Directors - Port Waratah Coal Services

Port Waratah Coal Services LimitedA.C.N. 001 363 828Financial Report for the year ended 31 December 2010DirectorsGeneral ManagerM Harvey Chairman G N DavidsonM K AllenW H ChampionCompany SecretariesM IwamiG V CroweR S LightJ A OliverA W MasonY NakataG OkamatsuA E PittJ E RichardsContentsPageAuditorDeloitte Touche TohmatsuChartered AccountantsChairman’s Report 2Directors’ Report 3Auditor’s Independence Declaration 9Performance Overview 10Year in Review 11Statement of Comprehensive Income 17Statement of Financial Position 18Statements of Changes in Equity 19Statement of Cash Flows and Notes 20Notes to the Financial Statements 22Directors’ Declaration 38Independent Audit Report 39This financial report covers both Port Waratah Coal Services Limited as an individual entity and theconsolidated entity consisting of Port Waratah Coal Services Limited and the entity it controlled during2010. Port Waratah Coal Services Limited is a company limited by shares, incorporated anddomiciled in Australia. Its principal place of business is:Port Waratah Coal Services LimitedCurlew StreetKooragang Island, NewcastleNew South Wales, AustraliaTelephone (02) 4907 2000A description of the nature of the company’s operations and its principal activities is included in thereview of operations and activities in the Directors’ Report commencing on page 3. PWCS’ annualreport is available on PWCS’ website www.pwcs.com.au.1

Chairman’s Report2010 has been another year of growth for Port Waratah Coal Services. PWCS loaded a record95.1 million tonnes of coal, a 2.4% increase on 2009. PWCS continues to deliver expansion capacity tomeet export demand and remains the largest coal export terminal in the world.Safety remains the absolute priority for everyone at PWCS and 2010 saw an increase in total injuries and thelost time injury frequency rate. The Board and Management team remain committed to improving our safetyperformance in 2011 and will substantially review our safety initiatives to curb this trend.Our investment in new terminal capacity has continued. The $670 million expansion of the KooragangTerminal (known as Project MPC - Master Plan Completion) approved by the Board in February 2010 is ontrack to increase nameplate capacity to 133 million tonnes by the end of 2011.On 13 December 2010, the Commonwealth Government granted Major Project Facilitation status to theproposed Terminal 4 facility. PWCS continues to work closely with the coal industry, government and localcommunity stakeholders to deliver the Terminal 4 project in the quickest timeframe for the benefit of the coalindustry. Terminal 4 will be developed in tranches to deliver capacity to meet demand from PWCScustomers.The extensive expansion program is a direct result of the introduction of the Long Term CommercialFramework implemented in 2009.In November 2010, PWCS was awarded the world’s best specialist dry bulk terminal at the International BulkJournal 2010 awards. This is an excellent achievement and one that all PWCS employees and stakeholdersshould be proud of.On behalf of the Board, I would like to thank the PWCS management team, all employees and contractorsfor their continued improvement in operational performance and in making 2010 a successful year ofcontinued growth for PWCS.MICHAEL HARVEYCHAIRMAN2

Directors’ ReportIn respect of the financial year the Directors ofPort Waratah Coal Services Limited (thecompany) submit the following report:Directors’ DetailsThe Directors of the company in office at the dateof this report are detailed below. Directors holdingoffice for part of the financial year are detailed inNote 19.M HarveyBachelor of Science (Industrial Studies), HonoursChief Operating Officer, Rio Tinto MarineDirector, Rio Tinto Shipping Pty LimitedChairman, Rio Tinto Shipping (Asia) Pte LtdChairman, PWCS since August 2009Director, Austral Coal Limited and its related companiesDirector, Bargo Collieries Pty LimitedDirector, Bulga Coal Management Pty Limited and its relatedcompaniesDirector, Cumnock Coal Pty Limited and its related companiesDirector, Liddell Collieries Pty Limited and itsrelated companiesDirector, Narama Investments Pty LimitedChairman, Newcastle Coal Shippers Pty LimitedDirector, Oakbridge Pty Limited and its related companiesDirector, OCAL Macquarie Pty LimitedDirector, Port Kembla Coal Terminal LimitedDirector, Resource Pacific Holdings Pty Limited and its relatedcompaniesDirector, The Wallerawang Collieries LimitedDirector, Ulan Coal Mines LimitedDirector, Xstrata Coal (NSW) Pty Limited and its relatedcompaniesDirector, PWCS since February 2008M K AllenBachelor of CommerceGraduate Diploma in Finance and InvestmentFellow, Financial Services Institute of AustralasiaGeneral Manager Infrastructure Strategy, Anglo Coal AustraliaPty LimitedAlternate Director, Newcastle Coal Shippers Pty LimitedW H ChampionBachelor of Science (Chemical Engineering),Bachelor of Science (Biological Sciences)Managing Director, Coal and Allied Industries LimitedDirector, Newcastle Coal Shippers Pty LimitedDirector, Queensland Coal Pty LimitedDirector, Queensland Resources CouncilDirector, Rio Tinto Coal Australia Pty LimitedMember, Australian Coal AssociationMember, National Low Emissions Coal CouncilMember, New South Wales Clean Coal CouncilMember, New South Wales Minerals Council LtdMember, Queensland Clean Coal CouncilRepresentative, Sustainable Minerals InstituteDirector, PWCS since February 2009M IwamiBachelor of Commercial ScienceDirector, Japan Coal Development Co., LtdDirector, J.C.D. Australia Pty LimitedDirector, PWCS since July 2009R S LightBachelor of EconomicsDiploma in Applied Finance and InvestmentChartered AccountantAssociate Member, Australian Institute of Company DirectorsChief Strategic Development Officer, Rio Tinto Coal AustraliaChairman, Dalrymple Bay Coal Terminal Pty. Ltd.Chairman, Half-Tide Marine Pty LtdDirector, Black Hill Land Pty LtdDirector, Catherine Hill Bay Land Pty LtdDirector, Comalco Light Alloys Inc.Director, Gwandalan Land Pty LtdDirector, Lower Hunter Land Holdings Pty LtdDirector, Minmi Land Pty LtdDirector, Nords Wharf Land Pty LtdDirector, PWCS since March 2010A W MasonBachelor of ArtsDiploma in Financial ManagementDiploma in Applied Finance and InvestmentGeneral Manager Finance and Commercial, XstrataCoal (NSW) Pty LimitedY NakataBachelor of LawManaging Director, Nippon Steel Australia Pty LtdDirector, PWCS since May 2009G OkamatsuBachelor of EconomicsManaging Director, Toyota Tsusho Investment (Australia) Pty.LimitedManaging Director, Toyota Tsusho Mining (Australia) Pty.LimitedDirector, Integra Coal Operations Pty LtdDirector, Integra Coal Sales Pty Ltd.Director, Navidale Pty LimitedDirector, RHA Pastoral Company Pty. LimitedDirector, Toyota Tsusho Coal (Australia) Pty LtdDirector, Toyota Tsusho Gas E&P Australia Pty LtdDirector, Toyota Tsusho Gas E&P Browse Pty LtdDirector, Toyota Tsusho Gas E&P Trefoil Pty LtdDirector, PWCS since November 2009A E PittBachelor of Commerce, HonoursGeneral Manager Commercial, Xstrata Coal Pty LimitedDirector, Xstrata Rail (NSW) Pty LimitedDirector, Hunter Valley Coal Chain Coordinator LimitedDirector, The Newcastle Wallsend Coal Co Pty LtdDirector, PWCS since January 2010J E RichardsBachelor of Rural Science, Honours 1Managing Director, The Bloomfield Group of companiesDirector, Bloomfield Collieries Pty Ltd and its relatedcompaniesDirector, Bickham Coal Company Pty. LimitedDirector, PWCS since September 2010Alternate DirectorsH Asada (for G Okamatsu)Bachelor of LawGeneral Manager, Brisbane Office, Mitsui & Co. (Australia)Ltd.General Manager, First Energy Division, Mitsui & Co.(Australia) Ltd.3

S R Bridger (for A W Mason and A E Pitt)Bachelor of Engineering (Civil), HonoursMaster of Engineering Science (ProjectManagement)Director, Longstride Pty. LimitedDirector, Newcastle Coal Shippers Pty LimitedDirector, Surat Basin Rail Pty LtdDirector, Wicet Holdings Pty LimitedDirector, Wiggins Island Coal Export Terminal Pty LimitedA Hasumoto (for M Iwami)Bachelor of Social ScienceDirector and Secretary, J.C.D. Australia Pty LimitedM Heaton (for M K Allen)Bachelor of Engineering (Civil), HonoursGeneral Manager (Open Cut Operations),Anglo American plc GroupAlternate Director, Newcastle Coal Shippers Pty LtdB F Lewis (for J E Richards)Bachelor of Engineering (Electrical), HonoursMaster of Business AdministrationGeneral Manager (Marketing), Bloomfield Collieries Pty LtdDirector, Bloomfield Collieries Pty Ltd and its relatedcompaniesDirector, Corky’s Carbon and Combustion Pty LtdDirector, Hunter Valley Coal Chain Coordinator LimitedT Maeno (for Y Nakata)Bachelor of PoliticsManaging Director, JFE Steel Australia Resources Pty LtdR H McCullough (for G Okamatsu)Bachelor of Engineering (Civil), HonoursMaster of Business AdministrationDirector, Astron LimitedDirector, Greenpower Energy LimitedDirector, Oakbridge Pty LimitedK Nakazato (for Y Nakata)Bachelor of CommerceManaging Director, Sumitomo Metal Australia Pty LimitedT Okada (for G Okamatsu)Bachelor of Business AdministrationCompany Secretary, Navidale Pty. LimitedCompany Secretary, RHA Pastoral Company Pty LtdCompany Secretary, Toyota Tsusho Group and relatedcompaniesT J S Renwick (for W H Champion)Bachelor of Engineering (Mechanical), HonoursMaster of Business AdministrationDirector, Integrated Logistics Company Pty LtdDirector, Hunter Valley Coal Chain Coordinator LimitedA Taniguchi (for M Iwami)Bachelor of LawMaster of Business AdministrationManaging Director, J.C.D. Australia Pty LimitedDirector, Blair Athol Coal Pty LimitedDirector, Clermont Coal Mines LimitedG J Walker (for R S Light)Bachelor of Engineering (Mechanical), HonoursMaster of Business AdministrationGeneral Manager Coal Chain and Operations Support, RioTinto Coal AustraliaP A Wilkes (for A W Mason and A E Pitt)Bachelor of Business (Accounting)Financial Controller, Xstrata Coal (NSW) Pty LimitedDirector, Oceanic Coal Australia Pty LimitedDirector, Ravensworth Coal Terminal Pty Limited and itsrelated companiesDirector, Resource Pacific Holdings Pty LimitedDirector, Resource Pacific Pty LimitedDirector, Tahmoor Coal Pty LimitedDirector, Xstrata Cumnock Management Pty LimitedDirector, Xstrata Mangoola Pty Limited4

Directors’ MeetingsThe number of meetings of the company’s Boardof Directors and Sub-Committees of the Board ofDirectors held during the financial year were:Board of Directors 8HSE Committee 4Audit & Risk Committee 4The attendance details of Directors at Boardmeetings and Sub-Committees of the Board ofDirectors held throughout the financial year areas follows:Board of DirectorsMeetings heldwhilst in officeMeetingsattendedDirectorsM Harvey 8 8W E Cant 4 3W H Champion 8 5M D Coulter 1 1R H Elliott 2 -M D Heaton 6 2M Iwami 8 -R S Light 7 7A W Mason 8 7Y Nakata 8 7G Okamatsu 8 2A E Pitt 8 7J E Richards 4 4Alternate DirectorsM K Allen 8 3H Asada 6 -S R Bridger 8 1J Fujiwara 3 3A Hasumoto 8 4B F Lewis 6 1T Maeno 8 -R H McCullough 8 5K Nakazato 8 -T Okada 8 -P C Taylor 4 -A Tanaguchi 5 1C N Tziolis 1 -P A Wilkes 8 -Health, Safety and Environment CommitteeM Harvey 4 4W E Cant 3 2D McLachlan 3 3J E Richards 1 1Audit & Risk CommitteeMeetings held Meetingswhilst in office attendedA W Mason 4 4M Harvey 4 3R S Light 3 2P C Taylor 4 4Company SecretariesThe company secretaries are:Mr G V Crowe. Mr Crowe was appointed to theposition of company secretary in July 2008.Mr Crowe is a member of CPA Australia.Mr J A Oliver. Mr Oliver was appointed to theposition of company secretary in February 2008.Mr Oliver is a member of the Institute of CharteredAccountants in Australia and CPA Australia.Principal ActivitiesThe principal activities of the company were theprovision of coal receival, blending, stockpilingand shiploading services in the Port of Newcastle.Trading ResultsThe net profit of the consolidated entity for thefinancial year was $60.2 million after an incometax expense of $25.6 million.DividendsTotal dividends paid during the financial year wereas follows:$Importer & Exporter Class SharesFinal 2009 dividend and First Interim2010 dividend paid 30 March 2010.Fully Franked $14,600,000Importer & Exporter Class SharesSecond Interim 2010 dividend paid27 September 2010.Fully Franked $14,600,000$29,200,0005

Review of OperationsDuring the financial year the company handled 95.1 million tonnes of coal through its Carrington andKooragang Terminals (2009, 92.8 million tonnes). The above mentioned tonnage was loaded aboard 1,067vessels (2009, 1,077 vessels), representing increased tonnage of 2.4% on the previous year.Steaming coal exports increased by 0.8% with shipments for the year totalling 76.2 million tonnes (2009,75.6 million tonnes). Coking coal exports increased by 9.9% with shipments for the year totalling 18.9 milliontonnes (2009, 17.2 million tonnes).The charge for coal handling services remained at $3.75 per tonne throughout 2010.At the end of the financial year there were 394 people (31 December 2009, 431 people) employed by thecompany.Changes in State of AffairsThere have been no significant changes in the state of affairs of the company during the financial year.Future Developments and ResultsThe company has continued to expand its coal handling facilities in the Port of Newcastle in order to meetcontinued demand for Hunter Valley export coal. Kooragang Terminal expansion works continued on ProjectMPC during 2010. These works remain on schedule to increase nameplate capacity to 133 Mtpa by the endof 2011.Prefeasibility work for the proposed Terminal 4 development is progressing on schedule.In the opinion of Directors, there are no other developments likely to significantly affect the future results ofthe company.Directors’ InterestsEach of the Directors has given a standing notice under sub-section 192(1) of the Corporations Act 2001stating that he is a Director or member of certain specified corporations and as such is to be regarded ashaving an interest in any contract which may be made between the company and those corporations. Otherthan contracts of a routine nature between the company and associated corporations no Director has aninterest in any contract or proposed contract made with the company since 24 March 2010 (being the date ofthe previous year’s Directors’ Report) and the date of this report.No Director holds shares in the company or related bodies corporate as at the date of this report.6

Environmental RegulationThe NSW State Government has Acts and Regulations that the company’s operations are subject to. Theyare principally covered by the requirements of the: Environmental Planning and Assessment Act (1979) and Regulations; and Protection of the Environment Operations Act (1997) and Regulations.The NSW Department of Planning and the NSW Department of Environment, Climate Change and Water arethe primary Government authorities responsible for the issuing of and administration of approvals, licencesand permits in accordance with the requirements of the Acts and Regulations and in relation to thecompany’s operation.During the financial year the company complied with all environmental requirements. All external reportingrequirements associated with the National Greenhouse and Energy Reporting Act (2007) and otherlegislation were undertaken.Directors’ BenefitsNo Director of the company has, since the end of the previous financial year, received or become entitled toreceive a benefit (other than a benefit included in the total amount of emoluments received or due andreceivable by Directors shown in the financial report) by reason of a contract made by the company or arelated body corporate with a Director or with a firm of which he or she is a member, or with an entity inwhich he or she has a substantial financial interest.Indemnities and InsuranceDuring the financial year, the company paid a premium for an insurance policy insuring any past or presentDirector, Secretary, Executive Officer or employee of the company against certain liabilities. The insurancepolicy prohibits disclosure of the terms of the policy including the nature of the liability insured against andthe amount of the premium.In accordance with the Constitution of the company, the company must indemnify on a full indemnity basis,and to the full extent permitted by law, the following persons:(a)(b)Each person who is or has been a Director, Alternate Director, General Manager or Secretary of thecompany;Other officers or former officers of the company or of its related bodies corporate as the Directors ineach case determine; andThe indemnities so provided apply for all losses or liabilities incurred by the person as an officer or Auditor ofthe company or of a related body corporate including, but not limited to, a liability for negligence or forreasonable costs and expenses incurred:(a)(b)in defending proceedings in which judgement is given in favour of the person or in which the person isacquitted; orin connection with an application, in relation to such proceedings, in which the Court grants relief tothe person under the Corporations Act 2001.The indemnities so provided operate only to the extent that the loss or liability is not covered by insurance.7

Proceedings on behalf of the companyNo person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bringproceedings on behalf of the company, or to intervene in any proceedings to which the company is a party,for the purpose of taking responsibilities on behalf of the company for all or part of those proceedings.No proceedings have been brought or intervened in on behalf of the company with leave of the Court undersection 237 of the Corporations Act 2001.Auditor’s independence declarationThe auditor’s independence declaration is included on page 9 of the annual report.Rounding of AmountsThe company is a company of the kind referred to in Class Order 98/0100 issued by the Australian Securitiesand Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report and financialreport. Amounts in the Directors’ Report and financial report have been rounded off to the nearest thousanddollars in accordance with that Class Order unless otherwise stated.Dated at Newcastle this 22nd day of March 2011.Signed in accordance with a resolution of the Directors.M HarveyDirector8

Deloitte Touche TohmatsuABN 74 490 121 060Grosvenor Place225 George StreetSydney NSW 2000PO Box N250 Grosvenor PlaceSydney NSW 1219 AustraliaThe DirectorsPort Waratah Coal Services LimitedCurlew StKooragang IslandNEWCASTLE NSW 2294DX: 10307SSETel: +61 (0) 2 9322 7000Fax: +64 (0)2 9322 7001www.deloitte.com.au22 March 2011Dear DirectorsPort Waratah Coal Services LimitedIn accordance with section 307C of the Corporations Act 2001, I am pleased to provide thefollowing declaration of independence to the directors of Port Waratah Coal Services Limited.As lead audit partner for the audit of the financial statements of Port Waratah Coal ServicesLimited for the financial year ended 31 December 2010, I declare that to the best of my knowledgeand belief, there have been no contraventions of:(i) the auditor independence requirements of the Corporations Act 2001 in relation to theaudit; and(ii) any applicable code of professional conduct in relation to the audit.Yours sincerelyDELOITTE TOUCHE TOHMATSUR G SaaymanPartnerChartered AccountantsLiability limited by a scheme approved under Professional Standards LegislationMember of Deloitte Touche Tohmatsu Limited9

PerformanceOVERVIEWTHROUGHPUTShiploading in millions of tonnes2005 80.32006 79.82007 84.82008 91.42009 92.82010 95.1EXPORT DESTINATIONSDestinations in %Japan 57%Korea 16%Taiwan 12%China 9%Other 6%Steaming coal 80% - Coking Coal 20%VESSELS LOADED2005 9572006 9182007 9732008 10562009 10772010 106710

Year inREVIEWSafetyThe PWCS Journey to ZERO INJURIES continued with poor safety performance involving ten injuries for2010. The ten injuries comprised five lost time injuries (three LTI’s in 2009) and five medical treatmentinjuries (six MTI’s in 2009).Total Injury Frequency Rate (per 1,000,000 hours)Lost Time Injury Frequency Rate (per 1,000,000 hours)16.014.012.010.08.06.04.02.00.013.314.113.77.84.66.03.4 2.84.52002 2003 2004 2005 2006 2007 2008 2009 201010.08.06.04.02.00.09.48.56.95.83.43.00.71.52.32002 2003 2004 2005 2006 2007 2008 2009 2010YearYearKey Health and Safety initiatives and highlights for 2010 include:Carrington Terminal Electricians achieved ten years LTI/MTI free on 23 February 2011. This teamremains injury free;A Crisis Management Exercise was conducted with the Management Team;The PWCS Health Safety and Environment systems were audited to the Rio Tinto Standards resultingin a commendation for the Carrington Dust Improvement Program;Commencement of a Water Quality Monitoring Program for both potable and process water;A review of the existing PWCS Alcohol and Other Drugs Procedure and training package was conducted.All employees undertook training and competency training was conducted for Security Personnel; Both Terminals participated in 22 emergency drills for the year - 10 Emergency Evacuations and 12Initial Response Drills were conducted;An asbestos audit was conducted which confirmed PWCS was compliant with NSW Legislation; andOccupational hygiene, dust, noise, welding, diesel and vibration sampling across both Terminals wasundertaken, with over 115 samples collected.In addition to the above initiatives, wages employee participation in planned job observations and the Take 5process increased in comparison to 2009.PWCS continued the safety suggestion scheme which was instigated in 2007. Approved safety suggestionsallow an employee to nominate a charity of their choice to receive a donation. PWCS donated $9,600 tocharities in 2010 as a result of employee safety suggestions.11

OrganisationDuring the year a sub-committee of the management team was formed (known as ExCo). ExCo wasestablished to provide a business and industry wide perspective, develop and execute business strategy andperform business level decision making. The ExCo team have identified four key strategic goals:Grow with the market (Develop and deliver a market driven growth plan);Realise full supply chain potential (Realise the full potential throughput of the supply chain);Align the commercial model (Align all aspects of the industry commercial model); andOrganise to succeed (Rewire the organisation to realise programs and vision).CommercialThe long term commercial framework developed by the Hunter Coal Industry and the NSW Governmentcame into effect on 1 January 2010. PWCS is now embarking on an unprecedented capacity expansionprogram to meet Customer demand underpinned by long term ship or pay contracts. PWCS has undertakensignificant work with the Hunter Coal Industry during 2010 to give effect to the contractual alignmentprinciples in the long term commercial framework. This work will continue in 2011.Cash operating costs for the year were $12.9 Million below the 2010 budget, principally due to below budgetthroughput.EnvironmentPWCS’ operations were conducted in compliance with licence and consent conditions during the year.During 2010 development and implementation of the Environmental Management System (EMS) continuedand independent certification to the ISO 14001 standard was maintained.PeopleThe total number of PWCS employees reduced significantly from 431 at the end of 2009 to 394 at the end of2010. There was a turnover of 82 employees, which equates to a turnover rate of 20.8%. This turnover rateincludes employees leaving PWCS as a result of an Early Retirement Scheme.An Enterprise Agreement Implementation Team coordinated the implementation of agreed changescontained in the PWCS Enterprise Agreement 2009 (“the 2009 EA”) which commenced operation on6 October 2009. The 2009 EA included a number of major work practice changes and an Early RetirementScheme for employees aged between 55 and 65 years. Fifty one employees left PWCS during 2010 as aresult of the work practice changes and Early Retirement Scheme.A new short term incentive payment (STIP) program was rolled out for staff employees in 2010, withpayments scheduled for the first quarter of 2011.PWCS conducted the following significant training programs in 2010:Frontline Leaders Development Program – to enhance technical skills and provide improved career pathopportunities for future leaders. 22 participants completed the program during 2010. A fourth programis scheduled to begin in July 2011; and2009 Enterprise Agreement Training Program for PWCS Operations & Maintenance – as at31 December 2010, all training outlined in the Training Matrix in the 2009 Enterprise Agreement hadbeen successfully developed and delivered to all operators and maintenance employees at bothTerminals.PWCS continued with its Apprenticeship Scheme hosting a total of 17 Apprentices during 2010. The HighSchool and University Scholarship programs also continued with Scholarship commitments to 21 students.PWCS also continued Traineeships for university students in the accounting, IT and engineering fields.12

CommunityPWCS continued to be an active member of the community throughout 2010, donating $437,000 to charitiesand local community organisations. Significant donations were made to Vision Australia, Newcastle SurfLifesaving Club, Aspect Hunter School, Oz Harvest, Hunter Prostate Cancer Alliance, Newcastle SeafarersMission and Soul Cafe.PWCS remains committed to being an active member of the local community during 2011.Project ImplementationsMajor project works were conducted during the year, including projects linked to implementation of theEnterprise Agreement. This work was above the normal amount of project work scheduled and wasprogressed aggressively to ensure capacity was accessed during 2010 and to enable implementation of theEnterprise Agreement. Significant projects undertaken in 2010 included:Carrington Terminal Rail receival plant automation and control room upgrade; Fibre optic network upgrade; Lighting system upgrade; Installation of real-time dust monitoring system; Painting of Reclaimer 2; Structural repairs and painting of Dyke 4; Structural repairs to walkways, buildings and conveyor structures; Removal of redundant conveyor gantry TC15; and Installation of sampler carousel for RC14 receival conveyor.Kooragang TerminalRail receival plant automation and control room upgrade;Shiploader operational ergonomics upgrade;Fibre optic network upgrade;Power system upgrade;Stockpile Pad A drainage improvement;Painting of 4.27 conveyor structure;Painting of 7.09 shiploader tripper structure;Replacement of luffing ropes and sheaves on 7.09 shiploader;Regrouting of K6 berth shiploader rails;Sample station improvements and upgrade; andSpecialised conveyor belt turning station for belt replacement.ThroughputThroughput for 2010 was 95.1 Mtpa, against a budget of 106.6 Mtpa and nameplate capacity of 113 Mtpa.This result represented an increase of 2.4% on the 2009 year result of 92.8 Mtpa. The difference betweenactual throughput and nameplate capacity represents interface and performance issues associated with theoperation of the Hunter Valley Coal Chain.13

ExpansionIn February 2010 approval was given to proceed with the Kooragang Terminal expansion master plan(Project MPC) at an estimated capital cost of $670 Million. The scope of this project includes theconstruction of a fourth shiploading berth, the upgrade of the original Stage 1 Kooragang Terminal stackingand rail receival stream and the full extension to stockpile Pads C and D. Approximately 40% of this workwas completed during 2010 including dredging at the berth and completion of the upgraded rail receivalstream.PWCS continues to progress future expansion to meet the coal industry capacity requirements. ThePrefeasibility Study for Terminal 4 (T4) was approved by the Board in April 2010 at a capital cost of$18.5 Million. Additional land was purchased during the year to be used as part of the T4 site.Engineering studies and investigation of the environmental, commercial and market related issuesconcerning the development of T4 have been undertaken in 2010. Extensive terminal and port modellinghas been conducted to establish possible tonnage and stockpile options.A Preliminary Environmental Assessment for T4 was lodged with the Department of Planning and a PlanningFocus Meeting conducted in December 2010. The Federal Government granted Major Project Facilitationstatus to the T4 project in December 2010 in recognition of the size and complexity of the project andnumber of government departments that will be involved in the approval process. The NSW Minister forPlanning declared T4 as a Major Project in January 2011. Work to date on T4 remains on schedule andwithin budget.GRAHAM DAVIDSONGENERAL MANAGER14

PWCS in theCOMMUNITYPWCS has provided sponsorship toNewcastle Surf Life Saving Club (NSLSC)since 2008. This support has assisted withthe purchase of equipment includingradios, shade structures, rescue equipmentand resuscitation equipment. During 2010,PWCS announced it will continue itssupport of NSLSC for a further 3 years,providing $30,000 per annum to the Club.During 2010 PWCS committed$50,000 to a 3 year sponsorshiparrangement with AutismSpectrum Australia for theHunter Aspect School. Childrenaged from 0 - 13 years with anautism spectrum disorder attendthe school.Children from Mayfield EastPublic School enjoyed a visitto Carrington Terminal togain an understanding ofPWCS and its operations.Hunter children who are blind orhave low vision will benefit fromPWCS’ sponsorship partnershipwith Vision Austraila. PWCS hascommitted $38,000 to fundprograms for local children todevelop their confidence, abilitiesand physical skills.15

FutureFOCUSProject 3Exp was finalised in2010. Project MPC is wellunder way, includingdredging for a new berth andcompletion of the upgradedrail receival stream.Vessel vetting, LoadingPlan Reviews and VesselPerformance Reviews areundertaken to increasethe efficiency of vesselloading at PWCS. VesselPerformance Managementis critical to efficientloading and the ongoingsuccess of PWCS.In response to increasing worldwidedemand, favourable coal prices andthe need for increased capacity, theevaluation study of a new terminal atPWCS (T4) has commenced.The Energy Efficient Opportunity(EEO) Program was implementedto investigate and report on howenergy is used at PWCS, whilstidentifying potential opportunitiesfor saving energy. Conveyorsystems are major consumers ofenergy, making them a key area offocus in the EEO Program.Currently in the prefeasibility stage,T4 has been declared as a MajorProject by the NSW Minister forPlanning.16

Port Waratah Coal Services LimitedStatement of Comprehensive Incomefor the financial year ended 31 December 2010ConsolidatedCompanyContinuing operationsNote 31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09$'000 $'000 $'000 $'000Revenue 2 360,803 329,377 360,803 329,377Other income 2 8,422 6,453 8,422 6,453Share of profits of associates accounted for using the 24 303 - - -equity methodEmployee benefit expenses (74,964) (64,444) (74,964) (64,444)Depreciation and amortisation expenses 2 (72,025) (62,097) (72,025) (62,097)Finance costs 2 (37,999) (25,835) (37,999) (25,835)Materials and services (77,134) (71,755) (77,134) (71,755)Other expenses (21,581) (19,808) (21,581) (19,808)Profit before income tax expense 85,825 91,891 85,522 91,891Income tax expense 3 (25,612) (27,191) (25,612) (27,191)Profit for the year 17 60,213 64,700 59,910 64,700Other comprehensive income - - - -Total comprehensive income for the year 60,213 64,700 59,910 64,700Notes to the financial statements are included on pages 22 to 37.17

Port Waratah Coal Services LimitedStatement of Financial Positionas at 31 December 2010ConsolidatedCompanyNote31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09$'000 $'000 $'000 $'000CURRENT ASSETSCash and cash equivalents 4 2,331 206,918 2,331 206,918Trade and other receivables 5 19,378 21,348 19,378 21,348Inventories 6 7,462 8,134 7,462 8,134Other 7 3,726 1,676 3,726 1,676TOTAL CURRENT ASSETS 32,897 238,076 32,897 238,076NON-CURRENT ASSETSOther financial assets 8 3,138 2,835 2,835 2,835Property, plant and equipment 9 1,382,849 1,149,763 1,382,849 1,149,763Other 10 6,418 814 6,418 814TOTAL NON-CURRENT ASSETS 1,392,405 1,153,412 1,392,102 1,153,412TOTAL ASSETS 1,425,302 1,391,488 1,424,999 1,391,488CURRENT LIABILITIESTrade and other payables 11 45,398 34,470 45,398 34,470Borrowings 12 71,396 71,388 71,396 71,388Current tax payables 3 9,165 16,739 9,165 16,739Provisions 13 28,715 30,046 28,715 30,046TOTAL CURRENT LIABILITIES 154,674 152,643 154,674 152,643NON-CURRENT LIABILITIESBorrowings 14 795,459 802,780 795,459 802,780Deferred tax liabilities 3 88,600 90,853 88,600 90,853Provisions 15 46,386 36,042 46,386 36,042TOTAL NON-CURRENT LIABILITIES 930,445 929,675 930,445 929,675TOTAL LIABILITIES 1,085,119 1,082,318 1,085,119 1,082,318NET ASSETS 340,183 309,170 339,880 309,170EQUITYIssued capital 16 139,868 139,868 139,868 139,868Retained earnings 17 200,315 169,302 200,012 169,302TOTAL EQUITY 340,183 309,170 339,880 309,170Notes to the financial statements are included on pages 22 to 37.18

Port Waratah Coal Services LimitedStatements of Changes in Equityfor the financial year ended 31 December 2010NoteConsolidatedShare Capital Retained Earnings Total$'000 $'000 $'000Balance at 31 December 2009 16, 17 139,868 169,302 309,170Profit for the period - 60,213 60,213Dividends paid 18 - (29,200) (29,200)Balance at 31 December 2010 16, 17 139,868 200,315 340,183CompanyShare Capital Retained Earnings Total$'000 $'000 $'000Balance at 31 December 2009 16, 17 139,868 169,302 309,170Profit for the period - 59,910 59,910Dividends paid 18 - (29,200) (29,200)Balance at 31 December 2010 16, 17 139,868 200,012 339,880ConsolidatedShare Capital Retained Earnings Total$'000 $'000 $'000Balance at 31 December 2008 16, 17 139,868 132,502 272,370Profit for the period - 64,700 64,700Dividends paid 18 - (27,900) (27,900)Balance at 31 December 2009 16, 17 139,868 169,302 309,170CompanyShare Capital Retained Earnings Total$'000 $'000 $'000Balance at 31 December 2008 16, 17 139,868 132,502 272,370Profit for the period - 64,700 64,700Dividends paid 18 - (27,900) (27,900)Balance at 31 December 2009 16, 17 139,868 169,302 309,170Notes to the financial statements are included on pages 22 to 37.19

Port Waratah Coal Services LimitedStatement of Cash Flowsfor the financial year ended 31 December 2010ConsolidatedCompanyNote 31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09$'000 $'000 $'000 $'000CASH FLOWS FROM OPERATING ACTIVITIESReceipts from customers 397,049 358,825 397,049 358,825Payments to suppliers and employees (201,385) (184,458) (201,385) (184,458)Dividends received 2 967 925 967 925Interest received 5,489 3,542 5,489 3,542Interest and other costs of finance paid (39,071) (35,902) (39,071) (35,902)Income tax paid (35,440) (17,642) (35,440) (17,642)NET CASH FLOWS FROMOPERATING ACTIVITIES (iii) 127,609 125,290 127,609 125,290CASH FLOWS FROM INVESTING ACTIVITIESPayments for property, plant and equipment (296,771) (148,464) (296,771) (148,464)Proceeds from sale of property, plant and equipment 1,088 565 1,088 565NET CASH FLOWS USED ININVESTING ACTIVITIES (295,683) (147,899) (295,683) (147,899)CASH FLOWS FROM FINANCING ACTIVITIESRepayment of borrowings (72,313) (30,296) (72,313) (30,296)Proceeds from borrowings 65,000 280,000 65,000 280,000Dividends paid 18 (29,200) (27,900) (29,200) (27,900)NET CASH FLOWS FROMFINANCING ACTIVITIES (36,513) 221,804 (36,513) 221,804NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (204,587) 199,195 (204,587) 199,195CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THEFINANCIAL YEAR 206,918 7,723 206,918 7,723CASH AND CASH EQUIVALENTS AT THE END OF THEFINANCIAL YEAR (i) 2,331 206,918 2,331 206,918Included in the $39,071,000 disclosed as 'Interest and other costs of finance paid' is $9,085,000 of interest which has been capitalised in plant andequipment.Notes to the financial statements are included on pages 22 to 37.20

Port Waratah Coal Services LimitedNotes to the Statement of Cash Flowsfor the financial year ended 31 December 2010Consolidated Company31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09$'000 $'000 $'000 $'000(i)CASH AT THE END OF THE FINANCIAL YEARFor the purposes of the Statement of Cash Flows, cashincludes cash on hand and in banks and investments inmoney market instruments for the parent entity only,net of outstanding bank overdrafts.Cash and cash equivalents at the end of the financial year asshown in the cashflow statement is reconciled to the relateditems in the Statement of Financial Position as follows:Cash and cash equivalents 2,331 206,918 2,331 206,918(ii)FINANCING FACILITIESThe parent entity has access to:Secured bank loan facilities with various maturity datesAmount usedAmount unused866,855 874,168 866,855 874,168335,000 - 335,000 -1,201,855 874,168 1,201,855 874,168(iii)RECONCILIATION OF PROFIT FOR THE PERIOD TONET CASH FLOWS FROM OPERATING ACTIVITIESProfit for the period 60,213 64,700 59,910 64,700Depreciation expense 72,025 62,097 72,025 62,097Amortisation of borrowing costs 399 222 399 222Profit on sale of plant & equipment (345) (527) (345) (527)Share of profits of associates not received as dividends or distributions (303) - - -Capitalised interest (9,085) (10,164) (9,085) (10,164)Provision for restoration and rehabilitation recognised 7,000 444 7,000 444Interest unwinding on rehabilitation provision 3,560 3,241 3,560 3,241Changes in assets & liabilities:Increase/(decrease) in income tax payable (7,574) 11,823 (7,574) 11,823(Increase)/decrease in trade debtors 1,970 (1,843) 1,970 (1,843)(Increase)/decrease in other assets & prepayments (8,053) (1,006) (8,053) (1,006)(Increase)/decrease in inventory 672 (1,252) 672 (1,252)Increase/(decrease) in deferred taxes (2,253) (2,273) (2,253) (2,273)Increase/(decrease) in trade creditors &provisions 9,383 (172) 9,383 (172)Net cash flows from operating activities 127,609 125,290 127,609 125,29021

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010NOTE 1 SUMMARY OF ACCOUNTING POLICIES USED IN THE FINANCIAL STATEMENTSSummary of Accounting PoliciesStatement of ComplianceThe financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001,Accounting Standards and Urgent Issues Group Interpretations, and complies with other requirements of the law.The financial report includes the separate financial statement of the company and the consolidated financial statements of theGroup.In the current year, the company has adopted all of the new and revised standards and interpretations issued by the AustralianAccounting Standards Board (the AASB) that are relevant to it’s operations and effective for the company’s annual reporting period.New and revised standards and interpretations effective for the current reporting period that are relevant to the company included:• AASB 3 Business Combinations• AASB 101 Presentation of Financial Statements• AASB 107 Statement of Cashflows• AASB 127 Consolidated and Separate Financial Statements• AASB 128 Investments in AssociatesThe financial statements were authorised for issue by the Directors on 22 March 2011.Basis of PreparationThe financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets andfinancial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presentedin Australian dollars, unless otherwise noted.The company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission,relating to the "rounding off" of amounts in the financial report. Amounts in the financial report have been rounded off in accordancewith that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.The preparation of financial statements requires management to make judgements, estimates and assumptions that affect theapplication of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differfrom these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised inthe period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods ifthe revision affects both current and future periods.Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies theconcepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.The principal accounting policies adopted in preparing the financial report of the parent entity, Port Waratah Coal Services Limited,and the consolidated financial report of the consolidated entity comprising the parent entity, and the entities it controlled, are statedto assist in a general understanding of these financial reports. These policies have been consistently applied by entities in theconsolidated entity except as otherwise noted.Standards and Interpretations in issue not yet adoptedInitial application of the following Standards and Interpretations is not expected to have any material impact to the financial report of theconsolidated entity and the company:Standard/InterpretationAASB 124 Related Party Disclosures (2009), AASB2009-12 Amendments to Australian AccountingStandardsAASB 2010-5 Amendments to Australian AccountingStandardsEffective for annual reportingperiods beginning on or after1 January 20111 January 2011Expected to be initially applied inthe financial year ending31 December 201131 December 2011The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material financialimpact on the financial statements of the company or the Group, as the issue of the above noted Interpretations do not affect itspresent policies and operations.These Standards and Interpretations will be first applied in the financial report of the Group that relates to the annual reporting periodbeginning after the effective date of each pronouncement, which in all cases will be the Company’s annual reporting periodbeginning on 1 January 2011 or later.22

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010NOTE 1 SUMMARY OF ACCOUNTING POLICIES USED IN THE FINANCIAL STATEMENTS (continued)Principles of ConsolidationThe consolidated financial statements are prepared by combining the financial statements of all the entities that comprise theconsolidated entity, being Port Waratah Coal Services Limited (the parent entity) and its subsidiaries as defined in AccountingStandard AASB 127 ‘Consolidated and Separate Financial Statements’. A list of subsidiaries appears in Note 25 to the financialstatements. Consistent accounting policies are employed in the preparation and presentation of the consolidated financialstatements.On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date ofacquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill.If, after reassessment, the fair values of the identifiable net assets acquired exceeds the cost of acquisition, the deficiency is creditedto profit and loss in the period of acquisition.The consolidated financial statements include the information and results of each subsidiary from the date on which the companyobtains control and until such time as the company ceases to control such entity. Control is achieved where the company has thepower to govern the financial and operating policies of an entity so as to obtain benefits from its activities.In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising withinthe consolidated entity are eliminated in full.Financial AssetsInvestments are recognised and derecognised on trade date where purchase or sale of an investment is under a contract whoseterms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fairvalue, net of transaction costs.Subsequent to initial recognition, investments in subsidiaries are measured at cost. Subsequent to initial recognition, investments inassociates are accounted for under the equity method in the consolidated financial statements and the cost method in the companyfinancial statements.Other financial assets are classified into the following specified categories:- loans and receivables- financial assets at cost.Loans and receivablesTrade receivables, loans, and other receivables are recorded at amortised cost less impairment.Financial assets at costThe consolidated entity has classified certain shares in other corporations at cost. This is because the fair value of the sharescannot be measured reliably due to the lack of an actively trading market.Interest and dividendsInterest and dividends are classified as expenses or as distributions of profit consistent with the Statement of Financial Positionclassification of the related debt or equity instruments.23

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010NOTE 1 SUMMARY OF ACCOUNTING POLICIES USED IN THE FINANCIAL STATEMENTS (continued)Income TaxCurrent taxCurrent tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or taxloss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reportingdate. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).Deferred taxDeferred tax is accounted for using the Statement of Financial Position liability method. Temporary differences are differencesbetween the tax base of an asset or liability and its carrying amount in the Statement of Financial Position. The tax base of an assetor liability is the amount attributed to that asset or liability for tax purposes.In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to theextent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unusedtax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differencesgiving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) whichaffects neither taxable income nor accounting profit.Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates exceptwhere the consolidated entity is able to control the reversal of the temporary differences and it is probable that the temporarydifferences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associatedwith these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profitsagainst which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset andliability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enactedby reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from themanner in which the consolidated entity expects, at the reporting date, to recover or settle the carrying amount of its assets andliabilities.Current and deferred tax for the periodCurrent and deferred tax is recognised as an expense or income in the Statement of Comprehensive Income, except when it relatesto items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arisesfrom the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill orexcess.Tax consolidationThe company and all its wholly-owned Australian resident entities are part of a tax-consolidated group under Australian taxation law.Port Waratah Coal Services Limited is the head entity in the tax-consolidated group. Tax expense/income, deferred tax liabilities anddeferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separatefinancial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach. Current taxliabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidatedgroup are recognised by the company (as head entity in the tax-consolidated group).PayablesTrade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future paymentsresulting from the purchase of goods and services.BorrowingsBorrowings are recorded initially at fair value.Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognisedamount and the redemption value being recognised in profit and loss over the period of the borrowing using the effective interest ratemethod.Borrowing CostsBorrowing costs directly attributable to the acquisition, construction or production of a qualifying asset, which are assets thatnecessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, untilsuch time as the assets are substantially ready for their intended use or sale.All other borrowing costs are recognised in the profit and loss in the period in which they are incurred.Cash and Cash EquivalentsCash and cash equivalents comprise cash on hand, cash in banks (including short term deposits) and investments in money marketinstruments, net of outstanding bank overdrafts.24

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010NOTE 1 SUMMARY OF ACCOUNTING POLICIES USED IN THE FINANCIAL STATEMENTS (continued)Property, Plant and EquipmentLand is recognised at cost.Buildings, plant and equipment and leasehold improvements are stated at cost less accumulated depreciation and impairment. Costincludes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of thepurchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as atthe date of acquisition.Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculatedon a straight line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life to itsestimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever isthe shorter, using the straight line method. The estimated useful lives, residual values and depreciation method is reviewed at theend of each annual reporting period.The following estimated useful lives are used in the calculation of depreciation:Buildings10 - 25 yearsPlant and equipment 1 - 25 yearsProperty, plant and equipment consolidated lives are limited to 25 years reflecting commercial obsolescence.InventoriesMaintenance stores are valued at the lower of cost and net realisable value. Costs are assigned to inventory on hand by the methodmost appropriate to each particular class of inventory, with the majority being valued on a first in first out basis. Net realisable valuerepresents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling anddistribution.Major spares purchased specifically for particular items of plant and equipment are included in the cost of plant and equipment.Employee BenefitsProvision is made for benefits accruing to employees in respect of wages and salaries, short term incentive payments, annual leave,long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measuredreliably.Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal valuesusing the remuneration rate expected to apply at the time of settlement.Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as thepresent value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided byemployees up to reporting date.Defined contributions plansContributions to defined contribution superannuation plans are expensed when employees have rendered service entitling them tothe contributions.Revenue RecognitionRevenue from operating activities represents revenue from coal handling and related activities and includes accrued income inrelation to coal remaining on stockpiles at the end of the financial year. Revenue from outside the operating activities includesdividends received from other corporations, interest income, and proceeds from the disposal of property, plant and equipment.Revenue from operating activities is recognised when the services are provided and includes accrued income in relation to coalremaining on stockpiles and partly loaded coal at the end of the financial year.Revenue from Ship or Pay charges received is recognised when the Long Term Ship or Pay Agreement conditions for qualificationare met.Prepaid revenue is not recognised as revenue until the coal handling services have been performed.Dividend and interest revenueDividend revenue is recognised on a receivable basis. Interest revenue is recognised on a time proportionate basis that takes intoaccount the effective yield on the financial asset.25

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010NOTE 1 SUMMARY OF ACCOUNTING POLICIES USED IN THE FINANCIAL STATEMENTS (continued)Goods and Services TaxRevenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:i. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost ofacquisition of an asset or as part of an item of expense; orii. for receivables and payables which are recognised inclusive of GST.The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.Cash flows are included in the Statement of Cash flows on a gross basis. The GST component of cash flows arising from investingand financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.Impairment of AssetsAt each reporting date, the consolidated entity reviews the carrying amounts of its tangible and intangible assets to determinewhether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverableamount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generatecash flows that are independent from other assets, the consolidated entity estimates the recoverable amount of the cash-generatingunit to which the asset belongs.Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated futurecash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amountof the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or lossimmediately, unless the relevant asset is carried at fair value (in which case the impairment loss is treated as a revaluationdecrease).Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to therevised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prioryears. A reversal of an impairment loss is recognised in profit or loss immediately.Leased AssetsOperating lease payments are recognised as an expense on a straight-line basis over the lease term, except where anothersystematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.ProvisionsProvisions are recognised when the consolidated entity has a present obligation (legal or constructive) as a result of a past event,the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably.The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reportingdate, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflowsestimated to settle the present obligation, its carrying amount is the present value of those cashflows.When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, thereceivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can bemeasured reliably.Provision for restoration and rehabilitationA provision for restoration and rehabilitation is recognised when there is a present obligation as a result of port operationsundertaken, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of theprovision can be measured reliably. The estimated future obligations include the costs of removing facilities and restoring theaffected areas at the expiry of the relevant land operating leases. The provision for the future restoration costs is the best estimate ofthe present value of the expenditure required to settle the restoration obligation at the reporting date, based on independent costestimates. Future restoration estimates are reviewed periodically and any changes in the estimate are reflected in the present valueof the restoration provision at each reporting date.The initial estimate of the restoration and rehabilitation provision relating to removing facilities and restoring the affected areas iscapitalised into the related asset and amortised over the expected life of plant. Changes in the estimate of the provision forrestoration and rehabilitation are treated in the same manner, except that the unwinding of the effect of discounting on the provisionis recognised as a finance cost rather than being capitalised into the cost of the related asset.Foreign currencyThe financial statements are presented in its functional currency, being Australian dollars. Transactions in currencies other than theentity's functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each Statement ofFinancial Position date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the Statement ofFinancial Position date.26

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010ConsolidatedCompany31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09$'000 $'000 $'000 $'000NOTE 2 Profit from Operations(a) RevenueRevenue from continuing operations consisted of thefollowing items:Revenue from the rendering of Coal Handling Services 360,803 329,377 360,803 329,377(b) Other IncomeDividends from other corporations 967 925 967 925Interest received 5,975 4,478 5,975 4,478Other 1,135 523 1,135 523Gain on disposal of property, plant and equipment345 527 345 5278,422 6,453 8,422 6,453Total Revenue and Other Income 369,225 335,830 369,225 335,830(c) Profit before income taxProfit before income tax has been arrived at aftercharging the following expenses. The line items belowcombine amounts attributable to continuing operations:Depreciation of property, plant and equipment 72,025 62,097 72,025 62,097Borrowing costs:Interest and finance charges paid/payable 34,439 22,594 34,439 22,594Interest unwinding on rehabilitation provision 3,560 3,241 3,560 3,24137,999 25,835 37,999 25,835Defined contribution superannuation expense 4 6 4 6Rental expense relating to operating leases 3,271 2,301 3,271 2,301NOTE 3 INCOME TAX(a) Income tax recognised in profit or lossTax expense comprises:Current tax expenseDeferred tax expense relating to the origination andreversal of temporary differencesTotal tax expenseThe prima facie income tax expense on pre-taxaccounting profit from operations reconciles to theincome tax expense in the financial statements asfollows:Profit from continuing operationsIncome tax expense calculated at 30%Add/(Less): Capital lossNon-deductible expensesShare of profit from associateInvestment allowanceFranking credits27,865 29,464 27,865 29,464(2,253) (2,273) (2,253) (2,273)25,612 27,191 25,612 27,19185,825 91,891 85,522 91,89125,747 27,567 25,656 27,567458 - 458 -144 (95) 144 (95)(91) - - -(232) (162) (232) (162)(415) (119) (415) (119)25,612 27,191 25,612 27,19127

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010ConsolidatedCompany31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09$'000 $'000 $'000 $'000NOTE 3 INCOME TAX (continued)(b) Current tax payables:Income tax payable attributable to:Parent entity and entities in the tax consolidated group(c) Deferred tax balancesDeferred tax assets comprise:Temporary differencesSetoff to deferred tax liabilities9,165 16,739 9,165 16,73911,051 9,528 11,051 9,528(11,051) (9,528) (11,051) (9,528)- - - -Deferred tax liabilities comprise:Temporary differencesSetoff from deferred tax assets(99,651) (100,381) (99,651) (100,381)11,051 9,528 11,051 9,528(88,600) (90,853) (88,600) (90,853)Taxable and deductible temporary differences arisefrom the following:Gross deferred tax liabilities:InventoriesWork in progressOther receivablesProperty, plant and equipmentOther assetsConsolidated and CompanyBalance at Charged to Balance at Charged to Balance at31-Dec-08 income 31-Dec-09 income 31-Dec-10$'000 $'000 $'000 $'000 $'000(2,065) (375) (2,440) 201 (2,239)(377) (118) (495) (199) (694)(252) 182 (70) 58 (12)(98,091) 855 (97,236) 1,268 (95,968)- (140) (140) (599) (739)(100,785) 404 (100,381) 730 (99,651)Gross deferred tax assets:Provisions6,168 401 6,569 (116) 6,453Other accruals77 (18) 59 (24) 35Rehabilitation asset and interest unwinding 1,414 1,486 2,900 1,663 4,563Relevance of tax consolidation to the consolidated entity7,659 1,868 9,528 1,523 11,051(93,126) 2,273 (90,853) 2,253 (88,600)The company and its wholly-owned Australian resident entity have formed a tax-consolidated group with effect from 1 January 2003and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Port Waratah CoalServices Limited. The members of the tax-consolidated group are identified at Note 25.As a consequence, Port Waratah Coal Services Limited, as the head entity in the tax consolidated group, recognises currentand deferred tax amounts relating to transactions, events and balances of controlled entities in this group as if those transactions,events and balances were its own, in addition to the current and deferred tax amounts arising in relation to its own transactions,events and balances.28

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010ConsolidatedCompany31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09$'000 $'000 $'000 $'000NOTE 4 CASH AND CASH EQUIVALENTSCash on hand and short term deposits 2,331 206,918 2,331 206,918NOTE 5 TRADE AND OTHER RECEIVABLESTrade debtors and accrued income 17,068 20,616 17,068 20,616Other debtors 2,310 732 2,310 73219,378 21,348 19,378 21,348The average credit period for customers is 14 days. No interest is charged on trade debtors for the first 14 days from the date of invoice. Thereafter,interest is charged at an appropriate overdraft indicator rate on the outstanding balance. In determining the recoverability of trade debtors the companyconsiders any change in the credit quality of the trade debtor from the date credit was initially granted up to the reporting date. The Directors believe thatthere is no doubtful debt provision required for trade debtors.NOTE 6 INVENTORIESMaintenance stores and supplies 7,462 8,134 7,462 8,134NOTE 7 OTHER CURRENT ASSETSPrepayments 3,726 1,676 3,726 1,676NOTE 8 NON CURRENT - FINANCIAL ASSETSShares at cost - other corporations 2,835 2,835 2,835 2,835Shares in associates (Note 24) 303 - - -3,138 2,835 2,835 2,835Shares are shown at cost as the fair value of the shares cannot be reliably measured due to the lack of a liquid market for the sale ofthe shares.Shares at cost represent investment in:Newcastle Coal Shippers Pty Limited (NCS), a company which is not quoted on a stock exchange. The principal activity of NCSduring the year was investment in Port Waratah Coal Services Limited.At 31 December 2010 the parent entity held 2,835,000 (31 December 2009: 2,835,000) ordinary shares in NCS which represented8.964% of the issued capital of NCS.For the year ended 31 December 2010 NCS contributed an amount of $1 million in dividends (31 December 2009: $0.9 million) tothe pre tax profit of the parent entity and the consolidated entity.29

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010NOTE 9 PROPERTY, PLANT AND EQUIPMENTLandBuildingsPlant andequipmentTotalConsolidated Entity and Company $'000 $'000 $'000 $'000Gross carrying amountBalance at 1 January 2009AdditionsUnder construction at costDisposalsBalance at 1 January 2010AdditionsUnder construction at costDisposalsBalance at 31 December 2010Accumulated depreciationBalance at 1 January 2009DisposalsDepreciation expenseBalance at 1 January 2010DisposalsDepreciation expenseBalance at 31 December 2010Net book valueAs at 31 December 2009As at 31 December 20108,250 20,149 1,828,547 1,856,946- - 235,559 235,559- - (76,751) (76,751)(89) - (33,255) (33,344)8,161 20,149 1,954,100 1,982,41012,752 684 218,481 231,917- - 73,939 73,939- (174) (55,037) (55,211)20,913 20,659 2,191,484 2,233,055- 9,216 794,460 803,676- - (33,125) (33,125)- 908 61,189 62,097- 10,124 822,525 832,649- (174) (54,294) (54,468)- 1,004 71,021 72,025- 10,954 839,252 850,2068,161 10,025 1,131,576 1,149,76320,913 9,705 1,352,232 1,382,849ConsolidatedCompany31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09$'000 $'000 $'000 $'000Aggregate depreciation allocated, whether recognisedas an expense or capitalised as part of the carryingamount of other assets during the year:Buildings 1,004 908 1,004 908Plant and Equipment 71,021 61,189 71,021 61,18972,025 62,097 72,025 62,097NOTE 10 NON-CURRENT ASSETS - OTHERCapitalised borrowing costs 7,549 1,546 7,549 1,546Less Accumulated Amortisation (1,131) (732) (1,131) (732)NOTE 11 CURRENT TRADE AND OTHER PAYABLES6,418 814 6,418 814Trade payables 28,656 24,590 28,656 24,590Accruals 16,742 9,880 16,742 9,880The average credit period on purchases of goods and services is 45 days.45,398 34,470 45,398 34,47030

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010ConsolidatedCompany31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09$'000 $'000 $'000 $'000NOTE 12 CURRENT BORROWINGSBank loans - secured (i) 71,396 71,388 71,396 71,388(i) Bank loans are fully secured by a first ranking fixed and floating charge over all the assets and undertakings of the parent entity.NOTE 13 CURRENT PROVISIONSProvision for restoration and rehabilitation 9,929 9,250 9,929 9,250Employee Benefits 18,785 20,796 18,785 20,79628,715 30,046 28,715 30,046NOTE 14 NON-CURRENT BORROWINGSBank loans - secured (i) 795,459 802,780 795,459 802,780(i) Bank loans are fully secured by a first ranking fixed and floating charge over all the assets and undertakings of the parent entity.The loans mature in December 2012, September 2014 and March 2017 and bear a weighted average floating rate of interest as setout in Note 26.All loans are denominated in Australian dollars.NOTE 15 NON-CURRENT PROVISIONSProvision for restoration and rehabilitation 44,823 34,942 44,823 34,942Employee Benefits 1,563 1,100 1,563 1,10046,386 36,042 46,386 36,042Employee benefitsBalance at beginning of the year 21,896 20,558 21,896 20,558Additional employee provisions recognised 8,655 7,971 8,655 7,971Reductions arising from payments of employee provisions (10,202) (6,633) (10,202) (6,633)Balance at 31 December 201020,349 21,896 20,349 21,896Current (Note 13) 18,785 20,796 18,785 20,796Non-current (Note 15) 1,563 1,100 1,563 1,10020,349 21,896 20,349 21,896Provision for restoration and rehabilitationBalance at beginning of the year 44,192 40,507 44,192 40,507Unwinding of discount 3,560 3,241 3,560 3,241Provision recognised 7,000 444 7,000 444Balance at 31 December 201054,752 44,192 54,752 44,192Current (Note 13) 9,929 9,250 9,929 9,250Non-current (Note 15) 44,823 34,942 44,823 34,942NOTE 16 ISSUED CAPITAL54,752 44,192 54,752 44,19293,376,250 Coal Exporter class shares 98,663 98,663 98,663 98,66339,241,250 Coal Importer class shares 41,205 41,205 41,205 41,205139,868 139,868 139,868 139,868Effective 1 July 1998, the Corporations legislation abolished the concepts of authorised capital and par value shares. Accordingly theCompany does not have authorised capital nor par value in respect of its issued capital.Each class of share has equal voting and dividend rights.31

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010ConsolidatedCompany31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09$'000 $'000 $'000 $'000NOTE 17 RETAINED EARNINGSRetained earnings at the beginning of the financial year 169,302 132,502 169,302 132,502Net profit attributable to members 60,213 64,700 59,910 64,700Dividends provided for or paid (Note 18) (29,200) (27,900) (29,200) (27,900)Retained earnings at the end of the financial year 200,315 169,302 200,012 169,302NOTE 18 DIVIDENDSRecognised amountsFully paid ordinary sharesFinal 2009 dividend and first interim 2010 dividend:Franked to 30% (Prior year: 30%)Second interim 2010 dividend:Franked to 30% (Prior year: 30%)2010 2009Cents 31-Dec-10 Cents 31-Dec-09per share $'000 per share $'00011.01 14,600 10.48 13,90011.01 14,600 10.56 14,00022.02 29,200 21.04 27,900ConsolidatedCompany31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09$'000 $'000 $'000 $'000Adjusted franking account balance 49,106 23,274 49,106 23,274NOTE 19 RELATED PARTY DISCLOSURESRemuneration of Key Management Personnel(a) Compensation of Directors of the Consolidated EntityIncome paid or payable or otherwise made available to all Directors of the parent entity, directly or indirectly, by the entity or by anyrelated party, in connection with the management of affairs of the parent entity or its controlled entities.Short Term Post EmploymentDirectors' Fees Superannuation$ $RetirementBenefits Accrued$Total$- 2010 - - - -E J Doyle* 2009 421,667 8,250 - 429,917* No other Director received compensation for services rendered. E J Doyle retired on 31 July 2009.There are no key management personnel other than Directors.(b) Other Directors Compensation DisclosuresThere is no scheme for the payment of bonuses, options, additional retirement benefits, loans or any other form of incentivepayment to Directors.(c) Other Transactions and Balances With DirectorsThere were no other transactions by the company with Directors during the period.32

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010NOTE 19 RELATED PARTY DISCLOSURES (continued)Transactions with other related partiesThe parent entity received services from Coal & Allied Operations Pty Limited for which Coal & Allied Operations Pty Limited waspaid a fee of $1.4 million pursuant to an agreement between the parent entity and Coal & Allied approved by the Board of Directorsof the parent entity. In addition, the parent entity reimbursed Coal & Allied $0.8 million in respect of the secondment of employees toPWCS.Included in the balance of Trade and Other Receivables (Note 5) is $3.3 million receivable from Coal & Allied Operations Pty Limitedin respect of coal handling services provided by the parent entity.Included in the balance of Trade and Other Payables (Note 11) is $0.4 million payable to Coal & Allied in respect of servicesprovided to the parent company.The parent entity paid insurance premiums to Rio Tinto Services Limited during the year, to the value of $8.6 million. In addition theparent entity paid consulting services to Rio Tinto Technology & Innovation of $0.1 million and Rio Tinto Shipping Pty Limited of $0.1million.Ownership interestsOwnership interests are contained in Notes 24 and 25.DirectorsThe Directors named in the attached Directors' Report each hold office as a Director of the parent entity as at the date of this report.In addition, the following persons held office as a Director at various times during the year.DirectorsResignedR H Elliott 31 May 2010W E Cant 26 August 2010Alternate DirectorsJ Fujiwara 25 June 2010P C Taylor 26 August 2010NOTE 20 REMUNERATION OF AUDITORSCompanyRemuneration of Auditors 31-Dec-10 31-Dec-09$ $Amounts received or due and receivable by the auditors for:Auditing the financial report 72,500 70,000Other services 85,512 -The auditors received no benefits other than amounts shown.158,012 70,00033

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010NOTE 21 COMMITMENTS FOR EXPENDITURE Consolidated andCompanyCapital expenditure commitments 31-Dec-10 31-Dec-09$'000$'000Various contracts in respect of expansion projects and plant and equipment for which no provision has beenmade in the financial statements at the end of the financial year.Payable within one year 166,514 42,895Payable later than one year but not later than five years 5,000 75Payable later than five years 2,667 -174,181 42,970Consolidated andCompany31-Dec-10 31-Dec-09Operating Lease Commitments $'000 $'000Minimum lease payments in relation to land lease rentals and office equipment are as follows:Due within 1 year 3,329 2,440Due within 1-5 years 10,661 10,456Due after 5 years 1,836 1,943Total 15,826 14,839CompletionDateRenewalOptionOptionPeriodOperating LeasesLand - Kooragang Conveyor Corridor and Berth AreaLand - Carrington Stockpile and Berth AreaDec 2032Dec 2014YesYes10 Years10 YearsOther CommitmentsDue within 1 year 7,472 6,808Total 7,472 6,808Foreign Currency CommitmentsIncluded within Capital Commitments above are the following commitments in foreign currency:20102009Euro $A Euro $A$'000 $'000 $'000 $'000Euro - Payable within one year - - 6,144 9,845NOTE 22 SUPERANNUATION COMMITMENTSThe parent entity contributes to superannuation funds which provide accumulated benefits to employees who are members of the funds on theirretirement, resignation, disability or death. The rights of members and/or their dependants are protected by the rules of the funds.NOTE 23 SEGMENT INFORMATIONThe consolidated entity operates in the coal handling industry in New South Wales, Australia. The company operates in one geographic and operatingsegment.34

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010NOTE 24 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHODLogistics Planning Services Pty Limited (LPS) was incorporated on 18 October 2004. LPS was placed into member'svoluntary liquidation on 26 November 2010. The principal activity of LPS was to develop and manage a system for theplanning and logistics services for the movement of coal in the Hunter Valley of New South Wales.As at 31 December 2010 the parent entity held 50 ordinary shares in LPS, which represented 50% of the issued capital ofLPS.For the year ended 31 December 2010, LPS contributed $0.3 million (2009: $0) to the pre tax profit of the consolidatedentity.Investments in associates are accounted for in the financial statements using the equity method of accounting and arecarried at cost by the parent (see Notes 1 and 8). Information relating to the associate is set out below.Name of CompanyPrincipal ActivityOwnership Interest2010 2009% %Logistics Planning Services Pty Limited Software development 50 50LPS has a reporting date of 30 June. The carrying amount of the investment in LPS is $50 (2008: $50).LPS CommitmentsThe consolidated entity's share of LPS' capital commitments in relation to expenditure contracts in existence at thereporting date but not recognised as liabilities, payable within one year, amount to $0 (2009: $30,000).The consolidated entity's share of LPS' operating commitments in relation to expenditure contracts in existence at thereporting date but not recognised as liabilities, payable within one year, amount to $0 (2009: $112,000).Summarised Financial Information of Associates31-Dec-10$'00031-Dec-09$'000Current assetsNon-current assetsCurrent liabilitiesNon-currentNet assetsRevenueNet profit/(loss)872 877- 1,050872 1,927265 190- 1,737265 1,927606 -890 1,941606 -NOTE 25 CONTROLLED ENTITY INFORMATIONThe parent entity holds a 100% interest in PWCS Refinancing Pty Limited, a company incorporated in Australia.The book value of the parent entity's investment in the controlled entity is $2.35

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010NOTE 26 FINANCIAL INSTRUMENTS(i)Interest Rate RiskThe parent entity's exposure to interest rate risk and the effective interest rates on financial instruments at balance date are:Weightedaverageeffective Floating Fixed interest rate maturities Noninterestinterest 1 year 2 to 5 over 5 interestrate rate or less years years bearing Total% $'000 $'000 $'000 $'000 $'000 $'00031 December 2010AssetsCash 4.5% 2,331 - - - - 2,331Debtors - - - - - 17,068 17,068Other receivables - - - - - 2,310 2,310Shares in other corporations - - - - - 2,835 2,835Total financial assets 2,331 - - - 22,213 24,544LiabilitiesTrade and other payables - - - - - 45,398 45,398Secured bank loans 5.7% 866,855 - - - - 866,855Total financial liabilities 866,855 - - - 45,398 912,253Net financial (liabilities) (864,524) - - - (23,185) (887,709)31 December 2009AssetsCash 4.6% 206,918 - - - - 206,918Debtors - - - - - 20,616 20,616Receivables - - - - - 732 732Shares in other corporations - - - - - 2,835 2,835Total financial assets 206,918 - - - 24,183 231,101LiabilitiesTrade and other payables - - - - - 34,470 34,470Secured bank loans 4.5% 874,168 - - - - 874,168Total financial liabilities 874,168 - - - 34,470 908,638Net financial (liabilities) (667,250) - - - (10,287) (677,537)(ii)Credit Risk ManagementThe carrying amounts of financial assets included in the consolidated Statement of Financial Position represent the parent entity'smaximum exposure to credit risk in relation to these assets. The parent entity holds no security in relation to financial assets.The company continues to adopt a policy of only dealing with creditworthy counterparties.Ongoing credit evaluation is performed on the financial condition of trade debtors and where appropriate, services are not performeduntil payment in advance of services to be rendered occurs.(iii)Net Fair ValuesThe carrying amount of financial assets and financial liabilities recorded in the financial statements approximates theirfair values, unless stated expressly.(iv)Capital risk managementThe capital structure of the company consists of debt, which includes borrowings disclosed in note 12 and 14, cash and cashequivalents, disclosed in Note 4 and equity attributable to equity holders of the parent, comprising issued capital and retained earningsas disclosed in notes 16 and 17.36

Port Waratah Coal Services LimitedNotes to the financial statementsfor the financial year ended 31 December 2010NOTE 26 FINANCIAL INSTRUMENTS (Continued)(v)Financial risk management objectivesManagement provide treasury support to the business, co-ordinates access to financial markets and manages financial risks relating tothe company. These risks include market risk (including currency risk, fair value interest rate risk and price risk), liquidity risk andcashflow interest rate risk.The company seeks to minimise these risks by using a number of financial institutions, fixed interest rate periods and borrowings inAustralian dollars only. The company has a Treasury Policy Statement which is Board approved and provides written procedures overborrowing limits, payments, cash management and approvals. Compliance to the Treasury Policy Statement is reviewed by the internalauditors on a continuous basis.Management reports monthly to the Board on borrowings.The company has no hedge or derivative financial instruments at the date of reporting.(vi)Foreign currency risk managementThe company has entered certain supplier agreements denominated in foreign currencies, hence exposure to exchange ratefluctuations arise. Exchange rate exposures are managed within Board approved policies.The carrying amount of the company's foreign currency denominated assets and liabilities at year end is:LiabilitiesAssets2010 2009 2010 2009$'000 $'000 $'000 $'000Euro - 841 - 841United States Dollar - 81 - -(vii)Interest rate managementThe company is exposed to interest rate risk as the company borrows funds at floating rates.A 1% increase or decrease is used when reporting interest rate sensitivity risk to key management and the Board. At reporting date, ifinterest rates had been 1% higher or lower and all other variables were held constant, the company's' net profit would decrease/increase$6.1 Million (2009: $6.2 Million) based on the level of borrowings at 31 December 2010, mainly due to the company's exposure on itsvariable rate borrowings.(viii)Liquidity risk managementUltimate responsibility for the liquidity risk management rests with the Board, who have built an appropriate liquidity risk managementframework for the management of the company's short, medium and long term funding requirements. The company manages liquidityrisk by maintaining adequate reserves, banking facilities and by continuously monitoring forecast and actual cashflows. Managementreport to the Board on a monthly basis for cashflow forecasting.All of the consolidated entity's borrowings excluding repayments are subject to interest rate repricing in the next 12 months. The Boardconsiders that the carrying amounts of the financial assets and financial liabilities recognised at amortised cost in the financialstatements approximate their fair values.The table below includes the weighted average effective interest rate and a reconciliation to the carrying amount in the Statement ofFinancial Position for borrowings.Weighted average interestGreater than 6 months andrateLess than 6 months less than 1 year 1- 5 years Total2010 % $'000$'000$'000 $'000Borrowings 5.7%35,809 35,587795,459 866,8552009Borrowings 4.5% 36,27535,113802,780 874,168NOTE 27 SUBSEQUENT EVENTS DISCLOSURENo other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affectthe operations of the entity, the results of those operations, or the state of affairs of the entity in future financial years.NOTE 28 ADDITIONAL COMPANY INFORMATIONPWCS is an unlisted public company, incorporated and operating in Australia.Registered officePort Waratah Coal Services LimitedKooragang Island, NewcastleNSW AustraliaPrincipal places of businessPort Waratah Coal Services LimitedCarrington & Kooragang Island, NewcastleNSW Australia37

Directors’ DeclarationThe Directors declare that the financial statements and notes set out on pages 17 to 37:(a)(b)comply with the Accounting Standards, the Corporations Regulations 2001 and other mandatoryprofessional reporting requirements; andgive a true and fair view of the Company’s and consolidated entity’s financial position as at31 December 2010 and of their performance, as represented by the results of their operations andtheir cash flows, for the financial year ended on that date.In the Directors’ opinion:(a)(b)the financial statements and notes are in accordance with the Corporations Act 2001; andthere are reasonable grounds to believe that the Company will be able to pay its debts as and whenthey become due and payable.Dated this 22nd day of March 2011.Signed in accordance with a resolution of the Directors made pursuant to s295(5) of theCorporations Act 2001.M HarveyDirector38

Deloitte Touche TohmatsuA.B.N. 74 490 121 060Grosvenor Place225 George StreetSydney NSW 2000PO Box N250 Grosvenor PlaceSydney NSW 1220 AustraliaDX 10307SSETel: +61 (0) 2 9322 7000Fax: +61 (0) 2 9322 7001www.deloitte.com.auIndependent Auditor’s Reportto the members of Port Waratah Coal ServicesLimitedWe have audited the accompanying financial report of Port Waratah Coal Services Limited, whichcomprises the statement of financial position as at 31 December 2010, the statement ofcomprehensive income, the statement of cash flows and the statement of changes in equity for theyear ended on that date, notes comprising a summary of significant accounting policies and otherexplanatory information, and the directors’ declaration of the consolidated entity comprising thecompany and the entities it controlled at the year’s end as set out on pages 17 to 38.Directors’ Responsibility for the Financial ReportThe directors of the company are responsible for the preparation of the financial report that gives atrue and fair view in accordance with Australian Accounting Standards and the Corporations Act2001 and for such internal control as the directors determine is necessary to enable thepreparation of the financial report that is free from material misstatement, whether due to fraud orerror.Auditor’s ResponsibilityOur responsibility is to express an opinion on the financial report based on our audit. Weconducted our audit in accordance with Australian Auditing Standards. Those standards requirethat we comply with relevant ethical requirements relating to audit engagements and plan andperform the audit to obtain reasonable assurance whether the financial report is free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial report. The procedures selected depend on the auditor’s judgement,including the assessment of the risks of material misstatement of the financial report, whether dueto fraud or error. In making those risk assessments, the auditor considers internal control, relevantto the entity’s preparation of the financial report that gives a true and fair view, in order to designaudit procedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimatesmade by the directors, as well as evaluating the overall presentation of the financial report.We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.Liability limited by a scheme approved under Professional Standards LegislationMember of Deloitte Touche Tohmatsu Limited39

Auditor’s Independence DeclarationIn conducting our audit, we have complied with the independence requirements of theCorporations Act 2001.OpinionIn our opinion, the financial report of Port Waratah Coal Services Limited is in accordance with theCorporations Act 2001, including:(a) giving a true and fair view of the company’s and consolidated entity’s financial position as at31 December 2010 and of its performance for the year ended on that date; and(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.DELOITTE TOUCHE TOHMATSUR G SaaymanPartnerChartered AccountantsSydney, 22 March 201140