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1 INTERNATIONAL COAL LIMITED (ABN ) ANNUAL REPORT FOR THE FINANCIAL PERIOD ENDED 30 JUNE 25_0100 Page 1 of 44

2 TABLE OF CONTENTS Corporate Directory... 3 Chairman s Letter... 4 Directors Report... 5 Consolidated Statement of comprehensive income for the period Ended 30 June Consolidated Statement of Financial Position as at 30 June Consolidated Statement of Changes in Equity for the Period Ended 30 June Consolidated Statement of Cash Flows For the period Ended 30 June Notes to the Financial Statements for the period Ended 30 June Note 1: Summary of Significant Accounting Policies Note 2: Parent Information Note 3: Revenue and Other Income Note 4: Loss for the period Note 5: Income Tax Expense Note 6: Interests of Key Management Personnel (KMP) Note 7: Auditors Remuneration Note 8: Earnings per Share Note 9: Cash and Cash Equivalents Note 10: Trade and Other Receivables Note 11: Controlled Entities Note 12: EXPLORATION AND EVALUATION Assets Note 13: MINERAL assets Note 14: OTHER NONCurrent ASSETS Note 15: Trade and Other Payables Note 16: Borrowings Note 17: Issued Capital Note 18: Operating Segments Note 19: Cash Flow Information Note 20: Sharebased Payments Note 21: Events After the Reporting Period Note 22: Financial Risk Management Note 23: Reserves Note 24: EXPLORATION commitments Note 25: Company Details Note 26: related party transactions Corporate Governance Statement Directors Declaration Independent Auditors Report Report on the Remuneration Report Additional Information for Listed Public Companies _0100 Page 2 of 44

3 CORPORATE DIRECTORY ABN Directors Mr Rick Anthon Chairman Mr John Lester Non Executive Director Mr Hugh Dai Executive Director Company Secretary Mr David Round Registered Office Level Queen Street Brisbane, Queensland 4000 Principal Place of Business 25 Richardson Street West Perth, Western Australia 6000 Share Register Security Transfer Registrars Pty Ltd 770 Canning Hwy Applecross, Western Australia 6953 Solicitors Hemming & Hart Lawyers Level Queen Street Brisbane, Queensland 4000 Auditors Hall Chadwick Level 29 St Martins Tower 31 Market Street Sydney NSW 2000 Bankers Commonwealth Bank of Australia Ltd Website 25_0100 Page 3 of 44

4 CHAIRMAN S LETTER Dear Shareholder It gives me great pleasure to write to you in this our first Annual Report to shareholders. International Coal Ltd undertook a series of transactions earlier this year that culminated in the Company raising sufficient working capital in order to secure an agreement to acquire a number of prospective coking coal and thermal coal projects in Queensland. Through the diligence of your board and advisors, the Company was in a sound financial position at the end of the reporting period and in early July, the Company opened a highly successful Initial Public Offering that was completed in a matter of days. Subsequent to this, the Company was admitted to trading on the ASX on 28 July. Our board extends its thanks to all investors and stakeholders for their support in what has been a challenging investment environment. As at the date of this report, I am also delighted to report that a significant exploration and drill programme is well developed at our South Blackall project. Extensive work has been undertaken since the completion of our IPO and admission to the ASX, and our Stage 1 drill campaign at our Blackall project will be well underway throughout the month of October. In addition to this, we have also commenced the planning phase for the exploration and drilling programme at our Bundaberg Projects. The company has some exciting plans for remainder of and We have assembled an experienced board and management team and with the support of our external advisors and consultants, we plan to grow the value of the company. We look forward to your ongoing support of International Coal. Yours sincerely Rick Anthon NonExecutive Chairman 25_0100 Page 4 of 44

5 DIRECTORS REPORT Your directors present their report, together with the financial statements of the Group, being the company and its controlled entities, for the financial period ended 30 June. Principal Activities and Significant Changes in Nature of Activities The principal activities of the consolidated group during the financial period were: The acquisition of the company s coal ground holdings in Queensland and raising capital to explore and develop those holdings through an initial public offering (IPO). The following significant changes in the nature of the principal activities occurred during the financial period: There were no significant changes in the company s principal activities. Operating Results and Review of Operations for the Period Operating Results The consolidated loss of the consolidated group amounted to 493,754, after providing for income tax. Further discussion on the Group s operations now follows. Review of Operations The company was incorporated in February and subsequent to this date, entered in to a number of transactions to acquire control of an entity (Gen Resources Pty Ltd) that holds a number of mineral rights to coal exploration projects (EPC s) in the South Blackall and Bundaberg regions of Queensland. Financial Position The net assets of the consolidated group as at 30 June are 4,612,446. This increase is largely due to the following factors: The company raising seed capital in order to acquire the shares of a subsidiary entity that holds a number of coal exploration permits. The directors believe the Group is in a strong and stable financial position to expand and grow its current operations. Significant Changes in State of Affairs The following significant changes in the state of affairs of the parent entity occurred during the financial period: i. On 5 April, the company entered in to a share sale agreement to acquire all of the shares in the entity, Gen Resources Pty Ltd. The company issued 26,500,000 shares and 26,500,000 options to acquire all of the shares of the entity Gen Resources Pty Ltd. Gen Resources Pty Ltd then became a wholly owned entity of the company. In January, Gen Resources Pty Ltd had entered in to a loan agreement with Yilgarn Infrastructure Ltd for an amount of A1,000,000. This money was borrowed by Gen Resources Pty Ltd as part of a tenement acquisition with a nonrelated entity, Birmanie Nominees Pty Ltd. Also on 11 January, Gen Resources Pty Ltd had entered in to a tenement acquisition agreement with Birmanie Nominees Pty Ltd ( Birmanie ) whereby Gen Resources Pty Ltd would pay to Birmanie the sum of A2,000,000 in series of instalments, and subject to certain conditions, in order to acquire a 75% interest in a number of mineral assets referred to as EPC s 2194, 2195, 2196 and ii. iii. iv. On the 5 April, the company entered in to a tenement transfer agreement with Birmanie to acquire the remaining 25% interest in the mineral assets referred to as EPC s 2194, 2195, 2196 and The consideration for this acquisition was A1,250,000 plus the issue of 1,250,000 shares in the company at a future defined date. On 28 April, the company issued 1,000,000 options to Yilgarn Infrastructure Ltd as part of the terms of the loan agreement. On 28 April, the company issued 7,000,000 options to directors and senior management as part of their determined remuneration. The details of the options issued are further outlined within this report. 25_0100 Page 5 of 44

6 v. On 20 June the company issued a prospectus (as part of an Initial Public Offering) in order to raise between A6,000,000 and A9,000,000 on terms and conditions outlined within the prospectus. The prospectus was issued in order to raise funds to complete the transactions contemplated and to raise sufficient working capital in order to undertake an exploration programme at the sites outlined and in accordance with the EPC s 2194, 2195, 2196 and 2197 Dividends Paid or Recommended No Dividends were paid or declared for payment during the financial period. Events after the Reporting Period On 15 July, the company paid the amount of 1,250,000 to Birmanie Nominees Pty Ltd as part of the terms of the tenement sale agreement referred to in the directors report. The payment related to the final acquisition of the remaining 25% of the interest in EPC s 2194, 2195, 2196 and On 20 July, the company allotted 1,250,000 shares to Birmanie Nominees Pty Ltd as the final component of the consideration relating to tenement acquisition agreement with Birmanie Nominees Pty Ltd On 20 July, the company allotted and issued 45,000,000 shares to new and existing shareholders as part of the subscription for shares as outlined in the company s prospectus. On 28 July, the company was admitted to trade on the Australian Securities Exchange having received 9,000,000 in subscriptions for their IPO. On 28 th July, the company repaid an amount to Yilgarn Infrastructure Ltd of 1,054,523. This represented the full repayment of the loan and accrued interest. Future Developments, Prospects and Business Strategies Subsequent to the company s reporting date of 30 June, the company raised 9,000,000 as part of its IPO and was admitted to the ASX. The company also completed the acquisition of a number coal exploration permits and now plans to undertake a significant exploration and drill programme at these sites over the forthcoming year. Independent Geologist have recently been engaged and an exploration plan has been developed for both the South Blackall and Bundaberg based project sites. Information on the Directors Mr Rick Anthon NonExecutive Chairman Qualifications BA, LLB Experience Appointed Chairman in and a board member of the company since its incorporation on 8 February. Interest in Shares and Options 500,001 ordinary shares in International Coal Ltd and options held to acquire a further 2,000,000 ordinary shares. Special Responsibilities Member of Audit Committee. Directorships held in other listed Current director of Renison Consolidated Mines NL since 28 June entities during the three years prior 1996 and Metals Finance Ltd since 7 October to the current year Mr John Lester NonExecutive Director Qualifications MA Experience A board member since incorporation on 8 February. Interest in Shares and Options 2,000,001 ordinary shares in International Coal Ltd and options held to acquire a further 2,000,000 ordinary shares. Special Responsibilities Chairman of Audit Committee Directorships held in other listed Current director of Golden West Resources Ltd since 21 March entities during the three years prior to the current year 25_0100 Page 6 of 44

7 Mr Hugh Shao Dai Executive Director Qualifications MBA Experience A Board Member since the incorporation of the company on 8 February. Interest in Shares and Options 1,000,001 ordinary shares in International Coal Ltd and options held to acquire a further 2,000,000 ordinary shares. Special Responsibilities Directorships held in other listed N/A entities during the three years prior to the current year Company Secretary The following person held the position of company secretary at the end of the financial period: David Round BBus. CPA, MBA. Mr Round has worked for several Listed Public Limited over the past decade, holding senior management roles in Ironbark Zinc Ltd, Wolf Minerals Ltd and most recently was CFO and Company Secretary for Albidon Ltd. Mr Round was also previously an Executive Director or Waratah Resources Ltd. Directors Meetings for the Period Meetings Held Meetings Attended Mr R Anthon 2 2 Mr J Lester 2 2 Mr H Dai 2 2 Audit Committee Meetings for the Period Meetings Held Meetings Attended Mr R Anthon Mr J Lester Environmental Regulation The company s operations are subject to significant environmental regulation under Commonwealth, State and Territory legislation in relation to the discharge or hazardous waste and minerals arising from exploration activities conducted by the Company on any of its tenements. At the date of this report there have been no known breaches of any environmental obligations. Indemnification of Directors and Officers The company is required to indemnify Directors and other officers of the Company against certain liabilities which they may incur as a result of or by reason of (whether solely or in part) being or acting as an officer of the Company. Subsequent to the period end, the company paid a premium of 12,356 to insure the directors against the potential liabilities for costs and expenses incurred by them in defending legal proceedings arising from their conduct while acting in the capacity of Director of the company other than the conduct involving wilful breach of duty in relation to the company. The company provides no indemnity to the auditor. 25_0100 Page 7 of 44

8 Remuneration Report Remuneration Policy The remuneration policy of International Coal Ltd has been designed to align key management personnel objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific longterm incentives based on key performance areas affecting the consolidated group s financial results. The Board of International Coal Ltd believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best key management personnel to run and manage the consolidated group, as well as create goal congruence between directors, executives and shareholders. The Board s policy for determining the nature and amount of remuneration for key management personnel of the consolidated group is as follows: Until a formal remuneration committee is formed, the remuneration policy is to be developed and approved by the Board after professional advice is sought, where appropriate, from independent external consultants. All key management personnel receive a base salary (which is based on factors such as length of service and experience), superannuation, fringe benefits, options and performance incentives. Performance incentives are generally only paid once predetermined key performance indicators have been met. Incentives paid in the form of options or rights are intended to align the interests of the directors and company with those of the shareholders. In this regard, key management personnel are prohibited from limiting risk attached to those instruments by use of derivatives or other means. The board presently forms the role of a remuneration committee and the board reviews key management personnel packages bi annually by reference to the consolidated group s performance, executive performance and comparable information from industry sectors. The performance of key management personnel is measured against criteria agreed biannually with each executive and is based predominantly on the forecast growth of the consolidated group s profits and shareholders value. All bonuses and incentives must be linked to predetermined performance criteria. The Board may, however, exercise its discretion in relation to approving incentives, bonuses and options, and can recommend changes to the committee s recommendations. Any changes must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance results leading to longterm growth in shareholder wealth. Key management personnel receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. All remuneration paid to key management personnel is valued at the cost to the company and expensed. The Board s policy is to remunerate nonexecutive directors at market rates for time, commitment and responsibilities. The remuneration committee determines payments to the nonexecutive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to nonexecutive directors is subject to approval by shareholders at the Annual General Meeting. Key management personnel are also entitled and encouraged to participate in the employee share and option arrangements to align directors interests with shareholders interests. Options granted under the arrangement do not carry dividend or voting rights. Each option is entitled to be converted into one ordinary share once the interim or final financial report has been disclosed to the public and is valued using the BlackScholes methodology. Key management personnel who are subject to the arrangement are subject to a policy governing the use of external hedging arrangements. Such personnel are prohibited from entering into hedge arrangements, ie put options, on unvested shares and options which form part of their remuneration package. Terms of employment signed by such personnel contain details of such restrictions. 25_0100 Page 8 of 44

9 Performancebased Remuneration The key performance indicators (KPIs) are set annually, with a certain level of consultation with key management personnel. The measures are specifically tailored to the area each individual is involved in and has a level of control over. The KPIs target areas the Board believes hold greater potential for group expansion and profit, covering financial and nonfinancial as well as short and longterm goals. The level set for each KPI is based on budgeted figures for the Group and respective industry standards. Performance in relation to the KPIs is assessed annually, with bonuses being awarded depending on the number and deemed difficulty of the KPIs achieved. Following the assessment, the KPIs are reviewed by the remuneration committee in light of the desired and actual outcomes, and their efficiency is assessed in relation to the Group s goals and shareholder wealth, before the KPIs are set for the following year. Changes in Directors and Executives Subsequent to Periodend On 1 August, David Round commenced as Company Chief Financial Officer. Remuneration Details for the Period Ended 30 June and commitments All Directors have agreements with International Coal Ltd (effective 8 February ) whereby each Director or their nominated entity shall be entitled to a cash remuneration of 60,000 pa (excluding superannuation). No directors fees were paid in the period ended 30 June and any accrued directors fees would be payable upon the company s admission to the ASX. The company has executed an agreement with Mr Dai whereby he or his nominated entity shall be paid a directors fee of 150,000 pa from the date the company commences trade on the ASX. The following table of benefits and payments details, in respect to the financial period, the components of remuneration for each member of the key management personnel of the consolidated group and, to the extent different, the five Group executives and five company executives receiving the highest remuneration: Table of Benefits and Payments for the Period Ended 30 June Salary, Fees and Leave Shortterm Benefits Profit Share and Bonuse s Nonmonetary Other Postemployment Benefits Other Longterm Benefits Pensio n and Superannuation Incentive Plans LS L Equitysettled Sharebased Payments Shares/ Units Options/ Rights Cashsettled Sharebased Payments Termination Benefit s Total Group Key Management Personnel Rick Anthon, 44,400 44,400 John Lester 44,400 44,400 Hugh Dai 44,400 44,400 David Round 22,200 22,200 Total Key Management Personnel 155, ,400 The value of other benefits provided to Senior Management Personnel relates to the value of options granted the above personnel as part of their annual remuneration on 28 April. The values have been assessed using the Black Scholes valuation model and detail of this is outlined within the relevant notes. 25_0100 Page 9 of 44

10 Cash Bonuses, Performancerelated Bonuses and Sharebased Payments The terms and conditions relating to options and bonuses granted as remuneration during the period to key management personnel and other executives during the period are as follows: Group Key Management Personnel Remuneration Type Grant Date Reason for Grant (Note 1) Percentage Vested/Paid during Period % (Note 2) Percentage Forfeited during Period % Percentage Remaining as Unvested % Expiry Date for Vesting or Payment Range of Possible Values Relating to Future Payments Mr Rick Anthon Director Options 28/4/ 0% 0% 100% 31/12/ c 50c Mr John Lester Director Options 28/4/ 0% 0% 100% 31/12/ c 50c Mr Hugh Dai Director Options 28/4/ 0% 0% 100% 31/12/ c 50c Mr David Round Senior Executive Options 28/4/ 0% 0% 100% 31/12/ c 50c Note 1: Note 2: The options have been granted as part of the company s remuneration and retention plan for Directors and Senior Executives and options proposed may only be issued on the achievement of defined Key Performance Indicators. The dollar value of the percentage vested/paid during the period has been reflected in the Table of Benefits and Payments. Options and Rights Granted Grant Details For the Financial Period Ended 30 June Overall Value Exercised Exercised Lapsed Lapsed Vested Vested Unvested Lapsed Date No. No. No. No. % % % (Note 1) (Note 2) Group Key Management Personnel Mr Rick Anthon 28/4/11 2,000,000 44,400 0% 100% 0% Mr John Lester 28/4/11 2,000,000 44,400 0% 100% 0% Mr Hugh Dai 28/4/11 2,000,000 44,400 0% 100% 0% Mr David Round 28/4/11 1,000,000 22,200 0% 100% 0% Note 1: 7,000,000 Mr Anthon, Mr Lester and Mr Dai each have an entitlement to 1,000,000 options, and Mr Round has an entitlement to 500,000 options, with these options being referred to as Tranche 1. The tranche 1 options will only be issued when the company s share price exceeds a market value of 30c for 3 consecutive trade days on a volume weighted average basis. Mr Anthon, Mr Lester and Mr Dai are also each entitled to 1,000,000 options, and Mr Round has an entitlement to 500,000 options, as part of an entitlement referred to as Tranche 2 options. The tranche 2 options will only be issued when the company s share price exceeds a market value of 50c for 3 consecutive trade days on a volume weighted average basis. Note 2: The value of options granted as remuneration and as shown in the above table has been determined in accordance with AASB2 : Share Based Payments. 25_0100 Page 10 of 44

11 Description of Options/Rights Issued as Remuneration Details of the options granted as remuneration to those key management personnel and executives listed in the previous table are as follows: Grant Date Issuer Entitlement on Exercise Exercisable Exercise Price Value per Option at Grant Date Amount Paid/ Payable by Recipient 28/4/ International Coal Ltd 3,500,000 From 28/4/ c 2.39 c 30c 28/4/ International Coal Ltd 3,500,000 From 28/4/ c 2.05c 50c Total Options on issue 7,000,000 Option values at grant date were determined using the BlackScholes method. Total options on issue at date of this report are 7,000,000. Details relating to service and performance criteria required for vesting have been provided in the previous table. Options At the date of this report, the unissued ordinary shares of International Coal Ltd under option are as follows: Grant Date Date of Expiry Exercise Price Number under Option 5 April 7 April ,500,000 5 April 1 February ,000, April 28 April 31 December December ,500,000 3,500,000 34,500,000 Option holders do not have any rights to participate in any issues of shares or other interests in the company or any other entity. There have been no unissued shares or interests under option of any controlled entity within the Group during or since the end of the reporting period. For details of options issued to directors and executives as remuneration, refer to the remuneration report. No further shares have been issued since year end. Proceedings No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any of those proceedings. The Company was not a party to any such proceedings in the period. NonAudit Services The Board is satisfied that the provision of nonaudit services by the auditor during the period is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 and do not compromise the general principles relating to audit independence as set out in APES110:Code of Ethics for Professional Accountants set by the Accounting Profession and Ethical Standards Board. During the period 8 February to 30 June the Company paid Hall Chadwick Corporate (NSW) Limited professional fees of approximately 20,000 for accounting services in connection with the Company s initial public offering prospectus. The Board of Directors has approved the provision of these services. 25_0100 Page 11 of 44

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14 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD ENDED 30 JUNE Note Consolidated Group Revenue 3 16,908 Administration expense 49,948 Consultancy expense 217,937 Share Based payment expense 155,400 Interest expense 30,800 Other expenses 56,576 Share of net profits of associates and joint venture entities Loss before income tax 4 (493,754) Income tax expense 5 Loss for the period 4 (493,754) Loss for the period (493,754) Other Comprehensive Income Total comprehensive loss for the period (493,754) Earnings per share From continuing operations: Basic earnings per share (cents) 8.011c Diluted earnings per share (cents) 8.007c The accompanying notes form part of these financial statements. 25_0100 Page 14 of 44

15 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE Note Consolidated Group ASSETS CURRENT ASSETS Cash and cash equivalents 9 1,963,123 Trade and other receivables 10 45,468 TOTAL CURRENT ASSETS 2,008,591 NONCURRENT ASSETS Exploration and Evaluation 12 97,703 Mineral Assets 13 4,018,350 Other NonCurrent Assets 14 1,000 TOTAL NONCURRENT ASSETS 4,117,053 TOTAL ASSETS 6,125,644 LIABILITIES CURRENT LIABILITIES Trade and other payables ,195 Borrowings 16 1,000,000 TOTAL CURRENT LIABILITIES 1,513,195 TOTAL LIABILITIES 1,513,195 NET ASSETS 4,612,449 EQUITY Issued capital 17 4,224,003 Reserves 882,200 Retained earnings (493,754) TOTAL EQUITY 4,612,449 The accompanying notes form part of these financial statements. 25_0100 Page 15 of 44

16 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 30 JUNE Consolidated Group Share Capital Note Ordinary Retained Earnings Unlisted Options Option Reserve Total Comprehensive income Loss for the period (493,754) (493,754) Total comprehensive income for the period (493,754) (493,754) Transactions with owners, in their capacity as owners, and other transfers Shares issued on incorporation 3 3 Shares issued during the period 4,224,000 4,224,000 Options granted during the period 726, , ,200 Total transactions with owners and other transfers 4,224,003 (493,754) 726, ,400 4,612,449 Balance at 30 June 4,224,003 (493,754) 726, ,400 4,612,449 The accompanying notes form part of these financial statements. 25_0100 Page 16 of 44

17 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED 30 JUNE CASH FLOWS FROM OPERATING ACTIVITIES Note Consolidated Group 000 Payments to suppliers and employees (350,060) Interest received 11,883 Net cash provided by (used in) operating activities 19 (338,177) CASH FLOWS FROM INVESTING ACTIVITIES Payments for Mineral Assets (500,000) Payments for Exploration & Evaluation (97,703) Net cash used in investing activities (597,703) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares 2,899,000 Net cash provided by financing activities 2,899,000 Net increase in cash held Cash and cash equivalents at beginning of financial period 9 Cash and cash equivalents at end of financial period 9 1,963,120 25_0100 Page 17 of 44

18 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE These consolidated financial statements and notes represent those of International Coal Ltd and Controlled Entities (the consolidated group or group ). The separate financial statements of the parent entity, International Coal Ltd, have not been presented within this financial report as permitted by the Corporations Act The financial statements were authorised for issue on 28 September by the directors of the company. NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the IASB. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless otherwise stated. The financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected noncurrent assets, financial assets and financial liabilities. a. Principles of Consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by International Coal Ltd at the end of the reporting period. A controlled entity is any entity over which International Coal Ltd has the ability and right to govern the financial and operating policies so as to obtain benefits from the entity s activities. Where controlled entities have entered or left the Group during the period, the financial performance of those entities is included only for the period of the year that they were controlled. A list of controlled entities is contained in Note 11 to the financial statements. In preparing the consolidated financial statements, all intergroup balances and transactions between entities in the consolidated group have been eliminated in full on consolidation. Noncontrolling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are reported separately within the equity section of the consolidated statement of financial position and statement of comprehensive income. The noncontrolling interests in the net assets comprise their interests at the date of the original business combination and their share of changes in equity since that date. b. Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in 25_0100 Page 18 of 44

19 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. c. Income Tax The income tax expense (revenue) for the period comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the period as well unused tax losses. Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of setoff exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of setoff exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.. d. Plant and Equipment Each class of plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. e. Exploration and Development Expenditure Exploration, evaluation and development expenditures incurred are capitalised in respect of each identifiable area of interest. These costs are only capitalised to the extent that they are expected to be recovered through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made. When production commenced the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. 25_0100 Page 19 of 44

20 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE f. Financial Instruments Recognition and initial measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (ie trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified at fair value through profit or loss, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Finance instruments are subsequently measured at fair value, amortised cost using the effective interest rate method, or cost. Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm s length transactions, reference to similar instruments and option pricing models. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense item in profit or loss. The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of Accounting Standards specifically applicable to financial instruments. Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of availableforsale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in profit or loss. Also, any cumulative decline in fair value previously recognised in other comprehensive income is reclassified to profit or loss at this point. Financial guarantees Where material, financial guarantees issued that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due are recognised as a financial liability at fair value on initial recognition. g. Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of preacquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset s fair value less costs to sell and value in use, to the asset s carrying amount. Any excess of the asset s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard (eg in accordance with the revaluation model in AASB 116). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. 25_0100 Page 20 of 44

21 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cashgenerating unit to which the asset belongs. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. h. Group companies The financial results and position of foreign operations, whose functional currency is different from the Group s presentation currency, are translated as follows: assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; income and expenses are translated at average exchange rates for the period; and retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. These differences are recognised in profit or loss in the period in which the operation is disposed. i. Employee Benefits Provision is made for the Group s liability for employee benefits arising from services rendered by employees to the end of the reporting period. Employee benefits that are expected to be settled within 3 year have been measured at the amounts expected to be paid when the liability is settled. Employee benefits payable later than 3 year have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wages increases and the probability that the employee may satisfy vesting requirements. Those cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows. Equitysettled compensation The Group operates an employee share ownership plan. Sharebased payments to employees are measured at the fair value of the instruments issued and amortised over the vesting periods. Sharebased payments to nonemployees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using the BlackScholes pricing model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognised for services received as consideration for the equity instruments granted is based on the number of equity instruments that eventually vest. j. Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. k. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits available on demand with banks, other shortterm highly liquid investments with original maturities of 12 months or less, and bank overdrafts. Bank overdrafts are reported within shortterm borrowings in current liabilities in the statement of financial position. l. Revenue and Other Income 25_0100 Page 21 of 44

22 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. When the inflow of consideration is deferred, it is treated as the provision of financing and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue. m. Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. n. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts from customers or payments to suppliers. o. Critical Accounting Estimates and Judgments The directors evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Key estimates (i) Impairment The Group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using valueinuse calculations which incorporate various key assumptions. p. Going Concern During the period end 30 June,the company incurred a loss of 493,754 and the company raised sufficient funds to meet their short term obligations. Subsequent to the period ended, the company completed an IPO and was admitted to the ASX for trading in the company s securities. The Directors now believe that the company has sufficient funds to meet the Company s short term commitments and accordingly the Directors are of the opinion that the going concern basis is appropriate for the preparation of the financial statements for the period ended 30 June. q. Accounting Period The financial report covers the period from 8 February (being the date of incorporation) to 30 June. Accordingly, there are no comparatives. r. New Accounting Standards for Application in Future Periods The AASB has issued new and amended Accounting Standards and Interpretations that have mandatory application dates for future reporting periods and which the Group has decided not to early adopt. A discussion of those future requirements and their impact on the Group is as follows: AASB 9: Financial Instruments (December 2010) (applicable for annual reporting periods commencing on or after 1 January 2013). 25_0100 Page 22 of 44

23 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE This Standard is applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, as well as recognition and derecognition requirements for financial instruments. The Group has not yet determined any potential impact on the financial statements. AASB 124: Related Party Disclosures (applicable for annual reporting periods commencing on or after 1 January ). This Standard removes the requirement for governmentrelated entities to disclose details of all transactions with the government and other governmentrelated entities and clarifies the definition of a related party to remove inconsistencies and simplify the structure of the Standard. No changes are expected to materially affect the Group. AASB 1053: Application of Tiers of Australian Accounting Standards and AASB : Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements [AASB 1, 2, 3, 5, 7, 8, 101, 102, 107, 108, 110, 111, 112, 116, 117, 119, 121, 123, 124, 127, 128, 131, 133, 134, 136, 137, 138, 140, 141, 1050 & 1052 and Interpretations 2, 4, 5, 15, 17, 127, 129 & 1052] (applicable for annual reporting periods commencing on or after 1 July 2013). Since the Group is a forprofit private sector entity that has public accountability, it does not qualify for the reduced disclosure requirements for Tier 2 entities. AASB : Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] (applicable for annual reporting periods commencing on or after 1 January ). This Standard makes a number of editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB. The Standard also amends AASB 8 to require entities to exercise judgment in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. The amendments are not expected to impact the Group. AASB : Amendments to Australian Interpretation Prepayments of a Minimum Funding Requirement [AASB Interpretation 14] (applicable for annual reporting periods commencing on or after 1 January ). This Standard is not expected to impact the Group. AASB : Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101 & AASB 134 and Interpretation 13] (applicable for annual reporting periods commencing on or after 1 January ). This Standard details numerous nonurgent but necessary changes to Accounting Standards arising from the IASB s annual improvements project. This Standard is not expected to impact the Group. AASB : Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042] (applicable for annual reporting periods beginning on or after 1 January ). This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB. However, these editorial amendments have no major impact on the requirements of the respective amended pronouncements. AASB : Amendments to Australian Accounting Standards Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7] (applicable for annual reporting periods beginning on or after 1 July ). This Standard is not expected to impact the Group. 25_0100 Page 23 of 44