ABN GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES INTERIM FINANCIAL REPORT 31 DECEMBER 2011

Transcription

1 ABN GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES INTERIM FINANCIAL REPORT 31 DECEMBER 2011

2 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES DIRECTORS REPORT Your directors present their report together with the consolidated financial report for the half-year ended 31 December 2011 and the auditor s review report thereon. DIRECTORS The Directors of the Company during or since the end of the half-year are: Name & Qualifications Period of Directorship Mr George F Jones (AM) Director since September Resigned as Chairman 31 August 2009 B.Bus, FCIS, FAICD Re-appointed as Chairman 29 June 2010 Non-Executive Chairman Mr Timothy C Netscher Independent Non-Executive Director September 2010 BSc, BCom, MBA, FIChE, CEng, MAICD Managing Director and CEO April 2011 Managing Director and CEO Mr Michael J O Neill Director since April 2006 Dip Bus Admin, SFFin, FAICD Independent Non-Executive Director Mr Yu Wanyuan Director since June 2009 B.Eng Non-Executive Director Mr Chen Ping Director since June 2009 B.Eng Non-Executive Director Mr Shao AnLin Director since March 2011 PhD Non-Executive Director Mr Robin Marshall Director since December 2010 I. Eng, MAICD Independent Non Executive Director Mr Paul Hallam Appointed 14 December 2011 BE (Hons) Mining, AICD, Grad Cert Mineral Economics Independent Non Executive Director Mr Wang Heng Resigned 18 August 2011 M.Eng Non-Executive Director 1

3 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES DIRECTORS REPORT Karara Storage shed and Berth 7 at Geraldton Port 2

4 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES DIRECTORS REPORT Review of Operations Key events for the half year to 31 December 2011: Significant progress was achieved with construction of the Karara Iron Ore Project, with a total of $1.82 billion spent on development. Construction costs remained within the $2.57 billion estimate and all primary infrastructure remains on schedule to be completed ahead of the processing plant. The first test shipment of magnetite concentrate is scheduled for the September Quarter, Australian content currently makes up more than 90 per cent of the construction cost, including $1.3 billion spent in Western Australia and $154 million in the Mid West region, continuing the Company s exemplary record in this area. Under Karara s Local Preference Policy more than 290 local businesses from the Mid West region have been engaged by Karara Mining Limited ( KML ). AGC Industries Pty Ltd was selected as the lead supplier for delivery of the Structural, Mechanical and Piping (SMP) works, with work continuing during the reporting period on construction of the main concentrator buildings, mechanical installations, erection of structural steel, and installation of piping and conveyors. Approximately 10 workers are currently engaged in construction of the Karara Project. Shipments of piping from KML s Thai supplier are tracking well to the revised schedule following disruptions caused by extensive flooding in that country. Construction of the Karara rail spur was substantially completed with commissioning scheduled for the March Quarter, per cent of the towers for the 330kV power transmission line were erected and aerial stringing of the line was approximately one-third complete by the end of the reporting period. The transmission line is scheduled to be handed over for commissioning and connection to the South West Interconnected System (SWIS) by the end of the March Quarter, Karara s water licence was granted during the reporting period. The water pipeline has been completed and commissioned. Substantial progress was achieved with construction of port infrastructure at Geraldton Port, which is scheduled to be commissioned during the March and June Quarters of ,000 tonnes of hematite Direct Shipping Ore (DSO) was mined during the reporting period from the Karara South, Karara East and Blue Hills North deposits. 77,000t of magnetite ore was mined from Karara South and Karara East and stockpiled. 278,000 tonnes of hematite DSO was shipped during the half year, including 15 combined shipments with Sinosteel Midwest Corporation totalling 266,000 tonnes of lump and fines. In addition, KML provided the first-ever shipment of Karara iron ore to Ansteel, with a shipment of 12,000 tonnes of hematite lump ore back-loaded onto a vessel which had delivered structural steel for the Karara Project. DSO mined but not shipped continues to be stockpiled throughout the supply chain allowing continuity of supply through the remainder of the year. During the reporting period, Gindalbie completed the final stage of its $209 million equity raising with the finalisation of a $75 million share placement to Ansteel. As at 31 December 2011, Gindalbie had cash reserves of $264.4 million and KML had cash reserves of $265.3 million. Gindalbie has nil corporate debt. Former Fortescue Metals Joint Venture senior operations executive Mr Paul Hallam was appointed as a non-executive Director, further strengthening Gindalbie s Board as it moves towards production during

5 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES DIRECTORS REPORT Results of Operations The net loss after tax for the six months ended 31 December 2011 was $13.6 million. Excluding the contribution from the Karara JV, Gindalbie Metals Ltd recorded a net profit after tax of $2.6 million, as interest income exceeded administrative expenses and depreciation for the period. Gindalbie s share of income from the Karara JV was an after tax loss of $16.2 million. Despite the fact that the JV s limited scope DSO operations recorded a small operating profit for the period, Gindalbie s share of the overall loss incurred by the joint venture, was primarily attributable to an unrealized foreign exchange loss of $16 million (after tax), resulting from the revaluation of the USD project debt facility as at 31 December This unrealized loss had no cash flow impact on the joint venture. Karara Iron Ore Project Development (Ansteel %) Gindalbie is developing the world-class Karara Iron Ore Project, located 200km east of Geraldton, in joint venture with Ansteel, China s second-largest steelmaker and biggest iron ore producer. The Project consists of a smaller-scale hematite operation plus a substantial, long-life magnetite concentrate operation with the potential to produce +30Mtpa for more than 35 years. the JV partners have committed to contribute a further $300 million in equity. Gindalbie will fund it s share of this amount ($1 million) from existing cash reserves. Completion of construction and commissioning of the project remains contingent upon securing all necessary additional funding requirements. Project Development At the end of the reporting period, a total of $1.82 billion had been spent on construction and development of the Karara Project, which remained within the $2.57 billion construction cost estimate. Australian content currently makes up more than 90 per cent of the construction cost including $1.3 billion spent in WA and $154 million in the Mid West region. The Structural, Mechanical and Piping ( SMP ) work progressed during the reporting period, with the start of structural steel installation resulting in significant changes to the landscape at Karara. Project Funding Debt and Equity As at 31 December 2011, US$1.15 billion of the US$1.2 billion Karara Project Loan Facility had been drawn down and Karara Mining Limited ( KML ) had cash reserves of $265.3 million. On 13 February 2012, KML executed the facility agreements for the US$336 million working capital facility to support the additional working capital requirements of the Karara Project announced last year. The separate US$300 million bank guarantee which is part of the rail access agreement with Brookfield Rail was issued during September Preliminary discussions have been held with China Development Bank regarding an additional debt facility to cover the expected funding shortfall in relation to the conversion of the US dollar debt facility. Equity payments totalling $160 million were made to KML by Gindalbie and Ansteel during the reporting period. As at the date of this report a total of $1.07 billion of equity has been contributed to KML, and Piping fabrication The SMP work involves the construction of the main concentrator buildings, mechanical installations, installation of structural steel, installation of piping and conveyors and completion of other items that will enable the stage wise commissioning of the concentrator to commence in the June Quarter, The SMP work is being undertaken by AGC Industries Pty Ltd and Programmed Construction and Maintenance Pty Ltd. Shipments of piping from KML s Thai supplier were interrupted by extensive flooding in Thailand, but resumed during the December 2011 Quarter and are tracking well to the revised schedule. As at the date of this report, approximately 10 people were engaged in the construction of the Karara Project. 4

6 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES DIRECTORS REPORT Port KML is investing more than $200 million on infrastructure at Geraldton Port to enable capacity of approximately 16Mtpa. This capacity will accommodate the Stage 1 production level of 10Mtpa and the anticipated Stage 2 expansion to 16Mtpa. Erection of structural steel for the storage shed at Geraldton Port was completed with the shed 84 per cent clad by the end of the reporting period. At the date of this report, all the structural steel required for the in-loading and out-loading facilities is on site and erection had commenced. Water During the reporting period, the WA Department of Water granted a water licence to the Karara Project. The licence entitles Karara to draw 5 gigalitres (Gl) of water a year from the Parmelia aquifer located at Yandanooka, near Mingenew. However, Karara will use only approximately 3Gl based on its planned Stage 1 production rate of 8Mtpa of magnetite concentrate. The full allocation of 5Gl will be sufficient to cover production of up to 12Mtpa. The Project incorporates a number of innovative water-efficient design concepts, such as dry-stacked tailings, process water recycling and grey water recycling. The 136km long water pipeline and Yandanooka bore field and pump station have been completed and commissioned. Power Transmission Line Karara Storage shed, Geraldton Port Services relocation work commenced to allow the ingoing rail construction and civil works, including the dual wagon tipper vault, were completed. The dual wagon tipper was delivered to site and is awaiting installation. 80 per cent of the piles have been driven for the construction of Berth 7. The topside modules are due to be loaded onto a heavy lift ship from Thailand by the end of January By the end of the reporting period, 81 per cent of the towers for the 330kV transmission line had been erected and aerial stringing of the line was approximately one-third complete. The transmission line is scheduled to be handed over for commissioning at 132kV by the end of the March Quarter, Negotiations with Western Power to confirm access into the South West Interconnected Service (SWIS) were completed, enabling Karara to draw power from the State grid under its 15-year supply agreement. The port infrastructure is scheduled to be commissioned in the March and June Quarters, The Port Services Agreement with Geraldton Port Authority is awaiting Ministerial approval. 5 Karara Process Water Tank

7 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES DIRECTORS REPORT Rail The rail spur remains on schedule to be commissioned in the March Quarter, All rail formation earth works have been completed, with 96 per cent of the rail laid, 93 per cent welded and ballast laid on more than two-thirds of the line. During the reporting period, KML signed a 15-year agreement with Brookfield Rail, the lease-holder and operator of the existing narrow gauge rail line that runs from Morawa to Geraldton. The agreement includes provision for Brookfield Rail to undertake an approximately $4 million upgrade to this line, including installation of dual gauge sleepers similar to those being installed on the 85km spur line. The upgrade will provide capacity for Karara s Stage 1 production of 10Mtpa and the anticipated Stage 2 expansion to 16Mtpa, which is currently the subject of a Feasibility Study. Brookfield Rail continued work on the upgrade of this line, with work scheduled to facilitate the required train paths to support initial ramp-up tonnages of ore from the Karara Project once commissioning commences in the September Quarter, The rail upgrades are expected to be progressed in line with Karara s ramp-up schedule, with full capacity reached in December Mining & Shipping Trial mining operations at the Karara South and East open pits were completed in September The trial mining of these two orebodies allowed for simultaneous pre-stripping of the magnetite orebody to occur. Crushing of the stockpiled ore was completed in November First magnetite ore from the Karara orebody was also mined during the reporting period and crushed at the Karara trial crusher operation. This material has been stockpiled to assist with the commissioning of the main processing plant. Mining operations at the Blue Hills North deposit commenced in July and completed the first half year at forecast capacity. 670,000 tonne of hematite DSO was mined during the reporting period from the Karara South, Karara East and Blue Hills North deposits. 77,000 tonne of magnetite ore was mined from Karara South and Karara East and stockpiled. Details of the hematite and magnetite ore mined, crushed and screened at all three deposits are tabled below. Numbers have been rounded to the nearest one thousand tonnes. A long-term Rail Haulage Agreement was signed on 6 June with QR National Freight s subsidiary Australian Western Railroads Pty Ltd. Unit: 000t Karara South/East Sept Qtr Sept Qtr Dec Qtr Dec Qtr Lump Fines Lump Fines Total High Grade Magnetite Magnetite High Grade Hematite Medium Grade Hematite Low Grade Hematite Karara South/East Total Blue Hills North High Grade Medium Grade Low Grade Blue Hills North Total Total Production

8 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES DIRECTORS REPORT Structural steel and tank installation, Processing Plant 278,000t of hematite DSO was either railed or trucked to Geraldton for export during the reporting period. There were 15 combined shipments with Sinosteel Midwest Corporation totalling 266,000t of lump and fines. In addition, KML provided the first-ever shipment of Karara iron ore to Ansteel, with a shipment of 12,000t of hematite lump ore back-loaded onto a vessel which had delivered structural steel for the Karara Project. Iron ore lump and fines product mined but not shipped continues to be stockpiled throughout the supply chain, allowing continuity of supply through the remainder of the year. Karara Project Exploration Exploration at Karara continues to focus on the discovery of hematite-goethite deposits in close proximity to the infrastructure being developed at the Project. Aircore drilling was completed on broad spacings along the trend of one of the interpreted palaeochannels considered prospective for Channel Detrital Iron Deposits (CDID). No significant (>57% Fe) mineralization was returned. Reverse Circulation (RC) drilling was undertaken at nominally 100m line spacing over a 2.5km zone of goethite-hematite enrichment mapped at the Hippo Prospect straddling Gindalbie s tenement E59/935 and KML s tenement E59/1068. The drilling was designed to evaluate the strike potential of a single significant result comprising 20m at 60.9% Fe from 45m in hole HIC002, intersected during a 4-hole program undertaken in A total of 32 Reverse Circulation (RC) holes for 1,684m (16 holes for 840m on E59/935 and 16 holes for 844m on E59/1068) were completed with assays results pending. Reconnaissance and resource delineation RC drilling is proposed to be undertaken over the next six months to test iron-enriched targets at the Hinge and Jasper Hill Prospects (E59/1170) and Johnny s Prospect (M59/645 and M59/721). GINDALBIE REGIONAL EXPLORATION During the reporting period, regional exploration activities focused on activities to support the Feasibility Study on the Shine Hematite Deposit, RC drilling over the Hippo Prospect, metallurgical analysis of samples at Lodestone and aircore drilling to test 5 CDID targets. A Feasibility Study on development options for the Shine Deposit commenced following the completion of a Mineral Resource estimate for the hematite mineralisation. The Mineral Resource estimate has been classified and reported using the guidelines of the 2004 JORC Code. The Mineral Resource estimate for the Shine Deposit was completed by Snowden Mining Industry Consultants ( Snowden ) based on successful drilling programs undertaken by Gindalbie over the past year. The Mineral Resource, reported above a 55% Fe cut-off grade, is set out below: Shine Hematite Mineral Resource Tonnes (Mt) Fe% SiO2% AL2O3% P% LOI% Indicated Inferred Total * small discrepancies may occur due to rounding 7

9 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES DIRECTORS REPORT The Feasibility Study will examine all options to develop the Shine Deposit, with the objective of moving it into production as rapidly as possible. The Feasibility Study will include additional in-fill and sterilization drilling, examination of processing and transport options and consideration of potential offtake arrangements. The extensive infrastructure being developed as part of the Karara Project provides the option to potentially truck Shine ore to Karara for transport to Geraldton via the Rail and Port solutions currently being implemented. The Feasibility Study is expected to be completed around mid Piping awaiting installation In-fill resource delineation drilling at m linespacings for mine planning purposes is scheduled to start over the Shine Deposit in the March Quarter, At Lodestone, Davis Tube Recovery analysis of 733 RC drill sample residues and geological interpretation was undertaken. An Independent Mining Consultant has been engaged to prepare a resource block model for the magnetite project. Regional target generation continued with the detailed aeromagnetics interpretation identifying around 30 targets on GBG and KML that will be tested during Karara Processing Plant switchroom 8

10 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES DIRECTORS REPORT CORPORATE Equity Raising During the reporting period, Gindalbie completed the final stage of its $209 million equity raising, being a share placement comprising 111,922,105 shares at an issue price of $0.67 to its major shareholder Ansteel, to raise a total of approximately $75 million. This share placement was approved by shareholders at a General Meeting on 9 September Warriedar JV Purchase The full acquisition of the Warriedar Iron Ore Joint Venture from Royal Resources Limited (see ASX announcement 14 July 2011) was completed during the reporting period. The original consideration for the acquisition of Royal s 40 per cent interest in the Warriedar Iron Ore Joint Venture was $8 million cash, including Royal s 40 per cent interest in the Warriedar Gold Joint Venture. However, Minjar Gold Pty Ltd exercised its pre-emptive right over Royal s 40 per cent interest in the Warriedar Gold Joint Venture for $1 million and as such, the consideration paid by Gindalbie to Royal reduced to $7 million. The settlement of this transaction had previously been delayed pending assessment by Gindalbie and Royal of a claim by Minjar Gold Pty Ltd that it had a pre-emptive right over this 40 per cent interest. Gindalbie and Royal have each considered the claim and consider it to be without merit. Cash Reserves At 31 December 2011, Gindalbie Metals Ltd had cash reserves of A$264.4 million and Karara Mining Limited had cash reserves of A$265.4 million. Gindalbie has nil corporate debt. Shareholder Information As at 31 December 2011, the Company had 1,247,487,454 shares on issue and 17,990 shareholders. The Top 40 shareholders held 68.45% of the Company. Dated this 15 th day of February Signed in accordance with a resolution of the directors. T C Netscher Director Board Appointments Gindalbie announced the appointment of former Fortescue Metals Joint Venture senior operations executive Mr Paul Hallam as a non-executive Director during the reporting period, further strengthening its Board. Mr Hallam is an accomplished and respected resource industry leader who has over 30 years experience working in senior executive positions with leading Australian and International resource companies, including a successful track record in developing, leading and turning around organisations. G F Jones Director His prior experience includes senior executive operational and development roles at Fortescue Metals Joint Venture (FMG), leading Australian gold producer Newcrest Mining Limited, Alcoa World Alumina Australia and at North Limited s Base and Precious Metals Division. 9

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14 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES DIRECTORS DECLARATION In the opinion of the Directors of Gindalbie Metals Ltd ( the Company ): 1. the financial statements and notes set out on pages 14 to 29 are in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the financial position of the consolidated entity as at 31 December 2011 and of its performance for the six month period ended on that date; and (b) complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and 2. 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 Perth this 15th day of February Signed in accordance with a resolution of the directors. TC Netscher Director GF Jones Director 13

15 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 31 December 2011 Note Consolidated 31-Dec Dec-10 $ 000 $ 000 Restated * Other income 2(a) Administration expenses (3,697) (3,123) Other expenses 2(b) (99) (158) Results from operating activities (3,796) (3,147) Finance income 6,392 4,568 Net financing income 3 6,392 4,568 Share of loss from equity accounted Joint Venture (net of tax) (16,216) (1,108) (Loss)/profit before income tax (13,620) 313 Income tax benefit/(expense) - - (Loss)/profit for the period (13,620) 313 Other comprehensive income of equity accounted Joint Venture 1(d) (4,400) - Income tax on other comprehensive income - - Total other comprehensive income for the period net of tax (4,400) - Total comprehensive (loss)/income (18,020) 313 Earnings per share Basic earnings per share cents (1.20) 0.04 Diluted earnings per share cents (1.20) 0.04 * See note 1(d). The condensed notes on pages 18 to 29 are an integral part of these consolidated interim financial statements. 14

16 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 31 December 2011 Consolidated Issued Retained Reserves Total capital earnings $ 000 $ 000 $ 000 $ 000 Six months ended 31 December 2011 Opening balance at 1 July ,301 56,405 7, ,529 Loss for the period - (13,620) - (13,620) Other comprehensive income from equity accounted joint venture - (4,400) - (4,400) Total comprehensive income for the period - (18,020) - (18,020) Shares issued Issue of ordinary shares 208, ,954 Transaction costs of share issues (4,037) - - (4,037) Closing balance at 31 December ,218 38,385 7, ,426 Six months ended 31 December 2010 Opening balance at 1 July ,670 42, , ,004 Equity settled share based payment transactions Prepaid capital contributions 131,800 - (131,800) - Shares issued - Issue of ordinary shares 74, ,0 - Exercise of options 2, ,080 - Transfer on exercise of employee options - 1,533 (1,533) - Transaction costs of share issues (5,976) - 4,932 (1,041) Total comprehensive income for the period Closing balance at 31 December ,074 44,305 6, ,910 The condensed notes on pages 18 to 29 are an integral part of these consolidated interim financial statements. 15

17 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2011 Consolidated Note 31-Dec Jun-11 $ 000 $ 000 Restated* CURRENT ASSETS Cash and cash equivalents 264, ,335 Other receivables 2,184 1,181 Prepayments Inventories TOTAL CURRENT ASSETS 266,660 1,565 NON CURRENT ASSETS Other receivables Property, plant and equipment 2,222 2,377 Exploration and evaluation assets 4 23,870 12,924 Joint venture accounted for using the equity method 1(d) 448, ,586 TOTAL NON CURRENT ASSETS 475, ,439 TOTAL ASSETS 742, ,004 CURRENT LIABILITIES Trade and other payables 2,182 2,716 Employee benefits TOTAL CURRENT LIABILITIES 2,778 3,382 NON CURRENT LIABILITIES Employee benefits TOTAL NON CURRENT LIABILITIES TOTAL LIABILITIES 2,849 3,475 NET ASSETS 739, ,529 EQUITY Equity attributable to owners of the parent: Issued capital 5 693, ,301 Reserves 7,823 7,823 Retained earnings 38,385 56,405 TOTAL EQUITY 739, ,529 * See note 1(d). The condensed notes on pages 18 to 29 are an integral part of these consolidated interim financial statements. 16

18 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended 31 December 2011 Consolidated 31-Dec Dec-10 $ 000 $ 000 Restated* Cash flows from operating activities Cash payments to suppliers and employees (4,573) (3,154) Interest received 5,686 2,201 Net cash used in operating activities 1,113 (953) Cash flows from investing activities Exploration and evaluation expenditure (10,946) (671) Proceeds from sale of property, plant and equipment - 4 Acquisition of property, plant and equipment (58) (86) Payments for investments in Joint Venture (80,000) (19,100) Net cash used in investing activities (91,004) (19,853) Cash flows from financing activities Proceeds from the issue of shares 208,954 76,580 Payment of capital raising costs (4,037) (1,123) Net cash used in financing activities 204,917 75,457 Net increase in cash and cash equivalents 115,026 54,651 Cash and cash equivalents at 1 July 149, ,514 Cash and cash equivalents at 31 December 264, ,165 * See note 1(d). The condensed notes on pages 18 to 29 are an integral part of these consolidated interim financial statements. 17

19 GINDALBIE METALS LTD AND ITS CONTROLLED ENTITIES Notes to the condensed consolidated interim financial statements For the six months ended 31 December SIGNIFICANT POLICIES (a) Reporting entity Gindalbie Metals Limited (the Company ) is a company domiciled in Australia. The condensed consolidated interim financial report of the Company as at, and for the six months ended 31 December 2011 comprises the Company and its subsidiaries (together referred to as the consolidated entity ). The consolidated annual financial report of the consolidated entity as at, and for the year ended 30 June 2011 is available upon request from the Company s registered office at Level 9, 216 St George s Terrace, Perth WA or at (b) Statement of compliance The consolidated interim financial report is a general purpose financial report which has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act The consolidated interim financial report does not include all of the information required for a full annual financial report, and should be read in conjunction with the consolidated annual financial report of the consolidated entity as at and for the year ended 30 June This consolidated interim financial report was approved by the Board of Directors on 15 February The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the financial report have been rounded off to the nearest thousand dollars, unless otherwise stated. (c) Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these condensed consolidated interim financial statements, and have been applied consistently by the consolidated entities, except as explained in note 1(d) which addresses changes in accounting policies. (d) Changes in accounting policies Accounting for investments in jointly controlled entities On 1 July 2011 the consolidated entity early adopted AASB 11 Joint Arrangements in accounting for investments in jointly controlled entities. AASB 11 introduces a new joint control model and removes the option to proportionally consolidate. The change in the accounting policy was made to provide more relevant information to users and was done in accordance with AASB 11 transitional provisions. Note 10 highlights the adjustment on the opening statement of financial position at 1 July 2010, which is the beginning of the earliest period presented. 18

20 1 SIGNIFICANT POLICIES (CONT) (d) Changes in accounting policies (cont) As part of the adoption of AASB 11, the consolidated entity is also required to early adopt AASB 10 Consolidated Financial Statements, AASB 12 Disclosures of Interests in Other Entities, AASB 127 Separate Financial Statements (August 2011), and AASB 128 Investments in Associates and Joint Ventures (August 2011). AASB 10 Consolidated Financial Statements establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. AASB 12 Disclosures of Interests in Other Entities prescribes disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. AASB 127 Separate Financial Statements (August 2011) prescribes the accounting for investments in subsidiaries, joint ventures and associates when an entity elects, or is required to present separate financial statements. AASB 128 Investments in Associates and Joint Ventures (August 2011) prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. AASB 10, AASB 127 (August 2011), and AASB 128 (August 2011) have had no impact on these Consolidated Interim Financial Statements. The early adoption of AASB 12 results in additional disclosures and those considered significant for these Consolidated Interim Financial Statements are included in notes 11 and 12. There has been no impact on consolidated earnings per share as a result of the early adoption of these standards. Joint arrangements A joint arrangement is an arrangement of which two or more parties have joint control. Joint arrangements are either joint operations or joint ventures, depending on the rights and obligations of the parties to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangements. A joint venturer recognises its interest in a joint venture as an investment and accounts for that investment using the equity method. On transition from proportionate consolidation to the equity method, the initial investment is measured as the aggregate of the carrying amounts of the assets and liabilities that were previously proportionally consolidated. This deemed cost is then tested for indicators of impairment as per the consolidated entity s policy for impairment of financial assets. If indicators exist then the deemed cost is tested for impairment as per the consolidated entity s policy for impairment of non-current assets. The consolidated interim financial statements include the consolidated entity s share of the profit or loss and other comprehensive income of the joint venture, after adjustments to align the accounting policies with those of the consolidated entity, from the date that joint control commences until the date that joint control ceases. 19

21 1 SIGNIFICANT POLICIES (CONT) (d) Changes in accounting policies (cont) When the consolidated entity s share of losses exceeds its interest in an equity accounted joint venture, the carrying amount of that interest, including any long term investment, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the consolidated entity has an obligation or has made payments on behalf of the investee. Impact of change in accounting policy The change in accounting policy was applied retrospectively and has had an impact on the financial statements, as is shown in the below table: Financial statements Statement of financial position Statement of comprehensive income Statement of changes in equity Statement of cash flow Effect due to the accounting change Reported figures will decline to the extent of the entity s previously recognised share in the individual assets and liabilities of the joint venture and therefore total assets and total liabilities will decrease The investment in the joint venture will be captured in a single line item. Reported figures will decline to the extent of the entity s previously recognised share revenue and expenses of the joint venture and therefore total revenue and total expenses will decrease. No changes in net income. No changes in the statement of changes in equity. Reported operating, investing and financing cash flow figures will decline to the extent of the entity s previously recognised share in the cash flows of the joint venture. Dividends (when received) from joint ventures will be presented as cash flows. New accounting policy adopted by Joint Venture Derivative financial instruments, including hedge accounting The Joint Venture holds derivative financial instruments to hedge its interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. On initial designation of the derivative as the hedging instrument, the Joint Venture formally documents the relationship between the hedging instrument and hedged item, 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 Joint Venture 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 attributable to hedged risk, and whether the actual results of each hedge are within a range of 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. 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. 20

22 1 SIGNIFICANT POLICIES (CONT) (d) Changes in accounting policies (cont) 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 effect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income attributable to Joint Ventures and is presented in retained earnings and within equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. When the hedged item is a non-financial asset, the amount recognised in equity is included in the carrying amount of the asset when the asset is recognised. In other cases the amount accumulated in equity is reclassified to profit or loss in the same period that the hedged item affects 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. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified in profit or loss. (e) Estimates The preparation of interim financial reports requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. In preparing this consolidated interim financial report, the significant judgements made by management in applying the consolidated entity s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial report as at and for the year ended 31 December

23 2 INCOME AND EXPENSES Consolidated 31-Dec Dec-10 $ 000 $ 000 2(a) Other income Other income Total other income (b) Other expenses Depreciation property, plant & equipment (99) (104) Employee option expense - (54) Total other expenses (99) (158) 3 NET FINANCING INCOME Interest income 6,392 4,568 Net finance income 6,392 4,568 4 EXPLORATION AND EVALUATION ASSETS Consolidated Costs carried forward in respect of areas of interest in: 31-Dec Jun-11 Exploration and evaluation assets $ 000 $ 000 Carrying amount at beginning of period 12,924 10,8 Additions 10,946 3,475 Expenditure written off - (1,059) 23,870 12,924 The recoverability of the carrying amounts of exploration and evaluation assets is dependent upon the successful development and commercial exploitation or sale of the respective area of interest. In order to maintain current rights to exploration tenements, the consolidated entity is required to perform minimum exploration work to meet expenditure requirements specified by the West Australian state government. These requirements are subject to renegotiation when an application for a mining lease is made and at other times. Exploration expenditure commitments Payable no later than one year :- Consolidated 31-Dec Jun-11 $ 000 $ 000 Rents and rates Exploration 1, ,

24 5 ISSUED CAPITAL Share capital The consolidated entity recorded the following amounts within shareholder s equity as a result of the issue of ordinary shares: Ordinary shares 31-Dec-11 Share capital 31-Dec Dec Dec-10 No. No. $ 000 $ 000 On issue at 1 July 935,615, ,757, , ,670 Shares issued at 67 cents per share (2010: $0.93 per share) 311,871, ,827, , ,300 Shares issued from exercise of employee options - 5,630,000-2,080 Capital raising costs - - (4,037) (5,973) On issue at 31 December 1,247,487, ,215, , ,077 6 SHARE-BASED PAYMENTS The Company has an employee share option plan which was approved at the 2006 Annual General Meeting. Grants made during the year ended 30 June 2011 are disclosed in the consolidated financial report as at and for the year ended 30 June On 17 November 2011 a further grant on similar terms was offered to key management. The terms and conditions relating to these grants of the share option are as follows; all options are to be settled by physical delivery of shares: Grant date/employees entitled Number of instruments Vesting conditions Contractual life of options Option grant to key management personnel on 17 November 2011 (D. Richardson, Chief Financial Officer Gindalbie Metals Ltd) 1,000,000 Vesting is subject to attainment of performance conditions on or before the following dates: 30 April June June years 23

25 6 SHARE-BASED PAYMENTS (cont) The following inputs were used in the measurement of fair values at grant date of the sharebased payment plans: Fair value of options and assumptions Key management personnel Key management personnel Key management personnel Key management personnel Tranche 1 Tranche 2 Tranche 3 Fair value at grant date (cents) Share price at grant date (cents) Exercise price (cents) Expected volatility (weighted average volatility) (%) Option life (expected weighted average life) (years) Expected dividends Risk-free interest rate (based on government bonds) (%) During the six months ended 31 December 2011 no shares were issued from employee options. During the six months ended 31 December 2010 the Company issued 600,000 shares at 55 cents, 30,000 shares at 65 cents, 1,000,000 shares at 12 cents, 1,000,000 shares at 16 cents, 2,000,000 shares at 25 cents and 1,000,000 shares at 95 cents upon exercise of employee options raising $2,079,0. 7 OPERATING SEGMENTS The consolidated entity has two reportable segments, as described below, which are the consolidated entity s strategic business units. The strategic business units have different ownership and operating structures and are managed separately for this reason. The Chief Executive Officer reviews internal management reports on a monthly basis. The following summary describes the operations in each of the consolidated entity s reportable segments: The company s investment in the Karara Iron Ore Project (the company accounts for its share of this incorporated joint venture by the equity method). All other segments includes all other 100% owned or joint venture projects. Karara Iron Ore Project All other segments Total 31-Dec Dec Dec Dec Dec Dec-10 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 External revenues Inter-segment revenue Interest income - - 6,392 4,568 6,392 4,568 Reportable segment (loss)/ profit before tax (23,177) (1,488) 6,392 4,702 (16,785) 3,214 24

26 7 OPERATING SEGMENTS (CONT) Reconciliation of reportable segment profit or loss 31-Dec Dec-10 $ 000 $ 000 Total profit or loss for reportable segments before tax (16,785) 3,214 Unallocated amounts: Other corporate expenses (3,796) (3,281) Income tax (expense)/benefit 6, Net Profit/ (loss) (13,620) 313 Segment assets Karara Iron Ore Project All other segments Total 31-Dec Jun Dec Jun Dec Jun-11 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Investment in Karara joint venture 448, , , ,586 Other assets , , , ,418 Liabilities - - (2,849) (3,475) (2,849) (3,475) Reportable segment net assets 448, , , , , ,529 8 CONTINGENT LIABILITIES The consolidated entity has performance guarantees in place with the WA Department of Industry & Resources totalling $52,000 ( $52,000). The consolidated entity also has a performance guarantee in place to secure payment of rent under the company s lease of premises at 216 St Georges Terrace, Perth totalling $0,000 ( $0,000). The consolidated entity has the following contingent liabilities in relation to its joint venture entity Karara Mining Limited (KML): Pursuant to a project financing facility provided to KML by a syndicate of Chinese banks, the company has provided a First Ranking Share Mortgage in favour of the banks over all shares in KML. The company has also provided a Second Ranking Share Mortgage to its joint venture partner in KML, Anshan Iron & Steel Joint Venture Complex ( Ansteel ) in respect of % of the liability Ansteel may incur under a Sponsor Guarantee Ansteel has provided to the banks. The company s liability under this commitment is unlimited, however the estimated maximum potential liability based on credit facilities advanced as at 31 December 2011 is $725 million USD. Furthermore Gindalbie and Ansteel provided a Cross Charge to each other over the shares each owns in KML, to secure each entity s obligations under the Joint Venture Development Agreement. The consolidated entity has provided a parent company performance guarantee to the value of $7.5 million, in relation to a construction contract entered into by KML. Pursuant to the Joint Venture Development Agreement Ansteel has agreed to stand behind % of this contingent liability, pending Chinese regulatory approval. The consolidated entity has provided several parent company performance guarantees to a combined value of $85 million, in terms of KML/contracts for rail haulage, and a tailings management facility. Pursuant to the Joint Venture Development Agreement Ansteel has agreed to stand behind % of these liabilities, pending Chinese regulatory approval. 25

27 9 INVESTMENT IN JOINT VENTURE Shareholdings in jointly controlled entities Country of incorporation Principal activities Reporting date Ownership interest % % Karara Mining Ltd Australia Iron ore development 30-Jun Karara Management Services Pty Ltd Australia Iron ore development 30-Jun DSO Ventures Pty Ltd Australia Iron ore development 30-Jun Karara Infrastructure Pty Ltd Australia Iron ore development 30-Jun Karara Port Services Pty Ltd Australia Iron ore development 30-Jun Karara Energy Pty Ltd Australia Iron ore development 30-Jun Karara Rail Pty Ltd Australia Iron ore development 30-Jun Karara Power Pty Ltd Australia Iron ore development 30-Jun Karara Mining Limited (joint venture) or (KML) is a company domiciled in Australia. The principal activities of KML during the course of the year were the exploration, development and operation of the Karara Iron Ore Project. There were no significant changes in the nature of the activities of KML during the year. The consolidated entities share of loss in Karara Mining Limited for the period to 31 December 2011 was a $16.2 million loss(2010 loss $1.1 million). None of the consolidated entity s equity-accounted investees are publicly listed entities and consequentially do not have published price quotations. Commitments The consolidated entity has committed to contribute a further total $220 million in equity to it s joint venture entity KML (of which $70m was paid on 31 January 2012). This commitment is expected to be paid during the first quarter of 2012, and will be funded from existing cash reserves 26

28 9 INVESTMENT IN JOINT VENTURE (Cont) Karara Iron Ore Project Funding As at 31 December 2011, US$1.15 billion of the US$1.2 billion Karara Project Loan Facility had been drawn down and Karara Mining Limited ( KML ) had cash reserves of $265.4 million. Under the terms of the Project Loan Facility signed by KML on 6 August 2010, KML is prohibited from paying dividends to shareholders or making loans to shareholders if the company is in breach of financial covenants related to the company s (i) debt equity ratio (ii) interest cover ratio, or (iii) life of loan cover ratio. In addition no dividend payments or loans to shareholders are permitted until after the fourth anniversary of the first utilization date (6 August 2010). On 13 February 2012, KML executed the facility agreements for the US$336 million working capital facility to support the additional working capital requirements of the Karara Project announced last year. Drawdown under this facility is subject to Chinese regulatory approval and standard project finance conditions. Preliminary discussions have commenced regarding an additional debt facility to cover an expected funding shortfall in relation to the conversion of the US dollar debt facility. Completion of construction and commissioning of the project remains contingent upon securing all necessary additional funding requirements. If, in the event that sufficient project finance facilities are not completed, KML or the Company will be required to source funds through alternative debt or equity arrangements. 10 IMPACT OF ADOPTING AASB 11 JOINT ARRANGEMENTS On 1 July 2011, the consolidated entity early adopted AASB 11 Joint Arrangements in accounting for investments in jointly controlled entities. AASB 11 introduces a new joint control model and removes the option to proportionally consolidate. The Consolidated Entity s investment in Karara Mining Limited at the date of initial application has been measured as the aggregate of the carrying amounts of the assets and liabilities that the entity had previously proportionately consolidated. As at 1 July 2010 the net carrying amount is $304,351,000. The below table represents the breakdown of the assets and liabilities that have been aggregated into the single line investment balance as at the beginning of the earliest period presented in the interim report: 27

29 10 IMPACT OF ADOPTING AASB 11 JOINT ARRANGEMENTS (Cont) Impact of change on Statement of Financial Position at 30 June 2010 Statement of Financial Position as at 30 June 2010 Balance at 1 July 2010 Restated balance at 1 July 2010 Effect of change in accounting policy $ 000 $ 000 $ 000 CURRENT ASSETS Cash and cash equivalents 219, ,514 74,435 Trade and Other receivables 5, ,825 Prepayments 3, ,440 Inventories TOTAL CURRENT ASSETS 229, ,495 82,762 NON CURRENT ASSETS Other receivables 4, ,382 Property, plant and equipment 271,294 2, ,571 Exploration and evaluation assets 11,1 10,8 993 Investments accounted for using the equity method - 304,351 (304,351) TOTAL NON CURRENT ASSETS 287, ,134-30,405 TOTAL ASSETS 516, ,629 52,357 CURRENT LIABILITIES Trade and other payables 46,187 1,054 45,133 Employee benefits 1, TOTAL CURRENT LIABILITIES 47,482 1,590 45,892 NON CURRENT LIABILITIES Provisions Long term borrowings Deferred tax liabilities 5,925-5,925 Employee benefits TOTAL NON CURRENT LIABILITIES 6,0 35 6,465 TOTAL LIABILITIES 53,982 1,625 52,357 NET ASSETS 463, ,004 - EQUITY Equity attributable to owners of the parent: Issued capital 285, ,670 - Reserves 134, ,875 - Retained earnings 42,459 42,459 - TOTAL EQUITY 463, ,004-28