ANNUAL FINANCIAL REPORT ATLANTIC VANADIUM HOLDINGS PTY LTD

Transcription

1 10 December 2013 ANNUAL FINANCIAL REPORT ATLANTIC VANADIUM HOLDINGS PTY LTD Please find attached the consolidated annual financial report of Atlantic Vanadium Holdings Pty Ltd (AVHPL) for the year ended 30 June AVHPL is a wholly-owned subsidiary of Atlantic Ltd (Atlantic) and owns 100% of the issued capital of Midwest Vanadium Pty Ltd (MVPL). MVPL owns the Windimurra vanadium project. These accounts have been released to the Security Trustee for MVPL s senior secured notes to comply with the ongoing reporting requirements under the senior secured notes indenture. - ends - For further details please contact: Tony Veitch Company Secretary Atlantic Ltd Ph: About Atlantic Atlantic is committed to building a diversified portfolio of world class resources assets that will provide superior returns to shareholders. Atlantic subsidiary Midwest Vanadium Pty Ltd owns 100% of the Windimurra vanadium and iron ore operation, located approximately 600 kilometres north of Perth in Western Australia. Windimurra hosts one of the largest proven vanadium reserves in the world. Its processing plant is in production, producing ferrovanadium and iron ore. Additional information on Atlantic can be found at

2 ATLANTIC VANADIUM HOLDINGS PTY LTD A.C.N SPECIAL PURPOSE FINANCIAL REPORT For the year ended 30 June 2013

3 SPECIAL PURPOSE FINANCIAL REPORT CONTENTS CORPORATE INFORMATION... 3 DIRECTORS REPORT... 4 MANAGEMENT DISCUSSION AND ANALYSIS AUDITOR S INDEPENDENCE DECLARATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DIRECTORS DECLARATION INDEPENDENT AUDITOR S REPORT

4 CORPORATE INFORMATION DIRECTORS REGISTERED & PRINCIPAL OFFICE Michael Minosora Level St Georges Terrace PERTH WA 6000 Telephone: Facsimile: COMPANY SECRETARY Tony Veitch POSTAL ADDRESS PO Box Z5431 St Georges Terrace PERTH WA 6831 INDEPENDENT AUDITORS Ernst & Young 11 Mounts Bay Road PERTH WA 6000 LEGAL ADVISERS DLA Piper Level St Georges Terrace PERTH WA

5 DIRECTORS REPORT Your Director has the pleasure in submitting their report on the Consolidated Entity, being Atlantic Vanadium Holdings Pty Ltd (AVHPL or the Company) and its controlled entity, Midwest Vanadium Pty Ltd, (MVPL) (together the Group or the Consolidated Entity), for the year ended 30 June DIRECTORS The Directors of the Company during the year and until the date of this report are set out below. Directors were in office for the entire period unless otherwise stated. Mr Michael Minosora Director Appointed 21 September 2010 BBus, MBA, FCA Mr Minosora is a fellow of the Institute of Chartered Accountants in Australia who has over 20 years experience in the corporate advisory arena, advising on significant corporate transactions both in Australia and South East Asia. Mr Minosora was previously Chief Financial Officer of Fortescue Metals Group, Managing Director of Azure Capital and Managing Partner of Ernst & Young in Western Australia. During the past three years he has also served as a Director of the following listed company: Alloy Steel International Inc. Mr Tony Veitch Director Appointed 21 September 2010 Resigned 26 November 2013 BCom, MBA Mr Veitch has a Bachelor of Commerce degree and a Master of Business Administration. Mr Veitch previously acted as a consultant to a wide range of private and public companies. Prior to that, Mr Veitch was the Manager of Corporate Projects for the London Stock Exchange and worked with the Australian Securities Exchange. During the past three years he has also served as a Director of the following listed company: Baraka Energy & Resources Limited. COMPANY SECRETARY Tony Veitch Company Secretary Appointed 2 February 2012 PRINCIPAL ACTIVITIES OF THE GROUP The principal activities of the Group during the year were the commissioning and operation of the Windimurra vanadium project (Windimurra). 4

6 DIVIDENDS No dividends were paid during the year and no recommendation is made for the payment of a dividend. REVIEW AND RESULTS OF OPERATIONS Highlights Significant modification works including a new screening plant and repulper were completed on the crushing, milling and beneficiation circuit (CMB Plant); AVHPL s ultimate parent company, Atlantic Ltd (Atlantic), secured a $ million facility which was provided to the Company as equity; Daniel Harris appointed as Chief Operating Officer in October 2012; Consent obtained from the majority of MVPL s Senior Secured note holders to access US$9.960 million from restricted reserve accounts in November 2012 and a further US$ million in March 2013; $ million research and development tax claim received in December 2012; Atlantic secured a $ million loan facility which was provided to the Company as equity; 80 tonnes of contained vanadium produced at Windimurra for the period; and Maiden shipment of iron ore fines completed immediately subsequent to year end. Windimurra Vanadium Project During the year, AVHPL s wholly-owned subsidiary MVPL continued work to ramp-up production at the Windimurra project with a focus on the CMB Plant. The following key modifications were completed during and subsequent to the financial year to rectify design and construction failures in the CMB Plant: Installation of a new screening plant and repulper; Reconfiguring the CMB Plant to use the ball mill as the primary grinding method rather than as a regrind mill; Feed system to the magnetic separators modified to provide more uniform distribution of ore feed at higher velocity; Magnetic separators modified to improve flow rates and eliminate blockages; and Scavengers and cleaning magnetic separators removed. The modifications focused on reducing the fraction size delivered to the milling and beneficiation circuits by utilising a combination of the new screening plant and using the ball mill as a primary grinding unit. Subsequent to year end, early stage operation of the CMB Plant following the modifications has been very encouraging with improved feed rates and on-stream time. The beneficiation flow scheme is continuing to perform well at higher feed rates with no overflow problems in the magnetic separators and very good performance of the ball mill as a primary grinding unit. MVPL also completed a process flow optimisation study that confirmed overall mass recoveries in the CMB Plant, once fine tuning is completed, should be able to be materially higher than originally forecast, significantly improving the economics of the project by reducing the ore required to be processed to achieve nameplate magnetite concentrate production levels. During the year, open pit mining contractor Minepower was replaced by mining specialists B&J Catalano. Mining focused on the northern cutback of the existing open pit producing the desired blend of ore feeds. 5

7 Safety The Company continued its good safety record during the year and is committed to improving safety practices at Windimurra. Three lost time injuries were recorded in the financial year. The Company is committed to world class safety practices, be that at Windimurra or in the Perth office. Safety is the number one value throughout AVHPL, and the commitment an employee shows to safe work practices forms an integral part of annual performance reviews. Production The Company continued to produce and sell small amounts of vanadium from Windimurra during the period. For the year ended 30 June 2013, 80 tonnes of contained vanadium was produced at Windimurra. Subsequent to year end and the completion of the CMB Plant modifications, Windimurra produced 142 tonnes of contained vanadium through to 31 October The Company is now focused on increasing production of vanadium and the ramp-up to full plant production. Iron Ore During the financial year, MVPL finalised all approvals required to commence shipments of iron ore. In June 2013, haulage of ore from Windimurra to MVPL s port-side storage facility at Geraldton Port commenced and the initial haulage campaign for the first shipment was completed just prior to period end. Subsequent to year end, MVPL has completed four shipments of hematite iron ore fines from Windimurra. Continuous haulage of hematite iron ore fines from Windimurra and shipments from Geraldton is now underway, ramping up to 100,000 tonnes per month, subject to iron ore prices remaining robust. Key Appointments On 9 October 2012, the Company was pleased to announce the appointment of Mr Daniel Harris to the role of Chief Operating Officer. Mr Harris brings a wealth of vanadium industry experience from a career spanning more than 30 years, having worked previously as CEO and COO of Strategic Minerals Corporation s vanadium business. Most recently, Mr Harris worked for Evraz in Moscow as Vice President, Vanadium Assets. Terry Perles was appointed as President, North America during the financial year. Mr Perles brings more than 35 years of vanadium industry experience. Previously he was VP Sales and Marketing at Stratcor, as well as a consultant to vanadium producers and consumers. Mr Perles has also been a consultant to the Vanadium International Technical Committee (VANITEC). Terry Bourke was appointed as General Counsel in June Mr Bourke has had extensive experience in Australia and internationally within the mining, oil and gas, manufacturing and logistics sectors, in a career spanning over 30 years, predominantly with ASX listed companies, and with a strong emphasis on commercial legal matters. Mr Bourke most recently served as General Counsel and Company Secretary of a Perth-based ASX 200 multi-commodity miner. Following the end of the financial year and up to the date of this report, AVHPL made the following appointments within its senior management team: 6

8 Scott Nicholas was appointed to the role of Chief Financial Officer effective 1 July Mr Nicholas was previously Corporate Development Manager holding this position since Prior to that, Mr Nicholas spent three years working within Ernst and Young s Corporate Finance division specialising in mining and resource transactions. Mr Nicholas started his career in audit with a focus on mining and energy clients. Mark Greenaway was appointed to the role of General Manager Operations in July Mr Greenaway has had a successful career in operational management roles with Queensland Alumina, Gladstone Ports Corporation, Central Queensland Ports Corporation and BHP Billiton. Shane Entriken was appointed to the role of Executive General Manager Human Resources and External Affairs in August Mr Entriken has over 20 years experience in Australia and internationally within the mining, resources, logistics and heavy engineering sectors. He has worked with BHP Billiton, Downer EDI and Adani Group where he was Director and VP of HR. Mr Entriken was previously a Senior Legal Advisor with Herbert Smith Freehills and has covered roles in Human Resources, Media and Commercial. LIKELY DEVELOPMENTS The likely developments of the Consolidated Entity and the expected results of those developments in the coming financial year are as follows: (i) Continued ramp-up of production at Windimurra; (ii) Continued shipments of Windimurra vanadium for sale to customers; and (iii) Further shipments of Windimurra iron ore to customers. ENVIRONMENTAL REGULATION AND PERFORMANCE The Group holds licences and abides by Acts and Regulations issued by the relevant mining and environmental protection authorities of Australia. These licences, Acts and Regulations specify limits and regulate the management of discharges to the air, surface waters and groundwater associated with its mining operations as well as the storage and use of hazardous materials. The Consolidated Entity is registered under the National Greenhouse and Energy Reporting Act, under which it is required to report energy consumption and greenhouse gas emissions for the Windimurra project for the 12 months ended 30 June 2013 and future periods. The Group has data collection systems and processes in place to meet these requirements. In addition, the Group s Windimurra project will be required to comply with the Australian Federal Government s Carbon Pollution Reduction Scheme which has been enacted as at the date of this report, commencing 1 July Subsequent to year end, the Group voluntarily opted to join and was granted permission to participate in the Department of Mines and Petroleum s Mining Rehabilitation Fund. There were no significant breaches of the Consolidated Entity s licence conditions or of the relevant Acts and Regulations during the financial year. 7

9 CORPORATE On 2 July 2012, Atlantic completed a placement of 11,363,636 Atlantic fully paid ordinary shares to Mr Michael Minosora, AVHPL s Managing Director, at an issue price of $0.88 per share to raise $ million. The proceeds from this capital raising were used by Atlantic to provide equity to AVHPL and then to provide working capital for Windimurra and for general corporate purposes. On 6 August 2012, Atlantic announced a $ million facility which was provided to the Company as equity. Consent was obtained from the majority of MVPL s Senior Secured note holders to access US$9.960 million from restricted reserve accounts in November 2012 and a further US$ million in March In April 2013, Atlantic secured a $ million loan facility which was provided to the Company as equity. During the year, MVPL submitted a $ million Research and Development Incentive Program tax claim in relation to the financial year ended 30 June The claim was received in full in December 2012 with a further amendment to the claim of $2.213 million received in July SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group during the financial year not otherwise dealt with in this report. SUBSEQUENT REPORTING TO BALANCE DATE Consistent with the reporting obligations of Atlantic, the following disclosures have been made by Atlantic to the Australian Securities Exchange subsequent to 30 June 2013 which should be read in conjunction with this report: Atlantic Ltd Atlantic Announces Maiden Iron Ore Shipment, reported on 2 July Atlantic Ltd New Short-Term Funding Facility, reported 12 July Atlantic Ltd Quarterly Activities and Cash Flow Report, reported 22 July Atlantic Ltd Appendix 3B, reported on 9 August Atlantic Ltd Atlantic Secures Further $20 Million Project Funding, reported 15 August Atlantic Ltd Monthly Production and Sales Report, reported 21 August Atlantic Ltd Monthly Production and Sales Report, reported 9 September Atlantic Ltd Presentation Global Opportunities Conference, reported 19 September Atlantic Ltd Appendix 3B, reported 23 September Atlantic Ltd Full Year Statutory Accounts, reported 1 October Atlantic Ltd Further $11.75 Million Project Funding Secured, reported 16 October Atlantic Ltd Proposed Indenture Interest Reserve Account Changes, reported 23 October Atlantic Ltd Receipt of $27.3 Million R&D Reimbursement, reported 23 October Atlantic Ltd Notice of 2013 Annual General Meeting, reported 24 October Atlantic Ltd Annual Report to Shareholders, reported 24 October Atlantic Ltd Quarterly Cashflow Report, reported 28 October Atlantic Ltd Monthly Production and Sales Report, reported 12 November

10 Atlantic Ltd Note Holder Consent Process Concluded, reported 25 November 2013 Atlantic Ltd Board Change, reported 29 November 2013 Atlantic Ltd Atlantic Secures Further Working Capital for Windimurra, reported 29 November 2013 Atlantic Ltd AGM Presentation, reported 29 November 2013 Atlantic Ltd Results of Meeting, reported 29 November 2013 Atlantic Ltd Atlantic Finalises New Funding Arrangements, reported 2 December 2013 Atlantic Ltd Monthly Production and Sales Report, reported 3 December 2013 In July 2013, MVPL started shipping hematite iron ore fines from Windimurra to overseas buyers. MVPL has made four shipments to date. Subsequent to year end, the Group has decided that for accounting purposes commercial production commenced at Windimurra as at 1 July 2013 and therefore operating costs and revenues will no longer be capitalised. In July 2013, MVPL secured a new short-term funding facility of $ million with a leading Australian bank. The facility was secured by a priority lien over MVPL s rights to receive reimbursement payments from the Australian Taxation Office under the Research and Development Tax Incentive Program in respect of the financial year ended 30 June The interest rate on the facility was fixed at 15% per annum payable monthly in arrears. The facility matured on the earlier of 28 February 2014 and the receipt of the Research and Development Tax Incentive Program claim for the year ended 30 June In September 2013, this funding facility was increased to $ million. In July 2013, MVPL secured approval for the release of its cash-backed environmental performance bonds of $8.507 million. In August 2013, MVPL paid its August interest payment to note holders but failed to replenish the interest reserve account minimum balance of US$5.000 million as required under the Senior Secured Notes Indenture. This is a technical breach of the covenant in the Indenture that was rectified within the permitted period, by replenishing the interest reserve account with the required US$5.000 million. In August 2013, Atlantic secured a $ million funding facility that was provided to the Company as equity. In October through to December 2013, Atlantic secured a further $ million funding facility that was provided to the Company as equity. In October 2013, MVPL received from the Australian Taxation Office a $ million reimbursement under the Research and Development Tax Incentive Program in respect of the year ended 30 June From this reimbursement, $ million was used to repay the fully-drawn short-term loan facility which was secured against the expected reimbursement. In October 2013, MVPL reached agreement with the Senior Secured note holders to access US$5.000 million from the interest reserve account. In addition, the replenishment timing requirements were amended to US$5.000 million in February 2014, fifty percent of one interest payment in August 2014, and one interest payment in February As part of these amendments, MVPL agreed to an increase in the Senior Secured Notes interest rate to 12.25% effective February 2014 and 13.25% effective February

11 In November 2013, the Group was required to hold US$9.631 million in the interest reserve account. The Group held US$5.000 million in the interest reserve account and as a result was in technical breach of the Indenture. The technical breach of the covenant in the Indenture was rectified within the permitted period, by concluding the Indenture and account control agreement amendments in December On 26 November 2013 Tony Veitch resigned as a director of the Company. Mr Veitch remains a full-time employee with Atlantic in the roles of Chief Commercial Officer and Company Secretary. ROUNDING The amounts contained in the financial report have been rounded to the nearest A$1,000 (unless otherwise stated) pursuant to the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the class order applies. AUDITOR S INDEPENDENCE DECLARATION A copy of the Auditor s Independence Declaration as required under Section 307C of the Corporations Act 2001 is set out on page 17. Signed in accordance with a resolution of the board of Atlantic Vanadium Holdings Pty Ltd. MICHAEL MINOSORA Director Dated this 6 th day of December

12 MANAGEMENT DISCUSSION AND ANALYSIS The following management discussion and analysis for AVHPL and its controlled entity MVPL should be read in conjunction with the Consolidated Financial Statements for the period ended 30 June The effective date of this report is 6 December The financial information presented in this management discussion and analysis has been extracted from the attached financial statements. FORWARD LOOKING STATEMENTS Some of the statements contained in this management discussion and analysis, including those relating to strategies and other statements, are predictive in nature, and depend upon or refer to future events or conditions, or include such words as expects, intends, plans, anticipates, believes, estimates, forecasts or similar expressions that are forward looking statements. Forward looking statements include, without limitation, the information concerning possible or assumed further results of operations as set forth herein. These statements are not historical facts but instead represent only expectations, estimates and projections regarding future events and are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations generally. The forward looking statements contained in this management discussion and analysis are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. The future results of the Group may differ materially from those expressed in the forward looking statements contained in this management discussion and analysis due to, among other factors, the risks and uncertainties inherent in the business of the Group. The Group does not undertake any obligation to update or release any revisions to these forward looking statements to reflect events or circumstances after the date of this management discussion and analysis or to reflect occurrence of anticipated events. DOLLAR AMOUNTS All dollar amounts shown in this Special Purpose Financial Report are in Australian dollars unless otherwise stated. 11

13 STATEMENT OF COMPREHENSIVE INCOME Quarter ended Quarter ended Year ended Year ended 30 June 30 June 30 June 30 June $'000 $'000 $'000 $'000 Other operating costs (1,864) (6,551) (6,091) (2,952) Net other revenue, income and expenses (84,248) (765) (87,240) (7,621) Finance expenses (474) (128) (1,753) (861) Net results (86,586) (7,444) (95,084) (11,434) Quarter Ended 30 June 2013 "Other operating costs" consists of royalty expense of $0.018 million, operational support costs of $1.541 million, selling and distributing costs of $0.114 million and carbon tax expense of $0.191 million. Net other revenue, income and expenses consists primarily of unrealised foreign exchange losses of $ million and realised foreign exchange gains of $1.108 million, interest income received of $0.089 million and an impairment charge of $ million for property, plant and equipment and capitalised development expenditure associated with Windimurra. The increase in net foreign exchange losses during the quarter is a result of the weakening of the A$:US$ exchange rate from to , which increased the carrying value of the US dollar denominated Senior Secured Notes. Also included is $2.025 million gain calculated as the fair value through profit and loss for the three months ended 30 June 2013 of the embedded derivative within the gas transportation contract that MVPL has with a third party for the use of the Midwest Gas Pipeline for the transportation of gas to Windimurra. Finance expenses consist of the unwinding of the rehabilitation provision of $0.419 million and interest associated with insurance premium funding of $0.055 million. Borrowing costs including interest income, foreign exchange gains/(losses) and interest expense associated with the Senior Secured Notes were capitalised during the quarter in line with international financial reporting standards as Windimurra meets the definition of a qualifying asset. Year Ended 30 June 2013 Other operating costs consists of royalty expenses of $0.052 million, operational support costs $4.908 million, selling and distributing costs of $0.341 million and carbon tax expense of $0.790 million. Net other revenue, income and expenses consists primarily of net realised foreign exchange gains of $0.410 million and unrealised foreign exchange losses of $ million, interest income of $0.567 million and an impairment charge of $ million for property, plant and equipment and capitalised development expenditure associated with Windimurra. Also included in other expenses is an expense of $0.746 million calculated as the fair value adjustment as at 30 June 2013 of the embedded derivative within the gas transportation contract that MVPL has with a third party for the use of the Midwest Gas Pipeline for the transportation of gas to Windimurra. 12

14 Finance expenses consist of the unwinding of the rehabilitation provision of $1.270 million and interest associated with insurance premium funding of $0.483 million. Borrowing costs including interest income, foreign exchange gains/(losses) and interest expense associated with the Senior Secured Notes were capitalised during the year in line with international financial reporting standards as Windimurra meets the definition of a qualifying asset. STATEMENT OF FINANCIAL POSITION 30 June 30 June $'000 $'000 Cash and cash equivalents ,080 Trade and other receivables 38,291 11,188 Inventory 14,052 9,935 Other current assets 3,407 3,114 Property, plant and equipment 469, ,722 Financial derivative asset 743 1,490 Trade and other payables (52,150) (42,451) Loans and borrowings (350,652) (317,118) Provisions (28,550) (34,582) Net assets 94, ,378 As at 30 June 2013 Cash and cash equivalents at 30 June 2013 consists of $0.112 million held by MVPL. Trade and other receivables are primarily made up of restricted cash on deposit of $9.256 million, which relates to cash backed unconditional environmental performance bonds, guaranteed by a financial institution, and cash backed bank guarantees for the operation of corporate credit cards and other facilities, GST receivables of $1.044 million, other receivables of $0.387 million, interest income receivable of $0.011 million and sundry receivables of $ million. The material component of sundry receivables consists of a Research and Development Tax Incentive Program refund of $ million. Inventory consists of reagent inventory of $1.249 million, warehouse inventory of $ million and ferrovanadium inventory on consignment of $1.325 million. Other current assets consist of gas supply and transportation prepayments of $2.148 million and insurance prepayments of $1.259 million. Property, plant and equipment consists of the carrying value of assets at 1 July 2012 of $ million, additions for the year ended 30 June 2013 of $ million, and depreciation of $0.364 million. In addition, an impairment charge of $ million has been recognised for Windimurra site plant and equipment, capital work in progress and exploration and evaluation expenditure for the year ended 30 June

15 Financial derivative asset is the fair value as at 30 June 2013 of the embedded derivative within the gas transportation contract that MVPL has with a third party for the use of the Midwest Gas Pipeline for the transportation of gas to Windimurra. Trade and other payables primarily relate to liabilities incurred and accrued in relation to the commissioning and operation of Windimurra of $ million, revenue received in advance of $0.174 million and interest accruals for the Senior Secured Notes of $ million. Loans and borrowings primarily consist of the $ million carrying value of the Senior Secured Notes as at 30 June The carrying value of the Senior Secured Notes is calculated by using the amortised cost method and the netting off of transaction costs of $ million. Also included in loans and borrowings is insurance premium funding of $0.516 million and prepayments from vanadium sales of $1.092 million. Provisions consist of a rehabilitation provision of $ million which represents the present value estimate of costs required to rehabilitate Windimurra, an acquisition levy of $2.312 million, provision for carbon tax of $0.790 million and an annual leave provision of $1.144 million. STATEMENT OF CHANGES IN EQUITY Equity Retained earnings / Ordinary contribution (accumulated shares reserve losses) Total $'000 $'000 $'000 $'000 Balance as at 30 June ,730 55,316 (87,680) 94,366 Balance as at 30 June ,791 55,183 7, ,378 Ordinary shares consists of 136,020,014 fully paid ordinary shares of $1.00 each. During the period ended 30 June 2013, the Company issued million fully paid ordinary shares to Atlantic at $1.00 each. Transaction costs on share issues were $4.050 million. Equity contribution reserve consists of a carried forward balance of $ million from the prior period and a further $0.133 million payment contribution from Atlantic. 14

16 STATEMENT OF CASH FLOWS Quarter ended Quarter ended Year ended Year ended 30 June 30 June 30 June 30 June $'000 $'000 $'000 $'000 Operating cash flows (1,581) 38,128 (4,690) 9,007 Investing cash flows (19,541) (57,813) (99,643) (154,746) Financing cash flows 21,209 19,805 80,978 53,513 Opening cash 19 23,478 24, ,155 Exchange rate adjustment (613) 2,151 Closing cash , ,080 Quarter Ended 30 June 2013 Operating cash flows are primarily made up of payments to suppliers and employees of $1.770 million partly offset by interest income of $0.189 million. Investing cash flows relate to payments for property, plant and equipment for Windimurra of $ million and interest payments of $0.470 million, less sales proceeds capitalised of $0.081 million. Financing cash flows consist of proceeds from the issue of shares to Atlantic of $ million, net outflow from borrowings of $0.990 million, and outflows from product financing of $0.016 million. Exchange rate adjustments refer to the revaluation of the US dollar cash balances into Australian dollars and reflects the weakening of the A$:US$ exchange rate during the period. Year Ended 30 June 2013 Operating cash flows are primarily made up of payments to suppliers and employees of $5.334 million, interest paid of $0.135 million and interest received of $0.779 million. Investing cash flows relate to payments for property, plant and equipment for the Windimurra vanadium project of $ million, ferrovanadium sales of $0.785 million, proceeds from Research and Development Incentive Program of $ million and $ million for the interest payments relating to the Senior Secured Notes. Financing cash flows consist of proceeds from the issue of shares to Atlantic of $ million, and net outflow from borrowings of $0.010 million. Exchange rate adjustments refer to the revaluation of the US dollar cash balances into Australian dollars and reflects the weakening of the A$:US$ exchange rate during the period. 15

17 FINANCIAL INSTRUMENTS Cash and cash equivalents are held in short-term interest bearing cash accounts with AA- and A+ credit rated Australian banks. Trade and other receivables are all non-interest bearing and primarily relate to GST receipts which are primarily AA- credit rated. Restricted deposits are held in long-term interest bearing cash accounts with AA- credit rated Australian banks. Trade and other payables are all short-term and non-interest bearing. Loans and borrowings consist of short-term insurance premium funding and the US$ million Senior Secured Notes issued by MVPL. The Senior Secured Notes have a fixed interest rate of 11.5% per annum that increases to 12.25% per annum from 16 February 2014 until 15 February 2015 and to 13.25% per annum from 16 February The Senior Secured Notes have a fixed maturity of 15 February Interest rate risk arises from cash and cash equivalents and loans and borrowings. The Group constantly analyses its interest rate exposure. Within this analysis, consideration is given to the potential renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable interest rates. Interest rate risk is mitigated through the use of fixed interest loans and borrowings and cash investment strategies with both short and long-term maturities. Foreign currency risk refers to the risk that the fair value of future cash flows will fluctuate due to changes in foreign exchange rates. The Group s primary exposure is to the A$:US$ exchange rate as revenues from the Windimurra vanadium project are received in US dollars and expenses incurred are mainly in Australian dollars. Foreign exchange risk is mitigated through US dollars outflows in the form of interest payments and some Windimurra vanadium project expenses (for example soda ash reagent) as well as holding US dollar cash balances where possible. The Group does not engage in any hedging or derivative transactions to manage interest rate or foreign exchange risks. The Group s exposure to credit risk arises from potential default of a counterparty, with a maximum exposure equal to the carrying amount of the financial assets. Credit risk predominately arises from cash deposits with banks and financial institutions and receivables from statutory authorities. The Group manages its capital to ensure that all entities within the Group are able to continue as a going concern while maximising the return to stakeholders through the optimisation of debt and equity balances. 16

18 Ernst & Young 11 Mounts Bay Road Perth WA 6000 Australia GPO Box M939 Perth WA 6843 Tel: Fax: ey.com/au Auditor s Independence Declaration to the Directors of Atlantic Vanadium Holdings Pty Ltd In relation to our audit of the financial report of Atlantic Vanadium Holdings Pty Ltd for the financial year ended 30 June 2013, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Gavin Buckingham Partner Perth 6 December 2013 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation GB:PS:ATLANTIC:035 17

19 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2013 Year ended Year ended 30 June 30 June Note $'000 $'000 Other revenue Other (expense)/income 4 (35,415) (8,051) Impairment 4 (52,392) - Other operating costs 4 (6,091) (2,952) Finance expenses 4 (1,753) (861) Loss before income tax (95,084) (11,434) Income tax benefit - - Loss after income tax (95,084) (11,434) Total comprehensive loss for the period (95,084) (11,434) The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes to the financial statements. 18

20 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June June 30 June Note $'000 $'000 Assets Current assets Cash and cash equivalents ,080 Trade and other receivables 7 37,530 2,332 Inventory 8 14,052 9,935 Other current assets 9 3,407 3,114 Total current assets 55,101 39,461 Non-current assets Trade and other receivables ,856 Property, plant and equipment , ,722 Financial derivative asset ,490 Total non-current assets 470, ,068 Total assets 525, ,529 Liabilities Current liabilities Trade and other payables 12 52,150 42,451 Loans and borrowings 13 1,608 1,128 Provisions 14 4,247 3,000 Total current liabilities 58,005 46,579 Non-current liabilities Loans and borrowings , ,990 Provisions 14 24,303 31,582 Total non-current liabilities 373, ,572 Total liabilities 431, ,151 Net assets 94, ,378 Equity Contributed equity ,730 49,791 Reserves 16 55,316 55,183 Retained earnings/(accumulated loss) (87,680) 7,404 Total equity 94, ,378 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes to the financial statements. 19

21 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2013 Retained Equity earnings / Ordinary contribution (accumulated shares reserve losses) Total Note $'000 $'000 $'000 $'000 Balance as at 1 July ,791 55,183 7, ,378 Loss for the period - - (95,084) (95,084) Other comprehensive income Total comprehensive income for the period - - (95,084) (95,084) Transactions with owners in their capacity as owners: Shares issued 15 80, ,989 Transaction costs on shares issues 15 (4,050) - - (4,050) Contribution from holding company (net of tax) Balance as at 30 June ,730 55,316 (87,680) 94,366 Retained Equity earnings / Ordinary contribution (accumulated shares reserve losses) Total $'000 $'000 $'000 $'000 Balance as at 1 July ,177 18,838 74,026 Loss for the period - - (11,434) (11,434) Other comprehensive income Total comprehensive loss for the period - - (11,434) (11,434) Transactions with owners in their capacity as owners: Shares issued 52, ,400 Transaction costs on shares issues (2,620) - - (2,620) Contribution from holding company (net of tax) Balance as at 30 June ,791 55,183 7, ,378 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes to the financial statements. 20

22 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2013 Year ended Year ended 30 June 30 June Note $'000 $'000 Cash flows from operating activities Payments to suppliers and employees (5,334) (3,229) GST received - 11,235 Interest received 779 1,225 Interest paid (135) (224) Net cash flows used in operating activities 17 (4,690) 9,007 Cash flows from investing activities Receipts from customers Interest paid (37,281) (36,452) Research and development incentive refund 22,631 - Purchase of property, plant and equipment (85,778) (121,063) Proceeds on disposal of property, plant and equipment - 2,653 Net cash flows used in investing activities (99,643) (154,746) Cash flows from financing activities Proceeds from issue of shares 80,988 52,400 Repayment of borrowings (612) (2,483) Proceeds from borrowings - 3,596 Proceeds from product financing Net cash flows from financing activities 80,978 53,513 Net increase/(decrease) in cash and cash equivalents (23,355) (92,226) Cash and cash equivalents at beginning of the period 24, ,155 Net foreign exchange differences (613) 2,151 Cash and cash equivalents at end of the period ,080 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes to the financial statements. 21

23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 CORPORATE INFORMATION The consolidated financial report of Atlantic Vanadium Holdings Pty Ltd (the Company) and its controlled entity Midwest Vanadium Pty Ltd (MVPL) (together the Group or the Consolidated Entity) for the year ended 30 June 2013 was authorised for issue in accordance with a resolution of the Directors on 6 December The ultimate parent entity of the Company is Atlantic Ltd (Atlantic), a company listed on the Australian Securities Exchange (ASX). The financial report of the Group has been drawn up as a special purpose financial report and contains only those disclosures considered necessary by the Directors to meet the financial reporting requirements specified by the Group in connection with the Senior Secured Notes Indenture and the Corporations Act SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A Basis of Preparation The special purpose financial report has been prepared on a going concern basis in accordance with the requirements of the Corporations Act 2001, the recognition and measurement aspects of all applicable Australian Accounting Standards (AASBs) and Interpretations, and the disclosure requirements of Accounting Standards AASB 101 Presentation of Financial Statements, AASB 107 Cash Flow Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The financial report has been prepared on a historical cost basis, except for items which have been measured at fair value as disclosed below in the accounting policies and notes to the financial statements. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars (A$ 000) unless otherwise stated pursuant to the option available to the Company under ASIC Class Order 98/100. Apart from the changes in accounting policy noted below (note 2C), the accounting policies and methods of computation are the same as those adopted in the most recent annual financial report. B Going Concern As at 30 June 2013, the Group has a working capital deficit of $2.904 million (current assets less current liabilities). The Group has cash on hand at 30 June 2013 of $0.112m. The Group has trade and other payables at 30 June 2013 of $ million (2012: $42.451m). Included within this trade and other payables amount is $ million in interest accruals in relation to the Senior Secured Notes August 2013 interest payment. 22

24 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B Going Concern (continued) In addition, subsequent to year end, the Group has twice breached a covenant in the Senior Secured Notes Indenture relating to the minimum funds required to be held in the interest reserve account. The Group rectified the breach in October and then again in December 2013 by firstly replenishing the reserve account and secondly by concluding the indenture and account control agreement amendments. Notwithstanding the above, the Director is satisfied that it is appropriate to prepare the financial statements on a going concern basis having regard to the following factors: Completion of a $ million short-term funding facility with a leading Australian bank after period end; Receipt of a $ million equity injection from Atlantic in August 2013; Release of cash backed environmental performance bonds of $8.507 million in July 2013; Vanadium and iron ore production at Windimurra is scheduled to ramp-up over the coming months; The receipt of $ million from a Research and Development Incentive Program claim for the year ended 30 June 2013 in October 2013, with part proceeds received from the claim used to repay the $ million short-term funding facility; Receipt of a further $ million equity injection from Atlantic in October through December 2013; Approval by the Senior Secured note holders to reduce the interest reserve minimum account balance to nil in December 2013 to be replenished to US$5.000 million in February 2014, fifty percent of one interest payment in August 2014 and one interest payment in February 2015; The Group is in the process of negotiating a loan facility for additional working capital to be utilised during the ramp up phase; and Ongoing financial support from Atlantic Ltd. There are a number of inherent uncertainties about the achievement of the Group s future plans including but not limited to: Achieving production targets at Windimurra in accordance with the Group s plan. As at the date of this report, Windimurra has not yet met production targets; Managing the Group s working capital requirements; and Raising additional funds via debt or equity as and when required. Should the Group not be able to manage the inherent uncertainties referred to above, there would be significant uncertainty as to whether the Group would be able to meet its debts as and when they fall due and thus continue as a going concern. The Director is confident that, if required, the Group will be able to raise additional working capital. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts or classifications of liabilities that might be necessary should the Group not be able to continue as a going concern. 23

25 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C New Accounting Standards and Interpretations The following amended Australian Accounting Standards and Interpretations relevant to the operations of the Consolidated Entity and effective 1 July 2012 have been adopted from 1 July AASB Amendments to Australian Accounting Standards Deferred Tax: Recovery of Underlying Assets, effective 1 January 2012; AASB Amendments to Australian Accounting Standards Orderly Adoption of Changes to the ABS GFS Manual and Related Amendments [AASB 1049], effective 1 July 2012; AASB Amendments to Australian Accounting Standards Presentation of Items of Other Comprehensive Income, effective 1 July 2012; AASB Amendments to Australian Accounting Standard Improvements to AASB 1049, effective 1 July 2012; AASB Amendments to AASB 1049 Extension of transitional Relief for the Adoption of Amendments to the ABS GFS Manual relating to Defence Weapons Platforms. The adoption of these standards did not have any impact on the current period or any prior period and is not likely to affect future periods. 24

26 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D Accounting Standards and Interpretations Issued But Not Yet Effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the year ended 30 June These are outlined in the table below. Reference Title Summary of change Application date of standard Application date for Group AASB Further amendments This standard only affects first-time adopters of 1 Jan Jul 2013 to Australian Australian Accounting Standards or International Accounting Standards Financial Reporting Standards. It removes Removal of Fixed references to 1 January 2004 from AASB 1 and Dates for First-Time replaces them with the date of transition to Adopters Australian Accounting Standards. AASB 9 Amendments to This standard only affects first-time adopters of 1 Jan Jul 2015 Australian Accounting Australian Accounting Standards or International AASB Standards arising from AASB 9 Financial Reporting Standards. It removes references to 1 January 2004 from AASB 1 and replaces them with the date of transition to Australian Accounting Standards. AASB 12 Disclosure of Interests AASB 12 includes all disclosures relating to an 1 Jan Jul 2013 in Other Entities entity s interests in subsidiaries, joint arrangements, associates and structures entities. New disclosures have been introduced about the judgements made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with noncontrolling interests. AASB Amendment to AASB In December 2012, the AASB decided to 1 Jan Jul arising from the withdraw Australian Interpretation 1039 Withdrawal of Substantive Enactment of Major Tax Bills in Australian Australia. The Board felt that the guidance was no Interpretation 1039 longer considered necessary given the issue is not unique to Australia. Further, the withdrawal was in line with its policy on only issuing a domestic interpretation of an IFRS in rare and exceptional circumstances. 25

27 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D Accounting Standards and Interpretations Issued But Not Yet Effective (continued) Reference Title Summary of change Application date of standard Application date for Group AASB 10 Consolidated Financial AASB 10 establishes a new control model that 1 Jan Jul 2013 Statements applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to other standards via AASB AASB 11 Joint Arrangements AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointly-Controlled Entities Non-Monetary Contributions by Ventures. AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition it removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the venturers a right to the net assets is accounted for using the equity method. Consequential amendments were also made to other standards via AASB and amendments to AASB Jan Jul

28 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D Accounting Standards and Interpretations Issued But Not Yet Effective (continued) Reference Title Summary of change Application date of standard Application date for Group AASB 13 Fair Value AASB 13 establishes a single source of 1 Jan Jul 2013 Measurement guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB AASB 119 Employee Benefits The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans are recognised in full with actuarial gains and losses being recognised in other comprehensive income. It also revised the method of calculating the return on plan assets. The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB Jan Jul