MGX RESOURCES LIMITED — Annual Report 2011

Oct 13, 2011

2011 Annual Report

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Contents

Operational Highlights	4
Financial Highlights Chairman’s Report	5 6
Managing Director’s Report	8
Operational Review	10
Tallering Peak Koolan Island Extension Hill Direct	10 11
Shipping Ore (DSO) Project	12
Exploration	13
Sustainability Environment	14 15
Health and Safety	17
Community	19
Resources & Reserves	21
Financial Report	23
Corporate Directory	99

Mount Gibson Iron Limited is an Australian based iron ore company and is well-established in the bulk commodities sector. The company was established in Perth in 1996 and was listed on the Australian Securities Exchange in 2002.

Mount Gibson owns and operates three hematite iron ore mines in Western Australia – the Tallering Peak mine, east of Geraldton in the Mid West region, the Koolan Island mine off the Kimberley coast in the remote north-west of the State, and the Extension Hill mine in the Mt Gibson range east of Geraldton.

As a major iron ore producer in Western Australia’s Mid West region, Mount Gibson is a driving force behind development in the area, advancing essential road, rail and port infrastructure projects.

Having weathered the global financial crisis and pricing volatility following the demise of the benchmark pricing mechanism, Mount Gibson has performed well, cementing its place as one of Australia’s most successful resource companies.

PuRPose To PRovide susTAinAble long-TeRm ReTuRn To shAReholdeRs.

CoRe vAlue A suCCessful, PRofiTAble And susTAinAble mid-CAP mining ComPAny.

Mount Gibson Iron Limited 2011 Annual Report

3

OperatiOnal HigHligHts

TRAnsiTion fRom ConTRACT To owneR mining AT KoolAn islAnd AnnuAl oRe sAles of 5.2 million Tonnes

exPloRATion dRilling of KoolAn islAnd wesT end CommenCed exTension hill mining CommenCed

Mount Gibson Iron Limited 2011 Annual Report

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Financial HigHligHts

full yeAR neT PRofiT AfTeR TAx of $239.5 million uP 81%

mAiden fully fRAnKed dividend deClARed 4 CenTs PeR shARe

sAles Revenue of $672.1 million uP 25%

oPeRATing PRofiT befoRe TAx $342.9 million uP 82%

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ToTAl AsseTs $1,557.1 million uP 20%

neT AsseTs $1,166.5 million uP 26%

CAsh on hAnd AT 30 June 2011 $387.0 million

debT fRee

Mount Gibson Iron Limited 2011 Annual Report

5

cHairman’s repOrt

Arbitration

iT is wiTh PleAsuRe we RePoRT To you ouR ResulTs foR 2010/11 – A yeAR whiCh leAves mounT gibson iRon in iTs sTRongesT finAnCiAl PosiTion To dATe.

As reported last year, arbitral proceedings with Pioneer Iron and Steel Group Co Ltd (Pioneer) and Rizhao Steel Holding Group Co Ltd. (Rizhao) were successfully concluded in the early part of the current year with an award of around US$23 million due from Pioneer and US$114 million in damages from Rizhao. These amounts remain outstanding and Mount Gibson continues to pursue settlement, and we will keep you updated as to the outcome.

Iron ore pricing

The Company has successfully weathered the uncertainty of the last few years and now boasts three operating mines, substantial cash reserves and zero debt. In addition we declared our maiden fully franked dividend at year end.

Profit

Our net profit after tax to 30 June 2011 was a record $239.5 million – an outstanding result that is testament to the way in which we have worked to sustain operations throughout the vagaries of the market cycle. We have not allowed external factors to impede our focus on the disciplined conduct of our core business.

In November we announced that an agreement had been reached with major customers Shougang Concord International Enterprises Company Limited (Shougang) and APAC Resources Limited (APAC) on a revised pricing mechanism to apply under ore sales agreements for Tallering Peak and Koolan Island iron ore product. The revised pricing mechanism will now reflect a market-based clearing index.

The agreed revised pricing mechanism adopts the Platts Iron Ore Index Price which is published daily for iron ore product with Fe content ranging from 58% to 65%. The price paid by Shougang and APAC is based on the applicable Platts Index for the type and quantity of ore delivered and will reflect the average Platts Index for the calendar month preceding a shipment.

This new market clearing pricing system is a significant departure from the old benchmark system and better reflects market supply and demand. It will help to insulate producers and purchasers from negative impacts and will allow Mount Gibson to participate directly in market driven price movements.

6 Mount Gibson Iron Limited 2011 Annual Report

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Koolan Island offtake

Following the successful pricing negotiations with Shougang and APAC as outlined above, Mount Gibson sought to negotiate similar revised pricing mechanisms with its other two customers, CITIC and Marubeni, who had purchased percentages of life of mine production from Koolan Island.

Despite lengthy and good faith negotiations, no agreement was able to be reached with these customers and as such the sales agreements have ceased to be binding on either party.

However, Mount Gibson’s offtake agreements with Shougang and APAC provide that, where other customers’ agreements cease to be binding, then production formerly allocated to these other customers becomes “available production”, the subject of Shougang’s and APAC’s agreements.

Extension Hill offtake

Prior to the commencement of production at its new hematite mine at Extension Hill, Mount Gibson had entered into life of mine offtake agreements with major customers Shougang (80% of production) and APAC (20% of production).

As a result of not being able to agree a pricing mechanism with these customers in the sales agreements for Extension Hill iron ore product, these offtake agreements were terminated in April and July respectively. Subsequently, Mount Gibson announced in August that it had entered into a long-term offtake agreement with Glencore International, one of the world’s leading integrated producers and marketers of commodities.

The new agreement will see Glencore purchase 48% of life of mine production from Extension Hill, with pricing referable to a market-based clearing mechanism using Platts Indices.

With nearly half of Extension Hill production now under contract, we anticipate concluding further agreements in respect of remaining unallocated tonnages in the near future.

People

On behalf of the Board, I would like to offer my sincere thanks to our loyal and dedicated staff for their efforts during the year.

There have been a number of changes to Mount Gibson’s Board this year. Currently, the Board is seeking to appoint two new independent Directors in order to ensure that we then have a majority of Directors who are independent of the Company’s major shareholders. Currently, we are a Board of eight.

Following three and a half years as Chairman, Mr Neil Hamilton decided not to stand for re-election at last year’s Annual General Meeting, and Mr Craig Readhead was elected as Chairman. In addition, Mr Peter Knowles was not re-elected.

In February, Mr Peter Curry joined the Board as alternate Director to Mr Lee Seng Hui in place of Mr Robert Willcocks. In May, I was appointed as an independent Non-Executive Director.

Early in the new year, Mr Ian Macliver advised the Board that he intends to retire as soon as a suitable replacement can be found, and as such the Board is now seeking a third independent Director.

In August, Mount Gibson announced my appointment as Chairman, replacing Mr Readhead who remains on the Board as a Non-Executive Director. Clearly these changes have been unsettling and a major priority is to “settle” the Board down and agree an ongoing strategy for our management to deliver so as to maximise our returns to shareholders. Mount Gibson will have completed an update of its Corporate Governance policies, further progressed the appointment of two independent

Directors and a strategy review, prior to the Annual General Meeting at which time I hope to be able to update you on this and other matters.

Mount Gibson is fortunate in these uncertain times to have nearly $400 million in cash; no debt and strong cash flows looking forward.

We are well placed to take advantage of market opportunities, should they arise and to weather potential difficult market conditions.

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Geoffrey Hill, Chairman

Mount Gibson Iron Limited 2011 Annual Report 7

managing directOr’s repOrt

The 2011 financial year was punctuated by contrasting halves. Significant milestone achievements were recorded during the year whilst factors outside the control of Mount Gibson defined the challenges faced by our business.

The global economy experienced significant volatility throughout the 2011 financial year however Mount Gibson managed to deliver record profitability driven by strong demand from China which was supported by the strength of the iron ore price.

The recovery of the major economies continues to be uncertain as the initiatives introduced by these economies struggle to sustain growth and as a consequence Mount Gibson must remain disciplined in our application of capital and continue to evaluate and seize growth opportunities consistent with our carbon steel materials focus whilst not desensitising to diversifying our commodity base, market and geography.

Mount Gibson has managed to continue to de-risk its business throughout the year by delivering on its key objectives of building a strong cash balance, eliminating debt and applying prudent capital expenditure to sustain and enhance projects. This discipline has resulted in strengthening our balance sheet which will support our capability and capacity to grow. The strength of our balance sheet has also contributed to Mount Gibson’s maiden dividend.

Mount Gibson values the safety and wellbeing of our employees and pleasingly recorded a significant improvement in our LTIFR. Although our statistical safety performance has shown improvement in areas, incidents have occurred within our organisation which illustrate the risks associated with our business and the need to ensure our behaviours and controls reflect our core health and safety values.

Mount Gibson is also committed

to operating in an environmentally robust manner against a backdrop of increasing regulation and compliance. As a minimum Mount Gibson strives to ensure full compliance with its environmental obligations and continuously strives to minimise our impact on the environment and enhance the communities in which we operate.

Significantly in the 2011 financial year the annual negotiated benchmark iron ore pricing system was abandoned by the world’s leading iron ore producers and was replaced by short-term market clearing reference pricing. Mount Gibson quickly adapted to the shortterm reference pricing mechanism and successfully renegotiated benchmark pricing agreements with major customers and implement iron ore pricing linked to market clearing reference pricing.

Unfortunately Mount Gibson was unable to agree with some customers an alternative pricing mechanism to the benchmark price which ceased to exist and, as such, those customers’ agreements ceased to be binding. Production allocated under these agreements has been purchased by existing long-term customers at applicable market clearing reference pricing.

Mount Gibson was also unable to agree terms and conditions with existing customers for its Extension Hill production and terminated these agreements in accordance with their terms. Mount Gibson has subsequently announced that 48% of Extension Hill’s production has been placed with Glencore International, one of the world’s leading integrated producers and marketers of commodities. Mount Gibson is confident of placing the remaining Extension Hill production under long-term agreements linked to market clearing reference pricing.

Although 2011 was challenging, management is encouraged by the operational performance of the business which establishes a firm foundation for a solid year ahead.

Mount Gibson’s operational performance was significantly and adversely impacted by severe rainfall events in the Mid West and an extreme tropical wet season in the second half of the financial year which caused widespread flooding and infrastructure damage. Recovery from these events was protracted, particularly at Koolan Island which was exacerbated by Mount Gibson’s transition from contract mining to owner mining. The impacts of this transition are expected to continue throughout the first quarter of the 2012 financial year however Mount Gibson is confident that an investment in our own workforce will have lasting productivity, cost and management benefits.

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Mount Gibson Iron Limited 2011 Annual Report

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Mount Gibson has suffered, like the rest of the mining industry, from deteriorating productivity across our businesses as we compete for scarce human capital and equipment. Wages growth is difficult to contain whilst the skills base of operators, trades, technocrats, supervision and management is diluted leading to reduced uptime and increased rework. This is a constant challenge for Mount Gibson which sharpens our resolve to ensure the complexity of our operating business is minimised as much as possible whilst containing the scope and complexity of capital infrastructure projects.

Pleasingly Mount Gibson has all but completed the construction of the Extension Hill hematite mine in the Mid West of Western Australia. First ore was mined from this operation in the March 2011 quarter and the first iron ore shipments are expected to leave the Geraldton port in November 2011 which will be a significant milestone.

Initially, production from the Mid West is expected to be restricted until approximately March 2012 when train unloading infrastructure and common user facilities at the Geraldton Port is finally commissioned.

Unfortunately the challenges that face Mount Gibson have escalated with the Federal Government’s plan to introduce a Mineral Resource Rent Tax, Carbon Tax and reduce the diesel fuel rebate which erode the bottom line of Mount Gibson’s financial performance making the company less competitive given Mount Gibson’s relatively high cost base. These and other factors such as the uncertainty surrounding European and United States economies and China’s inflationary pressures serve as strong incentives to ensure Mount Gibson remains vigilant, disciplined and ready for change.

Mount Gibson made a considerable investment in our business in the 2011 financial year which will see our annualised sales continue to grow in the near term. Mount Gibson has demonstrated a clear and disciplined strategy of growing value by applying discipline to our operational, investment and strategic decisions.

Our team of employees, contractors, suppliers and other stakeholders underpin Mount Gibson’s operational performance. I would like to sincerely thank them for their contribution, commitment and diligence throughout a challenging yet rewarding year.

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Luke Tonkin, Managing Director

mounT gibson mAde A ConsideRAble invesTmenT in ouR business in The 2011 finAnCiAl yeAR whiCh will see ouR AnnuAlised sAles ConTinue To gRow in The neAR TeRm. mounT gibson hAs demonsTRATed A CleAR And disCiPlined sTRATegy of gRowing vAlue by APPlying disCiPline To ouR oPeRATionAl, invesTmenT And sTRATegiC deCisions.

Mount Gibson Iron Limited 2011 Annual Report

Mount Gibson Iron Limited 2011 Annual Report

9

OperatiOnal review

solid PRoduCTion levels in The fiRsT hAlf yeAR

AdveRse weATheR in febRuARy AffeCTs PRoduCTion

suCCessful modifiCATions imPRove CRusheR PeRfoRmAnCe

inCReAse in wAsTe movemenT oveR PRevious yeAR

tallering Peak

Tallering Peak’s ore tonnes mined, crushed, transported and shipped decreased from the previous year, due to adverse weather conditions in the March quarter and issues related to contract blast hole drilling performance and reserve definition at the top of T6 orebody.

Significant rainfall during February in and around the mine site resulted in flooded river crossings, necessitating suspension of road transport to and from the mine until water levels receded. Force majeure notices were issued to customers and as a result, shipping was reduced during the second half of the year as customers rescheduled deferred shipments.

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Production was also negatively impacted in the second half of the year by the inability of the blast hole contractor to achieve drilling schedules due to poor equipment and labour availability. The contractor’s fleet was supplemented with additional units and maintenance resources in the June quarter to address this issue.

Early in the year, production was in line with targets, with high grade ore sourced from the T6a2 pit and then blended with ore accessed from T2 and T5 pits. Waste movement was above expectations and focused on exposing ore in T6a3 pit while developing T6b1 and T6b2 cutbacks.

Mining of the T2 and T5 pits was completed in the second quarter and the pits were later backfilled with waste from the Main Range pit.

Crusher throughput in the first half of the year was higher than the previous year, due to successful modifications and additional opportune maintenance. Road haulage in the first six months exceeded projections, while rail haulage reached record levels.

In the early part of 2011, ore was predominately sourced from T6a3 with access being made to the T6a3c ore benches. Drilling in this area identified two thick dolerite dykes which cut the orebody at the eastern end of the original T4 pit, with further infill drilling improving the definition of the orebody adjacent to the intrusive dolerites.

In the final quarter, material movement, mining, crushing, road haulage all recovered to near-target levels following the adverse weather. Shipments, however – while up on the previous quarter – were adversely affected by ocean swells in the port which restricted vessel loading.

10 Mount Gibson Iron Limited 2011 Annual Report

TRAnsiTion fRom ConTRACT To owneR mining

medium To long TeRm CosT And PRoduCTiviTy AdvAnTAges PRediCTed exTReme weT seAson AdveRsely AffeCTs PRoduCTion

koolan island

All major production indicators for Koolan Island were down on the previous year, due to a particularly extreme wet season and the temporary disruption accorded by the transition to owner mining in the final quarter.

Ore production and material movement were both 27% lower than 2009/2010, as wet weather significantly impacted operations and the floor areas of existing pits reduced significantly, restricting equipment productivity.

While Mount Gibson budgets lower output from Koolan Island during the wet season as a matter of course, this year’s season saw nearly 1,500mm of rain recorded on the island between December and April – approximately twice the average rainfall for the period.

The deluge caused widespread flooding of Koolan Island’s open pits, causing major disruptions to mining of existing satellite ore sources of Mullet Acacia and Barramundi pits, from which the operation did not fully recover until the final quarter of the year.

The water inundation of the crusher and ship loading areas significantly disrupted crushing, screening and loading activities. The secondary crushing circuit experienced excessive vibration as the area surrounding the concrete footings partially liquefied resulting in the mechanical failure of the secondary crusher, which was replaced in April. Works were also undertaken to significantly enhance the structural footings of the crusher to avoid similar events in the future.

Prior to the impact of the extreme wet season, material movement and ore mined had been in line with targets, while shipments exceeded projections at the half year point. Ore crushed, however, was down on the previous year as final product ore stockpiles were drawn down, allowing major maintenance repairs on both the primary and secondary crusher circuits.

The primary supply of high grade ore from Koolan Island during the year was sourced from Mullet Acacia pit while Barramundi West ore provided a secondary ore source. Stage 1 Main Pit ore production is due to commence in October 2011, following completion of rehabilitation activities and the construction and instrumentation of the seawall.

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Contract labour on site has been replaced and Mount Gibson is in the process of replacing heavy equipment that was provided as part of the contract. The company is also taking this opportunity to replace major components on the heavy mining and ancillary fleet while additional fleet is delivered to site.

Despite the disruption of the transition, ore production in the final quarter at Koolan Island exceeded the previous quarter by 22%, waste movements by 31%, and crushing and screening by 87%. Production from the crushing and screening facility is expected to further increase into the new year as reliability and throughput of the plant continues to improve following operating and maintenance improvements.

Koolan Island’s mining and maintenance contract expired at the end of June. The transition to owner mining – while impacting performance in the final quarter as expected – has progressed well as we enter the new year.

Mount Gibson Iron Limited 2011 Annual Report 11

mining CommenCed CRushing And sCReening To CommenCe in oCTobeR loCAl RAil uPgRAde ComPleTed

TRACK ACCess And RAil hAulAge AgReemenTs in PlACe

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extension Hill direCt sHiPPing ore (dso) ProjeCt

With Ore Reserves of 14.3 million tonnes and Mineral Resources of 22.1 million tonnes, the Extension Hill project has very similar operational characteristics to Tallering Peak, with the added advantage of a lower strip ratio.

Mining commenced in the first quarter of the year, with a total of 644,000 cubic metres of waste and 300,000 tonnes of ore mined by the end of June. Commencement of crushing and screening activities has been delayed while the facility design and construct contractor remedies areas of the facility to ensures it satisfies requirements of the applicable Australian Standards. The facility is due to be commissioned in October.

Owing to logistics constraints, Extension Hill will be limited to shipping 3 million tonnes per annum of hematite ore, and has in place track access and rail haulage agreements to cater for at least this amount. All required rail wagons are on site and a $90 million upgrade of the rail line between Geraldton and Perenjori by Brookfield Rail Pty Ltd (formerly Westnet Rail Pty Ltd) has been completed.

Ore mined, crushed and screened at Extension Hill will be transported by sealed road to Perenjori and then railed to Geraldton Port, where it will be stored at Mount Gibson’s ore storage facilities being constructed next to the new Berth 5 ship loading facility before being loaded for export. Mount Gibson has committed to fund the Geraldton Port Authority’s train unloader upgrade to maximise the capacity of the port’s facilities.

Geraldton Port infrastructure is now unlikely to be commissioned until March 2012 due to train unloader design and construction delays as a consequence of the interface between the common user facilities and Karara Mining port infrastructure, restricting output from Extension Hill in the first half of the new year.

In the interim, Mount Gibson intends to utilise, as far as practicable, its existing Berth 4 facilities to mitigate the impact of delays in the construction of the port’s train unloader facility. However, full 3 million tonne per annum shipping rates from both Tallering Peak and Extension Hill will only be achieved when the upgraded train unloader is commissioned.

12 Mount Gibson Iron Limited 2011 Annual Report

explOratiOn

tallering Peak

The Main Range resource and diluted reserve models were updated during the year, focusing on the T4/T6 interface in an area intruded by dolerite dykes with limited prior drilling.

Infill drilling was undertaken in this area and the results have improved definition of the orebody adjacent to the intrusive dolerites and of the top of the orebody in this area. In general, the re-interpretation has resulted in some ore loss at the top of the orebody and ore gains at depth.

koolan island

Main Pit

Over the course of the year, resource infill drilling at Main Pit saw a total of 59 reverse circulation holes completed for 9,126 metres. The drilling has successfully continued to convert remaining in-pit Resources to Reserves and has improved ore definition required for short-term mine planning.

New results have demonstrated the robustness of the Main Pit resource and have resulted in the definition of a thicker orebody than interpreted from wider spaced drilling. Assay results have generally been outstanding, confirming the extremely high grade, low contaminant nature of the Main Pit orebody. Drillhole PKRC1451 resulted in an excellent intersection of 46m @ 65.6% Fe, indicating that internal waste zones may be overstated in some areas.

West End

A drilling program of 30 holes was approved by the Department of Mines and Petroleum during the second quarter for the previously untested West End of Koolan Island. At the same time, approvals were also received from the traditional owners to allow access track development.

Following the completion of the wet season, drilling commenced with 6 holes for 1,052 metres – all low priority targets as a result of access constraints. Hematitic sandstones with no significant mineralisation were intersected in these initial holes.

Before year end, three kilometres of old BHP tracks were re-established and one kilometre of new track created, while 12 drill pads were cleared.

However, Main Pit drilling remains challenging due to friable nature of the ore zones, with several holes terminated before fully intersecting the orebody.

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Mount Gibson Iron Limited 2011 Annual Report 13

sustainability

mounT gibson RemAins CommiTTed To The PRinCiPles And PRACTiCes of good CoRPoRATe And enviRonmenTAl CiTizenshiP. The ComPAny mAinTAins sTRong PARTneRshiPs wiTh loCAl CommuniTies, goveRnmenTs And businesses To develoP essenTiAl infRAsTRuCTuRe And PRovide benefiTs To All CommuniTy membeRs.

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14 Mount Gibson Iron Limited 2011 Annual Report

environment

Mount Gibson’s operational and financial performance – and the sustainability of our industry – is inextricably linked to responsible environmental practices. The company applies appropriate industry practices across all our operations, ensuring that the natural environment is protected and responsibly managed.

Credible environmental management is a key driver for the company, and we invest in a range of activities in order to minimise any impact of our operations – be it as a result of mining, processing or ore transport. In addition to these activities, Mount Gibson achieved a number of significant environmental outcomes across our operations this year.

Tallering Peak

Regulatory Approvals

Approval was given during the year for the expansion of the crusher load-out and relocation of the lay-down yard. The operation’s Site Licence was renewed and the updated Closure Plan submitted.

Flora

A survey was conducted to assess the population of the significant flora species Eremophila sp. Tallering . The survey was conducted by the same consultant botanists who conducted the previous survey on the species in 2008.

The survey found that between 2008 and 2010 the number of plants had increased from 5,134 to 6,663, an increase of nearly 30%. Although this represents a significant increase, it was noted that there had been some plant loss due to mining impact in one area and additional management measures are being undertaken to avoid further disturbance.

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Rehabilitation

An experienced contractor with a small bulldozer has been on site since April 2011 to prepare areas that are no longer operational for rehabilitation. The smaller dozer is better able to contour the slopes to the required angle and spread the previously collected topsoil to the required depth. Once the ground is contoured and topsoil is spread, seeding using local species will take place.

Heritage

A meeting was held in April with the Wadjarri Yamatji group where agreement in principle was reached for the approval of mining at T1 deposit. As part of the Program of Work submission a heritage survey of the area will be conducted.

Koolan Island

Marine Surveys

Three marine surveys were conducted during the year to ensure the Koolan Island operation does not impact on the marine environment.

Rehabilitation

A number of rehabilitation activities have taken place on the Island during the year. In order to facilitate these activities, a new winged tyne was ordered and delivered to the Island late in 2010. This equipment weighs 1200 kilograms and has been specifically designed for a D10 bulldozer. The key emphasis of the tyne is to remove compaction both vertically and horizontally, promoting the potential for root and mycorrhizal growth.

The tyne assisted in the deep ripping of the area around Barramundi Bay 4 waste dump, following an application of overburden and top soil. The area was then hand seeded with provenance species collected from the Island.

Fauna corridors are being developed in last year’s rehabilitated areas and emphasis is being placed on 100% biodiversity for Koolan Island to assist with development towards completion criteria.

Weed Control

A weed research program focused on passion fruit vine has been discussed with the Department of Environment and Conservation, while primary weed control work has focused on the three declared weed species on Koolan Island. During the year other weed control work was also conducted and previous control sites assessed.

Mount Gibson’s objective is to eradicate all three declared weed species from the Island.

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Northern Quoll

A radio tracking project on the Northern Quoll commenced during the year, with the aim of redefining the quoll’s home ranges, but was suspended during the reproductive season. It is hoped that ongoing findings may result in changes to the quoll clearing process, which would be of benefit to the mine by reducing some timing constraints.

The Island’s annual quoll monitoring has shown that there has been a 25% increase in quoll population since the previous year.

Regulatory Approvals

The Works Approval for dewatering Mullet Pit was received from the Department of Environment and Conservation in June. A Main Pit Project Management Plan was submitted to the Department of Mines and Petroleum and approval obtained to mine below mean sea level.

Environmental Reports

The Koolan Island Four Yearly Review was submitted to the Environmental Protection Authority in June. Also during the year, the site completed annual reports for the monitoring of weeds and flora, as well as annual environmental review and compliance reports.

A site review by representatives from the Department of Environment and Conservation resulted in favourable feedback that, from an overall environmental perspective, the site was well run, clean and one of the better sites within the industry.

Mount Gibson Iron Limited 2011 Annual Report 15

Extension Hill

Site Works

Construction works for the Extension Hill mine site, haulage road and rail siding were largely completed during the year, with the environmental team focusing on the management of clearing activities and topsoil storage.

A waste management hierarchy has been implemented on site, with disposal to landfill being the least preferred option. In accordance with this, a recycling program has been implemented with most wastes – including cardboard, paper, plastic, glass, aluminium cans, scrap steel and batteries – being sent off site for recycling.

Following the opening of the new Great Northern Highway deviation, Extension Hill site personnel conducted a cleanup of the closed section of the road to remove litter that has built up over the years along the side of the highway.

In the course of daily operations, the environmental team has successfully rescued and released a sand goanna and a yellow-throated miner that were both clipped by passing vehicles on Great Northern Highway, as well as two microbats that showed symptoms of stress. A female mallee military dragon that was also clipped by a vehicle is currently with a wildlife carer, while three thorny devils and a Stimpson’s python were safely relocated from roads and impact areas.

Malleefowl

A Malleefowl Mound Monitoring Survey is conducted once every breeding season and during this year’s survey in November, a total of 12 mounds were recorded as active.

Mount Gibson communicates regularly with the North Central Malleefowl Conservation Group to remain abreast of any new developments or improvements in Malleefowl conservation practices, while also providing financial assistance to this not-for-profit group.

The company also promotes awareness on site at Extension Hill of the plight of the Malleefowl through various media including inductions, photographs, signs and site notices.

Declared Rare Flora

Regular monitoring of the health status of the site’s two Declared Rare Flora species ( Darwinia masonii and Lepidosperma gibsonii ) is conducted by the site environmental team, including monitoring of additional environmental factors such as dust, wind, rainfall and groundwater. There have been no detrimental impacts on these species as a result of mining activities detected outside of the approved disturbance area.

A PhD student project undertaken during the year provided data which will be used in a site rehabilitation and translocation program for these species. The project looked at the restoration and physiological response of the two Declared Rare Flora species, together with Priority species Acacia cerastes , and provided a comparison of plants growing in natural areas and planted across several different substrates.

Seed Collection and Restoration

Prior to the commencement of mining, a seed collection program was undertaken with the assistance of several postgraduate students from the University of Western Australia and Edith Cowan University. Over 30 different species, including Declared Rare Flora species Darwinia masonii and Priority species Acacia cerastes were collected. These seeds are now in storage alongside a previous collection to be used in future rehabilitation.

Work will now focus on restoration planning, aided by small-scale research trials in a recently abandoned borrow pit used for the construction of the Great Northern Highway deviation. This research will look at the utility of the soil-stored seed bank and supplementary seed broadcasting as options for rehabilitation of altered substrates. The project will employ the principles of Landscape Function Analysis to explore restoration thresholds and barriers to successional pathways and identify end-point criteria for success.

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16 Mount Gibson Iron Limited 2011 Annual Report

HealtH and safety

The health and safety of our employees is one of Mount Gibson’s core values. Safety management is a critical element of everything our employees and contractors undertake.

Our commitment to safety is supported by the company’s Safety Management System incorporating Safety Management Standards which provide a framework aligned to the requirements of Australian Standards 4801 and 4804.

Mount Gibson’s objective is to achieve zero harm within our work environment. The company continues to work closely with our employees and contractors in delivering this goal.

mounT gibson’s obJeCTive is To AChieve zeRo hARm wiThin ouR woRK enviRonmenT. The ComPAny ConTinues To woRK Closely wiTh ouR emPloyees And ConTRACToRs in deliveRing This goAl.

Tallering Peak

Throughout the year, Tallering Peak conducted random alcohol and drug testing covering all site personnel, with only a very few positive results dealt with as per the site’s Fitness for Work procedure.

Emergency Response training remains a high priority and was conducted each month, covering a number of procedures including rope rescue, patient handling and ambulance familiarisation.

Health and Wellness initiatives continued to gain momentum, with a number of objectives, including developing increased awareness of:

• symptoms of mental health conditions and how to remain mentally healthy

• strategies to achieve work-life balance

• fatigue management strategies associated with working remotely and shiftwork

• strategies that can be utilised to cope with the challenges of fly-in fly-out employment such as maintaining emotional, physical and mental health, and

Koolan Island

Koolan Island’s lag statistical indicator the lost time injury frequency rate for the 12 months to June 2011 was 2.1, an improvement on the previous year and better than the benchmark rate for the iron ore industry.

There has been significant progress during the year in the development and implementation of the Koolan Island Safety Management System. The focus has been on initiatives involving Workplace Inspections, Training and Competencies, and Hazard Management. A review process is now underway to identify all required operating procedures for the mobile plant, crusher, port and mining. Resources have been allocated to assist with the review and roll out of the system.

Supervisor Leadership training continues at the Cultural Centre whilst a training management operating system is currently being established for Koolan Island personnel.

This year also saw the introduction of the Safe System of Work process, People, Planning, Change and Equipment, which has been issued to supervisors for discussion at PSIs and Toolbox meetings.

Koolan Island undertook two site evacuations due to two tropical lows, with the wellbeing of all our employees remaining our highest priority. The site remained prepared during cyclone season with fully tested and operational shelter communications.

The Island’s Emergency Response personnel also provided assistance for three non-Island medical evacuations, emanating from the MV Orion and one from MV Kimberley.

• aspects of health specific to the male population.

Many employees again undertook the site’s popular free general Health Checks covering blood pressure, cholesterol and blood sugar levels.

Mount Gibson Iron Limited 2011 Annual Report 17

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Extension Hill

Retaining safety at the forefront of all employees’ minds has been a focus during this first year of operation. A Personal Risk Assessment Toolbox Training Session was developed and approved, a Mining Area Induction procedure drafted, and a Safety Representatives poster created and displayed. An end of month Medical Centre Report was updated to statistical capability, such that this document can now be utilised as an accurate driver for health and wellbeing campaigns.

Mount Gibson’s HSEC Management System has been in practice at Extension Hill since the project was in its infancy, initially having been strongly focused on contractor management during the construction phase.

The transition to full mining at the beginning of 2011 has seen the implementation of the full system, with HSEC education of new mining staff and the dedicated application of supporting systems, practices and procedures.

Extension Hill’s Emergency Response protocols have been established, including readying an emergency radio channel, creating an internal emergency contacts list, developing and displaying evacuation maps and defining a muster point, and forming an Emergency Response Team of 10 members. Training in various areas of emergency response procedures is ongoing.

In its six months of operation prior to year end, Extension Hill has recorded no lost time injuries. The systems put in place prior to commencement of mining have proven effective and Mount Gibson is committed to the continuation of this trend.

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18 Mount Gibson Iron Limited 2011 Annual Report

==> picture [163 x 127] intentionally omitted <==

mounT gibson is CommiTTed To The PRinCiPles And PRACTiCes of good CoRPoRATe CiTizenshiP And ouR CommuniTy iniTiATives RefleCT ouR CommiTmenT To soCiAl ResPonsibiliTy in The wesT KimbeRley And mid wesT Regions.

Community

Mount Gibson is committed to the principles and practices of good corporate citizenship and our community initiatives reflect our commitment to social responsibility in the West Kimberley and Mid West regions.

We provide local employment opportunities with a particular emphasis on Indigenous employment and training, purchase locally where practicable and undertake ongoing stakeholder consultation.

Mount Gibson’s strong links with the traditional owners throughout all its sites are formalised through agreements that clearly describe the mutual obligations of Mount Gibson and the traditional Indigenous owners.

Corporate

Mount Gibson assists a number of worthwhile community projects at a corporate level, particularly in the areas of arts and culture.

One of Mount Gibson’s recent contributions was the donation of $150,000 to the production of “Mad Bastards”, one of the most successful Western Australian film releases of 2011. The film has been widely praised in press across Australia and around the world.

Focusing on an Indigenous man searching for his estranged son, the film has been embraced by Indigenous Australians, and will be used as a central teaching tool for Indigenous men’s health and wellbeing workshops across the country.

Real people with no acting experience play the lead roles, bringing an intimacy and freshness to the movie, with the actors playing characters based on their own lives.

Following a number of Film Festival appearances, the film was released across Australia on 5 May 2011, taking $420,000 at the box office on its opening day and receiving outstanding reviews and media coverage.

Tallering Peak

Mount Gibson continues to support the local community in the vicinity of Tallering Peak by making annual contributions to Mullewa Community Trust and the Mullewa Football Club.

The company continues to work closely with both the Mullewa Wadjari and Wadjarri Yamatji Elders, and commits funds towards the advancement of Aboriginal law and culture, and the training and education of Indigenous people. In addition Mount Gibson actively supports local Indigenous business though its hire of mobile equipment and personnel recruitment.

During the year, 20 Geraldton High School students conducted a site visit and were given presentations by both the geology and environment departments.

Koolan Island

A new Heritage Protection Agreement (HPA) has been written and signed by Mount Gibson for future exploration on Dambimangari lands. The document combines the three existing HPAs associated with Koolan Island Operations into one agreement.

Currently under review by Mount Gibson is a draft copy of the half day Cultural Awareness training course proposed by the Members of the Dambimangari Council. This course aims to provide Mount Gibson employees with a more detailed understanding of the cultural heritage of Koolan Island and the traditional owners of the area.

The Ranger program on Koolan Island continues to improve as it aims to introduce a three-month traineeship with the intent of increasing full time Indigenous employment numbers. With Aboriginal people accounting for 18% of employees throughout Koolan Island’s operations we are successfully moving towards achieving our Coexistence Deed goal of 20% Indigenous employment.

A Cultural Heritage and Training Centre on Koolan Island has been established as a resource centre where the cultural awareness training and other training programs for employees will be conducted. Work on the centre is currently being finalised for a December opening.

Mount Gibson has once again sponsored the watercolours and pastels component of the Kimberley Art Prize, and has provided various sponsorships for community events, including the West Kimberley Sports Award, Derby Art Prize and the Derby Boab Festival.

Mount Gibson Iron Limited 2011 Annual Report 19

Extension Hill

Mr Baxter’s letter congratulated Mount Gibson on persevering with the project and lauded the immense value of the project to the local community. “The atmosphere and attitude of the people here is totally different to what it was 10 years ago,” Mr Baxter said. “The number of young families here now is growing and hopefully will continue to grow thanks largely to you.”

Mount Gibson has developed strong community relationships aimed at maximising the ongoing employment of local Indigenous people at Extension Hill. Many on-site employment opportunities are being offered to the local Badimia and Widi Aboriginal groups.

To encourage communication with key stakeholders, Mount Gibson hosted a Project Update and Environmental Discussion Meeting on site in May. The meeting was attended by representatives from the North Central Malleefowl Preservation Group, Bush Heritage Australia, Australian Wildlife Conservancy, Shire of Perenjori and the Department of Environment and Conservation.

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Testament to the success of community relations activities in the area of the Extension Hill site was a letter received in June by Mount Gibson’s Chairman and Managing Director from the past President of the Shire of Perenjori, Mr Brian Baxter.

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20 Mount Gibson Iron Limited 2011 Annual Report

resOurces & reserves

at 30 June 2011

==> picture [470 x 513] intentionally omitted <==

----- Start of picture text -----

Tonnes Fe SiO2 Al2O3 P
millions % % % %
TALLErInG PEAK
MInErAL rESOurCES, AbOvE 50% Fe
Measured 4.95 62.10 4.38 2.49 0.03
Indicated 3.38 57.60 7.98 3.71 0.07
Inferred 0.63 55.80 12.60 2.98 0.06
Total 8.96 60.00 6.32 2.98 0.05
OrE rESErvES
Proved 3.67 62.70 4.19 2.19 0.03
Probable 1.69 57.90 7.71 3.79 0.05
Total 5.35 61.20 5.30 2.69 0.04
ExTEnSIOn HILL
MInErAL rESOurCES, AbOvE 50% Fe
Measured 13.80 58.00 6.97 2.10 0.06
Indicated 6.46 58.00 8.93 1.71 0.06
Inferred 2.28 62.50 5.19 1.28 0.05
Total 22.50 58.50 7.35 1.91 0.06
OrE rESErvES
Proved 10.30 59.30 5.50 1.80 0.06
Probable 4.21 59.80 7.17 1.31 0.06
Total 14.50 59.50 5.98 1.65 0.06
KOOLAn ISLAnd
MInErAL rESOurCES, AbOvE 50% Fe
Measured 12.40 60.00 12.40 1.06 0.02
Indicated 45.60 64.20 6.58 0.77 0.01
Inferred 13.80 60.80 11.90 0.65 0.01
Total 71.90 62.80 8.61 0.80 0.01
Ore reserves
Proved 6.93 60.40 12.30 0.69 0.01
Probable 25.20 65.00 5.23 0.88 0.01
Total 32.10 64.00 6.76 0.84 0.01
2010
TOTAL MINerAL resOUrCes 103.30 61.60 8.13 1.23 0.03
TOTAL Ore reserves 52.00 62.50 6.39 1.26 0.03
----- End of picture text -----

Note: Reserves exclude ore and product stocks.

The information in this report relating to Mineral Resources is based on information compiled by Rolf Forster, who is a member of the Australasian Institute of Mining and Metallurgy. Rolf Forster is a consultant to Mount Gibson Mining Limited, and has sufficient experience relevant to the styles of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as a Competent Person as defined in the December 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Rolf Forster has consented to the inclusion of the matters in this report based on his information in the form and context in which it appears.

The information in this report relating to Ore Reserves is based on information compiled by Rolf Forster and Weifeng Li, who are both members of the Australasian Institute of Mining and Metallurgy. Rolf Forster and Weifeng Li are consultants to Mount Gibson Mining Limited, and have sufficient experience relevant to the styles of mineralisation and type of deposit under consideration and to the activity which they are undertaking, to each qualify as a Competent Person as defined in the December 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Rolf Forster and Weifeng Li have consented to the inclusion of the matters in this report based on their information in the form and context in which it appears.

Mount Gibson Iron Limited 2011 Annual Report 21

oveRAll obJeCTive mounT gibson seeKs To mAinTAin And gRow long-TeRm PRofiTAbiliTy ThRough disCoveRy, develoPmenT, PARTiCiPATion And/oR ACquisiTion of mineRAl ResouRCes.

Mount Gibson Iron Limited 2011 Annual Report

22

Financial RepoRt

Contents

Directors’ Report	24
Auditor’s Independence Declaration	40
Consolidated Income Statement	41
Consolidated Statement
of Comprehensive Income	42
Consolidated Balance Sheet	43
Consolidated Cash Flow Statement	44
Consolidated Statement
of Changes in Equity	45
Notes to the Consolidated
Financial Report	46
Directors’ Declaration	89
Independent Audit Report	90
Corporate Governance Statement	92
ASX and Additional Information	97

Mount Gibson Iron Limited 2011 Annual Report 23

DireCtors’ report

Your Directors submit their report for the year ended 30 June 2011 for Mount Gibson Iron Limited (“ Company ” or “ Mount Gibson ”) and the consolidated entity incorporating the entities that it controlled during the financial year (“ Group ”).

DireCtors

The names and details of the Company’s Directors in office during the financial period and until the date of this report are set out below. Directors were in office for the entire period unless otherwise stated.

names, Qualifications, experience and special responsibilities

Craig Readhead B. Juris, LL.B, AICD

Chairman, Non-Executive Director

Mr Readhead was appointed as a Non-Executive Director on 21 December 2001 and Chairman on 17 November 2010. Mr Readhead has spent the last 30 years practising in the resources law area and is a partner of law firm Allion Legal (formerly called Pullinger Readhead). Mr Readhead is Chairman of the Nomination, Remuneration and Governance Committee and a member of the Audit and Risk Management Committee. Mr Readhead has had a significant legal role in the development of a number of mining projects within Australia, Africa and South East Asia. He is Chairman of Heron Resources Ltd, Galaxy Resources Ltd and Beadell Resources Ltd and is a Non-Executive Director of Frankland River Olive Company Limited, General Mining Corporation Ltd and India Resources Ltd. He is past President of the Australian Mining and Petroleum Law Association and past Vice-President of the Association of Mining and Exploration Companies. During the past three years Mr Readhead has not served as a director of any other listed companies.

Luke Tonkin B.E., MAusIMM, AICD

Managing Director

Mr Tonkin was appointed as the Managing Director on 25 October 2005. Mr Tonkin has extensive experience in the resource industry traversing multi-commodities of gold, nickel, tantalum, tin and lithium. He has held General Management roles within some of Australia’s largest, more complex operations namely WMC’s Kambalda Nickel Operations, St Ives Gold Operations and Leinster Nickel Operations. Mr Tonkin’s most recent role was Chief Executive Officer of Sons of Gwalia, the world’s largest tantalum producer and third largest Australian listed gold producer, assisting administrators restructure the company. Mr Tonkin has a proven track record of implementing large-scale investment, divestment, transition and integration plans. During the past three years Mr Tonkin has not served as a director of any other listed companies.

Ian Macliver B.Comm, FCA, F Fin, AICD

Non-Executive Director

Mr Macliver was appointed as a Non-Executive Director on 21 December 2001. Mr Macliver is Managing Director of Grange Consulting Group Pty Ltd, which provide specialist corporate advisory services to both listed and unlisted companies. Mr Macliver is Chairman of the Audit and Risk Management Committee and a member of the Nomination, Remuneration and Governance Committee. He has many years experience as a senior executive and director of both resource and industrial companies with particular responsibility for capital raising and other corporate initiatives. Mr Macliver is Chairman of Stratatel Ltd and is a Non-Executive Director of Otto Energy Ltd and Select Vaccines Ltd. During the past three years Mr Macliver has served as a director of Port Bouvard Ltd and Carparking Technologies Ltd (formerly Empire Beer Group Ltd) .

Alan Jones CA

Non-Executive Director

Mr Jones was appointed as a Non-Executive Director on 28 July 2006. Mr Jones is a chartered accountant with extensive senior management and board experience in listed and unlisted Australian public companies, particularly in the construction, engineering, finance and investment industries. Mr Jones has been involved in the successful merger and acquisition of a number of public companies in Australia and internationally. He is a Non-Executive Director of Mulpha Australia Ltd, Sun Hung Kai & Co Ltd (Hong Kong), Allied Group Ltd (Hong Kong), Allied Properties Ltd (Hong Kong), and IFC Capital Limited. During the past three years Mr Jones has also served as a director of APAC Resources Limited.

Cao Zhong B.Eng, M.Econ

Non-Executive Director

Mr Cao was appointed as a Non-Executive Director on 1 December 2008. He graduated from Zhejiang University, the People’s Republic of China and Graduate School, The Chinese Academy of Social Sciences, with a bachelor degree in engineering and a masters degree in economics respectively. Mr Cao has extensive experience in corporate management and operations. Mr Cao is the Chairman, Executive Director and Chief Executive Officer of China Timber Resources Group Limited. He was the Managing Director of Shougang Concord International Enterprises Company Limited (“ Shougang International ”) from November 2001 to May 2010 and is currently the Vice Chairman and Non-Executive Director of Shougang International. During the past three years, Mr Cao has also served as the Chairman and Executive Director of APAC Resources Limited, the Chairman of Shougang Concord Technology Holdings Limited, the Chairman of Shougang Concord Century Holdings Limited, the Vice Chairman and Managing Director of Shougang Concord Grand (Group) Limited, the Chairman of Global Digital Creations Holdings Limited and the Vice Chairman and Managing Director of Shougang Fushan Resources Group Limited (formerly known as Fushan International Energy Group Limited).

24 Mount Gibson Iron Limited 2011 Annual Report

DireCtors’ report

Chen Zhouping CPA

Non-Executive Director

Mr Chen was appointed as a Non-Executive Director on 19 January 2009. Mr Chen is a graduate from the School of Economics and Management, Beijing Tsinghua University and is a member of the Chinese Institute of Certified Public Accountants. He has extensive experience in the steel industry, engineering design, human resources and management. Mr Chen was appointed as Deputy Managing Director of Shougang International in November 2002. He is also the Deputy Managing Director of Shougang Holding (Hong Kong) Limited (“ Shougang Holding ”) and the Vice Chairman and Managing Director of Shougang Fushan Resources Group Limited formerly known as Fushan International Energy Group Limited (a Hong Kong listed company). He is a director of a number of other companies of which Shougang Holding or Shougang International is the holding company. During the past three years Mr Chen has not served as a director of any other listed companies.

Lee Seng Hui B.Law (Hons)

Non-Executive Director

Mr Lee was appointed a Non-Executive Director on 29 January 2010. Mr Lee graduated with Honours from the University of Sydney Law School. Mr Lee is the Chief Executive and an Executive Director of Allied Group Limited which is listed on the Hong Kong Stock Exchange. Mr Lee is also the Chairman and a Non-Executive Director of Tian An China Investments Company Limited and a NonExecutive Director of Tanami Gold NL and APAC Resources Limited. Mr Lee was previously the Chairman and an Executive Director of Yu Ming Investments Limited (now known as SHK Hong Kong Industries Limited). During the past three years Mr Lee has not served as a director of any other listed companies.

Geoffrey Hill B.Econ, MBA, FCPA, FCDA, FSIA

Non-Executive Director

Mr Hill was appointed a director on 20 May 2011. He is a company director and merchant banker. He served as Managing Director and Chief Executive Australia of the Morgan Grenfell group in the mid-1980s, before forming his own investment advisory business, International Pacific Securities. He is currently the Chairman of Texas and Oklahoma Coal Company Limited, Heritage Gold Limited and Metals Finance Limited and a director of Broken Hill Prospecting Limited and Asian Property Investments Limited and is the Executive Chairman of International Pacific Securities Inc. During the past three years Mr Hill has also served as a director of Centrex Metals Limited, Hills Holdings Limited and Outback Metals Limited.

Alan Rule B.Comm, B.Acc, FCA, MAICD

Alternate Director to Luke Tonkin Chief Financial Officer

Mr Rule was appointed Finance Director of the Company on 1 July 2005 and resigned as Finance Director on 30 June 2007 to become Chief Financial Officer of the Company. Mr Rule is the alternate Director to Mr Tonkin. He is a chartered accountant with extensive experience in the mining industry in Australia. He held the position of Chief Financial Officer of Western Metals Limited and more recently St Barbara Mines Limited. He has considerable experience in international financing of mining projects and implementation of accounting controls and systems. Mr Rule was previously Finance Director of Asia Iron Holdings Limited. During the past three years, Mr Rule has also served as a Non-Executive Director of Resource Mining Corporation Limited.

Peter Curry B.Comm, B.Law, CA, FAICD Alternate Director to Lee Seng Hui

Mr Curry was appointed alternate Director on 11 February 2011. With over 35 years of business experience, he worked as Tax Partner in Peat Marwick Mitchell (now known as “KPMG”) and thereafter in different listed and unlisted companies in Australia as executive director or managing director specializing in natural resources, corporate finance, mergers and acquisitions. He has extensive experience in public and private capital raising, initial public offering related services and corporate and financial advisory services. Mr Curry is a director of APAC Resources Limited, Sun Hung Kai & Co Limited and Ormil Energy Limited. During the past three years Mr Curry has also served as a director of Forrest Enterprises Australia Limited.

Neil Hamilton was the Non-Executive Chairman until 17 November 2010.

Peter Knowles was a Non-Executive Director until 17 November 2010.

Robert Wilcocks was alternate Director to Lee Seng Hui until 11 February 2011.

CoMpAnY seCretArY

David Berg B.Com, LLB

Mr Berg was appointed Company Secretary and General Counsel on 21 August 2008. He is a commercial and corporate lawyer with experience in advising on a diverse range of matters, including mergers and acquisitions, ASX Listing Rules, capital raisings, ore sales agreements and dispute resolution. Prior to joining Mount Gibson, Mr Berg was Legal Counsel at a large, diversified private company and, before that, worked for Freehills Perth in their Corporate Group.

Mount Gibson Iron Limited 2011 Annual Report 25

DireCtors’ report

CorporAte inForMAtion

Corporate structure

Mount Gibson is a company limited by shares that is incorporated and domiciled in Australia. It is the ultimate parent entity and has prepared a consolidated financial report incorporating the entities that it controlled during the financial year. The structure of the Group as at 30 June 2011 was as follows:

==> picture [468 x 179] intentionally omitted <==

----- Start of picture text -----

Mount Gibson Iron Limited
ABN: 87 008 670 817
100% 100% 100%
Mount Gibson Mining Limited Aztec Resources Limited Geraldton Bulk Handling Pty Ltd
ABN: 32 074 575 885 ABN: 45 078 548 562 ABN: 45 100 105 388
100% 100% 100%
Brockman Minerals Pty Ltd Koolan Iron Ore Pty Ltd Koolan Shipping Pty Ltd
ABN: 75 094 634 401 ABN: 87 099 455 277 ACN: 110 647 848
Nature of operations and principal activities
The principal activities of the entities within the Group are:
----- End of picture text -----

• mining of hematite deposits at Tallering Peak;

• mining of hematite deposits at Koolan Island;

• construction and development of hematite mining operations at Extension Hill; and

• exploration and development of hematite deposits at Koolan Island and in the Mid-West region of Western Australia.

Employees

The Group employed 464 employees (excluding contractors) as at 30 June 2011 (2010: 327 employees). The increase in employees resulted from the transition from contractor mining to owner mining at Koolan Island and the commencement of mining operations at Extension Hill.

Future funding

As at the date of this report the Group has sufficient funds or access to debt funding to develop and mine the Tallering Peak, Koolan Island and Extension Hill iron deposits.

siGniFiCAnt CHAnGes in tHe stAte oF AFFAirs

On 3 November 2010, Mount Gibson announced that it had reached agreement with two of its customers, Shougang Concord International Enterprises Company Limited (“ Shougang ”) and APAC Resources Limited (“ APAC ”), on a revised pricing mechanism to apply under ore sales agreements for Tallering Peak and Koolan Island iron ore product (“ Sales Agreements ”). The revised pricing mechanism reflects a market based clearing index. Previously, pricing under the Sales Agreements was based on the annual benchmark price set by Rio Tinto and its subsidiaries for its Pilbara blend lump and fines products. As no benchmark price had been announced by Rio Tinto for the 2010/11 year Mount Gibson negotiated with Shougang and APAC a revised pricing mechanism to apply in place of the benchmark price. The agreed revised pricing mechanism adopts the Platts Iron Ore Index Price (“ Platts Index ”) which is published daily for iron ore product with Fe content ranging from 58% to 65% and is quoted on a US$ per dry metric tonne CFR North China basis. The price to be paid by Shougang and APAC for Mount Gibson’s Tallering Peak and Koolan Island iron ore is based on the applicable Platts Index for the type and quality of ore delivered and reflects the average Platts Index for the preceding calendar month of the iron ore shipment. The average monthly Platts Index is converted to an FOB price per dry metric tonne by deducting the calculated shipping freight costs utilising corresponding shipping average monthly indices for Panamax vessels from the ports of Geraldton and Koolan Island to Qingdao. Lump iron ore receives a premium to the published Platts Index price and is determined every 6 months.

Mount Gibson attempted to negotiate with Shougang and APAC a revised pricing mechanism to apply in place of the benchmark price at Extension Hill and was unable to agree a revised pricing mechanism as contemplated by the sales agreements. Consequently Mount Gibson terminated the Extension Hill agreements with Shougang and APAC and has been openly marketing all iron ore sales from Extension Hill to potential customers other than Shougang and APAC ensuring acceptable commercial terms and conditions prior to commencement of shipping in the second half of the 2011/12 financial year.

Mount Gibson reached agreement with Stemcor (S.E.A.) Pte Ltd on a revised pricing mechanism to apply under the long-term ore sales agreement for Tallering Peak which also reflects a market based clearing price.

However, despite lengthy good faith negotiations, no agreement on a revised pricing mechanism to apply under the long-term ore sales agreements for Koolan Island was reached with the two remaining customers, CITIC and Marubeni, and so these agreements have now ceased to be binding on the parties.

26 Mount Gibson Iron Limited 2011 Annual Report

DireCtors’ report

Until November 2008, the Group had in place a number of long-term offtake agreements with various traders and steel mills covering life of mine production from each of Tallering Peak, Koolan Island and Extension Hill. Those agreements provided for the Group to sell ore at prices determined by reference to the Hamersley Benchmark Iron Ore Price. During the December 2008 quarter Mount Gibson announced that a number of its customers had failed to collect iron ore cargoes in accordance with binding long-term offtake agreements. Agreements with three of these customers namely, Pioneer Iron and Steel Group Co Ltd (“ Pioneer ”), Rizhao Steel Holding Group Co Ltd (“ Rizhao ”) and Sinom (Hong Kong) Ltd (“ Sinom ”), were subsequently terminated in accordance with their terms. The Group reached a settlement with Sinom Ltd on 29 October 2009 and the full amount due under the settlement was satisfied on 10 May 2010. Arbitration proceedings were completed between the Group and the other two former customers with Mount Gibson seeking to recover the losses it claims arising from the breach and subsequent termination of the agreements:

• On 23 July 2010 Mount Gibson advised ASX that the arbitrator in the arbitration between its subsidiary, Mount Gibson Mining Limited (“ MGM ”) and Pioneer found that Pioneer repudiated its obligations under the long-term agreement with MGM for the supply of iron ore and that MGM was entitled to damages for the loss of its bargain. The arbitrator has awarded MGM US$23.14 million in damages plus MGM’s costs of the arbitration. However, following the conclusion of the arbitral hearing and before the arbitrators reasons were handed down, Pioneer placed itself into insolvent liquidation meaning that MGM’s entitlement to receive the final arbitral award will rank with other unsecured creditors of Pioneer. Pioneer’s liquidators are yet to advise what dividend if any they expect to declare other than to say that Pioneer’s asset position is very unclear.

• On 17 August 2010 Mount Gibson advised ASX that the arbitrator in the arbitration between its subsidiaries, MGM, Koolan Iron Ore Pty Limited (“ Koolan ”) and Rizhao found that Rizhao repudiated its obligations under the long-term agreement with MGM and Koolan for the supply of iron ore and that MGM and Koolan was entitled to damages for the loss of its bargain. The arbitrator has awarded MGM US$114 million in damages plus interest of 6% from the date of award plus MGM’s costs of the arbitration. MGM and Koolan will vigorously pursue Rizhao with all means possible to recover the amount owing.

Neither of these two arbitration awards have been recognised in the financial statements to date.

reVieW AnD resULts oF operAtions

operating results for the period

	2011 $’000 2010 $’000
Operating proft from continuing operations before tax	342,888 188,308
Taxation expense	(103,388) (55,913)
Netproft after tax attributable to Members of the Company	239,500 132,395

tallering peak Hematite operation

Ore tonnes mined, crushed, transported and shipped all decreased compared to the corresponding financial year due mainly to the impact of weather in the March quarter and issues related to contract blast hole drilling performance and reserve definition at the top of T6 orebody.

A significant rain bearing low pressure system moving through the Mid West over the period commencing on 16 February 2011 dumped significant rain in and around the mine site and associated infrastructure. As a result of flooded river crossings, road transport to and from the mine was suspended until water levels receded which led to Mount Gibson issuing force majeure notices to customers. The issue and subsequent lifting of the force majeure notices reduced shipping during the March and June quarters as customers rescheduled deferred shipments.

Tallering Peak ore production was also negatively impacted by the inability of the blast hole drilling contractor to achieve blast hole drilling schedules due to poor equipment and labour availability. The contractor’s fleet was supplemented with additional units and maintenance resources in the June quarter to address the availability of the blast hole drill fleet.

Waste movement increased by 5% compared to the corresponding financial year however ore production was 32% lower compared with the corresponding financial year with the majority of ore being sourced from the T6A2 and T6A3 cutback. Mining from the T2 and T5 pits was completed during the year.

Mining operations are scheduled to be completed in mid 2013.

Mount Gibson Iron Limited 2011 Annual Report 27

DireCtors’ report

Production summary for 12 months

		Sept Qtr	Dec Qtr	Mar Qtr	Jun Qtr	Ytd	Ytd
		2010	2010	2011	2011	2011	2010	% Incr/
	Unit	’000	’000	’000	’000	’000	’000	(Decr)
Mining
Waste mined	bcm	2,543	2,268	1,548	1,825	8,184	7,820	5%
Ore mined	bcm	220	122	93	176	611	875	(30%)
Ore mined	wmt	921	511	400	765	2,597	3,806	(32%)
Crushing
Lump	wmt	437	435	346	468	1,686	1,834	(8%)
Fines	wmt	324	388	273	395	1,380	1,538	(10%)
		761	823	619	863	3,066	3,372	(9%)
Transported to Mullewa Railhead
Lump	wmt	443	385	354	380	1,562	1,744	(10%)
Fines	wmt	447	310	296	351	1,404	1,592	(12%)
		890	695	650	731	2,966	3,336	(11%)
Transported to Geraldton Port
Lump	wmt	329	387	149	319	1,184	1,826	(35%)
Fines	wmt	395	412	509	325	1,641	1,260	30%
		724	799	658	644	2,825	3,086	(8%)
Shipping
Lump	wmt	286	474	121	304	1,185	1,916	(38%)
Fines	wmt	401	416	476	357	1,650	1,232	34%
		687	890	597	661	2,835	3,148	(10%)

In accordance with the Company’s stated accounting policy, deferred waste expenditure for the period has been capitalised in the Group’s balance sheet and will be amortised over the expected life of the mine. Expenditure on waste development at Tallering Peak during the financial year was as follows:

	12 Months	12 Months	12 Months
	ended	ended	ended
	30 June 2011	30 June 2010	30 June 2009
Waste mined	mill bcm 8.18	7.82	7.52
Ore mined	mill bcm 0.61	0.88	0.55
Ore mined	mill wmt 2.59	3.81	2.39
Deferred waste capitalised	$ mill 105.31	85.34	89.88
Amortisation of deferred waste	$ mill 83.8	115.28	69.11

Koolan island Hematite operation

Koolan Island which is located in the Buccaneer Archipelago of Yampi Sound in Western Australia was opened by BHP in 1965 and operated until 1993. BHP mined approximately 68 million tonnes of high grade hematite ore from five pits at Koolan – Main, Mullet, Eastern, Barramundi and Acacia.

The Koolan orebodies are tabular, generally high grade hematite bodies which are estimated to produce a 30% Lump 70% Fines product with consistently high grades from the Main Ore body (>67% Fe). Initial production from established satellite pits of Mullet, Acacia and Barramundi, which contain lower Fe% and higher contaminants than ore from the Main Pit, has produced approximately 40% Lump 60% Fines product.

Ore production for the year was 27% below the corresponding period last year with total material movement 27% below the corresponding period last year as wet weather conditions significantly impacted operations and the floor areas of existing pits reduced significantly restricting equipment productivity.

As detailed in the March quarterly, the wet season in the Kimberley region typically commences in November and persists through to April during which time monsoonal activity intensifies causing significant rainfall events and cyclonic events. Koolan Island’s total material movement and shipping activity generally reduces during this period and is forecast to increase from April as weather improves. As a consequence, Mount Gibson budgets lower output from Koolan Island during the wet season than would otherwise be expected during the dry season. This year’s wet season was extreme with over 150 mm of rain recorded on the island in December and a further 1,330 mm to the end of April which is approximately twice the average rainfall during this period. The significant rainfall events were associated with numerous tropical lows and tropical cyclone Carlos.

28 Mount Gibson Iron Limited 2011 Annual Report

DireCtors’ report

Other than the disruption, and subsequent force majeure event caused by evacuating employees from the island during the cyclone, the significant and repeated rainfall events caused widespread flooding of Koolan Island’s open pits. This in turn caused major disruptions to mining of the existing satellite ore sources of Mullet, Acacia and Barramundi pits from which the operation is yet to fully recover. The water inundation of the crusher and ship loading areas significantly disrupted crushing, screening and loading activities given the high moisture content of stockpiles and the difficulty experienced within the materials handling system. The secondary crushing circuit experienced excessive vibration as the supersaturated area surrounding the concrete footings partially liquefied resulting in the mechanical failure of the secondary crusher and the requirement to run the primary crusher open circuit. The secondary crusher was replaced on 22 April 2011 and works were also completed to significantly enhance the structural footings of the secondary crusher.

Koolan Island’s mining and maintenance contract expired at the end of June 2011. Mount Gibson did not extend this contract and is transitioning the operation to owner mining. Mount Gibson terminated the crushing contract at Koolan Island and has assumed full operations of this facility. The transition from contract mining adversely impacted Koolan Island’s production performance in the June quarter however Mount Gibson is confident the benefits derived from owner mining, as demonstrated at its Tallering Peak operation, will have medium and long-term cost and productivity advantages. Mount Gibson owns the majority of the mining fleet at Koolan Island and is currently replacing the BGC minor fleet and equipment. Mount Gibson has substantially completed replacing the contract workforce with Mount Gibson employees and contractors.

Ore crushed was 33% below the corresponding period last year with Koolan Island drawing down final product ore stockpiles allowing major maintenance repairs on both the primary and secondary crusher circuits.

The primary supply of high grade ore from Koolan Island was sourced from Mullet and Acacia Pit whilst Barramundi West ore provided a secondary ore source.

Rehabilitation of Main Pit is progressing as scheduled whilst the outer seawall embankment has been completed with the inner core and seawall instrumentation due to be completed by the end of September 2011. Mining of the first Main Pit ore is scheduled to commence in the second quarter of the 2011/12 financial year.

Mining operations are scheduled to be completed in 2019.

Production summary for 12 months

		Sept Qtr	Dec Qtr	Mar Qtr	Jun Qtr	Ytd Ytd
		2010	2010	2011	2011	2011 2010	% Incr/
	Unit	’000	’000	’000	’000	’000 ’000	(Decr)
Mining
Waste mined	bcm	3,001	2,536	1,799	2,350	9,686 13,222	(27%)
Ore mined	bcm	284	231	110	143	768 1,090	(30%)
Ore mined	wmt	919	775	374	455	2,523 3,473	(27%)
Crushing
Lump	wmt	277	308	141	296	1,022 1,236	(17%)
Fines	wmt	397	357	199	339	1,292 2,237	(42%)
		674	665	340	635	2,314 3,473	(33%)
Shipping
Lump	wmt	286	287	166	148	887 1,298	(32%)
Fines	wmt	515	578	273	148	1,514 2,041	(26%)
		801	865	439	296	2,401 3,339	(28%)

Expenditure on waste development at Koolan Island during the financial year was as follows:

		12 Months 12 Months	12 Months 12 Months	12 Months
		ended	ended	ended
		30 June 2011 30 June 2010		30 June 2009
Waste mined	mill bcm	9.69	13.22	11.87
Ore mined	mill bcm	0.77	1.09	1.12
Ore mined	mill wmt	2.52	3.47	3.52
Deferred waste capitalised	$ mill	192.27	174.53	159.99
Amortisation of deferred waste	$ mill	85.78	104.18	105.73

Mount Gibson Iron Limited 2011 Annual Report 29

DireCtors’ report

extension Hill Direct shipping ore project

Located in the Mount Gibson Ranges, 85 kilometres east of Perenjori and 260 kilometres east south east of Geraldton, the Extension Hill hematite deposit has Ore Reserves of 14.3 million tonnes and Mineral Resources of 22.1 million tonnes. The Extension Hill Project will have very similar operational characteristics to Mount Gibson’s Tallering Peak operation with the added advantage of a lower strip ratio but due to logistics constraints will only be able to ship 3 Mtpa of hematite ore. Ore mined from Extension Hill will be crushed and screened on site, transported by sealed road 85 kilometres to Perenjori and loaded onto rail wagons for a 235 kilometre journey to the Geraldton Port. Ore will be stored at the Geraldton Port at Mount Gibson’s ore storage facilities being constructed next to the new Berth 5 iron ore ship loading facility and loaded from Berth 5 for export. An upgrade of train unloading facilities (“ unloader upgrade ”) necessary to ensure greater utilisation of the latent capacity at the Geraldton Port remains with the Geraldton Port Authority (GPA) to construct, however, Mount Gibson has agreed with the GPA to fund the unloader upgrade.

Mount Gibson has in place track access and rail haulage agreements to cater for at least 3 Mtpa of production from Extension Hill. All the rail wagons required to meet Extension Hill’s production targets have been delivered and a $90 million upgrade of the existing line between Geraldton and Perenjori by Westnet Rail Pty Ltd was completed by June 2011.

The commencement of crushing and subsequent road haulage to the recently completed Perenjori siding has been delayed as the crushing and screening facility design and construct contractor remedies areas of the facility where Mount Gibson has identified conveyor structures that have not been designed to satisfy the requirements of the applicable Australian Standards. The design and construction contractor has provided Mount Gibson with a wet commissioning schedule that hands the crushing and screening facility to Mount Gibson on or about 5 September 2011.

Train unloader design and construction delays at the Geraldton Port as a consequence of the interface between the common user facilities and Karara Mining port infrastructure will restrict output from Extension Hill in the first half of the 2011/12 financial year. Mine and rail infrastructure are scheduled to be commissioned by the end of September 2011, however, Geraldton port infrastructure is now unlikely to be commissioned until late in the December 2011 quarter. Mount Gibson will batch rail transport Tallering Peak and Extension Hill ore to the Geraldton Port, utilising Mount Gibson’s existing Berth 4 facilities to mitigate, as far as practicable, the impact of any possible delays to the construction of the Geraldton Port train unloader facility.

Mining operations are scheduled to be completed in 2016.

Mining commenced in the March quarter.

Production summary for 12 months

		Sept Qtr	Dec Qtr	Mar Qtr	Jun Qtr	Ytd	Ytd
		2010	2010	2011	2011	2011	2010	% Incr/
	Unit	’000	’000	’000	’000	’000	’000	(Decr)
Mining
Waste mined	bcm	-	-	280	364	644	-	100%
Ore mined	bcm	-	-	21	79	100	-	100%
Ore mined	wmt	-	-	63	237	300	-	100%

Expenditure on waste development at Extension Hill during the financial year was as follows:

		12 Months	12 Months
		ended	ended
		30 June 2011	30 June 2010
Waste mined	mill bcm	0.64	-
Ore mined	mill bcm	0.10	-
Ore mined	mill wmt	0.30	-
Deferred waste capitalised	$ mill	13.28	-
Amortisation of deferred waste	$ mill	2.40	-

review of Financial Condition

During the course of the financial year a number of events impacted on the financial condition of the Group as follows:

• Shareholders funds increased by:

• Net profit after tax of $239,500,000; and

• Holders of 3,000,000 options exercised their options resulting in $2,700,000 in equity funding for the Company.

• Acquisition of property, plant and equipment with an aggregate fair value of $14,576,000 that were financed by means of finance leases.

• Mine properties increased by $200,748,000 primarily due to deferred waste capitalised as a result of waste mined.

• Debt drawn of $85 million repaid in full.

• New Corporate Debt and Contingent Instrument Facility entered into – see note 14(c).

• At 30 June 2011 the Group had:

• Cash on hand and term deposits of $387,000,000; and

• Equipment finance leases and hire purchase liabilities of $45,068,000.

30 Mount Gibson Iron Limited 2011 Annual Report

DireCtors’ report

LiKeLY DeVeLopMents AnD eXpeCteD resULts

Other than as referred to in the Review and Results of Operations and in this report, further information as to likely developments in the operations of the Group and likely results of those operations would, in the opinion of the Directors, be uncertain and not in the best interest of the Company.

siGniFiCAnt eVents AFter BALAnCe DAte

On 11 August 2011, the Directors of Mount Gibson declared a final dividend on ordinary shares in respect of the 2011 financial year. The total amount of the dividend is $43,302,828 which represents a fully franked dividend of 4.0 cents per share. The dividend has not been provided for in the 30 June 2011 financial statements.

On 8 August 2011, Mount Gibson advised ASX that previously, Mount Gibson had four customers who between them purchased 100% of life of mine production from Koolan Island. Following the demise of the benchmark pricing system, Mount Gibson sought to negotiate with each of its customers a revised pricing mechanism to apply in place of the now defunct benchmark price. As announced on 3 November 2010, revised pricing agreements were concluded with each of Shougang and APAC. However, despite lengthy good faith negotiations, no agreement on a revised pricing mechanism to apply under the long term ore sales agreements for Koolan Island was reached with the two remaining customers, CITIC and Marubeni, and so these agreements have now ceased to be binding on the parties. Mount Gibson’s offtake agreements with Shougang and APAC provide that, where other customers’ agreements cease to be binding, then production formerly allocated to those other customers becomes “available production” the subject of Shougang’s and APAC’s agreements. Consequently, Shougang and APAC have an obligation to purchase, between them, all life of mine production from Koolan Island.

Apart from the above, as at the date of this report there are no significant events after balance date of the Company or of the Group that require adjustment of or disclosure in this report.

sHAre options

Unissued shares

Details of Options over Ordinary Shares in the Company on issue as at balance date and at the date of this report are:

Exercise Price Exercise Date / Period	Options on issue at
	Balance date Date of report
110 cents On or before 23 October 2012	2,000,000 2,000,000

Shares issued as a result of the exercise of options

During the financial year, 3,000,000 options were exercised to acquire fully paid ordinary shares in the Company at a weighted average exercise price of $0.90. Since the end of the financial year, no options have been exercised or forfeited.

DiViDenDs

DiViDenDs
		Amount per	Franked amount
		security	per security
Final dividend		4.0 cents	4.0 cents
Record date for determining entitlements to the dividend	26 August 2011
Date the fnal dividend is payable	9 September 2011
No dividends have been paid or declared for the year ended 30 June 2010.

inDeMniFiCAtion AnD insUrAnCe oF DireCtors AnD oFFiCers

The Company has, during current or previous financial periods, entered into deeds of access and indemnity with each Director. These deeds provide access to documentation and indemnification against liability for loss suffered, as a result of any act or omission, to the extent permitted by the Corporations Act 2001 , from conduct of the Group’s business.

During the financial year, the Company has paid premiums in respect of a contract insuring all the Directors and officers of the Company against costs incurred in defending proceedings except for conduct involving:

• a wilful breach of duty; or

• a contravention of sections 182 or 183 of the Corporations Act 2001 , as permitted by section 199B of the Corporations Act 2001.

The total amount of insurance contract premiums paid was $213,421. This amount has not been included in Directors’ and executives’ remuneration.

Mount Gibson Iron Limited 2011 Annual Report 31

DireCtors’ report

reMUnerAtion report (AUDiteD)

This report outlines the remuneration arrangements in place for Directors and key management personnel of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations.

For the purposes of this report key management personnel of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Directors of the Company.

nomination, remuneration and Governance Committee (“nrGC”)

The NRGC of the Board of Directors of the Company is responsible for determining and reviewing remuneration arrangements for the Board and key management personnel. The NRGC assesses the appropriateness of the nature and amount of remuneration of key management personnel on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality, high performing Board and executive team.

remuneration policy

The Remuneration Policy of the Company and its Controlled Entities has been put in place to ensure that:

• remuneration policies and systems support the Company’s wider objectives and strategies;

• Directors’ and senior executives’ remuneration is aligned to the long-term interests of shareholders within an appropriate control framework; and

• there is a clear relationship between the executives’ performance and remuneration.

remuneration structure

In accordance with best practice corporate governance, the structure of Non-Executive Director, Executive Director and senior executive management remuneration is separate.

non-executive Director remuneration

Objective

The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.

Structure

The Constitution and the ASX Listing Rules specify that the aggregate remuneration of Non-Executive Directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the Directors as agreed. The latest determination was at the Annual General Meeting held on 21 November 2007 when shareholders approved an aggregate remuneration of $750,000 per year.

Each Non-Executive Director receives a fee for being a Director of the Company.

Non-Executive Directors should be adequately remunerated for their time and effort and the risks involved. Non-Executive Directors are remunerated to recognise the responsibilities, accountabilities and associated risks of Directors.

All Non-Executive Directors’ performance and remuneration is reviewed on an annual basis by the Chairman and NRGC. Non-Executive Directors’ fixed remuneration will comprise the following elements:

• cash remuneration; and

• superannuation contributions made by the Company.

Board operating costs do not form part of Non-Executive Directors’ remuneration.

Non-Executive Directors have long been encouraged by the Board to hold shares in the Company (purchased by the Director on market). It is considered good governance for directors to have a stake in the company on whose board they sit.

executive Directors’ and senior executives’ remuneration

Objective

The Company aims to reward Executive Directors and senior executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company and so as to:

• reward the Executive Directors and senior executives for Company and individual performance against targets set by reference to appropriate benchmarks;

• align the interest of the Executive Directors and senior executives with those of shareholders;

• link reward with the strategic goals and performance of the Company; and

• ensure total remuneration is competitive by market standards.

32 Mount Gibson Iron Limited 2011 Annual Report

DireCtors’ report

Fixed remuneration

The components of the Executive Directors’ and senior executives’ fixed remuneration are determined individually and may include:

• cash remuneration;

• superannuation;

• accommodation and travel benefits;

• motor vehicle, parking and other benefits; and

• reimbursement of entertainment, home office and telephone expenses.

The Executive Directors’ remuneration is reviewed on an annual basis by the Non-Executive Directors. The senior executives’ remuneration is reviewed on an annual basis by the Managing Director.

In determining the remuneration package, the NRGC reviews the individual’s remuneration with the use of market data for positions with comparable companies. Where appropriate, the package is adjusted so as to keep pace with market trends and ensure continued remuneration competitiveness. In conducting a comparative analysis, the Company’s expected performance for the year is considered in the context of the Company’s capacity to fund remuneration budgets. From time to time, a review of the total remuneration package by an independent consultant in this field is undertaken to provide an independent reference point.

Variable remuneration

Short-term Incentive (“ STI ”)

The Executive Directors and senior executives may receive variable remuneration in the form of STI. STIs are linked to general performance targets and provide rewards for materially improved Company performance. The total potential STI available is at the Board’s discretion but is measured to provide sufficient incentive to the Executive Directors and senior executives to achieve the operational targets and such that the cost to the Group is reasonable in the circumstances. Actual STI payments granted depend on the extent to which specific operating targets set at the beginning of the financial year are met. These targets consist of a number of Key Performance Indicators (“ KPI’s ”) covering both financial and non-financial, corporate and individual performance measures. The STIs are based on achieving the following measures where these are applicable to the specific executive:

• performance of the Group in meeting its objectives which include contribution to net profit after tax, risk management and leadership/team contribution;

• financial performance of the Group;

• increase in market capitalisation of the Group; and

• such other matters determined by the NRGC in its discretion.

These measures have been selected to align the interests of executives with shareholders representing the key drivers for short-term success of the business and providing a framework for delivering long-term value.

The Group has predetermined benchmarks that must be met in order to trigger payments under the STI scheme. On an annual basis, the individual performance of each senior executive is reviewed by the NRGC, which is in line with their responsibilities, after consideration of the executive’s performance against KPIs. This process usually occurs prior to or just after the reporting date. NRGC then determines the amount of the STI to be allocated to each executive. Payments made are delivered as a cash bonus prior to or just after the reporting date.

STI bonus for 2011 financial year

For the 2011 financial year, 100% of the STI cash bonus totalling $742,698 was approved and vested to Executive Directors and senior executives and was paid in July 2011.

Long-term Incentive (“LTI”) for 2011 financial year

The Company established the Mount Gibson Iron Limited Performance Rights Plan (“ PRP ”) in the 2008 financial year. Under the PRP, the Board may invite eligible executives to apply for performance rights, which are an entitlement to receive ordinary shares in the Company, subject to satisfaction by the executive of specified performance hurdles set by the Board. The rights are granted at no cost to the executives and will convert into ordinary shares on completion by the executive of three years’ continuous service, subject to satisfaction of specified performance hurdles related to the Company’s Total Shareholder Return (“ TSR ”) measured against the TSR of a comparator group of companies over the same period. A TSR hurdle was incorporated in the PRP as it enables the Company to provide its executives with long term incentives which create a link between the delivery of value to shareholders, financial performance, and rewarding and retaining the executives. The Company received shareholder approval for the issue of the performance rights to Mr Tonkin and Mr Rule at its 2007 and 2009 AGMs.

The employment contracts for the Managing Director, Mr Tonkin, the Chief Financial Officer, Mr Rule and the Company Secretary, Mr Berg incorporate payment of a long term incentive. Under their employment contracts, Mr Tonkin, Mr Rule and Mr Berg will each year each be invited to apply for, and the Company will grant a number of performance rights equivalent to one third of their respective base salaries (including superannuation) divided by the volume weighted average price of the Company’s shares as traded on ASX for the 30 day period to 30 June for the relevant year.

Performance rights totalling 301,117 were granted on 30 June 2011 by the Company to Mr Tonkin, Mr Rule and Mr Berg in respect of the 2011 financial year. The Company does not have a policy restricting executives from entering into arrangements to protect the value of LTI awards.

Mount Gibson Iron Limited 2011 Annual Report 33

DireCtors’ report

employment Contracts

As at the date of this report, the Group had entered into employment contracts with the following Executive Director, Senior Executive and Company Secretary:

Luke Tonkin

The key terms of his contract include:

• Commenced 1 July 2008 with no set term;

• Annual salary package increase by minimum of CPI from 1 July every year;

• STI Bonus of up to one half of annual salary package;

• LTI Bonus of up to one third of annual salary package; and

• If the Company wishes to terminate the contract other than if Mr Tonkin is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of the duties, the Company is obliged to pay out 12 months annual salary package plus any other accrued entitlements and bonuses. If Mr Tonkin wishes to terminate the contract, he must provide six months notice.

Alan Rule

The key terms of his contract include:

• Commenced 1 July 2008 with no set term;

• Annual salary package increase by minimum of CPI from 1 July every year;

• STI Bonus of up to one half of annual salary package;

• LTI Bonus of up to one third of annual salary package; and

• If the Company wishes to terminate the contract other than if Mr Rule is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of the duties, the Company is obliged to pay out 12 months annual salary package plus any other accrued entitlements and bonuses. If Mr Rule wishes to terminate the contract, he must provide six months notice.

David Berg

The key terms of his contract include:

• Commenced 18 August 2008 with no set term;

• Annual salary package increase by minimum of CPI from 1 July every year;

• STI Bonus of up to one half of annual salary package;

• LTI Bonus of up to one third of annual salary package; and

• If the Company wishes to terminate the contract other than if Mr Berg is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of the duties, the Company is obliged to pay out 12 months annual salary package plus any other accrued entitlements and bonuses. If Mr Berg wishes to terminate the contract, he must provide six months notice.

The terms of other executives’ contracts are as per the Group’s standard terms and conditions of employment and there are no contracted entitlements to cash bonuses, options or performance rights.

Details of Key Management personnel

[i] Directors

[i]	Directors
	L Tonkin	Managing Director
	C Readhead	Chairman, Non-Executive Director
	I Macliver	Non-Executive Director
	A Jones	Non-Executive Director
	Cao Z	Non-Executive Director
	Chen Z	Non-Executive Director
	Lee SH	Non-Executive Director
	G Hill	Non-Executive Director
	P Curry	Alternate Director to Mr Lee (from 11 February 2011)
	A Rule	Chief Financial Offcer and Alternate Director to Mr Tonkin
	N Hamilton	Chairman, Non-Executive Director until 17 November 2010
	P Knowles	Non-Executive Director until 17 November 2010
	R Willcocks	Alternate Director to Mr Lee until 11 February 2011
[ii]	Executives
	D Quinlivan	Chief Operating Offcer (until 22 March 2011)
	D Berg	Company Secretary
	R Mencel	General Manager – Tallering Peak / Koolan Island
	R Richardson	General Manager – Koolan Island (until 16 November 2010)
	G Hewitt	General Manager – Extension Hill (from 7 February 2011)

34 Mount Gibson Iron Limited 2011 Annual Report

DireCtors’ report

remuneration of key management personnel and highest paid executives for the year ended 30 June 2011

	Short Term	Post Employment	Share Based Payment	% Performance Related Total $
	Salary & Fees Non Monetary Cash Bonuses $ $ $	Super- annuation Retirement Benefts $ $	Options and Performance Rights $
Directors N Hamilton	76,314 - -	6,868 -	-	83,182 0%
L Tonkin	770,772 2,228 361,038	24,473 -	230,936	1,389,447 46%
C Readhead	111,000 - -	- -	-	111,000 0%
I Macliver	105,505 - -	9,495 -	-	115,000 0%
A Jones	94,495 - -	8,505 -	-	103,000 0%
Cao Z	87,156 - -	7,844 -	-	95,000 0%
Chen Z	87,156 - -	7,844 -	-	95,000 0%
P Knowles	33,410 - -	3,007 -	-	36,417 0%
Lee SH	87,156 - -	7,844 -	-	95,000 0%
G Hill	10,074 - -	907 -	-	10,981 0%
P Curry	- - -	- -	-	- 0%
R Willcocks	- - -	- -	-	- 0%
A Rule	536,759 2,228 257,884	25,000 -	118,479	940,350 40%
Sub-total directors	1,999,797 4,456 618,922	101,787 -	349,415	3,074,377
Executives D Quinlivan	574,625 2,228 -	- -	-	576,853 0%
D Berg	244,674 2,228 123,776	25,000 -	57,624	453,302 40%
R Mencel	319,728 - 56,644	33,795 -	-	410,167 0%
G Hewitt	113,661 - -	10,229 -	-	123,890 0%
R Richardson	143,314 - -	11,362 -	-	154,676 0%
Sub-total executives	1,396,002 4,456 180,420	80,386 -	57,624	1,718,888
Totals	3,395,799 8,912 799,342	182,173 -	407,039	4,793,265

options granted as part of remuneration for the year ended 30 June 2011

There is currently a Directors, Officers, Employees and Other Permitted Persons option plan. Options issued pursuant to this plan do not have performance conditions but do contain a vesting condition requiring the employee to remain employed by the Group until a certain date. The cost of these options is measured by reference to their fair value at the date at which they are granted. The fair value is determined by using a binomial model.

There were no options granted to Directors and executives during the year ended 30 June 2011 and there are no options owned by employees outstanding at 30 June 2011.

performance rights granted as part of remuneration for the year ended 30 June 2011

			Value of
			Performance
			Rights Granted
	Grant	Number	During the Year	% of
	Date	Granted	$	Remuneration
L Tonkin	30-Jun-11	146,375	223,412	16
A Rule	30-Jun-11	104,554	159,581	17
D Berg	30-Jun-11	50,188	76,602	17

Performance Rights granted above as part of Remuneration have been independently valued using the Black-Scholes methodology which considers the incorporation of the market based hurdles. The value per performance right at grant date is calculated using the following assumptions:

following assumptions:
Accounting grant date	30-Jun-11
Shareprice at accounting grant date	$1.84
Risk free interest rate	4.55%
Volatilityfactor	100%

Mount Gibson Iron Limited 2011 Annual Report 35

DireCtors’ report

The vesting of these Performance Rights is subject to a relative Total Shareholder Return (“ TSR ”) hurdle to be measured on 30 June 2013 and remeasured on 31 December 2013 for Performance Rights allocated on 30 June 2011.

Mount Gibson’s TSR performance will be ranked relative to a comparator group consisting of 34 resource companies listed on ASX. The vesting scale is as follows:

Percentile Rank Achieved		Proportion of Target Award Vesting
>76thpercentile		100%
>51stpercentile and<_76thpercentile		Pro rata allocation
51stpercentile		50%
<51stpercentile		0%

performance rights vested

The following performance rights vested to the following directors and executives:

performance rights vested The following performance rights vested to the following directors and executives:
	Year ended	Year ended
	30 June 2011	30 June 2010
L Tonkin	-	227,758
A Rule	-	168,324
D Berg	-	-
Total	-	396,082

No performance rights vested on 30 June 2011 as the TSR performance conditions were not met. 396,082 shares were issued on 2 July 2010 (2010: nil) pursuant to the vesting of performance rights during the year ended 30 June 2010. For these performance rights where the TSR performance conditions were not met at 30 June 2011, Mount Gibson’s TSR performance relative ranking to the comparator group TSR will be remeasured at 31 December 2011 to determine if these performance rights vest.

shares issued on exercise of options for the year ended 30 June 2011

There were no shares issued on exercise of options by the directors and executives during the year ended 30 June 2011 (2010: nil).

remuneration of key management personnel for the year ended 30 June 2010

	Short Term	Post Employment	Share Based Payment	% Performance Related Total $
	Salary & Fees Non Monetary Cash Bonuses $ $ $	Super- annuation Retirement Benefts $ $	Options and Performance Rights $
Directors N Hamilton	182,493 - -	16,424 -	-	198,917 0%
L Tonkin	690,400 2,251 238,467	25,000 -	447,224	1,403,342 49%
C Readhead	101,750 - -	- -	-	101,750 0%
I Macliver	96,713 - -	8,704 -	-	105,417 0%
A Jones	86,621 - -	7,796 -	-	94,417 0%
Cao Z	79,893 - -	7,190 -	-	87,083 0%
Chen Z	79,893 - -	7,190 -	-	87,083 0%
P Knowles	29,052 - -	2,615 -	-	31,667 0%
Lee SH	29,052 - -	2,615 -	-	31,667 0%
R Willcocks	- - -	- -	-	- 0%
A Rule	486,000 2,251 170,333	25,000 -	199,574	883,158 42%
Sub-total directors	1,861,867 4,502 408,800	102,534 -	646,798	3,024,501
Executives D Quinlivan	647,288 2,251 -	- -	-	649,539 0%
D Berg	225,028 2,251 81,933	20,253 -	32,113	361,578 32%
R Mencel	309,215 - 25,768	27,829 -	-	362,812 0%
R Richardson	265,772 - 22,148	23,919 -	-	311,839 0%
Sub-total executives	1,447,303 4,502 129,849	72,001 -	32,113	1,685,768
Totals	3,309,170 9,004 538,649	174,535 -	678,911	4,710,269

36 Mount Gibson Iron Limited 2011 Annual Report

DireCtors’ report

options granted as part of remuneration for the year ended 30 June 2010

There were no options granted to directors and executives during the year ended 30 June 2010 and there are no options outstanding at 30 June 2010.

performance rights granted as part of remuneration for the year ended 30 June 2010

				Value of
				Performance
				Rights Granted
		Grant	Number	During the Year	% of
		Date	Granted	$	Remuneration
L Tonkin		30-Jun-10	150,114	130,824	9
A Rule		30-Jun-10	107,224	93,446	11
D Berg		30-Jun-10	51,467	44,853	12

Performance Rights granted above as part of Remuneration have been independently valued using the Black-Scholes methodology which considers the incorporation of the market based hurdles. The value per performance right at grant date is calculated using the following assumptions:

Accounting grant date	30-Jun-10
Shareprice at accounting grant date	$1.55
Risk free interest rate	4.34%
Volatilityfactor	100%

The vesting of these Performance Rights is subject to a relative Total Shareholder Return (“ TSR ”) hurdle to be measured on 30 June 2012 and remeasured on 31 December 2012 for Performance Rights allocated on 30 June 2010.

Mount Gibson’s TSR performance will be ranked relative to a comparator group consisting of 29 resource companies listed on ASX. The vesting scale is as follows:

Percentile Rank Achieved		Proportion of Target Award Vesting
>76thpercentile		100%
>51stpercentile and<_76thpercentile		Pro rata allocation
51stpercentile		50%
<51stpercentile		0%

Company performance

The table below shows the performance of the Group over the last 5 years:

		30 June 2011 30 June 2010	30 June 2011 30 June 2010	30 June 2009	30 June 2008	30 June 2007
Net Proft after tax	$’000	239,500	132,395	42,618	113,344	47,765
Earningsper share	$/share	0.2214	0.1230	0.0456	0.1425	0.0753

Mount Gibson Iron Limited 2011 Annual Report 37

DireCtors’ report

DireCtors’ MeetinGs

The number of meetings of Directors (including meetings of Committees of Directors) held during the year and the number of meetings attended by each Director is as follows:

				Audit and Risk		Nomination,
		Directors’		Management Committee		Remuneration and
		**Meetings **		Meetings		Governance Committee
Number of Meetings Held		15		2		1
N Hamilton[1]		5		-		-
L Tonkin		15		-		-
C Readhead		15		2		1
I Macliver		15		2		1
A Jones		15		2		1
Cao Z		10		-		-
Chen Z		15		-		-
P Knowles[2]		3		-		-
Lee SH		11		-		-
G Hill[3]		2		-		-
R Willcocks[4]		-		-		-
P Curry[5]		4		-		-
A Rule[6]		-		-		-

[1] Mr Hamilton was a Non-Executive Director until 17 November 2010

[2] Mr Knowles was a Non-Executive Director until 17 November 2010

[3] Mr Hill became a Non-Executive Director on 20 May 2011

[4] Mr Willcocks was an alternate Director until 11 February 2011

[5] Mr Curry became an alternate Director on 11 February 2011

[6] Mr Rule did not attend any meetings as an alternate Director during the year

DireCtors interests in tHe sHAres AnD options oF tHe CoMpAnY

As at the date of this report, the interests of the Directors in the Shares and Options of the Company were:

		Ordinary	Ordinary		Options		Performance Rights
		Shares			over Shares		over Shares
L Tonkin			-		-		535,985
C Readhead		567,500			-		-
I Macliver		1,000,000			-		-
A Jones			-		-		-
Cao Z			-		-		-
Chen Z			-		-		-
Lee SH			-		-		-
P Curry			-		-		-
G Hill			-		-		-
A Rule			-		-		382,846

enVironMentAL reGULAtion AnD perForMAnCe

The Group has developed Environmental Management Plans for its operations at Koolan Island, Tallering Peak, Extension Hill and the rail head at Rivudini and Perenjori. The Environmental Management Plans have been approved by the West Australian Government Departments of Mines and Petroleum, and Environment and Conservation.

The Environmental Protection Authority has granted approval of the Environmental Management Plans and the Department of Environment and Conservation has granted approval of the environmental works to allow construction of “prescribed” facilities at the Extension Hill mine site.

The Group holds various environmental licenses and authorities, issued under both State and Federal law, to regulate its mining and exploration activities in Australia. These licenses include conditions and regulation in relation to specifying limits on discharges into the environment, rehabilitation of areas disturbed during the course of mining and exploration activities, and the storage of hazardous substances.

There have been no material breaches of the Consolidated Entities’ licences and all mining and exploration activities have been undertaken in compliance with the relevant environmental regulations.

38 Mount Gibson Iron Limited 2011 Annual Report

DireCtors’ report

proCeeDinGs on BeHALF oF tHe CoMpAnY

There are no proceedings on behalf of the Company under section 237 of the Corporations Act 2001 in the financial year or at the date of this report.

roUnDinG

Amounts in this report and the accompanying financial report have been rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the company under ASIC Class Order 98/0100. The Company is an entity to which the class order applies.

CorporAte GoVernAnCe

The Company’s corporate governance statement is contained in the additional ASX information section of the annual report.

AUDitor’s inDepenDenCe DeCLArAtion

In accordance with section 307C of the Corporations Act 2001 , the Directors received the attached independence declaration from the auditor of the Company on page 40 which forms part of this report.

non-AUDit serViCes

There were no non-audit services provided by the entity’s auditor, Ernst & Young, during the financial year ended 30 June 2011.

Signed in accordance with a resolution of the Directors.

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C READHEAD Chairman Perth, 11 August 2011

Mount Gibson Iron Limited 2011 Annual Report 39

AUDitor’s inDepenDenCe DeCLArAtion to the Directors of Mount Gibson Iron Limited

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Mount Gibson Iron Limited 2011 Annual Report

40

ConsoLiDAteD inCoMe stAteMent

for the year ended 30 June 2011

		2011	2010
	Notes	$’000	$’000
Continuing operations
Sale ofgoods	2[a]	672,082	536,282
Other revenue	2[a]	21,147	18,996
Total revenue		693,229	555,278
Cost of sales	2[d]	(325,094)	(357,544)
Grossproft		368,135	197,734
Other income	2[b]	79	26,747
Administration expenses	2[e]	(20,429)	(20,726)
Foreign exchange derivatives mark-to-marketgain/(loss)		8,119	2,899
Exploration expenses		(20)	(105)
Proft from continuing operations before tax and fnance costs		355,884	206,549
Finance costs	2[c]	(12,996)	(18,241)
Proft from continuing operations before income tax		342,888	188,308
Income tax expense	3	(103,388)	(55,913)
Netproft after tax attributable to members of the company		239,500	132,395
Earnings per share (cents per share)
• basic earningsper share	22	22.14	12.30
• diluted earningsper share	22	22.13	12.28

Mount Gibson Iron Limited 2011 Annual Report 41

ConsoLiDAteD stAteMent oF CoMpreHensiVe inCoMe

For the year ended 30 June 2011

	2011	2010
	$’000	$’000
Netproft for theperiod after income tax	239,500	132,395
Other comprehensive income
Change in fair value of cash fow hedges	(28,066)	(3,495)
Transferred to revenue in Income Statement	24,910	17,024
Deferred income tax on cash fow hedges	489	(3,600)
Other comprehensive income for theyear, net of tax	(2,667)	9,929
Total comprehensive income for theyear	236,833	142,324

42 Mount Gibson Iron Limited 2011 Annual Report

ConsoLiDAteD BALAnCe sHeet

as at 30 June 2011

	Notes 2011 $’000 2010 $’000
Assets
Current assets
Cash and cash equivalents	4 117,007 247,404
Term deposits	5 270,000 100,000
Trade and other receivables	6 22,249 33,979
Inventories	7 160,358 139,752
Prepayments	3,210 2,447
Derivative fnancial assets	8 386 3,273
Total current assets	573,210 526,855
Non-current assets
Property, plant and equipment	10 246,695 163,343
Deferred acquisition,exploration and evaluation	11 309 69,739
Mineproperties	12 736,859 536,111
Total non-current assets	983,863 769,193
Total assets	1,557,073 1,296,048
Liabilities
Current liabilities
Trade and otherpayables	13 99,556 97,297
Interest-bearingloans and borrowings	14 28,607 96,992
Derivative fnancial liabilities	15 63 1,808
Income taxpayable	3 22,793 -
Provisions	16 4,348 3,328
Total current liabilities	155,367 199,425
Non-current liabilities
Provisions	16 24,228 19,104
Interest-bearingloans and borrowings	14 16,461 36,813
Deferred income tax liabilities	3 194,476 113,798
Total non-current liabilities	235,165 169,715
Total liabilities	390,532 369,140
Net assets	1,166,541 926,908
equity
Issued capital	17[a] 561,585 559,207
Retained earnings	19 585,718 346,218
Reserves	18 19,238 21,483
Total equity	1,166,541 926,908

Mount Gibson Iron Limited 2011 Annual Report 43

ConsoLiDAteD CAsH FLoW stAteMent

for the year ended 30 June 2011

		2011	2010
	Notes	$’000	$’000
Cash fows from operating activities
Receipts from customers		690,934	552,167
Payments to suppliers and employees		(459,203)	(368,850)
Interestpaid		(9,323)	(14,233)
Net cash fowsprovided by operating activities	4[b]	222,408	169,084
Cash fows from investing activities
Interest received		19,364	11,161
Proceeds from sale ofproperty, plant and equipment		56	4
Purchase ofproperty, plant and equipment		(99,864)	(6,703)
Payment for term deposits		(170,000)	(100,000)
Proceeds from receipt of convertible notes		-	1,000
Payment for deferred exploration, evaluation and development		-	(9,704)
expenditure
Payment for mineproperties		(3,030)	(17,909)
Net cash fows(used in) investing activities		(253,474)	(122,151)
Cash fows from fnancing activities
Proceeds from issue of ordinaryshares		2,700	3,496
Proceeds fromperformance bonds		-	15,107
Repayment of lease liabilities		(15,329)	(13,656)
Repayment of borrowings		(85,000)	(20,000)
Payment of borrowingcosts		(1,702)	(6,649)
Net cash fowsprovided by/(used in) fnancing activities		(99,331)	(21,702)
Net increase/(decrease) in cash and cash equivalents		(130,397)	25,231
Cash and cash equivalents at beginningofyear		247,404	222,173
Cash and cash equivalents at end ofyear	4[a]	117,007	247,404

As set out in note 5, the Group had in addition to the Cash and Cash Equivalents above, $270,000,000 in term deposits at 30 June 2011.

44 Mount Gibson Iron Limited 2011 Annual Report

ConsoLiDAteD stAteMent oF CHAnGes in eQUitY

for the year ended 30 June 2011

	Attributable to Equity Holders of the Parent	Attributable to Equity Holders of the Parent	Attributable to Equity Holders of the Parent	Attributable to Equity Holders of the Parent	Attributable to Equity Holders of the Parent	Total Equity
	Issued Capital $’000 (Accumulated Losses)/ Retained Earnings $’000 Share Based Payments Reserve $’000 Net Unrealised Gains/ (Losses) Reserve $’000 Other Reserves $’000					$’000
At 1 July 2009	556,032 213,823 17,641 (3,823) (3,192)					780,481
Proft for theperiod	- 132,395 - - -					132,395
Other comprehensive income	- - - 9,929 -					9,929
Total comprehensive income for theyear	- 132,395 - 9,929 -					142,324
Transactions with owners in their capacity as owners - Deferred income tax on capital raisingcost	(321) - - - -					(321)
- Exercise of options	3,496 - - - -					3,496
- Share-basedpayment	- - 928 - -					928
At 30 June 2010	559,207 346,218 18,569 6,106 (3,192)					926,908
At 1 July 2010	559,207	346,218	18,569	6,106	(3,192)	926,908
Proft for theperiod	-	239,500	-	-	-	239,500
Other comprehensive income	-	-	-	(2,667)	-	(2,667)
Total comprehensive income for theyear	-	239,500	-	(2,667)	-	236,833
Transactions with owners in their capacity as owners - Deferred income tax on capital raisingcost
	(322)	-	-	-	-	(322)
- Exercise of options	2,700	-	-	-	-	2,700
- Share-basedpayment	-	-	422	-	-	422
At 30 June 2011	561,585	585,718	18,991	3,439	(3,192)	1,166,541

Mount Gibson Iron Limited 2011 Annual Report 45

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

1. sUMMArY oF siGniFiCAnt ACCoUntinG poLiCies

(a) Corporate information

The consolidated financial statements of the Group, comprising the Company and the entities that it controlled during the year ended 30 June 2011, was authorised for issue in accordance with a resolution of the Directors on 11 August 2011.

The Company is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange.

The nature of operations and principal activities of the Group are the mining of hematite deposits at Tallering Peak and Koolan Island, construction and development of the Extension Hill project, and exploration and development of hematite deposits in the Mid-West region of Western Australia.

The address of the registered office is Level 1, 7 Havelock Street, West Perth, WA, 6005.

(b) Basis of preparation

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 , applicable Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value.

The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the class order applies.

(c) Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its controlled entities.

The financial statements of controlled entities are prepared for the same reporting period as the Company, using consistent accounting policies.

Adjustments are made to bring into line any dissimilar accounting policies that may exist.

All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered.

Controlled entities are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.

Where there is loss of control of a controlled entity, the consolidated financial statements include the results for the part of the reporting period during which the Company has control.

(d) Compliance with IFRS

The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (“ IFRS ”) as issued by the International Accounting Standards Board.

(e) New accounting standards and interpretations

From 1 July 2010 the Group has adopted the following Standards and Interpretations, mandatory for annual periods beginning on or after 1 July 2010. Adoption of these standards and interpretations did not have any effect on the financial position or performance of the Group.

The following standards and interpretations have also been adopted from 1 July 2010:

• AASB 2009-5 Amendments to Australian Accounting Standards arising from the Annual Improvements Project

• AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions

• AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues

• AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project

• Interpretation 19 Extinguishing Financials Liabilities with Equity Instruments

The Group has not elected to early adopt any new standards or amendments.

• The adoptions of the above standard or interpretation did not have an impact on the financial statements or performance of the Group.

46 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the period ended 30 June 2011. These are outlined in the table below:

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----- Start of picture text -----

Application Application
date of date for
Reference Title Summary standard Group
AASB 9 Financial Instruments AASB 9 includes requirements for the classification and 1 January 1 July
measurement of financial assets resulting from the first part 2013 2013
of Phase 1 of the IASB’s project to replace IAS 39 Financial
Instruments: Recognition and Measurement (AASB 139 Financial
Instruments: Recognition and Measurement).
These requirements improve and simplify the approach for
classification and measurement of financial assets compared
with the requirements of AASB 139. The main changes from
AASB 139 are described below.
(a) Financial assets are classified based on
(1) the objective of the entity’s business model for
managing the financial assets;
(2) the characteristics of the contractual cash flows.
This replaces the numerous categories of financial
assets in AASB 139, each of which had its own
classification criteria.
(b) AASB 9 allows an irrevocable election on initial recognition
to present gains and losses on investments in equity
instruments that are not held for trading in other
comprehensive income. Dividends in respect of these
investments that are a return on investment can be
recognised in profit or loss and there is no impairment or
recycling on disposal of the instrument.
(c) Financial assets can be designated and measured at fair
value through profit or loss at initial recognition if doing
so eliminates or significantly reduces a measurement or
recognition inconsistency that would arise from measuring
assets or liabilities, or recognising the gains and losses on
them, on different bases.
AASB Amendments to These amendments arise from the issuance of AASB 9 Financial 1 January 1 July
2009-11 Australian Accounting Instruments that sets out requirements for the classification and 2013 2013
Standards arising measurement of financial assets. The requirements in AASB
from AASB 9 9 form part of the first phase of the International Accounting
[AASB 1, 3, 4, 5, 7, Standards Board’s project to replace IAS 39 Financial
101, 102, 108, 112, Instruments: Recognition and Measurement.
118, 121, 127, 128,
This Standard shall be applied when AASB 9 is applied.
131, 132, 136, 139,
1023 & 1038 and
Interpretations 10 & 12]
AASB 124 Related Party The revised AASB 124 simplifies the definition of a related party, 1 January 1 July
(Revised) Disclosures clarifying its intended meaning and eliminating inconsistencies 2011 2011
(December 2009) from the definition, including:
(a) The definition now identifies a subsidiary and an associate
with the same investor as related parties of each other
(b) Entities significantly influenced by one person and entities
significantly influenced by a close member of the family of
that person are no longer related parties of each other
(c) The definition now identifies that, whenever a person
or entity has both joint control over a second entity and
joint control or significant influence over a third party, the
second and third entities are related to each other
A partial exemption is also provided from the disclosure
requirements for government-related entities. Entities that are
related by virtue of being controlled by the same government
can provide reduced related party disclosures.
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Mount Gibson Iron Limited 2011 Annual Report 47

notes to tHe ConsoLiDAteD FinAnCiAL report for the year ended 30 June 2011

1. sUMMArY oF siGniFiCAnt ACCoUntinG poLiCies (ContinUeD)

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----- Start of picture text -----

Application Application
date of date for
Reference Title Summary standard Group
AASB Amendments to This amendment makes numerous editorial changes to a range 1 January 1 July
2009-12 Australian Accounting of Australian Accounting Standards and Interpretations. 2011 2011
Standards
In particular, it amends AASB 8 Operating Segments to require an
[AASBs 5, 8, 108,
entity to exercise judgement in assessing whether a government
110, 112, 119,
and entities known to be under the control of that government
133, 137, 139,
are considered a single customer for the purposes of certain
1023 & 1031 and
operating segment disclosures. It also makes numerous editorial
Interpretations 2, 4,
amendments to a range of Australian Accounting Standards and
16, 1039 & 1052] Interpretations, including amendments to reflect changes made to
the text of IFRS by the IASB.
AASB Australian Additional This standard is as a consequence of phase 1 of the joint 1 July 1 July
1054 Disclosures Trans-Tasman Convergence project of the AASB and FRSB. 2011 2011
This standard relocates all Australian specific disclosures from
other standards to one place and revises disclosures in the
following areas:
(a) Compliance with Australian Accounting Standards
(b) The statutory basis or reporting framework for financial
statements
(c) Whether the financial statements are general purpose or
special purpose
(d) Audit fees
(e) Imputation credits
AASB Further Amendments Emphasises the interaction between quantitative and qualitative 1 January 1 July
2010-4 to Australian AASB 7 disclosures and the nature and extent of risks 2011 2011
Accounting associated with financial instruments.
Standards arising Clarifies that an entity will present an analysis of other
from the Annual
comprehensive income for each component of equity, either in
Improvements Project the statement of changes in equity or in the notes to the financial
[AASB 1, AASB 7, statements.
AASB 101, AASB 134
and Interpretation 13] Provides guidance to illustrate how to apply disclosure principles
in AASB 134 for significant events and transactions.
Clarifies that when the fair value of award credits is measured
based on the value of the awards for which they could be
redeemed, the amount of discounts or incentives otherwise
granted to customers not participating in the award credit
scheme, is to be taken into account.
AASB Amendments to This Standard makes numerous editorial amendments to a 1 January 1 July
2010-5 Australian Accounting range of Australian Accounting Standards and Interpretations, 2011 2011
Standards including amendments to reflect changes made to the text of
IFRS by the IASB.
[AASBs 1, 3, 4, 5,
101, 107, 112, 118, These amendments have no major impact on the requirements
119, 121, 132, 133, of the amended pronouncements.
134, 137, 139, 140,
1023 & 1038 and
Interpretations 112,
115, 127, 132 & 1042]
AASB Amendments to The amendments increase the disclosure requirements for 1 July 1 July
2010-6 Australian Accounting transactions involving transfers of financial assets. Disclosures 2011 2011
Standards – require enhancements to the existing disclosures in IFRS 7
Disclosures on where an asset is transferred but is not derecognised and
Transfers of Financial introduce new disclosures for assets that are derecognised but
Assets [AASB 1 & the entity continues to have a continuing exposure to the asset
AASB 7] after the sale.
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48 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

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----- Start of picture text -----

Application Application
date of date for
Reference Title Summary standard Group
AASB Amendments to The requirements for classifying and measuring financial 1 January 1 July
2010-7 Australian Accounting liabilities were added to AASB 9. The existing requirements for 2013 2013
Standards arising the classification of financial liabilities and the ability to use the
from AASB 9 fair value option have been retained. However, where the fair
(December 2010) value option is used for financial liabilities the change in fair value
[AASBs 1, 3, 4, 5, is accounted for as follows:
7, 101, 102, 108,
• The change attributable to changes in credit risk are
112, 118, 120, 121,
presented in other comprehensive income (OCI)
127, 128, 131, 132,
136, 137, 139, • The remaining change is presented in profit or loss
1023, & 1038 and
If this approach creates or enlarges an accounting mismatch in
interpretations 2, 5, the profit or loss, the effect of the changes in credit risk are also
10, 12, 19 & 127] presented in profit or loss.
AASB Amendments to These amendments address the determination of deferred tax 1 January 1 July
2010-8 Australian Accounting on investment property measured at fair value and introduce 2012 2012
Standards – Deferred a rebuttable presumption that deferred tax on investment
Tax: Recovery of property measured at fair value should be determined on the
Underlying Assets basis that the carrying amount will be recoverable through sale.
[AASB 112] The amendments also incorporate SIC-21 Income Taxes –
Recovery of Revalued Non-Depreciable Assets into AASB 112.
AASB Amendments to This Standard amends many Australian Accounting Standards, 1 July 1 July
2011-1 Australian Accounting removing the disclosures which have been relocated to 2011 2011
Standards arising AASB 1054.
from the Trans-
Tasman Convergence
project
[AASB 1, AASB 5,
AASB 101, AASB 107,
AASB 108, AASB
121, AASB 128,
AASB 132, AASB
134, Interpretation
2, Interpretation 112,
Interpretation 113]
* Consolidated IFRS 10 establishes a new control model that applies to 1 January 1 July
Financial Statements all entities. It replaces parts of IAS 27 Consolidated and 2013 2013
Separate Financial Statements dealing with the accounting for
consolidated financial statements and SIC-12 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. This is likely to lead to more
entities being consolidated into the group.
Joint Arrangements IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 1 January 1 July
Jointly- controlled Entities – Non-monetary Contributions by 2013 2013
Ventures. IFRS 11 uses the principle of control in IFRS 10 to
define joint control, and therefore the determination of whether
joint control exists may change. In addition IFRS 11 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. This may result in a change in the accounting for
the joint arrangements held by the group.
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Mount Gibson Iron Limited 2011 Annual Report 49

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

1. sUMMArY oF siGniFiCAnt ACCoUntinG poLiCies (ContinUeD)

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----- Start of picture text -----

Application Application
date of date for
Reference Title Summary standard Group
* Disclosure of IFRS 12 includes all disclosures relating to an entity’s interests 1 January 1 July
Interests in Other in subsidiaries, joint arrangements, associates and structures 2013 2013
Entities 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 non-controlling interests.
Fair Value IFRS 13 establishes a single source of guidance under IFRS 1 January 1 July
Measurement for determining the fair value of assets and liabilities. IFRS 13 2013 2013
does not change when an entity is required to use fair value,
but rather, provides guidance on how to determine fair value
under IFRS when fair value is required or permitted by IFRS.
Application of this definition may result in different fair values
being determined for the relevant assets.
IFRS 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.
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• Designates the beginning of the applicable annual reporting period unless otherwise stated ** Only applicable to not-for-profit/public sector entities *** Only applicable to entities that would fit in Tier 2 (Reduced Disclosure Requirements) category

**** The AASB has not issued this standard, which was finalised by the IASB in May 2011

The impact of the adoption of these new and revised standards and interpretations has not been determined by the Company.

(f)

Foreign currency translation

Both the functional and presentation currency of the Company and its Australian controlled entities is Australian dollars (A$).

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All such exchange differences are taken to the income statement in the consolidated financial report.

(g) Cash and cash equivalents

Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(h) Trade and other receivables

Trade receivables are recognised and carried at amortised cost less any allowance for impairment.

Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An allowance for impairment of trade receivables is made when there is objective evidence that the Group will not be able to collect the debts. Indicators of impairment would include financial difficulties of the debtor, likelihood of the debtor’s insolvency and default in payment. Any impairment is recognised in the income statement. All sales revenue is invoiced and received in US dollars.

Generally, on presentation of shiploading documents and provisional invoice, the customer settles 90%-95% of the provisional sales invoice value within 10 days of receipt of shiploading documents and provisional invoice and the remaining 5%-10% is settled within 30 days of presentation of the final invoice. The final price is subject to minor adjustment based on the final analyses of weight, chemical and physical composition, and moisture content.

(i) Inventories

Inventories are valued at the lower of cost and net realisable value.

Cost comprises direct material, labour and expenditure in getting such inventories to their existing location and condition, based on weighted average costs incurred during the period in which such inventories were produced.

Consumable materials for plant and equipment are recognised as inventory. Consumable stocks are carried at the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

50 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

(j) Property, plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and any impairment in value.

Depreciation

The cost of owned property, plant and equipment directly engaged in mining operations is written off over its expected economic life on a units-of-production method, in the establishment of which, due regard is given to the life of the related area of interest. Plant and equipment under hire purchase or finance lease directly engaged in mining operations is written down to its residual value over the lesser of the hire purchase or finance lease term or useful life. Other assets which are depreciated or amortised on a basis other than the units-of-production method typically are depreciated on a straight-line basis over the estimated useful life of the asset as follows:

• Buildings

• Motor vehicles

• • Office equipment

5 - 20 years 4 - 5 years 3 - 5 years

• Leasehold improvements Shorter of lease term or useful life of 5 – 10 years • Koolan Island major fleet hire purchase 5 years

Impairment

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cashgenerating unit to which the asset belongs.

If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cashgenerating units are written down to their recoverable amount.

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the period the item is derecognised.

(k) Mine properties

Mine properties represent the accumulation of all acquisition, exploration, evaluation and development expenditure incurred by or on behalf of the Group in relation to areas of interest in which mining of mineral resource has commenced. When further development expenditure, including waste development, is incurred in respect of a mine property after the commencement of production, such expenditure is carried forward as part of the cost of that mine property only when substantial future economic benefits are established otherwise such expenditure is classified as part of the cost of production.

Amortisation is provided on the units-of-production method, with separate calculations being made for each mineral resource. Estimated future capital and waste development costs to be incurred in accessing the reserves and measured resources are taken into account in determining amortisation charges. The units-of-production method results in an amortisation charge proportional to the depletion of the economically recoverable mineral resources (comprising proven and probable reserves plus where appropriate, a portion of measured resources).

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Should the carrying value of the expenditure not yet amortised exceed its estimated recoverable amount in any year, the excess is written off to the income statement.

(l) Acquisition, exploration, evaluation and development costs

Acquisition costs

Exploration and evaluation costs arising from acquisitions are carried forward where exploration and evaluation activities have not, at balance date, reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves.

Exploration and evaluation costs

Costs arising from exploration and evaluation activities are expensed as incurred, except where, at balance date, it is expected that the expenditure will be recouped by future exploitation or sale of the area of interest, in which case the expenditure is capitalised.

Development costs

Costs arising from development activities are capitalised as incurred to the extent that such costs, together with any costs arising from acquisition, exploration and evaluation carried forward in respect of the area of interest, are expected to be recouped through future exploitation or sale of the area of interest.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Where uncertainty exists as to the future viability of certain areas, the value of the area of interest is written off to the income statement or provided against.

Mount Gibson Iron Limited 2011 Annual Report 51

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

1. sUMMArY oF siGniFiCAnt ACCoUntinG poLiCies (ContinUeD)

(m) Rehabilitation costs

Long-term environmental obligations are based on the Group’s environmental management plans, in compliance with current environmental and regulatory requirements.

Full provision is made based on the net present value of the estimated cost of restoring the environmental disturbance that has occurred up to the balance sheet date. Increases due to additional environmental disturbances, relating to the development of an asset, are capitalised and amortised over the remaining lives of the area of interest.

Annual increases in the provision relating to the change in the net present value of the provision are accounted for in the income statement as borrowing costs.

The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation, technology or other circumstances. Cost estimates are not reduced by potential proceeds from the sale of assets.

(n) Recoverable amount of assets

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. Recoverable amount is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less cost to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An assessment is also made at each reporting date as to whether there is any indication that a previously recognised impairment loss may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

(o) Financial assets

Financial assets are classified into the following specified categories: ‘held-to-maturity’ investments, ‘loans and receivables’, and ‘available-for-sale financial assets’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.

[i] Held-to-maturity investments

Commercial bills and bonds with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis.

[ii] Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’.

Trade receivables, loans and other receivables are recorded at amortised cost, using the effective interest rate method, less impairment. Interest is recognised by applying the effective interest rate method.

(p) Trade and other payables

Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services.

52 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

(q) Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Fees paid on the establishment of loan facilities are included as part of the carrying amount of the loans and borrowings.

Gains and losses are recognised in the profit or loss when the liabilities are derecognised.

(r) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

A provision for dividends is not recognised as a liability unless the dividends have been declared, determined or publicly recommended on or before the reporting date.

(s) Share-based payment transactions

The Group provides benefits to employees (including Directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (“ equity-settled transactions ”).

Options

There is currently a Directors, Officers, Employees and Other Permitted Persons option plan.

The cost of these options is measured by reference to their fair value at the date at which they are granted. The fair value is determined by using a binomial model.

In valuing these options, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company.

Performance rights

There is a Mount Gibson Iron Limited Performance Rights Plan (“ PRP ”). The PRP enables the Company to provide its executives with long term incentives which create a link between the delivery of value to shareholders, financial performance and rewarding and retaining the executives.

The cost of these performance rights is measured by reference to the fair value at the date at which they are granted. The fair value is determined using a Black-Scholes model.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“ vesting date ”).

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the Directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.

Mount Gibson Iron Limited 2011 Annual Report 53

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

1. sUMMArY oF siGniFiCAnt ACCoUntinG poLiCies (ContinUeD)

(t) Employee benefits

Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for sick leave are recognised when the leave is taken and are measured at the rates paid or payable.

Long service leave

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of future payments due to be settled in respect of services provided by employees up to the reporting date. Consideration is given to future wage and salary levels, experience of employee departures, and periods of service. Future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

Superannuation

Contributions made by the Group to employee superannuation funds, which are defined contribution plans, are charged as an expense when incurred.

(u) Borrowing costs

Borrowing costs are recognised as an expense when incurred except when borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset.

(v) Leases

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.

Operating Leases

The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense in the income statement on a straight-line basis over the lease term. Contingent rentals are recognised as an expense in the financial year in which they are incurred.

Finance Leases

Leases which effectively transfer substantially all the risks and benefits incidental to ownership of the leased item to the Group are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments.

Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the income statement.

Capitalised leased assets are depreciated over the estimated useful life of the asset or where appropriate, over the estimated life of the mine.

The cost of improvements to or on leasehold property is capitalised, disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful lives of the improvements, whichever is the shorter.

(w) Revenue

Revenue is recognised and measured at the fair value of consideration received or receivable to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Sale of goods

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably.

Interest

Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

Dividends

Revenue is recognised when the shareholders’ right to receive the payment is established.

54 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

(x) Income tax

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable differences:

• except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised:

• except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in controlled entities, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement.

(y) Other taxes

Revenues, expenses and assets are recognised net of the amount of GST except:

• where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Balance Sheet.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

Mount Gibson Iron Limited 2011 Annual Report 55

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

1. sUMMArY oF siGniFiCAnt ACCoUntinG poLiCies (ContinUeD)

(z) Derivative financial instruments and hedging

The Group uses foreign currency contracts to hedge its risks associated with foreign currency fluctuations and interest rate swaps to hedge against interest rate movements. Such derivative financial instruments are initially recognised at fair value on the date the derivative contract is entered into and are subsequently remeasured to fair value.

Any gains and losses arising from changes in the fair value of derivatives, except those that qualify as cash flow hedges, are taken directly to net profit or loss for the year. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. For the purpose of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; or cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction.

Cash flow hedges – forward foreign currency contracts

In relation to cash flow hedges (forward foreign currency contracts) to hedge firm commitments which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement.

When the hedged firm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability.

For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the Income Statement in the same year in which the hedged firm commitment affects the net profit and loss, for example when the future sale actually occurs. The Group tests each of the designated cash flow hedges for effectiveness on a monthly basis both retrospectively and prospectively using regression analysis. A minimum of 50 data points is used for regression analysis and if the testing falls within the 80:125 range, the hedge is considered highly effective and continues to be designated as a cash flow hedge. At each balance date, the Group measures ineffectiveness using the ratio offset method. For foreign currency cash flow hedges if the risk is over hedged, the ineffective portion is taken immediately to other income or expense in the Income Statement. Cash flow hedges – interest rate swaps In relation to interest swaps hedged against variable rate borrowings, the settlement dates coincide with the dates on which interest is payable on the underlying debt. All interest rate swaps matched directly against the appropriate loans and interest expense are considered highly effective, and are settled on a net basis. The swaps are measured at fair value and all gains and losses attributable to the hedged risk are taken directly to equity and reclassified into profit and loss when the interest expense is recognised. Any ineffective portion is taken to other expenses in the Income Statement. Cash flow hedges – collars In relation to foreign exchange collars to hedge firm commitments which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised either directly in equity or the profit and loss depending on whether the exchange rate falls within the range of the collars. Any ineffective portion in recognised in the Income Statement.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the Income Statement.

Cash flow hedges – lease liabilities In relation to lease liabilities to hedge firm commitments which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised either directly in equity or the profit and loss depending on the effectiveness of the hedge. Any ineffective portion in recognised in the Income Statement.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecast transaction occurs.

If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the Income Statement.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs.

If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the Income Statement.

56 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

(aa) Financial instruments issued by the Group

• [i] Debt and equity instruments

• Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement.

• [ii] Transaction costs on the issue of equity instruments

Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.

(bb) Earnings per share

Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share is calculated as net profit attributable to members of the Company, adjusted for:

• costs of servicing equity (other than dividends) and preference share dividends;

• the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and

• other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares;

• divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

(cc) Significant accounting judgements, estimates and assumptions

Significant accounting judgements, estimates and assumptions have been made as follows:

• (i) Mine rehabilitation provision

The Group assesses its mine rehabilitation provision annually in accordance with the accounting policy stated in note 1(m). Significant judgement is required in determining the provision for mine rehabilitation as there are many transactions and other factors that will affect the ultimate liability payable to rehabilitate the mine site. Factors that will affect this liability include future development, changes in technology, commodity price changes and changes in interest rates. When these factors change or become known in the future, such difference will impact the mine rehabilitation provision in the period in which they change or become known.

(ii) Units of production method of depreciation The Group applies the units of production method of depreciation of its mine assets based on ore tonnes mined. These calculations require the use of estimates and assumptions. Significant judgement is required in assessing the available reserves and resources and the production capacity of the operations to be depreciated under this method. Factors that are considered in determining reserves and resources and production capacity are the Group’s history of converting resources to reserves and the relevant time frames, the complexity of metallurgy, markets and future developments. The Group uses economically recoverable mineral resources (comprising proven and probable reserves) to depreciate assets on a unit of production basis. However, where a mineral property has been acquired and an amount has been attributed to the fair value of resources not yet designated as reserves the additional resources have been taken into account. When these factors change or become known in the future, such differences will impact pre-tax profit and carrying values of assets.

• (iii) Determination of mineral resources and ore reserves

The Group estimates its mineral resources and ore reserves in accordance with the Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004 (the ‘JORC code’). The information on mineral resources and ore reserves were prepared by or under the supervision of Competent Persons as defined in the JORC code. The amounts presented are based on the mineral resources and ore reserves determined under the JORC code.

There are numerous uncertainties inherent in estimating mineral resources and ore reserves and assumptions that are valid at the time of estimation may change significantly when new information becomes available.

Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated. Such changes in the reserves could impact on depreciation and amortisation rates, asset carrying values, deferred stripping costs and provisions for decommissioning and restoration.

Mount Gibson Iron Limited 2011 Annual Report 57

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

1. sUMMArY oF siGniFiCAnt ACCoUntinG poLiCies (ContinUeD)

(iv) Impairment of capitalised exploration and evaluation expenditure The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Group decides to exploit the related lease itself or, if not, whether it successfully recovers the related exploration and evaluation asset through sale.

Factors which could impact the future recoverability include the level of proved, probable and inferred mineral resources, future technological changes which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices.

To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, this will reduce profits and net assets in the period in which this determination is made.

In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which this determination is made.

(v) Impairment of capitalised mine development expenditure The future recoverability of capitalised mine development expenditure is dependent on a number of factors, including the level of proved, probable and inferred mineral resources, future technological changes which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices.

To the extent that capitalised mine development expenditure is determined not to be recoverable in the future, this will reduce profits and net assets in the period in which this determination is made.

• (vi) Impairment of property, plant and equipment

Property, plant and equipment is reviewed for impairment if there is any indication that the carrying amount may not be recoverable. Where a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of ‘value in use’ (being the net present value of expected future cash flows of the relevant cash generating unit) and ‘fair value less costs to sell’.

In determining value in use, future cash flows are based on:

• Estimates of the quantities of ore reserves and mineral resources for which there is a high degree of confidence of economic extraction;

• Future production levels;

• Future commodity prices; and

• Future cash costs of production and capital expenditure.

Variations to the expected future cash flows, and timing thereof, could result in significant changes to any impairment losses recognised, if any, which could in turn impact future financial results.

• (vii) Deferred waste

The Group has adopted a policy of deferring all waste development costs and amortising them in accordance with the accounting policy 1(k). Significant judgement is required in determining this ratio for each mine. Factors that are considered include:

• Any proposed changes in the design of the mine;

• Estimates of the quantities of ore reserves and mineral resources for which there is a high degree of confidence of economic extraction;

• Future production levels;

• Future commodity prices; and

• Future cash costs of production.

(viii) Recoverability of potential deferred income tax assets

The Group recognises deferred income tax assets in respect of tax losses to the extent that the future utilisation of these losses is considered probable. Assessing the future utilisation of these losses requires the Group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws. To the extent that future cash flows and taxable income differ significantly from estimates, this could result in significant changes to the deferred income tax assets recognised, which would in turn impact future financial results.

• (ix) Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted and applying an estimated probability that they will vest. The accounting estimates and assumptions relating to share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity.

(x) Financial guarantees

The fair value of financial guarantee contracts has been assessed using the interest differential approach.

58 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

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2011 2010
Notes $’000 $’000
2. reVenUe AnD eXpenses
[a] Revenue
Sale of ore 647,172 519,258
Realised gain on foreign exchange hedges 24,910 17,024
672,082 536,282
Other revenue
Finance income – other persons/corporations - 11,345
Interest income 21,147 7,651
21,147 18,996
[b] Other income
Arbitration settlement income - 20,406
Realised gain on foreign exchange 33 9
Net gain on sale of plant and equipment - 4
Net gain on foreign exchange - 6,321
Other income 46 7
79 26,747
[c] Finance costs
Finance charges on loans 8,677 13,315
Finance charges payable under finance leases 3,563 4,199
12,240 17,514
Unwinding of discount on rehabilitation provision 756 727
12,996 18,241
[d] Cost of sales
Mining costs 309,622 254,309
Mining depreciation costs 22,641 23,131
Mining waste costs deferred 12 (310,861) (259,866)
Amortisation of mining waste costs deferred 12 172,011 219,459
Amortisation of other mine properties 12 16,721 26,426
Preproduction expenditure capitalised (3,771) -
Crushing costs 26,498 18,005
Transport costs 38,063 35,473
Port costs 17,238 19,489
Royalties 46,019 37,457
Depreciation – excluding mining depreciation 7,974 8,947
Net ore inventory movement (17,061) (25,286)
325,094 357,544
[e] Administration expenses include:
Depreciation 357 269
Share-based payments expense 21[a] 422 928
Net loss on sale of plant and equipment 9 -
Net foreign exchange loss 84 -
[f] Cost of sales and administration expenses above include:
Salaries, wages expense and other employee benefits 55,156 43,624
Operating lease rental – minimum lease payments 19,230 14,905
----- End of picture text -----

Mount Gibson Iron Limited 2011 Annual Report 59

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

==> picture [469 x 439] intentionally omitted <==

----- Start of picture text -----

2011 2010
$’000 $’000
3. inCoMe tAX
Major components of income tax expense for the years ended
30 June 2011 and 2010 are:
Income Statement
Current income tax
Current income tax charge 22,793 -
Deferred income tax
Relating to origination and reversal of temporary differences 80,595 55,913
Income tax expense reported in income statement 103,388 55,913
Statement of Changes in Equity
Current income tax
Current income tax charge - -
Deferred income tax
Capital raising costs 306 600
Remeasurement of foreign exchange contracts (62) 2,815
Interest rate swap contracts (161) 786
Deferred income tax (benefit)/liability reported in equity 83 4,201
Reconciliation of income tax expense
A reconciliation of income tax expense applicable to accounting profit
before income tax at the statutory income tax rate to income tax
expense at the Group’s effective income tax rate for the years ended
30 June 2011 and 2010 is as follows:
Accounting profit before income tax 342,888 188,308
• At the statutory income tax rate of 30% (2010: 30%) 102,866 56,492
• Temporary differences not brought to account as a deferred tax asset - -
• Expenditure not allowed for income tax purposes 132 283
• Other 390 (488)
• Investment allowance - (374)
Income tax expense 103,388 55,913
Effective income tax rate 30.2% 29.7%
Income tax expense reported in Income Statement 103,388 55,913
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60 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

	Assets	Assets	Liabilities	Liabilities	Net	Net
	2011 $’000	2010 $’000	2011 $’000	2010 $’000	2011 $’000	2010 $’000
Consolidated Accrued liabilities		(958)		-		(958)
	(1,255)		-		(1,255)
Borrowingcosts	-	(114)	-	-	-	(114)
Capital raisingcosts	(912)	(3,194)	-	-	(912)	(3,194)
Deferred income	-	-	44,246	57,338	44,246	57,338
Allowance for doubtful debts	-	-	-	-	-	-
Exploration expenditure	-	-	4,091	4,085	4,091	4,085
Foreign exchange contracts	(998)	(1,975)	3,516	3,628	2,518	1,653
Interest rate swaps	-	-	-	-	-	-
Interest receivable	-	-	1,278	702	1,278	702
Inventory	-	-	3,482	2,960	3,482	2,960
Lease liability	(1,559)	(1,965)	-	-	(1,559)	(1,965)
Mineproperties	-	-	138,619	90,612	138,619	90,612
Prepaid expenditure	-	-	27	24	27	24
Property, plant and equipment	-	-	14,715	8,585	14,715	8,585
Provisions	(7,373)	(6,730)	-	-	(7,373)	(6,730)
Tax losses	(3,401)	(39,200)	-	-	(3,401)	(39,200)
Tax(assets)/liabilities	(15,498)	(54,136)	209,974	167,934	194,476	113,798
Set off of tax	15,498	54,136	(15,498)	(54,136)	-	-
Net tax(assets)/liabilities	-	-	194,476	113,798	194,476	113,798

Mount Gibson Iron Limited 2011 Annual Report 61

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

3. inCoMe tAX (ContinUeD)

3. inCoMe tAX (ContinUeD)
Balance 1 July 2010 $’000 Recognised in Income $’000	Recognised in Equity $’000	Balance 30 June 2011 $’000
Movement in temporary differences during the fnancial year ended 30 June 2011 Accrued liabilities (958) (297)
	-	(1,255)
Borrowingcosts (114) 114	-	-
Capital raisingcosts (3,194) 1,976	306	(912)
Deferred income 57,338 (13,092)	-	44,246
Doubtful debtsprovision - -	-	-
Exploration expenditure 4,085 6	-	4,091
Foreign exchange contracts 1,653 927	(62)	2,518
Interest rate swaps - 161	(161)	-
Interest receivable 702 576	-	1,278
Inventory 2,960 522	-	3,482
Lease liability (1,965) 406	-	(1,559)
Mineproperties 90,612 48,007	-	138,619
Prepaid expenditure 24 3	-	27
Property, plant and equipment 8,585 6,130	-	14,715
Provisions (6,730) (643)	-	(7,373)
Tax losses (39,200) 35,799	-	(3,401)
113,798 80,595	83	194,476
Balance 1 July 2009 $’000 Recognised in Income $’000	Recognised in Equity $’000	Balance 30 June 2010 $’000
Movement in temporary differences during the fnancial year ended 30 June 2010 Accrued liabilities (204) (754)	-	(958)
Borrowingcosts (560) 446	-	(114)
Capital raisingcosts (6,184) 2,390	600	(3,194)
Deferred income 28,055 29,283	-	57,338
Doubtful debtsprovision (4,574) 4,574	-	-
Exploration expenditure 4,113 (28)	-	4,085
Foreign exchange contracts (7,743) 6,581	2,815	1,653
Interest rate swaps (847) 61	786	-
Interest receivable 623 79	-	702
Inventory 1,636 1,324	-	2,960
Lease liability (3,205) 1,240	-	(1,965)
Mineproperties 75,595 15,017	-	90,612
Prepaid expenditure 22 2	-	24
Property, plant and equipment 10,217 (1,632)	-	8,585
Provisions (6,238) (492)	-	(6,730)
Tax losses (37,022) (2,178)	-	(39,200)
53,684 55,913	4,201	113,798

62 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

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----- Start of picture text -----

2011 2010
$’000 $’000
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Provision for write down of investments 965 965
Tax losses 44 44
1,009 1,009
4. CAsH AnD CAsH eQUiVALents
Cash at bank and in hand 21,911 47,497
Short-term deposits 95,096 199,907
117,007 247,404
Cash at bank earns interest at floating rates based on daily bank deposit
rates. Short-term deposits are made for varying periods of between one
day and three months depending on the immediate cash requirements of
the Group, and earn interest at the respective short-term deposit rates.
[a] Reconciliation of cash
For the purposes of the Cash Flow Statement, cash and cash
equivalents comprise the following at 30 June:
Cash at bank and in hand 21,911 47,497
Short-term deposits 95,096 199,907
117,007 247,404
[b] Reconciliation of the net profit after tax to the net cash
flows from operations
Net profit after tax 239,500 132,395
Adjustments for:
Depreciation of non-current assets 30,972 32,347
Amortisation of deferred waste 172,011 219,459
Amortisation of other mine properties 16,721 26,426
Net profit on disposal of property, plant and equipment 9 (4)
Net mark-to-market differences on derivatives (8,119) (2,899)
Interest received (21,147) (11,345)
Exploration expenses written off 20 105
Share based payments 422 928
Unwinding of rehabilitation provision 756 727
Stock obsolescence 194 -
Borrowing costs 4,310 4,871
Capitalised expenses (3,770) (4,648)
Changes in assets and liabilities
(Increase)/decrease in trade and other receivables 13,513 (17,572)
(Increase) in inventory (20,801) (27,992)
(Increase) in prepayments and deposits (285) (270)
(Increase) in capitalised deferred waste (310,861) (259,866)
Increase in creditors and accruals 4,329 19,427
Increase/(decrease) in GST paid (42) 71
Increase in current income tax liabilities 22,793 -
Increase in deferred income tax liabilities 80,595 55,912
Increase in employee benefits 1,288 1,012
Net cash flow from operating activities 222,408 169,084
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Mount Gibson Iron Limited 2011 Annual Report 63

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

4. CAsH AnD CAsH eQUiVALents (ContinUeD)

[c] Non-cash financing activities

During the financial year, the Group acquired property, plant and equipment with an aggregate fair value of $14,576,372 (2010: $4,564,803) by means of finance leases and hire purchase agreements. During the financial year, the Group disposed of property, plant and equipment with an aggregate fair value of $48,398 (2010: $nil) that were financed by means of finance leases.

==> picture [469 x 206] intentionally omitted <==

----- Start of picture text -----

2011 2010
Notes $’000 $’000
5. terM Deposits
Current
Term deposits 270,000 100,000
270,000 100,000
Term deposits are made for varying periods of between three and twelve
months depending on the term cash requirements of the Group, and
earn interest at the respective term deposit rates.
6. trADe AnD otHer reCeiVABLes
Current
Trade debtors [a][i] 7,398 26,573
Sundry debtors [a][ii] 10,057 3,501
Other receivables 4,794 3,905
22,249 33,979
----- End of picture text -----

[a] Terms and conditions

Terms and conditions relating to the above financial instruments:

[i] Details of terms and conditions of trade debtors and credit sales are set out in note 1(h).

[ii] Sundry debtors are non-interest bearing and have repayment terms between 30 and 90 days.

[b] Impaired or past due financial assets

An allowance for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. At 30 June 2011, trade debtors of nil (2010: $ $nil) in the Group were impaired.

At 30 June 2011, trade debtors of $262,435 (2010: $354,588) in the Group were past due but not impaired. These relate to a number of customers for whom there is no recent history of default and other indicators of impairment.

With respect to trade debtors that are neither impaired nor past due, there are no indications as of the reporting date that the debtors will not meet their payment obligations.

	2011	2010
	$’000	$’000
Movements in the allowance for impairment were as follows:
Balance at the beginningof theyear	-	15,247
Charge for theyear	-	-
Amounts written off	-	(15,247)
Balance at the end of theyear	-	-
The ageing of debtors past due but not impaired is as follows:
Less than 30 days overdue	-	374
Between 30 and 60 days overdue	428	36
Between 60 and 90 days overdue	20	-
Greater than 90 days overdue	(185)	(55)
	263	355

64 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

==> picture [470 x 169] intentionally omitted <==

----- Start of picture text -----

2011 2010
Notes $’000 $’000
7. inVentories
Consumables – at cost 23,164 19,425
Provision for stock obsolescence (194) -
Ore – at cost 137,388 120,327
160,358 139,752
8. DeriVAtiVe FinAnCiAL Assets
Current
Foreign currency forward contracts and options 30[b][i] 386 3,273
386 3,273
----- End of picture text -----

9. interest in sUBsiDiAries

Name Country of Incorporation	Percentage of Equity Interest Held by the Group
	2011 % 2010 %
Mount Gibson MiningLimited Australia	100 100
Geraldton Bulk HandlingPtyLtd Australia	100 100
Aztec Resources Limited Australia	100 100
• Koolan Iron Ore PtyLtd Australia	100 100
• Koolan ShippingPtyLtd Australia	100 100
• Brockman Minerals PtyLtd Australia	100 100

entities subject to Class order relief

Pursuant to Class Order 98/1418, relief has been granted to Mount Gibson Mining Limited, Aztec Resources Limited and Koolan Iron Ore Pty Ltd from the Corporations Act 2001 requirements for the preparation, audit and lodgement of their financial reports. As a condition of the Class Order, Mount Gibson Iron Limited, Mount Gibson Mining Limited, Aztec Resources Limited and Koolan Iron Ore Pty Ltd (“ Closed Group ”) entered into a Deed of Cross Guarantee on 1 May 2009. The effect of this deed is that Mount Gibson Iron Limited has guaranteed to pay any deficiency in the event of winding up of these controlled entities or if they do not meet their obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The controlled entities have also given a similar guarantee in the event that Mount Gibson Iron Limited is wound up or if it does not meet its obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee.

Consolidated Income Statement of the Closed Group

Consolidated Income Statement of the Closed Group
	2011	2010
	$’000	$’000
Continuing operations
Sale ofgoods	672,082	536,282
Other revenue	21,134	18,985
Total revenue	693,216	555,267
Cost of sales	(314,422)	(343,618)
Grossproft	378,794	211,649
Other income	79	26,746
Administration expenses	(20,428)	(20,723)
Foreign exchange derivatives mark-to-marketgain/(loss)	8,119	2,899
Exploration expenses	(20)	(120)
Proft from continuing operations before tax and fnance costs	366,544	220,451
Finance costs	(12,741)	(17,915)
Proft from continuing operations before income tax	353,803	202,536
Income tax expense	(108,179)	(60,181)
Netproft after tax attributable to members of the company	245,624	142,355

Mount Gibson Iron Limited 2011 Annual Report 65

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

9. interest in sUBsiDiAries (ContinUeD)

Consolidated Balance Sheet of the Closed Group

Consolidated Balance Sheet of the Closed Group
	2011	2010
	$’000	$’000
Assets
Current assets
Cash and cash equivalents	116,082	246,404
Term deposits	270,000	100,000
Trade and other receivables	21,365	32,984
Inventories	160,358	139,752
Prepayments	3,183	498
Derivative fnancial assets	386	3,273
Total current assets	571,374	522,911
Non-current assets
Other receivables	32,561	14,212
Property, plant and equipment	244,280	160,360
Deferred acquisition,exploration,evaluation and development costs	309	69,739
Mineproperties	736,768	536,020
Total non-current assets	1,013,918	780,331
Total assets	1,585,292	1,303,242
Liabilities
Current liabilities
Trade and otherpayables	96,492	82,884
Interest-bearingloans and borrowings	28,607	95,097
Derivative fnancial liabilities	63	1,808
Income taxpayable	22,793	-
Provisions	4,256	3,232
Total current liabilities	152,211	183,021
Non-current liabilities
Provisions	24,217	19,099
Interest-bearingloans and borrowings	16,461	36,813
Deferred income tax liabilities	196,122	113,785
Total non-current liabilities	236,800	169,697
Total liabilities	389,011	352,718
Net assets	1,196,281	950,524
equity
Issued capital	561,585	559,207
Retained earnings	615,458	369,834
Reserves	19,238	21,483
Total equity	1,196,281	950,524

66 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

==> picture [470 x 406] intentionally omitted <==

----- Start of picture text -----

2011 2010
$’000 $’000
10. propertY, pLAnt AnD eQUipMent
Freehold-land – at cost 631 5
Plant and equipment – at cost 133,309 94,018
Accumulated depreciation (41,398) (32,673)
91,911 61,345
Plant and equipment under lease – at cost 116,090 101,789
Accumulated depreciation (63,814) (46,241)
52,276 55,548
Buildings – at cost 60,182 56,703
Accumulated depreciation (23,352) (19,079)
36,830 37,624
Buildings under lease – at cost 522 522
Accumulated depreciation (450) (418)
72 104
Capital works in progress – at cost 64,975 8,717
Total property, plant and equipment
At cost 375,709 261,754
Total accumulated depreciation (129,014) (98,411)
246,695 163,343
[a] Assets pledged as security
The value of assets pledged as security are:
Land 631 5
Plant and equipment 91,911 61,345
Plant and equipment under lease 52,276 55,548
Buildings 36,830 37,624
Buildings under lease 72 104
Capital work in progress 64,975 8,717
246,695 163,343
----- End of picture text -----

Mount Gibson Iron Limited 2011 Annual Report 67

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

10. propertY, pLAnt AnD eQUipMent (ContinUeD)

		2011	2010
		$’000	$’000
[b]	Reconciliations
	Reconciliations of the carrying amounts of property, plant and
	equipment at the beginning and end of the current and previous
	fnancial year:
	Plant and equipment
	Carryingamount at the beginningof theyear	61,345	65,530
	Additions	39,301	4,913
	Transfers	201	2,137
	Disposals	(17)	-
	Depreciation expense	(8,868)	(11,152)
	Depreciation capitalised	(51)	(83)
	Carryingamount at the end of theyear	91,911	61,345
	Plant and equipment under lease
	Carryingamount at the beginningof theyear	55,548	65,902
	Additions	14,576	4,565
	Transfers	-	(176)
	Disposals	(48)	(48)
	Depreciation expense	(17,800)	(14,695)
	Carryingamount at the end of theyear	52,276	55,548
	Buildings
	Carryingamount at the beginningof theyear	37,624	43,154
	Additions	3,440	284
	Transfers	38	637
	Disposals	-	-
	Depreciation expense	(4,272)	(6,451)
	Carryingamount at the end of theyear	36,830	37,624
	Buildings under lease
	Carryingamount at the beginningof theyear	104	153
	Depreciation expense	(32)	(49)
	Carryingamount at the end of theyear	72	104
	Capital works in progress
	Carryingamount at the beginningof theyear	8,717	9,761
	Additions	56,497	1,554
	Transfers	(239)	(2,598)
	Carryingamount at the end of theyear	64,975	8,717

68 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

==> picture [470 x 450] intentionally omitted <==

----- Start of picture text -----

2011 2010
Note $’000 $’000
11. DeFerreD ACQUisition, eXpLorAtion, eVALUAtion AnD DeVeLopMent Costs
Deferred acquisition, exploration, evaluation and development costs
carried forward in respect of mining areas of interest:
Extension Hill Hematite - 64,438
Koolan Island 261 5,301
Other 48 -
309 69,739
Reconciliation
Carrying amount at beginning of the year 69,739 53,784
Additions 166 16,060
Transferred to mine properties (69,542) -
Exploration expenditure written off (54) (105)
Carrying amount at the end of the year 309 69,739
12. Mine properties
Mine development expenditure 1,637,213 1,247,733
Accumulated amortisation (900,354) (711,622)
736,859 536,111
Reconciliation
Carrying amount at beginning of the year 536,111 503,839
Additions 9,077 18,291
-
Transferred from deferred acquisition, exploration, evaluation and 69,542
development costs
Deferred waste capitalised during the year 2[d] 310,861 259,866
Amortisation expensed – deferred waste 2[d] (172,011) (219,459)
Amortisation expensed – other 2[d] (16,721) (26,426)
Carrying amount at the end of the year 736,859 536,111
13. trADe AnD otHer pAYABLes
Current
Trade creditors [a] 32,188 29,144
Accruals and other payables [a] 67,368 68,153
99,556 97,297
----- End of picture text -----

[a] Current trade creditors and other payables are non-interest bearing and are normally settled on 30 day terms.

Mount Gibson Iron Limited 2011 Annual Report 69

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

==> picture [469 x 434] intentionally omitted <==

----- Start of picture text -----

2011 2010
Note $’000 $’000
14. interest-BeArinG LoAns AnD BorroWinGs
Current
Lease liability [a] 2,231 5,456
Hire purchase facility [b] 26,376 9,641
Corporate debt [c] - 85,000
Capitalised corporate debt facility costs - (3,105)
28,607 96,992
Non-current
Lease liability [a] 2,965 1,094
Hire purchase facility [b] 13,496 35,719
16,461 36,813
Financing facilities available
At reporting date, the following financing facilities had been negotiated
and were available:
Total facilities:
• Finance leases [a] 5,196 6,550
• Hire purchase facility [b] 39,872 45,360
• Contingent Instrument facility [c] 65,000 65,000
• Corporate debt [c] 50,000 85,000
160,068 201,910
Facilities used at reporting date:
• Finance leases 5,196 6,550
• Hire purchase facility 39,872 45,360
• Contingent Instrument facility 55,082 55,338
• Corporate debt - 85,000
100,150 192,248
Facilities unused at reporting date:
• Finance leases - -
• Hire purchase facility - -
• Contingent Instrument facility 9,918 9,662
• Corporate debt 50,000 -
59,918 9,662
----- End of picture text -----

Terms and conditions relating to the above financial facilities:

[a] Finance lease facility

Finance leases are repayable monthly with final instalments due in May 2014. Interest is charged at an average rate of 8.89%. Secured by first mortgage over the leased assets.

[b] Hire purchase facility

Hire purchase arrangements have been entered into by Koolan Iron Ore Pty Ltd via a Master Lease agreement with Komatsu Corporate Finance Pty Limited and National Australia Bank Limited. Hire purchase amounts are repayable monthly with final instalments due in May 2016. Interest is charged at an average rate of 7.67%. Secured by first mortgage over the assets the subject of the hire purchase agreement and a guarantee from the company. This facility is drawn and repayable in US$ for Komatsu and A$ for NAB.

[c] Corporate debt and contingent instrument facility

On 9 May 2011 the Company entered into a facility agreement for a $115,000,000 finance facility which expires on 30 June 2014 consisting of:

• Senior debt facility of $50,000,000 repayable as follows:

• $25,000,000 on 31 December 2013; and

• $25,000,000 on 30 June 2014.

• Contingent Instrument facility of $65,000,000 (including guarantees, performance bonds).

The security pledge for these facilities is a fixed and floating charge over all the assets and undertakings of Mount Gibson Iron Limited, Mount Gibson Mining Limited, Geraldton Bulk Handling Pty Ltd, Koolan Iron Ore Pty Ltd and Aztec Resources Limited together with mining mortgages over the mining tenements owned by Mount Gibson Mining Limited and Koolan Iron Ore Pty Ltd and the contractual rights of Mount Gibson Mining Limited to mine hematite at Extension Hill.

The previous corporate debt and contingent instrument facility of $170,000,000 was repaid in full and cancelled during the year.

70 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

==> picture [470 x 366] intentionally omitted <==

----- Start of picture text -----

2011 2010
Notes $’000 $’000
15. DeriVAtiVe FinAnCiAL LiABiLities
Current
Foreign currency forward contracts and options 30[b][i] 63 1,808
63 1,808
16. proVisions
Current
Employee benefits 4,248 3,228
Road resealing 100 100
4,348 3,328
Non-current
Employee benefits 562 194
Decommissioning rehabilitation 23,666 18,910
24,228 19,104
Movement in provisions:
Road resealing
Carrying amount at beginning of the year 100 100
Provision for period 200 200
Amounts utilised during the period (200) (200)
Carrying amount at end of the year 100 100
Decommissioning rehabilitation
Carrying amount at beginning of the year 18,910 18,183
Provision for period 4,000 -
Unwinding of discount on rehabilitation provision 756 727
Carrying amount at end of the year 23,666 18,910
----- End of picture text -----

This provision relates to the forecast cost of decommissioning and rehabilitation on closure of Tallering Peak, Koolan Island and Extension Hill mines.

==> picture [470 x 197] intentionally omitted <==

----- Start of picture text -----

2011 2010
$’000 $’000
17. issUeD CApitAL
[a] Ordinary shares
Issued and fully paid 561,585 559,207
2011 2010
Number Number
of Shares $’000 of Shares $’000
[b] Movement in ordinary shares on issue
Beginning of the financial year 1,079,174,611 559,207 1,075,228,611 556,032
Exercise of options 3,000,000 2,700 3,946,000 3,496
Vesting of performance rights 396,082 - - -
Deferred income tax on capital raising cost - (322) - (321)
End of the financial year 1,082,570,693 561,585 1,079,174,611 559,207
----- End of picture text -----

Mount Gibson Iron Limited 2011 Annual Report 71

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

17. issUeD CApitAL (ContinUeD)

[c] Terms and conditions of contributed equity

Ordinary shares have the right to receive dividends as declared, and in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

Effective from 1 July 1998, the Corporation legislation in place abolished the concept of authorised capital and par values. Accordingly, the Company does not have authorised capital nor par value in respect of its issued shares.

[d] Share options

As at 30 June 2011 there were 2,000,000 options on issue (2010: 5,000,000) – see Note 21(b).

Share options carry no right to dividends and no voting rights.

[e] Performance rights

As at 30 June 2011 there were 1,102,599 performance rights on issue (2010: 801,482) – see Note 21(c).

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2011 2010
Notes $’000 $’000
18. reserVes
Option premium reserve [a] 18,991 18,569
Net unrealised gains/(losses) reserve [b] 3,439 6,106
Other reserves [c] (3,192) (3,192)
19,238 21,483
[a] Option premium reserve
The option premium reserve is used to record the value of
equity benefits provided to employees and directors as part of
their remuneration.
Balance at the beginning of the year 18,569 17,641
Share based payments 422 928
Balance at the end of the year 18,991 18,569
[b] Net unrealised gains/(losses) reserve
This reserve records movement for available-for-sale financial
assets to fair value, and gains and losses on hedging instruments
determined to be effective cash flow hedges.
Balance at the beginning of the year 6,106 (3,823)
Net gains/(losses) on cash flow hedges (3,156) 13,529
Deferred income tax on cash flow hedges 489 (3,600)
Balance at the end of the year 3,439 6,106
[c] Other reserves
Consolidation reserve (3,192) (3,192)
(3,192) (3,192)
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72 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

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2011 2010
Notes $’000 $’000
19. retAineD eArninGs
Balance at the beginning of the year 346,218 213,823
Net profit attributable to members of the Company 239,500 132,395
Balance at the end of the year 585,718 346,218
20. eXpenDitUre CoMMitMents
[a] Exploration expenditure commitments [i]
Minimum obligations not provided for in the financial report and
are payable:
• Not later than one year 735 978
• Later than one year but not later than five years 2,013 2,249
• Later than five years 3,148 3,655
5,896 6,882
[b] Operating lease commitments [ii]
Minimum lease payments
• Not later than one year 7,953 7,246
• Later than one year but not later than five years 2,047 3,238
10,000 10,484
[c] Finance lease and hire purchase commitments [iii]
Minimum lease payments
• Not later than one year 31,142 18,599
• Later than one year but not later than five years 18,265 39,184
Total minimum lease payments 49,407 57,783
Future finance charges (4,339) (5,873)
45,068 51,910
Total lease liability accrued for:
Current
Finance leases and hire purchase facility 28,607 15,097
Non-current
Finance leases and hire purchase facility 16,461 36,813
45,068 51,910
[d] Property, plant and equipment commitments [iv]
Commitments contracted for at balance date but not recognised
as liabilities
• Not later than one year 6,864 43,427
• Later than one year but not later than five years - -
6,864 43,427
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[i] In order to maintain current rights to explore and mine the tenements at Tallering Peak, Koolan Island, and Extension Hill the Group is required to perform minimum exploration work to meet the expenditure requirements specified by the Department of Mines and Petroleum.

[ii] Operating leases:

• operating lease for office space with an initial lease term of 5 years; and

• operating lease for machinery has an average term of 4.2 years.

[iii] Finance leases and hire purchases have an average term of 4.3 years with the option to purchase the asset at the completion of the lease term for a pre-agreed amount. The average discount rates implicit in the finance leases and hire purchases are 8.89 % and 7.67 % respectively (2010: 8.92% and 7.61% respectively). Secured lease liabilities are secured by a charge over the leased assets.

[iv] The Group had contractual commitments to purchase property, plant and equipment principally relating to the construction and development of the Extension Hill project and Koolan replacement fleet of $6,863,888 (2010:$43,426,838).

Mount Gibson Iron Limited 2011 Annual Report 73

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

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----- Start of picture text -----

2011 2010
Note $’000 $’000
21. sHAre-BAseD pAYMent pLAns
[a] Recognised share-based payment expenses
Expense arising from equity-settled share-based payment
transactions 2[e] 422 928
----- End of picture text -----

The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans during 2011 and 2010.

(b) Employee share scheme

An employee share scheme has been established where the Company may, at the discretion of the Board, grant options over the ordinary shares of the Company. The options, issued for nil consideration, are granted in accordance with performance guidelines established by the Directors of the Company. All Directors, officers and employees are eligible for this scheme. As at balance date the following options over unissued shares were on issue:

	2011	2010
Exercise Price	Vesting Date/Exercise Period Number	Number
90 cents	Vested 24 Oct 2008 – exercise on or before 23 Oct 2011 -	3,000,000
110 cents	Vested 24 Oct 2010 – exercise on or before 23 Oct 2012 2,000,000	2,000,000
	2,000,000	5,000,000

The remaining contractual life for the options on issue as at 30 June 2011 is between 1 and 2 years (2010: 1 and 3 years).

Information with respect to the number of options granted and issued under the employee share scheme is as follows:

	2011	2011	2010	2010
	No. of Options	Weighted average exercise price (cents)	No. of Options	Weighted average exercise price (cents)
Balance at beginningofyear	5,000,000	98.0	15,771,000	183.7
-granted and issued	-	-	-	-
- forfeited	-	-	(6,900,000)	299.0
- exercised	(3,000,000)	90.0	(3,871,000)	88.8
Balance atyear end	2,000,000	110.0	5,000,000	98.0
Exercisable atyear end			3,000,000	90.0
	2,000,000	110.0

(c) Performance Rights Plan

The Company has established the Mount Gibson Iron Limited Performance Rights Plan. The rights were granted at no cost to the executives and will convert into ordinary shares on completion by the executive of three years’ continuous service, subject to satisfaction of specified performance hurdles related to the Company’s Total Shareholder Return (“ TSR ”) measured against the TSR of a comparator group of companies over the same period.

Information with respect to the number of Performance Rights granted and issued is as follows:

	2011	2010
	No. of	No. of
	Performance	Performance
	Rights	Rights
Balance at beginningofyear	801,482	888,759
-granted and issued	301,117	308,805
- vested	-	(396,082)
Balance atyear end	1,102,599	801,482

74 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

23. eArninGs per sHAre

Basic earnings per share amount is calculated by dividing net profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts is calculated by dividing the net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the calculations of basic and diluted earnings per share:

The following refects the income and share data used in the calculations of basic and diluted	earnings per share:
	2011 $’000 2010 $’000
Profts used in calculatingbasic and diluted earningsper share	239,500 132,395
	Number of Shares Number of Shares
Weighted average number of ordinaryshares used in calculatingbasic earningsper share	1,081,674,803 1,076,540,422
Effect of dilution
- Share options	804,348 1,838,710
Weighted average number of ordinaryshares used in calculatingdiluted earningsper share	1,082,479,151 1,078,379,132

Conversions, calls, subscriptions or issues after 30 June 2011

Since the end of the financial year no options have been converted to ordinary shares and no shares (2010: on 1 July 2010, 396,082 shares) were issued upon vesting of performance rights granted by the Company. There have been no other conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this report.

23. DiViDenDs pAiD AnD proposeD

On 11 August 2011, the Directors of Mount Gibson declared a final dividend on ordinary shares in respect of the 2011 financial year. The total amount of the dividend is $43,302,828 which represents a fully franked dividend of 4.0 cents per share. The dividend has not been provided for in the 30 June 2011 financial statements. The record date for determining entitlements to the final dividend is 26 August 2011 and the date the final dividend is payable is 9 September 2011.

Apart from as set out above, no other amounts have been paid, declared or recommended by the Company by way of dividend since 1 July 2010 (2010: nil).

24. ContinGent LiABiLities

1. The corporate debt banks have provided the Group with performance bonds totalling $55,082,222 (2010: $55,338,465). The performance bonds relate to performance of environmental obligations and rail upgrades.

2. Legal proceedings have been initiated against Mount Gibson Mining Limited (“ MGM ”) by a contractor in relation to a contract for the design and construction of the crusher at Extension Hill. The contractor is seeking orders that MGM pay it the sum of $6,896,545 on a quantum meruit basis or alternatively as damages for breach of contract, plus interest accruing from 2 September 2008 until judgment plus costs. MGM denies the claim and will vigorously defend it. MGM is also counterclaiming damages from the contractor for breach of contract. The precise quantum of MGM’s claim has not yet been established but is expected to exceed $1,000,000.

3. Legal proceedings have been initiated against MGM by a contractor in relation to the contract for the realignment of the Great Northern Highway at Extension Hill. The contractor is seeking that MGM pay it the disputed sum of either $2,765,933 or $4,773,670 for breach of contract. MGM denies the claim and will vigorously defend it.

4. A dispute has arisen between MGM and a contractor in relation to the contract for the upgrade of the road between Perenjori and Extension Hill. The contractor is seeking that MGM pay it the disputed sum and it is expected that legal proceedings will shortly be commenced. Whilst the precise quantum of the amount claimed and the basis for the claim is not yet known, it is anticipated to be in the region of $4,500,000.

25. KeY MAnAGeMent personneL DisCLosUres

• [a] Compensation of key management personnel

	2011 $’000 2010 $’000
Short-term	4,204,053 3,856,823
Post employment	182,173 174,535
Share-basedpayment	407,039 678,911
	4,793,265 4,710,269

Mount Gibson Iron Limited 2011 Annual Report 75

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

25. KeY MAnAGeMent personneL DisCLosUres (ContinUeD)

[b] Option holdings of key management personnel

Balance at Beginning of Period Granted as Remun- eration Options Exercised Net Change Balance at End of Period 30 June 2011 1 July 2010 30 June 2011	Vested at 30 June 2011	Vested at 30 June 2011	Vested at 30 June 2011
	Total	Not **Exercisable **	Exercisable
Directors N Hamilton - - - - -
	-	-	-
L Tonkin 2,000,000 - - (2,000,000) -	-	-	-
C Readhead - - - - -	-	-	-
I Macliver - - - - -	-	-	-
A Jones - - - - -	-	-	-
Cao Z - - - - -	-	-	-
Chen Z - - - - -	-	-	-
P Knowles - - - - -	-	-	-
Lee SH - - - - -	-	-	-
G Hill - - - - -	-	-	-
R Willcocks - - - - -	-	-	-
P Curry - - - - -	-	-	-
A Rule - - - - -	-	-	-
Executives D Quinlivan - - - - -
	-	-	-
D Berg - - - - -	-	-	-
R Mencel - - - - -	-	-	-
G Hewitt - - - - -	-	-	-
R Richardson - - - - -	-	-	-
Total 2,000,000 - - (2,000,000) -	-	-	-
Balance at Beginning of Period Granted as Remun- eration Options Exercised Net Change Balance at End of Period 30 June 2010 1 July 2009 30 June 2010	Vested at 30 June 2010
	Total Not Exercisable Exercisable
Directors N Hamilton - - - - -	- - -
L Tonkin 5,000,000 - - (3,000,000) 2,000,000	- - -
C Readhead - - - - -	- - -
I Macliver - - - - -	- - -
A Jones - - - - -	- - -
Cao Z - - - - -	- - -
Chen Z - - - - -	- - -
P Knowles - - - - -	- - -
Lee SH - - - - -	- - -
R Willcocks - - - - -	- - -
A Rule 2,000,000 - - (2,000,000) -	- - -
Executives D Quinlivan - - - - -	- - -
D Berg - - - - -	- - -
R Mencel 350,000 - - (350,000) -	- - -
R Richardson - - - - -	- - -
Total 7,350,000 - - (5,350,000) 2,000,000	- - -

76 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

(c) Shareholding of key management personnel

30 June 2011 Balance 1 July 2010 Ord Granted as Remuneration Ord	On Exercise of Options Ord	Net Change Other Ord	Balance 30 June 2011 Ord
Directors N Hamilton 185,000 -
	-	(185,000)	-
L Tonkin - 227,758	-	(227,758)	-
C Readhead 567,500 -	-	-	567,500
I Macliver 1,000,000 -	-	-	1,000,000
A Jones 100,000 -	-	(100,000)	-
Cao Z - -	-	-	-
Chen Z - -	-	-	-
P Knowles - -	-	-	-
Lee SH - -	-	-	-
G Hill - -	-	-	-
R Willcocks - -	-	-	-
P Curry - -	-	-	-
A Rule 50,000 168,324	-	(218,324)	-
Executives D Quinlivan - -
	-	-	-
D Berg - -	-	-	-
R Mencel - -	-	-	-
R Richardson - -	-	-	-
G Hewitt - -	-	-	-
Total 1,902,500 396,082	-	(731,082)	1,567,500

	Balance	Granted as	On Exercise	On Exercise	Net Change		Balance	Balance
	1 July 2009	Remuneration	of Options		Other	30 June		2010
30 June 2010	Ord	Ord	Ord		Ord		Ord
Directors
N Hamilton	185,000	-		-	-		185,000
L Tonkin	-	-		-	-			-
C Readhead	567,500	-		-	-		567,500
I Macliver	1,000,000	-		-	-		1,000,000
A Jones	100,000	-		-	-		100,000
Cao Z	-	-		-	-			-
Chen Z	-	-		-	-			-
P Knowles	-	-		-	-			-
Lee SH	-	-		-	-			-
R Willcocks	50,000	-		-	(50,000)			-
A Rule	50,000	-		-	-		50,000
Executives
D Quinlivan	-	-		-	-			-
D Berg	-	-		-	-			-
R Mencel	-	-		-	-			-
R Richardson	-	-		-	-			-
Total	1,952,500	-		-	(50,000)		1,902,500

All equity transactions with key management personnel other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length.

Mount Gibson Iron Limited 2011 Annual Report 77

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

25. KeY MAnAGeMent personneL DisCLosUres (ContinUeD)

[d] Performance Rights holding by key management personnel

Performance Rights holding by key management personnel
30 June 2011 Balance 1 July 2010	Granted as Remuneration	Vested during year	Balance 30 June 2011
Directors N Hamilton -
	-	-	-
L Tonkin 389,610	146,375	-	535,985
C Readhead -	-	-	-
I Macliver -	-	-	-
A Jones -	-	-	-
Cao Z -	-	-	-
Chen Z -	-	-	-
P Knowles -	-	-	-
Lee SH -	-	-	-
R Willcocks -	-	-	-
A Rule 278,292	104,554	-	382,846
Executives D Quinlivan -
	-	-	-
D Berg 133,580	50,188	-	183,768
R Mencel -	-	-	-
R Richardson -	-	-	-
Total 801,482	301,117	-	1,102,599
30 June 2010 Balance 1 July 2009	Granted as Remuneration	Vested during year
Directors N Hamilton -	-	-	-
L Tonkin 467,254	150,114	(227,758)	389,610
C Readhead -	-	-	-
I Macliver -	-	-	-
A Jones -	-	-	-
Cao Z -	-	-	-
Chen Z -	-	-	-
P Knowles -	-	-	-
Lee SH -	-	-	-
R Willcocks -	-	-	-
A Rule 339,392	107,224	(168,324)	278,292
Executives D Quinlivan -	-	-	-
D Berg 82,113	51,467	-	133,580
R Mencel -	-	-	-
R Richardson -	-	-	-
Total 888,759	308,805	(396,082)	801,482

[e] Loans to specified key management personnel

There were no loans to key management personnel during the year.

[f] Other transactions and balances with key management personnel

There were no other transactions and balances with key management personnel during the year.

78 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

26. reLAteD pArtY DisCLosUre

Ultimate parent

Mount Gibson Iron Limited is the ultimate Australian parent company.

Director-related entity transactions

Sales

During all or part of the year, Mr Cao and Mr Chen were directors of Shougang Concord and Mr Lee and Mr Curry were directors of APAC. Pursuant to sales agreements, during the financial year, the Group:

• Sold 719,071 WMT (2010: 745,863 WMT) of iron ore to APAC; and

• Sold 2,875,589 WMT (2010: 2,724,753 WMT) of iron ore to Shougang Concord.

Amounts recognised at the reporting date in relation to director-related entity transactions:

	2011	2010
	$’000	$’000
Assets and liabilities
Current assets
Trade receivables - Sino Chance TradingLimited	431	16,346
Trade receivables - ShougangConcord	4,383	4,303
Total trade receivables	4,814	20,649
Total assets	4,814	20,649
Current liabilities
Tradepayables - ShougangConcord	2	8
Total tradepayables	2	8
Total liabilities	2	8
Revenues and expenses
Sale ofgoods - APAC	79,681	59,974
Sale ofgoods - ShougangConcord	355,676	215,011
Total sale ofgoods	435,357	274,985

Apart from the above, there are no director-related entity transactions other than those specified in Note 25.

==> picture [470 x 100] intentionally omitted <==

----- Start of picture text -----

2011 2010
$ $
27. AUDitor’s reMUnerAtion
Amounts received or due and receivable by Ernst & Young for:
• An audit or review of the financial report of the entity and any other entity in the 213,410 213,775
consolidated entity
• Other services in relation to the entity and any other entity in the consolidated entity - -
213,410 213,775
----- End of picture text -----

Mount Gibson Iron Limited 2011 Annual Report 79

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

28. seGMent inForMAtion

The Group has identified its operating segments based on the internal reports that are reviewed and used by the Chief Executive Officer and his management team in assessing performance and in determining the allocation of resources.

The reportable segments are based on aggregated operating segments determined by the similarity of activity type, as these are the sources of the Group’s major risks and have the most effect on the rates of return.

The accounting policies applied for internal reporting purposes are consistent with those applied in the preparation of the financial statements.

During the year ended 30 June 2011, revenue received from the sale of iron ore was comprised of the following buyers who each on proportionate bases equated to greater than 10% of total sales for the period:

proportionate bases equated to greater than 10% of	total sales for the pe
Customer	2011 $’000
# 1	355,676
# 2	88,062
# 3	79,682
# 4	77,238
Other	46,514
	647,172

During the year ended 30 June 2010, revenue received from the sale of iron ore was comprised of the following buyers who each on proportionate bases equated to greater than 10% of total sales for the period:

		2010
Customer		$’000
# 1		215,003
# 2		98,912
# 3		91,206
# 4		59,974
# 5		53,703
Other		460
		519,258

Revenue from external customers by geographical location is based on location of iron ore shipped. All iron ore has been shipped to China during the 2010 and 2011 financial years.

The Group considers the segment assets and liabilities to be consistent with those disclosed in the financial statements.

29. eVents AFter tHe BALAnCe sHeet DAte

On 11 August 2011, the Directors of Mount Gibson declared a final dividend on ordinary shares in respect of the 2011 financial year. The total amount of the dividend is $43,302,828 which represents a fully franked dividend of 4.0 cents per share. The dividend has not been provided for in the 30 June 2011 financial statements.

On 8 August 2011, Mount Gibson advised ASX that previously, Mount Gibson had four customers who between them purchased 100% of life of mine production from Koolan Island. Following the demise of the benchmark pricing system, Mount Gibson sought to negotiate with each of its customers a revised pricing mechanism to apply in place of the now defunct benchmark price. As announced on 3 November 2010, revised pricing agreements were concluded with each of Shougang and APAC. However, despite lengthy good faith negotiations, no agreement on a revised pricing mechanism to apply under the long-term ore sales agreements for Koolan Island was reached with the two remaining customers, CITIC and Marubeni, and so these agreements have now ceased to be binding on the parties. Mount Gibson’s offtake agreements with Shougang and APAC provide that, where other customers’ agreements cease to be binding, then production formerly allocated to those other customers becomes “available production” the subject of Shougang’s and APAC’s agreements. Consequently, Shougang and APAC have an obligation to purchase, between them, all life of mine production from Koolan Island.

Apart from the above, as at the date of this report there are no significant events after balance date of the Company or of the Group that require adjustment of or disclosure in this report.

80 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

30. FinAnCiAL instrUMents

[a] Financial risk management objectives

The Group’s principal financial instruments, other than derivatives, comprise bank loans, finance leases and hire purchase contracts, cash and short-term deposits.

The main purpose of these financial instruments is to raise finance for the Group’s operations.

The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations.

The Group also enters into derivatives transactions, principally forward currency contracts, foreign currency collar options and interest rate swaps. The purpose is to manage the currency risks and interest rate risks arising from the Group’s operations and its sources of finance.

The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk, credit risk, commodity price risk and liquidity risk. The Board reviews and agrees management’s recommended policies for managing each of these risks and they are summarised below.

[b] Foreign currency risk

The Group is exposed to the risk of adverse movement in the A$ compared to the US$ as its iron ore sales receipts are denominated in US$. The Group uses derivative financial instruments to manage specifically identified foreign currency exposures by hedging a proportion of forecast US$ sales transactions in accordance with its risk management policy being a minimum of 50% and maximum of 70% of the next 12 months of forecast US$ sales. The primary objective of using derivative financial instruments is to reduce the volatility of earnings and cashflows attributable to changes in the US$/A$ exchange rate and to protect against adverse movements in these rates. In addition, the majority of the hire purchase liabilities for the mining equipment at Koolan Island are denominated in US$.

The Group recognises derivative financial instruments at fair value at the date the derivative contract is entered into. The Group applies hedge accounting to forward foreign currency contracts and collar option contracts and US$ finance leases that meet the criteria of cash flow hedges.

During the period from 1 July 2010 to 30 June 2011 the Group delivered into US$ foreign exchange forward contracts and collar options totalling US$206,000,000 at a weighted average A$ rate of 0.8551.

At 30 June 2011 the foreign exchange hedge book totalling US$45,000,000 is made up as follows:

Forward contract profile totalling US$45,000,000 due in the 6 months ending 31 December 2011 - weighted average A$ rate of 1.0591.

As at 30 June 2011, the mark-to-market gain on the total outstanding US$ foreign exchange hedge book of US$45,000,000 was A$323,334.

The hire purchase liabilities for the mining equipment at Koolan are denominated in US$. This non-derivative liability has been designated as a hedging instrument in a cash flow hedge to manage foreign exchange risk on highly probable US$ denominated sales with effect from 1 November 2009.

It is the Group’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximise hedge effectiveness.

The Group uses the following derivative instruments to manage foreign currency risk:

Instrument	Type of Hedging	Objective
Forward exchange contracts	Committed	Hedge sales receipts against cash fow volatility arising from the fuctuatingUS$/A$ exchange rates.
Collars	Committed	Hedge sales receipts against cash fow volatility arising from the fuctuating US$/A$ exchange rates by limiting exposure to exchange rates within a certain range of acceptable rates.

Mount Gibson Iron Limited 2011 Annual Report 81

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

30. FinAnCiAL instrUMents (ContinUeD)

• [i] Foreign exchange contracts - cash flow hedges

The Group has entered into forward exchange contracts and foreign exchange option contracts at reporting date designed as a hedge of anticipated future receipts that will be denominated in US$.

At balance date the following foreign exchange contracts were outstanding:

		2011	2011		2010
	Average Contract Rate	US$ $’000	Contract Value A$ $’000	Fair Value A$ $’000	Average Contract Rate US$ $’000 Contract Value A$ $’000 Fair Value A$ $’000
Forward exchange contracts
- within oneyear	1.0591	45,000	42,490	323	0.8422 86,000 102,116 232
Collar option
- within one year call strike price 0.86 put strikeprice 0.77	-	-	-	-	0.7700 120,000 155,844 1,233
Total	1.0591	45,000	42,490	323	0.8001 206,000 257,960 1,465

	2011	2010
	$’000	$’000
Current assets(note 8)	386	3,273
Current liabilities(note 15)	(63)	(1,808)
Total forward exchange contracts and collar options	323	1,465
Current liabilities(hirepurchase US$ facility– note 14)	(20,299)	(5,972)
Non-current liabilities(hirepurchase US$ facility– note 14)	-	(25,587)
	(19,976)	(30,094)

Movement in forward exchange contract cash flow hedge reserve:

	2011	2010
	$’000	$’000
Openingbalance	7,305	(2,843)
Change in fair value of cash fow hedges	(33,127)	(8,112)
Transferred from/(to)revenue in Income Statement	24,910	17,024
Transferred from/(to)derivatives in Income Statement	1,235	1,236
Closingbalance	323	7,305
Cash fow hedge ineffectiveness recognised immediatelyinproft and loss	1,235	1,236

82 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

[ii] Foreign currency sensitivity

The following table details the effect on profit after tax and other comprehensive income after tax of a 10% change in the Australian dollar against the US$ from the spot rate at 30 June 2011 and 30 June 2010.

	Net Proft	Net Proft	Other Comprehensive Income	Other Comprehensive Income
	2011 $’000	2010 $’000	2011 $’000	2010 $’000
10% appreciation in the A$ spot rate with all other variables held constant	299	396	2,869	12,836
10% depreciation in the A$ spot rate with all other variables held constant	(366)	(484)	(3,060)	(15,606)

The sensitivity analysis of the Group’s exposure to the foreign currency risk at balance date has been determined based on the change in value due to foreign exchange movement based on exposures at balance sheet date. A positive number indicates an increase in profit and other comprehensive income.

At balance date, the Group’s exposure to foreign currency risks on financial assets and financial liabilities, excluding derivatives, are as follows:

are as follows:
		Consolidated
		2011 $’000	2010 $’000
Financial assets Cash	(included within note 4)		412
		9,425
Trade receivables	(included within note 6)	6,300	25,023
Financial liabilities Tradepayables	(included within note 13)		(96)
		(126)
Hirepurchase facility	(included within note 14)	(20,299)	(31,559)
Net exposure		(4,700)	(6,220)

Mount Gibson Iron Limited 2011 Annual Report 83

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

30. FinAnCiAL instrUMents (ContinUeD)

[c] Interest rate risk

The Group’s exposure to market interest rates relates primarily to the Group’s long-term debt obligations and cash equivalents. The Group’s policy is to manage its interest costs using a mix of fixed and variable rate debt, and to keep between 50% and 75% of its borrowings at fixed rates of interest. The Group has entered into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations.

The Group constantly analyses its interest income rate exposure. Within this analysis, consideration is given to potential renewals of existing positions and alternative financing.

At balance date, the Group’s exposure to interest rate risks on financial assets and financial liabilities are as follows:

	Floating Interest Rate	Floating Interest Rate	Fixed Interest Rate Maturing in: 1 year or less Over 1 to 5 years	Fixed Interest Rate Maturing in: 1 year or less Over 1 to 5 years	Fixed Interest Rate Maturing in: 1 year or less Over 1 to 5 years	Fixed Interest Rate Maturing in: 1 year or less Over 1 to 5 years	Non-interest Bearing	Non-interest Bearing	Total Carrying Amount per Balance Sheet	Total Carrying Amount per Balance Sheet	Weighted Average Interest	Weighted Average Interest
	2011	2010 $’000	2011	2010 $’000	2011	2010 $’000	2011	2010 $’000	2011	2010 $’000	2011	2010 %
	$’000		$’000		$’000		$’000		$’000		%
Consolidated i) Financial assets Cash		47,495		199,907		-		2		247,404		4.26
	21,904		95,096		-		7		117,007		5.58
Term deposits	-	-	270,000	100,000	-	-	-	-	270,000	100,000	5.99	5.90
Trade and other receivables	-	-	-	-	-	-	22,249	33,979	22,249	33,979	-	-
Derivatives	-	-	-	-	-	-	386	3,273	386	3,273	-	-
Total fnancial assets	21,904	**47,495 **	365,096	299,907	-	-	22,642	**37,254 **	409,642	384,656		-
ii) Financial liabilities Trade and other payables		-		-		-		97,297		97,297
	-		-		-		99,556		99,556		-
Derivatives	-	-	-	-	-	-	63	1,808	63	1,808	-	-
Lease liabilities	-	-	2,231	5,456	2,965	1,094	-	-	5,196	6,550	8.89	8.92
Hire purchase	-	-	26,376	9,641	13,496	35,719	-	-	39,872	45,360	7.67	7.61
Corporate debt	-	85,000	-	-	-	-	-	-	-	85,000	-	7.77
Total fnancial liabilities	-	85,000	28,607	15,097	16,461	36,813	99,619	**99,105 **	144,687	236,015

84 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

[i] Interest rate sensitivity

The following table details the effect on profit and other comprehensive income after tax to a 1% change in the interest rates at 30 June 2011 and 30 June 2010.

30 June 2011 and 30 June 2010.
	Net	Proft	Other Comprehensive Income
	2011 $’000	2010 $’000	2011 $’000	2010 $’000
• 1% increase in interest rate with all other variables held constant	2,556	1,504	-	-
• 1% decrease in interest rate with all other variables held constant	(2,556)	(1,504)	-	-

The sensitivity analysis of the Group’s exposure to Australian variable interest rate risk at balance date has been determined based on exposures at balance sheet date. A positive number indicates an increase in profit and equity. All mark-to-market movements in cash flow hedges have been assumed to go to other comprehensive income as the profit and loss impact for any ineffectiveness unwinds over the derivatives’ life.

[d] Credit risk

The Group’s maximum exposures to credit risk at balance date in relation to each class of recognised financial assets, other than derivatives, is the carrying amount of those assets as indicated in the balance sheet.

In relation to derivative financial instruments, whether recognised or unrecognised, credit risk arises from the potential failure of counterparties to meet their obligations under the contract or arrangement. The Group’s maximum credit risk exposure in relation to forward exchange contracts is the full amount of the foreign currency it will be required to pay or purchase when settling the forward exchange contract, should the counterparty not pay the currency it is committed to deliver to the Group.

The Group minimises concentrations of credit risk in relation to trade receivables by undertaking transactions with a number of customers and by the use of letters of credit which guarantee 90% of receivable amount at the time of sale.

Credit risk from balances with banks and financial institutions is managed by Treasury in accordance with a Board approved policy. Investments of surplus funds are made only with approved counterparties with a Standard & Poors short term credit rating of at least A-1 and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Mount Gibson Board on an annual basis, and may be updated throughout the year subject to approval of the Mount Gibson Board. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty failure. No material exposure is considered to exist by virtue of the possible non performance of the counterparties to financial instruments.

There are no significant concentrations of credit risk within the Group.

[e] Commodity price risk

The Group’s operations are exposed to commodity price risk. The Group’s sales revenue is derived under long-term sales contracts for the life of mine at each of its operations. On 3 November 2010, Mount Gibson announced that it had reached agreement with two of its customers, Shougang and APAC, on a revised pricing mechanism to apply under ore sales agreements for Tallering Peak and Koolan Island iron ore product. The revised pricing mechanism reflects a market based clearing index. The revised pricing mechanism adopts the Platts Iron Ore Index Price (“ Platts Index ”) which is published daily for iron ore product with Fe content ranging from 58% to 65% and is quoted on a US$ per dry metric tonne CFR North China basis. The price to be paid by Shougang and APAC for Mount Gibson’s Tallering Peak and Koolan Island iron ore is based on the applicable Platts Index for the type and quality of ore delivered and reflects the average Platts Index for the preceding calendar month of the iron ore shipment. The average monthly Platts Index is converted to an FOB price per dry metric tonne by deducting the calculated shipping freight costs utilising corresponding shipping average monthly indices for Panamax vessels from the ports of Geraldton and Koolan Island to Qingdao. Lump iron ore receives a premium to the published Platts Index price and is determined every 6 months.

Mount Gibson reached agreement with Stemcor (S.E.A.) Pte Ltd on a revised pricing mechanism to apply under the long-term ore sales agreement for Tallering Peak which also reflects a market based clearing price.

Mount Gibson has not yet been able to agree the lump premium with APAC or Shougang which applies from 1 April 2011 to 30 September 2011 whilst it has agreed a lump premium of 9.22% with Stemcor (S.E.A.) Pte Ltd. Pursuant to the terms of the sales agreements with APAC and Shougang, an umpire has been appointed to determine the lump premium that will apply for the period. The financial results for the year include lump premium recorded at 9.22% for the period 1 April to 30 June 2011. Each 1% reduction in lump premium determined by the arbitrator would reduce revenue after royalties by $476,843.

Revenue on sales is recognised based on provisional priced sales and is subject to final adjustments between 30 to 120 days after delivery of the commodity. There are limited available financial instruments available to hedge the iron ore price.

Mount Gibson Iron Limited 2011 Annual Report 85

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

30. FinAnCiAL instrUMents (ContinUeD)

[f] Liquidity risk and capital risk management

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of its corporate debt facility, finance leases and hire purchase contracts. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching maturity profiles of financial assets and liabilities.

The Group’s capital risk management objectives are to safeguard the business as a going concern, to maximise returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure in order to reduce the cost of capital (being equity and corporate debt).

Mount Gibson does not have a target debt/equity ratio, but has a policy of maintaining a flexible financing structure so as to be able to take advantage of new investment opportunities that may arise. Note 14 sets out details of the Amended Corporate Debt facility.

At 30 June 2011, the Group had unutilised standby credit facilities totalling $59,918,000 (2010: $9,662,000).

The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. As the amounts disclosed in the table are the contractual undiscounted cash flows, these balances will not necessarily agree with the amounts disclosed in the balance sheet.

		30 June 2011	30 June 2011	30 June 2011		30 June 2010
	Less than 6 months $’000	6 to 12 months $’000	1 to 5 years $’000	Over 5 years $’000	Total $’000	Less than 6 months $’000 6 to 12 months $’000 1 to 5 years $’000 Over 5 years $’000 Total $’000
Financial liabilities Trade and other payables						97,297 - - - 97,297
	99,556	-	-	-	99,556
Lease liabilities	1,631	600	2,965	-	5,196	2,043 3,854 1,118 - 7,015
Hirepurchases	12,613	13,763	13,496	-	39,872	6,493 6,209 38,066 - 50,768
Corporate debt	-	-	-	-	-	53,330 36,013 - - 89,343
Derivatives –gross infow	(42,818)	-	-	-	(42,818)	(141,841) (117,583) - - (259,424)
Derivatives –gross outfow	42,495	-	-	-	42,495	141,076 116,883 - - 257,959
	113,477	14,363	16,461	-	144,301	158,398 45,376 39,184 - 242,958

86 Mount Gibson Iron Limited 2011 Annual Report

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

[g] Fair value of financial assets and financial liabilities

The carrying amounts and fair values of the financial assets and financial liabilities for the Group are shown below.

The fair value representing the mark-to-market of a financial asset or a financial liability is the amount at which the asset could be exchanged or liability settled in a current transaction between willing parties after allowing for transaction costs.

The fair values of cash, short-term deposits, trade and other receivables, trade and other payables and other short-term borrowings approximate their carrying values, as a result of their short maturity or because they carry floating rates of interest.

The fair values of derivative financial instruments are determined using the Level 2 method requiring fair value to be calculated using observable market inputs. The Group’s fair values under the Level 2 method are sourced from an independent valuation by the Group’s treasury advisor, Oakvale Capital (“ Oakvale ”). Oakvale’s valuation techniques use prevailing market inputs sourced from Reuters/Bloomberg to determine an appropriate mid-price valuation.

	2011	2011	2010	2010
	Carrying Amount $’000	Fair Value $’000	Carrying Amount $’000	Fair Value $’000
Financial assets – current Cash			47,497	47,497
	21,911	21,911
Short-term deposits	95,096	95,096	199,907	199,907
Long-term deposits	270,000	270,000	100,000	100,000
Trade debtors	7,398	7,398	26,573	26,573
Other receivables	14,851	14,851	7,406	7,406
Derivatives	386	386	3,273	3,273
	409,642	409,642	384,656	384,656
Financial liabilities – current Trade and otherpayables			97,297	97,297
	99,556	99,556
Lease liabilities	28,607	28,607	15,097	15,097
Corporate debt	-	-	85,000	85,000
Derivatives	63	63	1,808	1,808
	128,226	128,226	199,202	199,202
Financial liabilities – non current Lease liabilities			36,813	36,813
	16,461	16,461
	16,461	16,461	36,813	36,813
Net fnancial assets/(fnancial liabilities)	264,955	264,955	148,641	148,641

Mount Gibson Iron Limited 2011 Annual Report 87

notes to tHe ConsoLiDAteD FinAnCiAL report

for the year ended 30 June 2011

==> picture [469 x 191] intentionally omitted <==

----- Start of picture text -----

2011 2010
$’000 $’000
31. pArent entitY inForMAtion
[a] Information relating to Mount Gibson Iron Limited:
Current assets 905 1,117
Total assets 597,022 666,115
Current liabilities 23,607 106,475
Total liabilities 23,607 106,475
Issued capital 561,585 559,207
Accumulated losses (7,160) (18,135)
Share based payments reserve 18,990 18,568
Total Shareholder’s Equity 573,415 559,640
Net profit/(loss) after tax of the parent entity 10,975 (2,768)
Total comprehensive income/(loss) of the parent entity 10,975 (934)
----- End of picture text -----

[b] Details of any guarantees entered into by the parent entity in relation to the debts of its subsidiaries

Refer to Note 9.

[c] Details of any contingent liabilities of the parent entity

There are no contingent liabilities of the parent entity as at reporting date.

[d] Details of any contractual commitments by the parent entity for the acquisition of property, plant and equipment

There are no contractual commitments by the parent entity for the acquisition of property, plant and equipment as at reporting date.

[e] Tax consolidation

The Company and its 100% owned controlled entities have formed a tax consolidated group. Members of the Group entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned controlled entities. The agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At balance date, the possibility of default is remote. The head entity of the tax consolidated group is Mount Gibson Iron Limited.

88 Mount Gibson Iron Limited 2011 Annual Report

DireCtors’ DeCLArAtion

In accordance with a resolution of the directors of Mount Gibson Iron Limited, I state that:

1. In the opinion of the Directors:

2. a. the financial statements, notes and the additional disclosures included in the Directors’ Report designated as audited of the Group are in accordance with the Corporations Act 2001 , including:

   • i) giving a true and fair view of the financial position of the Group as at 30 June 2011 and of their performance for the year ended on that date; and

   • ii) complying with Accounting Standards and the Corporations Regulations 2001 ; and

3. b. the financial statements and notes also comply with International Reporting Standards as disclosed in note 1; and

4. c. there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable.

5. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2011.

Signed in accordance with a resolution of the directors.

==> picture [88 x 26] intentionally omitted <==

C READHEAD Chairman

Perth, 11 August 2011

Mount Gibson Iron Limited 2011 Annual Report 89

inDepenDent AUDit report

==> picture [469 x 696] intentionally omitted <==

Mount Gibson Iron Limited 2011 Annual Report

90

inDepenDent AUDit report

==> picture [468 x 696] intentionally omitted <==

Mount Gibson Iron Limited 2011 Annual Report 91

CorporAte GoVernAnCe stAteMent

tHe BoArD AnD CorporAte GoVernAnCe

The Company’s Board is committed to protecting and enhancing shareholder value and conducting the Company’s business ethically and in accordance with high standards of corporate governance.

The Company’s Corporate Governance policies were originally adopted on 10 June 2006 and have been periodically reviewed and updated since that time.

Recently, the Board commenced a complete review of the Company’s corporate governance policies. At the time of preparation of this statement, this review was still in progress. The aim of the review is to update the policies to reflect the evolution of the ASX Corporate Governance Council’s “Corporate Governance Principles and Recommendations” (“ ASX Governance Principles ”), as well as taking into account the particular and changing circumstances of the Company. It is anticipated that the review will be completed during the 2011 calendar year. The Company’s website will be updated to include the new policies when they are adopted by the Board.

A description of the Company’s main corporate governance practices is set out below. These practices reflect the Company’s existing corporate governance policies. Copies of the relevant policies are available in the corporate governance section of the Company’s website at www.mtgibsoniron.com.au.

tHe roLe oF tHe BoArD AnD tHe BoArD CHArter

The Board operates in accordance with the broad principles set out in the Company’s Board Charter, a copy of which is available from the Company’s website. The Board is responsible for guiding and monitoring the performance of the Company on behalf of shareholders by whom they are elected and to whom they are accountable. Day to day management of the Company’s affairs and the implementation of corporate strategies and policy initiatives are delegated by the Board to the Managing Director and senior executives, as set out in the Board Charter.

The Board Charter sets out the following overall powers and responsibilities of the Board:

• charting the direction, strategies and financial objectives of the Company and ensuring appropriate resources are available;

• monitoring the implementation of those policies and strategies and the achievement of those financial objectives and performance against the strategic plan and budgets; and

• monitoring compliance with control and accountability systems, significant disclosures to the market regulatory requirements and ethical standards.

Specific powers and responsibilities reserved to the Board in the Board Charter include:

• appointing, removing and monitoring the performance of the Managing Director and Company Secretary, determining their terms and conditions of employment and ratifying other key executive appointments and planning for executive succession;

• reviewing and ratifying systems of risk management and internal control and compliance, codes of conduct and legal compliance;

• reviewing and ratifying financial and other reporting;

• reviewing and ratifying major capital expenditure, capital management and acquisitions and divestitures; and

• approving the issue of any shares, options or other securities in the Company.

A statement on Board and management functions, which sets out those matters reserved to the Board and the roles and responsibilities of senior management, is available on the Company’s website.

MAnAGinG DireCtor

The Managing Director is responsible for running the affairs of the Company under delegated authority from the Board and implementing the policies and strategy set by the Board. In carrying out his responsibilities, the Managing Director must:

• report directly to the Board;

• provide prompt and full information to the Board regarding the conduct of the business of the Company;

• comply with the reasonable directions of the Board; and

• have regard to the requirements of the ASX Listing Rules and expectations of stakeholders and the wider investment community.

ConFLiCt oF interests poLiCY

The Board has adopted a Conflict of Interest Policy which establishes a protocol under which each Director is required to disclose certain interests and advise the Board in circumstances where a potential conflict of interest may arise. The Conflicts of Interest Policy also sets out the procedures to be followed where the Chairman determines that a Director’s interest in a matter may result in a conflict of interest occurring.

The Board has established a committee to handle disputes between the Company and its major shareholders.

92 Mount Gibson Iron Limited 2011 Annual Report

CorporAte GoVernAnCe stAteMent

BoArD CoMposition

As at the date of this report the Company has eight Directors: seven Non-Executive Directors including the Chairman, and one Executive Director.

Board composition size and structure will be reviewed annually to ensure that the Non-Executive Directors between them bring the range of skills, knowledge and experience necessary to direct the Company. The skills, knowledge and experience which the Board considers to be particularly relevant include qualifications and experience in the areas of mining, engineering and project management, accounting and finance, commodities, mergers and acquisitions and law. The Board is in the process of recruiting additional NonExecutive Directors to ensure it has an appropriate mix of the requisite skills, knowledge, experience and independence. As noted below, the Board is in the process of establishing a diversity policy as part of the review of governance policies and procedures in progress at the time of preparation of this statement.

The Board, with the assistance of the NRGC, regularly reviews its membership to ensure that it has the appropriate mix of skills and experience required to meet the needs of the Company. When a Board position becomes vacant or additional Directors are required, as is presently the case, external professional advisers are engaged to assist with identifying potential candidates and to ensure that a diverse range of candidates is considered.

All Directors, other than the Managing Director, are required to retire and may stand for re-election by shareholders, at the third Annual General Meeting (AGM) following their election or most recent re-election.

Details of the skills, experience and expertise relevant to the position of Director held by each Director in office as at the date of the Annual Report, and the periods of office held by each director, are set out on page 24.

DireCtor inDepenDenCe

The ASX Governance Principles state that an independent director is a non-executive director who is not a member of management and who is free of any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the independent exercise of their judgment. The Board determines the independence of Directors.

The Board considers that of the Non-Executive Directors, Messrs Hill, Readhead and Macliver are independent. Messrs Readhead, Macliver and Tonkin do not consider that Mr Hill can be classified as independent:

• Mr Tonkin, as an executive Director, cannot be classified as independent.

• Mr Jones is an independent Non-Executive Director of Allied Group Limited (“AGL”) and Allied Properties (H.K.) Limited (“APL”). Both AGL and APL are deemed to be substantial shareholders of the Company. Up until 30 September 2009, Mr Jones was also an independent Non-Executive Director of APAC Resources Limited, a substantial shareholder and customer of the Group. For these reasons Mr Jones is not classified as an independent director by the Board.

• Mr Chen is an Executive Director of Shougang Concord International Enterprises Company Limited (“Shougang Concord”), a substantial shareholder and material customer of the Group. For this reason, Mr Chen is not classified as an independent director by the Board.

• Mr Cao is a Non-Executive Director of Shougang Concord, a substantial shareholder and a material customer of the Group and, until 10 May 2010, was an executive officer of Shougang Concord. For this reason, Mr Cao is not classified as an independent director by the Board.

• Mr Lee is a Non-Executive Director of APAC, a substantial shareholder and material customer of the Group. Mr Lee is also an Executive Director of AGL and APL, both of which are deemed to be substantial shareholders of the Company. For this reason, Mr Lee is not classified as an independent director by the Board.

Due to the fact the Board is only a board of eight, of which five Directors are not independent, the Board does not have a majority of independent directors and therefore the Company does not comply with ASX Governance Principle 2.1. As announced to ASX, the Company has undertaken a search for three new independent Directors. However, future changes in the composition of the Board will depend on the support of a majority of Directors, and ultimately on the support of a majority of shareholders when the appointments are presented for confirmation at a general meeting.

If any Director has a material personal interest in a matter, the Director will not be permitted to vote on the matter.

DireCtors’ ACCess to inDepenDent ADViCe

The Company recognises that, from time to time, a Director may need to obtain his or her own expert advice in order to discharge that Director’s duties. The Directors must ensure, to the extent possible, that any advice obtained is independent of the Company. Any reasonable expenses incurred in obtaining that advice will be met by the Company.

BoArD MeetinGs

The Board meets at least nine times each year, and full Board meetings are usually held every two months. Meetings are convened outside the scheduled dates to consider issues of importance that arise from time to time. Board members are encouraged to visit the Group’s operations at least once per year.

Directors’ attendance at Board and Committee meetings is detailed on page 38.

Mount Gibson Iron Limited 2011 Annual Report 93

CorporAte GoVernAnCe stAteMent

BoArD CoMMittees

The Company’s Board has established an Audit and Risk Management Committee and a Nomination, Remuneration and Governance Committee.

Audit and Risk Management Committee (“ARMC”)

The ARMC is comprised of Messrs Macliver, Jones and Readhead. Mr Macliver is Chair of the ARMC. It has a formal charter and meets generally two times during a financial year. A copy of the Charter is located on the Company’s website. Committee members’ attendance at ARMC meetings is detailed on page 38.

The ARMC’s overall role is to assist the Board in fulfilling its responsibilities for the Company’s financial reporting and audit, internal control and financial risks.

The ARMC’s specific responsibilities include (but are not limited to):

• evaluating the effectiveness of the Company’s internal control measures, and gaining an understanding of whether internal control recommendations made by external auditors have been implemented;

• understanding the current areas of greatest financial risk for the Company and management’s response to minimising those risks;

• reviewing significant accounting and reporting issues; and

• reviewing annual financial reports, and meeting with management and external auditors to discuss the reports and the results of the audit; and

• overseeing the internal audit function.

The Managing Director, Chief Financial Officer and the external auditors usually attend ARMC meetings.

Information on the procedures for selection and appointment of the external auditor, and for the rotation of external audit engagement partners, is set out in the Company’s Policy on External Audit and the Policy on Auditor Independence. Copies of these policies are located on the Company’s website.

Nomination, Remuneration and Governance Committee (“NRGC”)

The NRGC is comprised of Messrs Hill, Jones, Readhead and Macliver. Mr Jones was appointed to the NRGC on 8 February 2011. Mr Hill was appointed to the NRGC on 8 July 2011 and assumed the role of Chair on 24 August 2011. Prior to this, Mr Readhead was Chair of the NRGC.

The NRGC has a formal charter and normally meets at least twice during a financial year. During the reporting period, the NRGC met once. However, a further meeting was held shortly after the end of the reporting period to deal with matters relevant to that financial year. A copy of the Charter is located on the Company’s website. Committee members’ attendance at NRGC meetings is detailed on page 38. The NRGC’s specific responsibilities include (but are not limited to):

• reviewing and recommending to the Board the size, composition and membership of the Board;

• developing and facilitating the process for Board and Director evaluation;

• making recommendation to the Board on remuneration of Directors and senior executives;

• reviewing the Managing Director’s performance, at least annually; and

• review and implementation of Corporate Governance protocols.

Details of the structure of Non-Executive Directors’ remuneration and Executive Director’s and senior executives’ remuneration is set out in the Directors Report.

CorporAte reportinG

The Managing Director and Chief Financial Officer have made the following certifications to the Board with respect to the 2011 accounts:

• that the Company’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the Company and Group and are in accordance with relevant accounting standards; and

• that the above statement is founded on a sound system of risk management and internal control and that the system is operating efficiently and effectively in all material respects.

seCUrities DeALinG poLiCY

The Company has a policy imposing restraints on Directors and key management personnel dealing in the Company’s securities. The policy is aimed at minimising the risk of Directors and key management personnel contravening insider trading laws, ensuring the Company is able to meet its reporting obligations under the ASX Listing Rules and increasing transparency with respect to trading in the Company’s securities by Directors and key management personnel. A copy of this policy is located on the Company’s website. Under the policy, key management personnel must not at any time engage in short-term trading in securities of the Company.

94 Mount Gibson Iron Limited 2011 Annual Report

CorporAte GoVernAnCe stAteMent

FinAnCiAL reportinG

Consistent with ASX Governance Principle 4.1, the Company’s financial report preparation and approval process for the financial year ended 30 June 2011 involved both the Managing Director and the Chief Financial Officer providing detailed representations to the Board covering:

• compliance with the Company’s accounting policies and relevant accounting standards;

• the accuracy of the financial statements and that they provide a true and fair view;

• integrity and objectivity of the financial statements; and

• effectiveness of the system of internal control.

inDeMnities

The Company has entered into deeds of access, indemnity and insurance with each Director. These deeds provide access to documentation, indemnification against liability from conduct of the Company’s business and subsidiaries, and Directors’ and officers’ liability insurance.

DireCtors AnD senior eXeCUtiVes perForMAnCe eVALUAtion AnD reMUnerAtion

The Company does not at present have a formal process for evaluating the performance of the Board, its committees or individual Directors. No performance evaluation was performed in the reporting period. In these respects, the Company is not in compliance with ASX Governance Principle 2.5. The evaluation issue is being addressed as part of the review of governance policies and procedures.

The NRGC annually evaluates the performance of senior executives against both financial and non-financial, corporate and individual performance measures. For the reporting period, the NRGC determined that it was appropriate to evaluate the performance of the Managing Director, Chief Financial Officer and Company Secretary jointly, to reflect the team oriented nature of the work performed by these executives during that period.

The Company’s policy and procedure for selection and appointment of new Directors and its Remuneration Policy are available on its website.

ContinUoUs DisCLosUre AnD sHAreHoLDer CoMMUniCAtions

The Company has established a Continuous Disclosure Policy, identifying the procedure for executives in identifying material price sensitive information and reporting that information to the Company Secretary for review. The Company Secretary has primary responsibility for ensuring that the ASX disclosure requirements are met.

The Company has also adopted:

• Policy for dealing with media enquiries; and

• Policy for shareholder communications in order to promote effective communication with shareholders and encouraging participation at the Company’s Annual General Meeting.

Copies of each of these policies are located on the Company’s website.

Shareholders may elect to receive company reports by mail or email.

Mount Gibson Iron Limited 2011 Annual Report 95

CorporAte GoVernAnCe stAteMent

risK MAnAGeMent

The Board is responsible for the identification of significant areas of business risk, implementing procedures to manage such risks and developing policies regarding the establishment and maintenance of appropriate ethical standards to:

• ensure compliance in legal statutory and ethical matters;

• monitor the business environment;

• identify business risk areas; and

• identify business opportunities.

The Board has delegated responsibility to the ARMC to review and report to the Board that:

• the Company’s ongoing risk management program effectively identifies all areas of potential risk;

• adequate policies and procedures have been designed and implemented to manage identified risks;

• a regular program of audits is undertaken to test the adequacy of and compliance with prescribed policies; and

• proper remedial action is undertaken to redress areas of weakness.

The Company has in place specific policies and programs addressing certain strategic, financial, operational and compliance risks. Comprehensive reports addressing each of these areas are provided regularly to management and the Board. Controls are in place to ensure that the Company’s risks are managed effectively and the integrity of its financial reporting is preserved, including:

• an annual budgeting process with at least monthly reporting against performance targets;

• Board approved delegated authority limits that set out authority levels for expenditure and commitments for different levels of management within the Company;

• a Financial Risk Management Policy, which established a risk management framework and procedures for the effective management of the Company’s financial risks, including management of investment of surplus cash and foreign currency;

• a capital approval process that controls the authorisation of capital expenditure and investments; and

• a crisis and emergency management system designed to address emergencies at any of the Company’s operating sites.

The Company did not have a formal internal audit function for the reporting period. However the Board has now resolved to establish this function.

AUDitors

The external auditor attends the Annual General Meeting and is available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.

etHiCAL stAnDArDs AnD ConDUCt

The Company has an Employee Code of Conduct providing a framework of principles for conducting business and dealing with stakeholders. Employees are required to perform and act with integrity, fairness and in accordance with the law and to avoid real or apparent conflicts of interest. In addition, the Company has also established a Board Code of Conduct for Directors, which establishes guidelines for their conduct in carrying out their duties. Copies of both Codes of Conduct are located on the Company’s website.

DiVersitY

The Company had not established a diversity policy during the reporting period. In addition, the Board has not set any measurable objectives for achieving gender diversity in accordance with a diversity policy. In this respect, the Company is not in compliance with ASX Governance Principles 3.2 and 3.3. Diversity will be addressed as part of a review of governance policies and procedures.

The percentage of women employees in the whole organisation is 16.5%. No women presently hold senior executive positions or are Directors.

96 Mount Gibson Iron Limited 2011 Annual Report

AsX AnD ADDitionAL inForMAtion

The following information is required in order to complete the back end of the annual report entitled “ASX and Additional Information”. The information is current as at 21 September 2011.

(a) Distribution of equity securties

	Ordinary Shares
	Number of Holders Number of Shares % of Issued Capital
1 - 1,000	2,559 1,553,595 0.14
1,001 - 5,000	6,254 19,082,563 1.76
5,001 - 10,000	3,454 27,659,044 2.55
10,001 - 100,000	3,855 103,280,884 9.54
100,001 - 999,999,999	238 930,994,607 86.00
TOTAL	16,360 1,082,570,693 100.00

(b) Equity security holders

Equity security holders
	Ordinary Shares
	Number of Shares % of Shares Held
True Plus Limited	159,166,874 14.70
Sun Hung Kai Investment Services Limited	151,523,460 14.00
HSBC Custody Nominees (Australia) Limited	116,961,308 10.80
JP Morgan Nominees Australia Limited	114,280,879 10.56
National Nominees Limited	96,019,130 8.87
APAC Resources Investments Limited	82,900,000 7.66
Sun Hung Kai Investment Services Ltd	40,053,818 3.70
Citicorp Nominees Pty Limited	30,379,933 2.81
JP Morgan Nominees Australia Limited	12,621,595 1.17
Cogent Nominees Pty Limited	10,274,805 0.95
Debortoli Wines Pty Limited	8,085,685 0.75
AMP Life Limited	7,109,597 0.66
Cogent Nominees Pty Limited	7,036,425 0.65
Argo Investments Limited	6,433,498 0.59
Bond Street Custodians Ltd	3,833,272 0.35
Queensland Investment Corporation	3,460,899 0.32
CITIC Resources Australia Pty Ltd	3,405,000 0.31
Mr Desmond George Samuel Anderson	3,000,000 0.28
Bond Street Custodians Limited	2,757,270 0.25
De Bortoli Wines (Superannuation) Pty Limited	2,528,908 0.23
Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (TOTAL)	861,832,356 79.61
Total Remaining Holders Balance	220,738,337 20.39

Mount Gibson Iron Limited 2011 Annual Report 97

AsX AnD ADDitionAL inForMAtion

(c) Substantial Shareholders

The names of Substantial Shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are:

==> picture [451 x 152] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|Number of|
|Shares Held|
|APAC Resources Limited and its subsidiaries|279,877,774|
|Allied Group Limited and its subsidiaries (including Allied Properties (H.K.) Limited and Allied Overseas|279,877,774|
|Limited), the Lee and Lee Trust, New Able Holdings Limited, Minty Hongkong Limited, Zealous|
|Developments Limited and Cashplus Management Limited|
|COL Capital Limited, its subsidiaries and Ms Shirley Chong Suk Un|282,992,277|
|Shougang Corporation and Shougang Concord International Enterprises Company Limited and each|154,166,874|
|of their controlled entities|
|Shougang Fushan Resources Group Limited (formerly Fushan International Energy Group Limited),|154,166,874|
|True Plus Limited and its subsidiaries|

----- End of picture text -----

(d) Voting Rights

All ordinary Shares carry one vote per Share without restriction. No voting rights attach to options.

(e) Schedule of interests in mining tenements

==> picture [451 x 338] intentionally omitted <==

----- Start of picture text -----

|||||
|---|---|---|---|
|Location|Tenement|Status|Percentage Held|
|Koolan Island|E04/1266-I|Live|100%|
|Koolan South|E04/1407|Pending|100%|
|Koolan Island|L04/29|Live|100%|
|Koolan Island|M04/416-I|Live|100%|
|Koolan Island|M04/417-I|Live|100%|
|Koolan Island|E04/2091|Pending|100%|
|Tallering Peak|G70/192|Live|100%|
|Tallering Peak|G70/193|Live|100%|
|Tallering Peak|G70/201|Live|100%|
|Tallering Peak|G70/202|Live|100%|
|Tallering Peak|G70/203|Live|100%|
|Tallering Peak|G70/204|Live|100%|
|Tallering Peak|G70/205|Live|100%|
|Tallering Peak|L70/60|Live|100%|
|Tallering Peak|L70/69|Live|100%|
|Tallering Peak|L70/73|Live|100%|
|Tallering Peak|L70/74|Live|100%|
|Tallering Peak|M70/896-I|Live|100%|
|Tallering Peak|M70/1062-I|Live|100%|
|Tallering Peak|M70/1063-I|Live|100%|
|Tallering Peak|M70/1064-I|Live|100%|
|Tallering Peak|E70/3732|Pending|100%|
|Extension Hill|G70/232|Live|100%|
|Extension Hill|G70/238|Live|100%|
|Extension Hill|L70/133|Pending|100%|
|Piawaning|E70/3059-I|Live|100%|
|Jasper Hill|E59/1355-I|Live|100%|

----- End of picture text -----

98 Mount Gibson Iron Limited 2011 Annual Report

cOrpOrate directOry

Board of direCtors

soliCitors

Freehills

Geoffrey Hill Chairman, Non-Executive Director

Level 36, QV1 Building 250 St George’s Terrace Perth 6000, Western Australia

Luke Tonkin Managing Director

auditors

Craig readhead Non-Executive Director

Ernst & Young

Ian Macliver Non-Executive Director

Ernst & Young Building 11 Mounts Bay Road Perth 6000, Western Australia

Cao Zhong Non-Executive Director

Bankers

Chen Zhouping Non-Executive Director

HSbC bank Australia Ltd 188-190 St George’s Terrace Perth 6000, Western Australia

Alan Jones Non-Executive Director

Lee Seng Hui Non-Executive Director

stoCk exCHange listing

The company’s shares are listed on the Australian Securities Exchange. ASX Code: MGX

Peter Curry Alternate Director for Lee Seng Hui

Alan rule Alternate Director for Luke Tonkin

sHare registry

Computershare Investor Services Pty Ltd

ComPany seCretary

david berg

Level 2, Reserve Bank Building 45 St George’s Terrace Perth 6000, Western Australia Telephone: +61 8 9323 2000 Facsimile: +61 8 9323 2033

registered offiCe

Level 1, 7 Havelock Street West Perth 6005, Western Australia Telephone: +61 8 9426 7500 Facsimile: +61 8 9485 2305 Email: admin@mtgibsoniron.com.au Website: www.mtgibsoniron.com.au

annual general meeting of sHareHolders

To be held at 9.30am on Wednesday 16 november at City West Function Centre, 45 Plaistowe Mews, City West Centre, West Perth WA 6005.

easy aCCess to information

See our website at www.mtgibsoniron.com.au for regular quarterly reports and financial results. Additionally, shareholders or interested parties can register to receive emailed updates shortly after the company makes any regular or major announcement.

This report has been printed on environmentally friendly paper.

ISO 14001 - The standard published by the International Standards Organisation specifying the requirements of an environmental management system. Bleaching Process - Elemental Chlorine Free (ECF) Pulp is bleached using processes that do not use elemental Chlorine gas, reducing the amount of toxins released. Forest Management - These papers are totally derived from resources which are managed to ensure their renewability for generations to come. Recycled Content - 55% recycled, 30% pre consumer, 25% post-consumer & FSC certified pulp

www.mtgibsoniron.com.au