MGX RESOURCES LIMITED - Annual Report 2012

ABN 87 008 670 817

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VIA: WWW.ASXONLINE.COM

ASX ANNOUNCEMENT

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Mount Gibson Iron Limited

First Floor, 7 Havelock Street West Perth 6005, Western Australia PO Box 55, West Perth WA 6872 Telephone: 61-8-9426-7500 Facsimile: 61-8-9485 2305 E-mail: [email protected]

Pages = 3

ASX Code : MGX

23 August 2012

Mount Gibson announces annual net profit of $172.5 million

Net profit after tax of $172.5 million (FY2011: $239.5 million)
Net profit before tax of $239.6 million (FY2011: $342.9 million)
Final dividend of 2 cents per share fully franked, full year payout 4 cps fully franked (FY2011: 4cps)
Strong balance sheet, $293 million in cash/deposits (FY2011: $387 million), no corporate debt
Full year revenue of $668.9 million (FY 2011: $693.2 million)
Sales revenue of $648.5 million (FY 2011: $672.1 million)
Iron ore sales of 5.2 million tonnes of DSO hematite (FY 2011: 5.2 Mt)
Total cost of goods sold $71.70 per wet metric tonne (FY 2011: $62.10/wmt)[1]
Average realised price of A$124.50/wmt tonne sold FOB (FY2011: $128.40/wmt)
Record 6.9 million tonnes of ore mined and crushed (FY2011: 5.4 Mt)
Substantial ore stockpiles at the mines, rail sidings and Geraldton port.
Record production and sales volumes expected in FY2013
Well placed to capitalise on attractive long term growth opportunities
Senior executive management team rebuilt
Foreign Investment Review Board recognition of Board independence/corporate governance

1 Reflects all cash and non-cash costs, excluding the impairment provision for low-grade stockpiles.

Summary

Mount Gibson Iron Limited ( Mount Gibson ) is pleased to report a net profit after tax of $172.5 million for the financial year ended 30 June 2012. The result is the second highest net profit ever recorded by the Company and was achieved on total revenue of $668.9 million, including sales revenue of $648.5 million.

Net profit was approximately 28% lower than the prior year’s record result, and sales revenue was 6% lower than in the prior year on similar volumes. This result represents a solid performance in challenging operating and market conditions in 2012.

The full year result and lower cash balance reflect a number of factors, including:

lower realised iron ore prices during the period;
the first year of cash tax payments ($34 million);
dividend distributions ($62 million);
writedown of low-grade ore stockpiles ($25 million)
capital expenditure at Koolan Island, Extension Hill and Geraldton Port;
higher unit production costs at Tallering Peak and Koolan Island reflecting waste development and weather-related disruptions;
disruption to rail operations resulting from infrastructure upgrades for other Mid West mining projects which restricted the shipment of material otherwise available for sale.
high year-end inventory due to rescheduling of Koolan Island shipments from June to July.

Importantly, Mount Gibson generated robust earnings. It has also invested heavily to lay the foundations for the future growth of the business by optimising its existing mining operations, expanding export capacity, reinvigorating the executive management team and Board, and stepping up its evaluation of potential growth opportunities.

The Company declared a final dividend of 2 cents per share fully franked, maintaining the full year distribution at 4 cents. The Board will continue to assess future capital management initiatives in the context of market conditions and the capital requirements of the business.

Outlook

This result highlights the fundamental underlying strength of Mount Gibson’s business and its ability to withstand volatile commodity and financial market conditions.

With total year-end cash reserves of $293 million, strong cashflows and no corporate debt, Mount Gibson is well placed to consolidate and grow its business in the years ahead.

Mount Gibson expects FY2013 to be an improved year in terms of production and sales volumes following the successful expansion of port and rail facilities at Geraldton Port, which has doubled the export capacity of the Company’s Mid West operations to 6 million tonnes per annum, the successful ramp-up of the Extension Hill mine, and operational improvement at Koolan Island in the Kimberley.

With the recent decline in iron ore prices, Mount Gibson is focused on programs to reduce costs so as to maximise profit margins and insulate the Company against future price fluctuations.

With respect to the Mineral Resource Rent Tax (MRRT), the FY2012 result includes a Deferred Tax Asset of $2.9 million. Based on internal modeling, Mount Gibson does not currently expect to pay any MRRT over the life of its current assets. This remains dependent on future iron ore prices and foreign exchange rates.

Comment

Mount Gibson Chairman Geoff Hill said: “Mount Gibson’s ability to generate solid earnings and maintain a strong balance sheet in conditions during the June half that were far more challenging than those of previous periods demonstrates the fundamental strength of our business.

“We have also undergone substantial transformation during the year. This has included a total renewal of the executive management team under new Chief Executive Officer Jim Beyer. Three highly skilled and experienced independent Directors have been appointed to the Board and enhanced corporate governance practices have been introduced, resulting in confirmation from the FIRB that Mount Gibson is in step with corporate governance guidelines with respect to Board independence.

“With the support of our major shareholders APAC Resources and Shougang, we have the production, cashflows, and balance sheet strength to not only withstand these challenging market conditions, but also to invest in the long term future of our business and capitalise on the attractive opportunities which are emerging.”

Mount Gibson’s Appendix 4E and preliminary financial report for the year ended 30 June 2012 are attached.

For further information:

Jim Beyer Chief Executive Officer Mount Gibson Iron Limited +61-8-9426-7500

John Phaceas

Manager External Relations Mount Gibson Iron Limited +61-8-9426-7500

Alan Deans

Last Word Corporate Communications +61 (0)427 490 992

MOUNT GIBSON IRON LIMITED APPENDIX 4E – PRELIMINARY FINAL REPORT

Current Reporting Period:
12 months ended 30 June 2012
Previous Corresponding Period:

12 months ended 30 June 2011

		A$ millions
Revenue from ordinary activities	down 3.5% to	648.5
Net profit after tax from ordinary activities	down 28.0% to	172.5
Net profit after tax attributable to members	down 28.0% to	172.5

DIVIDENDS

	Amount per security	Franked amount per security
Final dividend	2 cents	2 cents

Record date for determining entitlements to the dividend 8[th] October 2012 Date the final dividend is payable 22[nd] October 2012

A maiden final fully franked dividend of 4 cents per share in respect of the 2011 year and a maiden interim fully franked dividend of 2 cents per share were paid during the year ended 30 June 2012.

RATIOS

• Net tangible asset backing per share is $0.302 (2011: $0.397)

Net tangible asset backing per share has been calculated by dividing the Net Assets excluding Mine Properties by the closing number of ordinary shares on issue.

DETAILS OF ENTITIES OVER WHICH CONTROL HAS BEEN GAINED OR LOST DURING THE PERIOD

Not applicable.

STATUS OF AUDIT

The Preliminary Final Report is based on accounts that have been audited. This Preliminary Final Report is to be read in conjunction with the attached Financial Statements for the year ended 30 June 2012 together with any public announcements made by Mount Gibson during the year ended 30 June 2012 in accordance with the continuous disclosure obligations under the Corporations Act 2001.

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MOUNT GIBSON IRON LIMITED AND CONTROLLED ENTITIES ABN 87 008 670 817 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

Financial Report

For the year ended 30 June 2012

Directors’ Report ...........................................................................................................................................2 Consolidated Income Statement ............................................................................................................ 25 Consolidated Statement of Comprehensive Income .......................................................................... 26 Consolidated Balance Sheet .................................................................................................................... 27 Consolidated Cash Flow Statement ........................................................................................................ 28 Consolidated Statement of Changes in Equity ..................................................................................... 29 Notes to the Consolidated Financial Report ......................................................................................... 30 Directors’ Declaration ............................................................................................................................... 83 Independent Audit Report ....................................................................................................................... 84

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 1

Directors’ Report

Your Directors submit their report for the year ended 30 June 2012 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

Geoffrey Hill B.Econ, MBA, FCPA, FCDA, FSIA Chairman, Independent Non-Executive Director

Mr Hill was appointed as an Independent Non-Executive Director on 20 May 2011 and Chairman on 24 August 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, 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 3 years Mr Hill has also served as a director of Centrex Metals Limited, Hills Holdings Limited, Outback Metals Limited, and Heritage Gold Limited.

Alan Jones CA

Independent Non-Executive Director

Mr Jones was appointed as an Independent 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 NonExecutive 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 3 years Mr Jones has also served as a director of APAC Resources Limited.

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 Concord International Enterprises Company Limited (“ 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 3 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 as 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 Non-Executive 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 3 years Mr Lee has not served as a director of any other listed companies.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 2

Directors’ Report (continued)

Li Shaofeng B.Automation Non-Executive Director

Mr Li was appointed as a Non-Executive Director on 23 February 2012. Mr Li has extensive experience in management of, and investments in, listed companies, Sino-foreign joint ventures and steel industry entities. He holds a bachelor degree in Automation from University of Science and Technology Beijing. He is the vice chairman and managing director of Shougang Holding (Hong Kong) Limited. Mr Li is the managing director of Shougang Concord International Enterprises Company Limited and the chairman of each of Shougang Fushan Resources Group Limited, Shougang Concord Century Holdings Limited, Shougang Concord Technology Holdings Limited, Shougang Concord Grand (Group) Limited and Global Digital Creations Holdings Limited, all of which are companies listed on the Hong Kong Stock Exchange. He is also a director of Sinocop Resources (Holdings) Limited, a Hong Kong listed company.

Russell Barwick Dip.Mining Engineering, FAICD, FAIMM Independent Non-Executive Director

Mr Barwick was appointed as an Independent Non-Executive Director on 16 November 2011. Mr Barwick is a mining engineer with 38 years technical, operational, managerial and corporate experience in international mining companies covering various commodities. He has worked for Bougainville Copper Limited (CRA), Pancontinental Mining Ltd (Jabiluka Uranium) and CSR Limited (coal). He then spent 17 years with Placer Dome Asia Pacific in key development, operational and corporate roles in numerous countries culminating in his appointment as Managing Director of Placer Niugini Ltd. He then served as Managing Director of Newcrest Mining Limited (2000 to 2001). For the four years to the end of 2006, Mr Barwick was the Chief Operating Officer of Wheaton River Minerals Ltd and Goldcorp Inc., based in Vancouver. He was subsequently the Chief Executive Officer of Halifax-based Gammon Gold Inc. He returned to Australia in 2008 and he is currently the Chairman of Red Metal Ltd (ASX:RDM).

Simon Bird B.Acc.Science (Hons) FCPA, FAICD

Independent Non-Executive Director

Mr Bird was appointed as an Independent Non-Executive Director on 23 February 2012 and is Chairman of the Audit and Risk Management Committee. Mr Bird has 27 years of international finance experience. He is presently the CEO of ASX-listed King Island Scheelite Ltd which is developing the tungsten mines on King Island in Tasmania. Until December 2008, Mr Bird was Stockland Ltd’s General Manager Finance. Prior to that he was Chief Financial Officer at GrainCorp Ltd for six years and spent two years as Chief Financial Officer of Wizard Mortgage Corp. Mr Bird is a NonExecutive Director and Chairman of the Audit Committee of Metals Finance Limited and a former director of CPA Australia Limited and Kosciusko Alpine Club Limited.

Professor Paul Dougas B.Eng (Chem), M.Eng.Science, FAICD, CEng., Hon Fellow Engineers Australia Independent Non-Executive Director

Mr Dougas was appointed as an Independent Non-Executive Director on 16 November, 2011. Mr Dougas has 40 years of design, process, project engineering, managerial, commercial and corporate experience. Mr Dougas began his career in the Melbourne & Metropolitan Board of Works before joining Sinclair Knight Merz (" SKM ") in 1978. From initial technical roles he soon assumed leadership roles in Sydney before returning to Melbourne as Associate Director and Victorian Branch Manager in 1985. In 1995 he was appointed Managing Director Elect and Director of Marketing before becoming Chief Executive Officer and Managing Director in 1996. For the next 15 years, he led a significant expansion of SKM locally and internationally involving more than 50 local and international acquisitions. He also oversaw the company's expansion into South-East Asia with the opening of offices in Shanghai and Hong Kong. During his leadership SKM developed strong project alliances with major mining companies including BHP Billiton, Rio Tinto and Vale Metals Group. Mr Dougas was a Non-Executive Director of ConnectEast Ltd from 2009 until its takeover in September 2011 and on the SKM Board from 1990 until 2011.

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 specialising in natural resources, corporate finance, mergers and acquisitions. He has extensive experience in public and private capital raisings, 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 4 years Mr Curry has also served as a director of Forrest Enterprises Australia Limited.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 3

Directors’ Report (continued)

Craig Readhead B. Juris, LL.B, AICD Chairman, Non-Executive Director

Mr Readhead was the Non-Executive Chairman until 24 August 2011 and a Non-Executive Director until 14 December 2011. Mr Readhead was a committee member of the Nomination, Remuneration and Governance Committee and the Audit and Risk Management Committee until 14 December 2011 during which time he also held the position of Chairman on the Nomination, Remuneration and Governance Committee. Mr Readhead has spent the last 30 years practising in the resources law area and is a principal of law firm Allion Legal (formerly called Pullinger Readhead). Mr Readhead has had a significant legal role in the development of a number of mining projects within Australia, Africa and South East Asia.

Luke Tonkin B.E., MAusIMM, AICD

Managing Director

Mr Tonkin was the Managing Director until 16 December 2011. Mr Tonkin has extensive experience in the resource industry traversing multi-commodities of gold, nickel, tantalum, tin & 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 has a proven track record of implementing large-scale investment, divestment, transition and integration plans.

Ian Macliver B.Comm, FCA, F Fin, AICD Non-Executive Director

Mr Macliver was a Non-Executive Director until 16 November 2011. Mr Macliver was Chairman of the Audit and Risk Management Committee and a member of the Nomination, Remuneration and Governance Committee until 16 November 2011. 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.

Cao Zhong B.Eng, M.Econ Non-Executive Director

Mr Cao was a Non-Executive Director until 23 February 2012. Mr Cao 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.

Alan Rule B.Comm, B.Acc, FCA, MAICD Alternate Director to Luke Tonkin Chief Financial Officer

Mr Rule was Alternate Director to Luke Tonkin until 16 December 2011. Mr Rule 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 St Barbara Mines Limited. He has considerable experience in international financing of mining projects and implementation of accounting controls and systems.

COMPANY SECRETARY

David Stokes B.Bus, LLB, ACIS Company Secretary & General Counsel

Mr Stokes was appointed Company Secretary and General Counsel on April 2012. He is a corporate lawyer with a diverse range of mining and governance experience having worked at a corporate and operational level in the energy and resources sector for over 15 years. Prior to joining Mount Gibson, Mr Stokes was General Counsel and Company Secretary at Gindalbie Metals Limited, Corporate Counsel for Iluka Resources Limited and Resolute Mining Limited, and had also worked in private practice for a number of years.

David Berg B.Comm, LLB Company Secretary & General Counsel

Mr Berg was Company Secretary until 2 April 2012 and General Council until 30 April 2012. 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.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 4

Directors’ Report (continued)

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 2012 was as follows:

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

MOUNT GIBSON IRON LIMITED
ABN: 87 008 670 817
100% 100% 100%
GERALDTON BULK HANDLING
MOUNT GIBSON MINING LIMITED AZTEC RESOURCES LIMITED 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
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Nature of Operations and Principal Activities

The principal activities of the entities within the Group are:

mining of hematite deposits at Tallering Peak;
mining of hematite deposits at Koolan Island;
mining of hematite deposits 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 694 employees (excluding contractors) as at 30 June 2012 (2011: 464 employees). The increase in employees resulted from the continued 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

There were several significant changes relating to the make-up and operation of the Company’s Board and management during the year as advised elsewhere in the Directors Report. Following these changes, the Board comprised eight directors, five of whom are classified by the Board as independent.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 5

Directors’ Report (continued)

On 16 November 2011, Mount Gibson advised the ASX that it had received a letter from the Foreign Investment Review Board (“ FIRB ”) expressing concern that the composition of the Company’s Board had developed in a manner inconsistent with commitments provided to the Treasurer and market at the time approval was given for the recapitalisation of the Company in 2008. The principal concern expressed by the FIRB was that the Company did not have a majority of independent directors on its Board, as recommended under the ASX Corporate Governance Principles and Recommendations. Mount Gibson advised the ASX that the Board was considering ways to satisfy the requirements of the FIRB.

Subsequent to the end of the financial year, on 23 July 2012, Mount Gibson announced to the ASX that the FIRB had confirmed in writing that it now considered Mount Gibson to be in compliance with the ASX Corporate Governance Guidelines regarding board independence. In its letter, the FIRB noted the initiatives implemented by Mount Gibson to address the FIRB’s concerns, notably the appointment of additional independent directors and the establishment of a committee of independent directors to oversee matters in relation to Mount Gibson’s major shareholders and customers.

Regarding customer agreements, there was a significant development with respect to litigation involving Mount Gibson and Rizhao Steel Holding Group Limited (“Rizhao Steel”).

On 18 October 2011 Mount Gibson advised the ASX that it had agreed settlement terms with Rizhao Steel in relation to two arbitral awards delivered in Mount Gibson’s favour in August 2010. Under the awards, which were delivered following arbitrations between the parties and announced to the ASX on 17 August 2010, Rizhao Steel was ordered to pay Mount Gibson US$114 million in damages plus interest of 6% from the date of award plus Mount Gibson’s costs of the arbitration.

The awards remained wholly unmet and Mount Gibson sought recognition and enforcement of the awards in various jurisdictions, including the People’s Republic of China, culminating in a settlement on terms favourable to Mount Gibson.

Under the settlement, Rizhao Steel entered into two offtake agreements with Mount Gibson, the first of which is in respect of an agreed quantity of mineralised waste material from Koolan Island, and the second for Extension Hill hematite. Under the Koolan Island agreement, Rizhao agreed to purchase 1,700,000 tonnes of mineralised waste material (<54% Fe and high contaminant) from Koolan Island over a two to three year period for a total cash outlay of $US82 million. In addition, Rizhao Steel agreed to purchase 25% of annual production from Extension Hill at a market clearing price plus an agreed premium, over a period of 5 years. As a condition precedent to the settlement, Rizhao Steel paid Mount Gibson a non-refundable deposit of US$15 million, to be applied in reduction of the price payable for material purchased under both the Koolan Island agreement and the Extension Hill agreement over their terms.

Mount Gibson commenced sales to Rizhao Steel under the Extension Hill agreement in December 2011. As at 30 June 2012, Mount Gibson had not yet commenced mineralised waste sales to Rizhao Steel under the Koolan Island agreement.

Subsequent to the end of the period, Rizhao advised that it considered Mount Gibson to be in material breach of the Koolan Island agreement by not complying with a proposed annual shipping schedule provided in November 2011. Rizhao has also issued a conditional notice of termination of the agreement pending arbitration on whether the breach is deemed to be material, and if so is it unable to be remedied, and also has indicated it will be seeking unspecified damages. Mount Gibson rejects the allegations made by Rizhao and continues to focus on delivering waste material to Rizhao under the agreement. Regardless, Mount Gibson does not consider the potential termination of the Koolan Island agreement as likely to have any material adverse financial impact given availability of other buyers.

With respect to operational matters, on 21 December 2011, Mount Gibson announced it had commenced ore shipments from its Extension Hill hematite mine in the Mid West region of Western Australia, giving Mount Gibson its third operating mine. Extension Hill is scheduled to produce approximately 3 million tonnes of DSO hematite per annum for a period of five years.

In conjunction with the development and commissioning of the Extension Hill hematite mine, the Company also embarked on a substantial upgrade of its port and rail ore export facilities at Geraldton Port. This upgrade comprised construction of a new 240,000t capacity ore storage shed (“ Berth 5 storage facility ”) to complement Mount Gibson’s existing 120,000t storage shed (“ Berth 4 storage facility ”) and the installation of a new high volume dual-wagon rail unloader. The rail unloader, funded by Mount Gibson, is a common-user facility that will be owned by the Geraldton Port Authority on final completion of commissioning. Together, these new facilities effectively double Mount Gibson’s nominal export capability from its Mid West operations to approximately 6 million tonnes per annum. On 22 May 2012, Mount Gibson announced the upgrade works were complete and that commissioning had commenced.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 6

Directors’ Report (continued)

REVIEW AND RESULTS OF OPERATIONS

Operating Results for the Period

	Operating Results for the Period
	Operating profit from Continuing Operations before tax Taxation expense Net profit after tax attributable to Members of the Company	2012 2011 $’000 $’000
		239,593 342,888 (67,097) (103,388)
		172,496 239,500

Tallering Peak Hematite Operation

Ore tonnes mined, crushed, transported and shipped all decreased compared with the previous corresponding period reflecting several operational factors.

Tight working areas in the T6a3d cutback and labour skills shortages in key production areas were a limiting factor on production in the December half of 2011. Enhanced recruitment achieved necessary manning levels during the March 2012 quarter. Production was significantly lower during the March 2012 quarter reflecting a required revision of the mining schedule to rebalance waste and ore development. The focus on waste movement in the March quarter coincided with reduced railing and unloading capacity at Geraldton port related to the ongoing upgrade of Mount Gibson’s port facilities and upgrades of the rail for other mining projects in the region.

A pit wall slip occurred on the south eastern side of the pit in the middle of February 2012 which resulted in a limited disruption to operations. It did not cause any injuries or damage to equipment. Evaluation and monitoring of the affected area was undertaken during the March and June 2012 quarters to develop recovery plans to regain access to ore in the affected area. Evaluation of the slip and potential impacts was substantially complete at the end of June 2012, and indicated the slip would not have any material impact on 2012 or the current reported mine life.

Ore production was significantly higher in the June 2012 quarter reflecting the extensive waste development completed in the preceding quarter. Mount Gibson expects to complete mining of remaining ore reserves at Tallering Peak in mid 2013, with sales from stockpiles expected to continue into the 2014 financial year. Exploration commenced at the T1 prospect in late June 2012 to determine the potential for a small addition to mineral resources.

As at 30 June 2012, 1.96 million tonnes of iron ore was stockpiled.

As at 30 June 2012, 1.96	million tonnes of iron ore was stockpiled.
PRODUCTION SUMMARY FOR 12 MONTHS UNIT	SEPTQTR 2011 ’000 DECQTR 2011 ’000 MARQTR 2012 ’000 JUNQTR 2012 ’000	YTD 2012 ’000	YTD 2011 ’000	% INCR/ (DECR)
Mining - Waste mined bcm - Ore mined bcm - Ore mined wmt Crushing - Lump wmt - Fines wmt Transported to Mullewa Railhead - Lump wmt - Fines wmt Transported to Geraldton Port - Lump wmt - Fines wmt Shipping - Lump wmt - Fines wmt	1,658 1,341 1,543 1,231 166 131 43 129 694 546 177 532 479 398 83 206 329 266 53 319	5,773 469 1,949 1,166 967	8,184 611 2,597 1,686 1,380	(29%) (23%) (25%) (31%) (30%)
	808 664 136 525 469 403 68 388 327 230 60 222	2,133 1,328 839	3,066 1,562 1,404	(30%) (15%) (40%)
	796 633 128 610 305 241 133 201 369 114 54 200	2,167 880 737	2,966 1,184 1,641	(27%) (26%) (55%)
	674 355 187 401 351 240 121 119 409 117 59 178	1,617 831 763	2,825 1,185 1,650	(43%) (30%) (54%)
	760 357 180 297	1,594	2,835	(44%)

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 7

Directors’ Report (continued)

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 ended 30 June 2012	12 Months ended 30 June 2011	12 Months ended 30 June 2010
Waste mined Ore mined Ore mined Deferred waste capitalised Amortisation of deferred waste	mill bcm mill bcm mill wmt $ mill $mill	5.77 0.47 1.95 120.78 93.77	8.18 0.61 2.59 105.31 83.8	7.82 0.88 3.81 85.34 115.28

Koolan Island Hematite Operation

The Koolan Island iron ore mine is located on Koolan Island located in the Buccaneer Archipelago of Yampi Sound in Western Australia and was opened by BHP in 1965 and operated until 1993. The mine was redeveloped and re-opened by Mount Gibson in 2007.

The 2012 financial year was one of significant transition at Koolan Island, reflecting the shift to owner mining and the commencement of production in the Main Pit. The commencement of owner mining in September 2011 had a significant impact on performance, as had been anticipated with the commencement of 240 new employees. Production was also impacted in the December 2011 half by delays to scheduled equipment delivery.

Completion of the sea wall in the December 2012 quarter was a key milestone which enabled high grade ore to be mined from Main Pit for the first time. The Barramundi West and Mullet pits remained the primary source of ore in the year.

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. As a consequence, Mount Gibson anticipates lower output from Koolan Island during the wet season than would be expected during the dry season.

Production during the March 2012 quarter was disrupted significantly by three monsoonal rainfall events, one each in January, February and March, which caused substantial flooding in the Mullet, Barramundi and East pits. Total rainfall for the 2011/12 wet season was similar to that of the previous year, although rainfall for both wet seasons was approximately double the previous average. As a result, all material movement from mid-January was concentrated in Main Pit, with production constrained by a restricted working areas, congestion and damage to haul roads caused by the monsoonal rainfall events.

The end of the wet season enabled a substantial improvement in the June Quarter 2012, with ore production increasing 110% over the previous quarter and crushing increasing by 44%. Ore production resumed at Mullet pit late in the quarter, and Barramundi pit was completed.

Ore production for the year was 17% higher than in the previous corresponding period, while crushing volumes were 37% higher. Although full year shipments were 18% higher than in the preceding year, shipments for the June 2012 quarter were lower partly due to late customer nominations by SCIT Trading Limited which is a related party of Shougang Concord, a director related party ( SCIT ), of vessels for four shipments that were scheduled to occur in June; and partly due to weather related production issues in the first half of 2012. These shipments were rescheduled to occur in July.

As at 30 June 2012, 1.16 million tonnes of iron ore was stockpiled.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 8

Directors’ Report (continued)

PRODUCTION SUMMARY FOR 12 MONTHS UNIT	SEPTQTR 2011 ’000 DECQTR 2011 ’000 MARQTR 2012 ’ 000 JUNQTR 2012 ’000	YTD 2012 ’000	YTD 2011 ’000	% INCR/ (DECR)
Mining - Waste mined bcm - Ore mined bcm - Ore mined wmt Crushing - Lump wmt - Fines wmt Shipping - Lump wmt - Fines wmt	2,205 2,350 1,689 2,160 199 208 118 249 685 726 583 965 353 321 249 329 382 448 430 652	8,404 774 2,959 1,252 1,912	9,686 768 2,523 1,022 1,292	(13%) 1% 17% 23% 48%
	735 769 679 981 365 285 219 143 508 442 511 370	3,164 1,012 1,831	2,314 887 1,514	37% 14% 21%
	873 727 730 513	2,843	2,401	18%

The decommissioning provision increased from $12.5 million at the 30 June 2011 to $59.6 million at the 30 June 2012, based on current cost estimates.

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

		12 Months ended 30 June 2012	12 Months ended 30 June 2011	12 Months ended 30 June 2010
Waste mined Ore mined Ore mined Deferred waste capitalised Amortisation of deferred waste	mill bcm mill bcm mill wmt $ mill $mill	8.40 0.77 2.96 121.29 114.39	9.69 0.77 2.52 192.27 85.78	13.22 1.09 3.47 174.53 104.18

Extension Hill Direct Shipping Ore Project

The Extension Hill hematite mine is located in the Mount Gibson Ranges, 85 kilometres east of Perenjori and 260 kilometres east south east of Geraldton. The project has similar operational characteristics to Tallering Peak, with ore crushed and screened on-site, transported by sealed road 85km to Perenjori, where it is loaded onto rail wagons and railed 235km to Geraldton Port.

To optimise exports from Extension Hill and Tallering Peak, Mount Gibson constructed a new 240,000 tonne storage facility at Geraldton Port, the Berth 5 storage facility and funded the installation of a new common-user rail unloader with a nominal unloading capacity of 3,000 tonnes per hour. The unloader allows ore to be loaded into both the Company’s new Berth 5 storage facility and its existing 120,000t Berth 4 storage facility, and then loaded onto ships via the existing Berth 5 shiploader operated by the Geraldton Port Authority. Once fully commissioned, these new facilities will effectively double Mount Gibson’s export capacity in the Mid West to approximately 6 million tonnes per annum. Full ramp up is expected to be achieved in the September 2012 quarter.

After mining commenced in the June half of 2011, the mine exported its first shipment of ore in late December 2011.

Ore production increased steadily during the December 2011 and March 2012 quarters, though production and sales were constrained by restrictions related to the upgrade of facilities at Geraldton port and rail upgrades associated with other mining projects in the region.

Batch transporting of ore from Extension Hill to Geraldton Port continued until the start of May, when port operations were suspended for three weeks to tie-in the new rail unloader. This work was timed to coincide with a major maintenance shutdown by the Geraldton Port Authority. Mount Gibson announced the completion of this work on 22 May 2012. Rail load-out rates improved steadily following the start of commissioning, though ongoing rail restraints on the line into Geraldton continued to restrict the transport of ore from both Extension Hill and Tallering Peak.

The resulting build-up of minesite stockpiles at Extension Hill and the Perenjori rail siding in turn constrained mine production at Extension Hill. This build-up of stockpiles resulted in a 22% reduction in the volume of ore transported by road to Perenjori, and a 26% reduction in the volume of ore railed to Geraldton in the June 2012 quarter compared with the previous quarter. However, significant improvement is anticipated as improved rail availability enables the drawdown of ore in stockpiles.

As at 30 June 2012, 1.71 million tonnes of iron ore was stockpiled.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 9

Directors’ Report (continued)

PRODUCTION SUMMARY FOR 12 MONTHS UNIT	SEPTQTR 2011 ’000 DECQTR 2011 ’000 MARQTR 2012 ’000 JUNQTR 2012 ’000	YTD 2012 ’000	YTD 2011 ’000	% INCR/ (DECR)
Mining - Waste mined bcm - Ore mined bcm - Ore mined wmt Crushing - Lump wmt - Fines wmt Transported to Perenjori Railhead - Lump wmt - Fines wmt Transported to Geraldton Port - Lump (Rail) wmt - Lump (Road) wmt - Fines (Rail) wmt Shipping - Lump wmt - Fines wmt	226 265 363 509 149 157 253 244 444 459 748 717 - 260 431 342 - 133 252 228	1,363 803 2,368 1,033 613	644 100 300 - -	112% 703% 689% 100% 100%
	- 393 683 570 - 154 429 336 - 62 258 199	1,646 919 519	- - -	100% 100% 100%
	- 216 687 535 - 125 192 167 - - 62 - - - 159 139	1,438 484 62 298	- - - -	100% 100% 100% 100%
	- 125 413 306 - 121 184 234 - - 122 114	844 539 236	- - -	100% 100% 100%
	121 306 348	775	-	100%

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

		12 Months ended 30 June 2012	12 Months ended 30 June 2011	12 Months ended 30 June 2010
Waste mined Ore mined Ore mined Deferred waste capitalised Amortisationofdeferredwaste	mill bcm mill bcm mill wmt $ mill $mill	1.36 0.80 2.37 27.85 22.62	0.64 0.10 0.30 13.28 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 $172,496,000; and
2,945,959 shares were issued under the dividend reinvestment plan and performance rights plan resulting in $3,219,716 in equity funding for the Company.
Acquisition of property, plant and equipment with an aggregate fair value of $27,714,098 were financed by means of finance leases.
Mine properties increased by $212,894,000 due primarily to deferred waste capitalised as a result of waste mined and reassessment of mine closure and rehabilitation costs.

At 30 June 2012 the Group had:

Cash on hand and term deposits of $292,678,000; and
Equipment finance leases and hire purchase liabilities of $47,024,000.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 10

Directors’ Report (continued)

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 interests of the Company.

SIGNIFICANT EVENTS AFTER BALANCE DATE

On 22 August 2011, the directors of Mount Gibson declared a final dividend on ordinary shares in respect of the 2012 financial year. The total amount of the dividend is $21,714,569 which represents a fully franked dividend of 2 cents per share. The dividend has not been provided for in the 30 June 2012 financial statements.

During August 2012 there have been delays in customer nominations of 5 vessels by SCIT (a director related party) that were scheduled to occur in August. These shipments are expected to occur in September 2012.

Subsequent to year end iron ore prices have deteriorated from US$135.25 per dry metric tonne ( DMT ) at the 29 June 2012 to US$108.78 DMT at the 21 August 2012 based on the benchmark Platts price for iron ore fines grading 62%Fe CFR North China .

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:

		Options on issue at	Options on issue at
Exercise Price	Exercise Date/ Period	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

There were no options exercised or forfeited during the financial year or to the date of this report.

DIVIDENDS
		Franked amount per security 2 cents
	Amount per security	Franked amount per security
Final dividend	2 cents	2 cents

A final dividend of 2 cents fully franked has been declared for the year ended 30 June 2012.

During the financial year dividends of $64,957,156 (2011: $nil) were paid.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

The Company has, during current or previous financial periods, entered into deeds of access and indemnity with certain Directors. 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 paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary and all Executive Officers of the Company and of any related body corporate against a liability incurred as such a Director, Company Secretary or Executive Officer to the extent permitted by the Corporations Act (2001).

The directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors’ and officers’ liability and legal expenses’ insurance contracts, as such disclosure is prohibited under the terms of the contract.

The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or any related body corporate against a liability incurred as such an officer or auditor.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 11

Directors’ Report (continued)

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 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 of shareholders. An amount not exceeding the amount determined is then divided between the Non-Executive Directors as agreed. The latest determination was at the Annual General Meeting held on 16 November 2011 when Shareholders approved an aggregate remuneration of $1,250,000 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. NonExecutive Directors are remunerated to recognise the responsibilities, accountabilities and associated risks of Directors.

Each 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.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 12

Directors’ Report (continued)

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 interests 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.

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 Chief Executive Officer.

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.

Variable Remuneration

Short-term Incentives (“STI”)

The Executive Directors and Senior Executives may receive variable remuneration in the form of STI. STI are linked to general performance targets, and provide rewards for materially improved Company performance. The total potential STI available is at the Boards 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 financial and non-financial, corporate and individual performance measures. The STI’s are based on achieving the following measures where these are applicable to the specific Executive:

performance of the Group in meeting its objectives which includes 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 KPI's. This process usually occurs prior to or just after the reporting date. NRGC then determines the amount of 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 2012 financial year

For the 2012 financial year, 100% of the STI cash bonus totalling $532,670 was approved and vested to Executive Directors and Senior Executives and was paid in July 2012.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 13

Directors’ Report (continued)

Long-term Incentive (“LTI”) for 2012 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 AGM’s.

The employment contracts for the Chief Executive Officer, Mr Beyer, and the Company Secretary, Mr Stokes, incorporate payment of a long term incentive. Under their employment contracts, Mr Beyer, and Mr Stokes 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 prior to 30 June for the relevant year.

On 30 June 2012, 271,318 performance rights were granted by the Company in respect of the 2012 financial year. The Company does not have a policy restricting Executives from entering into arrangements to protect the value of LTI awards.

Employment Contracts

As at the date of this report, the Group had entered into employment contracts with the following executives:

James Beyer

The key terms of his contract include:

Commenced 14 May 2012 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 Beyer is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of his duties, the Company is obliged to pay out 12 months Annual Salary Package plus any other accrued entitlements and bonuses. If Mr Beyer wishes to terminate the contract, he must provide six months notice.

David Stokes

The key terms of his contract include:

Commenced 2 April 2012 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 Stokes is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of his duties, the Company is obliged to pay out 12 months Annual Salary Package plus any other accrued entitlements and bonuses. If Mr Stokes wishes to terminate the contract, he must provide six months notice.

Luke Tonkin (terminated 16 December 2011)

The key terms of his contract were:

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.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 14

Directors’ Report (continued)

Alan Rule (resigned 30 June 2012)

The key terms of his contract were:

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 (resigned 30 April 2012)

The key terms of his contract were:

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.

In addition the Company entered into an independent contracting arrangement with Mr Keith Faulkner to act in the Chief Operating Officer position.

Keith Faulkner

The key terms of his contract include:

A six month term from 17 April 2012 until 17 October 2012;
A fixed daily rate plus GST; and
If the Company wishes to terminate the contract other than if Mr Faulkner is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of his duties, the Company is obliged to provide 28 days written notice and to pay any outstanding monies owed up to the date of termination.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 15

Directors’ Report (continued)

Details of directors and key management personnel disclosed in this report

[i] Directors
G Hill	Non-Executive Director, Chairman from 24 August 2011
A Jones	Non-Executive Director
Chen Z	Non-Executive Director
Lee SH	Non-Executive Director
Li S	Non-Executive Director
R Barwick	Non-Executive Director from 16 November 2011
S Bird	Non-Executive Director from 23 February 2012
P Dougas	Non-Executive Director from 16 November 2011
P Curry	Alternate Director to Mr Lee
C Readhead	Chairman until 23 August 2011 and Non-Executive Director until 14 December 2011
I Macliver	Non-Executive Director until 16 November 2011
Cao Z	Non-Executive Director until 23 February 2012
L Tonkin	Managing Director until 16 December 2011
A Rule	Alternate Director to Mr Tonkin until 16 December 2011

[ii] Key Management	Personnel
J Beyer	Chief Operating Officer from 2 November 2011 until 14 May 2012,
	Chief Executive Officer from 14 May 2012
A Rule	Chief Financial Officer until 30 June 2012
D Berg	Company Secretary and General Counsel until 2 April 2012
D Stokes	Company Secretary and General Counsel from 2 April 2012
K Faulkner	Acting Chief Operating Officer from 17 April 2012

Mr P Kerr was appointed Chief Financial Officer commencing from the 13 September 2012. Ms K Bozanic is Acting Chief Financial Officer from 1 July 2012 until Mr P Kerr’s commencement. Mr A Thomson was appointed Chief Operating Officer and will commence with the Company on 18 September 2012. There were no other changes to KMP after the reporting date and before the date the financial report was authorised for issue.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 16

Directors’ Report (continued)

Remuneration of Key Management Personnel for the year ended 30 June 2012

Short Term	Short Term	Short Term	Post Employment	Post Employment	Long Term	Share Based Payment	Termination Payment
Salary & Fees $	Non Monetary $	Cash Bonuses $	Super- annuation $	Retirement Benefits $	Long Service Leave $	Options and Performance Rights $	$
177,275 - - 15,955 104,129 - - 9,372 90,844 - - 6,681 87,156 - - 7,844 30,868 - - 2,778 62,572 - - 5,632 33,467 - - 3,012 56,915 - - 5,122 65,512 - - - 39,857 - - 3,587 59,156 - - 4,178 364,582 1,151 - 25,000				- - - - - - - - - - - -	- - - - - - - - - - - -	- - 193,230 0% - - 113,501 0% - - 97,525 0% - - 95,000 0% - - 33,646 0% - - 68,204 0% - - 36,479 0% - - 62,037 0% - - 65,512 0% - - 43,444 0% - - 63,334 0% (305,237)[1] 745,370 830,866 (37%) (305,237) 745,370 1,702,778 137,641 - 1,037,766 41% 13,816 - 827,066 14% 37,792 27,653 453,943 39% - - 80,115 0% - - 140,880 0% 189,249 27,653 2,539,770 (115,988) 773,023 4,242,548
1,172,333 1,151 - 89,161				-	-	(305,237)
				- - - - -	- 256 - - -	137,641 13,816 37,792 - -
1,702,128 6,621 532,671 81,192				-	256	189,249
2,874,461 7,772 532,671 170,353				-	256	(115,988)

[1] Reversal of performance rights on termination

Accrued annual leave and long service leave benefits were paid on termination to Mr Tonkin of $198,284, Mr Rule $326,651, and Mr Berg $37,016. These amounts are not included in the table above.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 17

Directors’ Report (continued)

Options granted as part of remuneration for the year ended 30 June 2012

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 2012 and there are no options outstanding at 30 June 2012.

Performance Rights granted as part of remuneration for the year ended 30 June 2012

			Value of Performance
	Grant Date	Number Granted	Rights Granted During the Year	% of Remuneration
			$
J Beyer	30-Jun-12	271,318	276,907	14

The estimated maximum and minimum possible total value of these performance rights is $276,907 and $nil respectively.

Performance Rights granted above as part of Remuneration are 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 Share price at accounting grant date Risk free interest rate Volatility factor	30-Jun-12 $1.03 2.67% 51%

The vesting of these Performance Rights is subject to a relative Total Shareholder Return (“ TSR ”) hurdle to be measured on 30 June 2014 and re-measured on 31 December 2014 for performance rights allocated on 30 June 2012.

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

ASX. The vesting scale is as follows:
Percentile Rank Achieved	Proportion of Target Award Vesting
>76thpercentile > 51stpercentile and ≤76thpercentile 51stpercentile <51stpercentile	100% Pro rata allocation 50% 0%

Performance Rights vested

The following performance rights vested to the following Directors and Executives:

	Year ended 30 June 2012	Year ended 30 June 2011
L Tonkin A Rule D Berg Total	- - 211,778 - 83,128 -
	294,906 -

294,906 performance rights vested during the financial year at the discretion of the Board of Directors prior to the vesting period pursuant to exit terms. A total of 83,128 shares were issued for nil consideration during the financial year and the remaining 211,778 shares were issued for nil consideration on 3 July 2012 (2011: nil).

Performance rights which did not meet TSR performance conditions lapsed.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 18

Directors’ Report (continued)

Performance Rights benefits

For each grant of performance rights, the percentage of the available grant that was paid, or that vested, in the financial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. The performance rights vest after three years, providing the vesting conditions are met (refer above).

	Year Granted	Vested %	Forfeited %	Financial Years Performance Rights May Vest
J Beyer	2012	-	-	2014
L Tonkin	2011	-	100	-
	2010	-	100	-
	2009	-	100	-
A Rule	2011	100	-	-
	2010	100	-	-
D Berg	2011	63	37	-
	2010	100	-	-

Shares issued on exercise of options for the year ended 30 June 2012

There were no shares issued on exercise of options by the Directors and Executives during the year ended 30 June 2012 (2011: nil).

Remuneration of Key Management Personnel for the year ended 30 June 2011

Short Term	Short Term	Short Term	Post Employment	Post Employment	Long Term	Share Based Payment	Termination Payment
Salary & Fees $	Non Monetary $	Cash Bonuses $	Super- annuation $	Retirement Benefits $	Long Service Leave	Options and Performance Rights $	$
76,314 - - 770,772 2,228 361,038 111,000 - - 105,505 - - 94,495 - - 87,156 - - 87,156 - - 33,410 - - 87,156 - - 10,074 - -			6,868 24,473 - 9,495 8,505 7,844 7,844 3,007 7,844 907	- - - - - - - - - -	- - - - - - - - - -	- 230,936 - - - - - - - -	- 83,182 0% - 1,389,447 46% - 111,000 0% - 115,000 0% - 103,000 0% - 95,000 0% - 95,000 0% - 36,417 0% - 95,000 0% - 10,981 0% - 2,134,027 - 940,350 40% - 453,302 40% - 1,393,652 - 3,527,679
1,463,038 2,228 361,038			76,787	-	-	230,936
536,759 2,228 257,884 244,674 2,228 123,776			25,000 25,000	- -	- -	118,479 57,624
781,433 4,456 381,660			50,000	-	-	176,103
2,244,471 6,684 742,698			126,787	-	-	407,039

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 19

Directors’ Report (continued)

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

There were no options granted to directors and executives during the year ended 30 June 2011 and there were no options outstanding at 30 June 2011.

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

			Value of Performance
	Grant Date	Number Granted	Rights Granted During the Year	% of 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:

	Accounting grant date Share price at accounting grant date Risk free interest rate Volatility factor	30-Jun-11 $1.84 4.55% 100%

The vesting of these Performance rights is subject to a relative 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 resource companies listed on ASX. The vesting scale is as follows:

on ASX. The vesting scale is as follows:
Percentile Rank Achieved	Proportion of Target Award Vesting
>76thpercentile > 51stpercentile and ≤76thpercentile 51stpercentile <51stpercentile	100% Pro rata allocation 50% 0%

Company Performance

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

		30 June	30 June	30 June	30 June	30 June
		2012	2011	2010	2009	2008
Net Profit after tax	$’000	172,496	239,500	132,395	42,618	113,344
Earnings per share	$/share	0.1593	0.2214	0.1230	0.0456	0.1425

END OF REMUNERATION REPORT

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 20

Directors’ Report (continued)

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 are as follows:

		Audit and	Nomination,	Operational	Contracts
	Directors’ Meetings	Risk Management Committee Meetings	Remuneration and Governance Committee	Risk and Sustainability Committee	Committee
Number of Meetings Held	18	4	7	2	1
G Hill	18	2	6	-	1
A Jones	18	4	7	-	1
Chen Z	18	1	-	1	-
Lee SH	11	-	-	-	-
Li S[1]	9	-	-	-	-
R Barwick[2]	9	-	4	2	1
S Bird[3]	5	1	-	-	1
P Dougas[4]	9	-	-	2	1
P Curry[5]	7	-	-	-	-
C Readhead[6]	11	2	3	-	-
I Macliver[7]	9	2	-	-	-
Cao Z[8]	8	-	-	-	-
L Tonkin[9]	5	-	-	-	-
A Rule[10]	5	-	-	-	-

[1] Mr Li attended 4 meetings as Alternate Director to Mr Cao and 5 as Non-Executive Director

[2] Mr Barwick became a Non-Executive Director on 16 November 2011

[3] Mr Bird became a Non-Executive Director on 23 February 2012

[4] Mr Dougas became a Non-Executive Director on 16 November 2011

[5] Mr Curry is an Alternate Director to Mr Lee

[6] Mr Readhead was Chairman until 23 August 2011 and Non-Executive Director until 14 December 2011

[7] Mr Macliver was a Non-Executive Director until 16 November 2011

[8] Mr Cao was a Non-Executive Director until 23 February 2012

[9] Mr Tonkin was Managing Director until 16 December 2011

[10] Mr Rule was an Alternate Director to Mr Tonkin until 16 December 2011

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 21

Directors’ Report (continued)

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 Shares	Options over	Performance
		Shares	Rights over
			Shares
G Hill	70,000	-	-
A Jones	-	-	-
Chen Z	-	-	-
Lee SH	-	-	-
Li S	-	-	-
R Barwick	-	-	-
S Bird	20,000	-	-
P Dougas	100,000	-	-
P Curry	-	-	-
Cao Z	-	-	-

ENVIRONMENTAL REGULATION AND PERFORMANCE

The Group has developed Environmental Management Plans for its operations at Koolan Island, Tallering Peak Extension Hill. The Environmental Management Plans have been approved by the Western Australian Government Departments’ of Mining and Petroleum, Environment and Conservation and where applicable the Department of Health. In addition plans associated with specific species have been approved by the federal Department of Sustainability, Environment, Water, Population and Communities.

The Environmental Protection Authority (EPA) has also granted approval for the sites Environmental Management Plans. In addition the Department of Environment & Conservation has granted approval of environmental works to allow construction of “prescribed” facilities and the Department of Mines and Petroleum have granted approval for Mining Proposals at each of the three mine sites.

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, exploration activities, tenement conditions associated with exploration and mining and the storage of hazardous substances.

There have been no material breaches of the Group licences. An incident of over clearing occurred during upgrade of the public road between Extension Hill Mine Site and Perenjori. The Group has responded to the EPA queries in respect of this matter and is awaiting a response. In addition, a diesel spill occurred on Koolan Island. After inspection of the spill, the contaminated soils were completely removed and the facility upgraded to prevent recurrence. Both incidents were reported to the relevant government authorities.

The Group continues to report under the National Greenhouse and Energy Reporting (NGER) Act 2009. Diesel combustion is the largest source of greenhouse gas emissions.

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.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 22

Directors’ Report (continued)

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 24 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 2012.

Signed in accordance with a resolution of the Directors.

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G HILL Chairman

Perth, 22 August 2012

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 23

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Auditor’s Independence Declaration to the Directors of Mount Gibson Iron Limited

In relation to our audit of the financial report of Mount Gibson Iron Limited for the financial year ended 30 June 2012, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

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Ernst & Young

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P McIver Partner Perth 22 August 2012

PM:MM:MTGIB:017

Liability limited by a scheme approved under Professional Standards Legislation

Consolidated Income Statement

For the year ended 30 June 2012

Notes CONTINUING OPERATIONS Sale of goods 2[a] Other revenue 2[a] TOTAL REVENUE Cost of sales 2[d] Impairment – low grade ore GROSS PROFIT Other income 2[b] Administration expenses 2[e] Foreign exchange derivatives mark-to-market gain/(loss) Exploration expenses PROFIT FROMCONTINUINGOPERATIONS BEFORE TAX AND FINANCE COSTS Finance costs 2[c] PROFIT FROMCONTINUINGOPERATIONS BEFORE INCOME TAX Income tax expense 3 NET PROFITAFTERTAX ATTRIBUTABLE TO MEMBERS OF THECOMPANY Earnings per share (cents per share)  basic earnings per share 22  diluted earnings per share 22	2012 2011 $’000 $’000
	648,464 672,082 20,425 21,147
	668,889 693,229 (373,437) (325,094) (25,117) -
	270,335 368,135 163 79 (23,554) (20,429) - 8,119 (53) (20)
	246,891 355,884 (7,298) (12,996)
	239,593 342,888 (67,097) (103,388)
	172,496 239,500
	15.93 22.14 15.92 22.13

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 25

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2012

NET PROFIT FOR THE PERIOD AFTER INCOME TAX OTHERCOMPREHENSIVEINCOME Change in fair value of cash flow hedges Reclassification adjustments for (gains)/losses on cash flow hedges included in the Income Statement Deferred income tax on cash flow hedges OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX TOTALCOMPREHENSIVEINCOME FOR THEYEAR	2012 2011 $’000 $’000
	172,496 239,500
	(11,170) (28,066) 11,453 24,910 61 489
	344 (2,667)
	172,840 236,833

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 26

Consolidated Balance Sheet

As at 30 June 2012

Consolidated Balance Sheet As at 30 June 2012
Notes ASSETS CURRENT ASSETS Cash and cash equivalents 4 Term deposits 5 Trade and other receivables 6 Inventories 7 Prepayments Derivative financial assets 8 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment 10 Deferred acquisition, exploration, evaluation and development 11 Mine properties 12 Deferred income tax assets 3 TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables 13 Interest-bearing loans and borrowings 14 Derivative financial liabilities 15 Income tax payable Provisions 16 TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Provisions 16 Interest-bearing loans and borrowings 14 Deferred income tax liabilities 3 TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital 17[a] Retained earnings 19 Reserves 18 TOTAL EQUITY	2012 2011 $’000 $’000
	40,678 117,007 252,000 270,000 23,792 22,249 227,694 160,358 3,186 3,210 5,583 386
	552,933 573,210
	283,381 246,695 344 309 949,753 736,859 2,889 -
	1,236,367 983,863
	1,789,300 1,557,073
	122,530 99,556 21,702 28,607 393 63 9,440 22,793 10,603 4,348
	164,668 155,367
	78,098 24,228 25,322 16,461 243,779 194,476
	347,199 235,165
	511,867 390,532
	1,277,433 1,166,541
	564,710 561,585 693,257 585,718 19,466 19,238
	1,277,433 1,166,541

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 27

Consolidated Cash Flow Statement

For the year ended 30 June 2012

Notes CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest paid Income tax paid NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 4[b] CASH FLOWS FROM INVESTING ACTIVITIES Interest received Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Proceeds from term deposits Payment for term deposits Payment for deferred exploration, evaluation and development expenditure Payment for mine properties NET CASH FLOWS (USED IN) INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of ordinary shares Repayment of lease liabilities Proceeds from borrowings Repayment of borrowings Payment of borrowing costs Dividends paid NET CASH FLOWS (USED IN) FINANCING ACTIVITIES NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Net foreign exchange difference Cash and cash equivalents at beginning of year CASH AND CASH EQUIVALENTS AT END OF YEAR 4[a]	2012 2011 $’000 $’000
	639,176 690,934 (548,883) (459,203) (53) (9,323) (34,071) -
	56,169 222,408
	19,765 19,364 1,273 56 (86,191) (99,864) 928,000 - (910,000) (170,000) (35) - (6,359) (3,030)
	(53,547) (253,474)
	- 2,700 (18,290) (15,329) 7,005 - (5,497) (85,000) (1,075) (1,702) (61,935) -
	(79,792) (99,331)
	(77,170) (130,397) 841 - 117,007 247,404
	40,678 117,007

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 28

Consolidated Statement of Changes in Equity For the year ended 30 June 2012

For the year ended 30 June 2012
	Attributable to Equity Holders of the Parent Total Equity
	Issued Capital (Accumulated Losses) / Retained Earnings Share Based Payments Reserve Net Unrealised Gains / (Losses) Reserve Other Reserves
At 1 July 2010 Profit for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners - Deferred income tax on capital raising cost - Exercise of options - Share-based payment At 30 June 2011 At 1 July 2011 Profit for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners - Deferred income tax on capital raising cost - Shares issued - Dividends paid - Share-based payment At 30 June 2012	$’000 $’000 $’000 $’000 $’000 $’000 559,207 346,218 18,569 6,106 (3,192) 926,908
	- 239,500 - - - 239,500 - - - (2,667) - (2,667)
	- 239,500 - (2,667) - 236,833 (322) - - - - (322) 2,700 - - - - 2,700 - - 422 - 422
	561,585 585,718 18,991 3,439 (3,192) 1,166,541

	561,585 585,718 18,991 3,439 (3,192) 1,166,541
	- 172,496 - - - 172,496 - - - 344 - 344
	- 172,496 - 344 - 172,840 (94) - - - - (94) 3,219 - - - - 3,219 - (64,957) - - - (64,957) - - (116) - (116)
	564,710 693,257 18,875 3,783 (3,192) 1,277,433

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 29

Notes to the Consolidated Financial Report

For the year ended 30 June 2012

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 2012 was authorised for issue in accordance with a resolution of the Directors on 22 August 2012.

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

The nature of operations and principal activities of the Group are the mining of hematite deposits at Tallering Peak and Koolan Island, construction, development and mining 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.

For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity.

(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 2011 the Group has adopted all new and amended accounting standards mandatory for annual periods beginning on or after 1 July 2011 including:

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 30

Notes to the Consolidated Financial Report (continued)


		Application date of standard	Application date for Group
Reference	Title


AASB 124 (Revised)	The revised AASB 124 Related Party Disclosures (December 2009) simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies 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.	1 January 2011	1 July 2011
AASB 2009-12	Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] Makes numerous editorial changes to a range of Australian Accounting Standards and Interpretations. In particular, it amends AASB 8 Operating Segments to require an entity to exercise judgement in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. It also makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRS by the IASB.	1 January 2011	1 July 2011
AASB 2010-4	Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13] Emphasises the interaction between quantitative and qualitative AASB 7 disclosures and the nature and extent of risks associated with financial instruments. Clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. 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.	1 January 2011	1 July 2011

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 31

Notes to the Consolidated Financial Report (continued)


		Application date of standard	Application date for Group
Reference	Title


AASB 2010-5	Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042] This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRS by the IASB. These amendments have no major impact on the requirements of the amended pronouncements.	1 January 2011	1 July 2011
AASB 1054	Australian Additional Disclosures This standard is as a consequence of phase 1 of the joint Trans- Tasman Convergence project of the AASB and FRSB. This standard, with AASB 2011-1 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 entity is a for-profit or not-for-profit entity d) Whether the financial statements are general purpose or special purpose e) Audit fees f) Imputation credits	1 July 2011	1 July 2011
AASB 2010-6	Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7] The amendments increase the disclosure requirements for transactions involving transfers of financial assets but which are not derecognised and introduce new disclosures for assets that are derecognised but the entity continues to have a continuing exposure to the asset after the sale.	1 July 2011	1 July 2011

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

The adoptions of the above Standard or Interpretations did not have an impact on the financial statements or performance of the Group.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 32

Notes to the Consolidated Financial Report (continued)

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 2012. These are outlined in the table below:


			Application date of standard	Application date for Group
Reference	Title	Summary


2010-8	Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets [AASB 112]	These amendments address the determination of deferred tax on investment property measured at fair value and introduce a rebuttable presumption that deferred tax on investment property measured at fair value should be determined on the basis that the carrying amount will be recoverable through sale. The amendments also incorporate SIC-21 Income Taxes – Recovery of Revalued Non-Depreciable Assets into AASB 112.	1 Jan 2012	1 July 2012
AASB 2011-9	Amendments to Australian Accounting Standards – Presentation of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049]	This Standard requires entities to group items presented in other comprehensive income on the basis of whether they might be reclassified subsequently to profit or loss and those that will not.	1 July 2012	1July2012
AASB 10	Consolidated Financial Statements	AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation – Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to other standards via AASB 2011-7.	1 January 2013	1July2013

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 33

Notes to the Consolidated Financial Report (continued)


			Application date of standard	Application date for Group
Reference	Title	Summary


AASB 11	Joint Arrangements	AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointly- controlled Entities – Non-monetary Contributions by Ventures. AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition it removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the venturers a right to the net assets is accounted for using the equity method. Consequential amendments were also made to other standards via AASB 2011-7 and amendments to AASB 128.	1 January 2013	1July2013
AASB 12	Disclosure of Interests in Other Entities	AASB 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structures entities. New disclosures have been introduced about the judgments 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.	1 January 2013	1July2013
AASB 13	Fair Value Measurement	AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8.	1 January 2013	1July2013

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 34

Notes to the Consolidated Financial Report (continued)


			Application date of standard	Application date for Group
Reference	Title	Summary


AASB 119	Employee Benefits	The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans is recognized in full with actuarial gains and losses being recognized in other comprehensive income. It also revised the method of calculating the return on plan assets. The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB 2011-10.	1 January 2013	1July2013
Interpretation 20	Stripping Costs in the Production Phase of a Surface Mine	This interpretation applies to stripping costs incurred during the production phase of a surface mine. Production stripping costs are to be capitalised as part of an asset, if an entity can demonstrate that it is probable future economic benefits will be realised, the costs can be reliably measured and the entity can identify the component of an ore body for which access has been improved. This asset is to be called the “stripping activity asset”. The stripping activity asset shall be depreciated or amortised on a systematic basis, over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping activity. The units of production method shall be applied unless another method is more appropriate. Consequential amendments were also made to other standards via AASB 2011-12.	1 January 2013	1July2013

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 35

Notes to the Consolidated Financial Report (continued)


			Application date of standard	Application date for Group
Reference	Title	Summary


Annual Improvements 2009–2011 Cycle AASB 2012-5	Annual Improvements to IFRSs 2009–2011 Cycle	This standard sets out amendments to International Financial Reporting Standards (IFRSs) and the related bases for conclusions and guidance made during the International Accounting Standards Board’s Annual Improvements process. These amendments have not yet been adopted by the AASB. The following items are addressed by this standard: IFRS 1 First-time Adoption of International Financial Reporting Standards • Repeated application of IFRS 1 • Borrowing costs IAS 1 Presentation of Financial Statements • Clarification of the requirements for comparative information IAS 16 Property, Plant and Equipment • Classification of servicing equipment IAS 32 Financial Instruments: Presentation • Tax effect of distribution to holders of equity instruments IAS 34 Interim Financial Reporting • Interim financial reporting and segment information for total assets and liabilities	1 January 2013	1July2013
AASB 2011-4	Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124]	This Amendment deletes from AASB 124 individual key management personnel disclosure requirements for disclosing entities that are not companies.	1 July 2013	1July2013

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 36

Notes to the Consolidated Financial Report (continued)


			Application date of standard	Application date for Group
Reference	Title	Summary


AASB 1053	Application of Tiers of Australian Accounting Standards	This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements: (a) Tier 1: Australian Accounting Standards (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. The following entities apply Tier 1 requirements in preparing general purpose financial statements: (a) For-profit entities in the private sector that have public accountability (as defined in this Standard) (b) The Australian Government and State, Territory and Local Governments The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: (a) For-profit private sector entities that do not have public accountability (b) All not-for-profit private sector entities (c) Public sector entities other than the Australian Government and State, Territory and Local Governments. Consequential amendments to other standards to implement the regime were introduced by AASB 2010-2, 2011-2, 2011-6, 2011-11 and 2012-1.	1 July 2013	1July2013
AASB 2012-2	Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities	AASB 2012-2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure of information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position.	1 January 2013	1 July 2013
AASB 2012-3	Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities;	AASB 2012-3 adds application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of “currently has a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net settlement.	1 January 2014	1 July 2015

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 37

Notes to the Consolidated Financial Report (continued)


			Application date of standard	Application date for Group
Reference	Title	Summary


AASB 9	Financial Instruments	AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. (a) Financial assets that are debt instruments will be 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. (b) 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. (d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: ►The change attributable to changes in credit risk are presented in other comprehensive income (OCI) ►The remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10.	1 January 2013	1 July 2013

AASB ED 215 Mandatory effective date of IFRS 9 proposes to defer the mandatory effective date of AASB 9 from annual periods beginning 1 January 2013 to annual periods beginning on or after 1 January 2015, with early application permitted. At the time of preparation, finalisation of standard is still pending by the AASB. However, the IASB has deferred the mandatory effective date of IFRS 9 to annual periods beginning on or after 1 January 2015, with early application permitted.

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

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 38

Notes to the Consolidated Financial Report (continued)

(f) Foreign currency translation

The functional currency of the Company and its 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 adjustments 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.

(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	5 - 20 years
	Motor vehicles	4 - 5 years
	Office equipment	3 - 5 years
	Leasehold improvements	Shorter of lease term or useful life of 5 – 10 years
	Koolan Island mining 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 cash-generating unit to which the asset belongs.

If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating 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.

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Notes to the Consolidated Financial Report (continued)

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).

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 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.

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.

(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

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Notes to the Consolidated Financial Report (continued)

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.

(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 balance 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.

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Notes to the Consolidated Financial Report (continued)

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.

(t) Employee benefits

Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits and annual leave due 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.

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Notes to the Consolidated Financial Report (continued)

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.

(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. Mineral Resource Rent Tax (MRRT)

MRRT is considered, for accounting purposes, to be a tax based on income. Accordingly, current and deferred MRRT tax expense is measured and disclosed on the same basis as income tax.

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Notes to the Consolidated Financial Report (continued)

The Group has recognised deferred income tax assets in respect of the tax base of MRRT assets to the extend that the Group estimates these deferred income tax assets will be utilised in the future.

On 29 March 2012 the MRRT legislation achieved Royal Assent and became law in Australia. The MRRT is effective from 1 July 2012 however as financial reporting considerations must be made from the date of Royal Assent, the Group has recognised the impact of deferred tax originating from MRRT as at 30 June 2012.

(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.

(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.

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Notes to the Consolidated Financial Report (continued)

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

The Group designated certain foreign currency denominated lease liabilities as hedging instruments for the purposes of hedging foreign currency risk on forecast sales transactions.

The effective portion of the foreign currency gain or loss on the hedging instrument is recognised directly in other comprehensive income in the net unrealised gains/(losses) reserve, while any ineffective portion relating to foreign currency contracts is recognised immediately in sales income or cost of sales in the income statement.

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.

(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.

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Notes to the Consolidated Financial Report (continued)

(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.

(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.

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.

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Notes to the Consolidated Financial Report (continued)

(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 the capitalisation 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;
Impacts of the carbon scheme;
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.

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Page 47

Notes to the Consolidated Financial Report (continued)

Notes 2. REVENUE AND EXPENSES [a] Revenue Sale of ore Realised gain on foreign exchange hedges Other revenue Interest income [b] Other income Realised gain on foreign exchange Other income [c] Finance costs Finance charges on banking facilities Finance charges payable under finance leases Unwinding of discount on rehabilitation provision [d] Cost of Sales Mining costs Mining depreciation costs Mining waste costs deferred 12 Amortisation of mining waste costs deferred 12 Amortisation of mine properties 12 Preproduction expenditure Crushing costs Transport costs Port costs Royalties Depreciation – excluding mining depreciation Net ore inventory movement [e] Administration Expenses include: Depreciation Share-based payments expense 21[a] Net loss on sale of plant and equipment Net foreign exchange loss [f] Cost of sales and Administration expenses above include: Salaries, wages expense and other employee benefits Operating lease rental – minimum lease payments	2012 2011 $’000 $’000
	637,011 647,172 11,453 24,910
	648,464 672,082
	20,425 21,147
	20,425 21,147
	- 33 163 46
	163 79
	2,301 8,677 4,010 3,563
	6,311 12,240 987 756
	7,298 12,996
	397,594 309,622 28,622 22,641 (384,326) (310,861) 230,772 172,011 22,995 16,721 (1,208) (3,771) 28,091 26,498 57,071 38,063 16,027 17,238 46,959 46,019 14,837 7,974 (83,997) (17,061)
	373,437 325,094
	370 357 (116) 422 494 9 129 84 88,859 55,156 36,430 19,230

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 48

Notes to the Consolidated Financial Report (continued)

3. INCOME TAX Major components of income tax expense for the years ended 30 June 2012 and 2011 are: Income Statement Current income tax Current income tax charge Deferred income tax Relating to origination and reversal of temporary differences: Income tax MRRT relating to origination and reversal of temporary differences Income tax expense reported in income statement Statement of Changes in Equity Current income tax Current income tax charge Deferred income tax Capital raising costs Remeasurement of foreign exchange contracts Interest rate swap contracts Deferred income tax (benefit)/liability reported in equity 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 2012 and 2011 is as follows: Accounting profit before income tax  At the statutory income tax rate of 30% (2011: 30%)  Expenditure not allowed for income tax purposes  Other MRRT tax benefit Income tax expense Effective income tax rate Income tax expense reported in income statement	2012 2011 $’000 $’000
	20,718 22,793 49,268 80,595 (2,889) -
	67,097 103,388
	- - 94 306 (61) (62) - (161)
	33 83
	239,593 342,888
	71,878 102,866 (123) 132 (1,769) 390
	(2,889) - 67,097 103,388
	28.0% 30.2%
	67,097 103,388

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 49

Notes to the Consolidated Financial Report (continued)

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

CONSOLIDATED Accrued liabilities Capital raising costs Deferred income Foreign exchange contracts Interest receivable Inventory Lease liability Mineral resource rent tax Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Share based payment Tax losses Tax (assets) liabilities Set off of tax Net tax (assets) liabilities	Assets 2012 2011 $’000 $’000	Liabilities 2012 2011 $’000 $’000	Net 2012 2011 $’000 $’000
	(1,145) (1,255) - - (1,145) (1,255) (412) (912) - - (412) (912) - - 43,877 44,246 43,877 44,246 (15) (998) - 3,516 (15) 2,518 - - 699 1,278 699 1,278 - - 4,344 3,482 4,344 3,482 (890) (1,559) - - (890) (1,559) (2,889) - - - (2,889) - - - 101 27 101 27 - - 227,227 157,425 227,227 157,425 (26,610) (7,373) - - (26,610) (7,373) - - 4 - 4 - (3,401) (3,401) - - (3,401) (3,401)
	(35,362) (15,498) 276,252 209,974 240,890 194,476 32,473 15,498 (32,473) (15,498) - -
	(2,889) - 243,779 194,476 240,890 194,476

Movement in temporary differences during the financial year ended 30 June 2012 Accrued liabilities Capital raising costs Deferred income Foreign exchange contracts Interest receivable Inventory Lease liability Mineral resource rent tax Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Share based payment Tax losses	Balance 1 July 2011 Recognised in Income Recognised in Equity Balance 30 June 2012 $’000 $’000 $’000 $’000
	(1,255) 110 - (1,145) (912) 406 94 (412) 44,246 (369) - 43,877 2,518 (2,472) (61) (15) 1,278 (579) - 699 3,482 862 - 4,344 (1,559) 669 - (890) - (2,889) - (2,889) 27 74 - 101 157,425 69,802 - 227,227 (7,373) (19,237) - (26,610) - 4 - 4 (3,401) - - (3,401)
	194,476 46,381 33 240,890

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 50

Notes to the Consolidated Financial Report (continued)

Movement in temporary differences during the financial year ended 30 June 2011 Accrued liabilities Borrowing costs Capital raising costs Deferred income Doubtful debts provision Foreign exchange contracts Interest rate swaps Interest receivable Inventory Lease liability Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Tax losses	Balance 1 July 2010 Recognised in Income Recognised in Equity Balance 30 June 2011 $’000 $’000 $’000 $’000
	(958) (297) - (1,255) (114) 114 - - (3,194) 1,976 306 (912) 57,338 (13,092) - 44,246 - - - - 1,653 927 (62) 2,518 - 161 (161) - 702 576 - 1,278 2,960 522 - 3,482 (1,965) 406 - (1,559) 24 3 - 27 103,282 54,143 - 157,425 (6,730) (643) - (7,373) (39,200) 35,799 - (3,401)
	113,798 80,595 83 194,476

Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Mineral resources rent tax – mine properties (net of income tax) [1] Provision for write down of investments Tax losses	2012 2011 $’000 $’000
	292,659 - 965 965 44 44
	293,668 1,009

[1] Deferred tax assets relating to MRRT have not been recognised on the basis that it is not probable they will be utilised in the future and therefore they are considered not to be recoverable.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 51

Notes to the Consolidated Financial Report (continued)

4. CASH AND CASH EQUIVALENTS

[a] Reconciliation of cash

For the purposes of the Cash Flow Statement, cash and cash equivalents comprise the following at 30 June:

4. CASH AND CASH EQUIVALENTS a] Reconciliation of cash or the purposes of the Cash Flow Statement, cash and cash equivalents comprise the	following at 30 June:
Cash at bank and in hand Short-term deposits	40,678 21,911 - 95,096
	40,678 117,007

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.

[b] Reconciliation of the net profit after tax to the net cash flows from operations

Net profit after tax Adjustments for: Depreciation of non-current assets Amortisation of deferred waste Amortisation of other mine properties Net loss on disposal of property, plant and equipment Net mark-to-market differences on derivatives Interest received Exploration expenses written off Share based payments Unwinding of rehabilitation provision Stock obsolescence Borrowing costs Capitalised expenses Changes in assets and liabilities (Increase)/decrease in trade and other receivables (Increase) in inventory (Increase) in prepayments and deposits (Increase in deferred tax assets (Increase) in capitalised deferred waste Increase in creditors and accruals Decrease in GST paid Increase/(decrease) in current income tax liabilities Increase in deferred income tax liabilities Increase in restructure provision Increase in road sealing provision Increase in employee benefits Net Cash Flow from Operating Activities	172,496 239,500 43,829 30,972 230,772 172,011 22,995 16,721 494 9 (4,747) (8,119) (20,425) (21,147) 47 20 (116) 422 987 756 - 194 1,738 4,310 - (3,770) (1,543) 13,513 (67,336) (20,801) (24) (285) (2,889) - (384,326) (310,861) 24,873 4,329 (46) (42) (13,353) 22,793 46,384 80,595 4,158 - 333 - 1,868 1,288
	56,169 222,408

Net profit after tax
Adjustments for:
Depreciation of non-current assets
Amortisation of deferred waste
Amortisation of other mine properties
Net loss on disposal of property, plant and equipment
Net mark-to-market differences on derivatives
Interest received
Exploration expenses written off
Share based payments
Unwinding of rehabilitation provision
Stock obsolescence
Borrowing costs
Capitalised expenses
Changes in assets and liabilities
(Increase)/decrease in trade and other receivables
(Increase) in inventory
(Increase) in prepayments and deposits
(Increase in deferred tax assets
(Increase) in capitalised deferred waste
Increase in creditors and accruals
Decrease in GST paid
Increase/(decrease) in current income tax liabilities
Increase in deferred income tax liabilities
Increase in restructure provision
Increase in road sealing provision
Increase in employee benefits
Net Cash Flow from Operating Activities

172,496
239,500
43,829
30,972
230,772
172,011
22,995
16,721
494
9
(4,747)
(8,119)
(20,425)
(21,147)
47
20
(116)
422
987
756
-
194
1,738
4,310
-
(3,770)
(1,543)
13,513
(67,336)
(20,801)
(24)
(285)
(2,889)
-
(384,326)
(310,861)
24,873
4,329
(46)
(42)
(13,353)
22,793
46,384
80,595
4,158
-
333
-
1,868
1,288

56,169
222,408

[c] Non-cash financing activities

During the financial year, the Group acquired property, plant and equipment with an aggregate fair value of $27,714,098 (2011: $14,576,372) by means of finance leases and hire purchase agreements. During the financial year, the Group disposed of items of property, plant and equipment with an aggregate fair value of $345,350 (2011: $48,398) which were financed by means of finance leases.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 52

Notes to the Consolidated Financial Report (continued)

Notes	2012 $’000	2011 $’000
5. TERM DEPOSITS
Current

Term deposits	252,000	270,000
	252,000	270,000
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	13,432 5,384 4,976	7,398 10,057 4,794
	23,792	22,249

[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 2012, trade debtors of nil (2011: $ $nil) in the Group were impaired.

At 30 June 2012, trade debtors of $4,585,321 (2011: $262,435) 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 or other indicators of impairment. Of this amount, $4,070,000 relates to receivables from SCIT (a director related party). At 16 August 2012 $1,660,000 of this amount remains outstanding (SCIT (a director related party): $553,000).

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

Notes Movements in the allowance for impairment of debtors were as follows: Balance at the beginning of the year Charge for the year Amounts written off Balance at the end of the year The ageing of debtors past due but not impaired is as follows: Less than 30 days overdue Between 30 and 60 days overdue Between 60 and 90 days overdue Greater than 90 days overdue	2012 2011 $’000 $’000
	- - - - - -
	- -
	- - 509 428 1,819 20 2,257 (185)
	4,585 263

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 53

Notes to the Consolidated Financial Report (continued)

7. INVENTORIES
		2012	2011
		$’000	$’000
Consumables – at cost		31,620	23,164
Provision for stock obsolescence		(194)	(194)
Ore – at cost		221,385	137,388
Provision for low grade ore		(25,117)	-
		227,694	160,358

8. DERIVATIVE FINANCIAL ASSETS
Current
Foreign currency forward contracts and options	30[b][i]	5,583	386
		5,583	386

Name	Country of Incorporation	Percentage of Equity Interest Held by the Group 2012 2011 % %
Mount Gibson Mining Limited Australia 100 100 Geraldton Bulk Handling Pty Ltd Australia 100 100 Aztec Resources Limited Australia 100 100  Koolan Iron Ore Pty Ltd Australia 100 100  Koolan Shipping Pty Ltd Australia 100 100  Brockman Minerals Pty Ltd 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.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 54

Notes to the Consolidated Financial Report (continued)

The Consolidated Income Statement and Balance Sheet of the Closed Group are set out below:

Consolidated Income Statement of the Closed Group

Consolidated Income Statement of the Closed Group
CONTINUING OPERATIONS Sale of goods Other revenue TOTAL REVENUE Cost of sales GROSS PROFIT Other income Administration expenses Foreign exchange derivatives mark-to-market gain/(loss) Exploration expenses PROFIT FROMCONTINUINGOPERATIONS BEFORE TAX AND FINANCE COSTS Finance costs PROFIT FROMCONTINUINGOPERATIONS BEFORE INCOME TAX Income tax expense NET PROFITAFTERTAX ATTRIBUTABLE TO MEMBERS OF THECOMPANY	2012 2011 $’000 $’000
	648,464 672,082 20,412 21,134
	668,876 693,216 (385,845) (314,422)
	283,031 378,794 163 79 (23,550) (20,428) - 8,119 (53) (20)
	259,591 366,544 (7,298) (12,741)
	252,293 353,803 (67,774) (108,179)
	184,519 245,624

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 55

Notes to the Consolidated Financial Report (continued)

Consolidated Balance Sheet of the Closed Group

ASSETS CURRENT ASSETS Cash and cash equivalents Term deposits Trade and other receivables Inventories Prepayments Derivative financial assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Other receivables Property, plant and equipment Deferred acquisition, exploration, evaluation and development costs Mine properties Deferred income tax assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Interest-bearing loans and borrowings Derivative financial liabilities Income tax payable Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Provisions Interest-bearing loans and borrowings Deferred income tax liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Retained earnings Reserves TOTAL EQUITY	2012 2011 $’000 $’000
	40,028 116,082 252,000 270,000 22,869 21,365 227,690 160,358 3,156 3,183 5,583 386
	551,326 571,374
	100,732 32,561 216,640 244,280 344 309 949,753 736,768 2,889 -
	1,270,358 1,013,918
	1,821,684 1,585,292
	117,468 96,492 21,702 28,607 393 63 9,440 22,793 10,454 4,256
	159,457 152,211
	78,063 24,217 25,322 16,461 239,555 196,122
	342,940 236,800
	502,397 389,011
	1,319,287 1,196,281
	564,710 561,585 735,111 615,458 19,466 19,238
	1,319,287 1,196,281

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 56

Notes to the Consolidated Financial Report (continued)

10. PROPERTY, PLANT AND EQUIPMENT Freehold land - at cost Plant and equipment – at cost Accumulated depreciation Plant and equipment under lease – at cost Accumulated depreciation Buildings – at cost Accumulated depreciation Buildings under lease – at cost Accumulated depreciation Capital works in progress – at cost Total property, plant and equipment At cost Total accumulated depreciation [a] Assets pledged as security The value of assets pledged as security are: Freehold land Plant and equipment Plant and equipment under lease Buildings Buildings under lease Capital works in progress	2012 2011 $’000 $’000
	654 631
	220,706 133,309 (81,162) (41,398)
	139,544 91,911
	98,710 116,090 (52,076) (63,814)
	46,634 52,276
	115,207 60,182 (30,722) (23,352)
	84,485 36,830
	522 522 (476) (450)
	46 72
	12,018 64,975
	447,817 375,709 (164,436) (129,014)
	283,381 246,695
	654 631 139,544 91,911 46,634 52,276 84,485 36,830 46 72 12,018 64,975
	283,381 246,695

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 57

Notes to the Consolidated Financial Report (continued)

2012	2011
$’000	$’000

10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) [b] Reconciliations Reconciliations of the carrying amounts of property, plant and equipment at the beginning and end of the current and previous financial year: Plant and equipment Carrying amount at the beginning of the year Additions Transfers Disposals Depreciation expense Depreciation capitalised Carrying amount at the end of the year Plant and equipment under lease Carrying amount at the beginning of the year Additions Transfers Disposals Depreciation expense Carrying amount at the end of the year Buildings Carrying amount at the beginning of the year Additions Transfers Disposals Depreciation expense Carrying amount at the end of the year Buildings under lease Carrying amount at the beginning of the year Depreciation expense Carrying amount at the end of the year Capital works in progress Carrying amount at the beginning of the year Additions Transfers Transfers to mine properties Carrying amount at the end of the year	91,911 61,345 32,043 39,301 32,339 201 (1,530) (17) (15,219) (8,868) - (51)
	139,544 91,911
	52,276 55,548 27,714 14,576 (11,847) - (277) (48) (21,232) (17,800)
	46,634 52,276
	36,830 37,624 15,471 3,440 39,534 38 - - (7,350) (4,272)
	84,485 36,830
	72 104 (26) (32)
	46 72
	64,975 8,717 30,206 56,497 (60,026) - (23,137) (239)
	12,018 64,975

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 58

Notes to the Consolidated Financial Report (continued)

Notes 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 Koolan Island Other Reconciliation Carrying amount at beginning of the year Additions Transferred to mine properties Exploration expenditure written off Carrying amount at the end of the year 12. MINE PROPERTIES Mine development expenditure Accumulated amortisation Reconciliation Carrying amount at beginning of the year Additions Transferred from deferred acquisition, exploration, evaluation and development costs Transferred from capital works in progress Deferred waste capitalised during the year 2[d] Amortisation expensed – deferred waste 2[d] Amortisation expensed – other 2[d] Carrying amount at the end of the year The security pledged for financing facilities includes mining mortgages over the mining tenements and contractual rights to mine hermatite deposits owned by the Group. Refer note 14.	2012 2011 $’000 $’000
	62 - 282 261 - 48
	344 309
	309 69,739 1,125 166 (1,043) (69,542) (47) (54)
	344 309
	2,103,874 1,637,213 (1,154,121) (900,354)
	949,753 736,859
	736,859 536,111 58,155 9,077 1,043 69,542 23,137 - 384,326 310,861 (230,772) (172,011) (22,995) (16,721)
	949,753 736,859

13. TRADE AND OTHER PAYABLES
Current
Trade creditors	[a]	32,867	32,188
Accruals and other payables	[a]	89,663	67,368
		122,530	99,556

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

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 59

Notes to the Consolidated Financial Report (continued)

Notes 14. INTEREST-BEARING LOANS AND BORROWINGS Current Lease liability [a] Hire purchase facility [b] Corporate Debt [c] Non-Current Lease liability [a] Hire purchase facility [b] Financing facilities available At reporting date, the following financing facilities had been negotiated and were available: Total facilities:  Finance leases [a]  Hire purchase facility [b]  Contingent Instrument facility [c]  Corporate Debt [c] Facilities used at reporting date:  Finance leases  Hire purchase facility  Contingent Instrument facility  Corporate Debt Facilities unused at reporting date:  Finance leases  Hire purchase facility  Contingent Instrument facility  Corporate Debt	2012 2011 $’000 $’000
	1,769 2,231 19,933 26,376 - -
	21,702 28,607
	1,197 2,965 24,125 13,496
	25,322 16,461
	2,966 5,196 44,058 39,872 65,000 65,000 50,000 50,000
	162,024 160,068
	2,966 5,196 44,058 39,872 57,743 55,082 - -
	104,767 100,150
	- - - - 7,257 9,918 50,000 50,000
	57,257 59,918

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 60

Notes to the Consolidated Financial Report (continued)

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 8.94% pa. Secured by first mortgages 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 August 2016. Interest is charged at an average rate of 7.48% pa. Secured by a 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 A$.

[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 and 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 Limited, 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.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 61

Notes to the Consolidated Financial Report (continued)

Notes 15. DERIVATIVE FINANCIAL LIABILITIES Current Foreign currency forward contracts 30[b][i] 16. PROVISIONS Current Employee benefits Road resealing Restructure Non-Current Employee benefits Decommissioning rehabilitation Movement in provisions: Road Resealing Carrying amount at beginning of the year Provision for period Amounts utilised during the period Carrying amount at end of the year This provision relates to the forecast cost of roadworks associated with the Tallering Peak mine site. Restructure Carrying amount at beginning of the year Provision for period Amounts utilised during the period Carrying amount at end of the year This provision relates to the forecast costs associated with release of personnel on closure of Tallering Peak. Decommissioning Rehabilitation Carrying amount at beginning of the year Provision for period Unwinding of discount on rehabilitation provision Carrying amount at end of the year This provision relates to the forecast cost of decommissioning and rehabilitation on closure of Tallering Peak, Koolan Island and Extension Hill mines.	2012 2011 $’000 $’000
	393 63
	393 63
	6,012 4,248 433 100 4,158 -
	10,603 4,348
	666 562 77,432 23,666
	78,098 24,228
	100 100 333 200 - (200)
	433 100
	- - 4,158 - - -
	4,158 -
	23,666 18,910 52,779 4,000 987 756
	77,432 23,666

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 62

Notes to the Consolidated Financial Report (continued)

2012	2011
$’000	$’000

		ort (continued)
		2012 2011 $’000 $’000
17. ISSUED CAPITAL		564,710 561,585
[a] Ordinary shares Issued and fully paid Notes [b] Movement in ordinary shares on issue Beginning of the financial year Exercise of options Exercise of performance rights Shares issued Deferred income tax on capital raising cost End of the financial year

	2012 2011 Number of Shares $’000 Number of Shares $’000
	1,082,570,693 561,585 1,079,174,611 559,207 - - 3,000,000 2,700 83,128 - 396,082 - 2,862,831 3,219 - - - (94) - (322)
	1,085,516,652 564,710 1,082,570,693 561,585

[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 Corporations legislation in place abolished the concept of authorised capital and par values. Accordingly, the Company does not have authorised capital nor a par value in respect of its issued shares.

[d] Share options

As at 30 June 2012, there were 2,000,000 options on issue (2011: 2,000,000) – see Note 21(b).

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

[e] Performance rights

As at 30 June 2012, there were 271,318 performance rights on issue (2011: 1,102,599) – see Note 21(c).

[f] Capital management

The primary objective of the Group’s capital management is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and maintain an optimal capital structure to reduce the cost of capital.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares or other securities.

No changes were made in the objectives, policy or processes for managing capital during the years ended 30 June 2012 and 30 June 2011.

The Group monitors capital using a gearing ratio, which is net debt divided by total capital. Net debt is calculated as total borrowings (including ‘borrowings’ and trade and other payables’ as shown in the balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the balance sheet plus net debt.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 63

Notes to the Consolidated Financial Report (continued)

Notes 18. RESERVES Option premium reserve [a] Net unrealised gains/(losses) reserve [b] Other reserves [c] [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 Share based payments Balance at the end of the year [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 Net gains/(losses) on cash flow hedges Deferred income tax on cash flow hedges Balance at the end of the year [c] Other reserves This reserve is used to record the gain or loss arising from the sale or acquisition of non-controlling interests to or from third party investors. Balance at the beginning of the year Movement during the period Balance at the end of the year 19. RETAINED EARNINGS Balance at the beginning of the year Dividends paid during the period Net profit attributable to members of the Company Balance at the end of the year	2012 2011 $’000 $’000
	18,875 18,991 3,783 3,439 (3,192) (3,192)
	19,466 19,238
	18,991 18,569 (116) 422
	18,875 18,991
	3,439 6,106 283 (3,156) 61 489
	3,783 3,439
	(3,192) (3,192) - -
	(3,192) (3,192)
	585,718 346,218 (64,957) - 172,496 239,500
	693,257 585,718

Mount Gibson Iron Limited – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

	Notes	2012	2011
		$’000	$’000
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		545	735
 Later than one year but not later than five years		1,978	2,013
 Later than five years		2,653	3,148
		5,176	5,896
[b] Operating Lease Commitments	[ii]
Minimum lease payments
 Not later than one year		19,761	7,953
 Later than one year but not later than five years		15,564	2,047
		35,325	10,000
[c] Finance Lease and Hire Purchase Commitments	[iii]
Minimum lease payments
 Not later than one year		24,451	31,142
 Later than one year but not later than five years		26,984	18,265
Total minimum lease payments		51,435	49,407
Future finance charges		(4,411)	(4,339)
		47,024	45,068
Total lease liability accrued for:
Current
Finance leases and hire purchase facility		21,702	28,607
Non-Current
Finance leases and hire purchase facility		25,322	16,461
		47,024	45,068
[d] Property, plant and equipment commitments	[iv]
Commitments contracted for at balance date but not recognised as liabilities
 Not later than one year		3,323	6,864
 Later than one year but not later than five years		-	-
		3,323	6,864
[e] Remuneration commitments	[v]
Commitments for the payment of salaries and other remuneration under long term employment contracts in
existence at the reporting date but not recognised as liabilities, payable:
 Not later than one year		1,015	1,592
 Later than one year but not later than five years		-	-
		1,015	1,592
[f] Other commitments	[vi]
Commitments for the payment of other mining and transport contracts:
 Not later than one year		69,998	58,499
 Later than one year but not later than five years		105,555	73,814
		175,573	132,313

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 65

Notes to the Consolidated Financial Report (continued)

[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 Industry and Resources.
[ii] Operating leases relates to operating lease for office space with an initial lease term of 6 years and operating lease for machinery has an average term of 1.4 years.
[iii] Finance leases and hire purchases have an average term of 3.7 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 8.94% pa and 7.48% pa respectively (2011: 8.89% pa and 7.67% pa 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 relating principally to the completion of construction and development of port facilities of $3,622,769 (2011: $6,863,888).
[v] Amounts disclosed as remuneration commitments arising from the service contracts of Directors and Executives referred to in the remuneration report of the Directors’ report that are not recognised as liabilities and are not included in the compensation of Key Management Personnel.
[vi] Amounts disclosed as other commitments relate to contracts in respect of mining and transport that are not recognised as liabilities.

21. SHARE-BASED PAYMENT PLANS

(a) Recognised share-based payment (income)/expense

(Income)/expense arising from equity-settled share-based payment transactions

Notes 2[e]	2012 2011 $’000 $’000
	(116) 422

The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans during 2012 and 2011.

(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:

Exercise Price Vesting date / Exercise Period 110 cents Vested 24 Oct 2010 – exercise on or before 23 Oct 2012	2012 2011 Number Number
	2,000,000 2,000,000
	2,000,000 2,000,000

The remaining contractual life for the options on issue as at 30 June 2012 is less than 1 year (2011: between 1 and 2 years).

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

Balance at beginning of year - granted - forfeited - exercised Balance at year end Exercisable at year end	2012 2011 No. of Options Weighted average exercise price (cents) No. of Options Weighted average exercise price (cents)
	2,000,000 110.0 5,000,000 98.0 - - - - - - - - - - (3,000,000) 90.0
	2,000,000 110.0 2,000,000 110.0 2,000,000 110.0 2,000,000 110.0

Mount Gibson Iron Limited – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

(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:

Balance at beginning of year - granted - vested - lapsed/forfeited Balance at year end Exercisable at year end	2012 2011 No. of Performance Rights No. of Performance Rights
	1,102,599 801,482 271,318 301,117 (294,906) - (807,693) - 271,318 1,102,599 271,318 1,102,599

22. 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:

Profits used in calculating basic and diluted earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilution - Share options Weighted average number of ordinary shares used in calculating diluted earnings per share	2012 2011 $’000 $’000	2012 2011 $’000 $’000
	172,496 239,500
	Number of Shares	Number of Shares
	1,083,054,960 1,081,674,803 341,357 804,348
	1,083,396,317 1,082,479,151

Conversions, calls, subscriptions or issues after 30 June 2012

Since the end of the financial year, no options have been converted to ordinary shares (2011: no options were converted to ordinary shares) and no 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 balance date and before the completion of this report.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

Notes 23. DIVIDENDS PAID AND PROPOSED Declared and paid during the year: (a) Dividends on ordinary shares: Maiden final fully franked dividend for 2011: 4.0 cents per share Maiden interim fully franked dividend for 2012: 2.0 cents per share	2012 2011 $’000 $’000
	43,303 - 21,654 -
	64,957 -

(b) Dividends not recognised at the end of the reporting period:

(c) Franked dividends:

(c) Franked dividends:
The amount of franking credits available for the subsequent financial year are: Franking account balance as at the end of the financial year at 30% Franking credits that will arise from the payment of income tax payable as at the end of the financial year The amount of franking credits available for future reporting periods: Impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period	6,232 - 12,503 -
	18,735 - (9,306) -
	9,429 -

Tax rates

The tax rate at which paid dividends have been franked is 30%.

24. CONTINGENT LIABILITIES

The Corporate Debt banks have provided the Group with performance bonds totalling $57,743,000 (2011: $55,082,222). The performance bonds relate to performance of environmental obligations and rail upgrades.
A dispute has arisen between Mount Gibson Mining Limited and a contractor in relation to the contract for the upgrade of the road between Perenjori and Extension Hill. The contractor is seeking that Mount Gibson Mining Limited pay an additional sum of $6,550,000 in connection with the upgrade works. Mount Gibson Mining Limited disputes that the additional sum is payable. The parties have commenced arbitration to resolve the matter.
Certain claims arising with customers, employees, consultants, and contractors have been made by or against certain controlled entities in the ordinary course of business, some of which involve litigation or arbitration. The Directors do not consider the outcome of any of these claims will have a material adverse impact on the financial position of the consolidated entity.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

25. KEY MANAGEMENT PERSONNEL DISCLOSURES

[a] Compensation of Key Management Personnel

[a] Compensation of Key Management Personnel
Short-term Post employment Long-term Share-based payment Termination payment	2012 2011 $ $
	3,414,904 2,993,853 170,353 126,787 256 - (115,988) 407,039 773,023 -
	4,242,548 3,527,679

[b] Option holdings of Key Management Personnel

30 June 2012	Balance at Beginning of Period Granted as Remuneration Options Exercised Net Change Balance at End of Period 1 July 2011 30 June 2012	Vested at 30 June 2012
		Total Not Exercisable Exercisable
Directors G Hill A Jones Chen Z Lee SH Li S R Barwick S Bird P Dougas C Readhead I Macliver Cao Z L Tonkin A Rule Other KMP J Beyer D Berg D Stokes K Faulkner Total	- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -	- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
	- - - - -	- - -

Mount Gibson Iron Limited – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

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

[c] Shareholdings of Key Management Personnel

[c] Shareholdings of Key	Management Personnel
30 June 2012	Balance 1 July 2011 Granted as Remuneration On Exercise of Options Net Change Other Balance 30 June 2012 Ord Ord Ord Ord Ord
Directors G Hill A Jones Chen Z Lee SH Li S R Barwick S Bird P Dougas C Readhead I Macliver Cao Z L Tonkin A Rule Other KMP J Beyer D Berg D Stokes K Faulkner Total	- - - 70,000 70,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 20,000 20,000 20,000[1] - - 80,000 100,000 567,500 - - (567,500)[2] - 1,000,000 - - (1,000,000)[3] - - - - - - - - - - - - - 211,778 - 211,778 - - - - - - - 83,128 (83,128)[4] - - - - - - - - - - -
	1,587,500 - 294,906 (1,480,628) 401,778

[1] Initial interest on appointment as at 16 November 2011
[2] Final interest on resignation as at 14 December 2011
[3] Final interest on resignation as at 16 November 2011

[4] Final interest on resignation as at 30 April 2012

Mount Gibson Iron Limited – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

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

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 – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

[d] Performance Rights holdings by Key Management Personnel

30 June 2012	Balance 1 July 2011 Granted as Remuneration Vested during year Lapsed/ forfeited During year Balance 30 June 2012
Directors G Hill A Jones Chen Z Lee SH Li S R Barwick S Bird P Dougas C Readhead I Macliver Cao Z L Tonkin A Rule Other KMP J Beyer D Berg D Stokes K Faulkner Total	- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 535,985 - - (535,985) - 382,846 - (211,778) (171,068) - - 271,318 - - 271,318 183,768 - (83,128) (100,640) - - - - - - - - - - -
	1,102,599 271,318 (294,906) (807,693) 271,318

30 June 2011	Balance 1 July 2010 Granted as Remuneration Vested during year Lapsed/ forfeited During year Balance 30 June 2011
Directors N Hamilton L Tonkin C Readhead I Macliver A Jones Cao Z Chen Z P Knowles Lee SH R Willcocks A Rule Other KMP D Quinlivan D Berg R Mencel Total	- - - - - 389,610 146,375 - - 535,985 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 278,292 104,554 - - 382,846 - - - - - 133,580 50,188 - - 183,768 - - - - -
	801,482 301,117 - - 1,102,599

[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.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

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 Li and Mr Chen were directors of Shougang Concord and Mr Lee and Mr Curry were directors of APAC.

The following sale agreements are in place with director-related entities:

The sale of 80% of iron ore from Tallering Peak’s production over the life of mine after 0.6 million WMT is provided to other customers (estimated at 2.2 million DMT) to SCIT.
The sale of 20% of iron ore from Tallering Peak’s production over the life of mine after 0.6 million WMT is provided to other customers (estimated at 0.5 million DMT) to APAC.
The sale of 80% of iron ore from Koolan Island’s production over the life of mine (estimated at 25.1 million DMT) to SCIT.
The sale of 20% of iron ore from Koolan Island’s production over the life of mine (estimated at 6.3 million DMT) to APAC.

Pursuant to these sales agreements, during the financial year, the Group:

Sold 1,203,488 Wet Metric Tonnes (“ WMT ”) (2011: 719,071 WMT) of iron ore to APAC; and
Sold 2,883,959 WMT (2011: 2,875,589 WMT) of iron ore to Shougang Concord.

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

Assets and Liabilities Current Assets Trade receivables - Sino Chance Trading Limited Trade receivables - Shougang Concord Total trade receivables Total Assets Current Liabilities Trade payables - Shougang Concord Total trade payables Total Liabilities Revenues and Expenses Sale of goods - APAC Sale of goods - Shougang Concord Total Sale of Goods	2012 2011 $’000 $’000
	426 431 8,133 4,383
	8,559 4,814
	8,559 4,814
	2 2
	2 2
	2 2
	116,331 79,681 387,059 355,676
	503,390 435,357

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

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 consolidated entity  Other services in relation to the entity and any other entity in the consolidated entity	2012 2011 $ $
	231,885 213,410 - -
	231,885 213,410

Amounts received or due and receivable by Ernst & Young for:

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 73

Notes to the Consolidated Financial Report (continued)

28. SEGMENT INFORMATION

The Group has identified its operating segments based on the internal reports that are reviewed and used by the Chief Executive Office 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 economic characteristics.

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 2012, revenue received from the sale of iron ore was comprised of the following buyers who each on a proportionate bases equated to greater than 10% of total sales for the period:

Customer	2012 $’000
# 1 # 2 # 3 # 4 Other	387,059 116,331 59,140 47,209 27,272
	637,011

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

Customer	2011 $’000
# 1 # 2 # 3 # 4 Other	355,676 88,062 79,682 77,238 46,514
	647,172

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 2012 and 2011 financial years.

All segment assets are located within Australia.

29. EVENTS AFTER THE BALANCE SHEET DATE

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.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

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.

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 2011 to 30 June 2012, the Group delivered into US dollar foreign exchange forward contracts totalling US$261,500,000 at a weighted average A$ 1.00 : US$ 1.0115.

At 30 June 2012, the notional amount of the foreign exchange hedge book totalling US$199,999,994 is made up as follows:

Forward contract profile totalling US$199,999,994 due in the 12 months ending 30 June 2013 - weighted average A$ 1.00 : US$ 0.99004.

As at 30 June 2012, the mark-to-market gain on the total outstanding US dollar foreign exchange hedge book of US$199,999,994 was A$5,190,841.

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	To hedge sales receipts against cash flow volatility arising from the fluctuation of US$/A$ exchange rates.
Collars	Committed	To hedge sales receipts against cash flow volatility arising from the fluctuation of US$/A$ exchange rates by limiting exposure to exchange rates within a certain range of acceptable rates.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

[i] Foreign exchange contracts - cash flow hedges

The Group has entered into forward exchange 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:

	2012	2011	2011
	Average Contract Rate US$ Contract Value A$ Fair Value A$ A$/US$ $’000 $’000 $’000	Average Contract Rate US$ Contract Value A$ Fair Value A$ A$/US$ $’000 $’000 $’000
Forward Exchange Contracts - within one year Total	0.9900 200,000 202,012 5,191	1.0591 45,000 42,490 323
	0.9900 200,000 202,012 5,191	1.0591 45,000 42,490 323
Current assets (note8) Current liabilities (note 15) Total forward exchange contracts Current liabilities (hire purchase US$ facility – note 14)			2012 2011 $’000 $’000 5,583 386 (393) (63) 5,190 323 - (20,299) 5,190 (19,976)

Movement in forward exchange contract cash flow hedge reserve:

Opening balance Change in fair value of cash flow hedges Transferred from / (to) revenue in Income Statement Transferred from / (to) derivatives in Income Statement Closing balance Cash flow hedge ineffectiveness recognised immediately in profit and loss	2012 2011 $’000 $’000
	323 7,305 (6,586) (33,127) 11,453 24,910 - 1,235
	5,190 323
	- 1,235

[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 2012 and 30 June 2011.

10% appreciation in the A$ spot rate with all other variables held constant 10% depreciation in the A$ spot rate with all other variables held constant	Net Profit 2012 2011 $’000 $’000	Other Comprehensive Income 2012 2011 $’000 $’000
	(749) 299 23,007 2,869 915 (366) (19,461) (3,060)

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 76

Notes to the Consolidated Financial Report (continued)

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:

derivatives, are as follows:
Financial Assets Cash (included within note4) Trade receivables (included within note6) Financial Liabilities Trade payables (included within note 13) Hire purchase facility (included within note 14) Net exposure	CONSOLIDATED 2012 2011 $’000 $’000
	1,149 9,425 10,755 6,300 (136) (126) - (20,299)
	11,768 (4,700)

[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 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:

Mount Gibson Iron Limited – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

Fixed interest rate maturing in:	Fixed interest rate maturing in:	Fixed interest rate maturing in:	Fixed interest rate maturing in:	Fixed interest rate maturing in:			Total carrying amount per balance sheet Weighted Average Interest 2012 2011 2012 2011 $’000 $’000 % %
Floating interest rate 2012 2011 $’000 $’000	1 year 2012 $’000	or less 2011 $’000	Over 1 to 5 years 2012 2011 $’000 $’000		Non-interest bearing 2012 2011 $’000 $’000
40,673 21,904 - - - 252,000 - - - - - -		95,096 270,000 - -	- - - -	- - - -	5 - 23,792 5,583	7 - 22,249 386	40,678 117,007 2.82 5.58 252,000 270,000 5.65 5.99 23,792 22,249 - - 5,583 386 - - 322,053 409,642 122,530 99,556 - - 393 63 - - 2,965 5,196 8.94 8.89 44,059 39,872 7.48 7.67 - - - - 169,947 144,687
40,673 21,904 252,000		365,096	-	-	29,380	22,642
- - - - - - - - 1,768 - - 19,934 - - -		- - 2,231 26,376 -	- - 1,197 24,125 -	- - 2,965 13,496 -	122,530 393 - - -	99,556 63 - - -
- - 21,702		28,607	25,322	16,461	122,923	99,619

Mount Gibson Iron Limited – 30 June 2012 Financial Report

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Notes to the Consolidated Financial Report (continued)

[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 2012 and 30 June 2011.

 1% increase in interest rate with all other variables held constant  1% decrease in interest rate with all other variables held constant	Net Profit 2012 2011 $’000 $’000	Other Comprehensive Income 2012 2011 $’000 $’000
	1,764 2,556 - - (1,764) (2,556) - -

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 relevant derivatives’ lives.

[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 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 Board on an annual basis, and may be updated throughout the year subject to approval of the 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. The pricing mechanism reflects a market based clearing index. The 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 “Cost and Freight” North China basis. The price to be paid by Mount Gibson’s customers 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 “Free On Board” 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 3 or 6 months depending on the sales contract.

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 – 30 June 2012 Financial Report

Page 79

Notes to the Consolidated Financial Report (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 Corporate Debt facility.

At 30 June 2012, the Group had unutilised standby credit facilities totalling $57,257,000 (2011: $59,918,000).

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.

Financial Liabilities Trade and other payables Lease liabilities Hire purchases Corporate debt Derivatives – Gross Inflow Derivatives – Gross Outflow	30 June 2012	30 June 2011
	Less than 6 months 6 to 12 months 1 to 5 years Over 5 years Total $’000 $’000 $’000 $’000 $’000	Less than 6 months 6 to 12 months 1 to 5 years Over 5 years Total $’000 $’000 $’000 $’000 $’000
	122,530 - - - 122,530 99,556 - - - 99,556 741 1,203 1,269 - 3,213 1,631 600 2,965 - 5,196 11,604 10,903 25,714 - 48,221 12,613 13,763 13,496 - 39,872 - - - - - - - - - - (185,662) (21,671) - - (207,333) (42,818) - - - (42,818) 181,368 20,775 - - 202,143 42,495 - - - 42,495
	130,581 11,210 26,983 - 168,774 113,477 14,363 16,461 - 144,301

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 80

Notes to the Consolidated Financial Report (continued)

[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 shortterm 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 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.

Financial assets - current Cash Short-term deposits Term deposits Trade debtors Other receivables Derivatives Financial liabilities – current Trade and other payables Lease liabilities Corporate debt Derivatives Financial liabilities – non current Lease liabilities Net financial assets /(financial liabilities)	2012 Carrying Amount Fair Value $’000 $’000	2011 Carrying Amount Fair Value $’000 $’000
	40,678 40,678 21,911 21,911 - - 95,096 95,096 252,000 252,000 270,000 270,000 13,432 13,432 7,398 7,398 10,360 10,360 14,851 14,851 5,583 5,583 386 386
	322,053 322,053 409,642 409,642
	122,530 122,530 99,556 99,556 21,702 21,702 28,607 28,607 - - - - 393 393 63 63
	144,625 144,625 128,226 128,226
	25,322 25,322 16,461 16,461
	25,322 25,322 16,461 16,461
	152,106 152,106 264,955 264,955

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 81

Notes to the Consolidated Financial Report (continued)

31. PARENT ENTITY INFORMATION

[a] Information relating to Mount Gibson Iron Limited: Current assets Total assets Current liabilities Total liabilities Issued capital Accumulated losses Share based payments reserve Total Shareholder’s Equity Net profit/(loss) after tax of the parent entity Total comprehensive income / (loss) of the parent entity	2012 2011 $’000 $’000
	846 905 670,726 597,022 10,215 23,607 205,593 23,607 564,805 561,585 (118,546) (7,160) 18,874 18,990
	465,133 573,415
	(46,429) 10,975 (46,429) 10,975

[b] Details of any guarantees entered into by the parent entity

There are cross guarantees given by Mount Gibson Iron Limited in relation to the debts of its subsidiaries as described in note 9.

The parent entity has further provided bank guarantees in respect of obligations to various authorities. Refer to note 14.

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

The parent entity did not have any contingent liabilities as at reporting date. For information about guarantees given by the parent entity, refer [b] above.

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

Mount Gibson Iron Limited guarantees the performance of Mount Gibson Mining Limited’s obligations to Queensland Rail under the Transport Access Agreement made on 26 June 2008 as amended and restated on 30 June 2009. In accordance with this agreement, Mount Gibson Mining Limited agrees to reimburse Queensland Rail for track access charges properly due and payable to Brookfield.

There are no other 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.

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 82

Notes to the Consolidated Financial Report (continued)

Directors’ Declaration

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

In the opinion of the Directors:
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 2012 and of their performance for the year ended on that date; and
- ii) complying with Accounting Standards and the Corporations Regulations 2001; and
b. the financial statements and notes also comply with International Reporting Standards as disclosed in Note 1; and
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.
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 2012.

Signed in accordance with a resolution of the directors.

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G HILL Chairman

Perth, 22 August 2012

Mount Gibson Iron Limited – 30 June 2012 Financial Report

Page 83

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Independent auditor's report to the members of Mount Gibson Iron Limited

Report on the financial report

We have audited the accompanying financial report of Mount Gibson Iron Limited, which comprises the consolidated balance sheet as at 30 June 2012, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year.

Directors' responsibility for the financial report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that the financial statements comply with International Financial Reporting Standards .

Auditor's responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit we have complied with the independence requirements of the Corporations Act 2001 . We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report.

PM:MM:MTGIBSON:016

Liability limited by a scheme approved under Professional Standards Legislation

Opinion

In our opinion:

a. the financial report of Mount Gibson Iron Limited is in accordance with the Corporations Act 2001 , including:
i giving a true and fair view of the consolidated entity's financial position as at 30 June 2012 and of its performance for the year ended on that date; and
ii complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and
b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

Report on the remuneration report

We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Opinion

In our opinion, the Remuneration Report of Mount Gibson Iron Limited for the year ended 30 June 2012, complies with section 300A of the Corporations Act 2001 .

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Ernst & Young

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P McIver Partner Perth 22 August 2012

ASX 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 August 2012.

(a) Distribution of equity securities

The number of Shareholders, by size of holding, in each class of Share are:

1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - 999,999,999 TOTAL The number of Shareholders holding less than a marketable parcel of Shares are:	Ordinary Shares Number of holders Number of Shares % of Issued Capital
	2,374 1,367,621 0.13 6,052 18,155,307 1.67 3,289 25,894,684 2.39 3,853 104,743,351 9.65 246 935,567,467 86.17
	15,814 1,085,728,430 100.00
	1,134 291,362

(b) Equity security holders

The names of the twenty largest holders of quoted Shares are:

True Plus Limited
Sun Hung Kai Investment Services Ltd
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
National Nominees Limited
APAC Resources Investments Limited
Sun Hung Kai Investment Services Ltd
JP Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
Sun Hung Kai Investment Services Ltd A/C>
BNP Paribas Noms Pty Ltd
Argo Investments Limited
Zero Nominees Pty Ltd
Debortoli Wines Pty Limited
Queensland Investment Corporation

Ordinary Shares
Number of Shares
% of Shares Held

163,866,874
15.09
151,523,460
13.96
106,692,494
9.83
98,831,739
9.10
88,320,317
8.13
82,900,000
7.64
48,253,754
4.44
39,480,522
3.64
24,724,955
2.28
9,721,855
0.90
7,105,833
0.65
6,433,498
0.59
6,050,000
0.56
5,941,240
0.55
5,076,596
0.47

ASX Additional Information continued

(b) Equity security holders (continued)

(b) Equity security holders (continued)
HSBC custody Nominees (Australia) Limited Bond Street Custodians Limited Citic Resources Australia Pty Ltd BNP Paribas Noms Pty Ltd Mr Desmond George Samuel Anderson Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (TOTAL) Total Remaining Holders Balance	Ordinary Shares Number of Shares % of Shares Held
	4,364,830 0.40 3,841,234 0.35 3,405,000 0.31 3,283,146 0.30 3,050,000 0.28
	870,187,196 80.14
	215,541,234 19.86

(c) Substantial Shareholders

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

APAC Resources Limited and its subsidiaries COL Capital Limited, its subsidiaries and Ms Shirley Chong Suk Un Shougang Corporation and Shougang Concord International Enterprises Company Limited and each of their controlled entities Shougang Fushan Resources Group Limited, True Plus Limited and its subsidiaries	Number of Shares
	279,877,774 282,992,277 154,166,874 154,166,874

(d) Voting rights

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

ASX Additional Information continued

(e) Schedule of interests in mining tenements

Location	Tenement	Status	Percentage Held
Koolan Island	E04/1265-I	Live	100%
Koolan Island	E04/1266-I	Live	100%
Koolan South	E04/1407	Pending	100%
Kooland Island	E04/2091	Pending	100%
Koolan Island	L04/29	Live	100%
Koolan Island	M04/416 - I	Live	100%
Koolan Island	M04/417 - I	Live	100%
Extension Hill	G70/232	Live	100%
Extension Hill	G70/238	Live	100%
Extension Hill	L70/133	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%
Piawaning	E70/3059 - I	Live	100%
Jasper Hill	E59/1355-I	Live	100%

AI assistant

MGX RESOURCES LIMITED — Annual Report 2012

65331_rns_2012-08-22_ef720314-f7ac-4725-8a00-86b6062ffdc3.pdf

ASX ANNOUNCEMENT

Mount Gibson Iron Limited

Pages = 3

ASX Code : MGX

Mount Gibson announces annual net profit of $172.5 million

Summary

Outlook

Comment

John Phaceas

Alan Deans

DIVIDENDS

RATIOS

DETAILS OF ENTITIES OVER WHICH CONTROL HAS BEEN GAINED OR LOST DURING THE PERIOD

STATUS OF AUDIT

Financial Report

Directors’ Report

DIRECTORS

Names, Qualifications, Experience and Special Responsibilities

Geoffrey Hill B.Econ, MBA, FCPA, FCDA, FSIA Chairman, Independent Non-Executive Director

Alan Jones CA

Independent Non-Executive Director

Chen Zhouping CPA Non-Executive Director

Lee Seng Hui B.Law (Hons) Non-Executive Director

Directors’ Report (continued)

Li Shaofeng B.Automation Non-Executive Director

Russell Barwick Dip.Mining Engineering, FAICD, FAIMM Independent Non-Executive Director

Simon Bird B.Acc.Science (Hons) FCPA, FAICD

Independent Non-Executive Director

Professor Paul Dougas B.Eng (Chem), M.Eng.Science, FAICD, CEng., Hon Fellow Engineers Australia Independent Non-Executive Director

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

Directors’ Report (continued)

Craig Readhead B. Juris, LL.B, AICD Chairman, Non-Executive Director

Luke Tonkin B.E., MAusIMM, AICD

Managing Director

Ian Macliver B.Comm, FCA, F Fin, AICD Non-Executive Director

Cao Zhong B.Eng, M.Econ Non-Executive Director

Alan Rule B.Comm, B.Acc, FCA, MAICD Alternate Director to Luke Tonkin Chief Financial Officer

COMPANY SECRETARY

David Stokes B.Bus, LLB, ACIS Company Secretary & General Counsel

David Berg B.Comm, LLB Company Secretary & General Counsel

Directors’ Report (continued)

CORPORATE INFORMATION

Corporate Structure

Nature of Operations and Principal Activities

Employees

Future Funding

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Directors’ Report (continued)

Directors’ Report (continued)

REVIEW AND RESULTS OF OPERATIONS

Operating Results for the Period

Tallering Peak Hematite Operation

Directors’ Report (continued)

Koolan Island Hematite Operation

Directors’ Report (continued)

Extension Hill Direct Shipping Ore Project

Directors’ Report (continued)

Review of Financial Condition

Directors’ Report (continued)

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

SIGNIFICANT EVENTS AFTER BALANCE DATE

SHARE OPTIONS

Unissued shares

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

Directors’ Report (continued)

REMUNERATION REPORT (AUDITED)

Nomination, Remuneration and Governance Committee (“NRGC”)

Remuneration Policy

Remuneration Structure

Non-Executive Director Remuneration

Objective

Structure

Directors’ Report (continued)

Executive Directors’ and Senior Executives’ Remuneration

Objective

Fixed Remuneration

Variable Remuneration

MGX RESOURCES LIMITED Annual Report 2012