Exhibit 99.2

INDEX TO MACARTHUR COAL LIMITED REPORTS

 

Financial Report
Consolidated Statement of Comprehensive Income			F-2
Consolidated Statement of Financial Position			F-3
Consolidated Statement of Changes in Equity			F-4
Consolidated Statement of Cash Flows			F-5
Notes to the Consolidated Financial Statements			F-6
Directors’ Declaration			F-93
Independent Auditor’s Report			F-94

 

F-1

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MACARTHUR COAL LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2011

 

		Note		2011 $’000				2010 $’000
Revenue from coal sales					687,325				670,502
Cost of coal sold					(418,868	)			(397,800	)
Gross profit					268,457				272,702
Other income		7			131,821				10,862
Distribution expenses					(45,256	)			(56,550	)
Administration expenses					(24,743	)			(19,345	)
Other expenses		8			(15,586	)			(25,894	)
Results from operating activities					314,693				181,775
Finance income		11			28,433				14,174
Finance expenses		11			(11,653	)			(12,169	)
Net financial income					16,780				2,005
Share of loss of equity accounted investees, net of income tax		30			(5,671	)			(10,934	)
Profit before income tax					325,802				172,846
Income tax expense		12(a)			(84,412	)			(47,782	)
Profit for the year					241,390				125,064
Other comprehensive income*
Effective portion of changes in fair value of cash flow hedges					15,045				12,469
Net change in fair value of cash flow hedges reclassified to profit and loss					(9,912	)			(26,807	)
Other comprehensive income for the year, net of income tax					5,133				(14,338	)
Total comprehensive income for the year					246,523				110,726
Earnings per share:
Basic earnings per share		14		$	0.83			$	0.49
Diluted earnings per share		14		$	0.83			$	0.49

 

*	Amounts recognised in comprehensive income are disclosed net of income tax.

The consolidated statement of comprehensive income should be read in conjunction with the notes to the financial statements set out on pages F-6 to F-92.

 

F-2

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MACARTHUR COAL LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2011

 

		Note		2011 $’000				2010 $’000
Current assets
Cash and cash equivalents		15			415,161				348,216
Trade and other receivables		16			736,576				209,105
Inventories		17			38,926				49,762
Other financial assets		18			41,058				26,211
Overburden in advance		19			182,256				146,548
Total current assets					1,413,977				779,842
Non-current assets
Trade and other receivables		16			106,168				75,309
Investments in equity accounted investees		30			241,161				338,554
Inventories		17			4,368				—
Other financial assets		18			7,035				4,263
Property, plant and equipment		20			240,604				250,715
Exploration and evaluation assets		21			100,309				98,483
Overburden in advance		19			21,824				19,905
Total non-current assets					721,469				787,229
Total assets					2,135,446				1,567,071
Current liabilities
Trade and other payables		22			101,758				125,677
Loans and borrowings		23			20,769				15,822
Current tax payable		12			20,929				55,025
Employee benefits		24			6,878				5,179
Provisions		25			2,930				3,459
Other financial liabilities		26			2,265				6,639
Total current liabilities					155,529				211,801
Non-current liabilities
Loans and borrowings		23			64,543				83,600
Deferred tax liabilities		13			90,600				76,604
Employee benefits		24			119				87
Provisions		25			30,584				30,602
Other financial liabilities		26			587				35,782
Total non-current liabilities					186,433				226,675
Total liabilities					341,962				438,476
Net assets					1,793,484				1,128,595
Equity
Share capital					1,253,923				713,420
Reserves					1,841				(2,752	)
Retained earnings					537,720				417,927
Total equity					1,793,484				1,128,595

The consolidated statement of financial position should be read in conjunction with the notes to the

financial statements set out on pages F-6 to F-92.

 

F-3

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MACARTHUR COAL LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 30 June 2011

 

		Attributable to owners of the Company
		Note		Share capital $’000				Hedging reserve $’000				Share- based payments reserve $’000				Reserve for own shares $’000				Retained earnings $’000				Total equity $’000
Balance at 1 July 2009					651,423				11,187				182				—				346,273				1,009,065
Total comprehensive income for the year
Profit or loss					—				—				—				—				125,064				125,064
Other comprehensive income
Effective portion of changes in fair value of cash flow hedges*					—				12,469				—				—				—				12,469
Net change in fair value of cash flow hedges reclassified to profit or loss*					—				(26,807	)			—				—				—				(26,807	)
Total other comprehensive income					—				(14,338	)			—				—				—				(14,338	)
Total comprehensive income for the year					—				(14,338	)			—				—				125,064				110,726
Transactions with owners, recorded directly in equity*
Contributions by and distributions to owners
Dividends to equity holders		27			—				—				—				—				(53,410	)			(53,410	)
Issue of ordinary shares		27			61,997				—				—				—				—				61,997
Share-based payment transactions		24			—				—				217				—				—				217
Total contributions by and distributions to owners					61,997				—				217				—				(53,410	)			8,804
Balance at 30 June 2010					713,420				(3,151	)			399				—				417,927				1,128,595
Balance at 1 July 2010					713,420				(3,151	)			399				—				417,927				1,128,595
Total comprehensive income for the year
Profit or loss					—				—				—				—				241,390				241,390
Other comprehensive income
Effective portion of changes in fair value of cash flow hedges*					—				15,045				—				—				—				15,045
Net change in fair value of cash flow hedges reclassified to profit or loss*					—				(9,912	)			—				—				—				(9,912	)
Total other comprehensive income					—				5,133				—				—				—				5,133
Total comprehensive income for the year					—				5,133				—				—				241,390				246,523
Transactions with owners, recorded directly in equity*
Contributions by and distributions to owners
Dividends to equity holders		27			—				—				—				—				(121,597	)			(121,597	)
Issue of ordinary shares		27			540,503				—				—				—				—				540,503
Own shares acquired					—				—				—				(580	)			—				(580	)
Share-based payment transactions		24			—				—				40				—				—				40
Total contributions by and distributions to owners					540,503				—				40				(580	)			(121,597	)			418,366
Balance at 30 June 2011					1,253,923				1,982				439				(580	)			537,720				1,793,484

 

*	Amounts recognised are disclosed net of income tax.

The consolidated statement of changes in equity should be read in conjunction with the notes to the financial statements set out on pages F-6 to F-92.

 

F-4

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MACARTHUR COAL LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 June 2011

 

		Note		2011 $’000				2010 $’000
Cash flows from operating activities
Cash receipts from customers					727,351				650,541
Cash paid to suppliers and employees					(531,219	)			(429,227	)
Cash generated from operating activities					196,132				221,314
Interest received					25,556				13,805
Income tax paid					(109,290	)			(65,000	)
Income tax refund					5,371				7,009
Net cash from operating activities		36			117,769				177,128
Cash flows from investing activities
Proceeds from sale of property, plant and equipment					142				32
Acquisition of property, plant and equipment					(11,652	)			(9,824	)
Deposit on land purchase					(7,500	)			—
Proceeds from partial disposal of equity accounted investee		7			97,600				7,000
Proceeds from partial disposal of mining project					14,976				—
Exploration and evaluation expenditure					(12,517	)			(10,310	)
Contributions from joint ventures					507,649				446,399
Contributions to joint ventures					(519,635	)			(448,614	)
Loans to other entities					(370,000	)			—
Repayment of loans to related parties					1,219,616				771,700
Advances to related parties					(1,359,761	)			(835,411	)
Deposits made with financial institutions in relation to guarantees provided					(2,772	)			(1,509	)
Net cash used in investing activities					(443,854	)			(80,537	)
Cash flows from financing activities
Proceeds from share issues					487,402				61,997
Payment of interest and financial expenses					(2,101	)			(743	)
Repayment of other financial liabilities					(3,700	)			(3,621	)
Payments for finance lease liabilities					(20,075	)			(20,174	)
Dividends paid		27			(68,496	)			(53,410	)
Net cash from /(used in) financing activities					393,030				(15,951	)
Net increase in cash and cash equivalents					66,945				80,640
Cash and cash equivalents at 1 July					348,216				267,576
Cash and cash equivalents at 30 June		15			415,161				348,216

The consolidated statement of cash flows should be read in conjunction with the notes to the

financial statements set out on pages F-6 to F-92.

 

F-5

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MACARTHUR COAL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 June 2011

1. Reporting entity

Macarthur Coal Limited (the “Company”) is a company domiciled in Australia. The address of the Company’s registered office is 100 Melbourne Street, South Brisbane, QLD, 4101. The consolidated financial statements of the Company as at and for the year ended 30 June 2011 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates and jointly controlled entities. The Group primarily is involved in exploration, project evaluation, project development and coal mining activities in Queensland’s Bowen Basin.

2. Financial statements

(a) Description and purpose

The Financial Statements of the Group consist of:

 

•

the consolidated statements of financial position as at 30 June 2011 and 30 June 2010;

 

•

the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years ended 30 June 2011 and 30 June 2010;

 

•

a basis of preparation note;

 

•

a description of the significant accounting policies; and

 

•

other explanatory notes.

The Financial Statements have been prepared for inclusion by Peabody Energy Corporation, the Company’s ultimate parent entity, in one or more documents in connection with its Form 8-K/A filing with the U.S. Securities Exchange Commission as a result of its acquisition of the Group.

(b) Basis of preparation

The Financial Statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB). The Financial Statements comply with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB).

The consolidated financial statements were authorised for issue by the Board of Directors on 22 December 2011.

(c) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except that derivative financial instruments are measured at their fair value.

The methods used to measure fair values are discussed further in Note 4.

(d) Functional and presentation currency

These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency and the functional currency of all of its subsidiaries.

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, all financial information presented in Australian dollars has been rounded to the nearest thousand dollars, unless otherwise stated.

 

F-6

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(e) Use of estimates and judgements

The preparation of the consolidated financial statements in conformity with accounting standards requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Management discuss with the Audit and Risk Management Committee the development, selection and disclosure of the Group’s critical accounting policies and estimates and the application of these policies and estimates. The significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are discussed below.

Estimates and assumptions

Coal Reserves

Economically recoverable coal reserves at the Coppabella mine of 43,247,000 (2010: 46,179,000) tonnes and Moorvale mine of 21,257,000 (2010: 24,189,000) tonnes, relate to the estimated quantity of coal in an area of interest that can be expected to be profitably extracted, processed and sold. The Group determines and reports coal reserves under the Australasian Code of Reporting of Mineral Resources and Ore Reserves (the JORC Code). This includes estimates and assumptions in relation to geological, technical and economic factors, including: quantities, grades, production techniques, recovery rates, production costs, transport costs, exchange rates and expected coal demand and prices. Changes in coal reserves impact on the assessment of recoverability of property, plant and equipment and investments in equity accounted investees, including the carrying value of assets depreciated on a units of production basis, and rehabilitation and dismantling provisions.

Exploration and evaluation assets

Determining the recoverability of exploration and evaluation expenditure capitalised in accordance with the Group’s accounting policy (refer Note 3(f)), requires estimates and assumptions as to future events and circumstances, in particular, whether successful development and commercial exploitation, or alternatively sale, of the respective areas of interest will be achieved. The Group applies the principles of accounting standards and recognises exploration and evaluation assets when the rights of tenure of the area of interest are current, and the exploration and evaluation expenditures incurred are expected to be recouped through successful development and exploitation of the area. If, after having capitalised the expenditure under the Group’s accounting policy in Note 3(f), a judgement is made that recovery of the carrying amount is unlikely, an impairment loss is recorded in profit or loss in accordance with the Group’s accounting policy in Note 3(k). The carrying amounts of exploration and evaluation assets are set out in Note 21.

Rehabilitation and dismantling provisions

Certain estimates and assumptions are required to be made in determining the cost of rehabilitation and restoration of the areas disturbed during mining activities and the cost of dismantling of mining infrastructure in accordance with the Group’s accounting policy (refer Note 3(m)). The amount the Group is expected to incur to settle its future obligations includes estimates regarding: the appropriate rate at which to discount the liability, the expected timing of the cash flows and the expected life of mine (which is based on coal reserves, refer above), the application of relevant environmental legislation, and the future expected costs of rehabilitation, restoration and dismantling. At 30 June 2011, the Group has used a discount rate of 6.15% (2010: 5.56%).

Changes in the estimates and assumptions used could have a material impact on the carrying value of the rehabilitation and dismantling provision and related asset. The provision is reviewed at each reporting date and updated based on the best available estimates and assumptions at that time. The carrying amount of the rehabilitation and dismantling provision and related assets is set out in Note 25.

 

F-7

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Recoverability of non-current assets

As set out in Note 3(k), 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 future coal prices, future cash flows, discount rate and estimates of coal reserves. Estimates of coal reserves in themselves are dependent on various assumptions (refer above). Changes in these assumptions could therefore affect estimates of future cash flows used in the assessment of recoverable amount, estimates of the life of mine and depreciation. Further details of impairment testing assumptions relating to investments in equity accounted investees are included in Note 30. The carrying amounts of applicable non-current assets are set out in Notes 20 and 30.

Contingent liabilities—litigation

Certain claims have been made on the Group. Judgements about the validity of the claims have been made by the Directors. Further details are included in Note 32.

Financial Instruments including hedge accounting

As set out in Note 3(c), management’s judgement is necessary when determining whether a derivative financial instrument qualifies for hedge accounting. Factors such as forecast demand, production and port allocation are considered when assessing whether forecast transactions are highly probable as required by accounting standards. The carrying amounts of financial instruments are set out in Notes 18 and 26.

The recognition and measurement of derivative liabilities disclosed in Note 26, requires that certain estimations and assumptions be made in determining the fair value of the underlying transaction which results in the recognition of the derivative liabilities. Factors affecting future project fair value such as coal reserves, coal pricing and production costs are considered. Estimates of coal reserves in themselves are dependent on various assumptions (refer F-7). Changes in these estimates could materially impact on coal reserves, and could therefore affect estimates of future cash flows used in the assessment of future project fair value.

Minerals Resource Rent Tax

The Minerals Resource Rent Tax (MRRT) Bill was introduced to parliament on 2 November 2011 and after amendments, was passed by the House of Representatives on 23 November 2011. The Bill will be presented to the Senate for voting in early calendar year 2012.

The Bill was referred to the Senate Economics Legislation Committee and the legislation’s passage is not assured as it remains subject to debate and approval by the Senate.

If the MRRT is introduced in its proposed form from 1 July 2012, it has the potential to impact the assumptions used to determine the future cash flows generated from the continuing use of the Group’s assets for the purpose of the calculations used in impairment testing. The assets most likely to be impacted include exploration and evaluation assets, property, plant and equipment and investments in equity accounted investees, the carrying amounts of which are set out in Notes 20, 21 and 30. The Group had not incorporated the impact of the MRRT into its assumptions at 30 June 2011 as the legislation had not been fully developed nor substantively enacted.

Australian Government’s carbon pricing mechanism

The Clean Energy Legislative Package (Clean Energy Act 2011 and associated legislation) was passed by the Senate on 8 November 2011 and sets out the way that Australia will introduce a carbon price to reduce Australia’s greenhouse gas emissions.

From 1 July 2012, around 500 of Australia’s entities will have to pay a tax on their carbon emissions of $23 for each tonne of carbon dioxide emitted. The price will rise by 2.5% per year until 2015 when a flexible market-based trading scheme commences.

The introduction of a carbon pricing mechanism has the potential to impact the assumptions used for the purpose of the calculation used in asset impairment testing. The Group had not incorporated the potential impact of any carbon pricing mechanism in its impairment testing at 30 June 2011.

 

F-8

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3. 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 Group entities.

(a) Basis of consolidation

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable.

Acquisitions on or after 1 July 2009

The Group has adopted the revised IFRS 3 Business Combinations (revised 2008) and the amended IAS 127 Consolidated and Separate Financial Statements (amended 2008) for acquisitions of non-controlling interests occurring in the financial year commencing 1 July 2009. The change in accounting policy was applied prospectively.

For acquisitions on or after 1 July 2009, the Group measures goodwill at the acquisition date as:

 

•

the fair value of the consideration transferred; plus

 

•

the recognised amount of any non-controlling interests in the acquiree; plus

 

•

if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less

 

•

the net recognisable amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit and loss.

When share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards) and relate to past services, then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree’s awards and the extent to which the replacement awards relate to past and/or future service.

Accounting for acquisitions of non-controlling interests

Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. Previously, goodwill was recognised arising on the acquisition of a non-controlling interest in a subsidiary; and that represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of exchange.

 

F-9

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Subsidiaries

Subsidiaries are entities controlled by the Group. 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 when necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

Investments in associates and jointly controlled entities (equity accounted investees)

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions.

Investments in associates and jointly controlled entities are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The cost of the investment includes transaction costs. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income, after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases.

When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

Jointly controlled operations

A jointly controlled operation is a joint venture carried on by each venturer using its own assets in pursuit of the joint operations. The consolidated financial statements include the assets that the Group controls and the liabilities that it incurs in the course of pursuing the joint operation and the expenses that the Group incurs and its share of income that it earns from the joint operation.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(b) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currency of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to Australian dollars at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the year.

 

F-10

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Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the dates that fair values were determined. Foreign currency differences arising on retranslation are recognised in profit or loss.

(c) Financial instruments

Non-derivative financial assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative financial assets: Loans and receivables, cash and cash equivalents, and cash and deposits—not at call.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables comprise cash and cash equivalents and trade and other receivables.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less.

Cash and deposits—not at call comprise balances pledged as collateral for arrangements relating to Wiggins Island feasibility study costs and balances relating to the Group’s share of cash in its joint ventures’ bank accounts.

Non-derivative financial liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date, which is the date the Group becomes a party to the contractual provisions of the instrument.

 

F-11

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The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group classified non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest rate method.

Other financial liabilities comprise loans and borrowings, trade and other payables, and amounts payable for future user charges.

Derivative financial instruments, including hedge accounting

The Group holds derivative financial instruments to hedge its foreign currency risk exposures. On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss.

Derivative financial instruments existed in relation to contractual obligations and the option for a sale of shares in a jointly controlled entity to a third party in line with pre-determined triggering events in the future. For further details refer to Note 26.

Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes therein are accounted for as described below.

Cash flow hedges

When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income and presented in the hedging reserve in equity remains there until the forecast transaction affects profit or loss. When the hedged item is a non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognised. If the forecast transaction is no longer expected to occur, then the balance in other comprehensive income is recognised immediately in profit or loss. In other cases the amount recognised in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss.

 

F-12

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Other non-trading derivatives

When a derivative financial instrument is not held for trading, and is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss.

(d) Share capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

Dividends

Dividends are recognised as a liability in the period in which they are declared.

Purchase of share capital

When share capital recognised as equity is purchased by the employee share plan trust, the amount of the consideration paid which includes directly attributable costs, is net of any tax effects, and is recognised as a deduction from equity. When shares are sold subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to / from retained earnings.

(e) Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation (refer below) and accumulated impairment losses (refer Note 3(k)).

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets and acquired assets includes the cost of materials, direct labour, any other cost directly attributable to bringing the asset to a working condition for its intended use, capitalising borrowing costs (refer Note 3(p)) and:

 

(i)

the initial estimate at the time of installation and during the period of use, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located; and

 

(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.

Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

 

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Mining property and development assets include costs transferred from exploration and evaluation assets once technical feasibility and commercial viability of an area of interest are demonstrable and subsequent costs to develop the mine to the production phase.

When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and is recognised net within other income/other expenses in profit or loss.

Subsequent costs

The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

Depreciation

Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Depreciation is recognised in profit or loss on a straight line basis over the estimated useful lives of each component of an item of property, plant and equipment taking into account estimated residual values, with the exception of mining property and development assets which are depreciated on a units of production basis over the life of the economically recoverable reserves (refer Note 2(e)).

Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold land is not depreciated.

Assets are depreciated from the date they are available for use.

The depreciation rates or useful lives used for each class of asset are as follows:

 

		2011		2010
Property, plant and equipment
Mining property and development		UOP(1)		UOP(1)
Buildings and infrastructure		6.6% - 44%		6.6% - 44%
Plant and equipment		5% - 67%		5% - 40%
Leased assets		10% - 20%		10% - 20%

 

(1)	Depreciated on a units of production (UOP) basis over reserves.

Depreciation rates and methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. When changes are made, adjustments are reflected prospectively in current and future periods only. Depreciation is expensed, except to the extent that it is included in the carrying amount of another asset (e.g. inventory stocks) as an allocation of production overheads.

Development costs

Development costs related to an area of interest are capitalised if the expenditures are expected to be recouped through sale or successful exploitation of the area of interest. Capitalisation of development expenditure ceases once the area of interest as a whole is capable of being operated at commercial levels of production in the manner intended by management, at which point the asset is depreciated in accordance with the rates above. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses (refer Note 3(k)), and is included in mining property and development assets within property, plant and equipment (see above).

 

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(f) Exploration and evaluation expenditure

Exploration and evaluation costs, including the costs of acquiring licences, are capitalised as exploration and evaluation assets separately for each area of interest. Costs incurred before the Group has obtained the legal rights to explore an area are recognised in the profit or loss.

Exploration and evaluation assets are only recognised if the rights of the area of interest are current and either:

 

(i)

the expenditures are expected to be recouped through successful development and exploitation of the area of interest; or

 

(ii)

activities in the area of interest have not at the reporting date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing.

Exploration and evaluation assets are tested for impairment when any of the following facts and circumstances exist:

 

(i)

the term of exploration license in the specific area of interest has expired during the reporting period or will expire in the near future, and it is not expected to be renewed;

 

(ii)

substantive expenditure on further exploration for an evaluation of mineral resources in the specific area are not budgeted nor planned;

 

(iii)

exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the decision was made to discontinue such activities in the specified area; or

 

(iv)

sufficient data exists to indicate that, although a development in the 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 (CGU) which is no larger than the area of interest. The Group performs impairment testing in accordance with accounting policy 3(k).

Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets within property, plant and equipment.

(g) Overburden in advance

Expenditure incurred in the removal of overburden from coal deposits is deferred and capitalised to inventory as the coal is extracted. Overburden in advance is measured at the lower of cost and net realisable value. The balance of the amount deferred is reviewed at each reporting date to determine the amount (if any) which is no longer recoverable out of future revenue. Any amounts so determined are expensed.

 

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(h) Inventories

Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is allocated on a monthly weighted average basis and includes direct material, consumption of overburden in advance, coal mining, coal processing, labour, related transportation costs to the point of sale and other fixed and variable overhead costs directly related to mining activities. The site overheads and rehabilitation cost component of inventory is allocated using normal operating capacity. Depreciation is allocated to inventories on a units of production basis.

(i) Leased assets

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and are not recognised on the Group’s statement of financial position.

(j) Goodwill

Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recognition, see Note 3(a).

Acquisitions of non-controlling interests

Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as equity holders and therefore no goodwill is recognised as a result of such transactions.

Subsequent measurement

Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity accounted investee.

(k) Impairment

Financial assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

 

F-16

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The Group considers evidence of impairment for receivables at a specific asset level. All individually significant receivables are assessed for specific impairment. Any such impairment is recorded in profit and loss.

Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than inventories (refer Note 3(h)), overburden in advance (refer Note 3(g)) and deferred tax assets (refer Note 3(q)), are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets, that have indefinite useful lives, the recoverable amount is estimated at each reporting date. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating unit. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

Goodwill that forms part of the carrying amount of an investment in an associate or jointly controlled entity is not recognised separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate or jointly controlled entity is tested for impairment as a single asset when there is objective evidence that the investment in an associate or jointly controlled entity may be impaired.

The Group’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. 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.

(l) Employee benefits

Defined contribution superannuation plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value.

 

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Other long-term service benefits

The Group’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 plus related on-costs; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. 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 Group’s obligations.

Termination benefits

Termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage redundancy. Termination benefits for redundancies are recognised as an expense if the Group has made an offer encouraging redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value.

Short-term benefits

Liabilities for employee benefits for wages, salaries, annual leave and vesting sick leave represent present obligations resulting from employees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date including related on-costs, such as workers compensation insurance and payroll tax. Non-accumulating non-monetary benefits, such as medical care, cars and free or subsidised goods and services, are expensed based on the net marginal cost to the Group as the benefits are taken by the employees.

A liability is recognised for the amount expected to be paid under short-term cash bonus plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Share-based payment transactions

The grant-date fair value of share-based payment awards granted under the Employee Share Loan Plan and the Long Term Incentive Plan is recognised as an employee expense with a corresponding increase in equity over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value (refer Note 4) of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

Vested shares are purchased on market after vesting date, and held in trust. Equity instruments held in connection with the equity compensation plan are presented as treasury shares and shown in equity in the balance sheet as treasury reserve. The treasury reserve will hold the value of the shares on-trust until such time as the shares are withdrawn by the employee. On withdrawal, the treasury reserve is reversed against the share-based payment reserve.

Non-Executive Directors, excluding the Chairman, are entitled to 10,000 Company securities each year as part of their Director’s fees, pro-rated based on length of service. The Chairman is entitled to 15,000 Company securities each year. The shares are purchased on the Australian Stock Exchange at the market value prevailing on the date of purchase. The provision of shares is not subject to performance conditions. The fair value of shares granted to Non-Executive Directors is recognised as an expense.

 

F-18

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Long Term Incentive Plan

Under the Group’s Long Term Incentive Plan (LTIP), eligible employees are invited to apply for performance rights, which will be converted to fully paid ordinary shares if the Company performance criteria specified by the Nomination and Remuneration Committee are satisfied within a specified performance period.

The Group has established an employee share plan trust (the Trust) to facilitate the operation of the LTIP, including acquisition of the shares on-market for the purpose of the LTIP.

The performance criteria for the purposes of the LTIP consist of Earnings per Share (EPS), Total Shareholder Return (TSR), and Return on Invested Capital (ROIC). If the performance criteria are satisfied over the performance period, the performance rights will automatically vest and the Company will allocate shares to participants. At the election of the participants, the shares are held in trust, sold or transferred to the participant.

CPU Share Plans Pty Limited, the trustee of the Trust, holds the shares in trust on the participants’ behalf until an employee notifies the Trustee that they wish to withdraw their shares.

Allocated shares can be held in Trust on the participants’ behalf until the earlier of the cessation of employment, 10 years from the date the performance rights were granted, or the participant withdraws the shares from the Trust by completing a ‘Notice of Withdrawal’.

While the shares are held in Trust, they will be subject to risk of forfeiture if a participant’s employment is terminated because of fraud, theft or other gross misconduct.

(m) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. 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 cost.

Rehabilitation and dismantling

Provisions are made, when the areas are disturbed, for the estimated cost of rehabilitation relating to areas disturbed during the mine’s operation 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 per hectare to rehabilitate such areas, discounted to their present value based on expected future cashflows. The estimated cost of rehabilitation includes the current cost of re-contouring, topsoiling and revegetation complying with legislative requirements. Changes in estimates are dealt with on a prospective basis as they arise.

Uncertainty exists as to the amount of rehabilitation obligations which will be incurred due to the impact of changes in environmental legislation.

Assumptions have been made as to the remaining life of existing sites based on studies conducted by independent technical advisors and on the basis of current environmental legislation.

 

F-19

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Infrastructure assets and dismantling

The present value of rehabilitation and dismantling obligations is recognised on 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. At each reporting date the rehabilitation liability is re-measured in line with changes in discount rates, and timing or amount of the costs to be incurred. Any changes in the liability are added or deducted from the related asset, other than the unwinding of the discount which is recognised as a finance cost in 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 asset is written-down to nil and the excess is recognised immediately in 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 profit or loss in the period in which it occurs.

Non-infrastructure areas

Rehabilitation obligations relating to non-infrastructure areas are discounted to their present value based on expected future cash flows. At each reporting date the rehabilitation liability is re-measured in line with changes in discount rates, timing or amount of the costs to be incurred and areas to be rehabilitated. Any changes in the liability are recognised in profit or loss as rehabilitation expense, other than the unwinding of the discount which is recognised as a finance cost.

Onerous contracts

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.

(n) Revenue

Goods sold

Revenue from the sale of coal is measured at the fair value of the consideration received or receivable, net of penalties, returns, allowances and hedging gains/losses. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised.

(o) Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense and spread over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

 

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Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

Determining whether an arrangement contains a lease

At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset.

At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group’s incremental borrowing rate.

(p) Finance income and finance costs

Finance income and costs comprise interest expense on borrowings using the effective interest rate method, interest income on funds invested, amortisation of ancillary costs incurred in connection with arrangement of borrowings and unwinding of the discount on provisions.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in the profit or loss on the date that the Group’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date.

(q) Income tax

Income tax expense comprises current and deferred tax. Current and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognised for:

 

•

temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

 

•

temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and

 

•

taxable temporary differences arising on the initial recognition of goodwill.

 

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Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income tax levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Additional income tax expenses that arise from the distribution of cash dividends are recognised at the same time that the liability to pay the related dividend is recognised. The Group does not distribute non-cash assets as dividends to its shareholders.

The Company and its wholly-owned Australian resident entities are part of a tax-consolidated group. As a consequence, all members of the tax consolidated group are taxed as a single entity. The head entity within the tax-consolidated group is Macarthur Coal Limited.

(r) Segment reporting

Determination and presentation of operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are regularly reviewed by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly financial income and expenses, changes in fair value of other derivative liabilities, net gain/loss on sale of controlling interest in subsidiary and disposal of interest in equity accounted investee, depreciation and amortisation relating to corporate assets and other corporate expenses.

Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and intangible assets other than goodwill.

(s) Goods and services tax

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the Australian Tax Office (ATO) is included as a current asset or liability in the statement of financial position.

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

 

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(t) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share-based payment awards granted to employees.

(u) New standards and interpretations not yet adopted

The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are available for early adoption at 30 June 2011, but have not been applied in preparing this financial report:

 

•

IFRS 10 Consolidated Financial Statements introduces a new approach to determining which investees should be consolidated based on whether the investee is exposed to, or has rights, to variable returns from their involvement with the investee and has the ability to affect those returns through its power over the investee. The new requirements will be effective for the 30 June 2014 financial year. The Group has not yet determined the potential impact of the standard.

 

•

IFRS 11 Joint Arrangements overhauls the accounting for joint ventures (now called joint arrangements). Joint arrangements are classified as either joint operations; where the parties have rights to and obligations for underlying assets and liabilities, and joint ventures; where the joint venturers have rights to the net assets of the arrangements. Joint Operations are required to perform line by line accounting of the underlying assets and liabilities. Joint Ventures will need to be equity accounted with the option of proportionate consolidation being removed. The new requirements will be effective for the 30 June 2014 financial year. The Group has not yet determined the potential impact of the standard.

 

•

IFRS 12 Disclosure of Interests in Other Entities contains the disclosure requirements for entities that have interest in subsidiaries, joint arrangements, associates and/or unconsolidated structure entities. The new requirements will be effective for the 30 June 2014 financial year. The Group has not yet determined the potential impact of the standard.

 

•

IFRS 13 Fair Value Measurement defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. The new requirements will be effective for the 30 June 2014 financial year. The Group has not yet determined the potential impact of the standard.

 

•

IFRS 9 Financial Instruments includes requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the project to replace IAS 39 Financial Instruments: Recognition and Measurement. Exposure Draft ED/2011/3 Mandatory Effective Date of IFRS 9 (Amendments to IFRS 9 Financial Instruments (November 2009) and IFRS 9 Financial Instruments (October 2010)) proposes to change the mandatory effective date of IFRS 9 to annual periods beginning on or after 1 January 2015 rather than being applied for annual reporting periods beginning on or after 1 January 2013 as currently required. Early application of IFRS 9 would continue to be permitted. The Group has not yet determined the potential impact of the standard.

 

•

Disclosures on Transfers of Financial Assets (Amendments to IFRS 7) introduces new disclosure requirements about transfers of financial assets including disclosures for financial assets that are not derecognised in their entirety; and financial assets that are derecognised in their entirety but for which the entity retains continuing involvement.

 

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The amendments, which will become mandatory for the Group’s 30 June 2012 financial year, require retrospective application, however comparatives are not required in the first year of adoption. There is not expected to be a significant impact on the financial statements.

 

•

IAS 124 Related Party Disclosures (revised 2009) simplifies and clarifies the intended meaning of the definition of related party and provides partial exemption for the disclosure requirements for government-related entities. The amendments, which will become mandatory for the Group’s 30 June 2012 financial statements, are not expected to have any impact of the financial statements.

 

•

Improvements to IFRSs (2010 Improvements) incorporate a collection of improvements to the following accounting standards: IFRS 1, IFRS 7, IAS 1, IAS 34 and IFRIC 13. The amendments, which become mandatory for the 30 June 2012 financial statements, are not expected to have a significant impact on the financial statements.

4. Determination of fair values

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

Property, plant and equipment

The fair value of property, plant and equipment recognised as a result of a business combination is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably. The fair value of items of plant, equipment, fixtures and fittings is based on the market approach and cost approaches using quoted market prices for similar items when available and replacement cost when appropriate. Depreciable replacement cost estimates reflect adjustments for physical deterioration as well as functional and economic obsolescence.

Trade and other receivables/payables

The fair value of trade and other receivables/payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes.

Finance lease liabilities

Fair value, which is determined for disclosure purposes, is calculated based on discounted expected future principal and interest cash flows for finance leases. The market rate of interest is determined by reference to similar lease agreements.

 

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Derivatives

Foreign currency derivative contracts are recognised at fair value based on their listed market price, if available. If a listed market price is unavailable, then the fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds).

Financial derivatives relating to contractual obligations and an option for the sale of shares in a jointly controlled entity to a third party are measured based on the fair value of the underlying entity to which the shares relate. The underlying entity is valued based on a discounted life of mine cash-flow approach.

Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity and counterparty when appropriate.

Share-based payment transactions

Long term incentive plan

The fair value of shares granted under the Long Term Incentive Plan is measured using Binomial Tree (EPS and ROIC hurdles) and Monte-Carlo simulation (TSR hurdle) valuation methodologies, taking into account the terms and conditions upon which the performance rights were granted. Measurement inputs include share price at grant date, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). The likelihoods of meeting service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

5. Financial risk management

Overview

The Group has exposure to the following risks from their use of financial instruments:

 

•

credit risk

 

•

liquidity risk

 

•

market risk

 

•

operational risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

Risk management framework

The Board of Directors (“Board”) has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established the Audit and Risk Management Committee (“ARMC”), which is responsible for developing and monitoring the Group’s risk management policies. The Committee reports regularly to the Board of Directors on its activities.

 

F-25

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The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aim to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group ARMC also oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

The ARMC is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the ARMC.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.

The credit risk on financial assets of the Group, which have been recognised in the statement of financial position, is the carrying amount, net of impairment.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the statement of financial position.

Credit risk on cash, deposits and derivative contracts is managed by ensuring that counterparties are recognised financial intermediaries with acceptable long term credit ratings of A- or above from Standard & Poor’s, and using several counterparties for transactions.

Trade and other receivables

The ARMC has established a credit policy under which each new customer is subject to the Group’s standard letter of credit terms and conditions unless otherwise authorised by the Board. Open terms are only extended to customers after a proper credit assessment has been performed and only then are specific payment and delivery terms and conditions offered. The Group’s credit assessment review includes external ratings, when available. Purchase limits are established for each customer on a case by case basis.

The Group minimises concentrations of credit risk by undertaking transactions with a number of customers in various countries. The majority of the Group’s customers are the world’s largest steel producers with well established reputations for the purchase of bulk commodities including coal. Credit risk on customers is also reduced by entering into letters of credit with customers or utilising trade finance, if available, as considered necessary.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. Approximately 18% (2010: 17%) of the Group’s revenue is attributable to sales transactions with a single customer.

The Group has made no allowance for impairment of receivables. Given the size and good credit standing of the customers with which the Group deals, management have assessed the probability of loss as being remote.

 

F-26

---

In addition, the Group has recognised a receivable due from MCG Coal Holdings Pty Ltd in relation to a loan facility agreement. The loan facility agreement provides for the loan to be converted to 90% of the share capital of MCG Coal Holdings Pty Ltd with the intention to develop mining operations in relation to MDL 162. The Group is in the process of pursuing legal action against the MCG Group of companies in order to effect the conversion to shares as per the original terms of the loan facility agreement. The original loan balance is recognised as a current receivable. The Board, in consultation with legal advisors, regard the loan balance as fully recoverable through conversion to shares and therefore no impairment has been recognised. See Note 16 for further details.

Investments

The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have a short term credit rating of at least A2 from Standard & Poor’s. Management actively monitors credit ratings and given that the Group has only invested in securities with high credit ratings, management does not expect any counterparty to fail to meet its obligations.

Guarantees

The Group has provided financial guarantees, details of which are provided in Note 32.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group utilises a rolling cash flow forecast compared to its unused facilities to ensure that it has sufficient cash on demand as and when required over that forecasting period, including the servicing of financial obligations.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and coal prices will affect the Group’s profit or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The Treasury Committee manages and monitors market risk and oversees the compliance with the Group Treasury policy and provides key inputs into financing strategies.

The Group enters into derivatives, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the ARMC.

Currency risk

The Group is exposed to currency risk predominantly on sales, and to some extent on purchases that are denominated in a currency other than the respective functional currencies of Group entities, primarily the Australian dollar (AUD). The currency in which these transactions primarily are denominated is USD.

The Group’s policy is to hedge up to 85% of the expected foreign currency revenues from fixed price USD contracts (generally for no longer than a 12 month period). The Group principally uses forward exchange contracts to hedge its currency risk, with a maturity of less than 12 months.

 

F-27

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Interest rate risk

The Group’s main interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group’s key interest rate risk management objective is to hedge where the movement in interest rates would have a significant profit and loss or cash flow effect on the Group. This would be achieved by entering into interest rate swaps. As at 30 June 2011 there were no interest rate swaps in place (2010: Nil).

Commodity price risk

The Group is exposed to the risk of fluctuations in prevailing market commodity prices on the mix of coal products it produces. The Group’s policy is to manage these risks through the use of quarterly fixed price contracts for Pulverised Coal Injection (PCI) coal and coking coal which represent approximately 91% (2010: 93%) of total sales.

Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group’s operations.

The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to the ARMC. The ARMC’s objective is to assist the Board to fulfil its responsibilities in relation to accounting, risk management and financial reporting practices.

The ARMC oversees and makes recommendations to the Board on:

 

•

the adequacy and effectiveness of the accounting system and internal control environment

 

•

the adequacy of the system for compliance with relevant laws, regulations, standards and codes

 

•

the effectiveness of the risk management system (particularly with respect to the management and monitoring of material business risks)

 

•

the independence, objectivity, scope and quality of any internal and external audit

 

•

the frequency and significance of all transactions with related parties in addition to assessing their propriety

 

•

the integrity and quality of the Group’s internal and external financial reporting.

Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with management, with summaries submitted to the ARMC.

 

F-28

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Capital management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Capital consists of share capital, retained earnings and non-controlling interests of the Group. The Board of Directors monitors the return of capital as well as the level of dividends to ordinary shareholders.

 

		2011 $’000				2010 $’000
Total liabilities			341,962				438,476
Less: Cash and cash equivalents			(415,161	)			(348,216	)
Net debt			(73,199	)			90,260
Total equity			1,793,484				1,128,595
Less: amounts accumulated in equity relating to cash flow hedges			(1,982	)			3,151
Adjusted equity			1,791,502				1,131,746
Net debt to adjusted equity ratio at 30 June			(0.04	)			0.08

There were no changes in the Group’s general approach to capital management during the year.

6. Operating segments

The Group has three reportable segments, as described below, which are the Group’s strategic business units. The reportable segments are managed separately due to their phase of mining activity and reflect the Group’s internal reporting structure. The Group’s CEO (chief operating decision maker) reviews internal management reports on a monthly basis.

The Group has the following reportable segments:

 

•

Production: Includes operating mines at Coppabella and Moorvale for the commercial production of LV PCI, coking and thermal coal.

 

•

Development: Relates to Middlemount Mine development project which will produce PCI and semi-hard coking coal and the Codrilla Mine Project which will produce PCI coal.

 

•

Exploration and evaluation: Includes a number of projects at varying stages of the exploration and evaluation phase.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax as included in the internal management reports that are reviewed by the Group’s CEO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing, when applicable, is determined on an arm’s length basis.

 

F-29

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Information about reportable segments

 

		Production $’000				Development $’000				Exploration and Evaluation $’000				Total $’000
30 June 2011
External sales revenue			687,325				—				—				687,325
Financial income			—				—				355				355
Financial expenses			(8,652	)			—				(252	)			(8,904	)
Depreciation and amortisation			(29,842	)			—				—				(29,842	)
Reportable segment profit/(loss) before income tax			224,536				39,456				63,387				327,379
Reportable segment assets			717,997				200,148				215,346				1,133,491
30 June 2010
External sales revenue			670,502				—				—				670,502
Financial income			40				—				160				200
Financial expenses			(10,175	)			—				—				(10,175	)
Depreciation and amortisation			(30,961	)			—				—				(30,961	)
Reportable segment profit/(loss) before income tax			213,906				(10,810	)			(3,513	)			199,583
Reportable segment assets			737,239				286,370				138,388				1,161,997

Reconciliations of reportable segment revenues, profit or loss and assets

 

		2011 $’000				2010 $’000
Revenues
Total revenue for reportable segments			687,325				670,502
Profit or loss
Total profit before income tax for reportable segments			327,379				199,583
Unallocated amounts:
Depreciation and amortisation			(724	)			(318	)
Change in fair value of other derivative liabilities			(2,121	)			(14,010	)
Financial income			28,078				13,974
Financial expenses			(2,749	)			(1,994	)
Facilitation fee			15,390				—
Net loss on partial disposal of equity accounted investee			—				(1,641	)
Other corporate expenses			(39,451	)			(22,748	)
Consolidated profit before income tax			325,802				172,846

 

		2011 $’000				2010 $’000
Assets
Total assets for reportable segments			1,133,491				1,161,997
Unallocated amounts:
Cash and cash equivalents			415,161				348,216
Property, plant and equipment			2,083				1,397
Other corporate assets			584,711				55,461
Consolidated total assets			2,135,446				1,567,071

 

F-30

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Geographical segments

The Group operates predominately in Australia. All non-current assets of the Group are based in Australia. There were $1,932,484 domestic coal sales attributable to Australian customers in the year (2010: $Nil).

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers.

 

Geographical information		2011 $’000				2010 $’000
Japan			144,553				168,946
Korea			227,777				129,896
China			81,542				105,989
Brazil			90,197				78,371
UK			52,674				54,535
France			5,246				43,754
Italy			30,660				29,939
Spain			30,621				15,159
Other countries			24,055				43,913
Total			687,325				670,502

Major customers

Revenues from four customers (2010: three customers) of the Group’s production segment each represent greater than 10% of total revenue.

7. Other income

 

		Consolidated
		2011 $’000				2010 $’000
Management fee—related parties			467				253
Net gain on partial disposal of equity accounted investee (i)			44,148				—
Net gain on partial disposal of mining project (ii)			68,811				—
Facilitation fee (ii)			15,390				—
Net gain on sale of infrastructure capacity (iii)			2,986				10,600
Sundry—other parties			19				9
			131,821				10,862

 

(i)

On 24 December 2010, Macarthur Coal Limited and Gloucester Coal Ltd completed a transaction involving the early settlement of a share purchase agreement and exercise of a call option providing Gloucester Coal Ltd with an additional 22.48% interest in Middlemount Coal Pty Ltd, an equity accounted investee. The settlement for the transfer of shares was previously subject to the achievement of certain project milestones. Consideration payable by Gloucester Coal Ltd was $97.6 million, a discount to the nominal $108.0 million exercise price, recognising the transfers had occurred significantly prior to the end of the option period and the specified project milestones.

 

Consideration of $52.6 million was received by Macarthur Coal Limited on completion of the transaction with the remaining $45.0 million received on 30 June 2011.

 

The net gain recognised in relation to the partial disposal of the interest in Middlemount Coal Pty Ltd after applicable income tax expense is $44.0 million which is inclusive of the reversal of the derivative liability referred to in Note 8.

 

F-31

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Following the share transfer, Macarthur Coal Limited holds a 50.0003% interest in Middlemount Coal Pty Ltd at 30 June 2011.

 

(ii)

On 30 June 2011, BB Interests Pty Ltd being a 100% subsidiary of Macarthur Coal Limited completed the sale of its 85% interest in the Codrilla project to participants of the Coppabella and Moorvale Joint Venture (CMJV). The participants of the Bowen Basin Coal Joint Venture (MCC 85% and CITIC 15%) agreed to sell-down their respective interest in the Codrilla project to the CMJV so that following completion of the sale, ownership of the Codrilla project reflects the existing ownership of the Coppabella and Moorvale mines, with Macarthur Coal retaining a 73.3% ownership of the Codrilla project through its participation in the CMJV. The effective disposal of 13.76% of its interest in the Codrilla project resulted in a gain on sale being recognised to the Group of $68.8 million and facilitation fee income of $15.4 million.

 

Consideration of $15.0 million was received by Macarthur Coal Limited on completion of the transaction representing 20% of the agreed price. Two remaining instalments are due on the completion of certain milestones with 40% due on granting of the mining lease ($30.0 million) and the final 40% due on first railing ($30.0 million). Deferred considerations have been discounted to fair value using an appropriate discount rate which most closely matches the expected timing of milestone satisfaction.

 

(iii)

During the year ended 30 June 2011, the Group earned a net gain of $2,986,000 (2010:$10,600,000) on the sale of excess rail capacity.

8. Other expenses

 

		Consolidated
		2011 $’000				2010 $’000
Exploration and evaluation expensed as incurred			—				17
Depreciation			402				285
Net loss on disposal of non-current assets			152				42
Net foreign exchange losses			13,301				2,975
Change in fair value of other derivative liabilities (i)			2,121				14,010
Transaction costs (ii)			(390	)			6,924
Net loss on partial disposal of equity accounted investee (iii)			—				1,641
			15,586				25,894

 

(i)

During the year ended 30 June 2011, the Group revalued derivative contracts arising from the acquisition of Custom Mining Limited Group, resulting in a change in the fair value (loss) of $2,121,000 (2010: loss of $14,010,000) of the derivative contracts bringing the derivative liability position to $35,050,000 (2010: $32,929,000). Upon early exercise of the share sale agreement and call option (refer Note 7), the derivative liability was extinguished resulting in the recognition of $35,050,000 to the statement of comprehensive income which is included in the net gain on partial disposal of an equity accounted investment.

 

(ii)	During the year ended 30 June 2011, the Group incurred transaction costs for potential mergers and acquisitions of $2,110,000 (2010: $6,924,000) offset by a $2,500,000 forgiveness of prior year liability in the current financial year.

 

(iii)

In December 2010, the Group disposed of 22.48% (2010: 2.18%) of its equity accounted investment in Middlemount Coal Pty Ltd. This resulted in a net gain on disposal of $44,148,000 (2010: loss $1,641,000). Refer Notes 7 and 30 for further detail.

 

F-32

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9. Personnel expenses

 

						Consolidated
		Note				2011 $’000				2010 $’000
Wages and salaries							9,700				7,985
Other associated personnel expenses							3,770				1,693
Contributions to defined contribution superannuation funds							494				427
Increase in liability for annual leave							1,282				955
Increase in liability for long-service leave							93				157
Increase / (decrease) in liability for sick leave							356				(68	)
Equity-settled share-based payments transactions			24				56				368
Termination benefits							859				267
							16,610				11,784

10. Auditors’ remuneration

 

		Consolidated
		2011 $				2010 $
Audit services
Auditors of the Group—KPMG
•    Audit and review of financial reports
- Current year			378,000				397,000
- Prior year			—				42,955
•    Audit of joint venture operations (A)
- Current year			219,515				214,036
- Prior year			16,078				38,246
•    Other regulatory audit services			3,500				3,000
			617,093				695,237
Other services
Auditors of the Group—KPMG
•    Forensic and other advisory services related to litigation			541,132				64,854
•    Taxation services			24,627				122,890
•    Other advisory services			—				5,835
•    Joint venture operations—Other services (A)(B)			1,711				3,660
			567,470				197,239

 

(A)	Represents the Group’s share of remuneration paid for audit and other services incurred by joint ventures.

 

(B)	Represents tax advice and other assurance services.

It is the Group’s policy to engage KPMG to provide services additional to their statutory audit duties where KPMG’s expertise and experience with the Group are important and it is logical and efficient for them to provide those services. The provision of non-audit services during the year by KPMG is compatible with, and did not compromise the auditor independence requirements of the Corporations Act 2001 and of the professional independence standards set out below.

All non-audit services were subject to Corporate Governance procedures adopted by the Group, that is, non-audit services provided by KPMG were limited, in accordance with the ARMC Charter, to those which could not be perceived to be materially in conflict with the role of the auditor.

 

F-33

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Non-audit services provided by KPMG were undertaken in a manner not to undermine the general principles relating to auditor independence as set out in The Accounting Ethical Standards Board Code of Ethics for Professional Accountants (APES 110) and Section 100—Independence, Integrity and Objectivity of the AICPA Code of Professional Conduct, as services did not involve:

 

•

Reviewing or auditing the auditor’s own work

 

•

Acting in a management or decision making capacity for the Group or having a financial interest in the Group

 

•

Acting as an advocate for the Group

 

•

Jointly sharing in risks or rewards.

The non-audit services work performed by KPMG has been primarily limited to forensic and other advisory services. The services of other reputable accounting firms were retained to reduce the requirement for KPMG to provide non-audit related services.

11. Financial income and expenses

 

		Consolidated
Recognised in profit and loss		2011 $’000				2010 $’000
Interest income on cash and short-term deposits			24,241				14,174
Interest on loans to related parties			2,956				—
Unwind of discount on deferred income			1,236				—
Financial income			28,433				14,174
Financing costs			(2,539	)			(377	)
Interest expense on financial liabilities measured at amortised cost			(6,685	)			(7,695	)
Unwind of discount on liabilities and provisions			(2,429	)			(4,097	)
Financial expense			(11,653	)			(12,169	)
Net financial income			16,780				2,005

12. Income tax expense

(a) Income tax recognised in profit or loss

 

		Consolidated
		2011 $’000				2010 $’000
Current tax expense
Current year			71,292				59,283
Adjustments for prior years			(1,485	)			(5,411	)
			69,807				53,872
Deferred tax expense
Origination and reversal of temporary differences			14,605				(6,090	)
			14,605				(6,090	)
Total income tax expense from continuing operations			84,412				47,782

 

F-34

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(b) Reconciliation of effective tax rate

 

		Consolidated
		2011 $’000				2010 $’000
Profit for the year			241,390				125,064
Total income tax expense			84,412				47,782
Profit excluding income tax			325,802				172,846
Income tax using the domestic corporation tax rate of 30% (2010: 30%)			97,741				51,854
Increase in income tax expense due to:
•    Non-deductible expenses			2,775				3,248
•    Fair value movement in derivative			—				4,203
Decrease in income tax expense due to:
•    Utilisation of capital losses			(2,367	)			—
•    Fair value movement in derivative			(9,879	)			—
•    Tax exempt income and other items			(1,798	)			(4,123	)
			86,472				55,182
Over provided in prior years			(2,060	)			(7,400	)
			84,412				47,782

(c) Income tax recognised directly in equity

 

		2011 $’000												2010 $’000
		Before Tax				Tax (expense) benefit				Net of Tax				Before Tax				Tax (expense) benefit				Net of Tax
Equity raising costs			9,365				(2,809	)			6,556				(393	)			118				(275	)
(d) Income tax recognised directly in other comprehensive income
Cash flow hedges			(7,333	)			2,200				(5,133	)			(20,483	)			6,145				(14,338	)

Current tax assets and liabilities

The current tax liability for the Group of $20,929,000 (2010: $55,025,000) represents the amount of income taxes payable in respect of current and prior financial years.

 

F-35

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13. Tax assets and liabilities

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

 

		Assets								Liabilities								Net
		2011 $’000				2010 $’000				2011 $’000				2010 $’000				2011 $’000				2010 $’000
Property, plant and equipment			—				—				2,491				2,821				2,491				2,821
Employee benefits			(2,098	)			(1,579	)			—				—				(2,098	)			(1,579	)
Inventories			—				—				138				208				138				208
Loans and borrowings			(1,659	)			(1,801	)			—				—				(1,659	)			(1,801	)
Provisions			(10,234	)			(10,218	)			—				—				(10,234	)			(10,218	)
Amounts payable for future user charges			(856	)			(1,497	)			—				—				(856	)			(1,497	)
Overburden in advance			—				—				61,224				49,936				61,224				49,936
Mining property and development			—				—				11,099				15,420				11,099				15,420
Exploration and evaluation			—				—				27,114				21,229				27,114				21,229
Foreign currency derivative contracts			—				(1,350	)			832				—				832				(1,350	)
Other items			(611	)			(1,552	)			—				—				(611	)			(1,552	)
Investments in equity accounted investees			—				—				6,273				6,273				6,273				6,273
Equity raising costs			(3,113	)			(1,286	)			—				—				(3,113	)			(1,286	)
Tax (assets)/liabilities			(18,571	)			(19,283	)			109,171				95,887				90,600				76,604
Set off of tax			18,571				19,283				(18,571	)			(19,283	)			—				—
Net tax (assets)/liabilities			—				—				90,600				76,604				90,600				76,604

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items:

 

		Consolidated
		2011 $’000				2010 $’000
Investments in equity accounted investees			6,350				18,144
Other financial assets			559				—
			6,909				18,144

The deferred tax assets have not been recognised in respect of these items because it is not probable that future capital gains will be available against which the Group can utilise these benefits.

 

F-36

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Movement in temporary differences during the year

 

		Balance 1 July  2010 $’000				Recognised in profit or loss $’000				Recognised directly in  equity $’000				Recognised  in other comprehensive income $’000				Balance 30 June  2011 $’000
Property, plant and equipment			2,821				(330	)			—				—				2,491
Inventories			208				(70	)			—				—				138
Loans and borrowings			(1,801	)			142				—				—				(1,659	)
Employee benefits			(1,579	)			(519	)			—				—				(2,098	)
Provisions			(10,218	)			(16	)			—				—				(10,234	)
Amounts payable for future user charges			(1,497	)			641				—				—				(856	)
Overburden in advance			49,936				11,288				—				—				61,224
Mining property and development			15,420				(4,321	)			—				—				11,099
Exploration and evaluation			21,229				5,885				—				—				27,114
Other items			(1,552	)			941				—				—				(611	)
Foreign currency derivative contracts			(1,350	)			(18	)			—				2,200				832
Investments in equity accounted investees			6,273				—				—				—				6,273
Equity raising costs			(1,286	)			982				(2,809	)			—				(3,113	)
			76,604				14,605				(2,809	)			2,200				90,600

 

		Balance 1 July  2009 $’000				Recognised in profit or loss $’000				Recognised directly in  equity $’000				Recognised  in other comprehensive income $’000				Balance 30 June  2010 $’000
Property, plant and equipment			2,376				445				—				—				2,821
Inventories			258				(50	)			—				—				208
Loans and borrowings			(1,979	)			178				—				—				(1,801	)
Employee benefits			(1,266	)			(313	)			—				—				(1,579	)
Provisions			(10,744	)			526				—				—				(10,218	)
Amounts payable for future user charges			(2,102	)			605				—				—				(1,497	)
Overburden in advance			50,985				(1,049	)			—				—				49,936
Mining property and development			15,031				389				—				—				15,420
Exploration and evaluation			20,156				1,073				—				—				21,229
Other items			7,144				(8,696	)			—				—				(1,552	)
Foreign currency derivative contracts			4,706				89				—				(6,145	)			(1,350	)
Investments in equity accounted investees			5,980				293				—				—				6,273
Equity raising costs			(1,588	)			420				(118	)			—				(1,286	)
			88,957				(6,090	)			(118	)			(6,145	)			76,604

 

F-37

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14. Earnings per share

Basic earnings per share

The calculation of basic earnings per share at 30 June 2011 was based on the profit attributable to ordinary shareholders of $241,390,000 (2010: $125,064,000) and a weighted average number of ordinary shares outstanding during the year ended 30 June 2011 of 291,686,234 (2010: 253,680,737), calculated as follows:

Profit attributable to ordinary shareholders

 

		Consolidated
		2011 $’000				2010 $’000
Profit attributable to ordinary shareholders			241,390				125,064

Weighted average number of ordinary shares

 

		Consolidated
		2011				2010
Issued ordinary shares at 1 July			254,333,109				243,980,249
Effect of shares issued in July 2009			—				9,700,488
Effect of institutional placement August 2010			31,774,218				—
Effect of share purchase plan October 2010			3,552,735				—
Effect of dividend re-investment plan October 2010			1,486,087				—
Effect of treasury share purchases September 2010			(40,328	)			—
Effect of dividend re-investment plan April 2011			580,413				—
Weighted average number of ordinary shares at 30 June			291,686,234				253,680,737

Diluted earnings per share

The calculation of diluted earnings per share at 30 June 2011 was based on profit attributable to ordinary shareholders of $241,390,000 (2010: $125,064,000) and a weighted average number of ordinary shares outstanding during the year ended 30 June 2011 of 291,794,306 (2010: 253,814,065), calculated as follows:

Profit attributable to ordinary shareholders (diluted)

 

		Consolidated
		2011 $’000				2010 $’000
Net profit attributable to ordinary shareholders (diluted)			241,390				125,064

Weighted average number of ordinary shares (diluted)

 

		Consolidated
		2011				2010
Issued ordinary shares at 1 July			254,333,109				243,980,249
Effect of shares issued			37,393,453				9,700,488
Effect of treasury shares purchased			(40,328	)			—
Effect of unvested rights and vested rights not issued			108,072				133,328
Weighted average number of ordinary shares (diluted) at 30 June			291,794,306				253,814,065

 

F-38

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15. Cash and cash equivalents

 

		Consolidated
		2011 $’000				2010 $’000
Cash at bank and on hand			173,157				115,697
Bank deposits			242,004				232,519
Cash and cash equivalents in the statement of cash flows			415,161				348,216

The weighted average effective interest rate on the outstanding bank term deposits is 5.9% (2010: 5.7%). The deposits have a weighted average maturity of 80 days (2010: 62 days).

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 28.

16. Trade and other receivables

 

		Consolidated
		2011 $’000				2010 $’000
Current
Trade receivables			47,991				70,898
Other receivables and prepayments (i)			422,901				20,805
Amounts receivable from related entities—unsecured			265,684				117,402
			736,576				209,105
Non-current
Security deposits			35				35
Other receivables and prepayments (i)			27,454				—
Amounts receivable from related entities—unsecured			78,679				75,274
			106,168				75,309

No impairment losses (2010: $Nil) have been recognised in the current year.

The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in Note 28.

 

(i)

Included in other receivables and prepayments is an amount of $54.9 million due from some of the participants of the CMJV in relation to the Codrilla sell down transaction (see Note 7). This amount represents the fair value of the deferred consideration on the transaction applying a discount rate relevant to the timing of the expected cash flows.

 

Other receivables and prepayments also include an amount of $360 million due from MCG Holdings Pty Ltd (MCGH). On 24 August 2010, Macarthur Coal Limited advised of its intention to acquire a 90% interest in MDL 162 for $334.35 million to be funded via a fully underwritten Institutional Placement and Share Purchase Plan.

 

Following successful completion of the Institutional Placement on 25 August 2010, Macarthur Coal Limited entered into a loan facility agreement with MCG Coal Holdings Pty Ltd, MCG Coal Pty Ltd, MCG Resources Pty Ltd and Fortrus Resources Pty Ltd (the “MCG Companies”) on 1 September 2010 to provide MCG Coal Holdings Pty Ltd with $360 million to finalise the purchase of MDL 162 from Stanwell Corporation Limited. Macarthur Coal Limited agreed to subscribe for 90% of the shares in MCG Coal Holdings Pty Ltd for $334.35 million. The transaction was expected to be completed on 10 May 2011.

 

F-39

---

Non-performance by the other party to the transaction, has resulted in Macarthur Coal Limited commencing litigation for specific performance under the loan facility agreement. The original loan amount is classified as a loan receivable pending the outcome of ongoing legal proceedings.

17. Inventories

 

		Consolidated
		2011 $’000				2010 $’000
Current
Raw materials and consumables, at cost			10,863				11,282
Coal stocks, at cost			28,063				38,480
			38,926				49,762
Non-current
Raw materials and consumables, at cost			4,368				—
			4,368				—

Refer Note 23 for details of security over inventories.

Raw materials, consumables and changes in coal stocks recognised as cost of sales amounted to $351,800,000 (2010: $331,380,000).

18. Other financial assets

 

		Consolidated
		2011 $’000				2010 $’000
Current
Cash and deposits—not at call			38,286				26,211
Foreign currency derivative contracts			2,772				—
			41,058				26,211
Non-current
Deposits—not at call			7,035				4,263
			7,035				4,263

Non-current deposits—not at call have been pledged as collateral for arrangements relating to Wiggins Island feasibility study costs, refer Notes 23 and 32.

The Group’s exposure to credit, currency and interest rate risks related to other financial assets is disclosed in Note 28.

 

F-40

---

19. Overburden in advance

 

		Consolidated
		2011 $’000				2010 $’000
Current
Overburden in advance			182,256				146,548
Non-current
Overburden in advance			21,824				19,905

20. Property, plant and equipment

 

		Consolidated
		2011 $’000				2010* $’000
Mining property and development (including mining rights and coal resources)
At cost			162,107				153,053
Less accumulated depreciation			(66,542	)			(61,423	)
			95,565				91,630
Freehold land
At cost			3,730				3,730
Buildings and infrastructure
At cost			96,945				95,277
Less accumulated depreciation			(58,703	)			(51,952	)
			38,242				43,325
Plant and equipment
At cost			31,164				23,359
Less accumulated depreciation			(9,294	)			(6,640	)
			21,870				16,719
Leased assets
At cost			116,644				116,644
Less accumulated depreciation			(40,429	)			(25,388	)
			76,215				91,256
Capital works in progress
At cost			4,982				4,055
			240,604				250,715

Refer to Note 23 for details of security over property, plant and equipment.

 

*

Following a detailed review of joint venture development expenditure, $16,913,000 was reclassified as Exploration and Evaluation relating to 2010. This had the impact of decreasing Mining Property and Development cost as at 1 July 2010 by $16,913,000 with a corresponding increase in Exploration and Evaluation Assets.

 

F-41

---

		Consolidated
		2011 $’000				2010* $’000
Reconciliations
Reconciliation of the carrying amounts for each class of property, plant and equipment are set out below:
Mining property and development
Carrying amount at 1 July			91,630				96,653
Additions			12				326
Reclassification from exploration and evaluation assets			9,561				—
Effect of movement in rehabilitation asset			(519	)			1,836
Depreciation			(5,119	)			(7,185	)
Carrying amount at 30 June			95,565				91,630
Freehold land
Carrying amount at 1 July			3,730				3,730
Additions			—				—
Carrying amount at 30 June			3,730				3,730
Buildings and infrastructure
Carrying amount at 1 July			43,325				40,301
Additions			412				28
Transfers from capital works in progress			1,817				11,534
Effect of movement in dismantling asset			(561	)			(1,617	)
Depreciation			(6,751	)			(6,921	)
Carrying amount at 30 June			38,242				43,325
Plant and equipment
Carrying amount at 1 July			16,719				13,402
Additions			1,395				89
Transfers from capital works in progress			7,090				5,535
Disposals			(294	)			(41	)
Depreciation			(3,040	)			(2,266	)
Carrying amount at 30 June			21,870				16,719
Leased assets
Carrying amount at 1 July			91,256				102,236
Additions			—				5,024
Depreciation			(15,041	)			(16,004	)
Carrying amount at 30 June			76,215				91,256

Refer to Note 23 for details of security over property, plant and equipment.

 

*

Following a detailed review of joint venture development expenditure, $16,913,000 was reclassified as Exploration and Evaluation relating to 2010. This had the impact of decreasing Mining Property and Development cost as at 1 July 2010 by $16,913,000 with a corresponding increase in Exploration and Evaluation Assets.

 

F-42

---

		Consolidated
		2011 $’000				2010 $’000
Capital works in progress
Carrying amount at 1 July			4,055				13,562
Additions			9,834				7,562
Transfers to other classes of property, plant and equipment			(8,907	)			(17,069	)
Carrying amount at 30 June			4,982				4,055

The following depreciation was recognised as an expense in the profit and loss:

 

		Consolidated
		2011 $’000				2010 $’000
Mining property and development			5,225				6,863
Buildings and infrastructure			6,892				6,825
Plant and equipment			3,095				2,192
Leased assets			15,354				15,399
			30,566				31,279

Leased assets

The Group leases production equipment under a number of finance lease agreements. Some leases provide the Group with the option to purchase the equipment. The leased equipment is secured by lease obligations (refer Note 23). At 30 June 2011, the net carrying amount of leased assets was $76,215,000 (2010: $91,256,000).

21. Exploration and evaluation assets

 

		Consolidated
		2011 $’000				2010* $’000
Costs carried forward in respect of areas of interest in exploration and/or evaluation—intangible:			100,309				98,483
Cost
Balance at 1 July			98,483				87,829
Exploration and evaluation costs disposed of			(1,130	)			—
Exploration costs transferred to PPE			(9,561	)			—
Exploration and evaluation costs capitalised			12,517				10,654
Balance at 30 June			100,309				98,483

The ultimate recoupment of costs carried forward as exploration and evaluation assets is dependent on the successful development and commercial exploitation, or alternatively, sale of the respective areas of interest.

 

*	Restated. See Note 20.

 

F-43

---

22. Trade and other payables

 

		Consolidated
		2011 $’000				2010 $’000
Current
Trade payables			28,265				28,787
Other payables and accrued expenses			49,351				67,372
Amounts payable to related entities—unsecured			24,142				29,518
			101,758				125,677

The Group’s exposure to currency and liquidity risk to trade and other payables is disclosed in Note 28.

23. Loans and borrowings

This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, see Note 28.

 

		Consolidated
		2011 $’000				2010 $’000
Current liabilities
Finance lease liabilities			18,739				13,890
Deferred liability for acquisition of mining interest—unsecured			2,030				1,932
			20,769				15,822
Non-current liabilities
Finance lease liabilities			61,040				79,526
Deferred liability for acquisition of mining interest—unsecured			3,503				4,074
			64,543				83,600

Deferred liability for acquisition of mining interest—unsecured

In December 2003, the Group purchased an additional 23.3% interest in the Coppabella Project. As part of the acquisition, the Group entered into an arrangement to progressively purchase the 23.3% interest in the exploration tenements each six months, over a 10 year period. In accordance with accounting standards the deferred liability has been reflected at its present value in the financial statements, discounted at 10.2% (2010: 10.1%) based on 5.2% (2010: 5.1%) interest plus a risk adjusted margin.

 

		Consolidated
		2011 $’000				2010 $’000
Facilities utilised at reporting date
Bank loans—Corporate Facility
•    Bank Guarantee Facility			64,500				64,676
•    Cash backed bank guarantees			6,500				4,263
			71,000				68,939

 

F-44

---

Corporate Funding Facility

Bank Loans

The Group executed a new 3 year A$330,000,000 Corporate Funding Facility on 30 November 2010. The purpose of the Corporate Funding Facility is to provide bank guarantee facilities, additional funds for general corporate purposes within the Group and working capital for operations. The facility is held by a controlled entity, Macarthur Coal Financing Pty Ltd.

Security

The Corporate Funding Facility is secured by the following:

 

•

a guarantee provided by Macarthur Coal Limited;

 

•

charges over the Group’s interest in the Coppabella and Moorvale Joint Venture including all of the assets and undertakings of the controlled entity, Coppabella Coal Pty Ltd;

 

•

charges over the assets and undertakings of the controlled entity, Macarthur Coal Financing Pty Ltd; and

 

•

charges over the Company’s shares in Coppabella Coal Pty Ltd and Macarthur Coal Financing Pty Ltd and intercompany loans to the controlled entities.

Assets pledged under security arrangements

The carrying amounts of the pledged non-current assets are as follows:

 

		2011 $’000				2010 $’000
Mining property and development			114,678				108,887
Land			3,730				3,730
Buildings and infrastructure			38,242				43,325
Plant and equipment			19,787				15,322
Leased assets (refer below)			76,215				91,256
Capital works in progress			4,982				4,055
Receivables			78,714				75,309
Overburden in advance			21,824				19,905
			358,172				361,789

Cash backed bank guarantees

The Group utilises cash backed guarantees in addition to the Corporate Funding Facility. No facility limit exists on these instruments.

 

F-45

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Finance lease liabilities

Finance lease liabilities of the Group are payable as follows:

 

		Minimum lease payments				Interest				Principal				Minimum lease payments				Interest				Principal
		2011 $’000				2011 $’000				2011 $’000				2010 $’000				2010 $’000				2010 $’000
Less than one year			23,605				5,119				18,486				20,329				6,439				13,890
Between one and five years			48,747				11,713				37,034				62,115				14,837				47,278
More than five years			26,466				2,460				24,006				36,703				4,455				32,248
			98,818				19,292				79,526				119,147				25,731				93,416

Security

The lease liabilities are secured by a fixed and floating charge provided by Macarthur Coal (C&M Equipment) Pty Ltd (MCCME), an associated entity. In addition, the Company provides guarantees to the extent of 73.3% of MCCME’s obligations under finance and operating leasing arrangements.

24. Employee benefits

 

		Consolidated
		2011 $’000				2010 $’000
Current liabilities
Liability for annual leave			5,168				3,886
Liability for sick leave			1,297				941
Liability for long-service leave			413				352
			6,878				5,179
Non-current liabilities
Liability for long-service leave			119				87

Defined contribution superannuation funds

The Group makes contributions to several defined contribution superannuation funds. The amount recognised as an expense was $494,000 for the financial year ended 30 June 2011 (2010: $427,000).

Long service leave industry fund

The Group makes contributions to the Coal Mining Industry Leave Fund. A total of $1,221,000 was paid to the fund for the financial year ended 30 June 2011 (2010: $897,000).

Share-based payments

Long Term Incentive Plan (LTIP)

Each financial year the Group grants performance rights to Executives and other nominated senior managers to provide the plan participants with the incentive to deliver long-term growth in shareholder value.

The number of performance rights granted under the LTIP is set as a percentage of total fixed remuneration determined by the Nomination and Remuneration Committee (NRC). Performance rights are granted at no cost to participants. Each performance right granted entitles the participant to one ordinary share in the Company, subject to satisfaction of performance conditions set by the Board and NRC over a three year performance period. The rights expire on termination of an executive’s employment prior to the vesting date or upon failure to achieve the performance hurdles.

 

F-46

---

Shares to be awarded under the LTIP are acquired on market, avoiding dilution of shareholder equity, and placed in trust for employees until such time as the employee elects to have the shares transferred from the trust. Shares carry full dividend and voting rights upon allocation.

The performance rights and their allocation to shares are subject to the following performance conditions:

 

30%  ð		linked to growth in the Group’s Earnings Per Share (EPS)
50%  ð		linked to Total Shareholder Return (TSR) targets
20%  ð		linked to Return on Invested Capital (ROIC).

A summary of performance rights granted to Executives and other participants are as follows:

 

Grant Date		Performance Period		Vesting Date		Fair Value of Grant				Balance at start of the year				Granted during the year				Vested during the year				Forfeited during the year (1)				Balance at the end of the year
2011
14 Oct 2008		1 July 2008 to 30 June 2011		30 June 2011			$3.55				49,237				—				(18,853	)			(30,384	)			—
29 June 2009		1 July 2009 to 30 June 2012		30 June 2012			$5.44				132,563				—				—				(36,098	)			96,465
30 June 2011		1 July 2010 to 30 June 2013		30 June 2013			$7.31				—				94,827				—				—				94,827
Total											181,800				94,827				(18,853	)			(66,482	)			191,292
2010
14 Oct 2008		1 July 2007 to 30 June 2010		30 June 2010			$5.31				66,101				—				(49,395	)			(16,706	)			—
14 Oct 2008		1 July 2008 to 30 June 2011		30 June 2011			$3.55				59,511				—				—				(10,274	)			49,237
29 June 2009		1 July 2009 to 30 June 2012		30 June 2012			$5.44				158,237				—				—				(25,674	)			132,563
Total											283,849				—				(49,395	)			(52,654	)			181,800

 

(1)	Forfeited performance rights relate to those rights with a vesting date of 30 June 2011 where performance conditions have not been met and those rights originally granted to employees who have since left the Group and have therefore forfeited their rights.

Fair value of rights granted

The fair value at each grant date is independently determined using the following valuation models:

 

•

EPS and ROIC—Binomial Tree Methodology

 

•

TSR—Monte-Carlo Simulation

 

F-47

---

This value will not be equal to the market value of a share at the commencement of the performance period as the performance rights are contingent rights to shares in the future. The fair value of the performance rights at the grant date is influenced by the Company’s share price at the date of grant, volatility of the underlying shares, the risk free rate of return, expected dividend yield, time to maturity and the likelihood that vesting conditions relating to market-based hurdles will be met. Expected volatility of the Company is estimated based on the historic volatility of the market price of the Company’s shares.

The table below summarises the key assumptions adopted for valuation of the awards:

 

		Performance Rights 2009		Performance Rights 2010		Performance Rights 2011
Grant Date		14 October 2008		29 June 2009		30 June 2011
Weighted average fair value at date of grant		$3.55		$5.44		$7.31
Share price at date of grant		$6.53		$6.63		$10.95
Expected volatility		60%		75%		46%
Dividend yield		8.3%		3.0%		5.5%
Expected life		2.8 years		3.0 years		2.0 years
Risk free interest rate		4.64%		4.62%		4.68%

The minimum total value of the grant, if the applicable performance conditions are not met, is nil.

Expenses arising from share-based payment transactions

Total expenses arising from share-based payment transactions recognised during the year as part of employee benefit expense were as follows:

 

		Note		Consolidated
				2011 $’000				2010 $’000
Expense arising from 2008 performance rights					—				114
Expense arising from 2009 performance rights					23				55
Expense arising from 2010 performance rights					32				199
Expense arising from 2011 performance rights					1				—
Total expense recognised as employee costs		9			56				368

Employee Share Loan Plan

During the year the Group operated an Employee Share Loan Plan (ESLP) which was previously used to provide an opportunity for eligible persons of the Group and approved contractors to acquire shares of the Company. On 15 December 2005, 122,935 shares were acquired for 86 eligible employees at a purchase price of $5.43 per share with a value limit of between $6,000 and $20,000 per employee.

No invitations to participate in the ESLP were made in the 2011 financial year. All loans were fully repaid on the 31 December 2010 and the loan plan was closed.

All shares that were held under the ESLP ranked equally with all other shares on issue.

The Group provided interest free loans to all eligible persons to enable them to acquire shares under ESLP to 100% of the total acquisition price for the shares. Any dividends declared on the shares issued under ESLP were used to offset any loans outstanding on the shares. Employees and contractors also provided irrevocable authority to the Company to deduct 1% of their gross salary each month in repayment of the loan.

 

F-48

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The loan was repayable if:

 

a)

default is made by the employee on the repayment of the loan; or

 

b)

the employee’s employment with the Company, its subsidiary or associate or the relevant contractor is terminated for any reason; or

 

c)

the employee becomes insolvent or commits an act of bankruptcy.

The Company held the shares as security over the loan until the loan was repaid.

The market price of shares held under the ESLP as at 30 June 2011 was $Nil as the loan plan has been closed (2010: $12.12).

There were no other shares eligible for acquisition under the ESLP at 30 June 2011 (2010: Nil).

The number and weighted average acquisition price of shares is as follows:

 

		Weighted Average exercise price				Number of shares				Weighted Average exercise price				Number of shares
		2011				2011				2010				2010
Outstanding at the beginning of the year							22,083								33,126
Granted during the year							—								—
Sold and transferred during the year			$11.80				(22,083	)			$11.33				(11,043	)
Outstanding at the end of the year							—								22,083

25. Provisions

 

		Consolidated
		2011 $’000				2010 $’000
Current
Rehabilitation and dismantling			2,930				2,642
Other			—				817
			2,930				3,459
Non-current
Rehabilitation and dismantling			30,263				30,398
Other			321				204
			30,584				30,602

 

F-49

---

During the financial year ended 30 June 2011, $1,074,000 was reversed through profit or loss in respect of rehabilitation expense (2010: $3,966,000).

 

		Consolidated
		2011 $’000				2010 $’000
Rehabilitation and dismantling
Balance at 1 July			33,040				35,617
Provisions reversed during the year			(1,074	)			(3,966	)
Provisions used during the year			(740	)			(1,091	)
Unwind of discount			1,967				2,480
Balance at 30 June			33,193				33,040
Other
Balance at 1 July			1,021				197
Provisions made during year			108				870
Provisions used during year			(817	)			(69	)
Unwind of discount			9				23
Balance at 30 June			321				1,021

Rehabilitation and dismantling

In accordance with Queensland Government legislative requirements, a provision has been recognised for mine rehabilitation works throughout the life of the mines in relation to the Group’s coal mining operations. A provision for dismantling of infrastructure assets on cessation of operations at the mines has also been recognised in relation to the Group’s coal mining operations. The basis for accounting is set out in Note 3(m).

26. Other financial liabilities

 

		Consolidated
		2011 $’000				2010 $’000
Current
Amounts payable for future user charges (refer Note 31(e))			2,265				2,137
Foreign currency derivative contracts			—				4,502
			2,265				6,639
Non-current
Amounts payable for future user charges (refer Note 31(e))			587				2,853
Other derivative liabilities			—				32,929
			587				35,782

Other derivative liabilities

In the 2008 financial year, resulting from the acquisition of Custom Mining Limited Group, the Group acquired a pre-existing obligation to transfer shares in a jointly controlled entity, Middlemount Coal Pty Ltd (“Middlemount”), to a non-related third party on the completion of certain triggering events. As per the share sale agreement, these triggering events related to milestones in the development of the Middlemount Mine project. In addition, a contractual obligation existed via a call option agreement to sell a further 20% in Middlemount to the same third party. Obligations under both agreements were accounted for as derivative contracts.

 

F-50

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In April 2010, 2.18% of shares in Middlemount were transferred by the Group under the terms of the share sale agreement. The remaining derivative liability related to the obligation for the final sell trigger under the share sale agreement and the obligation under the call option agreement for a further 22.48%. The call option was exercised in December 2010, resulting in the derecognition of the derivative to the profit recognised on disposal (refer Note 7).

27. Capital and reserves

 

		Company Ordinary shares
		2011				2010
Share capital
On issue at 1 July			254,333,109				243,980,249
Shares issued on equity settled transactions			47,759,234				10,352,860
On issue at 30 June—fully paid			302,092,343				254,333,109

Issuance of ordinary shares

Through an institutional placement on 31 August 2010; 38,149,966 ordinary shares were issued for an amount of $11.50 per share to raise $438,724,609. A further 4,874,993 ordinary shares were issued under a share purchase plan at $11.33 per share on 8 October 2010 raising $55,233,671.

Under the Macarthur Coal dividend reinvestment plan an additional 2,118,835 ordinary shares were issued on 18 October 2010 at $11.15 per share and 2,615,440 ordinary shares were issued on 11 April 2011 at $11.27 per share.

Ordinary shares

The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid.

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.

In the event of winding up of the Company, ordinary shareholders rank after creditors and are fully entitled to any net proceeds.

Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. Amounts are reclassified to profit or loss when the associated hedged transaction is settled.

Share-based payment reserve

The share-based payment reserve is used to recognise:

 

•

The cumulative value recognised over the vesting period of the 2009, 2010 and 2011 share-based performance rights which have not reached the vesting date but are expected to vest; and

 

•

The value of the 2008 and 2009 share-based performance rights that have vested based on performance conditions being met, which have not yet been settled.

 

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Reserve for own shares

The reserve for the Company’s own shares is used to recognise the cost of the Company’s shares held by the Group.

The shares relate to vested performance rights for certain executives who participate in the long term incentive plan. The shares are acquired on market and placed in trust until such time as the employees elect to have the shares transferred out of the trust.

Dividends

Dividends recognised in the current year by the Company are:

 

		Cents per share				Total amount $				Franked/ unfranked				Date of payment
2011
Interim 2011 ordinary			24.0				71,874,457				Franked			11 April 2011
Final 2010 ordinary			17.0				49,722,123				Franked			18 October 2010
Total amount			41.0				121,596,580
2010
Interim 2010 ordinary			8.0				20,346,649				Franked			21 April 2010
Final 2009 ordinary			13.0				33,063,304				Franked			30 September 2009
Total amount			21.0				53,409,953

Franked dividends declared or paid during the year were fully franked at the tax rate of 30%.

Dividends not recognised at the end of the reporting period

Subsequent to 30 June 2011, the following dividends were proposed by the Directors. The financial effect of these dividends has not been recognised in the financial statements for the year ended 30 June 2011 and will be recognised in subsequent financial reports.

The declaration and subsequent payment of dividends has no income tax consequences.

 

Cents per share

Total amount $

Franked/ unfranked

Date of payment

Final ordinary

16.0

48,334,775

Franked

9 September 2011

Dividend franking account

 

		Company
		2011 $’000				2010 $’000
30% franking credits available to shareholders of the Company for subsequent financial years			148,841				131,129

The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:

 

(a)

franking credits/debits that will arise from the payment/receipt of the current tax liabilities/assets;

 

(b)

franking debits that will arise from the payment of dividends recognised as a liability at year end;

 

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(c)

franking credits that will arise from the receipt of dividends recognised as receivables by the tax-consolidated group at year end; and

 

(d)

franking credits that the entity may be prevented from distributing in subsequent years.

The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.

The impact on the dividend franking account of dividends proposed after the reporting date but not recognised as a liability is to reduce it by $20,715,000 (2010: $18,530,000).

In accordance with the tax consolidation legislation, Macarthur Coal Limited as the head entity of the tax-consolidated Group has also assumed the benefit of $148,841,000 (2010: $131,129,000) franking credits.

28. Financial instruments

Exposure to credit, interest rate and currency risks arises in the normal course of the Group’s business. Derivative financial instruments are used to hedge exposure to fluctuations in foreign exchange rates.

Credit risk

Exposure to credit risk

The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was:

 

		Note				2011 $’000				2010 $’000
Cash and cash equivalents			15				415,161				348,216
Cash and deposits—not at call			18				45,321				30,474
Trade and other receivables			16				842,744				284,414
Forward exchange contracts used for hedging—assets			18				2,772				—
							1,305,998				663,104

The Group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

 

		2011 $’000				2010 $’000
Asia			34,451				20,881
Europe			6,258				32,694
Americas			7,107				17,323
Australia			175				—
			47,991				70,898

Concentration of credit risk at the reporting date on trade receivables was: Asia 72%, Europe 13%, Americas 15% and Australia less than 1% (2010: Asia 30%, Europe 46%, Americas 24% and Australia nil%). The geographical mix at the reporting date for trade receivables is influenced by the timing of shipments to customers during the month of June. This arises due to sales being settled within the appropriate contractual terms and conditions following sales recognition. To give a better understanding of the average exposure over the course of a year, the 2011 sales distribution by geographic regions is Asia 67%, Europe 20%, Americas 13% and Australia less than 1% (2010: Asia 63%, Europe 25%, Americas 12% and Australia nil%).

 

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Refer Note 16 for credit risk exposure on other receivables and prepayments.

Impairment losses

None of the Group’s trade receivables are past due (2010: $Nil).

Based on the global standing, size and credit ratings of our customers, the Group believes that no impairment allowance is necessary in respect of trade receivables.

Liquidity risk

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements:

 

		2011
		Carrying amount $’000				Contractual cash flows $’000				6 months or less $’000				6-12 months $’000				1-2 years $’000				2-5 years $’000				More than 5 years $’000
Non-derivative financial liabilities
Finance lease liabilities			79,780				98,819				11,803				11,803				11,560				37,186				26,467
Deferred liability for acquisition of mining interest			5,533				5,199				1,040				1,040				2,079				1,040				—
Amounts payable for future user charges			2,852				2,978				1,191				1,191				596				—				—
Trade and other payables			101,758				101,758				101,758				—				—				—				—
Derivative financial liabilities
Forward exchange contracts used for hedging:
Outflow			111,589				111,589				111,589				—				—				—				—
Inflow			(114,361	)			(114,361	)			(114,361	)			—				—				—				—
			187,151				205,982				113,020				14,034				14,235				38,226				26,467

 

		2010
		Carrying amount $’000				Contractual cash flows $’000				6 months or less $’000				6-12 months $’000				1-2 years $’000				2-5 years $’000				More than 5 years $’000
Non-derivative financial liabilities
Finance lease liabilities			93,416				(119,147	)			(10,164	)			(10,165	)			(23,605	)			(38,510	)			(36,703	)
Deferred liability for acquisition of mining interest			6,006				(7,279	)			(1,040	)			(1,040	)			(2,079	)			(3,120	)			—
Amounts payable for future user charges			4,990				(5,361	)			(1,191	)			(1,191	)			(2,383	)			(596	)			—
Trade and other payables			125,677				(125,677	)			(125,677	)			—				—				—				—
Derivative financial liabilities
Forward exchange contracts used for hedging:
Outflow			234,771				(234,771	)			(234,771	)			—				—				—				—
Inflow			(230,269	)			230,269				230,269				—				—				—				—
			234,591				(261,966	)			(142,574	)			(12,396	)			(28,067	)			(42,226	)			(36,703	)

Foreign exchange contracts used for hedging have a maturity analysis which is expected to match the contracted cash inflows from the receipt of sale proceeds. It is not expected that the cash inflows included in the maturity analysis could occur significantly earlier or at significantly different amounts.

 

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Currency risk

Exposure to currency risk

The Group’s exposure to foreign currency risk at the reporting date was as follows, based on notional amounts:

 

		2011				2010
		USD $’000				USD $’000
Trade receivables			51,537				60,426
Trade and other payables			(7,980	)			(20,312	)
Gross financial position exposure			43,557				40,114
Contracted forecast sales			119,728				244,013
Estimated forecast purchases			(2,654	)			(9,640	)
Gross exposure			117,074				234,373
Forward exchange contracts			(118,371	)			(197,519	)
Net exposure			42,260				76,968

In line with the Group’s Treasury Policy, additional forward exchange contracts have been placed post 30 June 2011 for the 2012 financial year as fixed price sales contracts have been agreed.

The following significant exchange rates applied during the year:

 

		Average rate								Reporting date spot rate
		2011				2010				2011				2010
USD			0.9881				0.8759				1.0739				0.8523

Sensitivity analysis

A 10% strengthening of the Australian dollar against the United States dollar at 30 June would have decreased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2010.

 

		Equity $’000				Profit or  loss $’000
30 June 2011
USD			(10,144	)			(3,687	)
30 June 2010
USD			(21,288	)			(4,279	)

A 10% weakening of the Australian dollar against the United States dollar at 30 June would have had the equal but opposite effect on the amounts shown above, on the basis that all other variables remain constant.

 

F-55

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Interest rate risk

Profile

At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:

 

		Carrying amount
		2011 $’000				2010 $’000
Fixed rate instruments
Financial liabilities			(82,632	)			(98,406	)
			(82,632	)			(98,406	)
Variable rate instruments
Financial assets			460,482				378,690
Financial liabilities			(5,533	)			(6,006	)
			454,949				372,684

Fair value sensitivity analysis for fixed rate instruments

The Group 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 profit or loss.

Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2010.

 

		Profit or loss								Equity
		100bp increase $’000				100bp decrease $’000				100bp increase $’000				100bp decrease $’000
30 June 2011
Variable rate instruments			(61	)			61				—				—
Cash flow sensitivity (net)			(61	)			61				—				—
30 June 2010
Variable rate instruments			(107	)			107				—				—
Cash flow sensitivity (net)			(107	)			107				—				—

 

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Fair values

The fair values of financial assets and liabilities together with the carrying amounts shown in the statement of financial position are as follows:

 

		Carrying amount				Fair value				Carrying amount				Fair value
		2011 $’000				2011 $’000				2010 $’000				2010 $’000
Cash and cash equivalents			415,161				415,161				348,216				348,216
Trade and other receivables			842,744				842,744				284,414				284,414
Cash and deposits—not at call			45,321				45,321				30,474				30,474
Foreign currency derivative contracts:
Assets			2,772				2,772				—				—
Liabilities			—				—				(4,502	)			(4,502	)
Trade and other payables			(101,759	)			(101,759	)			(125,677	)			(125,677	)
Deferred liability for acquisition of mining interest			(5,533	)			(5,533	)			(6,006	)			(6,006	)
Finance lease liabilities			(79,780	)			(77,284	)			(93,416	)			(89,141	)
Other derivative liabilities*			—				—				(32,929	)			(32,929	)
Employee benefits			(6,997	)			(6,997	)			(5,266	)			(5,266	)
Other financial liabilities			(2,852	)			(2,852	)			(4,990	)			(4,990	)
Unrecognised gains							2,496								4,275

 

*	Refer Note 26 for details.

Estimation of fair values

The methods used in determining the fair values of financial instruments are discussed in Note 4.

Fair value hierarchy

The following table presents the Group’s financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

 

•

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

 

•

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

 

•

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

		Level  1 $’000				Level  2 $’000				Level  3 $’000				Total $’000
30 June 2011
Foreign currency derivative contracts asset			—				2,772				—				2,772
Other derivative liabilities			—				—				—				—
			—				2,772				—				2,772

 

		Level 1 $’000				Level 2 $’000				Level 3 $’000				Total $’000
30 June 2010
Foreign currency derivative contracts liability			—				4,502				—				4,502
Other derivative liabilities			—				—				32,929				32,929
			—				4,502				32,929				37,431

 

F-57

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The following table reconciles Level 3 of the fair value hierarchy from the opening balance at 1 July to the closing balance at 30 June:

 

		2011 Other  derivative liabilities $’000				2010 Other  derivative liabilities $’000
Opening balance			(32,929	)			(18,919	)
Loss recognised in profit and loss (within other expenses)			(2,121	)			(14,010	)
Settlement gain recognised in profit and loss (within other income)			35,050				—
Closing balance			—				(32,929	)

Although the Group believes that its estimate of fair value of the derivative financial instruments is appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value.

Interest rates used for determining fair value

The Group uses the government yield curve as of reporting date plus an adequate constant credit spread to discount financial instruments. The interest rates used are as follows:

 

		2011 %		2010 %
Derivatives		—		3.1 – 4.3
Deferred liability for acquisition of mining interest—Note 23		10.15		10.10
Other receivables and prepayments (deferred)—Note 16		5.50		—

29. Interests in joint venture operations

The Group holds the following interests in various joint ventures whose principal activities are coal production, exploration and evaluation, and development.

 

		Joint Venture % Interest held								Principal activity
		2011				2010
Coppabella and Moorvale Joint Venture			73.3	%			73.3	%		Coal production
Monto Coal Joint Venture			41	%(1)			41	%(1)		Exploration and evaluation
Olive Downs (South) Joint Venture			90	%			90	%		Exploration and evaluation
Moorvale West Joint Venture			90	%			90	%		Exploration and evaluation
West/North Burton Joint Venture			65	%			65	%		Exploration and evaluation
West Rolleston Joint Venture			90	%			90	%		Exploration and evaluation
West Walker Joint Venture			85	%			85	%		Exploration and evaluation
Bowen Basin Coal Joint Venture			85	%			85	%		Exploration and evaluation
Capricorn Joint Venture			85	%			85	%		Exploration and evaluation

 

(1)

The Group holds its 41% interest in the Monto Coal Joint Venture indirectly via its interest in Monto Coal 2 Pty Ltd, a jointly controlled entity. Refer Note 30 for details relating to the Group’s investment in the jointly controlled entity. The information presented in the remainder of this note excludes financial information relating to the Monto Coal Joint Venture interests.

For the year ended 30 June 2011, the contribution of the Coppabella and Moorvale Joint Venture to the operating profit before tax of the Group was $230,281,000 (2010: $213,906,000). The value of the Group’s 73.3% share of the Coppabella and Moorvale Joint Venture coal sold (pre hedging) during the year was $666,376,000 (2010: $630,264,000).

 

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There was no coal mined by the other joint ventures during the year.

Included in the assets and liabilities of the Group are the following items which represent the Group’s interest in the assets and liabilities employed in the joint ventures, recorded in accordance with the accounting policies described in Note 3(a).

 

		2011 $’000				2010* $’000
Current assets
Trade and other receivables			11,763				23,067
Inventories			38,926				49,762
Other financial assets			38,286				26,211
Overburden in advance			182,256				146,548
Total current assets			271,231				245,588
Non-current assets
Trade and other receivables			2,103				73,718
Inventories			4,368				—
Other financial assets			7,035				4,263
Property, plant and equipment			238,690				249,318
Exploration and evaluation assets			100,309				98,483
Overburden in advance			21,824				19,905
Total non-current assets			374,329				445,687
Total assets			645,560				691,275
Current liabilities
Trade and other payables			59,569				84,000
Loans and borrowings			18,740				13,890
Provisions			2,930				2,642
Other financial liabilities			2,265				2,137
Total current liabilities			83,504				102,669
Non-current liabilities
Loans and borrowings			61,040				79,526
Provisions			30,263				30,398
Other financial liabilities			587				2,853
Total non-current liabilities			91,890				112,777
Total liabilities			175,394				215,446

Refer to Notes 31 and 32 for details of commitments and contingent liabilities.

Included in the Group’s profit or loss are the following items which represent the Group’s interest in the revenue and expenses relating to the joint ventures, recorded in accordance with the accounting policies described in Note 3(a).

 

		2011 $’000				2010 $’000
Revenue			687,325				670,502
Expenses			(465,997	)			(523,022	)
Net Profit			221,328				147,480

 

*	Restated. See note 20.

 

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30. Equity accounted investees

 

		2011 $’000				2010 $’000
Investments in jointly controlled entities			241,161				338,554

The Group’s share of losses from its equity accounted investees for the year was $5,671,000 (2010: $10,934,000). During the years ended 30 June 2011 and 30 June 2010 the Group has not received any dividends in respect of its interests in equity accounted investees.

Summary financial information for equity accounted investees, not adjusted for the percentage ownership held by the Group:

 

		Middlemount Coal Pty Ltd $’000				Monto Coal 2 Pty Ltd $’000				Custom Mining Dingo Pty Ltd (in liquidation) $’000
30 June 2011
Percentage held at the reporting date			50.0003	%			80.39	%			N/A
Current assets			36,373				10,201				—
Non-current assets			362,315				61,752				—
Total assets			398,688				71,953				—
Current liabilities			(115,216	)			(504	)			—
Non-current liabilities			(263,634	)			(7,568	)			—
Total liabilities			(378,850	)			(8,072	)			—
Income			20				516				20
Expenses			(15,341	)			(1,734	)			—
Loss			(15,321	)			(1,218	)			20
30 June 2010
Percentage held at the reporting date			72.48	%			80.39	%			85.715	%
Current assets			14,668				8,177				—
Non-current assets			200,736				67,069				—
Total assets			215,404				75,246				—
Current liabilities			(182,007	)			(2,579	)			—
Non-current liabilities			—				(7,568	)			(20	)
Total liabilities			(182,007	)			(10,147	)			(20	)
Income			14,960				259				—
Expenses			(29,380	)			(414	)			—
Loss			(14,420	)			(155	)			—

 

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The principal activities of the Group’s equity accounted investees along with the Group’s share of losses for the year were as follows:

 

Group’s share  of losses

Principal activities

Reporting date

2011 $’000

2010 $’000

Custom Mining Dingo Pty Ltd (in liquidation)

Dormant

30 June

—

—

Middlemount Coal Pty Ltd and its controlled entities

Operator of Middlemount Mine project

30 June

4,692

10,810

Monto Coal 2 Pty Ltd

Participant in the Monto Coal Joint Venture

30 June

979

124

Middlemount Coal Pty Ltd and its controlled entities

During the year the Group disposed of 22.48% of Middlemount Coal Pty Ltd in accordance with the terms of the share sale agreement for the fixed consideration of $97,600,000. $52,600,000 was receivable immediately, with $45,000,000 received on 30 June 2011.

No impairment of the investment in Middlemount Coal Pty Ltd and its controlled entities at 30 June 2011 was necessary based on the recoverable amount of the Middlemount Mine project exceeding the carrying value. The recoverable amount was based on a fair value less costs to sell model as determined internally by management. The fair value was based on the discounted cash flows to be generated from the project.

The following key assumptions were used:

 

•

Cash flows based on the long-term project plan for the Middlemount Mine project taking into consideration long-term global coal pricing, anticipated operating and distribution infrastructure costs over the life of the project which was based on available coal reserves. Management believe that a discounted cash flow calculation longer than five years is appropriate given the long-term nature of the asset and the measured recoverable coal reserves.

 

•

Revenues for the 2012 financial year through to the 2014 financial year are based on internally approved cash flows, and the coal price assumptions used are consistent with the average of analyst forecasts for these periods. For the periods thereafter, revenues are determined using the average of analyst forecasts for long-term coal prices. A discount to the average analyst prices has been provided for of 5% on coking coal. No discount has been applied to PCI.

 

•

Operating and capital costs are based on current contracts and expected future costs as determined by the Group.

The values assigned to the key assumptions represented management’s assessment of future industry variables and were based on both internal and external sources of information. The impact of the Australian Government’s proposed carbon pricing mechanism has not been incorporated into the fair value model, however current modelling on the proposed impact indicates that the recoverable amount would continue to exceed the project carrying amount.

The above assumptions are sensitive in the following areas:

 

•

An increase of one percentage point in the discount rate, holding all other variables constant, would have decreased fair value less costs to sell by $32,000,000. This would not result in a material impairment.

 

F-61

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•

A five percent increase in forecast operating costs, holding all other variables constant, would have decreased fair value less costs to sell by $66,000,000. This would not result in a material impairment.

 

•

A five percent decrease in forecast future long-term coal prices, holding all other variables constant, would have decreased fair value less costs to sell by $94,000,000. This would not result in a material impairment.

Monto Coal 2 Pty Ltd

No impairment of the investment in Monto Coal 2 Pty Ltd was necessary at 30 June 2011 based on the recoverable amount of the investment exceeding its carrying value. The recoverable amount was based on its fair value less costs to sell, which was determined using recent market information for similar undeveloped coal interests and other current market information.

Custom Mining Dingo Pty Ltd

During 2011, a decision was made to liquidate Custom Mining Dingo Pty Ltd (in liquidation). Application for voluntary liquidation was made prior to 30 June 2011.

Commitments

 

		2011 $’000				2010 $’000
Share of capital expenditure commitments of jointly controlled entities payable:
Not later than one year			13,860				8,461
			13,860				8,461
Share of mining lease commitments of jointly controlled entities payable:
Not later than one year			51				83
Later than one year but not later than five years			192				250
Later than five years			392				515
			635				848
Share of operating commitments of jointly controlled entities payable:
Not later than one year			57,228				15,276
Later than one year but not later than five years			264,970				186,893
Later than five years			351,831				166,831
			674,029				369,000

Guarantees

Middlemount Coal Pty Ltd has provided guarantees in relation to rehabilitation works for a mineral development license and Wiggins Island feasibility study costs. In addition, guarantees are provided in relation to Parrot Creek quarry and diversion of the Middlemount-Dysart road.

Guarantees provided in relation to Wiggins Island feasibility study costs are secured by bank deposits of the same amounts.

Monto Coal 2 Pty Ltd has provided bank guarantees relating to Wiggins Island feasibility study costs, which are secured by bank deposits of the same amounts.

 

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31. Capital and other commitments

 

		2011 $’000				2010 $’000
(a) Capital expenditure commitments—joint ventures
Capital expenditure contracted but not provided for in the financial statements and payable:
Not later than one year			10,737				1,135
			10,737				1,135
(b) Operating lease commitments
Future operating lease rentals not provided for in the financial statements and payable:
Not later than one year			3,173				2,867
Later than one year but not later than five years			8,680				6,601
Later than five years			—				1,088
			11,853				10,556

The Group leases office equipment, cars and office space under operating leases. Lease payments for the office lease are increased every year to reflect market rentals.

During the year ended 30 June 2011, $1,318,000 was recognised as an expense in profit or loss in respect of operating leases (2010: $1,397,000).

 

		2011 $’000				2010 $’000
(c) Mining leases—joint ventures
Future mining lease rentals not provided for in the financial statements and payable:
Not later than one year			453				416
Later than one year but not later than five years			1,604				1,381
Later than five years			2,602				2,875
			4,659				4,672
(d) Exploration and evaluation expenditure
Exploration obligations
In order to maintain current rights of tenure to exploration tenements, the Group is required to perform minimum exploration work to meet the minimum expenditure requirements specified by various State governments. The expenditure obligations are subject to renegotiation when application for a mining lease and/or renewal of exploration permits is made and at other times. These obligations are not provided for in the financial statements and are payable:
Not later than one year			1,364				797
Later than one year but not later than five years			2,419				132
			3,783				929
(e) Operating commitments—joint ventures
Commitments under the electricity, water, rail, port, coal washing plant, train loading facility and accommodation agreements for joint ventures not provided for in the financial statements and payable:
Not later than one year			142,232				143,195
Later than one year but not later than five years			375,190				428,004
Later than five years			282,802				439,713
			800,224				1,010,912

 

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In addition to the operating commitments in (e) above, other contracts on commercial terms and conditions have been entered into with contractors for overburden and mining operations at the Coppabella and Moorvale mines and with original owners regarding royalty arrangements at both the Coppabella and Moorvale mines. As the amounts payable under the contracts vary with the coal quantities mined and sold, future commitments are not able to be reliably assessed and quantified.

Refer Note 23 for commitments relating to finance leases of the Group.

On 23 October 2002, the Coppabella and Moorvale Joint Venture participants agreed to pay a user charge to the Queensland Government for the facilitation of the transport infrastructure corridor (TIC) relocation. The user charge comprises 40 quarterly payments (2011: Group share of $596,000 per quarter; 2010: $596,000 per quarter), commencing 1 October 2002, which have been included in the above operating commitments less the amounts payable for future user charges recognised at 30 June 2011 (refer Note 26).

(f) Other commitments

Land Purchase

In May 2011, Macarthur Coal Limited entered a put and call option deed with the intention of purchasing property for future mining operations. The deed allows Macarthur Coal Limited the right to purchase the land for a total of $75 million with $60 million upfront and the remaining $15 million subject to the timing of certain milestones. A security deposit of $7.5 million paid by Macarthur Coal Limited is included in current other receivables and prepayments at balance date (refer Note 16). The transaction remained subject to ministerial approval under Land Act 1992 (Qld) at 30 June 2011 and has therefore not been recognised in the financial results at balance date.

Macarthur Coal Limited intend to exercise their right to purchase the land under the option deed and sale agreement. The $60 million upfront payment less the $7.5 million security deposit will be due and payable within seven days after the satisfaction of the approval conditions which is expected to occur within the first half of the 2012 financial year.

Joint Ventures

Deeds of cross charge

 

(i)

The payment of future cash calls by Coppabella Coal Pty Ltd, a controlled entity, for its share of operating and capital costs in the Coppabella and Moorvale Joint Venture is secured by a guarantee from the Company and a charge over Coppabella Coal Pty Ltd’s interest in the Coppabella and Moorvale Joint Venture in favour of the other joint venturers and Macarthur Coal (C&M Management) Pty Ltd as the manager of the Coppabella and Moorvale Joint Venture.

 

(ii)

The payment of future cash calls by Monto Coal 2 Pty Ltd, an equity accounted investee, for its share of operating and capital costs in the Monto Coal Joint Venture is secured by a charge over Monto Coal 2 Pty Ltd’s interest in the Monto Coal Joint Venture in favour of the other joint venturers.

 

(iii)

The payment of future cash calls by Olive Downs Coal Pty Ltd, a controlled entity, for its share of operating and capital costs in the Olive Downs (South) Joint Venture is secured by a charge over Olive Downs Coal Pty Ltd’s interest in the Olive Downs (South) Joint Venture in favour of the other joint venturers.

 

(iv)

The payment of future cash calls by Capricorn Coal Pty Ltd, a controlled entity, for its share of operating and capital costs in the Capricorn Joint Venture is secured by a charge over Capricorn Coal Pty Ltd’s interest in the Capricorn Joint Venture in favour of the other joint venturers.

 

F-64

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(v)

The payment of future cash calls by West Burton Coal Pty Ltd, a controlled entity, for its share of operating and capital costs in the West/North Burton Joint Venture is secured by a charge over West Burton Coal Pty Ltd’s interest in the West/North Burton Joint Venture in favour of the other joint venturers.

 

(vi)

The payment of future cash calls by West Rolleston Coal Pty Ltd, a controlled entity, for its share of operating and capital costs in the West Rolleston Joint Venture is secured by a charge over West Rolleston Coal Pty Ltd’s interest in the West Rolleston Joint Venture in favour of the other joint venturers.

 

(vii)

The payment of future cash calls by West Walker Coal Pty Ltd, a controlled entity, for its share of operating and capital costs in the West Walker Joint Venture is secured by a charge over West Walker Coal Pty Ltd’s interest in the West Walker Joint Venture in favour of the other joint venturers.

 

(viii)

The payment of future cash calls by Moorvale West Coal Pty Ltd, a controlled entity, for its share of operating and capital costs in the Moorvale West Joint Venture is secured by a charge over Moorvale West Coal Pty Ltd’s interest in the Moorvale West Joint Venture in favour of the other joint venturers.

 

(ix)

The payment of future cash calls by BB Interests Pty Ltd, a controlled entity, for its share of operating and capital costs in the Bowen Basin Coal Joint Venture is secured by a charge over BB Interests Pty Ltd’s interest in the Bowen Basin Coal Joint Venture in favour of the other joint venturers.

Jointly controlled entities and Associates

Refer Notes 30 and 34.

32. Contingencies

The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.

Indemnities

Indemnities have been provided to Directors and certain Executive Officers of the Company in respect of liabilities to third parties arising from their positions, except where the liability arises out of conduct involving a lack of good faith. No monetary limit applies to these agreements and there are no known obligations outstanding at 30 June 2011. (1)

 

(1)	These contingent liabilities are considered remote.

Guarantees

The Company provides guarantees in relation to the operations of the Group for payments in relation to leased equipment (refer Note 23), royalties, accommodation facilities and certain joint venture undertakings.

The Company provides letters of support to the associated entities listed in Note 34, to provide that each of those entities are in a position to meet debts as and when they become due and payable.

The Company has guaranteed the future commitments of Monto Coal 2 Pty Ltd, a jointly controlled entity, in relation to royalty arrangements.

The Company on behalf of its controlled entity, Coppabella Coal Pty Ltd, has provided guarantees totalling $Nil (2010: $14,660,000) in favour of a supplier.

 

F-65

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The Company, on behalf of its controlled entity, Coppabella Coal Pty Ltd, has provided a guarantee in favour of a bank in respect of payment of foreign currency derivative obligations.

The Group has provided bank guarantees totalling $13,358,000 (2010: $4,501,000) in respect of the Wiggins Island feasibility study and the Company’s Brisbane head office. These amounts are secured by bank deposits of $7,035,000 (2010: $4,263,000). (1)

Coppabella Coal Pty Ltd, a controlled entity, as a participant of the Coppabella and Moorvale Joint Venture, has provided bank guarantees totalling $59,148,000 (2010: $64,676,000) in respect of rehabilitation works, electricity, water and transport infrastructure corridor facilities. (1)

 

(1)	These contingent liabilities are considered remote.

Environmental

Current Queensland Government environment policy requires the preparation of an Environmental Management Plan (EM Plan) and a Plan of Operations detailing the quality, timing and standards of planned mine rehabilitation work. The Coppabella and Moorvale Joint Venture has prepared its EM Plan and its Plan of Operations has been accepted by the Department of Environment and Resource Management. In addition to the EM Plan and the Plan of Operations, the Group is required to lodge securities with the Department of Employment, Economic Development and Innovation to ensure compliance with relevant legislation. The total amount of the guarantees lodged with the Department of Employment, Economic Development and Innovation as at 30 June 2011 is $35,327,000 (2010: $35,251,000) (included in the amount of guarantees referred to above). (1)

 

(1)	These contingent liabilities are considered remote.

Litigation

Monto

A statement of claim was delivered to Monto Coal Pty Ltd, a wholly owned member of the Group, and Monto Coal 2 Pty Ltd, an equity accounted investee, on 1 October 2007 from the minority interest holders in the Monto Coal Joint venture, being Sanrus Pty Ltd, Edge Developments Pty Ltd and H & J Enterprises (Qld) Pty Ltd alleging that Monto Coal 2 Pty Ltd breached the Monto Coal Joint Venture Agreement and Monto Coal Pty Ltd breached the Monto Coal Management Agreement.

An additional statement of claim was delivered to Macarthur Coal Limited on 23 November 2010 from the same minority interest holders in the Monto Coal Joint Venture, alleging that Macarthur Coal Limited induced Monto Coal 2 Pty Ltd and Monto Coal Pty Ltd to breach the Monto Coal Joint Venture Agreement and the Monto Coal Management Agreement respectively.

The statement of claim seeks damages from the three defendants collectively of no less than $1,193,200,000 plus interest and costs.

Monto Coal Pty Ltd is the manager of the Monto Coal Joint venture pursuant to the Management Agreement. Monto Coal 2 Pty Ltd holds a 51% interest in the Monto Coal Joint Venture.

The Directors of the Group (and the Manager) dispute the claims and will vigorously defend their position.

The Directors’ remain of the opinion disclosure of any further information about the above matter would be prejudicial to the interests of the Group.

MDL 162

Following successful completion of the Institutional Placement on 26 August 2010, Macarthur Coal Limited entered into a loan facility agreement with MCG Coal Holdings Pty Ltd, MCG Coal Pty Ltd, MCG Resources Pty Ltd and Fortrus Resources Pty Ltd (the “MCG Companies”) on 1 September 2010 to provide MCG Coal Holdings Pty Ltd with $360 million to finalise the purchase of MDL 162 from Stanwell Corporation. Macarthur Coal Limited agreed to subscribe for 90% of the shares in MCGH for $334.35 million. The transaction was expected to be completed on 10 May 2011.

 

F-66

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Non-performance by the other party to the transaction, has resulted in Macarthur Coal Limited commencing litigation for specific performance under the loan facility agreement. The original loan amount is classified as a loan receivable pending the outcome of ongoing legal proceedings.

The matter has been set down for trial for 10 days, commencing 30 January 2012.

33. Group entities

 

		Ownership interest
		2011 %				2010 %
Parent entity
Macarthur Coal Limited
Subsidiaries
Coppabella Coal Pty Ltd			100				100
Macarthur Coal Management Pty Ltd			100				100
Macarthur Coal Mine Management Pty Ltd			100				100
Macarthur Rush Pty Ltd			100				100
Moorvale Coal Pty Ltd (in liquidation)			100	*			100
Macarthur Coal (Equipment) Pty Ltd			100				100
Monto Coal Pty Ltd			100				100
Macarthur Exploration Pty Ltd			100				100
Olive Downs Coal Pty Ltd			100				100
Queensland Coke & Energy Pty Ltd			100				100
Capricorn Coal Pty Ltd			100				100
West Burton Coal Pty Ltd			100				100
West Rolleston Coal Pty Ltd			100				100
West Walker Coal Pty Ltd			100				100
Moorvale West Coal Pty Ltd			100				100
BB Interests Pty Ltd			100				100
Custom Mining Pty Ltd			100				100
Custom Mining Management Pty Ltd			100				100
Custom Management Services Pty Ltd			100				100
Custom Mining (Monto) Pty Ltd			100				100
Macarthur Coal Performance Share Plan Trust			100				100
Macarthur Coal Financing Pty Ltd			100				—
Macarthur Berrigurra Pty Ltd			100				—

All subsidiaries were incorporated and carry on business in Australia.

 

*	Moorvale Coal Pty Ltd (in liquidation) was placed into voluntary liquidation on 9 August 2011.

 

F-67

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34. Investments in associated entities

 

								Interest held
		Principal activities		Reporting date				2011 %				2010 %
Macarthur Coal (C&M Management) Pty Ltd (1)		Manager of the Coppabella and Moorvale Joint Venture			30 June				73.3				73.3
Bistrotel Pty Ltd (1)		Property Owner			30 June				73.3				73.3
Macarthur Coal (C&M Equipment) Pty Ltd (1)		Equipment Finance			30 June				73.3				73.3

 

(1)

Investments in these entities are held in connection with joint venture arrangements. Under these arrangements, the Group does not have control over these associated entities, and accordingly have not been consolidated. The impact of the results and operations of these associated entities are not material to the Group and accordingly have not been equity accounted.

35. Acquisitions and disposals of subsidiaries and joint venture interests

Acquisitions

There were no acquisitions in the current or prior year.

Disposals

On 30 June 2011, the Group completed the partial disposal of the Codrilla project. The Group held an 85% interest in the project through its participation in the Bowen Basin Coal Joint Venture. Following the sell-down into the CMJV the Group’s interest in the project was effectively reduced to 73.3%. The total consideration receivable from external parties, at present value, is $69.8 million, and is due in three instalments 20% receivable on contract completion, 40% receivable on granting of the mining lease and 40% due on first railing. The sale is unconditional and backstop dates are applicable to the timing of payments. The Group recognised a profit (before tax) on disposal of $68,812,000 for the year ended 30 June 2011.

Effect of Disposal

The disposal had the following effect on the Group’s assets and liabilities for the year ended 30 June 2011:

 

		Pre-disposal Carrying Amount $’000				Fair Value Adjustment $’000				Recognised values on disposal $’000
Codrilla exploration and evaluation asset			7,474				—				7,474
Net identifiable assets and liabilities			7,474				—				7,474
Carrying value of interest disposed											1,029
Consideration received, satisfied in cash											14,976
Consideration receivable (i)											59,904
Total cash consideration received/receivable											74,880

 

(i)	The consideration has been discounted to fair value at the completion date of $54.9 million based on a discount rate of 5.5%.

 

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36. Reconciliation of cash flows from operating activities

 

		Consolidated
		2011 $’000				2010 $’000
Cash flows from operating activities
Profit for the year			241,390				125,064
Adjustments for:
Depreciation and amortisation			30,566				31,279
Share-based payments			(40	)			425
Amounts reversed from provisions			(1,434	)			(4,475	)
Unrealised foreign exchange losses			429				1,142
Interest on loans and borrowings			8,786				8,072
Interest on unwinding of discount			2,429				4,097
Interest on deferred income			(1,236	)			—
Loss on disposal of property, plant and equipment			152				42
(Gain)/loss on partial disposal of interest in equity accounted investee			(44,148	)			1,641
Gain on sale of partial disposal of mining project			(84,201	)			—
Change in fair value of other derivative liabilities			2,121				14,010
Share of loss of equity accounted investees			5,671				10,934
Operating profit before changes in working capital			160,485				192,231
Decrease in income tax payable			(34,096	)			(3,557	)
Decrease/(increase) in net deferred tax liabilities/assets			14,605				(12,353	)
Decrease/(increase) in trade and other receivables			24,747				(35,975	)
Decrease/(increase) in inventories			6,468				(5,963	)
(Increase)/decrease in overburden in advance			(37,627	)			3,501
(Decrease)/increase in trade and other payables			(18,544	)			38,197
Increase in employee benefits			1,731				1,047
Net cash from operating activities			117,769				177,128

37. Related parties

Key Management Personnel Disclosures

The Key Management Personnel of the Group are those people responsible for planning, directing and controlling the activities of the Group throughout the year. The KMP include:

 

•

Non-Executive Directors – there were six (2010: six) Non-Executive Directors during the year

 

•

Senior Executives – as at 30 June 2011, there were seven (2010: five) Senior Executives including the Chief Executive Officer (CEO) and Managing Director (MD), Nicole Hollows

 

•

Former Executives – there are two (2010: two) Former Executives who were senior executives for part of the year.

 

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The following were key management personnel of the Group at any time during the year and unless otherwise indicated were Key Management Personnel for the entire year.

 

KEY MANAGEMENT PERSONNEL
DEFINED TERM				NAME		POSITION		DATE APPOINTED
				30 June 2011 and 30 June 2010
				Keith DeLacy		Chairman, Independent, Non-Executive Director		5 July 2001 Resigned: effective 26 October 2011
				Roger Marshall		Deputy Chairman, Independent, Non-Executive Director (2010: Deputy Chairman, Non-Executive Director)		5 July 2001 Resigned: effective 26 October 2011
NON-EXECUTIVE DIRECTORS				Peter Forbes		Independent, Non-Executive Director		14 November 2003 Resigned: effective 26 October 2011
				Chen Zeng		Non-Executive Director		23 July 2007 Resigned: effective 26 October 2011
				Martin Kriewaldt		Independent, Non-Executive Director		13 October 2008 Resigned: effective 26 October 2011
				Terry O’Reilly		Independent, Non-Executive Director		13 October 2008 Resigned: effective 26 October 2011
EXECUTIVES		SENIOR EXECUTIVES		30 June 2011
				Nicole Hollows		Chief Executive Officer Managing Director		CEO: 7 January 2007 MD: 28 June 2007 Resigned: effective 26 October 2011
				Gary Lee		Vice President, Marketing Chief Development Officer		19 January 2004 Effective from 1 September 2010
				Lisa Dalton		EGM Corporate Services & Company Secretary		24 May 2007
				Graham Yerbury		Chief Financial Officer		6 September 2010
				Rodney Dyer		EGM Projects		16 November 2010
				Scott Croger		Vice President, Marketing		1 September 2010
				Allan Fidock		EGM Operations		1 February 2011
				30 June 2010
				Nicole Hollows		Chief Executive Officer Executive Director		CEO: 7 January 2007 MD: 28 June 2007
				Peter Kane		Chief Operating Officer		18 February 2008
				Gary Lee		Vice President, Marketing		19 January 2004
				Lisa Dalton		EGM Corporate Services & Company Secretary		24 May 2007
				Michael Gray		EGM Projects & Infrastructure		20 July 2009
		FORMER EXECUTIVES		30 June 2011
				Michael Gray		EGM Projects & Infrastructure		20 July 2009 Appointed: CEO of Middlemount effective 15 September 2010
				Peter Kane		Chief Operating Officer		18 February 2008 Resigned: effective 18 February 2011
				30 June 2010
				Stuart Hatton		Chief Financial Officer		Appointed: 18 August 2008 Resigned: 30 October 2009
				Shane Stephan		Chief Development Officer		Appointed: 12 February 2001 Resigned: 21 August 2009

 

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Changes in Key Management Personnel subsequent to 30 June 2011

The following changes occurred subsequent to 30 June 2011, but prior to the issue of these Financial Statements.

On 26 October 2011 the following Directors and the Chief Executive Officer resigned:

 

Keith DeLacy (Director, Chairman)
Roger Marshall (Director)
Peter Forbes (Director)
Chen Zeng (Director)
Martin Kriewaldt (Director)
Terry O’Reilly (Director)
Nicole Hollows (Chief Executive Officer and Managing Director)

On 26 October 2011 the following Directors and Chief Executive Officer were appointed:

 

Eric Ford (Director, Chairman)
Julian Thornton (Director and Chief Executive Officer)
Michael C. Crews (Director)
Paul Dowd (Director) — subsequently resigned on 21 December 2011
John M. Spark (Director) — subsequently resigned on 21 December 2011

Key management personnel compensation

The Key Management Personnel compensation included in ‘personnel expenses’ (see Note 9) are as follows:

 

		2011 $				2010 $
Short-term employee benefits			5,580,036				4,045,484
Other long-term benefits			53,820				143,745
Post-employment benefits			282,757				240,407
Share-based payments (1)			782,485				1,190,124
			6,699,098				5,619,760

 

(1)	Includes shares provided to Directors as part of compensation and expense during the year relating to performance rights to Executives.

 

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Directors’ and Executive Officers’ Remuneration

Details of the nature and amount of each major element of remuneration of each Director of the Group and each relevant Group Executive are:

 

						Short term																Post employment benefits - superannuation				Long term employee benefits				Termination benefits				Share-based payment								Total				Proportion of remuneration performance related				Value of options and rights as a proportion of remuneration
						Salary & fees				STI cash bonus				Non- monetary benefits				Total																Shares				Options and rights1
						$				$				$				$				$				$				$				$				$				$
Directors
Non-Executive
Keith DeLacy
			2011				82,951				—				13,736				96,687				15,382				—				—				145,039				—				257,108				0	%			0	%
			2010				82,569				—				10,100				92,669				7,431				—				—				146,353				—				246,453				0	%			0	%
Roger Marshall
			2011				59,633				—				13,736				73,369				5,367				—				—				114,189				—				192,925				0	%			0	%
			2010				59,633				—				8,650				68,283				5,367				—				—				146,353				—				220,003				0	%			0	%
Peter Forbes
			2011				87,156				—				13,736				100,892				7,844				—				—				114,850				—				223,586				0	%			0	%
			2010				73,394				—				9,744				83,138				6,605				—				—				146,138				—				235,881				0	%			0	%
Chen Zeng
			2011				50,459				—				13,736				64,195				4,541				—				—				114,189				—				182,925				0	%			0	%
			2010				50,459				—				8,650				59,109				4,541				—				—				146,353				—				210,003				0	%			0	%
Martin Kriewaldt
			2011				59,633				—				13,736				73,369				5,367				—				—				113,195				—				191,931				0	%			0	%
			2010				50,459				—				9,744				60,203				4,541				—				—				121,674				—				186,418				0	%			0	%
Terry O’Reilly
			2011				60,084				—				13,736				73,820				30,750				—				—				114,189				—				218,759				0	%			0	%
			2010				15,992				—				8,650				24,642				49,008				—				—				121,674				—				195,324				0	%			0	%
Executive
Nicole Hollows - Chief Executive Officer
			2011				1,049,315				775,390				49,755				1,874,460				25,000				20,572				—				—				68,217				1,988,249				25	%			3	%
			2010				749,246				774,450				43,699				1,567,395				25,000				123,535				—				—				158,897				1,874,827				39	%			8	%
Total Remuneration - All Directors
			2011				1,449,231				775,390				132,171				2,356,792				94,251				20,572				—				715,651				68,217				3,255,483
			2010				1,081,752				774,450				99,237				1,955,439				102,493				123,535				—				828,545				158,897				3,168,909

 

1	Remuneration in the form of share-based payments includes negative amounts for performance rights forfeited during the year.

 

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Directors’ and Executive Officers’ Remuneration (continued)

 

						Short term																Post employment benefits - superannuation				Long term employee benefits				Termination benefits				Share-based payment								Total				Proportion of remuneration performance related				Value of options and rights as a proportion of remuneration
						Salary & fees				STI cash bonus				Non- monetary benefits				Total																Shares				Options and rights1
						$				$				$				$				$				$				$				$				$				$
Executives
Gary Lee - Chief Development Officer, Macarthur Coal Limited
			2011				377,425				197,018				16,300				590,743				50,000				13,593				—				—				26,558				680,894				15	%			4	%
			2010				346,189				164,385				10,152				520,726				49,999				8,077				—				—				61,347				640,149				24	%			10	%
Lisa Dalton - Executive General Manager Corporate Services and Company Secretary, Macarthur Coal Limited
			2011				295,035				204,505				60,591				560,131				25,000				6,686				—				—				17,056				608,873				15	%			3	%
			2010				313,319				170,080				23,170				506,569				25,000				3,393				—				—				32,489				567,451				25	%			6	%
Graham Yerbury - Chief Financial Officer, Macarthur Coal Limited
(Appointed 06/09/2010)
			2011				296,775				51,681				16,250				364,706				33,646				—				—				—				53				398,405				13	%			0	%
			2010				—				—				—				—				—				—				—				—				—				—				0	%			0	%
Rodney Dyer - Executive General Manager Projects, Macarthur Coal Limited
(Appointed 16/11/2010)
			2011				245,677				79,225				12,163				337,065				10,821				—				—				—				59				347,945				23	%			0	%
			2010				—				—				—				—				—				—				—				—				—				—				0	%			0	%
Scott Croger - Vice President Marketing, Macarthur Coal Limited
(Appointed 01/09/2010)
			2011				276,048				99,940				15,138				391,126				20,833				8,768				—				—				4,404				425,131				11	%			1	%
			2010				—				—				—				—				—				—				—				—				—				—				0	%			0	%
Allan Fidock - Executive General Manager Operations, Macarthur Coal Limited 2
(Appointed 01/02/2011)
			2011				294,411				132,150				66,859				493,420				25,000				4,201				—				—				5,903				528,524				8	%			1	%
			2010				—				—				—				—				—				—				—				—				—				—				0	%			0	%
Former Executives
Michael Gray - Executive General Manager, Projects and Infrastructure, Macarthur Coal Limited
(Appointed 20/07/09)
(Appointed CEO Middlemount 15/09/2011)
			2011				57,977				64,683				11,888				134,548				5,246				—				—				—				13,592				153,386				18	%			9	%
			2010				246,334				104,111				44,945				395,390				23,672				5,774				—				—				36,138				460,974				17	%			8	%
Peter Kane - Chief Operating Officer, Macarthur Coal Limited
(Resigned 18/02/2011)
			2011				280,358				56,250				14,897				351,505				17,960				—				—				—				(69,008	)			300,457				(23	%)			(23	%)
			2010				422,442				213,075				22,351				657,868				25,000				2,966				—				—				78,997				764,831				27	%			10	%
Stuart Hatton - Chief Financial Officer, Macarthur Coal Limited
(Resigned 30/10/2009)
			2011				—				—				—				—				—				—				—				—				—				—				0	%			0	%
			2010				127,810				—				7,367				135,177				10,356				—				—				—				(6,289	)			139,244				(5	%)			(5	%)
Shane Stephan - Chief Development Officer, Macarthur Coal Limited
(Resigned 21/8/2009)
			2011				—				—				—				—				—				—				—				—				—				—				0	%			0	%
			2010				114,331				—				1,434				115,765				3,887				—				—				—				—				119,652				0	%			0	%

 

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Directors’ and Executive Officers’ Remuneration (continued)

 

						Short term																Post employment benefits - superannuation				Long term employee benefits				Termination benefits				Share-based payment								Total				Proportion of remuneration performance related		Value of options and rights as a proportion of remuneration
						Salary & fees				STI cash bonus				Non- monetary benefits				Total																Shares				Options and rights1
						$				$				$				$				$				$				$				$				$				$
Total Remuneration - Executives
			2011				2,123,706				885,452				214,086				3,223,244				188,506				33,248				—				—				(1,383	)			3,443,615
			2010				1,570,425				651,651				109,419				2,331,495				137,914				20,210				—				—				202,682				2,692,301

 

1	Remuneration in the form of share-based payments includes negative amounts for performance rights forfeited during the year.

2	While KMP from 1 February 2011, bonuses have been disclosed for the full 12 month period given Mr Fidock is one of the five highest paid earners of the Group, as required to be disclosed under the Corporations Act 2001.

Principles of Non-Executive Director Remuneration

Remuneration levels for Non-Executive Directors are set to reflect the demands on the Directors and the responsibility they carry and to align with time commitments expected of them in carrying out their role.

Components of Non-Executive Director Remuneration

The various components of remuneration for Non-Executive Directors are outlined below:

Aggregate Remuneration Amount

The aggregate remuneration permitted to be paid to Non-Executive Directors that has been approved by shareholders at the AGM in November 2008 is $1.6 million per annum.

Components of Non-Executive Director Remuneration

Remuneration for Non-Executive Directors consists of:

 

•

Board Fees as remuneration for Board membership with Chairman responsibilities earning an additional amount.

 

•

Committee Fees as remuneration for Committee membership with Committee Chairman responsibilities earning an additional amount.

 

•

Macarthur Coal Shares accrued on a daily basis, purchased on market after the announcement of the half year and full year financial results of the Company.

Base Fees

Non-Executive Directors’ fees are determined by the Nomination and Remuneration Committee (NRC) and set by the Board and fall within the aggregate amount approved by the shareholders. Current fees for Directors, which have remained unchanged since 2007 are:

 

•

Chairman $70,000 per annum

 

•

Non-Executive Director $45,000 per annum

Committee Fees

Committee fees are determined by the NRC and set by the Board and also fall within the aggregate amount approved by shareholders. Increases in Committee Fees for the Chairmen of the Audit and Risk Management Committee, the Nomination and Remuneration Committee and the Special Projects Committee were approved in 2010.

 

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Board committee

 

		Chairman $ per  annum								Member $ per  annum
		2011				2010				2011				2010
Audit and Risk Management Committee			30,000				15,000				15,000				10,000
Nomination and Remuneration Committee			20,000				10,000				10,000				10,000
Special Projects			20,000				10,000				10,000				10,000
Due Diligence Committee			—				10,000				—				N/A

Macarthur Coal Shares

Non-Executive Directors are also entitled to receive 10,000 (2010: 10,000) shares per annum and the Chairman 15,000 (2010: nil) shares per annum to strengthen alignment with shareholder interests pursuant to the Directors’ Share Plan. A Director’s entitlement to shares accrues on a daily basis and will generally be allocated to a Director after the announcement of the half year results and the full year results. The shares are purchased on market in appropriate trading windows. Shares purchased are not subject to disposal restrictions. If a Director ceases to be a Director of the Company and has an outstanding entitlement to be allocated shares, either the shares will be acquired in the Director’s name or the Director will receive a cash equivalent for the value of the shares, at the Board’s discretion. Directors receive their entitlement to shares irrespective of Company performance.

Superannuation

Statutory superannuation contributions are made on behalf of Non-Executive Directors in accordance with the law. Fees set out above include any superannuation payable.

Other Fees/Benefits

The Company’s Constitution permits:

 

•

Additional fees to be paid to Non-Executive Directors for additional services. Since 1 December 2010 Terry O’Reilly has been paid additional fees of $30,000 per annum as a nominee of the Company on the Board of Middlemount Coal Pty Ltd. (2010: $nil).

 

•

Non-Executive Directors to be reimbursed for all business related expenses including travel in the discharge of their duties. Permitted reimbursements were made during the year.

 

•

In addition:

 

•

non-cash benefits including superannuation contributions above the statutory amount are able to be salary sacrificed. There are no retirement benefits in place and the Company does not make sign-on payments to new Directors

 

•

the Company contributed to professional development activities for some Non-Executive Directors during the year

 

•

there were no performance-based remuneration amounts paid or options granted to Non-Executive Directors during the year.

Principles of Executive Remuneration (Including Managing Director Remuneration)

Macarthur Coal’s Board approved Remuneration Policy is designed to facilitate the alignment of individual performance with the Company’s goals and the creation of shareholder value. The key elements of the Remuneration Policy include:

 

•

remuneration practices that are fairly and responsibly structured to attract and retain talented team members and to motivate them to achieve both near term and longer term success

 

•

reward arrangements that comprise appropriate performance linked incentives based on financial and non-financial performance measures that are relevant to the business and connected to the individual’s actual accountabilities

 

•

remuneration outcomes that are competitively positioned against the appropriate market, taking into consideration the individual’s role, Corporate, group and individual performance and relevant market conditions.

 

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Components of Executive Remuneration

Executive remuneration for the 2011 and 2010 financial years had two key components:

 

Remuneration component		Elements		Details
Fixed Annual Remuneration (Base Salary Plus Statutory Superannuation)		Annual base salary is generally reviewed at the end of each financial year and applicable from 1 July each year		Annual base salary can be structured as a cash benefit and/or non-cash benefit including salary sacrifice packaging and the fringe benefits tax applicable to the packaging.
		Statutory superannuation contributions		Statutory % of base salary.
Performance Linked Remuneration		Short Term Incentive (STI)		Assessment based on annual performance at a corporate and individual level.
		Long Term Incentive (LTI)		Assessment based on creation of shareholder value over a three year performance period. The performance period for performance rights forming part of executives remuneration in 2009 concluded on 30 June 2011 and shares under the LTI Plan for the 2009 performance rights will be purchased on market in the trading window after the release of the 2011 results (2010: The performance period for the first tranche of performance rights awarded to Executives ended 30 June 2010 and shares under LTI Plan for the 2008 performance rights will be purchased on market in the trading window after the release of the 2010 results). Refer below for further information on the performance hurdles and the awards to be made under the LTI Plan in the 2011 financial year.

The fixed and performance linked components of remuneration varies for each Executive. The proportions of remuneration for each of the Executives that are linked to performance and those that are fixed are summarised in the table below.

Macarthur Coal Limited

 

		Fixed remuneration												Performance linked remuneration
		Base salary + superannuation												Short term incentive												Long term incentive
		2011				2010								2011				2010								2011				2010
		2011 %				2010 %				2011 %				2011 %				2010 %				2011 %				2011 %				2010 %				2011 %
Senior Executives
Nicole Hollows			47.6	%			47.6	%			47.6	%			28.6	%			28.6	%			28.6	%			23.8	%			23.8	%			23.8	%
Gary Lee			62.4	%			62.4	%			62.4	%			18.8	%			18.8	%			18.8	%			18.8	%			18.8	%			18.8	%
Lisa Dalton			62.4	%			62.4	%			62.4	%			18.8	%			18.8	%			18.8	%			18.8	%			18.8	%			18.8	%
Graham Yerbury			62.4	%			—				—				18.8	%			—				—				18.8	%			—				—
Rodney Dyer			52.6	%			—				—				26.3	%			—				—				21.1	%			—				—
Scott Croger			71.4	%			—				—				14.3	%			—				—				14.3	%			—				—
Allan Fidock			71.4	%			—				—				14.3	%			—				—				14.3	%			—				—
Peter Kane			—				55.6	%			55.6	%			—				22.2	%			22.2	%			—				22.2	%			22.2	%
Michael Gray			—				71.4	%			66.7	%			—				14.3	%			33.3	%			—				14.3	%			0	%

 

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The information provided for 2010 allows comparisons between the 2010 financial year and what was put in place for the 2011 financial year. When STI Targets (that are performance linked over a one-year period) and LTI (performance targets over a three-year period) are met, then the amount of performance linked remuneration increases reflecting the Board’s objective to reward arrangements that comprise appropriate performance linked incentives based on financial and non-financial performance measures that are relevant to the business and connected to the individual’s actual accountabilities.

Total Fixed Remuneration (TFR)

The Total Fixed Remuneration for each Executive and employee is reviewed annually based on the individual’s performance and effectiveness, the Group’s circumstances and the indicative market levels of fixed and total reward for comparable roles from salary survey information provided by remuneration consultants. Salary increases for Executives are approved by the Nomination and Remuneration Committee. Any salary increase for the CEO requires approval of the Non-Executive Directors.

In 2011, all staff including Executives underwent a review of their performance and where appropriate, and in accordance with the principles in the Remuneration Policy, increases in total fixed remuneration were made to be effective from 1 July 2011.

At the commencement of the 2010 financial year, as a result of the economic conditions, the Board determined that salaries for Senior Executives would remain unchanged unless there was a role change, an anomalous situation or a contractual obligation.

In March 2010:

 

•

Nicole Hollows received a remuneration review after the Board commissioned an external benchmark and review by Mercer of the CEO’s remuneration.

 

•

Lisa Dalton received a remuneration review as a result of taking on an expanded role within the organisation and following receipt of the Mercer remuneration benchmark report.

Most employees received a remuneration review in December 2009 driven by a tightening of the job market because of the economic recovery.

At the end of the 2010 financial year, all staff, including Executives underwent a review of their remuneration for the 2011 financial year in accordance with the principles in the Remuneration Policy.

Short Term Incentive Plan (STIP)

The goal of the Short Term Incentive Plan is to focus attention on short term strategic and financial objectives. The quantum of the award varies based on the year’s accomplishments, corporate, group and individual performance as well as a person’s position and level of responsibility.

The STIP provides employees with an opportunity to earn an amount that is additional to their TFR. The additional amount is performance linked and underpinned by the employees’ role and responsibility.

For the 2010 financial year, the Group enhanced its STIP to better align the incentive to overall Group performance so that if the Group performed well, all employees could receive part of the reward. A key component of the STIP was the establishment of Corporate Short Term Incentive (STI) Targets aligning the STIP payments to the achievement of Corporate, Group and individual performance measures, a move away from the previous policy where STI Targets were centred primarily around individual performance.

Corporate, Group and individual performance targets were set for each executive and linked to corporate strategy and each Executive’s area of responsibility. The targets and potential reward outcomes are designed to encourage Executives to strive for exceptional performance while demonstrating leadership in the Group’s values and culture. The Board retains an overall discretion on whether to pay all, a portion of, or no STI.

A summary of the STIP in operation for the 2011 and 2010 financial years was as follows:

Corporate Short Term Incentive Targets

Corporate STI Targets were developed and applied across the business. The corporate STIs for all employees were linked to the critical areas of safety, profit and cost. Executives and Senior Leaders in the business had additional Corporate STIs applicable to people and culture.

 

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Group/Individual Short Term Incentive Targets

Specific group/individual STI Targets were also put in place to ensure the Group continued to drive superior individual performance relative to a person’s position and level of responsibility. Each individual had between two to four STI Targets in addition to the Corporate STI Targets.

Mine Site – Short Term Incentive Targets

To ensure the workforce and site staff were working towards the achievement of the budgeted production targets safely, a group STI Target structure for the individual portion of the STIs for the minesite was implemented. The group STI structure included safety, environmental, profit and production targets. This approach aligned achievement of minesite targets and was supported by the inter-dependence of departments on the site i.e. Production/Maintenance/Technical Services.

Maximum STI Entitlement

Short Term Incentive entitlements as a maximum percentage of total fixed remuneration for 2011 and 2010 were:

 

POSITION		2011				2010
CEO and Managing Director			60	%			60	%
Senior Executives			20-50	%			20-40	%
Other executives and senior leaders			10-20	%			10-20	%
Employees			10	%			10	%

Retention Bonuses

Discretionary Bonuses awarded by the Board in 2010

During 2010 the Company negotiated and entered into agreements with Noble Group Limited, Gloucester Coal Limited and the CITIC Group to acquire:

 

•

100% of Gloucester Coal Ltd (“Gloucester”) through an off-market takeover offer

 

•

Noble Group Limited’s (“Noble”) interest in the Middlemount JV, taking Macarthur’s ownership to 100% including all marketing rights for Middlemount product

 

•

CITIC Resources Holdings Limited’s (“CITIC Resources”) direct interests in the Coppabella and Moorvale Joint Venture and intention to terminate marketing rights to China and India

A small project team was established within Macarthur Coal to oversee these transactions, including the negotiation and finalisation of agreements for these transactions. In recognition of the efforts of this project team, including additional hours worked, the Board awarded a discretionary bonus of up to 10% of Total Fixed Remuneration to members of the project team including the CEO and Company Secretary. The transactions subsequently were not consummated and were impacted by change of control proposals received by the Company prior to completion.

Retention Plan established by the Board

In 2010, a retention plan was established by the Board following a period of intense corporate activity. The retention plan was put in place to mitigate the real risk of a talent exodus from the business caused by the period of corporate activity which included four change of control proposals from Peabody Energy Corporation and two change of control proposals from New Hope Corporation. The retention plan provided a financial incentive for staff to stay and work towards continuation of business at Macarthur Coal. For KMP, the retention plan consisted of a cash incentive linked to TFR for remaining in the employment of the Group for a 12 month period ending 31 March 2011. The retention plan met its objectives with a voluntary retention rate for the 2011 financial year of 90%.

 

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Analysis of Bonuses Included in Remuneration

30 June 2011

Details of the retention bonuses and the vesting profile of the STI cash bonuses awarded as remuneration to each of the relevant group executives are detailed below.

 

Executives		Retention bonus				Short term incentive bonus
		Included in remuneration1 $				Included in remuneration2 $				STI vested  in year %				STI forfeited  in year3 %
Nicole Hollows			343,750				431,640				65	%			35	%
Gary Lee			121,875				75,143				58	%			42	%
Lisa Dalton			128,125				76,380				67	%			33	%
Graham Yerbury			—				51,681				53	%			47	%
Rodney Dyer			—				79,225				59	%			41	%
Scott Croger			56,250				43,690				64	%			36	%
Allan Fidock4			93,750				38,400				48	%			52	%
Michael Gray5			50,285				14,398				65	%			35	%

 

1

Amounts relate to balance of Retention Plan expense to be recognised in the 2011 financial year being approved in the prior financial year. For recognition purposes the expense relating to the Retention Plan has been recognised over the retention period of 1 April 2010 to 31 March 2011 however full retention payments were made during the 2011 financial year.

2	Amounts included in remuneration for the financial year represent that amount that vested in the financial year based on achievement of STI Targets. No amounts vest in future years in respect of the bonus scheme for the 2011 financial year.

3	The amounts forfeited are due to some STI targets not being met in relation to the current financial year.

4	While KMP from 1 February 2011, bonuses have been disclosed for the full 12 month period given Mr Fidock is one of the five highest paid earners of the Group, as required to be disclosed under the Corporations Act 2001.

5	Bonus awarded on pro-rata basis for the period Mr Gray was KMP subject to performance measures being met.

30 June 2010

Details of the vesting profile of the STI cash bonuses awarded as remuneration and the Discretionary Bonuses awarded by the Board to each of the relevant Group Executives as detailed below.

 

Short Term Incentive and Discretionary Bonuses 2010
Executives		Included in remuneration1,5 $				STI vested  in year %				STI forfeited  in year2 %
Nicole Hollows			774,450	3			77				23
Peter Kane			213,075				72				28
Gary Lee			164,385				78				22
Lisa Dalton			170,080	4			80				20
Michael Gray			104,111				68				32

 

1	Amounts included in remuneration in the financial year represent that amount that vested in the financial year based on achievement of STI Targets. No amounts vested in future years in respect of the bonus scheme for the 2010 financial year.

2	The amounts forfeited are due to some STI Targets not being met in relation to the current financial year.

3	Includes discretionary bonus awarded by the Board of $60,000 (10% of TFR) in January 2010.

4	Includes discretionary bonus awarded by the Board of $29,500 (10% of TFR) in January 2010.

5	Amounts include pro-rata allocation of Retention Plan amounts to 30 June 2010.

 

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Summary of Long Term Incentive Plan (LTIP)

LTIP Objective

The LTIP was established in the 2009 financial year. The LTIP is an equity-based incentive designed to provide Executives and other nominated senior leaders (participants) with the incentive to deliver long-term growth in shareholder value. The LTIP grant to each participant is determined based on the strategic importance of the participant in creating shareholder value.

Participants

The CEO, Senior Executives and other Senior Leaders nominated by the Board, are eligible to participate in the LTIP. There were nine (2010: nine) employees remaining as active participants in the plan at year end.

Performance Rights

Since the establishment of the plan, eligible participants receive performance rights on an annual basis, subject to the approval of the NRC. However, there were no rights issued under the plan during the 30 June 2010 financial year pending a restructure of the plan. The percentages of TFR entitlement for participants under the LTIP is set out in the following table:

 

Long Term Incentive Plan Grant (Maximum % Of TFR)
Position		2011				2010
CEO			50	%			50	%
Senior Executives			20-40	%			20-40	%
Senior Leaders			10-20	%			10-20	%

The number of performance rights granted to participants is equivalent to the relevant percentage of TFR determined by the NRC divided by the Volume Weighted Average Share Price of Macarthur Coal shares in a period determined by the NRC (2010: generally the first five trading days of July in the year that performance rights were granted).

Performance rights are granted at no cost to the participants. Each performance right granted entitles a participant to one ordinary share in the Company, subject to satisfaction of performance conditions set by the Board and NRC in respect of the grant, over a performance period of three financial years.

Performance Conditions

The extent to which performance rights will vest, and shares are allocated to participants, is subject to performance conditions based on the following three measures of Company performance (over the relevant three year performance period):

 

Proportion of performance rights to which performance measure applies		Performance measure
30%		Growth in the Company’s Earnings Per Share (EPS)
50%		Total Shareholder Return (TSR) relative to companies in the ASX S&P 300 Accumulation Index
20%		Return on Invested Capital (ROIC)

 

 

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Why These Targets Were Selected

The Board selected the performance measures on the basis that they provide:

 

•

alignment between comparative shareholder return and reward for participants and a relative, external, market based performance measure against similar comparator companies (TSR)

 

•

a relevant indicator of measuring increases in shareholder value (EPS)

 

•

suitable line of sight to encourage performance by the participants.

Earnings Per Share

Thirty percent of performance rights granted to a participant will vest based on growth in the Company’s EPS over the three-year performance period. For any performance rights subject to the EPS hurdle to vest, the Company’s EPS growth must be at least equal to the base target set by the NRC. For all the performance rights subject to the EPS hurdle to vest, the Company’s EPS growth must be at least equal to the stretch target set by the NRC. For the performance rights granted in respect of the current plan, the base and stretch targets for EPS growth and the related vesting schedule, are as follows:

 

Average annual growth in EPS over three year performance period		Percentage of performance rights subject to EPS hurdle that  vest
EPS growth below base target of 10% per annum		Nil
EPS growth at least equal to base target of 10% per annum but below stretch target of 15% per annum		50%
EPS growth at least equal to stretch target of 15% per annum		100%

Total Shareholder Return

Fifty percent of performance rights granted to a participant will vest based on the Company’s TSR, that is, share price growth and reinvested dividends relative to the TSRs of companies in the ASX S&P 300 Accumulation Index (as at the start of the performance period) over the three year performance period. For the performance rights granted in respect of the current plan, the TSR performance condition applies as follows:

 

Macarthur Coal TSR Performance Over Three Year Performance Period Relative To Constituents Of ASX S&P 300 Accumulation Index		Percentage Of Performance Rights Subject To TSR Hurdle That Vest
Less than the 50th percentile		Nil
At the 50th percentile		50%
Greater than the 50th percentile up to the 75th percentile		50% plus 2% for every one percentile increase in Macarthur Coal’s relative position
At or greater than the 75th percentile		100%

Return on Invested Capital (ROIC)

Twenty percent of the performance rights granted to a participant will vest based on the Company’s Return on Invested Capital (ROIC) performance over the three year performance period.

For any performance rights subject to the ROIC hurdle to vest, the Company’s average ROIC must be at least equal to the base target set by the NRC. For all the performance rights subject to the ROIC hurdle to vest, the Company’s average ROIC must be at least equal to the stretch target set by the NRC.

 

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The performance rights granted in respect of the current plan, the base and stretch targets for ROIC, and the related vesting schedule, are as follows:

 

Average annual ROIC achieved over three year performance period		Percentage of performance rights subject to                  ROIC hurdle that vest
ROIC below base target of 12%		Nil
ROIC at least equal to base target of 12% but below stretch target of 15%		50%
ROIC at least equal to stretch target of 15%		100%

Assessment Of Performance

For 2011, assessment of performance is made by the Board at the end of each performance period. For the performance rights granted in respect of the 2009 financial year, the Board assessed performance against the TSR, EPS growth and ROIC performance hurdles.

For 2010, assessment of performance is made by the Board following finalisation of financial statements for the last financial year of the relevant three year performance period. For the performance rights granted in respect of the 2008 financial year, the Board assessed performance against the TSR, EPS growth and ROIC performance hurdles following finalisation of the financial statements for the year ending 30 June 2010.

Shares Acquired Under LTIP

Shares to be allocated to participants under the LTIP (to the extent that performance rights vest) are acquired on market, avoiding dilution of shareholder equity. The shares are placed in trust for participants until such time as the participants request to have the shares transferred from the trust. No consideration is payable by the participants to be allocated the shares on vesting of rights or on transfer of shares from the trust. Shares carry full dividend and voting rights upon allocation to participants.

Change of Control

The Board has discretion to determine that some or all of the performance rights granted to participants that have not vested will vest in the event of a change of control of the Company.

Cessation of Employment

If a nominated participant’s employment ceases, before performance rights have vested, the participant will normally forfeit the performance rights, unless the participant dies or ceases employment in special circumstances e.g. as a result of redundancy or because the participant has become totally and permanently disabled. In addition to these guidelines, the Board has discretion to determine if other circumstances exist that result in the performance rights not being forfeited. In such cases, the extent to which any unvested performance rights will vest will be determined at the discretion of the Board.

Summary of Performance Rights Granted

The terms and conditions of each performance right affecting remuneration in the current or a future reporting period are as follows:

30 June 2011

 

Grant date		Tranche		Vesting date		Fair value of grant		Performance achieved
14 October 2008		FY09		30 June 2011		$3.55		50%1
29 June 2009		FY10		30 June 2012		$5.44		To be determined
30 June 2011		FY11		30 June 2013		$7.31		To be determined

 

1	Relates to the average percentage of performance rights vested across the three performance hurdles. Refer below for detailed assessment of the outcome of each LTIP performance hurdle.

30 June 2010

 

Grant date		Tranche		Vesting date		Fair value of grant		Performance achieved
14 October 2008		FY08		30 June 2010		$5.31		85%1
14 October 2008		FY09		30 June 2011		$3.55		To be determined
29 June 2009		FY10		30 June 2012		$5.44		To be determined

 

1	Relates to the average percentage of performance rights vested across the three performance hurdles. Refer below for detailed assessment of the outcome of each LTIP performance hurdle.

 

 

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Outcome of Assessment of LTIP Performance Hurdles for Performance Rights

Performance rights granted under the LTIP relating to the 2009 financial year (2010: 2008 financial year) had a vesting date of 30 June 2011 (2010: 30 June 2010). Following is an assessment of the performance hurdles of EPS, ROIC and TSR for the performance period 1 July 2008 to 30 June 2011 (2010: 1 July 2007 to 30 June 2010):

Earnings Per Share

The percentage of the 2009 Performance Rights (2010: 2008 Performance Rights) linked to the EPS hurdle subject to vest is determined by the growth in EPS from the financial year immediately prior to the start of the Performance Period (base year) to the final financial year of the Performance Period, measured against specified EPS targets.

As the EPS for the 2008 financial year (2010: 2007 financial year) (the ‘base year’) was 36.6 (2010: 35.5) cents per share, the minimum EPS required for the 2011 financial year (2010: 2010 financial year) to each respective base and stretch target is as follows:

 

Target		Annual EPS growth		Percentage of performance rights subject to vest		Minimum EPS at vesting date to meet target
						2011		2010
Base target		Equal to or greater than 10% but below stretch target of 15%		50%		48.7 cents		47.3 cents
Stretch target		Equal to or greater than 15%		100%		55.7 cents		54.0 cents

The average annual growth rate along with the percentage of rights vested, based on 2011 and 2010 financial years results is shown in the tables below:

 

30 June 2011

 

Vesting date

Base year EPS (FY08)

2011 NPAT

2011 weighted Average no. of shares on issue1

EPS at 30 June 2011

Average annual growth

% of Rights subject to vest

30 June 2011

36.6 cents

$241,390,000

291,686,234

82.8 cents

31.25%

100%

 

1	EPS is calculated on weighted average number of shares on issue during the year

 

30 June 2010

 

Vesting date

Base year EPS (FY07)

2010 NPAT

2010 weighted Average no. of shares on issue

EPS at 30 June 20101

Average annual growth

% of Rights subject to vest

30 June 2010

35.5 cents

$125,064,000

253,680,737

49.3 cents

11.6%

50%

 

1	EPS is calculated on weighted average number of shares on issue during the year

Return on Invested Capital (ROIC)

For the 2009 Performance Rights (2010: 2008 Performance Rights), the ROIC over the three-year vesting period along with the calculated annual average over the period is assessed. The base target is an average annual ROIC of 12% and the stretch target is an average annual ROIC of 15%.

For this purpose, ROIC is calculated using the following formula:

 

ROIC		=		Earnings before interest and tax
				Interest bearing debt + Shareholders equity

 

 

F-83

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Assessment of ROIC is summarised in the tables below.

30 June 2011

The outcome of 17.2% is above the stretch target of 15% and therefore 100% of the rights attached to the ROIC hurdle vested for the 2009 Performance Rights.

 

Performance Period		EBIT $’000				Debt + equity $’000				Actual ROIC at 30 June				% of rights subject to vest
2009			247,836				1,116,898				22.2	%
2010			170,841				1,228,017				13.9	%
2011			309,022				1,878,746				16.4	%
Annualised average			242,566				1,407,904				17.2	%			100	%

30 June 2010

The estimated outcome of 17.3% is above the stretch target of 15% and therefore 100% of the rights attached to the ROIC hurdle vested for the 2008 Performance Rights.

 

Vesting Period		EBIT $’000				Debt + Equity $’000				Actual ROIC at 30 June				% of Rights subject to vest
2008			114,006				738,991				15.4	%
2009			247,836				1,116,898				22.2	%
2010			170,841				1,228,017				13.9	%
Annualised Average			177,561				1,027,969				17.3	%			100	%

Total Shareholder Return (TSR)

For the 2009 Performance Rights (2010: 2008 Performance Rights), TSR was calculated by an independent third party comparing Macarthur Coal’s TSR performance against a comparator group listed in the S&P ASX 300 Index as at the start of the Performance Period (1 July 2008) (2010: 1 July 2007). The comparator group comprised 295 (2010: 295) companies.

The companies in the comparator group were ranked by their TSR performance:

 

•

50% of the relative TSR portion of the 2008 Performance Rights were to vest if Macarthur Coal ranked at the median of the peer group

 

•

100% were to vest if Macarthur Coal ranked at the upper quartile or above of the peer group

 

•

In the event that the TSR was between the median and the upper quartile of the comparator companies, the level of vesting was to be 50% plus 2% for every one percentile increase in Macarthur Coal’s relative position.

In the period 1 July 2008 to 30 June 2011, Macarthur Coal achieved a TSR of -40.707% and ranked at the 40^th percentile. The negative TSR during the three-year period was, in part, the result of sustained impacts of the global financial crisis on global equity markets. In the case of Macarthur Coal, the reduction in TSR was accentuated as the Company was subject to takeover speculation during the first half of 2008. Based on the percentile ranking, none of the TSR portion of the 2009 Performance Rights vested on 30 June 2011.

In the period 1 July 2007 to 30 June 2010, Macarthur Coal achieved a TSR of 93.7% and ranked at the 98.4^th percentile. Based on the percentile ranking, 100% of the TSR portion of the 2008 Performance Rights vested on 30 June 2010.

 

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Vesting Profiles of Performance Rights

A summary of vesting profiles of the performance rights granted as remuneration to each of the key management personnel of the Group are detailed below:

 

30 June 2011		Rights granted								Vested								Forfeited1								Value of  rights forfeited2
		No.				Tranche				No.				%				No.				%				$
Key Management Personnel
Nicole Hollows			FY09 FY10 FY11				19,218 47,543 45,342				9,609 —   —				50 —   —				9,609 —   —				50 —   —				105,219 —   —
Gary Lee			FY09 FY10 FY11				7,495 18,542 10,635				3,748 —   —				50 —   —				3,748 —   —				50 —   —				41,041 —   —
Lisa Dalton			FY09 FY10 FY11				3,997 13,074 9,398				1,999 —   —				50 —   —				1,999 —   —				50 —   —				21,889 —   —
Graham Yerbury			FY11				7,997				—				—				—				—				—
Rod Dyer			FY11				8,862				—				—				—				—				—
Scott Croger			FY11				4,946				—				—				—				—				—
Allan Fidock3			FY11				2,473				—				—				—				—				—
Former Executives
Peter Kane4			FY09 FY10				11,531 28,526				—   —				—   —				11,531 28,526				100 100				142,523 352,581
Michael Gray5			FY09 FY10 FY11				3,844 9,509 1,217				1,922 —   —				50 —   —				1,922 —   —				50 —   —				21,046 —   —
Stuart Hatton6			FY09 FY10				6,558 18,542				—   —				—   —				6,558 18,542				100 100				56,333 159,276

 

1	The number and % forfeited in the year represents the reduction from the maximum number of rights available to vest due to performance criteria not being achieved or where an Executive has resigned and therefore forfeited the rights.

2	Value of rights forfeited are based on the number of rights forfeited at the closing share price on 30 June 2011.

3

Allan Fidock was appointed to Executive General Manager Operations on 1 February 2011 and was therefore considered to be one of the key management personnel from that date. Given that Mr Fidock was one of the top five earners in the Group (section 300A(1)(c) of the Corporations Act 2001) for the 2011 financial year, remuneration has been disclosed for the full 12 months.

4	Peter Kane resigned effective 18 February 2011. The value of rights forfeited is based on the closing share price on 18 February 2011.

5

Michael Gray was appointed to the position of CEO of Middlemount Coal Pty Ltd on 15 September 2010 and was no longer a key management personnel of the Macarthur Coal Group from that date. Mr Gray was awarded performance rights for the 2011 financial year based on the period he was a key management personnel of the Group.

6	Stuart Hatton resigned effective 30 October 2009. The value of rights forfeited is based on the closing share price on 30 October 2009.

 

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30 June 2010		Rights granted								Vested								Forfeited1								Value of  rights forfeited2
		No.				Tranche				No.				%				No.				%				$
Key Management Personnel
Nicole Hollows			27,548				FY08				23,416				85				4,132				15				50,080
			19,218				FY09				—				—				—				—				—
			47,543				FY10				—				—				—				—				—
Peter Kane			9,297				FY08				7,902				85				1,395				15				16,907
			11,531				FY09				—				—				—				—				—
			28,526				FY10				—				—				—				—				—
Gary Lee			10,468				FY08				8,898				85				1,570				15				19,028
			7,495				FY09				—				—				—				—				—
			18,542				FY10				—				—				—				—				—
Lisa Dalton			3,361				FY08				2,857				85				504				15				6,108
			3,997				FY09				—				—				—				—				—
			13,074				FY10				—				—				—				—				—
Michael Gray			7,438				FY08				6,322				85				1,116				15				13,526
			3,844				FY09				—				—				—				—				—
			9,509				FY10				—				—				—				—				—
Former Executives
Stuart Hatton3			6,558				FY09				—				—				6,558				100				56,333
			18,542				FY10				—				—				18,542				100				159,276
Shane Stephan4			10,468				FY08				—				—				10,468				100				93,165
			7,495				FY09				—				—				7,495				100				66,706

 

1	The number and % forfeited in the year represents the reduction from the maximum number of rights available to vest due to performance criteria not being achieved or where an Executive has resigned and therefore forfeited the rights.

2	Value of rights forfeited are based on the number of rights forfeited at the closing share price on 30 June 2010.

3	Stuart Hatton resigned effective 30 October 2009. The value of rights forfeited is based on the closing share price on 30 October 2009.

4	Shane Stephan resigned effective 21 August 2009. The value of rights forfeited are based on the closing share price on 21 August 2009.

Individual Directors and Executives compensation disclosures

No Director has entered into a material contract with the Group since the end of the previous financial year and there were no material contracts involving Directors’ interests existing at the reporting date.

CEO and executive employment contracts

The Group has entered into employment contracts with each executive. Each contract provides for participation in the STIP and LTIP, subject to the Board’s discretion and has an open term, subject to rights of termination given to the employee and the Group. A summary of the key provisions of the employment contracts for the former CEO and senior executives is set out in the following tables:

 

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30 June 2011

 

NOTICE TO BE GIVEN BY EXECUTIVE

NOTICE TO BE GIVEN BY GROUP1

MAXIMUM TERMINATION PAYMENT2

OTHER PAYMENTS3

Nicole Hollows

3 months

12 months

12 months (termination) 24 months (redundancy)

No

Gary Lee

3 months

3 months

12 months (redundancy)

No

Lisa Dalton

3 months

3 months

12 months (redundancy)

No

Graham Yerbury

3 months

3 months

12 months (redundancy)

No

Rodney Dyer

3 months

3 months

12 months (redundancy)

No

Scott Croger

3 months

3 months

12 months (redundancy)

No

Allan Fidock

2 months

3 months

12 months (redundancy)

No

 

 

1

Payments may be made in lieu of notice period; Executives can also be terminated without notice for gross misconduct; The Executives are also entitled to receive, on termination of employment, their statutory entitlements of accrued annual and long-service leave, together with any superannuation benefits.

 

2

The CEO’s contract of employment specifies a 12-month termination payment and in the event that the CEO is made redundant, an entitlement to a 12-month redundancy payment in addition to the 12-month termination payment (total 24-month redundancy payment) as approved by Shareholders in 2010. Executives (other than the CEO) do not have a contractual right to a termination payment above their notice period except in the case of redundancy. Should an executive (other than the CEO) become redundant, they are entitled to a severance payment equivalent to three weeks pay pro-rata for each year of continuous service provided that the severance payment will be a minimum of 26-weeks pay and a maximum of 52-weeks pay. Note that in all contracts, the Group retains the right to terminate the employment contract without notice for gross misconduct.

 

3	Other payments include housing allowances, motor vehicle allowances and relocation allowances.

30 June 2010

 

NOTICE TO BE GIVEN BY EXECUTIVE

NOTICE TO BE GIVEN BY GROUP1

MAXIMUM TERMINATION PAYMENT2

OTHER PAYMENTS3

Nicole Hollows

3 months

12 months

12 months (termination) 24 months (redundancy)

No

Peter Kane

3 months

3 months

12 months (redundancy)

No

Gary Lee

3 months

3 months

12 months (redundancy)

No

Lisa Dalton

3 months

3 months

12 months (redundancy)

No

Michael Gray

3 months

3 months

12 months (redundancy)

No

 

1

Payments may be made in lieu of notice period; Executives can also be terminated without notice for gross misconduct; The Executives are also entitled to receive, on termination of employment, their statutory entitlements of accrued annual and long-service leave, together with any superannuation benefits.

 

2

The CEO’s contract of employment specifies a 12-month termination payment and in the event that the CEO is made redundant, an entitlement to a 12-month redundancy payment in addition to the 12-month termination payment (total 24-month redundancy payment) as approved by Shareholders in 2010. Executives (other than the CEO) do not have a contractual right to a termination payment above their notice period except in the case of redundancy. Should an executive (other than the CEO) become redundant, they are entitled to a severance payment equivalent to three weeks pay pro-rata for each year of continuous service provided that the severance payment will be a minimum of 26-weeks pay and a maximum of 52-weeks pay. Note that in all contracts, the Group retains the right to terminate the employment contract without notice for gross misconduct.

 

3	Other payments include housing allowances, motor vehicle allowances and relocation allowances.

 

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Equity instruments

Performance rights may be issued pursuant to the Long Term Incentive Plan. Refer Note 24 for further details.

Options and rights over equity instruments

There were no options held by Key Management Personnel at any time during the year (2010: nil). There was no movement during the reporting period in the number of options over ordinary shares in Macarthur Coal Limited held, directly, indirectly or beneficially, by each key management person, including their related parties (2010: nil). No options held by Key Management Personnel are vested but not exercisable at 30 June 2010 or 2011. As at 30 June 2011, a number of performance rights held by Key Management Personnel of the Group vested, but had not been settled. Shares purchased in September 2010 and remain held in trust at 30 June 2011 relating to vested performance rights at 30 June 2010 were 49,395 (2010: nil). Refer to Note 24 ‘Share-based payments – Long Term Incentive Plan’ for further details. In addition, detailed remuneration disclosures are provided above.

Movements in shares

The movement during the year in the number of ordinary shares in Macarthur Coal Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

 

		Held at 1 July 2010				Acquisitions				Received on exercise of options or rights(4)				Disposals				Held at 30 June 2011
Directors
Keith De Lacy			221,740				12,500	(2)			—				—				234,240
Roger Marshall			171,740				10,000	(3)			—				—				181,740
Peter Forbes			69,740				10,000	(3)			—				—				79,740
Chen Zeng			27,500				10,000	(3)			—				(7,000	)			30,500
Martin Kriewaldt			15,680				11,323	(3)			—				—				27,003
Terry O’Reilly			247,984				17,500	(3)			—				—				265,484
Nicole Hollows			14,500				440				23,416				—				38,356
Executives
Gary Lee			3,682				—				8,898				—				12,580
Lisa Dalton			—				—				2,857				—				2,857
Graham Yerbury(1)			1,000				2,872				—				—				3,872
Rod Dyer(1)			—				—				—				—				—
Scott Croger(1)			—				—				—				—				—
Allan Fidock(1)			—				45				—				—				45
Michael Gray(1)			4,341				902				6,322				—				11,565
Peter Kane(1)			14,052				—				7,902				—				21,954

 

(1)

Shareholding information for Key Management Personnel who were not Key Management Personnel for the whole year is only for that portion of the year during which they held a key management position. For the purposes of this table, shares held at appointment are assumed to have been held at 1 July and shares held at termination are assumed to be held at 30 June, with any acquisitions or disposals prior to appointment or after termination not shown.

(2)	Includes 12,500 shares granted as compensation being 5,000 shares relating to the second tranche of shares for the 2010 year and 7,500 shares for the first tranche of shares relating to the 2011 financial year.

(3)	Includes 10,000 shares granted as compensation being 5,000 shares relating to the second tranche of shares for the 2010 year and 5,000 shares for the first tranche of shares relating to the 2011 financial year.

(4)

Shares were granted to Key Management Personnel during the course of the year in accordance with the long term incentive plan. The shares relate to vested performance rights and are placed in trust until such time as the employees elect to have the shares transferred out of the trust. There were 49,395 shares purchased by the trust in 2011 (2010: nil).

Shares are granted to Directors in the current and prior year as application of Directors’ fees as detailed in Note 3(l).

 

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The movement during the previous year in the number of ordinary shares in Macarthur Coal Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

 

		Held at 1 July 2009				Acquisitions				Received on exercise of options or rights				Disposals				Held at 30 June 2010
Directors
Keith De Lacy			304,240				17,500	(2)			—				100,000				221,740
Roger Marshall			154,240				17,500	(2)			—				—				171,740
Peter Forbes			52,240				17,500	(2)			—				—				69,740
Chen Zeng			10,000				17,500	(2)			—				—				27,500
Martin Kriewaldt			1,000				14,680	(3)			—				—				15,680
Terry O’Reilly			233,304				14,680	(3)			—				—				247,984
Nicole Hollows			14,500				—				—				—				14,500
Executives
Peter Kane			11,552				2,500				—				—				14,052
Gary Lee			3,682				—				—				—				3,682
Lisa Dalton			—				—				—				—				—
Michael Gray(1)			—				4,341				—				—				4,341
Shane Stephan(1)			5,682				—				—				—				5,682
Stuart Hatton(1)			—				—				—				—				—

 

(1)

Shareholding information for Key Management Personnel who were not Key Management Personnel for the whole year is only for that portion of the year during which they held a key management position. For the purposes of this table, shares held at appointment are assumed to have been held at 1 July and shares held at termination are assumed to be held at 30 June, with any acquisitions or disposals prior to appointment or after termination not shown.

(2)	Includes 15,000 shares granted as compensation being 10,000 shares relating to the 2009 financial year and 5,000 shares for the first tranche of shares relating to the 2010 financial year.

(3)	Includes 12,180 shares granted as compensation being 7,180 shares relating to the 2009 financial year and 5,000 shares for the first tranche of shares relating to the 2010 financial year.

Consequences of performance on shareholders’ wealth

The various components of the way the Group remunerates Executives and the achievements against specific financial and non-financial performance measures over both the short and long-term are designed to create long-term, sustained shareholder value. When setting targets and determining the quantum of remuneration increases, and the fixed and performance linked remuneration components, the Board has regard to a number of factors, including the indices in the table below, in respect of the current and previous financial years.

For 2011, over the previous four years the annualised return to a shareholder who purchased shares on 1 July 2007 ($6.77/share), was paid the dividends by the Company and sold the shares on 30 June 2011 at $10.95/share (the closing price on 30 June 2011) was 15.4%. During the same period, average key management personnel (KMP) compensation has grown by 4.5% per annum.

For 2010, over the previous 4 years:

 

•

The annualised return to a shareholder who purchased shares on 1 July 2006 ($4.48/share), was paid the dividends by the Company and sold the shares on 30 June 2010 at $12.12/share (the closing price on 30 June 2010) was 31.9%

 

•

The compound annual growth rate (CAGR) over the period for Directors fees was 28.3%

 

•

The CAGR for Executive remuneration over the period was a decrease of 7.2%

 

•

The CAGR for earnings per share over the period was a decrease of 12.3%

 

F-89

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Returns to shareholders over the entire period had exceeded the CAGR for Directors’ fees and Executive remuneration.

 

		2007				2008				2009				2010				2011
Net profit			$66,544,000				$72,684,000				$168,558,000				$125,064,000				$241,390,000
Dividends paid			$54,340,000				$19,481,000				$29,702,000				$53,410,000				$121,596,579
Change in share price			$2.29				$10.10				-$10.27				$5.52				-$1.17
Return on invested capital			13.3	%			10.0	%			16.2	%			10.7	%			12.4	%
Earnings per share (diluted)			35.5 cents				36.6 cents				79.3 cents				49.3 cents				82.7 cents
KMP remuneration			$5,625,926				$4,518,846				$4,175,631				$5,861,210				$6,699,098

Non-Key Management Personnel disclosures

Identity of related parties

The Group has related party relationships with its subsidiaries (Note 33), joint ventures (Note 29), jointly controlled entities (Note 30), associated entities (Note 34) and its Key Management Personnel (refer disclosures of Key Management Personnel on preceding pages). The Group also has a related party relationship with CITIC Australia Coal Pty Ltd and other members of the CITIC group of companies (CITIC). The related party relationship arises through CITIC’s shareholding in Macarthur Coal Limited during the 2011 and 2010 financial years and its representation on the Board of Macarthur Coal Limited during the same periods. After financial year end, CITIC ceased being a shareholder of Macarthur Coal Limited, however is still a party to several joint ventures to which members of the Macarthur Coal Group and other third parties are also members. These joint ventures undertake either exploration activities or operate working coal mines funded by cash calls in the normal course of business. Coal sales (pre-hedging) of $107,854,000 were made to CITIC during the year (2010: $72,073,000). These transactions were on an arms’ length basis. At year end, there were no outstanding receivables from CITIC (2010: $Nil).

Associates

Macarthur Coal Management Pty Ltd, a controlled entity, charges management fees to Macarthur Coal (C&M Management) Pty Ltd, an associated entity, pursuant to the Management Fee Deed dated 31 August 1998. The management fee paid is equal to 0.5% of the aggregate FOB revenue paid to the Coppabella and Moorvale Joint Venture participants from the sale in aggregate of the first 2 million tonnes of coal from the Coppabella Mine in each financial year for the life of the Deed.

Macarthur Coal Mine Management Pty Ltd, a controlled entity, recharges employee expenses at cost to Macarthur Coal (C&M Management) Pty Ltd, an associated entity, and the Coppabella and Moorvale Joint Venture. The expenses are for work performed by Macarthur Coal Mine Management Pty Ltd staff in relation to the Coppabella and Moorvale mine activities. Expenses totalling $56,163,000 (2010: $44,484,000) were charged to Macarthur Coal (C&M Management) Pty Ltd and Coppabella and Moorvale Joint Venture during the year.

The Company recharges employee and administration expenses at cost to Macarthur Coal (C&M Management) Pty Ltd, an associated entity, and the Coppabella and Moorvale Joint Venture. The expenses are for administration costs and work performed by Company staff in relation to Coppabella and Moorvale mine activities. Expenses totalling $32,728,000 (2010: $24,944,000) were charged to Macarthur Coal (C&M Management) Pty Ltd and the Coppabella and Moorvale Joint Venture during the year.

 

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Macarthur Coal (C&M Equipment) Pty Ltd, an associated entity, recharges lease expenses, interest and depreciation expenses at cost to Macarthur Coal (C&M Management) Pty Ltd, an associated entity, and the Coppabella and Moorvale Joint Venture. The expenses are associated with mining equipment used in relation to Coppabella and Moorvale mine activities. Expenses totalling $19,133,000 (2010: $19,133,000) were charged to Macarthur Coal (C&M Management) Pty Ltd and the Coppabella and Moorvale Joint Venture during the year. The Group has a 73.3% interest in this joint venture.

The aggregate amounts receivable and payable by the Group from non-Director related parties are shown in Notes 16 and 22.

Jointly controlled entities

Custom Mining Pty Ltd, a controlled entity, makes contributions to Middlemount Coal Pty Ltd for the purposes of funding the activities of the Middlemount Coal project, in line with the shareholders’ agreement. Contributions totalling $109,682,000 were made during the year (2010: $52,696,000). An additional amount of $180,000 (2010: $906,000) was advanced to Middlemount Coal Pty Ltd by the Company to fund other corporate costs.

The Company has a related entity payable to Monto Coal 2 Pty Ltd of $23,944,000 (2010: $29,518,000), which is payable to cover costs related to the development of stage 1 of the Monto Coal Joint Venture.

 

38. Parent entity disclosures

As at, and throughout, the financial years ending 30 June 2011 and 2010 the parent company of the Group was Macarthur Coal Limited.

 

		Company
		2011 $’000				2010 $’000
Result of the parent entity
Profit for the period			137,433				125,182
Other comprehensive income			—				—
Total comprehensive income for the period			137,433				125,182
Financial position of parent entity at year end
Current assets			461,398				424,040
Total assets			2,036,403				1,065,997
Current liabilities			275,822				44,318
Total liabilities			692,008				277,710
Total equity of the parent entity comprising of:
Share capital			1,253,923				713,420
Reserves			167				399
Retained earnings			90,305				74,468
Total Equity			1,344,395				788,287

Litigation

Refer to Note 32 for details of litigation faced by the Company.

 

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		Company
		2011 $’000				2010 $’000
Parent Entity Commitments for Operating Leases
Future operating lease rentals not provided for in the financial statements and payable:
Not later than one year			3,173				2,867
Later than one year but not later than five years			8,680				6,601
Later than five years			—				1,088
			11,853				10,556

 

		Company
		2011 $’000				2010 $’000
Parent Entity Commitments on behalf of joint ventures
Commitments under the electricity, water, rail, and port agreements for joint ventures not provided for in the financial statements and payable:
Not later than one year			42,468				32,437
Later than one year but not later than five years			154,099				175,270
Later than five years			141,043				276,478
			337,610				484,185

Guarantees

The Company has provided bank guarantees totalling $333,000 (2010: $422,000) in respect of the Company’s Brisbane head office. These amounts are secured by bank deposits to the value of $333,000 (2010: $333,000) (1)

 

(1)	These contingent liabilities are considered remote.

Refer to Note 32 for details of other guarantees provided by the Company.

39. Subsequent events

On 11 July 2011, Macarthur Coal Limited announced that it had received a non-binding indicative and conditional proposal from PEAMCoal Pty Ltd (“PEAMCoal”) a Company jointly controlled by Peabody Energy Corporation and ArcelorMittal S.A. under which, subject to due diligence and other matters, PEAMCoal would make a takeover bid for all of the issued shares in Macarthur Coal Limited.

On 4 August 2011 Macarthur Coal Limited received a bidder’s statement from PEAMCoal, containing the terms of a conditional proposal to bid for all of the issued ordinary shares in Macarthur Coal Limited at a price of A$15.50 per share. PEAMCoal subsequently increased the offer to $16.00 per share with a further $0.25 per share if Peabody Energy Corporation reached the compulsory acquisition threshold of 90% of acceptances.

The initial PEAMCoal offer opened on 18 August 2011 and following a number of extensions closed on 25 November 2011. The offer became unconditional on 25 October 2011 with PEAMCoal Limited acquiring 59.86% controlling interest in Macarthur Coal Limited shares. Subsequently ArcelorMittal S.A. elected to sell its interest in PEAMCoal to Peabody Energy Corporation, which will result in Peabody Energy Corporation owning 100% of the shares in PEAMCoal. Nominees of PEAMCoal were appointed to Macarthur Coal’s Board on 26 October 2011. PEAMCoal announced on 16 November 2011 that it had obtained 90% of acceptances to begin the compulsory acquisition process to acquire the remaining outstanding shares of Macarthur Coal Limited. This process is expected to be completed by 31 December 2011.

In light of the above developments, the Directors of Macarthur Coal Limited resolved that the Dividend Reinvestment Plan would not operate for the 2011 final dividend.

 

F-92

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Directors’ Declaration

 

1.	In the opinion of the Directors of Macarthur Coal Limited (‘the Company’):

 

a)

the Financial Statements set out on pages F-2 to F-92 present fairly in accordance with Australian Accounting Standards:

 

(i)

the financial position of the Group as at 30 June 2011 and 30 June 2010; and

 

(ii)

the financial performance and cash flows of the Group for the years ended 30 June 2011 and 30 June 2010;

 

b)

the Financial Statements also comply with International Financial Reporting Standards as disclosed in Note 2(b); and

 

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.

Dated at Brisbane this 22nd day of December 2011.

Signed in accordance with a resolution of the Directors:

/s/ Julian Thornton

Julian Thornton Director and Chief Executive Officer

 

F-93

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Independent Auditor’s Report

The Board of Directors

Macarthur Coal Limited

We have audited the accompanying consolidated statements of financial position of Macarthur Coal Limited and subsidiaries as of 30 June 2011 and 30 June 2010 and the related consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years ended 30 June 2011 and 30 June 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Macarthur Coal Limited and subsidiaries as of 30 June 2011 and 30 June 2010, and the results of their operations and their cash flows for the years then ended in conformity with Australian Accounting Standards. The consolidated financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

/s/ KPMG

KPMG

Brisbane

22 December 2011

 

 

F-94