (loss) (67,207) (31,764)

Current assets 156,211 266,677

Total assets 321,732 359,398

Current liabilities 6,441 2,568

Total liabilities 6,441 2,568

Total equity of the Company

Issued capital 384,194 361,776

Available-for-sale fair value reserve 283 848

Share-based payment reserve 18,824 15,574

Retained earnings (accumulated losses) (88,010) (21,368)

Total equity 315,291 356,830

The Company has provided written undertakings to certain of its controlled entities, that it will continue to provide loan funding to enable those controlled entities to pay their debts as and when they fall due.

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1. In the opinion of the Directors of Aquila Resources Limited:

(a) the consolidated financial statements and notes set out on pages 52 to 88 are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of its performance for the financial year ended onthatdate;and

(ii) complyingwithAustralianAccountingStandards(includingtheAustralianAccountingInterpretations)andtheCorporationsRegulations2001;

(b) theconsolidatedfinancialstatementsalsocomplywithInternationalFinancialReportingStandardsasdisclosedinNote2(a);

(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 2011 pursuant to Section 295A of the Corporations Act 2001.

Dated at Perth this 14th day of September 2011.

Signed in accordance with a resolution of the Directors:

Tony PoliExecutive Chairman

dIREcTORS’ dEcLARATION

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INdEPENdENT AUdITOR’S REPORT TO ThE MEMBERS Of AQUILA RESOURcES LIMITEd

Report on the financial reportWe have audited the accompanying financial report of Aquila Resources Limited (the Company), which comprises the consolidated balance sheet as at 30 June 2011, and consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ responsibility for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In note 2(a), the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the consolidated entity comply with International Financial Reporting Standards.

Auditor’s responsibilityOur responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the consolidated entity’s financial position and of its performance.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

IndependenceIn conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s opinionIn our opinion:(a) the financial report of the consolidated entity is in accordance with the Corporations Act 2001, including:

(i) givingatrueandfairviewoftheconsolidatedentity’sfinancialpositionasat30June2011andofitsperformancefortheyearendedonthatdate;and(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.

(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a).

Report on the remuneration reportWe have audited the Remuneration Report included in section 16 of the directors’ report for the year ended 30 June 2011. The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with auditing standards.

Auditor’s opinionIn our opinion, the Remuneration Report of Aquila Resources Limited for the year ended 30 June 2011, complies with Section 300A of the Corporations Act 2001.

KPMG

Trevor Hart Partner

Perth14 September 2011

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

INdEPENdENT AUdIT REPORT

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The shareholder information set out below was applicable as at 31 August 2011.

(a) distribution of listed ordinary shares(i) Analysis of number of shareholders by size of holding:

DistributionNumber of

shareholders

1 - 1,000 1,741

1,001 - 5,000 1,366

5,001 - 10,000 281

10,001 - 100,000 334

100,001 and over 85

Total 3,807

(ii) There were 427 shareholders who hold less than a marketable parcel.

(iii) The percentage of the total holding of the twenty largest holders of ordinary shares was 91.57%.

(b) Twenty largest shareholdersTotal number of shares on issue – 374,368,499

Name Number of shares held

1. Mr Tony Poli 90,318,324

2. Fortune BS Company Pte Ltd 53,175,159

3. JP Morgan Nominees Australia Limited 37,784,556

4. HSBC Custody Nominees (Australia) Limited 35,862,716

5. UBS Wealth Management Australia Nominees Pty Ltd 21,434,418

6. National Nominees Limited 20,772,906

7. Mr Anthony Poli & Mrs Milvia Poli 17,958,528

8. Quartz Mountain Mining Pty Ltd 17,196,984

9. Mr Charles Bass 14,878,353

10. Mr Charles Bass & Mrs Sylvia Bass 9,757,440

11. Ashmy Pty Ltd 9,253,350

12. Mr Geoffrey Francis Pigott 3,948,972

13. Citicorp Nominees Pty Limited 2,400,740

14. Mrs Milvia Poli 2,295,000

15. Ricupero Holdings Pty Ltd 1,252,048

16. Mr David Banovich & Mrs Beverly Banovich 1,040,800

17. Mr Neil Lithgow 1,002,500

18. Bass Family Foundation Pty Ltd 897,760

19. Damen Holdings Pty Ltd 861,588

20. AMP Life Limited 706,196

Total 342,798,338

ShAREhOLdER INfORMATION

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(c) Substantial shareholdersSet 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.

NameDate of Substantial Shareholder Notice

Number of shares at relevant date

Voting interest at relevant date

Mr Tony Poli 31 December 2010 108,276,852 28.93%

Mr Charles Bass 2 September 2010 38,995,166 12.10%

Baosteel Group Corporation 20 November 2009 43,946,413 15.00%

BlackRock Investment Management (Australia) 2 December 2009 15,430,651 5.27%

Vanguard Precious Metals & Mining Fund 23 November 2010 22,721,172 7.04%

M&G Investment Management Limited 27 April 2011 59,959,609 16.01%

(d) Voting rightsThe 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 securitiesThe following classes of unquoted equity securities are on issue:

Type of securities Number of securities % held % vested (i)

• 2,895,000optionstosubscribeforfullypaidordinarysharesexercisableat$7.65per option, with an expiry date of 22 June 2013, for 3,502,950 sharesPersons holding 20% or more:- Mr R G Tipper

750,000 25.91% 35%

• 1,590,000optionstosubscribeforfullypaidordinarysharesexercisableat$11.40 per option, with an expiry date of 1 July 2014, for 1,749,000 sharesPersons holding 20% or more:- Mr M N Alciaturi

600,000 37.74% 15%

• 1,420,000optionstosubscribeforfullypaidordinarysharesexercisableat$8.71per option, with an expiry date of 7 August 2015, for 1,420,000 sharesPersons holding 20% or more:- Mr J A Pavy

600,000 42.25% -

(i) Refer to page 76 for details of option vesting conditions.

(f) On Market Buy BackThere is no current on-market buy back.

ShAREhOLdER INfORMATION

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DIRECTORSTony Poli (Executive Chairman)Charles B. Bass (Non-Executive)Derek T. Cowlan (Non-Executive)Gordon T. Galt (Non-Executive)Zhihao Dai (Non-Executive)

COMPANY SECRETARYJ. Raymond Wood

AUSTRALIAN BUSINESS NUMBER (ABN)81 092 002 769


POSTAL ADDRESSPO Box 1038South Perth WA 6951

HOME EXCHANGEAustralian Securities Exchange2 The EsplanadePerth WA 6000ASX Trading Code: AQA

OTHER OFFICESQueenslandLevel 18, 10 Eagle StreetBrisbane QLD 4000Telephone: +61 7 3229 5630Facsimile: +61 7 3229 5631

South Africa JohannesburgBlock C, Ground Floor 28 Sloane StreetBryanston 2191 Telephone: +27 11 463 1340Facsimile: +27 11 463 5083

ThabazimbiC/O Lood & Platina AvenueThabazimbi 0380Telephone: +27 14 772 3337Facsimile: +27 86 644 1367

Northern CapeStand 585 OpwagGroblershoop 8850Telephone: +27 54 833 0027Facsimile: +27 86 683 8065

IndonesiaWisma Rahaja, Level 2 Zone BJL. TB. Simatupang, Kav. 1Jakarta Selatan 12560 Telephone: +62 21 7884 7214Facsimile: +62 21 7884 7215

AUDITORSKPMG235 St Georges TerracePerth WA 6000Telephone: +61 8 9263 7171Facsimile: +61 8 9263 7129

SHARE REGISTRYComputershare Investor Services Pty LtdLevel 2, Reserve Bank Building45 St Georges TerracePerth WA 6000Telephone: +61 8 9323 2000Facsimile: +61 8 9323 2044

SOLICITORSMallesons Stephen JaquesLevel 10, Central Park152 - 158 St Georges TerracePerth WA 6000Telephone: +61 8 9269 7000Facsimile: +61 8 9269 7999

BANKERS

National Australia Bank Limited Level 4, 100 St Georges Terrace Perth WA 6000

Commonwealth Bank of Australia Level 3, 150 St Georges Terrace Perth WA 6000

Westpac Banking CorporationLevel 17, 109 St Georges TerracePerth WA 6000

ANZ Banking Group LimitedLevel 7, 77 St Georges TerracePerth WA 6000

Corporate DireCtory

iron orea world class iron ore project in the Pilbara region of Western australia.

Coalresumption of production at the isaac Plains coal mine following the record wet season in Queensland.a world class underground coal mine for the eagle Downs Hard coking coal Project in the Bowen Basin region.

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annual report 2011

manganesecoal iron ore


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for personal use only al iron ore2011/10/27 · management in the steel industry. in 2002, he was...

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