Exhibit 99.2

Portman Limited
Unaudited Consolidated Financial Statements
As of and for the Year Ended
31 December 2004
(Australian Currency)

5


 

UNAUDITED

PORTMAN LIMITED
UNAUDITED STATEMENT OF FINANCIAL PERFORMANCE
FOR THE YEAR ENDED 31 DECEMBER 2004
(Australian Currency)

                         
            Economic     Parent  
            Entity     Entity  
            2004     2004  
    Notes     $’000     $’000  
 
Sales Revenue
    2 (a)     195,435        
 
                       
Cost of Sales
            (111,827 )      
 
 
                       
Gross Profit
            83,608        
 
                       
Other Revenues
    2 (a)     3,488       1,416  
Shipping and Selling Expenses
            (25,686 )      
 
                       
Marketing Expenses
            (993 )      
 
                       
Administrative Expenses
            (8,609 )     (1,021 )
 
                       
Borrowing Costs
    2 (b)     (89 )      
 
                       
Other Expenses
    2 (b)     (5,763 )     10,000  
 
 
                       
Profit from ordinary activities before income tax
            45,956       10,395  
 
                       
Income tax expense relating to ordinary activities
    3       (13,203 )     (96 )
 
 
                       
Net Profit
    24       32,753       10,299  
 
 
                       
Basic earnings per share – cents
    25       18.87          
           
 
                       
Diluted earnings per share – cents
    25       18.77          
           

The accompanying notes form part of this Unaudited Statement of Financial Performance.

6


 

UNAUDITED

PORTMAN LIMITED
UNAUDITED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2004
(Australian Currency)

                         
            Economic     Parent  
            Entity     Entity  
            2004     2004  
    Notes     $’000     $’000  
 
CURRENT ASSETS
                       
Cash Assets
    5       17,753       14,168  
Receivables
    6       18,918       62  
Inventories
    7       27,895        
Other Assets
    8       25,175        
 
 
                       
TOTAL CURRENT ASSETS
            89,741       14,230  
 
 
                       
NON CURRENT ASSETS
                       
Receivables
    9       1,596       139,728  
Inventories
    10       18,724        
Other Financial Assets
    11             1  
Property, Plant and Equipment
    12       119,344        
Deferred Tax Assets
    13       2,083       2,083  
Other Assets
    14       10,580        
 
TOTAL NON CURRENT ASSETS
            152,327       141,812  
 
 
                       
TOTAL ASSETS
            242,068       156,042  
 
 
                       
CURRENT LIABILITIES
                       
Payables
    15       21,881       74  
Interest Bearing Liabilities
    16       62        
Tax Liabilities
    17       3,538       3,538  
Provisions
    18       608        
Other Liabilities
    19       25,174        
 
 
                       
TOTAL CURRENT LIABILITIES
            51,263       3,612  
 
NON CURRENT LIABILITIES
                       
Deferred Tax Liabilities
    20       11,566       11,566  
Provisions
    21       2,520        
Other Liabilities
    22       7,692        
 
 
                       
TOTAL NON CURRENT LIABILITIES
            21,778       11,566  
 
 
                       
TOTAL LIABILITIES
            73,041       15,178  
 
 
NET ASSETS
            169,027       140,864  
 
 
                       
EQUITY
                       
Contributed Equity
    23       105,681       105,681  
Retained Profits
    24       63,346       35,183  
 
TOTAL EQUITY
            169,027       140,864  
 

The accompanying notes form part of this Unaudited Statement of Financial Position.

7


 

UNAUDITED

PORTMAN LIMITED
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2004
(Australian Currency)

                         
            Economic     Parent  
            Entity     Entity  
            2004     2004  
    Notes     $’000     $’000  
 
CASH FLOWS FROM OPERATING ACTIVITIES
                       
Receipts from customers
            186,674        
Payments to suppliers and employees
            (169,148 )     (966 )
Income tax paid
            (6,984 )     (37 )
GST recovered
            14,104        
Interest received
            1,894       1,606  
Interest and other costs of finance paid
            (89 )      
 
 
                       
Net Cash Flows From Operating Activities
    35 (a)     26,451       603  
 
 
                       
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Proceeds from sale of plant and equipment
            15        
Payments for property, plant and equipment
            (6,589 )      
Payments for mining ventures and tenements
            (31,523 )      
Proceeds from sale of listed investments
            1,154        
 
                       
 
 
                       
Net Cash Flows Used In Investing Activities
            (36,943 )      
 
 
                       
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Proceeds from share issues
            5,356       5,356  
Payment for share buy-back
            (5,703 )     (5,703 )
Repayment of lease liabilities
            (716 )      
Loans to controlled entities
                  (62,378 )
Repayment of loans by controlled entities
                  48,334  
Dividends paid
            (14,904 )     (14,904 )
 
 
                       
Net Cash Flows Used In Financing Activities
            (15,967 )     (29,295 )
 
 
                       
NET (DECREASE)/INCREASE IN CASH HELD
            (26,459 )     (28,692 )
Cash at the beginning of the year
            44,212       42,860  
 
CASH AT THE END OF THE YEAR
    5       17,753       14,168  
 

For the purpose of the cash flow statements, cash includes cash on hand, cash at bank and investments in short term money market instruments.

The accompanying notes form part of this Unaudited Statement of Cash Flows.

8


 

UNAUDITED

NOTES TO AND FORMING PART
OF THE UNAUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
(All amounts are reflected in Australian currency unless otherwise noted)

NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 including applicable Accounting Standards. Other mandatory professional reporting requirements (Urgent Issues Group Consensus Views) have also been complied with.

The financial report has been prepared in accordance with the historical cost convention.

(a)   Changes in Accounting Policies

      The accounting policies adopted are consistent with those of the previous year. However from 1 January 2004 the method of depreciation of certain production, rail and port assets was changed from a straight line basis over 10 years to a production output basis. The new policy is considered to be more appropriate as it reflects the pattern in which the assets future economic benefits are consumed by the Company. The effect of this change from 1 January 2004 was to increase net profit after tax by $469,000.

(b)   Principles of Consolidation

      The Economic Entity’s financial statements include as controlled entities all entities in which Portman Limited has effective control. A listing of these controlled entities is included in Note 11.

      Where control of an entity has been acquired during the year, its results are included in the consolidated Statement of Financial Performance from the date on which control commences. Where control of an entity ceases during the year its results are included for that part of the year during which control existed.

      The effects of all transactions between entities in the Economic Entity are eliminated in full.

(c)   Mining Ventures and Tenements

      Costs carried forward

      Costs incurred during exploration, evaluation, development and construction activities related to an area of interest are accumulated. Costs are carried forward provided such costs are expected to be recouped through successful development, or by sale, or where exploration and evaluation activities have

9


 

UNAUDITED

      not at balance date reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves.
 
      Costs carried forward in respect of an area of interest that is abandoned are written off in the year in which the decision to abandon is made.
 
      Rehabilitation costs
 
      Costs of rehabilitation work are provided for and treated as production costs.
 
      Costs are recognised over the life of the mine based on production. The provision is to be applied against all rehabilitation costs including reclamation, infrastructure removal and waste treatment.
 
      These estimates of the restoration obligations are based on anticipated technology and legal requirements and future costs, which have been discounted to their present value. The provision for rehabilitation is reassessed half yearly and annually.
 
      Amortisation
 
      Costs on productive areas are amortised over the life of the area of interest to which such costs relate on a production output basis.

(d)   Depreciation of Property, Plant and Equipment

      Depreciation is calculated on the straight line basis or the production output basis so as to write off the costs of the assets over their estimated useful lives. The Company reviews the estimate of useful lives on an annual basis and after major revisions in the underlying reserves of its mine properties.
 
      Major depreciation periods are as follows:

         
Asset Class   Basis   2004
Plant and equipment
  Straight Line   5 – 13 years
Plant and equipment
  Production Output   14 years
Motor vehicles, furniture & equipment
  Straight Line   3 - 5 years

(e)   Taxes

      Income Tax
 
      Tax-effect accounting is applied using the liability method whereby income tax is regarded as an expense and is calculated on the accounting profit after allowing for permanent differences. To the extent timing differences occur between the time items are recognised in the financial statements and when items are taken into account in determining taxable income, the net related taxation benefit or liability, calculated at current rates, is disclosed as a future income tax benefit or a provision for deferred income tax. The net future income tax benefit relating to tax losses and timing differences is not carried forward as an asset unless the benefit is virtually certain of being realised.

10


 

UNAUDITED

      Goods and Services Tax (GST)

      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 Statement of Financial Position.
 
      Cash flows are included in the Statement of Cash Flows 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.

(f)   Interests in Joint Venture Operations

      The Economic Entity’s share of the assets, liabilities, revenue and expenses of Joint Venture Operations are included in the appropriate items of the Economic Entity’s Statement of Financial Position and Performance. Details of the Economic Entity’s interests are shown in Note 26.

(g)   Inventories

      Inventories are physically measured and are valued at the lower of cost and net realisable value. In determining cost, a weighted average basis is used which includes direct mining and associated costs, labour and transportation costs and an appropriate portion of fixed and variable overhead expenditure.

(h)   Foreign Currency Transactions and Balances

      Foreign currency transactions during the year are converted to Australian currency at the rates of exchange applicable at the dates of each transaction. Amounts receivable and payable in foreign currencies at year end are converted at the rates of exchange ruling at year end.
 
      Specific Hedges
 
      Hedging is undertaken in order to avoid or minimise possible adverse financial effects of movements in exchange rates. Where sales are specifically hedged, exchange gains or losses on the hedging transaction arising up to the date of sale and costs, premiums and discounts relative to the hedging transaction are deferred and included in measurement of the

11


 

UNAUDITED

    sale. Unrealised exchange gains and losses at each balance date are deferred and recognised in the Statement of Financial Position.
 
      General Hedges
 
      Where hedging is put in place that does not cover specific future transactions the unrealised exchange gains or losses on the hedging transaction that exist at year end are included in the Statement of Financial Performance.

(i)   Employee Entitlements

      Where material, provision is made in the financial statements for benefits accruing to employees in relation to the following matters:

  i)   Wages and Salaries and Annual Leave

      Liabilities for wages and salaries, annual leave, sick leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled.

  ii)   Long Service Leave

      Long service leave is accrued in respect of all employees with more than 5 years service. The result produced by this method of calculation is not materially different from a calculation based on the present value of expected future payments to be made in respect of services provided by all employees up to the year end. The discount rate used is based on the market determined, risk adjusted discount rates.

  iii)   Superannuation

      Contributions are made by the Economic Entity to the parent entity’s superannuation fund and are charged as expenses when incurred. The Economic Entity has no legal obligation to meet any shortfall in the fund’s obligations to provide benefits to employees on retirement.

(j)   Leases

      Finance leases, which effectively transfer to the Economic Entity substantially all the risks and benefits incidental to ownership of the leased items, are capitalised at the present value of the minimum lease payments, disclosed as plant and equipment under lease, and amortised over the period the Economic Entity is expected to benefit from the use of the plant and equipment under lease.
 
      Operating lease payments, where the lessors effectively retain substantially all of the risks and benefits of ownership of the leased items, are included in the determination of the profit from ordinary activities in equal instalments over the lease term.

12


 

UNAUDITED

(k)   Investments

      Listed shares held for trading are carried at net market value. Changes in net market value are recognised as revenue or expense in the Statement of Financial Performance for the period.
 
      Where listed shares have been revalued, any capital gains tax which may become payable has not been taken into account in determining the revalued carrying amount. Where it is expected that a liability for capital gains tax exists, this amount is recognised in the Statement of Financial Performance for the reporting period.
 
      All other non-current investments are carried at the lower of cost and recoverable amount.
 
      Dividend income is recognised in the Statement of Financial Performance when received.
 
      The principles of consolidation of controlled entities are set out in Note 1(b).

(l)   Acquisition of Assets

      The cost method of accounting is used for all acquisitions of assets regardless of whether shares or other assets are acquired. Cost is determined as the fair value of the assets given up at the date of acquisition plus costs incidental to the acquisition.

(m)   Acquisition Costs

      The acquisition costs of assets are capitalised and amortised over the periods of their expected benefits.

(n)   Earnings per Share

      Basic earnings per share (EPS) is calculated as net profit attributable to members, adjusted to exclude 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 EPS is calculated as net profit attributable to members, 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.

13


 

UNAUDITED

(o)   Non Current Assets

      Non current assets are stated at amounts not exceeding their recoverable amount.
 
      Recoverable Amount of Non Current Assets
 
      The recoverable amount of an asset is the net amount expected to be recovered through the net cash inflows arising from its continued use and subsequent disposal.
 
      Where the carrying amount of a non current asset is greater than its recoverable amount the asset is written-down to its recoverable amount. Where net cash inflows are derived from a group of assets working together, the recoverable amount is determined on the basis of the relevant group of assets.
 
      The expected net cash flows included in determining recoverable amounts of non current assets are discounted to their present values using market determined, risk adjusted discount rates.
 
      Potential capital gains tax is not taken into account in determining revaluation amounts unless there is an intention to sell the assets concerned.

(p)   Capitalisation of Interest

      Interest is classified as part of the cost of development of mine properties where they relate to funds borrowed specifically for developing those properties.

(q)   Financial Instruments included in Equity

      Ordinary share capital is recorded at consideration received. The costs of issuing shares are charged against share capital. Ordinary share capital bears no special terms or conditions affecting income or capital entitlements of the shareholders.

(r)   Financial Instruments included in Liabilities

      Loans and bills payable are recognised when issued at the amount of the net proceeds received, with any premium or discount on issue amortised over the period to maturity. Interest is recognised as an expense over the period the loans and bills are outstanding.

(s)   Financial Instruments included in Assets

      Trade debtors are initially recorded at the amount of contracted sales proceeds. Sales to foreign customers are either unsecured or under letter of credit arrangements, depending on the quality of customer credit.

14


 

UNAUDITED

      Insurance claims receivable are brought to account when liability for a claim is acknowledged by the under-writer, at which time amounts receivable from the customer are written off.
 
      Provision for doubtful debts is recognised to the extent that recovery of the outstanding receivable balance is considered less than likely. Any provision established is based on a review of all outstanding amounts at balance date. A specific provision is maintained for identified doubtful debts, and a general provision is maintained in respect of receivables which are doubtful of recovery but which have not been specifically identified.
 
      Foreign currency options and forward exchange contracts are entered into as specific hedges of current receivables and future transactions and are recognised as either an asset or liability in the Statement of Financial Position. The premium or discount and gain or loss is deferred and included in the initial measurement of the anticipated item being hedged. Where it becomes probable that some or all of the hedged transactions will not occur as designated the deferred gains and losses relating to those transactions that are no longer expected to occur as designated are recognised immediately in the Statement of Financial Performance.
 
      Bank deposits, bills of exchange, promissory notes, loans, marketable securities and marketable equity securities are carried at the lower of cost or recoverable amount. Interest revenue is recognised over the period the financial assets are outstanding.
 
      Dividend revenue is recognised when the dividends are received.
 
      Purchases and sales of investments are recognised on the trade date.

(t)   Employee Share Option Ownership Schemes

      Certain employees are entitled to participate in share option ownership schemes. Details of these schemes are included in Note 29. There are no amounts required to be included in the financial accounts in relation to these schemes.

(u)   Payables

      Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Economic Entity.
 
      Payables to related parties are carried at the principal amount. Interest, when charged by the lender, is recognised as an expense on an accrual basis.
 
      Deferred cash settlements are recognised at the present value of the outstanding consideration payable on the acquisition of an asset discounted at prevailing commercial borrowing rates.

15


 

UNAUDITED

(v)   Revenue Recognition

      Sales revenue and revenue from the sale of assets is recognised when the property in the product or asset has passed to the buyer. Foreign currency revenues are converted to Australian dollars in accordance with the Foreign Currency Transaction and Balances policy described above.
 
      Interest revenue is recognised upon gaining control of the right to receive payment.

(w)   Provisions

      Provisions are recognised when the Economic Entity has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation.
 
      A provision for dividends is not recognised as a liability unless the dividends are declared, determined or publicly recommended on or before the reporting date.

(x)   Deferred Waste

      The costs of waste mined from pits in advance of ore are deferred and recognised in the Statement of Financial Position on a unit of ore production basis using medium term schedule projections of recoverable ore reserves and waste stripping for each pit, and having regard to long term projections.

(y)   Comparative Information

      Where necessary comparative information has been adjusted to ensure consistent disclosure with the current year.

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UNAUDITED

NOTE 2:
PROFIT AND LOSS ITEMS

                 
    Economic     Parent  
    Entity     Entity  
    2004     2004  
    $’000     $’000  
 
(a) Profit from ordinary items after crediting the following revenues:
               
Sales Revenue
               
Product Sales
    195,435        
 
Other Revenue
               
Interest received from other corporations
    1,704       1,416  
Management fees
    136        
Proceeds on sale of investments
    1,154        
Proceeds from sale of plant and equipment
    15        
Agency Fee
    456        
Other income
    23        
 
Total Other Revenue
    3,488       1,416  
 
Total Revenue from Ordinary Activities
    198,923       1,416  
 
 
               
(b) Profit from ordinary items after charging the following expenses:
               
 
               
Borrowing Costs
               
Interest paid/payable to other corporations
    60        
Finance lease charges
    29        
 
Interest expense
    89        
 
 
               
Other Expenses
               
Other Expenses include the following specific items:
               
Provision for write down of rail receivable
    (301 )      
Provision for write down of inventory to net realisable value
    4,794        
Written down value of investments sold
    1,247        
Written down value of plant and equipment sold
    17        
 
Total specific items
    5,757       (10,000 )
Other Expenses
    6        
 
Total Other Expenses
    5,763       (10,000 )
 
 
               
(c) Other Disclosures
               
Amortisation and depreciation
               
Mining ventures and tenements
    6,746        
Plant and equipment
    2,616        
Plant and equipment under finance lease
    106        
Other expense items
               
Operating lease charges
    368        
Government royalties
    11,338        
Provision for rehabilitation
    881        
Gain/(loss) on sale of property, plant & equipment
    (2 )      
Gain/(loss) on sale of investments
    (93 )      

17


 

UNAUDITED

NOTE 3:
INCOME TAX

The difference between income tax expense provided in the financial statements and the prima facie income tax expense is reconciled as follows:

                 
    Economic     Parent  
    Entity     Entity  
    2004     2004  
    $’000     $’000  
 
Profit from ordinary activities before income tax expense
    45,956       10,395  
Prima facie tax thereon at 30%
    13,787       3,118  
Tax effect of permanent and other differences:
               
Amortisation not deductible
    260        
Research and development uplift deductions
    (755 )      
Other permanent differences
    (88 )     (22 )
Benefit from tax losses not previously brought to account
    (1 )      
Reversal of provision for diminution on receivable
          (3,000 )
 
 
               
Total income tax expense attributable to profit from ordinary activities
    13,203       96  
 
 
               
The economic and parent entities have estimated capital tax losses, the benefit of which at 30%, have not been brought to account as follows:
 
               
Capital losses
    14,571       14,571  
 

The benefit for the capital tax losses will only be obtained if:

(i)   the Economic Entity derives future assessable income of a nature and amount sufficient to enable the benefit from the deductions to be realised;
 
(ii)   the Economic Entity continues to comply with conditions for deductibility imposed by tax legislation; and
 
(iii)   no changes in tax legislation adversely affect the Economic Entity in realising the benefit from the deductions for the losses.

Tax Consolidation

Effective 1 January 2004, for the purposes of income taxation, Portman Ltd and its 100% owned subsidiaries formed a tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned subsidiaries on a notional income tax basis. Amounts owed by the subsidiaries to the head entity are non-interest bearing and are repayable on demand by the head entity. The head entity of the tax consolidated group is Portman Ltd.

There were no material changes to the deferred tax balances as a result of the revised tax legislation.

Portman Ltd has not formally notified the Australian Tax Office of its adoption of the tax consolidation regime, but will do so when it lodges its income tax return for the year ended 31 December 2004.

18


 

UNAUDITED

NOTE 4
DIVIDENDS PAID OR PROVIDED FOR ON
ORDINARY SHARES

                 
    Economic Entity     Parent Entity  
    2004     2004  
    $'000     $'000  
 
 
               
(a) Dividends paid during the year
               
(i) Current year interim
               
Franked dividends (4.5c per share)
    7,876       7,876  
 
(ii)Previous year final
               
Franked dividends (4c per share)
    7,028       7,028  
 

(b)   Dividends Proposed

      In the ordinary course of events, the Portman Board would consider the declaration of a final dividend for the year ended 31 December 2004 at its board meeting at the end of February 2005. On the current timetable, the Cleveland-Cliffs Takeover Offer may have closed by that date. If the Offer Period is extended, the Portman Board presently intends to defer any decision in relation to the final dividend until the outcome of the Offer is known.

(c)   Franking credit balance

      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%
    1,440  
- franking credits that will arise from the payment of income tax payable as at the end of the financial year
    2,370  
 
 
    3,810  
 

The Economic Entity’s franking year extends for twelve months after its financial year.

NOTE 5:
CASH ASSETS (CURRENT)

                 
Cash at bank or on hand
    3,855       270  
Investments in short term money market instruments
    13,898       13,898  
 
 
    17,753       14,168  
 

Investments in short term money market instruments are bearing fixed interest rates of 5.65%.

19


 

UNAUDITED

NOTE 6
RECEIVABLES (CURRENT)

                         
            Economic Entity     Parent Entity  
            2004     2004  
    Notes     $’000     $’000  
 
Trade debtors
    (a )     11,415        
Other receivables
    (b )     7,503       62  
 
 
                       
 
            18,918       62  
 

Terms and conditions

(a)   Trade debtors are generally non-interest bearing with the majority settled within 30 days from the date of shipment.
 
(b)   Other receivables are non-interest bearing and have repayment terms between 30 and 90 days.

NOTE 7:
INVENTORIES (CURRENT)

                 
Work in progress (run of mine stocks) – at cost
    19,352        
Work in progress (run of mine stocks) – at net realisable value
    632        
Finished goods (stockpiles awaiting shipment) – at cost
    7,911        
 
 
 
    27,895        
 

NOTE 8:
OTHER ASSETS (CURRENT)

                 
Prepayments
    573        
Hedge contract receivable
    24,059        
Deferred waste removal
    543        
Deferred foreign exchange loss on hedge contracts
           
 
 
    25,175        
 

NOTE 9:
RECEIVABLES (NON CURRENT)

                         
Other debtors
    (a )     1,596        
Wholly owned group
    (b )                
Tax related
                  12,886  
Other
                  126,842  
 
 
 
            1,596       139,728  
 

Terms and Conditions

(a)   Other debtors are non-interest bearing and are due for repayment over 5 years. Other debtors have been recorded at the present value of the expected future cash flows discounted at market determined risk adjusted discount rates.
 
(b)   The receivables from wholly owned group companies are non interest bearing and have no fixed dates for repayment.

NOTE 10:
INVENTORIES (NON CURRENT)

                 
Work in progress (run of mine stocks) — at net realisable value
    18,724        
 

20


 

UNAUDITED

NOTE 11:
OTHER FINANCIAL ASSETS (NON CURRENT)

(a)   Investments carried at cost– Listed and Unlisted
 
    The Economic Entity has the following investments in listed entities.

             
    Country of   Percentage   Investments at Lower of
    Incorporation   Held   Cost or Recoverable Amount
        2004   2004
        %   $’000
Shares
           
Queensland Gas Company Limited*
  Australia    
 
During 2004 Portman sold its shareholding in Queensland Gas Company Limited (“QGC”).

The parent entity holds shares in controlled entities carried at $1,000 as shown in Note 11(b) below.

(b)   Controlled Entities of Portman Limited

             
        Percentage   Investments at Cost
        Held   or Written Down Value
    Country of   2004   2004
    Incorporation   %   $’000
Cockatoo Island Holdings Pty Ltd
  Australia   100  
Pelsoil Limited
  Australia   100  
Portman Investments Pty Ltd
  Australia   100  
Portman Finance Pty Ltd
  Australia   100  
Portman Mining Limited
  Australia   100   1
Portman Management Pty Ltd
  Australia   100  
Portman Iron Ore Limited
  Australia   100  
Portman Coal Investments Pty Ltd
  Australia   100  
Koolyanobbing Iron Pty Ltd
  Australia   100  
Esperance Iron Limited
  Australia   100  
 
 
          1
 

21


 

UNAUDITED

NOTE 12:
PROPERTY, PLANT AND EQUIPMENT (NON CURRENT)

                 
    Economic Entity     Parent Entity  
    2004     2004  
    $’000     $’000  
 
(a) Mining Ventures and Tenements at cost
               
Opening balance
    54,434        
Expenditure incurred during the year
    31,530        
Amortisation during the year
    (6,746 )      
 
 
               
Closing balance
    79,218        
 
Represented by:
               
Exploration and evaluation expenditure at cost
    1,045        
 
 
               
Development properties at cost
    1,267        
 
 
               
Mine properties at cost
    95,345        
 
Less accumulated amortisation
    (18,439 )      
 
 
    76,906        
 
               
Total at cost:
               
Exploration and Evaluation Expenditure
    1,045        
Development properties
    1,267        
Mine properties
    95,345        
 
 
    97,657        
 
               
Less accumulated amortisation
    (18,439 )      
 
Total Mining Ventures and Tenements
    79,218        
 
 
               
(b) Plant and Equipment        
Plant and equipment at cost Opening balance
    36,276        
Expenditure incurred during the year
    6,588        
Disposals
    (16 )      
Depreciation/amortisation during the year
    (2,722 )      
 
 
               
Closing balance
    40,126        
 
 
               
Plant and equipment at cost
    51,863        
Less accumulated depreciation
    (13,902 )      
 
 
               
 
    37,961        
 
 
               
Plant and equipment under finance lease
    3,294        
Less accumulated amortisation
    (1,129 )      
 
 
               
 
    2,165        
 
 
               
Total Plant and Equipment
    40,126        
 
 
               
Total Property, Plant and Equipment
    119,344        
 

22


 

UNAUDITED

NOTE 13:
DEFERRED TAX ASSETS (NON CURRENT)

                 
    Economic Entity     Parent Entity  
    2004     2004  
    $’000     $’000  
 
Future income tax benefit:
               
Attributable to timing differences
    2,083         2,083  
 

NOTE 14:
OTHER ASSETS (NON CURRENT)

                 
Hedge contract receivable
    7,523        
Deferred foreign exchange loss
    169        
Prepaid option expense
    169        
Deferred waste removal
    2,719        
 
 
    10,580        
 

NOTE 15:
PAYABLES (CURRENT)

                 
Trade creditors and accruals
    21,881       74  
 

Terms and Conditions

(a)   Trade creditors and accruals are non-interest bearing and are normally settled on 30 day terms.

NOTE 16:
INTEREST BEARING LIABILITIES (CURRENT)

                 
Finance lease liabilities (refer Note 30)
    62        
 

NOTE 17:
TAX LIABILITIES (CURRENT)

                 
Income tax payable
    3,538       3,538  
 

NOTE 18:
PROVISIONS (CURRENT)

                 
Employee entitlements (refer Note 29)
    608        
 

NOTE 19:
OTHER LIABILITIES (CURRENT)

                 
Deferred foreign exchange gain on hedge contracts
    24,059        
Deferred foreign exchange gain on pre delivery into designated hedge contracts
    1,115        
 
 
               
 
    25,174        
 

NOTE 20:
DEFERRED TAX LIABILITIES (NON CURRENT)

                 
Provision for deferred income tax
               
Attributable to timing differences
    11,566       11,566  
 

23


 

UNAUDITED

NOTE 21:
PROVISIONS (NON CURRENT)

                 
    Economic Entity     Parent Entity  
    2004     2004  
    $’000     $’000  
 
Rehabilitation provision
    2,344        
Employee entitlements (refer Note 29)
    176        
 
 
    2,520        
 

NOTE 22:
OTHER LIABILITIES (NON CURRENT)

                 
Deferred foreign exchange gain on hedge contracts
    7,523        
Hedge contract payable
    169        
 
 
    7,692        
 

NOTE 23:
CONTRIBUTED EQUITY

                         
            Parent Entity  
            2004  
            Number of        
            Shares     $’000  
(a) Contributed Equity
                       
Balance at beginning of the year
            174,425,712       106,028  
Options exercised
            4,962,498       5,356  
Share buy-back
    (i )     (3,775,137 )     (5,703 )
 
Balance at end of the year
            175,613,073       105,681    
 


(i)   Portman Limited undertook an on-market share buy-back as part of a capital management initiative designed to optimise the Company’s capital structure and enhance returns to equity holders. As a result 3,775,137 fully paid ordinary shares were bought back by Portman Limited at a weighted average price of $1.51. The total cost of the buy-back was $5,702,929, which was all debited to the contributed equity account.
 
(b)   Share Options
 
    Employee Share Option Plan, Non Employee Share Option Plan and Directors’ Options
Details of options issued, cancelled and exercised during the year and options outstanding at 31 December 2004 are included in Note 29.
 
(c)   Terms and Conditions of Contributed Equity
 
    Ordinary shares
 
    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.

24


 

UNAUDITED

NOTE 24:
RETAINED PROFITS

                 
    Economic Entity     Parent Entity  
    2004     2004  
    $’000     $’000  
 
Balance at the beginning of year
    45,497       39,788  
Net profit attributable to members of Portman Limited
    32,753       10,299  
 
 
               
Total available for appropriation
    78,250       50,087  
Dividends provided for or paid
    (14,904 )     (14,904 )
 
Balance at end of year
    63,346       35,183  
 

NOTE 25:
EARNINGS PER SHARE

         
    Economic Entity  
    2004  
    $’000  
 
Basic earnings per share – cents
    18.87  
Diluted earnings per share – cents
    18.77  

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

         
(a) Income data
       
Net profit / (loss)
    32,753  
Adjustments
     
 
 
       
Earnings used in calculating basic and diluted earnings per share
    32,753  
 
         
    2004  
    Number  
    of shares  
(b) Share data
       
Weighted average number of ordinary shares used in calculating basic earnings per share:
    173,612,937  
 
       
Effect of dilutive securities:
       
Share options
    894,323  
 
 
       
Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share:
    174,507,260  
 

(c)   Conversions, calls, subscription or issues after 31 December 2004
 
    Since the end of the financial year, 77,000 ordinary shares have been issued pursuant to the ESOP.
 
(d)   Options
 
    Details of options are set out in Note 29.

25


 

UNAUDITED

NOTE 26:
INTERESTS IN JOINT VENTURE OPERATIONS

(a)   The Economic Entity has an interest in joint venture operations as follows:

                 
            Interest held in  
            share of output  
Joint Venture Operations   Principal activities     2004  
 
              %
Cockatoo Island Joint Venture Operation
  Iron ore mining     50 %

(b)   Cockatoo Island Joint Venture operation net assets
 
    The Economic Entity’s share of the assets and liabilities of the joint venture operation which have been included in the financial statements is:

         
    Economic  
    Entity  
    2004  
    $’000  
CURRENT ASSETS
       
Receivables
    136  
Inventories
    1,419  
 
 
       
 
    1,555  
 
 
       
NON CURRENT ASSETS
       
Property, plant and equipment
    10,671  
 
 
       
TOTAL ASSETS
    12,226  
 
 
       
CURRENT LIABILITIES
       
Payables
    144  
 
       
NON CURRENT LIABILITIES
       
Provisions
    528  
Deferred foreign exchange gain
    119  
 
 
       
 
    647  
 
 
       
TOTAL LIABILITIES
    791  
 
 
       
NET ASSETS EMPLOYED
    11,435  
 

For details of capital expenditure commitments and contingent liabilities relating to the joint venture operation refer to Notes 30 and 32 respectively.

26


 

UNAUDITED

NOTE 27:
REMUNERATION OF AUDITORS

                 
    Economic     Parent  
    Entity     Entity  
    2004     2004  
    $’000     $’000  
 
Amounts paid or due and payable to the auditors for:
               
Auditing the accounts and consolidated accounts of Portman Limited and the accounts for each of its controlled entities Our auditors
    79        
 
 
    79        
 
 
               
Other services provided by our auditors:
               
Taxation Advisory
               
- Compliance
    75        
- Research and Development
    90        
- Other
    18        
Accounting Advisory
               
- International Financial Reporting Standards
    15        
Corporate Finance Advisory
               
- Calculation Review of Corporate Financial Model
    33        
 
 
               
 
    231        
 
 
               
 
    310        
 
 
               
Amounts paid or due and payable to accounting firms other than our auditors:
               
Accounting Advisory
               
- International Financial Reporting Standards
    11        
Other Services
               
- Risk Management Review
    39        
 
 
               
 
    50        
 
 
               
 
    360        
 

The auditors received no other benefits.

The Company is satisfied that the other services provided by our auditors have not impaired their independence with regard to the audit services provided.

27


 

UNAUDITED

NOTE 28:
REMUNERATION OF DIRECTORS AND EXECUTIVES

(a)   Details of Specified Directors and Specified Executives

(i)   Specified directors

     
GF Jones
  Chairman (non-executive)
BJ Eldridge
  Managing Director
R Knight
  Director (non-executive)
MD Perrott
  Director (non-executive)
FE Harris
  Director (non-executive)
MH Macpherson
  Director (non-executive)

(ii)   Specified executives

     
GT Clifford
  Company Secretary/General Manager Administration
RR Mehan
  Chief Operating Officer
AJ Schoer
  Chief Financial Officer
P Nolan
  Manager Operations – Koolyanobbing
S Fujikawa
  General Manager — Marketing
J Shellabear *
  General Manager Business Development
P Bilbe *
  Manager Development


*   ceased employment during the year

(b)   Remuneration of Specified Directors and Specified Executives

(i)   Remuneration Policy
 
    Remuneration of directors and senior executives of the Company is established by the Nomination and Remuneration Committee. The Nomination and Remuneration Committee’s role is to review and make recommendations to the Board on remuneration packages and policies. This role also includes responsibility for share option schemes, incentive performance packages, superannuation entitlements, retirement and termination entitlements, fringe benefits policies and professional indemnity and liability insurance policies. Remuneration levels are competitively set to attract the most qualified and experienced directors and senior executives. The Nomination and Remuneration Committee meets as required.
 
    The key performance indices upon which the cash bonuses are paid are determined annually by the Nomination and Remuneration Committee. The primary key performance indices used for the 2004 cash bonuses were the achievement of annual corporate safety and financial targets. The most significant financial targets were net profit after tax and operating cash flow.
 
    In the event of a redundancy, the employment contracts of the Managing Director and certain Specified Executives contain payout clauses ranging from six to twelve months of their respective base salary.

28


 

UNAUDITED

NOTE 28:
REMUNERATION OF DIRECTORS AND EXECUTIVES (CONTINUED)

(ii)   Remuneration of Specified Directors and Specified Executives

                                                         
    Primary     Post Employment                    
    Salary &                     Retirement     Equity              
    Fees     Cash Bonus     Super-annuation     benefits     Options     Other     Total  
    $     $     $     $     $     $     $  
 
Specified Directors
                                                       
GF Jones
2004
    113,282             10,048             106,000             229,330  
 
                                                       
BJ Eldridge
2004
    508,707       237,899       11,293             119,150             877,049  
 
                                                       
R Knight
2004
    70,331             6,330                         76,661  
 
                                                       
MD Perrott
2004
    70,331             6,330                         76,661  
 
                                                       
FE Harris
2004
    74,329             6,690                         81,019  
 
                                                       
MH Macpherson
2004
    95,737             8,617                         104,354  
 
                                                       
Total Remuneration: Specified Directors                                        
2004
    932,717       237,899       49,308             225,150             1,445,074  
 
                                                       
 
Specified Executives                                                
RR Mehan
2004
    284,959       68,250       11,293             18,603             383,105  
 
                                                       
GT Clifford
2004
    211,656       38,603       11,293             28,270             289,822  
 
                                                       
AJ Schoer
2004
    290,746       62,920       11,293             22,342             387,301  
 
                                                       
J Shellabear (i)
2004
    133,711             5,492             19,842       130,000       289,045  
 
                                                       
P Bilbe (i)
2004
    68,526             2,750                   11,764       83,040  
 
                                                       
P Nolan (ii)
2004
    183,707       32,184       11,293             20,150       62,700       310,034  
 
                                                       
S Fujikawa
2004
    203,500       46,794                   39,570             289,864  
 
                                                       
Total Remuneration: Specified Executives                                        
2004
    1,376,805       248,751       53,414             148,777       204,464       2,032,211  

29


 

UNAUDITED

NOTE 28:
REMUNERATION OF DIRECTORS AND EXECUTIVES (CONTINUED)

(i)   Remuneration for J Shellabear and P Bilbe includes redundancy payments included in “other”.
 
(ii)   P Nolan receives various remote living allowances which is included in “other”.
 
(c)   Remuneration options: Granted and vested during the year

                                                         
                            Terms & Conditions for Each Grant  
                            Value per     Exercise              
                            option at     Price per     First     Last  
    Vested     Granted     Grant     grant date     share     Exercise     Exercise  
    Number     Number     Date     $     $     Date     Date  
 
Specified Directors
                                                   
GF Jones
    333,333                                      
BJ Eldridge
    500,000                                      
 
                                                       
Specified Executives                                                
RR Mehan
    66,667                                      
GT Clifford
    100,000                                      
AJ Schoer
    83,333                                      
P Nolan
    50,000                                      
S Fujikawa
    100,000                                                  
J Shellabear
    83,333                                      
 
                                                       
                                             
Total
    1,316,666                                                
                                             

No options were granted as equity compensation benefits to specified directors or specified executives during the financial year.

30


 

UNAUDITED

(d)   Shares issued on exercise of remuneration options

                         
    Shares              
    issued     Paid     Unpaid  
    Number     $ per share     $ per share  
 
Specified Directors
                       
GF Jones
    750,000       0.984        
GF Jones
    1,000,000       1.227        
BJ Eldridge
    500,000       1.031        
MD Perrott
    500,000       0.984        
 
                       
Specified Executives
                       
RR Mehan
    67,000       1.153        
RR Mehan
    33,000       1.160        
GT Clifford
    120,000       1.153        
AJ Schoer
    63,000       1.160        
P Nolan
    33,000       2.427        
P Nolan
    67,000       1.153        
S Fujikawa
    100,000       1.153        
S Fujikawa
    50,000       0.700        
S Fujikawa
    33,000       1.160        
 
                     
Total
    3,316,000                  
 
                     

31


 

UNAUDITED

NOTE 28:
REMUNERATION OF DIRECTORS AND EXECUTIVES (CONTINUED)

(e)   Option holdings of Specified Directors and Specified Executives

                                                                 
                                            Vested at 31 December 2004  
    Balance at                                                
    beginning of     Granted as           Net     Balance at end             Not        
    period     Remunerati-     Options     Change     of period             exercis-        
    1 Jan 04     on     Exercised     Other     31 Dec 04     Total     able     Exercisable  
    No.     No.     No.     No.     No.     No.     No.     No.  
 
Specified Directors                                                        
GF Jones
    1,750,000             1,750,000                                
BJ Eldridge
    1,500,000             500,000             1,000,000                    
MD Perrott
    500,000             500,000                                
 
                                                               
Specified Executives                                                        
RR Mehan
    167,000             100,000             67,000       333             333  
AJ Schoer
    250,000             63,000             187,000       20,333             20,333  
GT Clifford
    270,000             120,000             150,000       83,333             83,333  
P Nolan
    117,000             100,000             17,000       333             333  
S Fujikawa
    250,000             183,000             67,000       333             333  
     
Total
    4,804,000             3,316,000             1,488,000       104,665             104,665  
     

(f)   Shareholdings of Specified Directors and Specified Executives

                                         
    Balance     Granted as     On Exercise of             Balance  
    1 Jan 04     Remuneration     Options     Shares Sold     31 Dec 04  
    No.     No.     No.     No.     No.  
 
Specified Directors
                                       
GF Jones
    3,000,000             1,750,000             4,750,000  
BJ Eldridge
    157,000             500,000             657,000  
MD Perrott
    120,000             500,000             620,000  
R Knight
    100,000                         100,000  
 
                                       
Specified Executives
                                       
RR Mehan
                100,000       (100,000 )      
AJ Schoer
                63,000       (63,000 )      
GT Clifford
    20,000             120,000       (120,000 )     20,000  
P Nolan
                100,000       (67,000 )     33,000  
S Fujikawa
                183,000       (183,000 )      
 
     
Total
    3,397,000             3,316,000       (533,000 )     6,180,000  
     

All equity transactions with specified directors and specified executives other than those arising from the exercise of remuneration options have been entered into

32


 

UNAUDITED

under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length.

NOTE 29:
EMPLOYEE ENTITLEMENTS

                 
    Economic     Parent  
    Entity     Entity  
    2004     2004  
    $’000     $’000  
 
Provision for employee entitlements – current
    608        
Provision for employee entitlements – non current
    176        
 
[refer Notes1(i), 18 and 21]
    784        
 
 
               
The number of employees as at year end
    78       5  
 

Portman Limited Employee Option Plans

Portman Limited previously had two employee option plans in existence. The Employee Option Plan (EOP) and the Employee Share Option Plan (ESOP). All options issued under the Portman Limited Employee Option Plan (EOP) have been exercised, have expired or have been cancelled. The Portman Limited Employee Share Option Plan (ESOP) is the only plan now operating.

In addition, Portman has issued options called Directors Options that are not under, but are subject to the rules of, the ESOP and Non ESOP Options that are separate entirely from the ESOP.

Portman Limited Employee Share Option Plan (Unquoted Securities)

The Portman Limited Employee Share Option Plan (ESOP) was adopted by the shareholders of the Company on 8 April 1998 to effectively replace the EOP referred to above. The ESOP contains Company performance hurdles that must be achieved before options become exercisable.

Under the ESOP options to subscribe for fully paid ordinary shares of the Company may be issued to participants. Eligible employees (being employees, directors or consultants to any Portman Group Company), subject to invitation to participate by the Board of Directors of the Company, may participate in the ESOP.

Each ESOP option may convert to one fully paid ordinary share. The total number of shares granted under this ESOP, excluding any exercised, lapsed or cancelled options, must not exceed 5% of the then issued share capital of the Company on a fully diluted basis (notwithstanding that those shares may for any reason subsequently represent more than 5% of that capital).

Any ESOP option which has not been exercised before the fifth anniversary of its issue date automatically lapses.

The exercise price of each ESOP option will be not less than the weighted average of the last sale prices of the Company’s fully paid ordinary shares on the Australian Stock Exchange over the five trading days on which a sale was effected immediately preceding the day on which the Board resolves to issue the ESOP option.

The issue price of shares issued on the exercise of ESOP options is recognised as issued capital at the date of issue.

33


 

UNAUDITED

NOTE 29:
EMPLOYEE ENTITLEMENTS (CONTINUED)

Information with respect to options granted under the employee share option plan, non employee share option plan and director option plan is summarized below:

                         
            2004  
                    Weighted  
                    average  
            Number of     exercise  
            options     price  
 
Balance at beginning of year
    29 (a)     10,124,931       1.31  
 
                       
- granted
    29 (b)            
- forfeited
                   
- cancelled
            (167,000 )     1.03  
- exercised
    29 (c)     (4,962,498 )     1.08  
 
                       
 
Balance at end of year
    29 (d)     4,995,433       1.75  
   
Exercisable at end of year
            2,288,766       1.90  
   

(a)   Options held at the beginning of the reporting period

The following table summarises information about options held by employees as at 1 January 2004:

                                         
    Number of                             Weighted  
Plan Type   Options     Grant date     Vesting date     Expiry date     average  
ESOP
    50,000     13-Mar-00   13-Mar-01   13-Mar-05     0.700  
ESOP
    67,000     01-Mar-01   01-Mar-02   01-Mar-06     1.013  
ESOP
    654,335     02-Apr-01   02-Apr-02   02-Apr-06     1.153  
ESOP
    250,000     11-Feb-02   11-Feb-03   11-Feb-07     1.765  
ESOP
    945,000     19-Apr-02   19-Apr-03   19-Apr-07     2.427  
ESOP
    250,000     21-Feb-03   21-Feb-04   21-Feb-08     1.031  
ESOP
    550,000     25-Jun-03   25-Jun-04   25-Jun-08     1.160  
Non ESOP
    58,596     29-Jan-01   29-Jan-02   29-Jan-06     1.290  
Non ESOP
    750,000     01-Oct-02   01-Oct-03   01-Oct-07     1.919  
Non ESOP
    1,500,000     29-Aug-03   29-Aug-04   29-Aug-08     1.031  
Directors Options
    1,750,000     10-May-00   10-May-01   10-May-05     0.984  
Directors Options
    800,000     24-May-01   24-May-02   24-May-06     0.924  
Directors Options
    1,500,000     24-May-01   24-May-02   24-May-06     1.227  
Directors Options
    1,000,000     19-Apr-02   19-Apr-03   19-Apr-07     2.427  
 
                                     
 
    10,124,931                                  
 
                                     

34


 

UNAUDITED

NOTE 29:
EMPLOYEE ENTITLEMENTS (CONTINUED)

(b) Options granted during the reporting period

(i) No options were granted by Portman Limited to employees during 2004.

(c) Options exercised

(i) The following table summarises information about options exercised by eligible option holders during the year ended 31 December 2004:

                                                                 
                                    Weighted     Proceeds              
    Number                             average     from     Number of     Fair value of  
Plan   of             Exercise &     Expiry     exercise     shares     shares     shares  
Type   options     Grant date     issue date     date     price     issued     issued     issued  
ESOP
    293,667     02-Apr-01   23-Sep-04   02-Apr-06     1.153       338,598       293,667       2.08  
ESOP
    50,000     13-Mar-00   23-Sep-04   13-Mar-05     0.700       35,000       50,000       2.08  
ESOP
    33,000     25-Jun-03   23-Sep-04   25-Jun-08     1.160       38,280       33,000       2.08  
ESOP
    59,000     25-Jun-03   28-Oct-04   25-Jun-08     1.160       68,440       59,000       2.48  
ESOP
    37,000     25-Jun-03   03-Sep-04   25-Jun-08     1.160       42,920       37,000       1.83  
ESOP
    77,000     02-Apr-01   09-Sep-04   02-Apr-06     1.153       88,781       77,000       1.97  
ESOP
    83,000     29-Aug-03   31-Mar-04   29-Aug-08     1.031       85,573       83,000       1.53  
ESOP
    5,000     02-Apr-01   02-Dec-04   02-Apr-06     1.153       5,765       5,000       3.00  
ESOP
    100,000     19-Apr-02   02-Dec-04   19-Apr-07     2.427       242,700       100,000       3.00  
ESOP
    46,667     02-Apr-01   29-Jul-04   02-Apr-06     1.153       53,807       46,667       1.90  
ESOP
    67,000     02-Apr-01   12-Aug-04   02-Apr-06     1.153       77,251       67,000       1.94  
ESOP
    23,334     02-Apr-01   15-Apr-04   02-Apr-06     1.153       26,904       23,334       1.48  
Directors Options
    1,000,000     24-May-01   03-Sep-04   24-May-06     1.227       1,227,000       1,000,000       1.83  
Directors Options
    1,750,000     10-May-00   03-Sep-04   10-May-05     0.984       1,722,000       1,750,000       1.83  
Directors Options
    200,000     24-May-01   05-Aug-04   24-May-06     0.924       184,800       200,000       2.05  
Directors Options
    300,000     24-May-01   22-Jul-04   24-May-06     0.924       277,200       300,000       1.90  
Directors Options
    300,000     24-May-01   25-Mar-04   24-May-06     0.924       277,200       300,000       1.56  
Non ESOP
    500,000     29-Aug-03   03-Sep-04   29-Aug-08     1.031       515,500       500,000       1.83  
Non ESOP
    37,830     29-Jan-01   04-Nov-04   29-Jan-06     1.290       48,801       37,830       2.46  
 
                                                           
 
    4,962,498                                       5,356,520                  
 
                                                           

Fair value of shares issued during the reporting period is estimated to be the market price of shares of Portman Limited on the ASX as at close of trading on their respective dates.

35


 

UNAUDITED

NOTE 29:
EMPLOYEE ENTITLEMENTS (CONTINUED)

(d) Options held as at the end of the reporting date

The following table summarises information about options held by eligible option holders as at 31 December 2004:

                                         
                                    Weighted  
    Number of                             average exercise  
Plan Type   Options     Grant date     Vesting Date     Expiry date     price  
ESOP
    67,000     01-Mar-01   01-Mar-02   01-Mar-06     1.013  
ESOP
    141,667     02-Apr-01   02-Apr-02   02-Apr-06     1.153  
ESOP
    845,000     19-Apr-02   19-Apr-03   19-Apr-07     2.427  
ESOP
    250,000     11-Feb-02   11-Feb-03   11-Feb-07     1.765  
ESOP
    421,000     25-Jun-03   25-Jun-04   25-Jun-08     1.160  
Non ESOP
    20,766     29-Jan-01   29-Jan-02   29-Jan-06     1.290  
Non ESOP
    750,000     01-Oct-02   01-Oct-03   01-Oct-07     1.919  
Non ESOP
    1,000,000     29-Aug-03   29-Aug-04   29-Aug-08     1.031  
Directors Options
    500,000     24-May-01   24-May-02   24-May-06     1.227  
Directors Options
    1,000,000     19-Apr-02   19-Apr-03   19-Apr-07     2.427  
 
                                     
 
    4,995,433                                  
 
                                     

Superannuation Commitments

The employer contributes in accordance with the Government Superannuation Guarantee Legislation.

36


 

UNAUDITED

NOTE 30:
COMMITMENTS FOR EXPENDITURE

                 
    Economic     Parent  
    Entity     Entity  
    2004     2004  
    $’000     $’000  
 
Lease Commitments
               
Operating lease commitments contracted for at year end but not provided for in the financial statements
               
 
               
Not later than one year
    412        
Later than one year but not later than two years
    412        
Later than two years but not later than five years
    1,615        
 
 
    2,439        
 

Operating leases are entered into as a means of acquiring access to office premises. Rental payments are generally fixed with inflation escalation clauses on which contingent rentals are determined. Outgoings related to the occupation of premises are included in these commitments.

                 
Finance Lease Commitments
               
Not later than one year
    62        
Later than one year but not later than two years
           
Later than two years but not later than five years
           
 
 
    62        
Less future finance charges
           
 
 
    62        
 

Finance leases are entered into as a means of funding the acquisition of some items of plant and equipment. Rental payments are fixed. The parent entity has guaranteed the performance of the finance lease.

                 
Representing lease liabilities:
               
Current (refer note 16)
    62        
Non Current
           
 
 
    62        
 
 
               
Capital Commitments
               
Not later than one year
    40,214        
Later than one year but not later than two years
           
Later than two years but not later than five years
           
 
 
    40,214        
 

Operating Contract Commitments

1.   Commitments exist under long term take or pay agreements relating to the rail and port facilities which have been entered into by a controlled entity within the Economic Entity.
 
2.   Other commitments contracted for at year end but not provided for in the financial statements

                 
Not later than one year
    4,092        
Later than 1 year but not later than 2 years
    4,092        
Later than 2 years but not later than 5 years
    12,275        
Later than 5 years
    28,912        
 
 
    49,371        
 
 
               
Mining Tenements
               
Annual expenditure commitments to maintain current rights of tenure to mining tenements
    1,763        
 

37


 

UNAUDITED

NOTE 31:
SEGMENT INFORMATION

Segment products and locations

The consolidated entity’s operating companies are organised and managed separately according to the nature of the products and services they provide, with each segment offering different products and serving different markets.

The Iron Ore segment produces and sells iron ore products to the world steel making industry. The Silicon segment was sold during 2003. The Corporate & Net Interest segment includes revenues and expenses associated with the investment portfolio that is managed by the Economic Entity and other revenues and expenses associated with general head office activities.

Geographically, the group operates only in Australia.

Segment accounting policies

The group generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties at current market prices. Revenues are attributed to geographic areas based on the location of the assets producing the revenues. Segment accounting policies are the same as the consolidated entity’s policies described in Note 1. During the financial year, there were no changes in segment accounting policies that had a material effect on the segment information.

38


 

UNAUDITED

NOTE 31:
SEGMENT INFORMATION (CONTINUED):

                                 
    2004  
                    Corporate        
                    & Net        
    Iron Ore     Silicon     Interest     Consolidated  
    $’000     $’000     $’000     $’000  
 
Revenue
                               
Sales to customers outside the consolidated entity
    195,435                   195,435  
Other revenues from customers outside the consolidated entity
    886             2,602       3,488  
 
Total Segment Revenue
    196,321             2,602       198,923  
 
 
                               
Result
                               
 
                               
Segment result
    51,790             (5,834 )     45,956  
 
Consolidated entity profit from ordinary activities before income tax expense
    51,790             (5,834 )     45,956  
Income tax expense
                            (13,203 )
 
                             
Consolidated entity profit from ordinary activities after income tax expense before Outside Equity Interest
                            32,753  
 
                             

39


 

UNAUDITED

NOTE 31:
SEGMENT INFORMATION (CONTINUED):

                                 
    2004  
                    Corporate        
                    & Net        
    Iron Ore     Silicon     Interest     Consolidated  
    $’000     $’000     $’000     $’000  
 
Assets
                               
Segment assets
    224,053             18,015       242,068  
     
Total assets
    224,053             18,015       242,068  
     
 
                               
Liabilities
                               
Segment liabilities
    56,702             16,339       73,041  
     
Total liabilities
    56,702             16,339       73,041  
     
 
                               
Other segment information
                               
Acquisition of PPE, intangible assets & other non current assets
    38,071             47       38,118  
Depreciation
    2,605             117       2,722  
Amortisation
    6,746                   6,746  

40


 

UNAUDITED

NOTE 32:
CONTINGENT LIABILITIES

Contingent liabilities not otherwise provided for in these financial statements are:

1.   The parent entity has guaranteed the lease liabilities of a controlled entity under an operating lease for premises to a maximum of $504,620.
 
2.   The parent entity has guaranteed the performance of a controlled entity under a hire purchase arrangement with Commonwealth Bank Finance Corporation.
 
3.   The parent entity has guaranteed the performance of a controlled entity under a long term contract with the Esperance Port Authority for the provision of port services related to the exporting of iron ore.
 
4.   The parent entity has contingent liabilities in respect of termination benefits which may arise pursuant to service agreements entered into with executives and employees who take part in the management of the Economic Entity. The maximum amount of the contingent liability is dependent upon the circumstances in which the employment is terminated.
 
5.   The parent entity has guaranteed the performance of a controlled entity’s obligations under a Farm in Agreement in respect of a petroleum lease.
 
6.   Controlled entities within the Economic Entity have guaranteed the performance of a third party’s obligations to BHP Minerals Limited in respect of mining leases on which the Cockatoo Island Joint Venture carries out mining operations.
 
7.   In the Sale and Purchase Agreement, for the sale of the Burton Coal Project, dated 15 September 1999 between RAG Australia Coal Pty Ltd, RAG International Mining GmbH, Portman Limited and Pelsoil Limited, various warranties, indemnities and guarantees were given to RAG by Portman or Pelsoil.
 
    No claims in respect to warranties, indemnities or guarantees have been or are expected to be received by Portman or Pelsoil.
 
8.   A claim of $491,562 has been made against the parent entity by a former employee in respect of the cancellation of employee share options. This claim is being defended by the company.
 
9.   Native Title claims exist over the land that the Koolyanobbing Project and Cockatoo Island Joint Venture occupy. Under the Native Title Act the Project and Joint Venture are however protected for all current and future mining operations on existing mining leases. Applications for new mining leases may require agreement with any Native Title applicant regarding compensation before the mining lease would be granted by the Government.
 
10.   A Section 10 heritage protection application is under consideration by the Federal Minister. This is by a group related to parties who have previously sought to prevent new mine development. None of these particular applicants

41


 

UNAUDITED

    have demonstrated cultural connection to the area or specific knowledge relating to any sites requiring protection. Following detailed reporting, two previous Section 10 protection applications were rejected by the Federal Minister. Portman considers the potential for the remaining application to cause disruption to operations to be very low.
 
11.   On 12 January 2005, Cleveland-Cliffs Inc (Cliffs) announced a A$3.40 per share cash takeover offer for Portman Limited, valuing the company at approximately A$605 million. The offer has the unanimous support of the Portman board and, in the absence of a superior offer, the Portman directors have recommended that Portman shareholders accept the offer and they have indicated that they intend to accept the offer (in the absence of a superior offer) with respect to their own shareholdings. Portman has agreed to pay a break fee of 1% of the bid consideration if the board of Portman withdraws its recommendation of the bid in the absence of a superior competing offer or if a competing offeror acquires control of Portman.

NOTE 33:
FINANCING ARRANGEMENTS

                 
    Economic     Parent  
    Entity     Entity  
    2004     2004  
    $’000     $’000  
 
The following lines of credit with financial institutions were available at the year end:
               
Total Credit Facilities
               
Multi — option facility
    40,000       40,000  
 
               
Drawn Down Portions
               
Multi — option facility — bank guarantees
    (8,926 )     (8,926 )
 
               
Net Unused Credit Facilities
               
     
Multi — option facility
    31,074       31,074  
     

The unused facilities at year end are available for any use within the Economic Entity. The $40,000,000 Multi-option facility is subject to annual review. The Multi-option facility is secured by a first ranking fixed and floating charge over all the assets and undertakings of the group, granted by the parent entity and all wholly owned entities.

During the year the Economic Entity secured long term funding from concluded long term sales agreements to assist with the funding of the 8Mpta expansion of the Koolyanobbing operation. As at 31 December 2004 USD 7,700,000 had been secured, due to be advanced in full by 31 March 2005.

NOTE 34:
FINANCIAL INSTRUMENTS

(a)   Objectives for Holding Derivative Financial Instruments

The Economic Entity uses derivative financial instruments to manage specifically identified foreign currency exposures. The Economic Entity is primarily exposed to

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the risk of adverse movements in the Australian dollar compared to the United States dollar. The primary objective of using derivative financial instruments is to reduce the volatility of earnings attributable to changes in AUD/USD, and to protect against undue adverse movements in these rates. The purposes for which specific derivative instruments are used are as follows:

Foreign currency options (uncommitted) and forward exchange contracts (committed) are purchased to hedge the Australian dollar value of US dollar receipts arising from both completed and forecasted export sales. Foreign currency hedging can commit the Economic Entity to sell US dollars at an agreed rate of exchange. All foreign currency options and forward exchange contracts are denominated in US dollars and contracted against Australian dollars. The Economic Entity hedges a portion of its anticipated future sales for periods up to three years (rolling monthly) from the end of the financial year. The Board of Directors has set the following guidelines for the portion of forecasted export sales that can be hedged:

         
        Aggregate Committed
    Committed Hedging   and Uncommitted Hedging
    Max   Band
  0–12 months
  90%   50% - 90%
13–24 months
  30%   25% - 75%
25–36 months
  15%   15% - 50%

All proposals for additional foreign exchange hedging outside the parameters stated above must be submitted to the Treasury Policy Committee, comprising an external independent advisor and five other committee members and then approved by the Portman Board of Directors.

NOTE 34:
FINANCIAL INSTRUMENTS (CONTINUED)

(b)   Interest Rate

Interest rate risk for the Economic Entity, together with effective interest rates as at 31 December 2004.

                                                                 
    Fixed interest rate maturing in                
    Floating             Over     More     Non-                
    interest     1 year     1 to 5     than 5     interest             Average  
    rate     or less     years     years     bearing     Total     interest rate  
    $’000     $’000     $’000     $’000     $’000     $’000     floating     fixed  
 
Financial assets
                                                               
Cash
    3,855                               3,855       4.25 %      
Bills receivable/Bank bills
          13,898                         13,898             5.65 %
Trade debtors
                            11,415       11,415              
Other receivables
                            9,099       9,099              
Hedge contract receivables
                            31,582       31,582              
 
 
                                                               
 
    3,855       13,898                   52,096       69,849              
 
 
                                                               
Financial liabilities
                                                               
Trade creditors
                            21,881       21,881              
Equipment HP
          62                         62             6.25 %
Hedge contract payable
                            169       169              
 
 
          62                   22,050       22,112                  
 

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NOTE 34:
FINANCIAL INSTRUMENTS (CONTINUED)

(c)   Foreign Exchange

The following table summarises by currency the Australian dollar value of forward foreign exchange agreements and foreign currency options. Foreign currency amounts are translated at rates current at the reporting date. The ‘buy’ amounts represent the Australian dollar equivalent of commitments to purchase foreign currencies, and the ‘sell’ amount represents the Australian dollar equivalent of commitments to sell foreign currencies. Contracts, options, collars and convertible collars to sell foreign currency are entered into from time to time to offset sale obligations so as to maintain a properly hedged position.

                         
US$ denominated   Average     2004  
Forward Foreign   exchange rate     Buy     Sell  
Exchange Agreements   2004     $’000     $’000  
 
Within one year
    0.6654             157,207  
One to three years
    0.6550             41,223  
 
 
                       
Total
                  198,430  
 
                         
US$ denominated   Average     2004  
Foreign Currency   exchange rate     Buy     Sell  
Options   2004     $’000     $’000  
 
Within one year
                 
One to two years
                 
 
 
                       
Total
                   
 
                         
US$ denominated   Average     2004  
Foreign Currency   exchange rate     Buy     Sell  
Collars   2004     $’000     $’000  
 
Within one year (1)
    0.6950             7,194  
One to three years (2)
    0.6875             7,273  
 
Total
                  14,467  
 
                         
US$ denominated   Average     2004  
Foreign Currency   exchange rate     Buy     Sell  
Convertible Collars   2004     $’000     $’000  
 
Within one year
                 
One to three years (3)
    0.7810             62,740  
 
Total
                  62,740  
 


Notes:
     
(1)    Collar range 0.6950 to 0.6500. Sell rate shown above is based on the cap rate.
     
(2)    Collar range 0.6875 to 0.6400. Sell rate shown above is based on the cap rate.
     
(3)    Convertible Collar range 0.7900 to 0.7396. Sell rate shown above is the year end spot rate which is within the collar range. The collars have a knockout on the floor ranging from 0.8450 to 0.8500

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NOTE 34:
FINANCIAL INSTRUMENTS (CONTINUED)

The Economic Entity is exposed to currency exchange rate risk through primary financial assets and forecast transactions reduced through derivative financial instruments such as forward exchange contracts, currency options, collars and convertible collars. The following table summarises by currency, in Australian dollars, the foreign exchange risk in respect of recognised financial assets and derivatives entered to hedge forecast transactions. Those financial assets and liabilities in which all amounts are denominated in Australian dollars are not included in these tables.

                         
            United        
    Australian     States        
    dollars     dollars     Total  
    2004     2004     2004  
    A$’000     A$’000     A$’000  
 
Financial assets
                       
Trade debtors
          11,415       11,415  
 
                       
Anticipated future transactions
                       
Forward exchange contracts
    198,430       (198,430 )      
Foreign exchange options
                 
Foreign exchange collars
    14,467       (14,467 )      
Foreign exchange convertible collars
    62,740       (62,740 )      

(d)   Credit Risk Exposures

The credit risk amounts do not take into account the value of any collateral or security. Receivables due from major counter-parties are not normally secured by collateral, however most sales are covered by letters of credit. In addition the group policy requires that counter-parties meet certain high levels of credit worthiness and the credit worthiness of counter-parties is regularly monitored. The amounts of credit risk shown, therefore, do not reflect expected losses.

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NOTE 34:
FINANCIAL INSTRUMENTS (CONTINUED)

(e) Net Fair Value Of Financial Assets And Liabilities

The carrying amounts and estimated net fair values of financial assets and financial liabilities (including derivatives) held at balance date are given below.

Short term instruments where carrying amounts approximate net fair values, are omitted. The net fair value of a financial asset or a financial liability is the amount at which the asset could be exchanged, or liability settled in a current transaction between willing parties after allowing for transaction costs.

Economic Entity

                 
    2004  
    Carrying     Net Fair  
    amount     value  
    $000     $000  
 
Financial assets:
               
Receivables - non current
    1,596       1,596  
Financial liabilities:
               
Borrowings – current
    62       62  
 
               
Derivatives:
               
Foreign exchange contracts
    29,919       25,389  
Foreign exchange collars
    1,663       1,351  
Foreign exchange convertible collars
    (169 )     (472 )

The carrying amounts shown in the table are included in the Statement of Financial Position under the indicated captions.

The following methods and assumptions were used to estimate the net fair value of each class of financial instrument:

  1.   Interest Bearing Liabilities – non current
 
      The net fair value of the non current interest bearing liabilities is estimated by discounting expected cash flows at the interest rates currently offered to the Economic Entity for debt of the same remaining maturities and security plus costs expected to be incurred were the liability settled.
 
  2.   Foreign Exchange Contracts and Options
 
      The net fair value of forward foreign exchange contracts, options, collars and convertible collars is determined by reference to amounts quoted by the Economic Entity’s banks.

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NOTE 34:
FINANCIAL INSTRUMENTS (CONTINUED)

(f) Hedges of Anticipated Future Transactions

The following table summarises deferred realised and unrealised gains and losses on derivative financial instruments entered as hedges of future anticipated purchases and sales, showing the periods in which they are expected to be recognised as income or expense. Deferred gains and losses are recognised as a component of the purchase or sale transaction when it occurs, or as other gains or losses when a hedged transaction is no longer expected to occur. These deferred gains and losses are calculated as the mark to market position as at 31 December 2004. The unrealised gains and losses from a mark to market calculation are different to the unrealised gains and losses recorded in the Statement of Financial Position, which have been measured on a mark to spot basis in accordance with Accounting Standard AASB 1012 “Foreign Currency Translation”.

Economic Entity

                 
    2004  
    Gains     Losses  
    $000     $000  
 
Within one year
    21,225        
One to three years
    5,515       472  
 
Total gains and losses on anticipated future hedge transactions
    26,740       472  
Less amounts recorded in the financial accounts
           
 
Deferred gains and losses on anticipated future hedge transactions
    26,740       472  
 

It should be noted that unrealised gains or losses for foreign exchange derivative instruments reflect changes in the underlying foreign exchange rates since the contracts were undertaken.

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NOTE 35:
NOTES TO THE STATEMENT OF CASH FLOWS

(a) Reconciliation Of Net Profit After Income Tax To The Net Cash Flows From Operating Activities

                 
    Economic     Parent  
    Entity     Entity  
    2004     2004  
    $’000     $’000  
 
Net profit after income tax
    32,753       10,299  
Amortisation & depreciation
    9,468        
Loss/(Profit) on sale of plant & equipment
    2        
Loss/(Profit) on sale of listed investment
    93        
Provision for rehabilitation
    881        
Write back of provision for diminution
          (10,000 )
Write down of inventory to net realisable value
    4,794        
Movements in operating assets and liabilities
               
(Increase)/decrease in inventories
    (14,393 )      
(Increase)/decrease in trade debtors
    (7,279 )      
(Increase)/decrease in other debtors and prepayments
    (5,048 )     190  
(Increase)/decrease in other current assets
    (543 )      
(Increase)/decrease in intercompany loans
          (12,885 )
(Increase)/decrease in deferred tax assets
    730       (2,052 )
(Increase)/decrease in non current receivables
    105        
(Increase)/decrease in other non current assets
    (2,888 )      
Increase/(decrease) in deferred foreign exchange
    (1,836 )      
Increase/(decrease) in provision for tax payments
    1,360       3,430  
Increase/(decrease) in deferred tax liabilities
    4,129       11,566  
Increase/(decrease) in other provisions
    (119 )      
Increase/(decrease) in trade payables
    4,242       55  
 
 
               
Net Cash Flows From Operating Activities
    26,451       603  
 

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NOTE 36:
RELATED PARTY INFORMATION

Directors

The names of persons who were directors of Portman Limited during the year:

George F Jones
Barry J Eldridge
Fiona E Harris
Richard Knight
Malcolm H Macpherson
Michael D Perrott

Details Of Share And Option Dealings With Directors And Their Director Related Entities

Details of share and option dealings with Directors and their Director related entities is disclosed in Note 28.

The Wholly Owned Group

The wholly owned group consists of Portman Limited and its controlled entities as set out in Note 11.

Transactions between Portman Limited and related parties in the wholly owned group during the year ended 31 December 2004 consisted of:

(a)   Loan advances by Portman Limited;
 
(b)   Loans repaid to Portman Limited;
 
(c)   The payment of management fees by controlled entities;
 
(d)   Transfer of tax related balances;
 
(e)   Dividends from controlled entities; and
 
(f)   Guarantees by Portman Limited on behalf of controlled entities.

The above transactions were made on normal commercial terms and conditions, except that there are no fixed terms for the repayment of loans advanced by Portman Limited.

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NOTE 36:
RELATED PARTY INFORMATION (CONTINUED)

                 
    Economic     Parent  
    Entity     Entity  
    2004     2004  
    $ ’000     $ ’000  
 
Aggregate amounts receivable from and payable to, related parties in the wholly owned group at the year end were as follows:
 
               
Non current receivables
          139,728  
 

Loans to and receivables from related entities are on an unsecured basis, non interest bearing and with no fixed terms for repayment.

Director Related Entity Transactions
Services

The company retains Oakvale Capital Limited to provide treasury services including foreign exchange and cash investment policy setting, product pricing and transactional assistance. The provision of these services is on normal commercial terms. The total amount spent in 2004 on these services was $72,223.

Mr George F Jones is a 10% shareholder in Oakvale Capital Limited.

Transactions with Other Related Parties

There were no other transactions with related parties.

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NOTE 37:
INTERNATIONAL FINANCIAL REPORTING STANDARDS

Portman Limited will be required to adopt Australian Accounting Standards Board (AASB) equivalents to International Financial Reporting Standards (IFRSs), for its financial reporting at the half year ending 30 June 2005 and the full year ending 31 December 2005. At these dates a first time adopter of Australian equivalent IFRSs will be required to restate its comparative financial statements using all IFRSs, except for AASB132 Financial Instruments: Disclosure and Presentation, AASB 139 Financial Instruments: Recognition and Measurement, and AASB 4 Insurance Contracts. For Portman Limited this means the preparation of an opening balance sheet in accordance with IFRSs as at 1 January 2004, with the majority of restatement adjustments being made, retrospectively, against opening retained earnings.

During the year Portman Limited established a project team to manage the transition to Australian equivalent IFRSs who have been working on the project together with independent experts. As a result of these procedures, Portman Limited has graded impact areas as either high, medium or low and has established dedicated project teams to address each of the areas in order of priority as represented by the gradings. An IFRS steering committee has been established to oversee the progress of each of the project teams and make necessary decisions. Regular updates are provided to the Audit and Risk Management Committee. As Portman Limited has a 31 December year end, priority has been given to considering the preparation of an opening balance sheet in accordance with AASB equivalents to IFRS as at 1 January 2004. Set out below are the key areas where accounting policies will change and may have an impact on the financial report.

The amounts disclosed below are a best estimate as at the date of preparing the financial statements and may change due to:

(a)   further work being performed by the IFRS project team; and
 
(b)   potential amendments to the Australian equivalents to the International Financial Reporting Standards (“AIFRSs”) and interpretations thereof being issued by the standard setters and the International Financial Reporting Interpretations Committee (“IFRIC”).

Classification of Financial Instruments

AASB 139 applies from 1 January 2005, meaning that the comparative period of 2004 is not required to be restated unlike the majority of other IFRS standards which require retrospective application. Under AASB 139 Financial Instruments: Recognition and Measurement, financial instruments will be required to be classified into one of five categories which will, in turn, determine the accounting treatment of the item. The classifications are loans and receivables – measured at amortised cost; financial assets held to maturity – measured at amortised cost; financial assets held for trading – measured at fair value with fair value changes charged to net profit or loss; financial assets available for sale – measured at fair value with fair value changes taken to equity and non-trading liabilities – measured at amortised cost. This will result in a change in the current accounting policy that does not classify financial instruments. Current measurement is at amortised cost, with certain derivative financial instruments not recognised on balance sheet. The future financial effect of this change in

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accounting policy is not yet known as the classification and measurement process has not yet been fully completed.

Derivatives

Under AASB 139, recognition and measurement of all derivative financial instruments at fair value is required. Unless detailed hedge accounting requirements are met, movements in the fair value of derivative financial instruments must be taken to the profit and loss statement.

AASB 139 also introduces the concept of embedded derivatives and requires the identification, recognition and measurement of derivatives embedded within contracts that a company may enter. Embedded derivatives are required to be fair valued and movements reported in the profit and loss statement. Portman is currently reviewing contracts to determine the extent of any embedded derivatives.

Hedge Accounting

Under AASB 139 Financial Instruments: Recognition and Measurement, in order to achieve a qualifying hedge, the entity is required to meet the following criteria:

  •   Identified the type of hedge – fair value or cash flow;
 
  •   Identify the hedged item or transaction;
 
  •   Identify the nature of the risk being hedged;
 
  •   Identify the hedging instrument;
 
  •   Demonstrate that the hedge has and will continue to be highly effective; and
 
  •   Document the hedging relationship, including the risk management objectives and strategy for undertaking the hedge and how effectiveness will be tested.

Under the current accounting policy unrealised exchange gains and losses on specific hedges at balance date are deferred and recognised in the Statement of Financial Position and any unrealised exchange gains or losses on general hedges are included in the Statement of Financial Performance. Reliable estimation of the future financial effect of this change in accounting policy has not yet been measured. Portman has implemented new processes and procedures to meet the enhanced requirements for hedge accounting as at 1 January 2005.

Exploration and Evaluation

AASB 6 Exploration for and Evaluation of Mineral Resources is effective from 1 January 2005 and early adoption will not be permitted. The new standard requires entities to perform impairment testing on exploration and evaluation assets when facts and circumstances suggest that the carrying amount may be impaired. Impairment of exploration and evaluation assets is assessed at a cash generating unit or group of cash generating units level provided this is no larger than an area of interest.

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NOTE 37:
INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED)

Impairment of Assets

Under AASB 136 Impairment of Assets, the recoverable amount of an asset is determined as the higher of net selling price and value in use. This will result in a change in the current accounting policy which determines the recoverable amount of an asset on the basis of discounted cash flows. Under the new policy it is likely that impairment of assets will be recognised sooner and that the amount of any write-downs may be greater. It is expected that there will be no adjustment considered necessary for the consolidated entity opening balance as at 1 January 2004.

Share Based Payments

Under AASB 2 Share Based Payments, the Company will be required to determine the fair value of options issued to employees as remuneration and recognise an expense in the Statement of Financial Performance over the vesting period. This standard is not limited to options and also extends to other forms of equity based remuneration. It applies to all share–based payments issued after 7 November 2002 which have not vested as at 1 January 2005. Under the current accounting policy no amounts are recognised in the financial accounts in relation to equity based compensation schemes. It is expected that there will be no adjustment considered necessary for the consolidated entity opening balance as at 1 January 2004.

Income Taxes

Under AASB 112 Income Taxes, the Company will be required to use a balance sheet liability method which focuses on the tax effects of transactions and other events that affect amounts recognised in either the Statement of Financial Position or a tax-based balance sheet. The expected adjustment required in the consolidated entity opening balance sheet as a result of the adoption of this standard as at 1 January 2004 will result in a reduction in retained earnings.

Rehabilitation

Under AASB 137 Provisions, Contingent Liabilities and Contingent Assets, the Company will be required to recognise the full provision for rehabilitation, based on discounted future cash flows, at the date of transition to IFRS. A corresponding asset net of depreciation to the date of transition may qualify for recognition as part of development costs and be amortised together with development assets. The future financial effect of this change in accounting policy is not yet known.

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NOTE 38:
SUBSEQUENT EVENTS

On March 31, 2005, Cliffs acquired approximately 68 percent of the outstanding shares of Portman. Through the close of the cash takeover offer on April 19, 2005, Cliffs acquired an additional 12 percent, increasing its ownership to approximately 80 percent of the outstanding shares of Portman. The consideration for each Portman share was $3.85 in cash.

On 31 January 2005 mining contractor Henry Walker Eltin Group Ltd (HWE) went into voluntary administration. Portman utilises the services of HWE for contract mining at its Koolyanobbing and Cockatoo Island Iron Ore projects. The Cockatoo Island Iron Ore project is an unincorporated joint venture between HWE and Portman. At the date of signing the financial statements Portman has not experienced any adverse impacts as a result of an administrator being appointed to HWE.

There has not been any other matter or circumstance that has arisen since the year-end that has affected or may significantly affect the operations of the Economic Entity, the results of those operations or the state of affairs of the Economic Entity in subsequent periods.

NOTE 39: GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (U.S. GAAP)

The consolidated financial statements of Portman are prepared under generally accepted accounting principles in Australia (Australian GAAP), which differ in certain respects from U.S. GAAP. The material differences, as they apply to Portman’s financial statements, are as follows:

Income tax

Under Australian GAAP, tax effect accounting is applied using the liability method whereby income tax is regarded as an expense and is calculated on the accounting profit after allowing for permanent differences. To the extent timing differences occur between the time items are recognized in the financial statements and when items are taken into account in determining taxable income, the net related taxation benefit or liability, calculated at current rates, is disclosed as a future income tax benefit or a provision for deferred income tax. The net future income tax benefit related to tax losses and timing differences is not carried forward as an asset unless the benefit is virtually certain of being realized.

Under U.S. GAAP, the balance sheet approach is applied whereby deferred income tax is provided on all temporary differences at balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

As a result of applying U.S. GAAP, mining interest acquired as a result of Portman purchasing the remaining shares in Koolyanobbing Iron Ore Ltd, which was treated as a permanent difference under Australian GAAP, is now tax effected under U.S. GAAP.

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Rehabilitation

Under Australian GAAP, costs of rehabilitation work are provided for and treated as production costs. Costs are recognized prospectively over the life of mine based on production. The provision is to be applied against all rehabilitation costs, including reclamation, infrastructure removal and waste treatment.

Under U.S. GAAP, the costs of dismantling and removing an asset and restoring the site on which it is located is to be included as an element of asset cost with a corresponding provision being recorded. The asset and liability are initially recorded at their discounted value. The asset is then depreciated over its useful life and the provision is increased by the time value of money (accretion) up until the time of closure.

As a result of applying U.S. GAAP, an asset and corresponding provision has been booked for assets requiring removal and site restoration at the end of the mine life.

Hedging

Under Australian GAAP, unrealized foreign exchange gains and losses for specific hedges are deferred and recognized in the Statement of Financial Position for hedges that are effective and are expensed in the Statement of Financial Performance for hedges that are ineffective. The unrealized gain or loss is calculated with reference to the exchange rate ruling at the respective balance date.

Under U.S. GAAP, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized directly in equity and the ineffective portion is recognized in the income statement in relation to cash flow hedges (forward foreign currency contracts) to hedge firm commitments which meet the condition for hedge accounting. The calculation of the cash flow hedges is based on fair value.

As a result of applying U.S. GAAP, Portman has recorded its cash flow hedges at fair value as opposed to the spot rate ruling at balance date. Given no hedge documentation existed at the inception of the hedge relationship, all hedges are considered to be ineffective. Accordingly, fair value movement for the year ended 31 December 2004 has been recorded in the Statement of Financial Performance.

Embedded Derivative

Under U.S. GAAP, embedded derivatives that exist in long term contracts shall be separated from the host contract and accounted for as a derivative if the economic characteristics of the embedded derivative are not closely related to the economic characteristics and risks of the host contract. There is no equivalent standard under Australian GAAP.

Portman has a long term contract with the Esperance Port Authority whereby the interest on the infrastructure facilities is charged at a fixed rate over the life of the agreement. This is considered to be an embedded derivative that is not closely related to the underlying contract, namely the provision of infrastructure, in order to

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enable the loading of iron ore into vessels at the port. Accordingly, the derivative has been measured at fair value with the difference recorded as an asset and against beginning retained earnings. The asset will be amortized to expense over the life of the contract.

Exploration

Under Australian GAAP, costs incurred during exploration related to an area of interest are accumulated. These costs are carried forward provided they are expected to be recouped through successful development, or by sale, or where exploration activities have not at balance date reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves. Alternatively, exploration costs can be expensed as incurred. Portman’s policy is the former, which is to carry forward exploration expenses until a decision is made to abandon, in which case the costs are written-off. If a decision is made to exploit the reserves and develop the area of interest, the costs are carried forward and amortized over the life of the area of interest.

Under Cliffs’ accounting policies, exploration costs and development drilling are expensed as incurred.

As a result of applying Cliffs’ accounting policies to Portman, the carrying amount of exploration and development drilling costs have been written-off.

Deferred Waste

Portman’s accounting policy under Australian GAAP with regards to costs of waste stripping from mining areas in advance of mining ore is to defer and recognize costs in the Statement of Financial Position on a unit of ore production basis using medium term schedule projections of recoverable ore reserves and waste stripping for each pit. At December 31, 2004, Portman had deferred waste recorded in its Statement of Financial Position for two mining areas.

Under Cliffs’ accounting policy, in accordance with U.S. GAAP, waste stripping is expensed as incurred.

As a result of applying Cliffs’ accounting policy, the balance of deferred waste in the Statement of Consolidated Financial Position has been written-off.

Reconciliation

The following is a summary of the material adjustments to Portman’s net profit, shareholders’ equity and cash flows which would be required had the financial statements been prepared in accordance with U.S. GAAP for the year ended 31 December 2004:

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(i) Reconciliation of Net Profit

         
    Year ended  
    31 December  
    2004  
    (A$000)  
Net Profit as stated under Australian GAAP
    32,753  
 
       
Adjustments to conform to International Financial Reporting Standards
       
Income tax
    308  
Rehabilitation
    (650 )
 
     
Subtotal adjustments
    (342 )
 
     
Net Profit under International Financial Reporting Standards
    32,411  
 
     
 
       
Adjustments to conform to U.S. GAAP
       
Hedging
    (2,850 )
Exploration
    (1,887 )
Deferred waste
    (857 )
 
     
Subtotal adjustments
    (5,594 )
 
       
 
     
Net Profit as stated under U.S. GAAP
    26,817  
 
     

(ii) Reconciliation of shareholders’ equity

         
    Year ended  
    31 December  
    2004  
    (A$000)  
Total equity as stated under Australian GAAP
    169,027  
 
       
Adjustments to conform to International Financial Reporting Standards
       
Income tax
    (5,265 )
Rehabilitation
    (948 )
 
     
Subtotal adjustments
    (6,213 )
 
     
Total equity as stated under International Financial Reporting Standards
    162,814  
 
     
 
       
Adjustments to conform to U.S. GAAP
       
Exploration
    (11,720 )
Deferred waste
    (857 )
Hedging
    18,269  
Embedded derivative
    807  
 
     
Subtotal adjustments
    6,499  
 
       
 
     
Total equity as stated under U.S. GAAP
    169,313  
 
     

57


 

UNAUDITED

Consolidated Cash Flow

The principal differences between the Statement of Cash Flows prepared under Australian GAAP and the objectives and principles set out in SFAS No. 95 “Statement of Cash Flows”, relate to the treatment of exploration costs and the consolidation of Portman’s interest in the Cockatoo Island Joint Venture.

Exploration

Exploration costs, capitalized and presented as a cash flow from investing activities in Portman’s Statement of Cash Flows, have been reclassified as a cash flow from operating activities in accordance with Cliffs’ accounting policy and U.S. GAAP.

Equity Interest

Portman has a 50 percent ownership in the Cockatoo Island Joint Venture. The Joint Venture is unincorporated with the other joint venture partner, HWE, owning the remaining 50 percent interest. The joint venture was formed to conduct mining operations which includes mine development, mine operation and rehabilitation work at the end of the mine life. The joint venture partners receive their share of output, ore produced, from the joint venture. The ore produced is sold by each participant outside the joint venture agreement.

Under Australian GAAP, the Cockatoo Island Joint Venture can either be proportionately consolidated or accounted for under the equity method. Under U. S. GAAP, joint ventures are accounted for under the equity method.

As a result of applying U.S. GAAP, the Cockatoo Island Joint Venture, which is proportionately consolidated in Portman’s accounts, has been adjusted under the equity method.

The following is the U.S. GAAP cash flow data for the year ended December 31, 2004:

(iii) Consolidated statement of cash flows

         
    Year ended  
    31 December  
    2004  
 
    (A$000 )
 
     
Cash Flows from Operating Activities
    30,540  
 
       
Cash Flows from Investing Activities
    (41,032 )
 
       
Cash Flows from Financing Activities
    (15,967 )
 
     
 
       
Net Decrease in Cash and Cash Equivalents
    (26,459 )
Cash and Cash Equivalents at the Beginning of the Year
    44,212  
 
       
 
     
Cash and Cash Equivalents at the End of the Year
    17,753  
 
     

58