MGX RESOURCES LIMITED - Annual Report 2017

==> picture [279 x 63] intentionally omitted <==

==> picture [374 x 141] intentionally omitted <==

==> picture [403 x 79] intentionally omitted <==

==> picture [87 x 25] intentionally omitted <==

==> picture [483 x 125] intentionally omitted <==

==> picture [255 x 225] intentionally omitted <==

==> picture [539 x 45] intentionally omitted <==

==> picture [453 x 285] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [538 x 46] intentionally omitted <==

==> picture [481 x 577] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

==> picture [483 x 548] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

==> picture [482 x 142] intentionally omitted <==

==> picture [308 x 177] intentionally omitted <==

==> picture [308 x 179] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

==> picture [316 x 578] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

==> picture [316 x 485] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

==> picture [482 x 548] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [57 x 46] intentionally omitted <==

Resources and Reserves

Total Mineral Resources and Ore Reserves by Project as at 30 June 2017

Koolan Island	millions Tonnes	% Fe	% SiO 2	% Al O 2 3	% P
Mineral Resources, above 50% Fe
Measured	7.69	59.1	13.53	1.16	0.018
Indicated	41.93	64.4	6.36	0.76	0.014
Inferred	10.89	60.2	12.48	0.79	0.015
Total at 30 June 2017	60.51	63.0	8.38	0.82	0.015
Total at 30 June 2016	60.51	63.0	8.38	0.82	0.015
Ore Reserves, above 50% Fe
Proved	0.04	63.49	6.68	1.31	0.014
Probable	12.77	66.03	3.70	0.92	0.009
Total at 30 June 2017	12.82	66.02	3.71	0.93	0.009
Total at 30 June 2016	Nil	Nil	Nil	Nil	Nil
Extension Hill
Mineral Resources, above 50% Fe
Measured	1.27	55.32	9.16	2.76	0.077
Indicated	0.31	57.29	10.42	1.62	0.076
Inferred	0.20	56.61	10.49	1.66	0.055
Total at 30 June 2017	1.79	55.81	9.53	2.44	0.074
Total at 30 June 2016	2.64	56.80	8.59	2.25	0.078
Ore Reserves, above 50% Fe
Proved	Nil	Nil	Nil	Nil	Nil
Probable	Nil	Nil	Nil	Nil	Nil
Total at 30 June 2017	Nil	Nil	Nil	Nil	Nil
Total at 30 June 2016	1.15	58.0	7.21	2.09	0.088
Iron Hill
Mineral Resources, above 50% Fe
Measured	Nil	Nil	Nil	Nil	Nil
Indicated	1.23	60.56	8.64	0.94	0.050
Inferred	6.84	57.87	8.72	1.74	0.071
Total at 30 June 2017	8.07	58.28	8.71	1.62	0.068
Total at 30 June 2016	8.80	58.3	8.60	1.62	0.065
Tallering Peak
Mineral Resources, above 50% Fe
Measured	0.41	58.9	6.26	3.50	0.082
Indicated	1.03	58.1	11.70	1.66	0.066
Inferred	0.20	54.7	17.89	1.93	0.056
Total at 30 June 2017	1.65	57.9	11.10	2.15	0.069
Total at 30 June 2016	1.65	57.9	11.10	2.15	0.069
Shine
Mineral Resources, above 50% Fe
Measured	5.73	58.9	9.04	1.81	0.076
Indicated	6.57	58.0	10.01	1.35	0.070
Inferred	3.59	56.8	9.61	1.18	0.063
Total at 30 June 2017	15.89	58.1	9.57	1.48	0.071
Total at 30 June 2016	15.89	58.1	9.57	1.48	0.071
Discrepancies may appear due to rounding. Mineral Resources are reported inclusive of Ore Reserves. All tonnages have been estimated as dry tonnages.

Discrepancies may appear due to rounding. Mineral Resources are reported inclusive of Ore Reserves. All tonnages have been estimated as dry tonnages.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [483 x 112] intentionally omitted <==

==> picture [485 x 266] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

==> picture [109 x 72] intentionally omitted <==

==> picture [369 x 97] intentionally omitted <==

==> picture [255 x 150] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Directors’ Report

Your Directors submit their report for the year ended 30 June 2017 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

Lee Seng Hui LLB (Hons)

Chairman, Non-Executive Director

Mr Lee was appointed as a Non-Executive Director on 29 January 2010, Non-Executive Deputy Chairman on 14 December 2012, and Chairman on 18 February 2014. 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 and Allied Properties (H.K.) Limited both of which are listed on the Hong Kong Stock Exchange. He is also the Chairman and a Non-Executive Director of Tian An China Investments Company Limited and Asiasec Properties Limited, and a Non-Executive Director of APAC Resources Limited, one of Mount Gibson’s substantial shareholders.

Alan Jones CA

Independent Non-Executive Director

Mr Jones was appointed as an Independent Non-Executive Director on 28 July 2006 and is the current Chairman of the Nomination, Remuneration and Governance Committee. Mr Jones is a Chartered Accountant with extensive senior management and board experience in listed and unlisted Australian public companies, particularly in the construction, engineering, finance and investment industries. Mr Jones has been involved in the successful merger and acquisition of a number of public companies in Australia and internationally. He is a Non-Executive Director of Mulpha Australia Ltd, Sun Hung Kai & Co Ltd (Hong Kong), Allied Group Ltd (Hong Kong), Allied Properties (H.K.) Limited and Air Change International Limited.

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 the management of and investments in various 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 managing director of Shougang Holding (Hong Kong) Limited. Mr Li is an executive director and the managing director of Shougang Concord International Enterprises Company Limited, the chairman of each of Shougang Fushan Resources Group Limited, a substantial shareholder of Mount Gibson, Shougang Concord Century Holdings Limited, Shougang, and an executive director of BeijingWest Industries International Limited, all of which are companies listed on the Hong Kong Stock Exchange.

Russell Barwick Dip.Min.Eng., FAICD, FAusIMM

Independent Non-Executive Director

Mr Barwick was appointed as an Independent Non-Executive Director on 16 November 2011 and is Chairman of the Operational Risk and Sustainability Committee. Mr Barwick is a mining engineer with 43 years of 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 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, Canada. He was subsequently the Chief Executive Officer of Canada-based Gammon Gold Inc. before returning to Australia in 2008. He is currently the Chairman of Red Metal Ltd and a Non-Executive Director of Lithium Power International Limited.

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

Lead Independent Non-Executive Director

Mr Bird was appointed as an Independent Non-Executive Director on 23 February 2012. Mr Bird is the Lead Independent Director and Chairman of the Audit and Financial Risk Management Committee. Mr Bird has 30 years of international corporate experience, including holding the positions of General Manager Finance at Stockland Limited, Chief Financial Officer of GrainCorp Limited, and Chief Financial Officer of Wizard Mortgage Corporation. He was also Chief Executive Officer of ASX-listed King Island Scheelite Limited, a former Managing Director of Sovereign Gold Limited, a former Chairman of Rawson Resources Limited and a former Director of CPA Australia Limited. Mr Bird is currently a director of ASX-listed company Pacific American Coal Limited.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

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

Professor Dougas was appointed as an Independent Non-Executive Director on 16 November 2011 and is Chairman of the Contracts Committee. He has 40 years of design, process, project engineering, managerial, commercial and corporate experience having commenced his career in the Melbourne & Metropolitan Board of Works before joining engineering firm Sinclair Knight Merz (" SKM ") in 1978. From initial technical roles, he 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 following 15 years, he led a significant expansion of SKM locally and internationally involving more than 50 local and international acquisitions. Professor Dougas was a Non-Executive Director of ConnectEast Ltd from 2009 until its takeover in September 2011 and was also on the SKM Board from 1990 until 2011. He is currently Chairman of the Global Carbon Capture and Storage Institute, Non-Executive Director of Epworth Healthcare and a former Non-Executive Director of Beacon Foundation and Calibre Group Limited.

Kin Chan

Independent Non-Executive Director

Mr Chan was appointed a director on 22 September 2016. Mr Chan has more than 25 years’ experience in international capital markets, investment banking, corporate advisory and major transactions, particularly in Asia. He is the founding shareholder of successful Hong Kong-based investment institution Argyle Street Management Limited (Argyle), and has been the Chief Investment Officer since inception in 2002. Mr Chan is also the Chairman of TIH Limited and Non-Independent Non-Executive Director of OUE Limited, both listed in Singapore. Through Argyle, Mr Chan has invested in mines in Asia and Australia and most recently has had a central role in the acquisition and planned recapitalisation of PT Berau Coal, a major Indonesian mining interest. Prior to founding Argyle, Mr Chan was Chief Executive and Managing Director of Lazard Asia Limited from 2000 to 2001 and managed the firm’s advisory business in Asia outside of Japan. Prior to joining Lazard, Mr Chan was an Executive Director at Goldman, Sachs & Co. where he worked in Hong Kong, New York and Singapore from 1992 to 1999. Mr Chan holds an A.B. degree from Princeton University and an MBA degree from the Wharton School of the University of Pennsylvania where he was a Palmer Scholar.

Andrew Ferguson

Alternate Director to Lee Seng Hui

Mr Ferguson was appointed Alternate Director to Lee Seng Hui on 24 September 2012. Mr Ferguson is Chief Executive Officer and an Executive Director of APAC Resources Ltd, one of Mount Gibson’s substantial shareholders. Mr Ferguson holds a Bachelor of Science Degree in Natural Resource Development and worked as a mining engineer in Western Australia in the mid 1990’s. He has 15 years of experience in the finance industry specialising in global natural resources. In 2003, Mr Ferguson co-founded New City Investment Managers in the United Kingdom. He was the former co-fund manager of City Natural Resources High Yield Trust, and managed New City High Yield Trust Ltd and Geiger Counter Ltd. He has also worked as Chief Investment Officer for New City Investment Managers CQS Hong Kong. Mr Ferguson is a former Non-Executive Director of Metals X Limited and ABM Resources NL, both of which are listed on the Australian Securities Exchange.

COMPANY SECRETARY

David Stokes B.Bus, LLB, ACIS

Company Secretary & General Counsel

Mr Stokes was appointed Company Secretary and General Counsel on 2 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 sectors for over 20 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 has also worked in private practice for a number of years.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

CORPORATE INFORMATION

Corporate Structure

Mount Gibson is a company limited by shares that is incorporated and domiciled in Australia. It is the ultimate parent entity and has prepared a consolidated financial report incorporating the entities that it controlled during the financial year. The structure of the Group as at 30 June 2017 was as follows:

==> picture [478 x 236] intentionally omitted <==

Nature of Operations and Principal Activities

The principal activities of the entities within the Group during the year were:

mining of hematite iron ore at the Extension Hill and Iron Hill mine sites in the Mid-West region of Western Australia and haulage of the ore via road and rail for sale from the Geraldton Port;
construction of the seawall in Koolan Island; and
exploration and development of hematite iron ore deposits at Koolan Island and in the Mid-West region of Western Australia.

Employees

The Group employed 168 employees (excluding contractors) as at 30 June 2017 (2016: 126 employees).

OPERATING AND FINANCIAL REVIEW

Introduction

The Board presents the 2016/17 Operating and Financial Review which has been prepared to provide shareholders with a clear and concise overview of Mount Gibson’s operations, financial position, business strategies and prospects. This review also provides a summary of the impact of key events which occurred in 2016/17 and the material business risks so that shareholders can make an informed assessment of the results and prospects of the Group.

The review complements Mount Gibson’s financial statements for the year ended 30 June 2017 and has been prepared in accordance with Regulatory Guidance 247 published by the Australian Securities and Investments Commission (“ ASIC ”).

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Overview of the 2016/17 Financial Year

The Group’s financial performance for the year ended 30 June 2017 reflected a solid operating performance by the Company’s continuing Mid-West operations during a period of volatile iron ore pricing and significant operational transformation.

Pricing was particularly volatile over the 12 month period. At the beginning of the financial year, the Platts Index for delivery of 62% Fe iron ore fines to northern China was approximately US$55 per dry metric tonne (“ dmt ”) and, after a period of relative stability, rose strongly between November 2016 and February 2017 at which time it peaked at just over US$90/dmt. The price subsequently declined sharply over the ensuing four months, hitting a low of US$54/dmt in mid-June 2017 to average US$70/dmt for the 12 month period. More significantly, the price differential between the benchmark Platts 62% Fe and 58% Fe indices widened significantly over the course of the year. After peaking at US$62/dmt in November 2016, the Platts 58% Fe index price dipped below US$32/dmt in June 2017, having a significant adverse impact on sales revenue from the Company’s Mid-West operations.

Group ore sales totalled 3.2 million wet metric tonnes (“ Mwmt ”) for the 12 month period reflecting the completion of mining in the Extension Hill pit in late 2016, after which all sales were sourced from remaining standard grade and low grade stockpiles at Extension Hill prior to the commencement of sales from the nearby Iron Hill deposit in June 2017. Sales were also augmented by the sale of remnant low grade stockpiled material at the closed Tallering Peak mine site.

Total sales revenue for the year was $173,128,000 comprising $162,043,000 from continuing operations at Extension Hill, and $11,085,000 from the discontinued Tallering Peak operation. Mount Gibson achieved an average realised price for standard iron ore fines product from Extension Hill of approximately US$44/dmt Free on Board (“ FOB ”), after grade and provisional pricing adjustments and penalties for impurities, compared with an average of US$34/dmt in the 2015/16 financial year. The weighted average realised price received for all products sold, on a wet tonnes basis, was $55/wmt FOB in 2016/17 compared with $48/wmt FOB in the prior financial year.

Cash reserves, including term deposits and tradeable investments, increased by $46,692,000 over the year, including receipt of the $34,558,000 balance of the property damage component of the Koolan Island insurance claim agreed in the prior financial year, to a total of $446,779,000 as at 30 June 2017. This does not include the $64,288,000 cash proceeds from the settlement of the business interruption component of the insurance claim which was reached and paid subsequent to the end of the financial year in July 2017.

Operating Results for the Financial Year

The summarised operating results for the Group for the year ended 30 June 2017 are tabulated below:

Year ended:	Year ended:	30 June 2017*	30 June 2016*	30 June 2015*	30 June 2014	30 June 2013
Net profit/(loss) before tax Taxation benefit/(expense) Net profit/(loss) after tax Earnings/(loss) per share	$’000 $’000 $’000 cents/share	24,841 1,481	85,536 761	(1,008,505) 97,083	163,698 (67,345)	128,440 28,902
		26,322 2.41	86,297 7.91	(911,422) (83.56)	96,353 8.84	157,342 14.45

The figures for net profit/(loss) before tax and taxation benefit/(expense) for the years ended 30 June 2017, 2016 and 2015 are shown inclusive of discontinued operations. Refer the attached financial statements for further details.

Consolidated quarterly operating and sales statistics for the 2016/17 financial year are tabulated below:

Consolidated Group Unit	Consolidated Group Unit	Sept Quarter 2016	Dec Quarter 2016	Mar Quarter 2017	Jun Quarter 2017	2016/17	2015/16
Mining & Crushing Total waste mined Total ore mined# Total ore crushed	kwmt kwmt kwmt	328 862 773	28 207 728	6 49 915	295 782 876	658 1,899 3,292	5,295 5,976 5,180
Shipping/Sales Standard DSO Lump Standard DSO Fines Low Grade DSO Total	kwmt kwmt kwmt kwmt	417 294 175	362 295 239	180 176 425	300 - 303	1,259 766 1,142	2,770 2,076 125
		887	896	782	603	3,167	4,971
Ave. Platts 62% Fe CFR northern China price	US$/dmt	59	71	86	63	70	51
MGX Free on Board (FOB) average realised fines price^	US$/dmt	37	49	46	-*	44	34
kwmt = thousand wet metric tonnes US$/dmt = USD per dry metric tonne * No fines material was sold during the June 2017 quarter. # Includes low-grade ore at Extension Hill with grading 50-55% Fe that is considered to be saleable. This material is being stockpiled for future sale but continues to be treated as waste for accounting purposes. ^ Reflects the realised fines price for standard DSO fines ore only, after adjustments for shipping freight, grade, provisional invoicing adjustments and penalties for impurities. Contract pricing in the year was based on a mix of lagging-monthly and month-of-shipment averages. Minor discrepancies may appear due to rounding.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Extension Hill/Iron Hill

The Extension Hill mine and adjacent Iron Hill Deposit are located in the Mount Gibson Ranges, 85km east of Perenjori and 260km east south east of Geraldton in the Mid-West region of Western Australia. Ore is mined, crushed and screened on-site, transported by sealed road 85km to Perenjori, where it is loaded onto rail wagons and railed 240km to the Geraldton Port. Mining commenced at Extension Hill in the 2011/12 financial year.

After five years of continuous production, mining was finally completed in the Extension Hill pit during November 2016. Material mined in the latter stages of the Extension Hill open pit was stockpiled for sale while the Company worked to secure final approvals to develop the nearby Iron Hill Deposit, located 3km south of the Extension Hill pit. The sales of stockpiled Extension Hill ore were augmented in the 2016/17 year by sales from existing low grade stockpiles.

In December 2016, the planned development of the Iron Hill deposit was approved by Western Australia’s Environment Minister, and the Company received the final required regulatory approvals in February 2017, following which a development decision was made. Life-of-mine sales from Iron Hill are anticipated to total 5.5 to 6.0 million tonnes through to the expected end of production in late 2018, at an average site cash cost of $46-$48/wmt. Iron Hill has a Total Mineral Resource of 8.8Mt @ 58.3% Fe (refer ASX release dated 31 August 2016).

Iron Hill’s proximity to Extension Hill enabled the Company to utilise the existing Extension Hill workforce of approximately 160 staff and contractors, and existing camp, processing and transport infrastructure, with minimal capital expenditure. Mining commenced at Iron Hill in March 2017, and the first ore sales occurred in June 2017.

Combined ore sales from the Extension Hill/Iron Hill operations, exported through Geraldton Port, totalled 2,751,000 wmt in the 2016/17 year. Sales comprised 1,259,000 wmt of lump ore (including 118,000 wmt from Iron Hill), 766,000 wmt of fines ore and 726,000 wmt of low grade lump material from existing stockpiles at Extension Hill.

At the end of June 2017, approximately 78,000 wmt of crushed high grade product was stockpiled at the mine. Stockpiles of uncrushed high grade Iron Hill material totalled 205,000 wmt and stockpiles of both crushed and uncrushed lower grade material totalled 2.9 Mwmt grading 50-55% Fe. Crushed ore stockpiles at the Perenjori rail siding totalled approximately 214,000 wmt of high grade ore and 197,000 wmt of low grade lump products.

The Extension Hill operation was strongly cashflow positive over the year, despite the volatility of iron ore pricing and widening differential between the Platts 58% Fe and Platts 62% Fe pricing indices, reflecting the Company’s ongoing focus on cost control and operational efficiency.

Prior to commencing the Iron Hill development, in December 2016 Mount Gibson entered into three 12 month offtake agreements with customers for Iron Hill which each represented approximately 25% of planned available production in the first year of the operation. In late June and early July 2017 Mount Gibson terminated two of these offtake agreements after the relevant customers failed to comply with a fundamental term of their respective agreements. The Company has reserved its rights to pursue the former offtake customers for any losses resulting from the termination of these agreements. Mount Gibson has commenced selling this material to alternative customers, and expects to be able to continue doing so as product becomes available.

Production and shipping statistics for Extension Hill for the 2016/17 financial year are tabulated below:

Extension Hill Production Summary	Unit	Sept Quarter 2016 ’000 Dec Quarter 2016 ’000 Mar Quarter 2017 ’000 Jun Quarter 2017 ’000	Year 2016/17 ’000	Year 2015/16 ’000	% Incr/ (Decr)
Mining Waste mined Standard Ore mined Low Grade Ore mined Total Ore Mined Crushing Lump Fines Transported to Perenjori Railhead Lump Fines Transported to Geraldton Port Lump (Rail) Fines (Rail) Shipping Lump Fines Low Grade Lump	wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt	328 28 6 295 669 171 28 640 192 36 21 142	658 1,508 391	1,973 3,864 731	(67) (61) (46)
		862 207 49 782	1,899	4,595	(59)
		452 438 558 530 321 290 357 346	1,978 1,313	2,303 1,592	(14) (18)
		773 728 915 876	3,292	3,895	(15)
		399 440 607 535 348 265 8 201	1,981 822	2,207 1,498	(10) (45)
		747 705 615 736	2,803	3,705	(24)
		416 441 521 561 309 235 176 81	1,939 801	1,985 1,360	(2) (41)
		725 676 697 642	2,740	3,345	(18)
		417 362 180 300 294 295 176 - - 118 305 303	1,259 766 726	1,963 1,419 -	(36) (46) -
		711 775 662 603	2,751	3,382	(19)

Low grade ore is material grading 50-55% Fe considered to be potentially saleable. This material is being stockpiled for future sale but continues to be treated as waste for accounting purposes.

Minor discrepancies may appear due to rounding.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Koolan Island

The Koolan Island mine was placed on care and maintenance in the June 2016 quarter pending completion of the Company’s evaluation of the potential to reinstate the Main Pit seawall and resume high grade ore production.

Evaluation and planning work was successfully completed in April 2017. A decision to proceed was announced on 27 April 2017, following confirmation of a safe and viable seawall design and construction method, re-establishment of Ore Reserves, attractive viable capital and operating cost estimates, and receipt of necessary regulatory approvals (refer ASX release dated 27 April 2017).

As reported, seawall reconstruction and pit dewatering costs are estimated at $97,000,000, including $10,000,000 in contingencies, with estimated peak cash draw prior to cashflow of $145,000,000. Ore Reserves totalling 12.8Mt grading 66.0% Fe were re-established for Main Pit, giving an initial mine life of 3.5 years. A potential Stage Two pit extension is under evaluation to convert an additional 7Mt of Mineral Resources at the eastern end of Main Pit to Ore Reserves.

Life of mine all-in cash costs are projected at $53/wmt FOB, including development capex and final closure costs, resulting in an estimated breakeven Platts 62% Fe price of US$46/dmt including capital and closure costs.

First ore sales are targeted for early 2019, with project payback estimated at 28 months after the commencement of sales.

Cash expenditure on the Koolan Island restart project totalled approximately $5,000,000 in the June 2017 quarter, related primarily to equipment purchases, labour and equipment mobilisation, and waste rock placement. Preferred suppliers were identified for key contracts, including for seepage barrier construction, geotechnical drilling, cement supply, and specialist instrumentation supply and installation.

Material site works started in mid-June 2017 with the commencement of truck and barge dumping of waste rock to reinstate the starter embankment for the seawall. By end of June 2017, approximately 100,000 cubic metres of waste rock had been placed.

The Koolan Island labour force increased to 64 personnel by end of June 2017, representing the bulk of the anticipated workforce required during the construction phase.

No production or shipping occurred at Koolan Island for the 2016/17 financial year.

Tallering Peak

In the 2016/17 financial year, Mount Gibson monetised some remnant low grade stockpiled material remaining at the mine site. These opportunistic sales, totalling 417,000 wmt of low grade lump and fines material, generated a modest cash margin and assisted with environmental rehabilitation at the Tallering Peak mine site.

Production and shipping statistics for Tallering Peak in the 2016/17 financial year are tabulated below:

Tallering Peak Production Summary Unit	Sept Quarter 2016 ’000 Dec Quarter 2016 ’000 Mar Quarter 2017 ’000 Jun Quarter 2017 ’000	Year 2016/17 ’000	Year 2015/16 ’000	% Incr/ (Decr)
Transported to Geraldton Port - Lump wmt - Fines wmt Shipping - Low Grade DSO Lump wmt - Low Grade DSO Fines wmt	19 - - - 141 159 59 -	19 359	159 -	(88) -
	160 159 59 -	378	159	138
	58 - - - 117 122 120 -	58 359	125 -	(54) -
	175 122 120 -	417	125	234

Minor discrepancies may appear due to rounding.

EXPLORATION AND DEVELOPMENT

Shine Project

The Total Mineral Resources at the Shine Project, located 85km north of Extension Hill, comprise 15.9 Mt @ 58.1% Fe (refer ASX release dated 31 August 2016). The Shine Project remains a potentially viable development opportunity when iron ore market conditions improve.

CORPORATE

Financial Position

The Group’s cash, term deposit and tradeable investments balances totalled $446,779,000 at 30 June 2017, an increase of $46,692,000 from the balance of $400,087,000 as at 30 June 2016. The increase reflected business cashflow generated during the financial year and receipt of the $34,558,000 balance of the property damage component of the Koolan Island insurance claim agreed in the prior financial year.

As at the balance date, the Company’s current assets totalled $479,337,000 and its current liabilities totalled $38,094,000. As at the date of this report, the Group has sufficient funds in addition to access to further equity and debt funding to maintain its existing operations and to advance its exploration and growth objectives.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Derivatives

As at 30 June 2017, the Group held foreign exchange collar option contracts covering the conversion of US$12,000,000 into Australian dollars over the period July 2017 to September 2017 with a cap price of A$1.00/US$0.7550 and floor price of A$1.00/US$0.7205. These collar contracts had a marked-to-market value at balance date of $341,000.

Mount Gibson also took advantage of higher iron ore prices earlier in the financial year to enter into forward sales contracts covering 360,000 tonnes of anticipated iron ore sales in the June half of 2017. The contracts were settled during the period with the final contract at the end of June 2017 having a cash settlement value of $1,104,000 which was received in July 2017.

Koolan Island Seawall Insurance Claim

Following the $86,000,000 cash settlement of the property damage component of the Company’s insurance claim reached with the insurers in June 2016, discussions continued during 2016/17 between Mount Gibson and its insurers in relation to the separate business interruption component of the claim. Subsequent to the end of the financial year in July 2017, the Company announced it had reached final agreement with 14 insurers, representing 92.5% of the Company’s insurance cover for business interruption suffered as a result of the seawall failure, for a cash settlement of the claim for $64,288,000.

Proceeds of the settlement have since been received, further strengthening the Company’s cash position as it continues to evaluate resource investment opportunities and progresses activities to recommence production from the Main Pit at Koolan Island.

Negotiations will continue separately with one further insurer representing the remaining 7.5% of the Company’s business interruption coverage.

The business interruption settlement takes total cash proceeds received from Mount Gibson’s insurance claim relating to the seawall failure to just over $150,000,000.

Likely Developments and Expected Results

Mount Gibson’s overall objective is to maintain and grow long-term profitability through the discovery, development, operation and acquisition of mineral resources. As an established producer and seller of hematite iron ore, Mount Gibson’s strategy is to grow its profile as a successful and profitable supplier of raw materials.

Key influences on the success of Mount Gibson are not only iron ore prices and foreign exchange rates but also consistency in government policy, the continued attainment of regulatory approvals, the ability to delineate new mineral resources and ore reserves, and the continued control of operating and capital costs.

The Board’s corporate objective is to grow the Company’s cash reserves and continue to pursue an appropriate balance between the retention and utilisation of cash reserves for value-accretive investments. The Board has determined the following key business objectives for the 2017/18 financial year:

Extension Hill/Iron Hill – continue to mine the Iron Hill deposit while optimising production rates and controlling costs, to extend the life of the Extension Hill operation and prepare the site for its ultimate closure in the following year.
Koolan Island – successfully rebuild the Main Pit seawall, dewater the pit and prepare the site for commencement of commercial production, with initial ore sales anticipated in early 2019.
Cost reductions - continue to drive for sustainable cost improvements across the existing business.
Treasury returns – maintain the increased yield on the Group’s cash reserves.
Growth projects - continuation of the search for business development opportunities in the resources sector.

Extension Hill Outlook

As previously reported, during the 2016/17 year the Group secured the final outstanding approvals for development of the Iron Hill deposit and commenced initial ore sales. Life-of-mine sales from Iron Hill are anticipated to total 5.5-6.0Mwmt through to the expected end of production in late 2018, at an average site cash cost of $46-48/wmt sold.

Iron Hill sales will be augmented by sales from existing Extension Hill low grade stockpiles when suitable prices can be attained.

Koolan Island Outlook

Activity at Koolan Island is now focused on the rebuild of the Main Pit seawall and the recommencement of commercial production, with first ore sales targeted for early 2019. As reported, seawall reconstruction and pit dewatering costs are estimated at $97,000,000, with estimated peak cash draw prior to cashflow of $145,000,000. Ore Reserves totalling 12.8Mt grading 66.0% Fe were re-established for Main Pit (refer ASX release dated 27 April 2017), giving an initial mine life of 3.5 years. A potential Stage Two pit extension is under evaluation to convert an additional 7Mt of Mineral Resources at the eastern end of Main Pit to Ore Reserves.

Group Sales Guidance and Cash Costs Guidance

Mount Gibson expects its annual sales for the 2017/18 financial year to be between 3.5 and 3.8 Mwmt of iron ore at an average all-in group cash cost of $47-52/wmt. All-in group cash costs are reported FOB and include cash operating expenditure, royalties, sustaining capital expenditure and corporate costs, and exclude project capital expenditure.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

SIGNIFICANT EVENTS AFTER BALANCE DATE

On 7 July 2017, the Company announced it had reached final agreement with 14 insurers, representing 92.5% of the Company’s underwriting cover for business interruption in relation to the Company’s insurance claim for the late 2014 seawall failure at Koolan Island. No amount has been recognised in the year ended 30 June 2017. Proceeds of the cash settlement amounting to $64,288,000 have since been received. Negotiations will continue separately with one further insurer representing the remaining 7.5% of the Company’s business interruption coverage.

On 15 August 2017, the Company declared a final dividend on ordinary shares in respect of the 2016/17 financial year of $0.02 per share fully franked. The total amount of the dividend is $21,931,000. The dividend has not been provided for in the 30 June 2017 financial statements.

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.

DIVIDENDS

There were no dividends paid during the financial year ended 30 June 2017. A final dividend of 2.0 cents per share fully franked has been declared for the year ended 30 June 2017. Refer “Significant Events After Balance Date” above.

INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND AUDITORS

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 contracts.

The Company has agreed to indemnify its auditors, Ernst & Young, to the fullest extent possible as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year.

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.

SHARE OPTIONS, PERFORMANCE RIGHTS AND RESTRICTED SHARES

There were no options exercised or forfeited during the financial year or prior to the date of this Report. There are no options over ordinary shares in the Company on issue as at balance date and as at the date of this Report.

There were 533,625 Performance Rights vested and exercised during the year. In addition, 177,875 Performance Rights were forfeited during the financial year. There are no Performance Rights on issue as at balance date and as at the date of this Report.

There were 4,749,456 restricted shares issued during the year under the Company’s Loan Share Plan, and these shares remain on issue at balance date and as at the date of this report.

Refer to the Remuneration Report for further details of options, Performance Rights and restricted shares outstanding.

DIRECTORS’ INTERESTS IN THE SHARES, OPTIONS AND PERFORMANCE RIGHTS 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		Performance Rights
			over Shares
Lee Seng Hui(i)	-	-		-
A Jones	300,000	-		-
Li Shaofeng	-	-		-
R Barwick	-	-		-
S Bird	20,000	-		-
P Dougas	284,944	-		-
K Chan(ii)	-	-		-
A Ferguson (Alternate for Mr Lee)	-	-		-

(i) For the purposes of Corporations Act Regulation 2M.3.03(1)-Item 18, Mr Lee does not have a disclosable shareholding. However, we note that for purposes of ASX Listing Rule 3.19A.2, Mr Lee has previously declared an indirect “relevant interest” in 323,780,748 ordinary shares in the Company through his association with Allied Group Limited, a substantial shareholder of the Company – refer ASX announcement dated 27 June 2016.

(ii) For the purposes of Corporations Act Regulation 2M.3.03(1)-Item 18, Mr Chan does not have a disclosable shareholding. However, we note that for purposes of ASX Listing Rule 3.19A.1, Mr Chan has previously declared an indirect “relevant interest” in 54,718,470 ordinary shares in the Company through his association with investment fund manager Argyle Street Management Limited, a substantial shareholder of the Company – refer ASX announcement dated 23 September 2016.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

DIRECTORS’ MEETINGS

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

		Audit and Risk	Audit and Risk	Nomination,	Operational	Contracts
	Directors’	Management		Remuneration	Risk and	Committee
	Meetings	Committee Meetings		and Governance Committee	Sustainability Committee
Number of Meetings Held	11		4	4	6	4
Lee SengHui	9		4	3	-	2
A Jones	11		4	4	1	3
Li Shaofeng	8		-	-	-	-
R Barwick	11		1	4	6	4
S Bird	11		4	-	6	4
P Dougas	11		2	1	6	4
K Chan	9		1	1	1	2
A Ferguson (Alt. for Mr Lee)	1		-	-	-	-

ENVIRONMENTAL REGULATION AND PERFORMANCE

The Group has developed Environmental Management Plans for its various operating and development sites. The Environmental Management Plans have been approved by the Western Australian Government Departments of Mines and Petroleum, Environmental Protection Authority and, where applicable, Department of Parks and Wildlife and the Department of Health. In addition, plans associated with specific species have been approved by the Federal Department of the Environment.

The Environmental Protection Authority has also granted approval for the sites’ management systems and plans. In addition, the Department of Environmental Regulation has granted approval of works to allow construction and operation of “prescribed” facilities and the Department of Mines and Petroleum has granted approval for Mining Proposals at each of the mine sites.

The Group holds various environmental licences and authorities, issued under both State and Federal law, to regulate its mining and exploration activities in Australia. These licences include conditions and regulations in relation to specifying limits on activities in 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’s licences, permits and approvals.

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 Corporations (Rounding in Financial/Directors’ Report) Instrument 2016/191. The Company is an entity to which the instrument applies.

CURRENCY

Amounts in this report and the accompanying financial report are presented in Australian dollars unless otherwise stated.

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 29 which forms part of this Report.

NON-AUDIT SERVICES

The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 . The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. EY received $3,605 for the provision of non-audit service in relations to a Traditional Owner royalty audit during the financial year ended 30 June 2017.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

REMUNERATION REPORT (AUDITED)

This Remuneration 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 comprises two independent Non-Executive Directors, being Messrs Jones (Chairman) and Barwick, and one non-independent Non-Executive Director, being Mr Lee, the Chairman of the Board.

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 Group 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 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. Total Non-Executive Director fees of $632,125 were paid/payable in the 2016/17 financial year.

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

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

Each Non-Executive Director’s 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.

Senior Executives’ Remuneration

Objective

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

reward senior executives for Company and individual performance against targets set by reference to appropriate benchmarks;
align the interests of 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.

Use of Remuneration Consultants

The NRGC from time to time seeks advice from independent remuneration consultants regarding senior executives’ remuneration structures and levels. Such consultants are engaged by, and report directly to, the NRGC, and are required to confirm in writing their independence from the Group’s senior and other executives. No remuneration consultants were appointed for this purpose during the 2016/17 financial year.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Fixed Remuneration

The components of the 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 senior executives’ remuneration is reviewed on an annual basis by the Chief Executive Officer, whose remuneration is reviewed annually by the NRGC.

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”)

Senior executives may receive variable remuneration in the form of STI of up to 30-50% of their annual salary package. STI payments are linked to defined performance measures and provide rewards for completing actions and objectives that are expected to materially improve Company performance. The total potential STI available for award is ultimately at the Board’s discretion and is measured to provide sufficient incentive to the senior executives to achieve the objectives set, such that the cost to the Group is reasonable in the circumstances.

The performance measures typically comprise a combination of group and individual measures, chosen to align the interests of senior executives with shareholders, representing the key drivers for short term success of the business and providing a framework for delivering long term value.

On an annual basis, the performance of each senior executive is reviewed immediately prior to or just after the reporting date. The NRGC then determines the amount of STI to be allocated to each executive. Payments are made in cash after the reporting date.

The Board exercised its discretion to make an award for the 2016/17 financial year based on the achievement of a number of milestones including receipt of all regulatory approvals for, and commencement of mining operations within, the Iron Hill deposit, completion of the feasibility study for reinstatement of the Koolan Island Main Pit seawall and commencement of site activities, advancement of the Koolan Island seawall insurance claim and, subsequent to year end, settlement of the business interruption component thereof, continued cost control within the business and evaluation of a number of business development opportunities.

Accordingly, for the 2017 financial year, a total STI cash incentive of $862,796 was awarded to Key Management Personnel, representing 100% of the total STI cash incentives available to each of Messrs Beyer, Kerr, de Kruijff and Stokes. The amount of the STI is included in the Company’s financials for the year and was paid after year-end.

Long-term Incentives (“LTI”)

The Company previously 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 convert into ordinary shares on completion by the executive of approximately three years’ continuous service, subject to satisfaction of specified performance hurdles, unless such conditions are waived by the Board exercising its discretion. LTI awards are issued and tested for vesting against the Company's Total Shareholder Return relative to a comparator group of iron ore companies over a 2-3 year period. The comparator group of companies comprised Rio Tinto Limited, Fortescue Metals Group Limited, Grange Resources Limited, Arrium Limited, Atlas Iron Limited, BC Iron Limited, Gindalbie Metals Limited and Western Desert Resources Limited. The employment contracts for the Chief Executive Officer, Mr Beyer, the Company Secretary & General Counsel, Mr Stokes, and the Chief Financial Officer, Mr Kerr, incorporate payment of a LTI. Under their employment contracts and subject to Board discretion, these executives may each year be the invited to apply for, and the Company will grant, a number of Performance Rights equivalent to up 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 1 July 2016, 533,625 Performance Rights issued under the PRP in the 2013/14 financial year vested into ordinary shares in accordance with their terms, reflecting 75% of the Performance Rights that were available to vest at that time. The remaining 177,875 Performance Rights, representing 25% of those issued in the 2013/14 financial year, did not vest and were cancelled. No new Performance Rights were issued under the PRP in the 2016/17 financial year as the Board decided to establish a new LTI plan.

This new LTI plan, known as the Loan Share Plan ( “LSP” ), was established in August 2016. Under the LSP, ordinary shares in the Company may be issued to eligible participants, with vesting of the shares being subject to the satisfaction of stipulated performance conditions. The shares are issued at their market value with the recipient required to pay this market value in order to take up the share offer. The Company or any of its subsidiaries will provide a loan to fund the acquisition price. The loan is interest-free and is secured against the shares in the form of a holding lock preventing all dealing in the shares. The loan is limited recourse such that if the shares do not ultimately vest and are therefore forfeited, this is treated as full repayment of the loan balance. While the loan balance remains outstanding, any dividends paid on the shares will be automatically applied towards repayment of the loan. In making the loan in respect of the newly issued shares, there is no cash cost to the Company as the shares are newly issued.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

On 24 August 2016 the Company issued a total of 4,749,456 shares to Messrs Beyer, Kerr and Stokes under the LSP, representing their full entitlement for LTI awards equating to one third of their base salaries (including superannuation). In accordance with the terms of the LSP, the shares were issued at a market price of $0.316 per share with the participants responsible for associated limited recourse loans totalling $1,500,828. In order for the shares to vest, the participants must remain continuously employed by the Group to at least the end of the financial year and the Company’s share price, as measured by a rolling five day volume weighted average price of the Company’s shares traded on the ASX, must on 1 July 2017 or at any time in the following four year period be above a 10% premium to the issue price of the shares. The award has been accounted for as an in-substance option award, with the fair value at grant date assessed at $0.104 per share.

The Company has a policy restricting executives from entering into arrangements to protect the value of unvested LTI entitlements under equity-based remuneration plans.

Employment Contracts

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

Jim Beyer

The key terms of his contract include:

Commenced as Chief Operating Officer on 2 November 2011 and was appointed as Chief Executive Officer on 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.

Peter Kerr

The key terms of his contract include:

Commenced 19 September 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 Kerr 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 Kerr 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.

Scott de Kruijff

The key terms of his contract include:

Commenced as General Manager Koolan Island on 17 September 2013 and subsequently appointed as General Manager – Operations on 1 July 2015 with no set term;
Annual Salary review subject to performance;
Operational incentive of up to 30% of Annual Salary Package;
Employee can terminate upon one month’s notice and the Company upon six weeks’ notice, or immediately for any serious misconduct.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Details of directors and key management personnel disclosed in this report

[i] Directors

Lee Seng Hui Chairman A Jones Non-Executive Director Li Shaofeng Non-Executive Director R Barwick Non-Executive Director S Bird Lead Non-Executive Director P Dougas Non-Executive Director K Chan Non-Executive Director (from 22 September 2016) A Ferguson Alternate Director to Mr Lee

[ii] Key Management Personnel J Beyer Chief Executive Officer P Kerr Chief Financial Officer D Stokes Company Secretary and General Counsel S de Kruijff General Manager - Operations

Remuneration of Key Management Personnel for the year ended 30 June 2017

	Short Term	Short Term	Short Term	Short Term	Post Employment	Long Term	Share Based Payment
	Salary & Fees	Non Monetary(a)	Cash Incentives(b)	Accrued Annual Leave(c)	Super- annuation	Long Service Leave(d)	Restricted Shares(e)	Total	% Perform- ance Related
30 June 2017	$	$	$	$	$	$	$	$
Directors Lee SengHui 102,854 - - - 9,771 - - 112,625 -
A Jones 105,479 - - - 10,021 - - 115,500 -
Li Shaofeng - - - - - - - - -
R Barwick 105,479 - - - 10,021 - - 115,500 -
S Bird 112,329 - - - 10,671 - - 123,000 -
P Dougas 101,875 - - - 625 - - 102,500 -
K Chan 57,534 - - - 5,466 - - 63,000 -
A Ferguson(Alt) - - - - - - - - -
Sub-total 585,550 - - - 46,575 - - 632,125
Other KMP J Beyer 627,776 15,618 338,350 28,444 48,924 20,282 225,564 1,304,958 43
P Kerr 424,500 11,219 227,250 9,552 30,000 5,099 151,498 859,118 44
D Stokes 320,645 9,401 175,322 - 30,000 4,230 116,881 656,479 45
S de Kruijff 371,245 8,507 121,874 1,423 35,000 2,045 - 540,094 23
Sub-total 1,744,166 44,745 862,796 39,419 143,924 31,656 493,943 3,360,649
Totals 2,329,716 44,745 862,796 39,419 190,499 31,656 493,943 3,992,774

(a) Non-Monetary include the value (where applicable) of benefits such as group life insurance that are available to all employees of Mount Gibson and car parking, and are inclusive of Fringe Benefits Tax where applicable.

(b) Cash incentives represent short term incentives awarded during the year and was paid after year-end.

(c) Annual leave has been separately categorised and is measured on an accrual basis and reflects the movement in the accrual over the twelve-month period. Any reduction in accrued leave reflects more leave taken or cashed out than that which accrued in the period.

(d) Represents the accrual for long service leave over the twelve-month period.

(e) The fair values of the restricted shares were calculated as at the grant date and represent the accounting expense incurred by the Company for the stated financial period, reflecting the terms of the particular Performance Rights or restricted shares. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual executives may in fact receive.

Options granted as part of remuneration for the year ended 30 June 2017

There were no options granted to Directors and Executives during the year ended 30 June 2017 and there are no options outstanding as at 30 June 2017.

Shares granted as part of remuneration for the year ended 30 June 2017

On 24 August 2016, a total of 4,749,456 restricted shares were granted under the LSP. The award has been accounted for as an in-substance option award with the fair value assessed at grant date as $0.104 per LSP share. Refer the section above titled “Long Term Incentives” for details of the shares issued under the LSP.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Grant Date	LSP Shares Granted (#) Fair Value at Grant Date1 ($/LSP share)	Value of LSP Shares Granted ($) LSP Loan ($) Vesting Date & Condit- ions Expiry Date	LSP Shares Vested in Year (#) Value of LSP Shares Vested in Year3 ($)
J Beyer 24-Aug-16	2,168,889 $0.104	$225,564 $685,369 Note 2 1-Jul-21	- -
P Kerr 24-Aug-16	1,456,716 $0.104	$151,498 $460,322 Note 2 1-Jul-21	- -
D Stokes 24-Aug-16 Total	1,123,851 $0.104 4,749,456	$116,881 $355,137 Note 2 1-Jul-21 $493,943 $1,500,828	- -
			- -

Determined at the time of grant per AASB 2, refer note 24(d) in the financial statements.
In order for the LSP shares to vest, participants must remain continuously employed by the Group to at least the end of the financial year and the Company’s share price, as measured by a rolling 5-day volume weighted average price of the Company’s shares traded on the ASX, must on 1 July 2017 or at any time prior to expiry, be above a 10% premium to the issue price of the LSP shares.
Determined at the time of exercise at the intrinsic value of the LSP share.

During the year ended 30 June 2017, there were no alterations to the terms and conditions of LSP shares after their grant date.

Performance Rights granted as part of remuneration for the year ended 30 June 2017

There were no performance rights granted as part of remuneration during the year ended 30 June 2017.

Performance Rights vested

The following Performance Rights vested during the financial year:

	June 2017	30 June 2016
J Beyer	258,075	243,450
P Kerr	161,625	121,340
D Stokes	113,925	109,560

A total of 533,625 Performance Rights vested and were exercised during the financial year ended 30 June 2017 in accordance with their terms. In accordance with the PRP, no amounts were paid, or remain unpaid, on the exercise of these Performance Rights.

Performance Rights benefits

For each grant of Performance Rights, the percentage of the available grant 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 two to three years, providing the vesting conditions are met (refer above).

	Year Granted	Vested %	Forfeited/ Lapsed %	Financial Years Performance Rights May Vest
J Beyer	2012/13	100	-	-
J Beyer	2013/14	75	25	-
P Kerr	2012/13	100	-	-
P Kerr	2013/14	75	25	-
D Stokes	2012/13	100	-	-
D Stokes	2013/14	75	25	-

Performance Rights holdings by Key Management Personnel as at 30 June 2017

					Lapsed/
	Balance	Granted as		Exercised	forfeited	Balance
	30 June 2016	Remuneration		during the year	during the year	30 June 2017
Directors
Lee Seng Hui	-		-	-	-	-
A Jones	-		-	-	-	-
Li Shaofeng	-		-	-	-	-
R Barwick	-		-	-	-	-
S Bird	-		-	-	-	-
P Dougas	-		-	-	-	-
K Chan	-		-	-	-	-
A Ferguson (Alt. for Mr Lee)	-		-	-	-	-
Other KMP
J Beyer	344,100		-	(258,075)	(86,025)	-
P Kerr	215,500		-	(161,625)	(53,875)	-
D Stokes	151,900		-	(113,925)	(37,975)	-
S de Kruijff	-			-	-	-
Total	711,500		-	(533,625)	(177,875)	-

At 30 June 2017, there were no Performance Rights on issue.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Shares issued on exercise of Options and Performance Rights for the year ended 30 June 2017

There were no shares issued on the exercise of options during the year ended 30 June 2017 (2016: nil).

There were 533,625 shares issued on the exercise of 533,625 Performance Rights on 1 July 2016 in accordance with their terms.

Shareholdings of Key Management Personnel as at 30 June 2017

			Exercise of
	Balance	Granted as	Performance	Net Change		Balance
	1 July 2016	Remuneration	Rights	Other		30 June 2017
	Ord	Ord^	Ord	Ord		Ord
Directors
Lee Seng Hui(i)	-	-	-		-	-
A Jones	300,000	-	-		-	300,000
Li Shaofeng	-	-	-		-	-
R Barwick	-	-	-		-	-
S Bird	20,000	-	-		-	20,000
P Dougas	284,944	-	-		-	284,944
K Chan(ii)	-	-	-		-	-
A Ferguson (Alt. for Mr Lee)	-	-	-		-	-
Other KMP
J Beyer	484,104	2,168,889	258,075		-	2,911,068
P Kerr	121,340	1,456,716	161,625		-	1,739,681
D Stokes	109,560	1,123,851	113,925		-	1,347,336
S de Kruijff	-	-	-		-	-
Total	1,319,948	4,749,456	533,625		-	6,603,029

^ Restricted ordinary shares granted during the year under the Company’s LSP. Refer the section above titled “Long Term Incentives” for details of the shares issued under the LSP.
(i) For the purposes of Corporations Act Regulation 2M.3.03(1)-Item 18, Mr Lee does not have a disclosable shareholding. However, we note that for purposes of ASX Listing Rule 3.19A.2, Mr Lee has previously declared an indirect “relevant interest” in 323,780,748 ordinary shares in the Company through his association with Allied Group Limited, a substantial shareholder of the Company – refer ASX announcement dated 27 June 2016.

Remuneration of Key Management Personnel for the year ended 30 June 2016

	Short Term	Short Term	Short Term	Short Term	Post Employment	Long Term	Share Based Payment(c)	Termination Payment
	Salary & Fees	Non Monetary	Cash Incentives(a)	Accrued Annual Leave(b)	Super- annuation	Long Service Leave	Options and Performance Rights		Total	% Perform- ance Related
30 June 2016	$	$	$	$	$	$	$	$	$
Directors Lee SengHui 85,617 - - - 8,134 - - - 93,751 -
A Jones 80,937 - - - 7,689 - - - 88,626 -
Li Shaofeng - - - - - - - - - -
R Barwick 80,937 - - - 7,689 - - - 88,626 -
S Bird 87,786 9,102 - - 8,340 - - - 105,228 -
P Dougas 69,064 - - - 6,561 - - - 75,625 -
A Ferguson(Alt) - - - - - - - - - -
Sub-total 404,341 9,102 - - 38,413 - - - 451,856
Other KMP J Beyer 508,372 24,561 144,779 39,897 48,295 8,859 31,026 - 805,789 22
P Kerr 363,333 24,087 136,971 15,763 33,253 2,684 19,430 - 595,521 26
D Stokes 317,173 11,989 138,869 6,080 30,120 1,918 13,696 - 519,845 29
S de Kruijff 371,245 13,155 40,000^ - 35,245 1,474 - - 461,119 9
Sub-total 1,560,123 73,792 460,619 61,740 146,913 14,935 64,152 - 2,382,274
Totals 1,964,464 82,894 460,619 61,740 185,326 14,935 64,152 - 2,834,130

(a) Cash incentives for Messrs Beyer and Kerr are shown net of the reversal of the Conditional Deferred Bonuses disclosed for the prior year ended 30 June 2015. These Conditional Deferred Bonuses were not paid by the Company. The gross STI cash incentives for the year ended 30 June 2016 were $268,000 for Mr Beyer and $180,000 for Mr Kerr.

(b) Annual leave has been separately categorised and is measured on an accrual basis and reflects the movement in the accrual over the twelve-month period. Any reduction in accrued leave reflects more leave taken or cashed out than that which accrued in the period.

(c) Share based payments represent the accounting expense incurred by the Company for the stated financial period, reflecting the terms of the particular Options or Performance Rights.

^ Deferred cash incentive related to the Group’s Koolan Island main pit seawall insurance claim.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Loans to Key Management Personnel

There were no loans to key management personnel during the year ended 30 June 2016. Limited recourse loans totalling $1,500,828 were made to Key Management Personnel during the year ended 30 June 2017 under the terms of the Company’s LSP.

Other Transactions and Balances with Key Management Personnel

There were no other transactions and balances with key management personnel during the years ended 30 June 2017 and 30 June 2016.

Company Performance

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

	30 June 2017	30 June 2016	30 June 2015	30 June 2014	30 June 2013
Net profit/(loss) after tax $’000 Earnings/(loss) per share $/share Closing share price $	26,322 0.0241 0.33	86,297 0.0791 0.26	(911,422) (0.8356) 0.20	96,353 0.0884 0.69	157,342 0.1445 0.47

End of remuneration report.

Signed in accordance with a resolution of the Directors.

==> picture [138 x 56] intentionally omitted <==

LEE SENG HUI Chairman Sydney, 15 August 2017

Competent Persons Statement:

Mineral Resources:

The information in this report relating to Mineral Resources for the Iron Hill and Shine deposits is based on information compiled by Elizabeth Haren, a Competent Person who is a member and Chartered Professional of the Australasian Institute of Mining and Metallurgy and a member of the Australian Institute of Geoscientists. Ms Haren was previously a full-time employee of, and is now a consultant to, Mount Gibson Iron Limited, and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Ms Haren consents to the inclusion in this report of the matters based on her information in the form and context in which it appears.

Ore Reserves:

The information in this report relating to Ore Reserves at Koolan Island is based on information compiled by Brett Morey, a Competent Person who is a member of the Australasian Institute of Mining and Metallurgy. Mr Morey is a full-time employee of Mount Gibson Iron Limited and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Morey consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Auditor's Independence Declaration

==> picture [71 x 82] intentionally omitted <==

==> picture [114 x 33] intentionally omitted <==

GB:EH:MGI:230

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Consolidated Income Statement

For the year ended 30 June 2017

	2017 2016
Notes	$’000 $’000
CONTINUING OPERATIONS Sale of goods 3[a] Interest revenue TOTAL REVENUE Cost of sales 4[a] Impairment write-back/(loss) on ore inventories 10[iii] GROSS PROFIT Other income 3[b] Impairment reversal/(impairment) of consumables inventories 10 Impairment of mine properties 16 Impairment of property, plant and equipment 16 Impairment reversal/(impairment) of deferred acquisition, exploration and evaluation 14 Exploration expenses 14 Net unrealised fair value gain/(loss) 4[c] Administration and other expenses 4[d] PROFIT FROMCONTINUINGOPERATIONS BEFORE TAX AND FINANCE COSTS Finance costs 4[b] PROFIT FROMCONTINUINGOPERATIONS BEFORE TAX Tax benefit 5 PROFITAFTERTAX FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Profit after tax for the year from discontinued operations 31[a] PROFITAFTERTAX ATTRIBUTABLE TO MEMBERS OF THECOMPANY Earnings per share (cents per share)  basic earnings per share 25  diluted earnings per share 25 Earnings per share (cents per share) for continuing operations  basic earnings per share 25  diluted earnings per share 25	162,043 235,188 12,113 9,667
	174,156 244,855 (134,545) (213,681) (3,153) 3,442
	36,458 34,616 5,866 91,848 2,479 (8,142) - (2,135) - (12,377) 2,507 (3,037) (90) (77) (137) 512 (21,831) (19,903)
	25,252 81,305 (1,134) (1,760)
	24,118 79,545 1,481 761
	25,599 80,306 723 5,991
	26,322 86,297
	2.41 7.91 2.40 7.91 2.34 7.36 2.34 7.36

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2017

	2017 2016
	$’000 $’000
PROFIT FOR THE PERIOD AFTER TAX OTHERCOMPREHENSIVEINCOME Items that may be subsequently reclassified to profit or loss Change in fair value of cash flow hedges Reclassification adjustments for gain/(loss) on cash flow hedges transferred to the Income Statement Deferred income tax on cash flow hedges OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX TOTALCOMPREHENSIVEINCOME FOR THEYEAR	26,322 86,297
	341 (231) (109) 231 - -
	232 -
	26,554 86,297

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Consolidated Balance Sheet

As at 30 June 2017

	2017 2016
Notes	$’000 $’000
ASSETS Current Assets Cash and cash equivalents 6 Term deposits and subordinated notes 7 Financial assets held for trading 8 Trade and other receivables 9 Inventories 10 Prepayments Derivative financial assets 11 Income tax receivable Total Current Assets Non-Current Assets Property, plant and equipment 13 Mine properties 15 Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables 17 Interest-bearing loans and borrowings 18 Employee benefits Provisions 19 Total Current Liabilities Non-Current Liabilities Employee benefits Provisions 19 Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital 20 Accumulated losses 22 Reserves 21 TOTAL EQUITY	48,756 43,316 365,500 337,000 32,523 19,771 9,528 41,546 20,736 20,017 1,953 1,887 341 231 - 50
	479,337 463,818
	5,919 8,744 10,891 -
	16,810 8,744
	496,147 472,562
	31,477 36,229 - 421 2,966 2,708 3,651 3,083
	38,094 42,441
	334 191 38,736 37,995
	39,070 38,186
	77,164 80,627
	418,983 391,935
	568,328 568,328 (1,131,178) (1,157,500) 981,833 981,107
	418,983 391,935

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Consolidated Cash Flow Statement

For the year ended 30 June 2017

	2017 2016
Notes	$’000 $’000
CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest paid Income tax refund received NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 6[b] CASH FLOWS FROM INVESTING ACTIVITIES Interest received Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Payment for term deposits and subordinated notes Proceeds from sale of financial assets held for trading Payment for financial assets held for trading Proceeds from sale of exploration and evaluation assets Payment for deferred exploration and evaluation expenditure Payment for mine properties Proceeds from seawall property insurance NET CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Repayment of lease liabilities Proceeds from/(repayment of) insurance premium funding facility Payment of borrowing costs 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 6[a]	167,906 245,957 (163,866) (240,670) (191) (345) 1,532 711
	5,381 5,653
	11,484 9,834 2,586 4,530 (3,863) (2,643) (28,500) (94,000) 10,344 - (22,863) (19,467) - 650 (663) (840) (2,126) - 34,558 51,142
	957 (50,794)
	- (2,162) (421) 317 (303) (306)
	(724) (2,151)
	5,614 (47,292) (174) (395) 43,316 91,003
	48,756 43,316

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Consolidated Statement of Changes in Equity

For the year ended 30 June 2017

	Attributable to Equity Holders of the Parent		Total Equity

	Issued Capital Accumulated Losses Share Based Payments Reserve Net Unrealised Gains / (Losses) Reserve	Dividend Distribution Reserve	Other Reserves
	$’000 $’000 $’000 $’000	$’000	$’000 $’000
At 1 July 2015 Profit for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Share-based payments At 30 June 2016 At 1 July 2016 Profit for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Share-based payments At 30 June 2017	568,328 (1,243,797) 19,973 -	964,262	(3,192) 305,574
	- 86,297 - - - - - -	- -	- 86,297 - -
	- 86,297 - - - - 64 -	- -	- 86,297 - 64
	568,328 (1,157,500) 20,037 -	964,262	(3,192) 391,935
	568,328 (1,157,500) 20,037 -	964,262	(3,192) 391,935
	26,322 - - - - - 232	- -	- 26,322 - 232
	- 26,322 - 232 - - 494 -	- -	- 26,554 - 494
	568,328 (1,131,178) 20,531 232	964,262	(3,192) 418,983

Notes to the Consolidated Financial Report

For the year ended 30 June 2017

1. Introduction

(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 2017, were authorised for issue in accordance with a resolution of the Directors on 15 August 2017.

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 iron ore deposits at Koolan Island and Extension Hill, the exploration and development of hematite deposits in Western Australia and elsewhere, treasury management and the pursuit of mineral resources acquisitions and investments.

The address of the registered office is Level 1, 2 Kings Park Road, West Perth, Western Australia, 6005, Australia.

(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 and financial assets held for trading 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 Australian Securities and Investment Commission (“ ASIC ”) (Rounding in Financial/Directors’ Report) Instrument 2016/191. The Company is an entity to which the instrument 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.

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

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.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

2. Other Significant Accounting Policies

(a) Foreign currency

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.

(b) 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.

(c) Other accounting policies

Other significant accounting policies that summarise the measurement basis used and are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements.

(d) Key accounting judgements, estimates and assumptions

In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimates of future events. Significant judgements and estimates which are material to the financial statements are provided throughout the notes to the financial statements.

Other significant accounting judgements, estimates and assumptions not provided in the notes to the financial statements are as follows:

Determination of mineral resources and ore reserves

The Group estimates its mineral resources and ore reserves in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2012 (the “ JORC Code ”). The information on mineral resources and ore reserves was 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 ore reserves being restated. Such changes in the ore reserves could impact on depreciation and amortisation rates, asset carrying values, deferred stripping costs and provisions for decommissioning and restoration.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

	2017 2016
Notes	$’000 $’000
[a] Revenue Sale of ore – continuing operations Realised gain on foreign exchange hedges [b] Other income Net realised gain on foreign exchange transactions Net gain on disposal of property, plant and equipment Net gain on sale of financial assets held for trading Arbitration settlement income Insurance proceeds – seawall property damage [i] Insurance proceeds – other Other income 3. Revenue and Other Income	161,882 234,806 161 382
	162,043 235,188
	- 603 2,201 3,486 246 23 - 25 - 86,000 9 117 3,410 1,594
	5,866 91,848

[i] In the 2015/16 financial year, the Company reached agreement with its insurers for a cash settlement of $86,000,000 for the property damage component of its insurance claim relating to the failure of the Koolan Island Main Pit seawall in late 2014. The cash settlement amount comprised $300,000 received in the 2014/15 year, $51,142,000 received in the 2015/16 year and the remaining balance of A$34,558,000 received in the 2016/17 year.
Subsequent to 30 June 2017, the Company reached final agreement with 14 insurers, representing 92.5% of the Company’s underwriting cover for the business interruption component of the insurance claim. Proceeds of the cash settlement amounting to $64,288,000 were received and recognised after balance date. Negotiations will continue separately with one further insurer representing the remaining 7.5% of the Company’s business interruption coverage.

Recognition and measurement

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

The Group generates a significant proportion of revenue from the sale of iron ore. 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.

	2017 2016
Notes	$’000 $’000
[a] Cost of sales – continuing operations Mining and site administration costs Depreciation – mining and site administration Amortisation of mine properties 15 Crushing costs Depreciation – crushing Transport costs Depreciation – transport Port costs Depreciation – port Royalties Net ore inventory movement Rehabilitation revised estimate adjustments 4. Expenses	31,702 69,834 3,780 6,545 402 1,070 4,135 11,174 762 1,212 70,952 90,686 399 1,410 15,215 17,697 97 2,055 12,078 18,520 (2,571) (4,377) (2,406) (2,145)
	134,545 213,681

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

	2017 2016
Notes	$’000 $’000
4. Expenses(Continued) [b] Finance costs Finance charges on banking facilities Finance charges payable under finance leases Non-cash interest accretion on rehabilitation provision [c] Net unrealised fair value gain/(loss) Foreign exchange derivatives marked-to-market gain/(loss) Financial assets held for trading marked-to-market gain/(loss) [d] Administration and other expenses include: Depreciation Share-based payments expense 24 Impairment of debtors Net realised loss on foreign exchange transactions Net unrealised loss on foreign exchange balances Koolan seawall insurance claim and related site works expenses Insurance premiums (net of refunds) Business development expenses Koolan restart feasibility study [e] Cost of sales and Administration and other expenses above include: Salaries, wages expense and other employee benefits Operating lease rental – minimum lease payments	495 661 - 82
	495 743 639 1,017
	1,134 1,760
	(123) 231 (14) 281
	(137) 512
	593 700 494 64 3,142 1,278 39 - 174 395 502 1,300 26 1,666 2,281 1,852 2,124 - 23,549 29,789 1,667 1,476

Recognition and measurement

Employee benefits expense

Wages, salaries, sick leave and other employee benefits

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

Annual leave and long service leave

The Group expects its annual leave benefits to be settled wholly within 12 months of each reporting date. They are measured at the amount expected to be paid when the liabilities are settled.

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of future payments to be made 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 high quality corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. The policy relating to share-based payments is set out in note 24.

Superannuation

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

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.

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.

Depreciation and amortisation

Refer to notes 13 and 15 for details on depreciation and amortisation.

Impairment

Impairment expenses are recognised to the extent that the carrying amounts of assets exceed their recoverable amounts. Refer to note 16 for further details on impairment.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

	2017 2016
	$’000 $’000
Major components of tax benefit for the years ended 30 June 2017 and 2016 are: Income Statement Current tax Current income tax charge Refund in respect of previous return Adjustments in respect of current income tax of previous year Deferred tax Relating to origination and reversal of temporary differences: Income tax Tax benefit reported in Income Statement Tax benefit relating to continuing operations Tax benefit relating to discontinued operations Statement of Changes in Equity Deferred income tax Remeasurement of foreign exchange contracts Deferred income tax (benefit)/liability reported in equity Reconciliation of tax benefit A reconciliation of tax benefit applicable to accounting profit before tax at the statutory income tax rate to tax expense at the Group’s effective tax rate for the years ended 30 June 2017 and 2016 is as follows: Accounting profit before tax  At the statutory income tax rate of 30% (2016: 30%)  Expenditure not allowed for income tax purposes  Recognition of previously unrecognised deferred tax assets  Adjustments in respect of current income tax of previous year  Adjustments in respect of deferred tax  Other Tax benefit Effective tax rate Tax benefit reported in Income Statement 5. Taxation	- - (1,481) (761) - - - -
	(1,481) (761)
	(1,481) (761) - -
	(1,481) (761)
	- -
	- -
	24,841 85,536
	7,452 25,661 266 214 (8,548) (36,016) (654) - - 7,601 3 1,779
	(1,481) (761)
	(6.0%) (0.9%)
	(1,481) (761)

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

5. Taxation (Continued)

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Assets	Liabilities	Net
2017 2016	2017 2016	2017 2016
$’000 $’000	$’000 $’000	$’000 $’000
(1,743) (547) - - (1,743) (547) (1,015) (294) - - (1,015) (294) - (445) - - - (445) (1) - - 783 (1) 783 (10) - - - (10) - (89) (49) - - (89) (49) (1,211) (2,745) - - (1,211) (2,745) - - 53 23 53 23 (23,545) (35,793) - - (23,545) (35,793) (15,416) (16,429) - - (15,416) (16,429) (298) (510) - - (298) (510) (1,063) - - - (1,063) - (69,818) (66,698) - - (69,818) (66,698)
(114,209) (123,510) 53 806 (114,156) (122,704) 114,209 123,510 (53) (806) 114,156 122,704
- - - - - -

Movement in temporary differences during the financial year ended 30 June 2017 Accrued liabilities Capital raising costs Deferred expense Deferred income Donations Foreign exchange contracts Inventory Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Borrowing cost Research and development carried forward tax offset Tax losses Derecognition of deferred tax asset	Balance 1 July 2016 Recognised in Income Recognised in Equity Balance 30 June 2017
	$’000 $’000 $’000 $’000
	(547) (1,196) - (1,743) (294) (721) - (1,015) (445) 445 - - 783 (784) - (1) - (10) - (10) (49) (40) - (89) (2,745) 1,534 - (1,211) 23 30 - 53 (35,793) 12,248 - (23,545) (16,429) 1,013 - (15,416) (510) 212 - (298) - (1,063) - (1,063) (66,698) (3,120) - (69,818) 122,704 (8,548) - 114,156
	- - - -

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

5. Taxation (Continued)

Movement in temporary differences during the financial year ended 30 June 2016 Accrued liabilities Capital raising costs Deferred expense Deferred income Foreign exchange contracts Inventory Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Borrowing cost Tax losses Derecognition of deferred tax asset	Balance 1 July 2015 Recognised in Income Recognised in Equity Balance 30 June 2016
	$’000 $’000 $’000 $’000
	(7,299) 6,752 - (547) (4) (290) - (294) - (445) - (445) 592 191 - 783 (300) 251 - (49) (2,891) 146 - (2,745) 7 16 - 23 (70,748) 34,955 - (35,793) (19,215) 2,786 - (16,429) (797) 287 - (510) (58,065) (8,633) - (66,698) 158,720 (36,016) - 122,704
	- - - -

Unrecognised deferred tax assets (calculated at 30%) Deferred tax assets have not been recognised in respect of the following items: Temporary differences Tax losses	2017 2016
	$’000 $’000
	44,338 56,006 69,818 66,698
	114,156 122,704

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

5. Taxation (Continued)

Recognition and measurement

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.

Tax consolidation

Mount Gibson and its wholly-owned Australian controlled entities have formed an income tax consolidated group under the Tax Consolidation Regime. Using the Group allocation approach, each entity in the group recognises its own current and deferred tax liabilities, except for any deferred tax liabilities resulting from unused tax losses and tax credits, which are immediately assumed by the parent entity in addition to its own current and deferred tax amounts. The current tax liability of each group entity is then subsequently assumed by the parent entity.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Details of the tax funding agreement are disclosed below.

Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.

Members of the tax consolidated group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote.

The head entity and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes . The nature of the tax funding agreement is discussed further below.

In addition to its own current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

Members of the tax consolidated group have entered into a tax funding agreement. Under the funding agreement, the funding of tax within the Group is based on accounting profit. The tax funding agreement requires payments to/from the head entity to be recognised via an inter-entity receivable (payable) which is at call. To the extent that there is a difference between the amount charged under the tax funding agreement and the allocation under the accounting policy, the head entity accounts for these as equity transactions with the subsidiaries.

The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year.

The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments.

Key estimate: recoverability of potential deferred tax assets

The Group recognises deferred 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 tax assets recognised, which would in turn impact future financial results.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

	2017	2016
	$’000	$’000

6. 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:
Cash at bank and on hand	33,756	43,316
Short-term deposits	15,000	-
	48,756	43,316

Cash at bank earns interest at floating 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 short-term deposit rates.

Recognition and measurement

Cash and short-term deposits in the balance sheet comprise cash at bank and on hand and short-term deposits with an original maturity period 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, if any.

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

Net profit after tax Adjustments to reconcile profit after tax to net cash flows: Depreciation of non-current assets Amortisation of other mine properties Net (gain) on disposal of property, plant and equipment Interest received Exploration expenses written off Share based payments Borrowing costs Net ore inventory movement Impairment of debtors Impairment/(write-back) and obsolescence of consumables inventories Impairment of ore inventories Impairment of mine properties Impairment of property, plant and equipment Impairment/(write-back) of deferred acquisition, exploration and evaluation Unrealised loss on foreign exchange balances Unrealised marked-to-market (gain)/loss on foreign exchange derivatives Unrealised marked-to-market (gain)/loss on financial assets held for trading Realised gain on sale of financial assets held for trading Proceeds from seawall property insurance Capitalised expenses Changes in assets and liabilities: (Increase)/decrease in trade and other receivables (Increase)/decrease in inventory Decrease in prepayments and deposits (Increase)/decrease in income tax receivable (Decrease) in trade and other payables Increase/(decrease) in employee benefits (Decrease) in provisions Net Cash Flow from Operating Activities	26,322 86,297 5,674 11,971 402 1,070 (2,201) (3,486) (12,113) (9,667) 90 77 494 64 304 398 2,240 1,005 3,142 1,278 (2,479) 8,122 (225) (10,258) - 2,135 - 12,377 (2,507) 3,037 174 395 123 (231) 14 (281) (246) (23) - (86,000) - (730) (5,053) 7,087 (255) 2,193 492 1,417 50 (50) (8,185) (13,135) 401 (1,267) (1,277) (8,142)
	5,381 5,653

Net profit after tax
Adjustments to reconcile profit after tax to net cash flows:
Depreciation of non-current assets
Amortisation of other mine properties
Net (gain) on disposal of property, plant and equipment
Interest received
Exploration expenses written off
Share based payments
Borrowing costs
Net ore inventory movement
Impairment of debtors
Impairment/(write-back) and obsolescence of consumables inventories
Impairment of ore inventories
Impairment of mine properties
Impairment of property, plant and equipment
Impairment/(write-back) of deferred acquisition, exploration and evaluation
Unrealised loss on foreign exchange balances
Unrealised marked-to-market (gain)/loss on foreign exchange derivatives
Unrealised marked-to-market (gain)/loss on financial assets held for trading
Realised gain on sale of financial assets held for trading
Proceeds from seawall property insurance
Capitalised expenses
Changes in assets and liabilities:
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventory
Decrease in prepayments and deposits
(Increase)/decrease in income tax receivable
(Decrease) in trade and other payables
Increase/(decrease) in employee benefits
(Decrease) in provisions
Net Cash Flow from Operating Activities

26,322
86,297
5,674
11,971
402
1,070
(2,201)
(3,486)
(12,113)
(9,667)
90
77
494
64
304
398
2,240
1,005
3,142
1,278
(2,479)
8,122
(225)
(10,258)
-
2,135
-
12,377
(2,507)
3,037
174
395
123
(231)
14
(281)
(246)
(23)
-
(86,000)
-
(730)
(5,053)
7,087
(255)
2,193
492
1,417
50
(50)
(8,185)
(13,135)
401
(1,267)
(1,277)
(8,142)

5,381
5,653

[c] Non-cash financing activities

The Group did not acquire property, plant and equipment by means of finance leases or hire purchase agreements during the financial year ended 30 June 2017 (2016: nil). The Group disposed of items of property, plant and equipment with an aggregate fair value of $nil (2016: $99,120) which were originally financed by means of hire purchase agreements.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

	Notes	2017 2016
		$’000 $’000
	7. Term Deposits and Subordinated Notes
	7. Term Deposits and Subordinated Notes

	Current
	Term deposits – receivables [i]	268,500 250,000
	Subordinated notes at fair value – available for sale investment [ii]	97,000 87,000
		365,500 337,000

[i] 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 market term deposit rates.
[ii] Subordinated notes comprise tradeable floating interest rate instruments with maturities of up to ten years. These instruments are held in order to supplement the Group’s treasury returns, and the Group intends and is able to realise these instruments as and when the Group’s cash needs require.

Term deposits and subordinated notes are with various financial institutions with credit ratings from BBB+ to AA- (S&P) to minimise the risk of default of counterparties.

Recognition and measurement

Term deposits and subordinated notes are classified as receivables and are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis.

		2017 2016
		$’000 $’000
	8. Financial Assets Held for Trading
	8. Financial Assets Held for Trading

	Current
	Tradeable corporate bonds at fair value	31,217 19,771
	Share investments at fair value	1,306 -
		32,523 19,771

Financial assets held for trading comprise corporate bonds and equity securities which are traded in active markets. The portfolio of bond investments is managed by a professional funds management entity, and Mount Gibson is able to vary or terminate the portfolio management mandate at any time, with applicable notice periods.

Recognition and measurement

Financial assets held for trading are acquired principally for the purpose of selling or repurchasing in the short term. These are managed as part of a portfolio of identified financial instruments and are measured at fair value through the income statement. Gains or losses from the sale of the financial assets are recognised in the income statement. Interest earned at market bond rates is recognised in the income statement on an effective yield basis.

	2017 2016
Notes	$’000 $’000
Current Trade debtors [a][i] Allowance for impairment [b] Sundry debtors [a][ii] Other receivables 9. Trade and Other Receivables	9,176 5,404 (5,384) (2,242)
	3,792 3,162 4,486 37,120 1,250 1,264
	9,528 41,546

[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 the “recognition and measurement” note below. [ii] Sundry debtors are non-interest bearing and have repayment terms between 30 and 90 days.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

9. Trade and Other Receivables (Continued)

[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. The table below reconciles the allowance for impairment loss for the years ended 30 June 2017 and 2016.

	2017 2016
	$’000 $’000
Balance at the beginning of the year Impairment loss Balance at the end of the year	2,242 964 3,142 1,278
	5,384 2,242

At 30 June 2017, trade debtors of $789,000 (2016: $52,000) 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. At 15 August 2017, $347,000 of this amount remains outstanding.

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

	2017 2016
	$’000 $’000
The ageing of trade 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 Trade debtors not impaired and not past due	- - 413 28 245 23 131 1
	789 52 3,003 3,110
	3,792 3,162

Recognition and measurement

Trade 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.

The vast majority of sales revenue is invoiced and received in US dollars (US$). The balance is invoiced and received in Australian dollars (A$). Generally, on presentation of shiploading documents and the 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 value is subject to adjustments for final pricing and other minor adjustments based on the final analyses of weight, chemical and physical composition, and moisture content.

Other receivables

Other receivables are recorded at amortised cost, using the effective interest rate method, less any impairment. Interest is recognised by applying the effective interest rate method.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

	2017 2016
Notes	$’000 $’000
Consumables – at cost Allowance for obsolescence and impairment of consumables inventories [i],[ii] Ore – at cost Allowance for impairment of ore inventories [iii] At net realisable value 10. Inventories	12,813 19,445 (7,604) (16,970)
	5,209 2,475
	18,680 27,992 (3,153) (10,450)
	15,527 17,542
	20,736 20,017

[i] During the year, the Group wrote back $2,613,000 of previously recorded stock obsolescence allowance to the income statement. This relates primarily to consumables inventories that are now considered not obsolete as a result of the Koolan Island restart project. Additionally, obsolete consumables inventories totalling $5,618,000 which had been fully provided for in prior periods, were written off against the associated provision.
[ii] Consumables inventories held at Koolan Island and Extension Hill which are not considered obsolete have been assessed and written down to their recoverable values. In determining the recoverable value, factors such as current market pricing from suppliers, current location and condition have been considered. A net impairment loss of $134,000 was recognised during the year (2016: $8,111,000). Additionally, consumables inventories totalling $1,269,000 which had been impaired in prior periods, were written off against the associated provision.
[iii] At 30 June 2017, the Group assessed the carrying values of ore inventories stockpiled at each of the three mine sites. Assumptions used in the assessment include prevailing and anticipated iron ore prices and exchange rates, ore specifications, estimated costs to make the ore inventories available for sale, and associated sales and shipping freight costs.

Based on these assumptions, the following impairment write-backs/(loss) on ore inventories were recorded during the financial period:

Tallering Peak – discontinued operation Extension Hill Koolan Island Total write-backs on impairment	2017 2016
	$’000 $’000
	3,378 6,816 (3,153) - - 3,442
	225 10,258

Recognition and measurement

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.

Key estimate

Inventories are written down to net realisable value if considered damaged, have become wholly or partially obsolete, or if their selling prices have declined. A new assessment is made of net realisable value in each subsequent period.

	2017 2016
Notes	$’000 $’000
Current Foreign currency option contracts 34[b][i] 11. Derivative Financial Assets	341 231
	341 231

Refer note 34 for details on derivative financial instruments.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

12. Interest in Subsidiaries

Name	Country of Incorporation	Percentage of Equity Interest Held by the Group
		2017 2016
		% %

Mount Gibson Mining Limited Australia 100 100 Geraldton Bulk Handling Pty Ltd Australia 100 100 Gibson Minerals Ltd (incorporated 18 November 2016) Australia 100 - Aztec Resources Limited Australia 100 100  Koolan Shipping Pty Ltd Australia 100 100  Brockman Minerals Pty Ltd Australia 100 100  Koolan Iron Ore Pty Ltd Australia 100 100  KIO SPV Pty Ltd Australia 100 100

Entities subject to Class Order relief

Pursuant to ASIC Instrument 2016/785, 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 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.

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

Consolidated Income Statement of the Closed Group

	2017 2016
	$’000 $’000
CONTINUING OPERATIONS Sale of goods Interest revenue TOTAL REVENUE Cost of sales Impairment of ore inventories GROSS PROFIT Other income Impairment reversal/(impairment) of consumables inventories Impairment of mine properties Impairment of property, plant and equipment Impairment reversal/(impairment) of deferred acquisition, exploration and evaluation Impairment of non-current other receivables Net unrealised marked-to-market gain/(loss) Exploration expenses Administration and other expenses PROFIT/(LOSS) FROMCONTINUINGOPERATIONS BEFORE TAX AND FINANCE COSTS Finance costs PROFIT/(LOSS) FROMCONTINUINGOPERATIONS BEFORE TAX Tax expense PROFIT/(LOSS) AFTERTAX FROMCONTINUINGOPERATIONS DISCONTINUED OPERATIONS Profit after tax for the year from discontinued operations PROFIT/(LOSS) AFTERTAX ATTRIBUTABLE TO MEMBERS OF THECOMPANY	162,043 235,188 12,113 9,667
	174,156 244,855 (119,042) (195,448) (3,153) 3,442
	51,961 52,849 5,760 91,783 2,497 (7,750) - (2,135) - (7,955) 2,507 (3,037) (12,204) (150,808) (296) 512 (90) (77) (21,824) (19,906)
	28,311 (46,524) (1,134) (1,760)
	27,177 (48,284) (1,578) (5,496)
	25,599 (53,780) 723 5,991
	26,322 (47,789)

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

Consolidated Balance Sheet of the Closed Group

[i]			2017 2016
	Notes		$’000 $’000
	ASSETS CURRENT ASSETS Cash and cash equivalents Term deposits Financial assets held for trading Trade and other receivables Inventories Prepayments Derivative financial assets Income tax receivable TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Mine properties TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Interest-bearing loans and borrowings Employee benefits Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Other payables Employee benefits Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Accumulated losses [i] Reserves TOTAL EQUITY Accumulated losses Balance at the beginning of the year Net profit/(loss) attributable to members of the closed group Balance at the end of the year		48,612 42,419 365,500 337,000 31,217 19,771 9,380 41,176 20,592 19,940 1,815 1,742 341 231 - 50
			477,457 462,329
			5,679 8,595 10,891 -
			16,570 8,595
			494,027 470, 924
			29,532 31,062 - 421 2,778 2,546 3,651 3,083
			35,961 37,112
			38 3,701 309 181 38,736 37,995
			39,083 41,877
			75,044 78,989
			418,983 391,935
			568,328 568,328 (1,131,178) (1,157,500) 981,833 981,107
			418,983 391,935
			(1,157,500) (1,109,711) 26,322 (47,789) (1,131,178) (1,157,500)

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

13. Property, Plant and Equipment

Land	Plant and equipment	Plant and equipment under lease	Buildings	Capital works in progress	Total
2017 2016	2017 2016	2017 2016	2017 2016	2017 2016	2017 2016
$’000 $’000	$’000 $’000	$’000 $’000	$’000 $’000	$’000 $’000	$’000 $’000
649 654 273,180 293,444 24,427 57,050 139,926 138,708 119 2,166 438,301 492,022 (549) (549) (268,387) (284,934) (24,419) (57,022) (139,027) (138,607) - (2,166) (432,382) (483,278)
100 105 4,793 8,510 8 28 899 101 119 - 5,919 8,744
105 135 8,510 23,840 28 1,071 101 5,366 - 1,082 8,744 31,494 - - 2,523 515 - - 1,213 386 119 1,679 3,855 2,580 - - - 757 - - - 60 - (817) - - (5) - (372) (883) - (99) - - - - (377) (982) - - (5,205) (9,534) (17) (567) (409) (1,821) - - (5,631) (11,922) - - (43) (49) - - - - - - (43) (49) - - (620) - (3) - (6) - - - (629) - - (30) - (6,136) - (377) - (3,890) - (1,944) - (12,377)
100 105 4,793 8,510 8 28 899 101 119 - 5,919 8,744
100 105 4,793 8,510 8 28 899 101 119 - 5,919 8,744

Refer note 16 for details of impairment and note 18 for details of security arrangements.

Notes to the Consolidated Financial Report (continued)

13. Property, Plant and Equipment (Continued)

Recognition and measurement

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

Depreciation and amortisation

The cost of owned property, plant and equipment directly engaged in mining operations is written off over its expected economic life on a unitsof-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 and useful life of 5 – 10 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. Refer note 16 for further details on impairment.

Derecognition

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

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

Key judgement, estimates and assumptions

Units of production method of depreciation and amortisation

The Group applies the units of production method of depreciation and amortisation 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 ore reserves, mineral resources and the production capacity of the operations to be depreciated under this method. Factors that are considered in determining ore reserves, mineral resources and production capacity include the Group’s history of converting mineral resources to ore reserves and the relevant timeframes, the complexity of metallurgy, markets and future developments. The Group uses economically recoverable mineral resources (comprising proven and probable ore reserves) to depreciate assets on a units of production basis. However, where a mineral property has been acquired and an amount has been attributed to the fair value of mineral resources not yet designated as ore reserves, the additional mineral resources may be 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.

Impairment of property, plant and equipment

The carrying value of 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 flow forecasts for each cash generating unit (i.e. each mine) are prepared utilising management’s latest estimates of mine life, mineral resource and ore reserve recovery, operating and development costs, royalties and taxation, and other relevant cash inflows and outflows. Cash flow scenarios for a range of commodity prices and foreign exchange rates are assessed using internal and external market forecasts, and the present value of the forecast cash flows is determined utilising a discount rate based on industry weighted average cost of capital.

The Group’s cash flows are most sensitive to movements in iron ore prices, the discount rate and key operating costs. Variations to the expected future cash flows, and the timing thereof, could result in significant changes to any impairment assessment or losses recognised, if any, which could in turn impact future financial results. Refer note 16 for further details on impairment.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

	2017 2016
Notes	$’000 $’000
Deferred acquisition, exploration and evaluation – at cost Allowance for impairment Reconciliation Carrying amount at beginning of the year Additions Transferred to mine properties 15 Net impairment reversal/(loss) [i] Disposals Exploration expenditure written off Carrying amount at the end of the year 14. Deferred Acquisition, Exploration and Evaluation Costs	18,162 20,669 (18,162) (20,669)
	- -
	- 2,924 1,010 840 (3,427) - 2,507 (3,037) - (650) (90) (77)
	- -

[i] On 9 February 2017, the Company announced it had received final statutory approvals for development of the Iron Hill deposit and, subsequently, commenced mining operations. Accordingly, the carrying amount for the Iron Hill Project of $2,966,000 which was fully impaired at 30 June 2016 was written back during the year ended 30 June 2017.

Also during the year, additional transaction and other holding costs totalling $459,000 were incurred on the Shine Project. An assessment of the Shine Project indicated that the carrying amount of the asset was unlikely to be recovered from its development or sale at current iron ore prices and exchange rates and accordingly, the carrying amount for the Shine Project was fully impaired as at 30 June 2017.

Recognition and measurement

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.

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.

Key estimates and assumptions : 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 mineral resources and ore reserves, 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.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

			2017 2016	2017 2016
			$’000 $’000
			1,548,630 1,537,337 (1,537,739) (1,537,337)
15. Mine Properties
Gross carrying amount at cost Accumulated amortisation and impairment Reconciliation Deferred waste Carrying amount at the beginning of the period Deferred waste capitalised Amortisation expensed Impairment loss (note 16) Carrying amount at the end of the period Other mine properties Carrying amount at the beginning of the period Additions Mine rehabilitation – revised estimate adjustment Transferred from deferred acquisition, exploration and evaluation costs (note 14) Amortisation expensed Impairment loss (note 16) Carrying amount at the end of the period Net carrying amount
			10,891 -

	Koolan Island	Extension Hill		Total
	2017 2016	2017 2016		2017 2016
	$’000 $’000	$’000 $’000		$’000 $’000
	- - - - - - - -	- - - - - - - - - - - - - - - -
	- -	- - - -
	- - 4,988 - - - - - - - - -	- 3,205 - 3,205 411 - 5,399 - 2,467 - 2,467 - 3,427 - 3,427 - (402) (1,070) (402) (1,070) - (2,135) - (2,135)
	4,988 -	5,903 - 10,891 -

	4,988 -	5,903 - 10,891 -

The security pledged for financing facilities includes mining mortgages over the mining tenements and contractual rights to mine hematite deposits owned by the Group (refer note 18).

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

15. Mine Properties (Continued)

Recognition and measurement

Deferred stripping

As part of its mining operations, the Group incurs mining stripping (waste removal) costs both during the development and production phase of its operations.

When stripping costs are incurred in the development phase of a mine before the production phase commences (development stripping), such expenditure is capitalised as part of the cost of constructing the mine and subsequently amortised over its useful life using a units of production method, in accordance with the policy applicable to mine properties. The capitalisation of development stripping costs ceases when the mine or relevant component thereof is commissioned and ready for use as intended by management.

Waste development costs incurred in the production phase creates two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where production stripping costs are incurred and the benefit is improved access to ore to be mined in the future, the costs are recognised as a stripping activity asset within mine properties.

If the costs of the inventory produced and the stripping asset are not separately identifiable, the allocation is undertaken based on the waste-toore stripping ratio for the particular ore component concerned. If mining of waste in a period occurs in excess of the expected life-of-component waste-to-ore strip ratio, the excess is recognised as part of the stripping asset. Where mining occurs at or below the expected life-of-component stripping ratio in a period, the entire production stripping cost is allocated to the cost of the ore inventory produced.

Amortisation is provided on the units-of-production method over the life of the identified orebody component. 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).

Other mine properties

Other 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 the mining of mineral resources has commenced. When further development expenditure 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 over the life of the mine, with separate calculations being made for each mineral resource. 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. Impairment expenses are recognised to the extent that the carrying amount of the mine properties asset exceeds its estimated recoverable amount. Refer to note 16 for further details on impairment.

Key judgement and estimate

Deferred waste

Significant judgement is required in determining the waste capitalisation ratio for each component of the 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;
Identifiable components of orebody;
Future production levels;
Impacts of regulatory obligations and taxation legislation;
Future commodity prices; and
Future cash costs of production.

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 mineral resources and ore reserves, future technological changes which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices.

The Group regularly reviews the carrying values of its mine development assets in the context of internal and external consensus forecasts for commodity prices and foreign exchange rates, with the application of appropriate discount rates for the assets concerned.

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. Capitalised mine development expenditure is assessed for recoverability along with property, plant and equipment as described below.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

16. Impairment of Assets

The Group reviews the carrying value of the assets of each Cash Generating Unit (“ CGU ”) at each balance date. During the year ended 30 June 2017, the following material events occurred which were considered potential indicators of impairment or reversals thereof:

as at 30 June 2017, the market capitalisation of the Group was below the book value of its equity;
the benchmark price of iron ore (in CFR terms for delivery in northern China) commenced the year at US$55 per dry metric tonne ( dmt ) and, after being stable for much of the first half of the year, increased to above US$90/dmt early in the second half before falling substantially to under US$55/dmt and finishing the year at US$63/dmt;
the Group ceased mining in the Extension Hill open pit and restricted activities to the processing and sale of low grade stockpiled material while awaiting the receipt of statutory approvals for commencement of mining in the Iron Hill open pit, with these approvals received in the second half of the year; and
the Group in April 2017 made a decision to rebuild the Koolan Island main pit seawall and recommence operations in due course.

Accordingly, the Group has performed an impairment assessment of both the Koolan Island and Extension Hill CGUs. As both of these CGUs have previously been fully impaired, the assessment focused on the potential for any reversal of impairment recorded in prior periods. Based on this assessment:

(i) $2,966,000 representing the carrying amount of the previously impaired Iron Hill project which forms part of the Extension Hill CGU was reversed (note 14). No amounts previously impaired relating to the Extension Hill CGU are available for reversal. (ii) No impairment expenses or reversals have been recognised during the reporting period for the Koolan Island CGU.

Details of the impairments/(write-backs) recognised are tabulated below:

	2017 2016
	$’000 $’000
Koolan Island Extension Hill Total impairment loss/(write-back) of non-current assets	- 2,893 (2,966) 14,585
	(2,966) 17,478

The above impairment values have been allocated proportionately to each CGU’s non-current assets as follows:

Koolan Island	Extension Hill	Total
2017 2016	2017 2016	2017 2016
$’000 $’000	$’000 $’000	$’000 $’000
- - - - - 2,893	(2,966) 2,966 (2,966) 2,966 - 2,135 - 2,135 - 9,484 - 12,377
- 2,893	(2,966) 14,585 (2,966) 17,478

The Group assessed the recoverable amount of the Extension Hill and Koolan Island CGUs as at 30 June 2017 using the Fair Value Less Costs to Dispose (“ FVLCD ”) approach. The FVLCD is assessed as the present value of the future cash flows expected to be derived from the operation, utilising the following key assumptions for each CGU:

Cashflow forecasts were made based on recent actual performance, budgets and anticipated revenues and estimated operating and capital costs over the remaining life of the mine;
Discount rate of 12% (nominal, before and after tax);
Market consensus iron ore price forecasts for the 62% Fe benchmark fines CFR prices (northern China), expressed in real 2017 terms, of US$55/dmt in the first year, approximately US$45/dmt in the following three years, and US$49/dmt thereafter, at an exchange rate of A$1.00/US$0.75, with sensitivities undertaken for a range of these inputs; and
Revenue and cost inflation estimates of 2.0% per year.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

16. Impairment of Assets (Continued)

Recognition and measurement

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.

In allocating an impairment loss, the carrying amount of an individual asset is not taken below the highest of:

(a) Its fair value less costs of disposal (if measurable); and

(b) Its value-in-use (if determinable).

An assessment is also made at each reporting date as to whether there is any indication that a previously recognised impairment loss may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only where 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.

	2017 2016
Notes	$’000 $’000
Current Trade creditors [i] Accruals and other payables [i] 17. Trade and Other Payables	10,102 13,734 21,375 22,495
	31,477 36,229

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

Recognition and measurement

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.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

	2017 2016
Notes	$’000 $’000
Current Insurance premium funding facility [a] 18. Interest-Bearing Loans and Borrowings	- 421
	- 421

Financing facilities available

At reporting date, the following financing facilities had been negotiated and were available:

Total facilities:  Insurance premium funding facility [a]  Performance bonding facility [b] Facilities used at reporting date:  Insurance premium funding facility  Performance bonding facility Facilities unused at reporting date:  Insurance premium funding facility  Performance bonding facility	- 421 20,000 55,000
	20,000 55,421
	- 421 11,608 25,829
	11,608 26,250
	- - 8,392 29,171
	8,392 29,171

Terms and conditions relating to the above financial facilities:

[a] Insurance Premium Funding Facility

Insurance premium arrangements were entered into by the Group in the 2015/16 reporting period to fund its annual insurance premiums. Interest was charged at 1.86% pa. The final instalment of the loan was fully paid in July 2016. The Company did not renew the funding facility in the 2016/17 reporting period and accordingly there is no liability as at balance date.

[b] Performance Bonding Facility

In May 2011, the Company entered into a Facility Agreement comprising a Corporate Loan facility and a Performance Bonding facility. The undrawn Corporate Loan facility was cancelled in April 2013. The Performance Bonding facility was reduced in size from $55.0 million to $20.0 million in June 2017 and extended to 30 June 2021. As at balance date, bonds and guarantees totalling $11.6 million were drawn under the Performance Bond Facility.

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

Recognition and measurement

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.

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.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

19. Provisions

Road Resealing	Restructure	Decommissioning Rehabilitation	Other Provisions	Total
2017 2016	2017 2016	2017 2016	2017 2016	2017 2016
$’000 $’000	$’000 $’000	$’000 $’000	$’000 $’000	$’000 $’000
2,536 1,878 - - - - - -		1,115 1,100 - 105 3,651 3,083 38,736 37,917 - 78 38,736 37,995
2,536 1,878 - -		39,851 39,017 - 183 42,387 41,078
1,878 2,111 - 3,520 1,112 96 - - (454) (329) - (3,520) - - - - - - - - - - - - - - - - - - - - - - - -		39,017 43,226 183 363 41,078 49,220 - - - - 1,112 96 (257) (663) (87) (80) (798) (4,592) - - (96) - (96) - 639 1,017 - - 639 1,017 120 - - - 120 - (2,406) (2,145) - (100) (2,406) (2,245) 271 (2,418) - - 271 (2,418) 2,467 - - - 2,467 -
2,536 1,878 - -		39,851 39,017 - 183 42,387 41,078

Road resealing

This provision relates to the forecast cost of roadworks associated with the Tallering Peak and Extension Hill mine sites. Payments to the relevant local government authorities are made annually.

Restructure

This provision relates to the forecast costs associated with release of personnel on the wind down and/or closure of mining sites where a detailed formal plan has been approved and communicated to the relevant mine site workforce.

Decommissioning rehabilitation

This provision represents the present value of decommissioning and rehabilitation costs for the Tallering Peak, Koolan Island and Extension Hill sites. The cost estimates forming the basis of the provisions were prepared as at the balance date by independent consultants specialising in mine closure planning and mine rehabilitation cost estimates. The timing of decommissioning and rehabilitation expenditure is dependent on the life of the mines and on the timing of the rehabilitation requirements, which may vary in the future. Based on current estimates, the bulk of expenditure on decommissioning rehabilitation is expected to occur at Tallering Peak and Extension Hill within the next 1-3 years, and at Koolan Island between 5-7 years from balance date.

Notes to the Consolidated Financial Report (continued)

	2017 2016
	$’000 $’000
19. Provisions(Continued) The following table summarises the decommissioning rehabilitation provision by mine site: Tallering Peak Koolan Island Extension Hill	1,115 1,100 27,331 29,115 11,405 8,802
	39,851 39,017

Recognition and measurement

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.

Restructuring provision

Restructuring provisions are recognised by the Group only when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs, and an appropriate timeline, and the employees affected have been notified of the plan’s main features.

Other 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.

Key estimate : mine rehabilitation provision

The Group assesses its mine rehabilitation provision annually in accordance with the accounting policy stated above. 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 anticipated rehabilitation activities and costs, 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.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

		2017 2016
		$’000 $’000
		568,328 568,328
20. Issued Capital
[a] Ordinary shares Issued and fully paid [b] Movement in ordinary shares on issue Beginning of the financial year Exercise of Performance Rights [i] Restricted shares – executive loan share plan issues [ii] End of the financial year

	2017	2016
	Number of Shares $’000 Number of Shares $’000
	1,091,279,435 568,328 1,090,805,085 568,328 533,625 - 474,350 -
	1,091,813,060 568,328 1,091,279,435 568,328 4,749,456 - - -
	1,096,562,516 568,328 1,091,279,435 568,328

[i] On 1 July 2016, 533,625 shares were issued as a result of the vesting and exercise of the equivalent number of Performance Rights.

[ii] On 24 August 2016, 4,749,456 shares were issued under the Company’s Loan Share Plan. These have been accounted for as an in-substance option award. Refer note 24(d) for further details.

[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 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 2017, there were no options on issue (2016: nil) – see note 24(b).

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

[e] Performance rights

During the year ended 30 June 2017, no Performance Rights were issued.

A total of 533,625 Performance Rights vested during the year and accordingly, 533,625 ordinary shares were issued on 1 July 2016.

As at 30 June 2017, there were no Performance Rights on issue (2016: 711,500) – see note 24(c).

[f] Capital management

The primary objectives of the Group’s capital management program are to safeguard the Group’s ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders, and to 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 2017 and 30 June 2016.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

	2017 2016
Notes	$’000 $’000
Share based payments reserve [a] Net unrealised gains reserve [b] Dividend distribution reserve [c] Other reserves [d] [a] Share based payments reserve This 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 reserve This reserve records movement for available-for-sale financial assets to fair value and gains and losses on hedging instruments classified as effective cash flow hedges. Balance at the beginning of the year Net gains on cash flow hedges Deferred income tax on cash flow hedges Balance at the end of the year [c] Dividend distribution reserve This reserve is used to record profits from prior income years for the purpose of future dividend distribution by the Company. Balance at the beginning of the year Movement during the period Balance at the end of the year [d] 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 Balance at the beginning of the year Dividends paid during the period 26[a] Net profit attributable to members of the Company Balance at the end of the year 21. Reserves 22. Accumulated Losses	20,531 20,037 232 - 964,262 964,262 (3,192) (3,192)
	981,833 981,107
	20,037 19,973 494 64
	20,531 20,037
	- - 232 - - -
	232 -
	964,262 964,262 - -
	964,262 964,262
	(3,192) (3,192) - -
	(3,192) (3,192)
	(1,157,500) (1,243,797) - - 26,322 86,297
	(1,131,178) (1,157,500)

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

	2017 2016
Notes	$’000 $’000
[a] Exploration Expenditure Commitments [i] Minimum obligations not provided for in the financial report and are payable:  Not later than one year  Later than one year but not later than five years  Later than five years [b] Operating Lease Commitments [ii] Minimum lease payments  Not later than one year  Later than one year but not later than five years  Later than five years [c] Property, plant and equipment commitments [iii] Commitments contracted for at balance date but not recognised as liabilities  Not later than one year  Later than one year but not later than five years [d] Contractual commitments [iv] Commitments for the payment of other mining and transport contracts:  Not later than one year  Later than one year but not later than five years 23. Expenditure Commitments	520 886 1,011 1,423 863 1,042
	2,394 3,351
	1,817 1,814 3,125 1,982 946 -
	5,888 3,796
	1,326 264 - -
	1,326 264
	8,282 24,764 600 -
	8,882 24,764

[i] In order to maintain current rights to explore and mine the tenements at its various mines and projects, the Group is required to perform minimum exploration work to meet the expenditure requirements specified by the Department of Mines and Petroleum.

[ii] Operating leases relate to leases for office space and land lease with an initial term of 5 years, and leases for equipment which have an average term of 1.5 years.

[iii] The Group has contractual commitments to purchase property, plant and equipment at Koolan Island and Extension Hill.

[iv] Amounts disclosed as contractual commitments relate primarily to supplier arrangements at the Group’s Extension Hill and Koolan Island sites where financial obligations, including minimum notice periods, apply in the case of early termination. In previous years, the Group has also had early termination commitments in relation to its Extension Hill transport arrangements, and these commitments were removed in the current reporting period when certain pre-defined cumulative transport volume thresholds were reached.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

	2017	2016
Notes	$’000	$’000

24. Share-Based Payment Plans
(a) Recognised share-based payment expense
Expense arising from equity-settled share-based payment transactions	4[d]	494	64

The share-based payment plans are described below. There have been no cancellations of any of the plans during 2017 and 2016.

(b) Employee Option Scheme

An Employee Option 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. No options were issued during the years ended 30 June 2017 or 2016. As at balance date, no options over unissued shares were on issue.

(c) Performance Rights Plan

The Company has established a Performance Rights Plan. Rights are granted at no cost to recipients and convert (vest) into ordinary shares on completion by the recipient of minimum periods of continuous service and the satisfaction of specified performance hurdles related to the Company's Total Shareholder Return (" TSR ") measured against a comparator group of companies over specified periods.

The vesting scale applicable to the Company’s TSR performance is as follows:

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

Information with respect to the number of performance rights granted and issued is as follows:

	2017	2016
	No. of Performance Rights	No. of Performance Rights
Balance at beginning of year - granted - exercised - lapsed/forfeited Balance at year end	711,500 1,185,850 - - (533,625) (474,350) (177,875) -
	- 711,500

A total of 533,625 Performance Rights vested on 1 July 2016 in accordance with the terms of the vesting conditions. At 30 June 2017, there were no Performance Rights on issue.

(d) Loan Share Plan

The Company established a Loan Share Plan ( “LSP” ) during the reporting period. Under the LSP, ordinary shares in the Company may be issued to eligible participants, with vesting of the shares being subject to the satisfaction of stipulated performance conditions. The shares are issued at their market value with the recipient required to pay this market value in order to take up the share offer. The Company or any of its subsidiaries will provide a loan to fund the acquisition price. The loan is interest-free and is secured against the shares in the form of a holding lock preventing all dealing in the shares. The loan is limited recourse such that if the shares do not ultimately vest and are therefore forfeited, this is treated as full repayment of the loan balance. While the loan balance remains outstanding, any dividends paid on the shares will be automatically applied towards repayment of the loan. In making the loan in respect of the newly issued shares, there is no cash cost to the Company as the shares are newly issued.

On 24 August 2016 the Company issued 4,749,456 shares under the LSP. In accordance with the terms of the LSP, the shares were issued at a market price of $0.316 per share with the participants responsible for associated limited recourse loans totalling $1,500,828. In order for the shares to vest, the participants must remain continuously employed by the Group to at least the end of the financial year and the Company’s share price, as measured by a rolling five day volume weighted average price of the Company’s shares traded on the ASX, must on 1 July 2017 or at any time in the following four year period be above a 10% premium to the issue price of the shares. The award has been accounted for as an in-substance option award, with the fair value at grant date assessed at $0.104 per share. In calculating this fair value, a Monte Carlo simulation model was utilised over several thousand simulations to predict the share price at each vesting test date and whether the 10% hurdle was satisfied, with the resultant values discounted back to the grant date. The underlying share price and the exercise price were assumed at $0.31 per share, the period to exercise was assumed as three years (being half way between the first possible vesting date and the expiry of the LSP shares), the risk free rate was 1.40% based on Australian Government bond yields with three year lives, the estimated volatility was 50% based on historical share price analysis, and the dividend yield was assumed as nil.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

24. Share-Based Payment Plans (Continued)

Recognition and measurement 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 any options issued under this plan is measured by reference to their fair value at the date at which they are granted. The fair value is typically determined by using a binomial model. 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 Performance Rights issued under the PRP is measured by reference to their fair value at the date at which they are granted. The fair value is determined using either a Black-Scholes or Monte Carlo option valuation model. Loan share plan There is a Mount Gibson Iron Limited Loan Share Plan ( “LSP” ). The LSP 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 share rights is measured by reference to the fair value at the date at which they are granted. The fair value is measured by reference to the quoted market price on the Australian Stock Exchange and using a Monte Carlo simulation model. Equity-Settled Transactions Generally

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 and Performance Rights is reflected as additional share dilution in the computation of earnings per share.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

25. Earnings Per Share

Basic earnings per share 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:

	2017 2016	2017 2016
	$’000 $’000
Profit used in calculating basic and diluted earnings per share: Continuing operations Discontinued operations Profit attributable to ordinary equity holders of the Company Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilution - Performance rights - Restricted shares (in-substance options) Weighted average number of ordinary shares used in calculating diluted earnings per share Earnings per Share (cents per share): Basic earnings per share Diluted earnings per share	25,599 80,306 723 5,991
	26,322 86,297

	Number of Shares	Number of Shares
	1,091,813,060 1,091,037,076 - 533,625 4,037,038 -
	1,095,850,098 1,091,570,701
	2.41 7.91 2.40 7.91

Conversions, calls, subscriptions or issues after 30 June 2017

There have been no issues of shares or exercises, conversions or realisations of options, performance rights or restricted LSP shares under any of the Company’s share-based payment plans since 30 June 2017.

Recognition and measurement

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.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

2017	2016
$’000	$’000

26. Dividends Paid and Proposed

Declared and paid during the year:

[a] Dividends on ordinary shares:

No dividends were declared and paid during the reporting period.

[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	59,243 60,774 - -
	59,243 60,774 - -
	59,243 60,774

Tax rates

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

27. Contingent Liabilities

The Group has a Performance Bonding facility drawn to a total of $11,608,000 as at balance date (2016: $25,829,000). The performance bonds secure the Group’s obligations relating primarily to environmental matters and infrastructure assets.
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 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

28. Key Management Personnel

[a] Compensation of Key Management Personnel

	2017 2016
	$ $
Short-term Post employment Long-term Share-based payment Termination payment	3,276,676 2,569,717 190,499 185,326 31,656 14,935 493,943 64,152 - -
	3,992,774 2,834,130

[b] Loans to Specified Key Management Personnel

Limited recourse loans totalling $1,500,828 were made to key management personnel during the reporting period under the terms of the Company’s Loan Share Plan (“ LSP ”). The issue of shares under the LSP and the associated limited recourse loans are accounted for as an in-substance option award. Refer to note 24 for details of the LSP and shares issues made thereunder during the reporting period.

[c] Other Transactions and Balances with Key Management Personnel

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

29. Related Party Transactions

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 was a director of Shougang Concord International Trading Pty Ltd ( SCIT ), and Mr Lee and Mr Ferguson were directors of APAC Resources Limited ( APAC ).

The following sale agreements were in place with director-related entities during the period:

The sale to SCIT of 80% of iron ore from Koolan Island’s available mined production over the life of mine.
The sale to a subsidiary of APAC of 20% of iron ore from Koolan Island’s available mined production of the life of mine.
Three ad hoc spot sales of iron ore from Extension Hill.

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

Sold 182,167 WMT (2016: 290,196 WMT) of iron ore to APAC; and
Sold nil WMT (2016: 1,234,131 WMT) of iron ore to SCIT.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

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

	2017 2016
	$’000 $’000
Assets and Liabilities Current Assets Trade receivables – APAC Trade receivables – SCIT Total trade receivables Total Assets Current Liabilities Trade payables – APAC Trade payables – SCIT Total trade payables Total Liabilities Net Sales Revenue Net sales revenue – APAC Net sales revenue – SCIT Total Net Sales Revenue	2,566 819 - -
	2,566 819
	2,566 819
	- - - -
	- -
	- -
	8,901 14,281 - 48,559
	8,901 62,840

Apart from the above, there are no director-related entity transactions other than those specified in note 28.

	2017 2016
	$ $
Amounts received or due and receivable by EY 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 30. Auditor’s Remuneration	192,095 202,395 3,605 3,600
	195,700 205,995

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

2017	2016
$’000	$’000

31. Discontinued Operations

The Tallering Peak operation is reported as a discontinued operation in this financial report. Mining was completed in June 2014 and the final shipment of remnant low grade ore occurred in March 2017.

[a] Profit from discontinued operations

The financial results of Tallering Peak operation for the year are presented below:

Revenue Cost of sales Impairment write-back on ore inventories Gross profit Impairment/obsolescence write-back on consumables inventories Profit before tax and finance costs from discontinued operations Finance costs Profit before tax from discontinued operations Income tax benefit/(expense) Net profit after tax from discontinued operations Earnings per share (cents per share):  basic earnings per share  diluted earnings per share [b] Cash flow from discontinued operations The net cash flows incurred by Tallering Peak operation are as follows: Operating Investing Financing Net cash inflow from discontinued operations	11,085 5,346 (13,740) (6,191) 3,378 6,816
	723 5,971 - 20
	723 5,991 - -
	723 5,991 - -
	723 5,991
	0.07 0.55 0.07 0.55
	2,399 1,568 - - - -
	2,399 1,568

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

32. Segment Information

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

For management purposes, the Group has organised its operating segments into two reportable segments as follows:

Extension Hill segment – this segment includes the mining, crushing, transportation and sale of iron ore from the Extension Hill and Iron Hill iron ore deposits.
Koolan Island segment – this segment was on care and maintenance until the end of April 2017, at which time the Group commenced the Koolan Island restart project.

Operating results for each reportable segment are reviewed separately by management for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements.

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

There have been no inter-segment revenues.

Items that are managed on a Group basis and are not allocated to segments as they are not considered part of core operations of any segment are as follows:

Finance costs and revenue on investments
Interest revenue
Foreign exchange gains / (losses)
Corporate costs

Operating results for discontinued operations have been excluded from the segment results below.

During the year ended 30 June 2017, revenue received from the sale of iron ore comprised purchases by the following buyers who each on a proportionate basis equated to greater than 10% of total sales for the period:

	2017
Customer	$’000
# 1 # 2 Other	53,669 38,672 69,541
	161,882

During the year ended 30 June 2016, revenue received from the sale of iron ore comprised purchases by the following buyers who each on a proportionate basis equated to greater than 10% of total sales for the period:

	2016
Customer	$’000
# 1 # 2 # 3 Other	85,757 48,613 33,845 66,591
	234,806

Revenue from external customers by geographical location is based on the port of delivery. All iron ore has been shipped to China during the year ended 30 June 2017.

All segment assets are located within Australia.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

32. Segment Information (Continued)

Extension Hill	Koolan Island	Unallocated*	Consolidated
2017 2016	2017 2016	2017 2016	2017 2016
$’000 $’000	$’000 $’000	$’000 $’000	$’000 $’000
162,043 175,214 - 59,974 - - - - - - 12,113 9,667			162,043 235,188 12,113 9,667
162,043 175,214 - 59,974 12,113 9,667			174,156 244,855
36,092 25,558 (3,154) 8,210 (3,486) 82,747 32 (16,409) 2,260 (5,738) (459) (71)			29,452 116,515 1,833 (22,218)
36,124 9,149 (894) 2,472 (3,945) 82,676 (2,373) (7,068) (3,067) (5,224) (593) (700)			31,285 94,297 (6,033) (12,992)
33,751 2,081 (3,961) (2,752) (4,538) 81,976			25,252 81,305
(219) 1,824 (2,260) 6,287 - - 3,153 - - (3,442) - - - 9,484 - 2,893 - - - 2,135 - - - - (2,966) 2,966 - - 459 71			(1,134) (1,760)
			24,118 79,545
			(2,479) 8,111 3,153 (3,442) - 12,377 - 2,135 (2,507) 3,037
(32) 16,409 (2,260) 5,738 459 71			(1,833) 22,218
			456,648 441,864 22,689 21,954 5,919 8,744 10,891 -
35,333 25,337 13,969 12,683 446,845 434, 542			496,147 472,562
19,136 23,958 4,184 1,652 8,157 11,040 13,944 11,179 27,762 29,397 3,981 3,401			31,477 36,650 45,687 43,977
33,080 35,137 31,946 31,049 12,138 14,441			77,164 80,627
2,253 (9,800) (17,977) (18,366) 434,707 420,101			418,983 391,935

Notes to the Consolidated Financial Report (continued)

33. Events After the Balance Sheet Date

Following the end of the reporting period, on 7 July 2017 the Company announced that it had reached final agreement with 14 insurers, representing 92.5% of the Company’s insurance cover for business interruption suffered from the late 2014 failure of the Koolan Island seawall, for a cash settlement of the claim for $64,288,000. Proceeds of the settlement have been received and recognised after balance date. Negotiations will continue separately with one insurer representing the remaining 7.5% of the Company’s business interruption coverage.

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.

34. Financial Instruments

[a] Financial risk management objectives

The Group’s principal financial instruments, other than derivatives, comprise bank and equipment finance arrangements, cash and shortterm deposits, and financial assets held for trading.

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, and from time to time also enters into foreign currency collar options and interest rate swaps. The purpose is to manage the currency 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, as summarised below and in accordance with the Company’s Financial Risk Management Policy.

[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 predominantly denominated in US$. The Group has used derivative financial instruments to manage specifically identified foreign currency exposures by hedging a proportion of forecast US$ sales transactions in accordance with its risk management policy. The primary objective of using derivative financial instruments is to reduce the volatility of earnings and cashflows attributable to changes in the A$/US$ exchange rate and to protect against adverse movements in this rate.

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 that meet the criteria of cash flow hedges.

During the year ended 30 June 2017, there were no US dollar foreign exchange forward contract deliveries.

At 30 June 2017, the notional amount of the foreign exchange hedge book totalling US$12,000,000 is made up exclusively of collar option contracts with maturity dates due in the 3 months ended 27 September 2017 and with a cap price of A$1.00/US$0.7550 and a floor price of A$1.00/US$0.7205.

As at 30 June 2017, the marked-to-market unrealised gain on the total outstanding US dollar foreign exchange hedge book of US$12,000,000 was A$341,000.

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 from time to time as business needs and conditions dictate:

dictate:
Instrument	Type of Hedging	Objective
Forward exchange contracts	Cash flow hedge	To hedge sales receipts against cash flow volatility arising from the fluctuation of the A$/US$ exchange rate.
Collar options	Cash flow hedge	To hedge sales receipts against cash flow volatility arising from the fluctuation of the A$/US$ exchange rate by limiting exposure to exchange rates within a certain range of acceptable rates.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

34. Financial Instruments (Continued)

[i] Foreign exchange contracts – cash flow hedges

At balance date, the following foreign exchange contracts designed as a hedge of anticipated future receipts that will be denominated in US$ were outstanding:

	2017	2016
	Average Contract Rate Contract Amount US$ Contract Amount A$ Fair Value A$	Average Contract Rate Contract Amount US$ Contract Amount A$ Fair Value A$
	A$/US$ $’000 $’000 $’000	A$/US$ $’000 $’000 $’000
Collar Option Contracts - within one year call strike price 0.7500 put strike price 0.6850 - within one year call strike price 0.7550 put strike price 0.7205 Total	0.7550 12,000 15,894 341	0.7500 15,000 20,000 231 - - - -
	0.7550 12,000 15,894 341	0.7500 15,000 20,000 231

As balance date, the following foreign exchange contracts were recognised on the balance sheet and income statement:

	2017 2016
Notes	$’000 $’000
Current assets 11 Total collar option contracts Movement in foreign exchange contract cash flow hedge reserve: Opening balance Change in fair value of cash flow hedges net of tax Transferred from/(to) revenue in Income Statement net of tax - Continuing operations - Discontinued operations Closing balance Cash flow hedge ineffectiveness recognised immediately in profit and loss	341 231
	341 231
	- - 341 (231) (109) 231 - -
	232 -
	(123) 231

[ii] Foreign currency sensitivity

The following table details the effect on profit and other comprehensive income after tax of a 10% change in the A$ against the US$ from the spot rates at 30 June 2017 and 30 June 2016 due to changes in the fair value of monetary assets and liabilities.

	Net Profit	Other Comprehensive Income
	2017 2016	2017 2016
	$’000 $’000	$’000 $’000
10% appreciation in the A$ spot rate with all other variables held constant (767) (580) 1,167 - 10% depreciation in the A$ spot rate with all other variables held constant 938 710 (526) -

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.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

34. Financial Instruments (Continued)

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

	2017 2016
	$’000 $’000
Financial Assets Cash (included within note 6) Trade receivables (included within note 9) Financial Liabilities Trade payables (included within note 17) Net exposure	6,729 7,164 6,440 2,862 (1,116) (901)
	12,053 9,125

[c] Interest rate risk

The Group’s exposure to market interest rates relates primarily to the Group’s cash and cash equivalents, term deposits and subordinated notes, and financial assets held for trading (tradeable corporate bonds).

The Group’s policy is to manage its interest costs using a mix of fixed and variable rate debt (as appropriate).

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

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

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

34. Financial Instruments (Continued)

		Fixed interest rate maturing in:		Total carrying amount per balance sheet	Weighted Average Interest
	Floating interest rate	1 year or less Over 1 to 5 years	Non-interest bearing
	2017 2016	2017 2016 2017 2016	2017 2016	2017 2016	2017 2016
CONSOLIDATED	$’000 $’000	$’000 $’000 $’000 $’000	$’000 $’000	$’000 $’000	% %
i)Financial assets Cash 33,755 43,315 - - - - 1 1 33,756 43,316 0.47 0.78
Short-term deposits(< 3 months maturity) - - 15,000 - - - - - 15,000 - 2.23 -
Term deposits – receivables - - 268,500 250,000 - - - - 268,500 250,000 2.62 2.94
Subordinated notes – available-for-sale 97,000 87,000 - - - - - - 97,000 87,000 3.14 3.74
Financial assets held for trading - - 31,217 19,771 - - 1,306 - 32,523 19,771 4.17 4.78
Trade and other receivables - - - - - - 9,528 41,546 9,528 41,546 - -
Derivative financial assets - - - - - - 341 231 341 231 - -
Total financial assets 130,755 130,315 314,717 269,771 - - 11,176 41,778 456,648 441,864
ii)Financial liabilities Trade and otherpayables - - - - - - 31,477 36,229 31,477 36,229 - -
Insurancepremium funding - - - 421 - - - - - 421 - 1.86
Total financial liabilities - - - 421 - - 31,477 36,229 31,477 36,650

Notes to the Consolidated Financial Report (continued)

34. Financial Instruments (Continued)

[i] Interest rate sensitivity

The following table details the effect on profit and other comprehensive income after tax of a 0.25% change in interest rates, in absolute terms.

	Net Profit	Other Comprehensive Income
	2017 2016	2017 2016
	$’000 $’000	$’000 $’000
 0.25% increase in interest rate with all other variables held constant 721 624 - -  0.25% decrease in interest rate with all other variables held constant (721) (624) - -

The sensitivity analysis of the Group’s exposure to Australian variable interest rates at balance date has been determined based on exposures at balance sheet date. A positive number indicates an increase in profit and equity.

[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 advance payments and letters of credit which effectively protect at least 90% of the estimated 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 an acceptable Standard & Poors credit rating 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. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty failure. No material exposure is presently 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 as the Group sells iron ore to its customers. The majority of the Group’s sales revenue is derived under long term sales contracts for each of its operations. The pricing mechanism in these contracts 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 “fines” with Fe content ranging from 52% to 65% and is quoted on a US$ per dry metric tonne “Cost and Freight” North China basis. “Lump” iron ore typically receives a premium to the published Platts Index “fines” price.

During the period, the Group entered into forward sales agreements covering six shipments each of 60,000 tonnes of iron ore, with maturity dates spread over the period January to June 2017. The contracts were stated in US$ per dry metric tonne and were cash settled against the average daily CFR benchmark price for 62% Fe fines ores for delivery to northern China. The average price of the forward contracts at each maturity date was between US$70 and US$76 per tonne. Movements in the market value of the forward sale contracts are taken to the income statement. There were no outstanding iron ore forward contracts as at 30 June 2017, however a receivable of $1,104,000 was recorded at balance date in relation to the contract that matured in June 2017 which will be cash settled in July 2017.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

34. Financial Instruments (Continued)

[f] Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of its cash reserves and equipment financing arrangements. 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 provide appropriate 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 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.

At 30 June 2017, the Group had unutilised performance bonding facilities totalling $8,392,000 (2016: $29,171,000). Refer note 18.

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

	30 June 2017	30 June 2016
	Less than 6 months 6 to 12 months 1 to 5 years Over 5 years Total	Less than 6 months 6 to 12 months 1 to 5 years Over 5 years Total
	$’000 $’000 $’000 $’000 $’000	$’000 $’000 $’000 $’000 $’000
Financial Liabilities Trade and other payables Insurance premium funding Derivatives – inflow Derivatives – outflow	31,477 - - - 31,477 - - - - - (16,235) - - - (16,235) 15,894 - - - 15,894	36,229 - - - 36,229 423 - - - 423 (20,231) - - - (20,231) 20,000 - - - 20,000
	31,136 - - - 31,136	36,421 - - - 36,421

[g] Fair value of financial assets and financial liabilities

All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – quoted market prices in an active market (that are unadjusted) for identical assets or liabilities

Level 2 – valuation techniques (for which the lowest level of input that is significant to the fair value measurement is directly or indirectly observable)

Level 3 – valuation techniques (for which the lowest level of input that is significant to the fair value measurement is unobservable)

The fair values of derivative financial instruments are determined using the Level 2 method requiring fair value to be calculated using short and long term observable market inputs. The Group’s fair values under the Level 2 method are sourced from an independent valuation by the Group’s treasury advisors. The valuation techniques use prevailing market inputs sourced from Reuters/Bloomberg to determine an appropriate mid price valuation.

The fair values of quoted notes and bonds (classified as either financial assets held for trading or available-for-sale) are determined using Level 1 method based on market price quotations at the reporting date.

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

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

34. Financial Instruments (Continued)

The carrying amounts and fair values of the financial assets and financial liabilities for the Group as at 30 June 2017 are shown below.

	2017	2016
	Carrying Amount Fair Value	Carrying Amount Fair Value
	$’000 $’000	$’000 $’000
Financial assets – current Cash Short-term deposits Term deposits – receivables Subordinated notes – available-for-sale Financial assets held for trading Trade debtors and other receivables Derivatives Financial liabilities – current Trade and other payables Insurance premium funding Net financial assets	33,756 33,756 43,316 43,316 15,000 15,000 - - 268,500 268,500 250,000 250,000 97,000 97,000 87,000 87,000 32,523 32,523 19,771 19,771 9,528 9,528 41,546 41,546 341 341 231 231
	456,648 456,648 441,864 441,864
	31,477 31,477 36,229 36,229 - - 421 421
	31,477 31,477 36,650 36,650
	425,171 425,171 405,214 405,214

Recognition and measurement

Derivative financial instruments and hedging

The Group uses foreign currency to hedge its risks associated with foreign currency and commodity price fluctuations. 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. All hedges are currently classified as cash flow hedges.

In relation to cash flow hedges 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.

Effectiveness is tested at inception of each hedge and monthly thereafter until the hedge expires. The cumulative dollar offset method is applied in the measurement of effectiveness. The cumulative approach involves comparing the cumulative change (to date from inception of the hedge) in the hedging instrument’s fair values to the cumulative change in the hedged item’s (or USD cash flow) attributable to the risk being hedged.

Effectiveness of the forward exchange contracts is monitored by comparing the forward net present value of the underlying cash flows to the forward net present value of the fair value associated with the hedging instrument. Prospective and retrospective testing is undertaken by the Group’s treasury advisors.

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.

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

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

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

35. Parent Entity Information

	2017 2016
	$’000 $’000
[a] Information relating to Mount Gibson Iron Limited: Current assets Total assets Current liabilities Total liabilities Issued capital Issued capital – restricted shares under Loan Share Plan Accumulated losses Dividend distribution reserve Share based payments reserve Total Shareholder’s Equity Net profit after tax of the parent entity Total comprehensive profit of the parent entity	17,134 47,701 799,833 759,577 2,095 464 380,850 367,642 568,328 568,328 1,501 - (565,683) (590,736) 394,306 394,306 20,531 20,037
	418,983 391,935
	25,053 86,296
	25,053 86,296

[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 12 and note 18.

The parent entity has further provided bank guarantees in respect of obligations to various authorities. Refer to note 18.

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

The parent entity had contingent liabilities as at reporting date as set out in note 27. For information about guarantees given by the parent entity, refer [b] above.

Mount Gibson Iron Limited guarantees the performance of Mount Gibson Mining Limited’s obligations to Aurizon entities under the Transport 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 Aurizon for track access charges properly due and payable to Brookfield, the rail infrastructure owner.

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

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

[e] Tax Consolidation

The Company and its 100%-owned 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 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

36. New Accounting Standards

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

From 1 July 2016 the Group has adopted all new and amended accounting standards mandatory for annual periods beginning on or after 1 July 2016 including:


Reference	Title	Summary	Application date of standard	Application date for Group

AASB 2015-1	Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012- 2014 Cycle	The amendments clarify certain requirements in: ► AASB 5 Non-current Assets Held for Sale and Discontinued Operations – Changes in methods of disposal ► AASB 7 Financial Instruments: Disclosures - servicing contracts; applicability of the amendments to AASB 7 to condensed interim financial statements ► AASB 119 Employee Benefits - regional market issue regarding discount rate ► AASB 134 Interim Financial Reporting - disclosure of information ‘elsewhere in the interim financial report’	1 January 2016	1 July 2016
AASB 2015-2	Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101	This Standard amends AASB 101_Presentation of Financial Statements_ to clarify existing presentation and disclosure requirements and to ensure entities are able to use judgement when applying the Standard in determining what information to disclose, where and in what order information is presented in their financial statements. For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures.	1 July 2016	1 July 2016

Changes to accounting policies due to adoption of these standards and interpretations are not considered significant for the Group.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)

Other Australian Accounting Standards and Interpretations relevant to the Group that have recently been issued or amended, are not yet effective and have not been adopted by the Group for the period ended 30 June 2017 are outlined in the table below:


Reference	Title	Summary	Application date of standard	Application date for Group

AASB 2016-1	Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses	This Standard amends AASB 112_Income Taxes_ to clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value.	1 January 2017	1 July 2017
AASB 2016-2	Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107	The amendments to AASB 107_Statement of Cash Flows_ are part of the IASB’s Disclosure Initiative and help users of financial statements better understand changes in an entity’s debt. The amendments require entities to provide disclosures about changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses).	1 January 2017	1 July 2017
AASB 2016-5	Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions	This standard amends to AASB 2_Share-based Payment_, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for: ► The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments ► Share-based payment transactions with a net settlement feature for withholding tax obligations ► A modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled	1 January 2018	1 July 2018
AASB 2017-1	Amendments to Australian Accounting Standards – Transfers of Investments Property, Annual Improvements 2014- 2016 Cycle and Other Amendments	The amendments clarify certain requirements in: ► AASB 1_First-time Adoption of Australian Accounting Standards_ – deletion of exemptions for first-time adopters and addition of an exemption arising from AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration ► AASB 12_Disclosure of Interests in Other Entities_– clarification of scope ► AASB 128_Investments in Associates and Joint Ventures_– measuring an associate or joint venture at fair value AASB 140 Investment Property – change in use.	1 January 2018	1 July 2018
AASB 2017-2	Amendments to Australian Accounting Standards – Further Annual Improvements 2014- 2016 Cycle	This Standard clarifies the scope of AASB 12 Disclosure of Interests in Other Entities by specifying that the disclosure requirements apply to an entity’s interests in other entities that are classified as held for sale or discontinued operations in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations.	1 January 2017	1 July 2017
AASB 2014- 10	Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture	The amendments clarify that a full gain or loss is recognised when a transfer to an associate or joint venture involves a business as defined in AASB 3_Business Combinations_. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. AASB 2015-10 defers the mandatory effective date (application date) of AASB 2014-10 so that the amendments are required to be applied for annual reporting periods beginning on or after 1 January 2018 instead of 1 January 2016.	1 January 2018	1 July 2018

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)


Reference	Title	Summary	Application date of standard	Application date for Group

AASB 15	Revenue from Contracts with Customers	AASB 15 replaces all existing revenue requirements in Australian Accounting Standards (AASB 111_Construction Contracts_, AASB 118 Revenue, AASB Interpretation 13_Customer Loyalty Programmes_, AASB Interpretation 15_Agreements for the Construction of Real_ Estate, AASB Interpretation 18_Transfers of Assets from Customers_ and AASB Interpretation 131_Revenue – Barter Transactions_ Involving Advertising Services) and applies to all revenue arising from contracts with customers, unless the contracts are in the scope of other standards, such as AASB 117 (or AASB 16_Leases_, once applied). The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with the core principle by applying the following steps: (a) Step 1: Identify the contract(s) with a customer. (b) Step 2: Identify the performance obligations in the contract. (c) Step 3: Determine the transaction price. (d) Step 4: Allocate the transaction price to the performance obligations in the contract. (e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.	1 January 2018	1 July 2018
				1 July 2018
AASB 9	Financial Instruments	AASB 9 replaces AASB 139_Financial Instruments: Recognition and_ Measurement. Except for certain trade receivables, an entity initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Debt instruments are subsequently measured at fair value through profit or loss (FVTPL), amortised cost, or fair value through other comprehensive income (FVOCI), on the basis of their contractual cash flows and the business model under which the debt instruments are held. There is a fair value option (FVO) that allows financial assets on initial recognition to be designated as FVTPL if that eliminates or significantly reduces an accounting mismatch. Equity instruments are generally measured at FVTPL. However, entities have an irrevocable option on an instrument-by-instrument basis to present changes in the fair value of non-trading instruments in other comprehensive income (OCI) without subsequent reclassification to profit or loss. For financial liabilities designated as FVTPL using the FVO, the amount of change in the fair value of such financial liabilities that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in profit or loss, unless presentation in OCI of the fair value change in respect of the liability’s credit risk would create or enlarge an accounting mismatch in profit or loss. All other AASB 139 classification and measurement requirements for financial liabilities have been carried forward into AASB 9, including the embedded derivative separation rules and the criteria for using the FVO. The incurred credit loss model in AASB 139 has been replaced with an expected credit loss model in AASB 9. The requirements for hedge accounting have been amended to more closely align hedge accounting with risk management, establish a more principle-based approach to hedge accounting and address inconsistencies in the hedge accounting model in AASB 139.	1 January 2018

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Notes to the Consolidated Financial Report (continued)


Reference	Title	Summary	Application date of standard	Application date for Group

AASB 16	Leases	AASB 16 requires lessees to account for all leases under a single on balance sheet model in a similar way to finance leases under AASB 117_Leases_. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting is substantially unchanged from today’s accounting under AASB 117. Lessors will continue to classify all leases using the same classification principle as in AASB 117 and distinguish between two types of leases: operating and finance leases.	1 January 2019	1 July 2019
AASB Int 22	Foreign Currency Transactions and Advance Consideration	The Interpretation clarifies that in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration.	1 January 2018	1 July 2018

The Group has elected not to early adopt any of these new standards or amendments in these financial statements. In view of the current state of operations, the Group has yet to fully assess the full impact of the below accounting standards, when applied in future periods:

AASB 15 Revenue from Contracts with Customers changes the timing (and in some case, the quantum) of revenue recognised from customers. The standard does not apply mandatorily before 1 January 2018.

The Group has made a preliminary assessment of the potential impacts of AASB 15 as at the reporting date and formed an initial view that the new standard may operate to require the deferral of the recognition of revenues apportioned to the remaining sea voyages of “in transit” vessels to their destination ports where iron ore cargoes are discharged and “cost and freight” (CFR) sales revenues fully earned. Based on the limited number of vessels expected to be in transit at any reporting date, the new standard is considered unlikely to have a material impact on the Group’s financial results when it is first adopted for the year ending 30 June 2019.

AASB 16 Leases eliminates the distinction between operating and finance leases, and brings all leases (other than short term leases) onto the balance sheet. The standard does not apply mandatorily before 1 January 2019. While in early stages of assessment, the Group has yet to fully assess the impact on the Group’s financial results when it is first adopted for the year ending 30 June 2020.

MOUNT GIBSON IRON LIMITED 2017 Annual Report

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 2017 and of its 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 2017.

Signed in accordance with a resolution of the directors.

==> picture [138 x 56] intentionally omitted <==

LEE SENG HUI Chairman

Sydney, 15 August 2017

MOUNT GIBSON IRON LIMITED 2017 Annual Report

Independent Audit Report

==> picture [71 x 82] intentionally omitted <==

==> picture [113 x 34] intentionally omitted <==

GB:ET:MOUNTGIBSON:195

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [71 x 81] intentionally omitted <==

==> picture [596 x 656] intentionally omitted <==

GB:EH:MGI:229

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [71 x 81] intentionally omitted <==

==> picture [596 x 52] intentionally omitted <==

==> picture [596 x 574] intentionally omitted <==

GB:EH:MGI:229

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [71 x 81] intentionally omitted <==

==> picture [596 x 667] intentionally omitted <==

GB:EH:MGI:229

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [71 x 81] intentionally omitted <==

==> picture [596 x 627] intentionally omitted <==

GB:EH:MGI:229

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [71 x 81] intentionally omitted <==

==> picture [596 x 645] intentionally omitted <==

GB:EH:MGI:229

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [538 x 46] intentionally omitted <==

==> picture [467 x 108] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

==> picture [483 x 184] intentionally omitted <==

==> picture [466 x 360] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [483 x 192] intentionally omitted <==

==> picture [483 x 321] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [483 x 648] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [539 x 46] intentionally omitted <==

MOUNT GIBSON IRON LIMITED 2017 Annual Report

==> picture [540 x 45] intentionally omitted <==

==> picture [279 x 542] intentionally omitted <==

AI assistant

MGX RESOURCES LIMITED — Annual Report 2017

65331_rns_2017-10-05_fabe37f8-544b-4770-8ef8-9f05e16a9d35.pdf

Resources and Reserves

Total Mineral Resources and Ore Reserves by Project as at 30 June 2017

Directors’ Report

DIRECTORS

Names, Qualifications, Experience and Special Responsibilities

Lee Seng Hui LLB (Hons)

Chairman, Non-Executive Director

Alan Jones CA

Independent Non-Executive Director

Li Shaofeng B.Automation

Non-Executive Director

Russell Barwick Dip.Min.Eng., FAICD, FAusIMM

Independent Non-Executive Director

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

Lead Independent Non-Executive Director

Kin Chan

Independent Non-Executive Director

Andrew Ferguson

Alternate Director to Lee Seng Hui

COMPANY SECRETARY

David Stokes B.Bus, LLB, ACIS

Company Secretary & General Counsel

CORPORATE INFORMATION

Corporate Structure

Nature of Operations and Principal Activities

Employees

OPERATING AND FINANCIAL REVIEW

Introduction

Overview of the 2016/17 Financial Year

Operating Results for the Financial Year

Extension Hill/Iron Hill

Koolan Island

Tallering Peak

EXPLORATION AND DEVELOPMENT

Shine Project

CORPORATE

Financial Position

Derivatives

Koolan Island Seawall Insurance Claim

Likely Developments and Expected Results

Extension Hill Outlook

Koolan Island Outlook

Group Sales Guidance and Cash Costs Guidance

SIGNIFICANT EVENTS AFTER BALANCE DATE

DIVIDENDS

INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND AUDITORS

SHARE OPTIONS, PERFORMANCE RIGHTS AND RESTRICTED SHARES

DIRECTORS’ INTERESTS IN THE SHARES, OPTIONS AND PERFORMANCE RIGHTS OF THE COMPANY

DIRECTORS’ MEETINGS

ENVIRONMENTAL REGULATION AND PERFORMANCE

PROCEEDINGS ON BEHALF OF THE COMPANY

ROUNDING

CURRENCY

CORPORATE GOVERNANCE

AUDITOR’S INDEPENDENCE DECLARATION

NON-AUDIT SERVICES

REMUNERATION REPORT (AUDITED)

Nomination, Remuneration and Governance Committee (“NRGC”)

Remuneration Policy

Remuneration Structure

Non-Executive Director Remuneration

Objective

Structure

Senior Executives’ Remuneration

Objective

Use of Remuneration Consultants

Fixed Remuneration

Variable Remuneration

Short-term Incentives (“STI”)

Long-term Incentives (“LTI”)

Employment Contracts

Jim Beyer

Peter Kerr

David Stokes

Scott de Kruijff

Details of directors and key management personnel disclosed in this report

Options granted as part of remuneration for the year ended 30 June 2017

MGX RESOURCES LIMITED Annual Report 2017