FIRESTONE ENERGY LIMITED Dr Mathews Phosa (Chairman)
Mr Stephen Miller (Managing Director) Mr Lee Boyd (Non-Executive Director) Company Secretary
Mr Lee Boyd
Registered OfficeLevel 2, 1 Walker Avenue West Perth WA 6005
Telephone: + 61 8 9485 0888
Facsimile: + 61 8 9485 0077
Website: www.firestoneenergy.com.au
Share RegistryAustralia
Automic Registry Services Level 1, 7 Ventnor Avenue West Perth WA Australia 6005
Telephone: + 61 8 9324 2099 South Africa
Trifecta Capital Services Nr 31 Beacon Road Florida-North 1709 South Africa
AuditorsBDO Audit (WA) Pty Ltd 38 Station Street
Subiaco WA 6008
Stock Exchange ListingThe Firestone Energy Limited (the 'Company') has its shares listed on the Australian Securities Exchange ('ASX') and the Johannesburg Stock Exchange ('JSE').
ASX and JSE code: FSE
ContentsCorporate Directory 2
Management Disclosure Report 4
Directors' Report 9
Auditor's Independence Declaration 17
Corporate Governance Statement 18
Consolidated Statement of Profit or Loss and Other Comprehensive Income 27
Consolidated Statement of Financial Position 28
Consolidated Statement of Cash Flows 29
Consolidated Statement of Changes in Equity 30
Notes to the consolidated financial statements 31
Directors' Declaration 59
Independent Auditor's Report 60
ASX Additional Information 62
Management Disclosure Report-
Review of Operations
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The Waterberg Coal Project
The Company is a participant in the Waterberg Coal Project ('WCP') joint venture, situated in the Limpopo Province, South Africa. WCP currently has identified coal resources of 3.4 billion tonnes1 of coal contained within the granted mining and prospecting rights.
During the 2014 financial year SRK Consulting (Australasia) Pty Ltd delivered to the Company the preliminary results of the definitive feasibility study ('DFS') for the proposed development of a coal project to deliver up to 10 million tonnes of coal product to Eskom Holdings SOC Ltd ('Eskom') on a take or pay basis, pursuant to a memorandum of understanding dated on or about 23 March 2012 (the 'Eskom Project').
During the 2015 financial year a DFS, for a proposed development of an export project mine, was completed. This proposed development would see total production of up to 4 million tonnes per annum of high quality export thermal coal product over a 3 to 4 year period (the 'Export Project'). This study was completed subsequent to the preparation of a DFS for the proposed Eskom Project.
Since that date the project team have been engaged in value engineering and optimisation studies for the Eskom Project with a view to enhancing the bankability of the project and reducing the cost of delivery of product to Eskom. Since the completion of the study a 300,000 tonne bulk burn test has also been undertaken (by Eskom) to confirm the suitability of the coal for burning at the designated Eskom power stations. As at the date of this report the Company is in discussions with Eskom for producing coal on a long term basis.
With respect to the Export Project DFS, an optimisation study is current in progress. A significant focus of this optimisation study is the review of the projects capital requirements with a view to enhancing the viability of the project. The optimisation includes consultation with world-class plant designers and competitive contract vendors for the mining and processing facilities and services. The Company is confident that the optimisation process will derive positive outcomes resulting in considerable reductions in capital funding requirements for the project.
A key focus of the optimisation study by the Company and its consultants is to revise the original washing process plans to enable production of a higher quality of coal suitable for the export market and to provide flexibility for production of a higher quality power station feed product for a proposed independent power producer ('IPP') to be located within the confines of the WCP. This power station product is planned to be stockpiled during the export grade coal mining phase until the potential IPP platform is completed. Utilisation of this product as IPP feed will result in optimal resource utilisation.
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Coal Processing Plant
Arising from the optimisation study, the Company commenced negotiations with experienced processing and services providers for a build-own-operate ('BOO') dual module plant, each with a 550 tonnes per hour capacity.
The proposed plant design configures a two-stage wash process providing greater flexibility in product quality output. The advantage of such a design is clearly an ability to optimise a given product output mix to meet a range of commercial coal requirements including export quality, IPP platform feed stock and Eskom specification product from the one plant.
1 Based on minimum thickness cut-off of 0.5m
The Company is confident that adopting a BOO strategy in conjunction with well experienced operators will significantly reduce up front capital requirements and provide for a swift progression to mining and production.
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Mining Operations
Accruing from the optimisation study process, negotiations with a number of parties for the award of the mining contract have now been significantly advanced to a point where the indicative pricing on a cost per tonne is within the parameters of the DFS firm coal modelling.
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Project Water Supply
During the financial year the Company advised that the Waterberg Coal Project Partners ('WCPP') had entered into a memorandum of understanding with the Lephalale Municipality ('LM') with respect to the Paarl Waste Water Treatment Plant (the 'Plant') whereby WCPP will take over the management and operation of the Plant for the purpose of supplying water to the WCP.
Since the end of the financial year WCPP completed the long form agreement with LM to take over the management and operation of the Facility. This is a key development for the project.
The Plant has a treatment capacity of 10 million litres per day, or 3.64 million cubic metres per annum which will provide the WCP with sufficient water not only for its proposed Export Project development, but also Stage 1 of its proposed IPP development which is currently under technical and economic assessment.
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Project Funding - The Export Project
Accruing from the preliminary results of the DFS and the optimisation studies for the Export Project, the Company is in discussions with certain banks with respect to funding arrangements for the proposed development. Pursuant to the financing discussions, Snowden Mining Industry Consultants Pty Ltd ('Snowden') has been commissioned as independent technical experts to produce a due diligence report for the purposes of project funding.
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Export Product Off-take Arrangements
Accruing from the optimisation success and the banking discussions, negotiations are ongoing with a number of international parties who have expressed considerable interest in entering into a long term off-take arrangements for the export product that is expected to be produced from the Export Project development.
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IPP Strategy
During the 2015 financial year the government of South Africa announced it would be turning to the private sector to help solve its energy crisis. The government announced a '5 point plan' to urgently bring about extra generation capability for an energy starved economy. The major plank of the 5 point plan was the launching of a coal fired independent power producer programme for an initial 2,500 megawatt of generation capacity. Additionally, the government announced it would be looking for co-generation options. The Company has positioned itself to capitalise on both sets of opportunities.
In preparation for the long awaited announcement of the IPP programme; the Company, through its associate (The Waterberg Power Company Pty Ltd) submitted a registration of its intent to participate and has lodged its registration with the Department of Environmental Affairs of its intent to build a power generation plant to be situated within the confines of its existing granted mining and prospecting rights; which collectively form the WCP area.
During the financial year the Company has been preparing preliminary technical and economic models to determine the most appropriate, capital efficient and economical
fashion in which to facilitate the development of an IPP Project from feed stock generated from its proposed coal mining projects.
At the date of this report the Company is currently engaging with a number of parties, including mining and civil engineering contractors on the mining project(s); and potential technology partners, IPP developers and financial groups to partner with it in creating a new independent integrated energy company to be located within the confines of the WCP area.
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Updated Resource Statement12
An Independent Competent Persons Resource Statement was released in October 2013 to reflect the increased borehole database following the completion of the 2013 drilling programme on the four farms covered by the Mining Right (Smitspan, Massenberg, Hooikraal and Minnasvlakte), and the two farms held under Prospecting Rights (Vetleegte and Swanepoelpan) and associated sample analysis on the WCP properties.
The resource statement for the WCP is for a coal resource of 3.4 billion tonnes, which represents a substantial increase in the coal resource of the WCP properties. Previously SRK Consulting (Pty) Limited (December 2012) declared a Coal Resource of 1.183 billion tonnes on the two farms Smitspan and Massenberg.
The resource statement was prepared on behalf of the Company by Gemecs (Pty) Limited in their capacity as Independent Competent Persons.
Coal Resource on all six Waterberg Coal Project Properties under both Prospecting Permit and Mining RightResource
Coal
Ash %
IM %
Vol %
CV
TS %
Classification
Resource*
(ad)
(ad)
(ad)
(Mj/kg)
(ad)
(Mt)
(ad)
Measured
1314.51
57.6
2.2
17.9
10.7
1.00
Indicated
1247.2
57.4
2.3
17.8
10.7
1.13
Inferred
838
58.5
2.2
17.6
10.4
1.19
Total Resources
3400
57.7
2.2
17.8
10.6
1.09
*Coal Resource based on minimum thickness cut-off of 0.5m
1 Please note that this information was prepared and first disclosed under the JORC Code 2004. It has not been updated since to comply with the JORC Code 2013 on the basis that the information has not materially changed since it was last reported.
2 Competent Person Statement - Gemecs (Pty) Limited was commissioned by the Company to undertake an Updated
Independent Persons Geological Report for the Waterberg Coal Project. The Coal Resources were estimated in accordance with the South African code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves ('SAMREC Code'), Australasian Code for Reporting of Exploration Results. Mineral Resources and Ore Reserves ('the JORC Code') and South African National Standard (SANS 10320:2004) guidelines. The information in this report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Mr Coenraad D van Niekerk, Pr.Sci.Nat (Reg. No 400066/98), M.Sc Hons (Geology), MDP, an employee of Gemecs (Pty) Limited, who is a Fellow of the Geological Society of South Africa. Mr Niekerk is a mining geologist with 38 years' experience in the mining industry, sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Joint Ore Reserves Committee (JORC) 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr Niekerk consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. Any discrepancy is due to rounding.
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Refinancing the SBSA Facility
The Company entered into a voluntary suspension of its shares on 19 March 2015 whilst the Company's major shareholders and provider of financing, The Waterberg Coal Company Limited ('WCC') progressed negotiations with Standard Bank of South Africa Limited ('SBSA') (and other participants) with respect to 'refinancing' the SBSA convertible note facility (the 'Facility'). Given that the international financial commodities markets continue to be somewhat challenging; interested parties (in the refinancing) have been undertaking very comprehensive due diligence programmes. This has resulted in the process being drawn out much longer than originally anticipated.
On 15 September 2015 the Company and WCC (collectively the Waterberg Coal Group ('WCG')) entered into a term sheet with Sibanye Gold Limited ('Sibanye') whereby, inter alia, Sibanye, have agreed terms with SBSA (as Facility agent) to acquire the Facility held by SBSA.
It is proposed, subject to completion of due diligence and formal transaction documentation, the Facility acquired by Sibanye will, upon the completion of a corporate restructure; and subject to the various regulatory requirements; be converted to equity in the enlarged company.
The proposed restructuring will see the Company and WCC merge through a proposed scheme of arrangement in accordance with the provisions of the Corporations Act (Cth) 2001.
In addition to the acquisition of the Facility and the conversion of same into equity in the enlarged group, Sibanye will provide financing of AU$8.5 million as additional working capital to WCG, initially as an interest free loan with Sibanye to subsequently subscribe for shares following the corporate consolidated
Sibanye will also enter into a coal off-take agreement with WCG. This agreement will specify the term, quantity, quality, target price and delivery of coal which will be produced and sold to Sibanye (or a nominated representative) for the purpose of Sibanye's power requirements as part of the IPP Platform.
The proposed suite of transactions (with Sibanye) will be subject to due diligence and the completion of the formal transaction documentation.
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Stakeholder engagement
Throughout the year, regular and productive engagement by the Project technical team with project and strategic stakeholders was ongoing. These discussions included, inter-alia, Eskom, the Department of Water Affairs, and Transnet Freight Rail for the timely delivery of services to the project.
- Corporate Activities
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Directors
The names and details of the Company's directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.
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Dr Mathews Phosa - Non Executive Chairman (appointed 27 October 2014)
Dr Phosa is a Lawyer by profession and was elected as the first Premier of Mpumalanga Province in 1994 and went on to serve as the Treasurer General within the Executive Committee of the ANC from 2007 to 2012. He was a member of the National Executive Committee of the ANC for many years until 2012. Dr Phosa has served as a business consultant for various local and international businesses since 1999.
Dr Phosa currently holds chairman, vice-chairman or board member positions on a number of prominent South African institutions and companies.
Commercially, Dr Phosa is Chairman of Firestone Energy Limited and also sits on the boards of South African listed companies Value Group, Jubilee Platinum and Bauba Resources as well as a number of unlisted entities. He is also a trustee to the Afrikaans Handels Instituut (AHI).
During the past three years, Dr Phosa has been a director of the following listed entities:
The Waterberg Coal Company Limited (ASX and JSE, appointed 28 October 2013);
Value Group Limited (JSE, appointed 29 October 2002);
Jubilee Platinum Plc (JSE, appointed 11 January 2010); and
Bauba Platinum Limited (JSE, appointed 22 April 2010).
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Mr Stephen Miller - Managing Director
Stephen Miller is a Chartered Accountant by profession with over 25 years' experience in corporate finance, mergers and acquisitions in the resources sector. He has been a director, founder and chief executive officer of a number of successful resource companies. He has also been responsible for numerous corporate reorganizations and restructurings, as well as substantial debt and equity capital raisings for project start-ups, developments, and corporate takeovers.
Mr Miller is a Member of the Australian Institute of Chartered Accountants in Australia, a Fellow of the Australian Institute of Company Directors and has served as a Director on the Australian gold industries peak body, The Australian Gold Council.
Mr Miller was appointed as a director of the Company on 14 June 2013 and Managing Director on 29 October 2014.
During the past three years, Mr Miller has been a director of the following listed entity:
The Waterberg Coal Company Limited (appointed 5 April 2013).
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Mr Edwin Leith Boyd - Non Executive Director and Company Secretary
Mr Boyd has extensive and broad-ranging directorial, corporate consulting, financial and senior executive experience in a range of industries including manufacturing, industrial engineering and since 1993; the resources sector.
He was appointed a director and company secretary of the Company on 17 March 2014. He is a CPA and a Fellow of the Australian Institute of Company Directors.
During the past three years, Mr Boyd has been a director of the following listed entities:
Anatolia Energy Limited (appointed 29 November 2012); and
The Waterberg Coal Company Limited (appointed 20 May 2014).
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Principal Activities and significant changes in the state of affairs
The principal activities of the Company are coal and mineral exploration in South Africa.
Other than for the matters referred to in the Management Disclosure Report, there have been no significant changes in the state of affairs within the consolidated entity.
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Directors' meetings
The number of Directors' meetings each Director was eligible to attend and the number actually attended during the year to 30 June 2015 are as follows:
Number of Directors meetings eligible to attend
Number of Directors meetings attended
Mathews Phosa
7
7
Stephen Miller
7
7
Edwin Leith Boyd
7
7
* plus circular resolutions of the board.
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Operating and Financial Review
An operating review of the consolidated entity for the financial year ended 30 June 2015 is set out in the Management Disclosure Report. A brief summary of the results and shareholder returns for the year is below.
Shareholder returns
2015
2014
Net loss for the year
(5,843,767)
(4,802,197)
Basic EPS (loss) - cents
(0.16)
(0.14)
Share price as at 30 June - cents
0.5
0.5
The increase in the net loss for 2015 compared to 2014 was largely due to higher finance costs due to higher borrowings.
The Group's net assets decreased by $1.9 million as a result of higher borrowings; partially offset by the positive effect of foreign currency movements on the translation of Group's South African assets.
At 30 June 2015, the Company had no unissued shares under option on issue.
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Dividends
There have been no dividends declared or paid during the period.
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Remuneration Report (Audited)
This report outlines the remuneration arrangements in place for Directors and executives of the Company. The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. For the purposes of this report, Key Management Personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including any Director of the parent company.
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Key Management Personnel
6.1.1.
Non-Executive Directors
Dr Matthew Phosa
Non-Executive Chairman
appointed 29 October 2014
Mr Edwin Boyd
Non-Executive Director
appointed 18 March 2014
Mr George Magashula
Non-Executive Director
appointed 1 November 2013,
resigned 19 November 2014
6.1.2.
Executive Directors
Mr Stephen Miller
Managing Director
appointed 27 October 2014 (Executive Director since 14 June 2013)
6.1.3.
Other Executives
Ms Amanda Matthee
Chief Financial Officer
There were no other changes to Key Management Personnel after the reporting date and before the date the financial report was authorised for issue.
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Policy for determining remuneration
The objective of the Company's broad remuneration policy is to ensure that the remuneration package provided to Directors and executives of the Group properly reflects the relevant person's duties and responsibilities and that remuneration is competitive in attracting, retaining and motivating people of the highest quality.
The Board is responsible for determining the remuneration policy for all Directors and Key Management Personnel based upon the Company's nature, scale and scope of operating requirements and any other factors which the Board determines to be appropriate in determining the Group's remuneration policy.
Non-Executive Directors' fees are determined within an aggregate directors' fee pool limit.
The Group does not currently have formal policies around Key Management Personnel remuneration, which are set at market rates.
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Short Term Cash Incentive
No short term cash incentives were provided to Directors, Key Management Personnel or other executives during the year. The Board may at its discretion determine a bonus is payable to executives based on specific performance objectives.
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Other Payments
No other payments are due to Directors or Key Management Personnel.
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Long Term Benefits
Entitlements for long term leave payments for the Directors or Key Management Personnel are only in accordance with the service agreements entered into with the Company.
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Share-based Remuneration
Under current Accounting Standards any share-based remuneration must be valued in accordance with an appropriate option pricing model. Share options carry no voting rights and each option is convertible into one ordinary share in the company. No share-based
remuneration (such as options to acquire The Company shares) was granted to Directors in the current year or previous financial year.
No Key Management Personnel received share-based remuneration in the current year or previous financial year.
No options were exercised during the year as a result of share-based payments.
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Service Agreements
On appointment to the Board all directors enter into a service agreement with the Company, in the form of a letter of appointment. The letter summaries the Board's policies and terms which mirror those set out within the Corporations Act (Cth) 2001, including compensation, relevant to the office of Director. Non-Executive Directors' fees are determined within an aggregate directors' fee pool limit.
Where appropriate consulting agreements have been entered into with a director for the provision of services; the details of these are set out elsewhere in this report.
Mr Stephen Miller serves as Managing Director and CEO. He receives $60,000 per annum in director fees, paid monthly, effective 1 March 2015. Mr Stephen Miller also has a consulting agreement with the Company dated 12 February 2015 and commenced on 1 March 2015. In terms of this service agreement, he receives $150,000 per annum and 12 months termination notice is required on the part of the Company.
Mr Lee Boyd serves as Director and Company Secretary. He receives $60,000 per annum in director fees, paid monthly, effective 1 March 2015. He also has a consulting agreement with the Company dated 12 February 2015 and commenced on 1 March 2015. In terms of this service agreement, he receives $90,000 per annum and 12 months termination notice is required on the part of the Company.
Dr Mathews Phosa serves as Director and Chairman of the Board of Directors. He receives
$60,000 per annum in director fees, paid monthly, effective 1 March 2015. Dr Mathews Phosa also has a consulting agreement with the Company dated 12 February 2015 and commenced on 1 March 2015. In terms of this service agreement, he receives $90,000 per annum and 12 months termination notice is required on the part of the Company.
Ms Amanda Matthee, the Chief Financial Officer, is engaged through an Executive Services Agreement with the Company subsidiary Checkered Flag Investments 2 (Pty) Limited ('Checkered Flag'). The agreement is for an initial period of two years with an option to extend for a further three years. Termination by Checkered Flag without cause is by four months' notice or payment in lieu thereof. Termination by Ms Matthee is with one month's
notice. Ms Matthee receives remuneration of R2,392,2501 per annum, reviewable annually,
and is eligible for performance-based bonuses and the grant of options upon completion of a bankable feasibility study and upon commencement of production.
Benefits of annual leave and any other employment benefit are only in accordance with the services agreement entered into with the Directors or Key Management Personnel.
- Performance-related Benefits
On 16 July 2014 The Waterberg Coal Company Limited ('WCC') resolved to extend the term of the Company's existing $3 million finance facility and extended the facility by up to a further $3 million.
On 17 September 2014 the Company's major shareholder and financier, WCC provided the market with an update on its coal projects and further advised that its Facility with a maturity date of 9 October 2014 was becoming due and that the company had entered into discussions with the lenders with respect to the restructuring of the Facility, including an extension to the Facility's maturity date.
Dr Mathews Phosa was appointed non-executive Chairman on 27 October 2014, Mr Stephen Miller was appointed Managing Director on 29 October 2014.
On 31 October 2014 the Company's major shareholder and financier, WCC, advised the market that it had held discussions with the lenders of the Facility and that the Facility that was due on 9 October 2014 had been extended on an on demand basis.
On 10 November 2014 the Company announced to the market that FSE had entered into a financing to raise up to US$5 million through the issue of convertible notes.
Mr George Magashula resigned as a non-executive director on 19 November 2014.
On 1 December 2014 the Company announced that, pursuant to the holding of its annual general meeting on 28 November 2014 that all resolutions presented to the annual general meeting were passed.
On 12 January 2015 the Company issued US$2.7 million of secured convertible notes to Four Oaks Credit Fund Limited.
On 19 March 2015 the Company requested that its shares be voluntarily suspended from trading until its parent entity WCC finalises funding negotiations. The shares remain suspended at the date of this report.
On 17 March 2015 the Company advised the market that it's major shareholders and financier WCC had received advise from its lenders sought repayment of the rolled over convertible note facility by 9 April 2015. WCC further advised that it was in discussions with various parties to raise funding to retire the Group's indebtedness and whilst it sought to restructure the Group's indebtedness it sought a trading halt for its securities.
On 20 March 2015 the Company provided an update to the market with respect to the background to the suspension in trading of its securities.
On 9 April 2015 the Company's major shareholders and financier, WCC, it was in discussions with the lenders to the secured convertible note facility with respect to introducing a third party to refinance the facility, that whilst these negotiations were in progress the lenders intended to maintain the facility on a on demand basis and rolling on a daily basis to give these discussions time to progress.
The directors of the Company present their report for the year ended 30 June 2015. In order to comply with the provisions of the Corporations Act (Cth) 2001, the Directors' Report as follows:
The Company occasionally provides incentive and performance based payments/benefits, typically in the way of equity options. There were no performance-related benefits during the year.
1 Exchange rate is at AUD1 = ZAR9.54.
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