UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

PEABODY ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		1-16463		13-4004153
(State or other jurisdiction of		(Commission File Number)		(I.R.S. Employer Identification No.)
incorporation or organization)

701 Market Street, St. Louis, Missouri		63101
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code ccodecode (314) 342-3400

Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 8.01. Other Events.

Structure and Price of the Transactions

On July 5, 2006, Peabody Energy Corporation (“Peabody”) signed a Merger Implementation Agreement (the “Merger Implementation Agreement”) to acquire Excel Coal Limited (“Excel”). The Merger Implementation Agreement was amended on September 18, 2006, when Peabody signed binding agreements to acquire 19.99 percent of Excel at A$9.50 per share (US$7.16) (“the Advance Purchase”). On September 20, 2006, Peabody closed on the Advance Purchase.

By the terms of the merger implementation agreement, as amended on September 18, 2006, Peabody will pay A$9.50 per share (approximately US$7.16) in cash for the remaining outstanding shares of Excel, resulting in a total acquisition price, including the Advance Purchase, of approximately US$1.54 billion plus assumed net debt of approximately US$193 million as of June 30, 2006.

The acquisition is intended to be financed through the net proceeds of senior note offerings and borrowings under Peabody’s senior unsecured credit facility.

Transaction Closing and Closing Conditions

The acquisition is expected to close in October 2006. The transaction is subject to approval by Excel shareholders by a vote currently scheduled on October 4, 2006, the absence of a material adverse change with respect to Excel and certain other conditions.

Financial Statements of Business to be Acquired

The consolidated financial statements of Excel Coal Limited and its Controlled Entities as of and for the year ended June 30, 2006 follow, all expressed in Australian dollars.

Unaudited pro forma combined financial statements of Peabody and Excel are presented beginning on page 64 of this Current Report on Form 8-K, after the financial statements of Excel.

Excel Coal Limited
Income statement
For the year ended 30 June 2006

				Consolidated
								Unaudited
				2006				2005
		Note		$000				$000
Revenue		3			517,921				357,729
Cost of sales					(329,204	)			(226,095	)
Gross profit					188,717				131,634
Administrative expenses					(26,745	)			(19,452	)
Other income		4			606				107
Other expenses					(105	)			(4,436	)
Results from operating activities		5			162,473				107,853
Financial income					4,585				4,691
Financial expenses					(15,189	)			(9,726	)
Net financing (costs)/income		8			(10,604	)			(5,035	)
Share of profit of associates accounted for using the equity method		16			443				6,214
Profit before tax					152,312				109,032
Income tax (expense)/benefit		9			(45,342	)			(31,229	)
Net profit					106,970				77,803
Minority interests					(8,908	)			(14,955	)
Net profit attributable to members of the parent					98,062				62,848
Basic and diluted earnings per share attributable to ordinary equity holders		10			47.9c				32.6c

The income statement is to be read in conjunction with the notes to the consolidated financial statements.

Statement of changes in equity
For the financial year ended 30 June 2006

		Issued				Retained				Translation				Hedging				Fair value								Minority
		Capital				earnings				reserve				reserve				reserve				Total				interest				Total equity
Consolidated		$000				$000				$000				$000				$ 000				$000				$000				$000
Opening balance at 1 July 2004 (Unaudited)			92,222				85,912				—				—				—				178,134				37,541				215,675
Foreign exchange translation difference (Unaudited)			—				—				181				—				—				181				—				181
Adjustment arising from transactions with owners (Unaudited)			—				(76,740	)			—				—				—				(76,740	)			(1,134	)			(77,874	)
Recognition of capital profits in subsidiary (Unaudited)			—				6,528				—				—				—				6,528				—				6,528
Deferred tax effect of IPO costs(Unaudited)			(582	)			—				—				—				—				(582	)			—				(582	)
Total non – profit items recognised directly in equity (Unaudited)			(582	)			(70,212	)			181				—				—				(70,613	)			(1,134	)			(71,747	)
Net profit (Unaudited)			—				62,848				—				—				—				62,848				14,955				77,803
Total recognised income and expense for the period (Unaudited)			(582	)			(7,364	)			181				—				—				(7,765	)			13,821				6,056
Shares issued net of transaction costs (Unaudited)			90,059				—				—				—				—				90,059				—				90,059
Dividends (Unaudited)			—				(26,920	)			—				—				—				(26,920	)			(24,033	)			(50,953	)
Closing balance at 30 June 2005 (Unaudited)			181,699				51,628				181				—				—				233,508				27,329				260,837
Amounts are stated net of tax
Opening balance at 1 July 2005			181,699				51,628				181				—				—				233,508				27,329				260,837
Effect of change in accounting policy AASB132/139(note 36)			—				736				—				14,561				(736	)			14,561				2,687				17,248
Opening balance at 1 July 2005 – restated			181,699				52,364				181				14,561				(736	)			248,069				30,016				278,085
Effective portion of fair value of cash flows hedges			—				—				—				(21,294	)			—				(21,294	)			(2,341	)			(23,635	)
Adjustment arising from transactions with owners			—				(706	)			—				—				—				(706	)			(1,247	)			(1,953	)
Fair value adjustment			—				(736	)			—				—				765				29				—				29
Deferred tax effect of IPO costs			(413	)			—				—				—				—				(413	)			—				(413	)
Foreign exchange translation differences			—				—				(71	)			—				—				(71	)			14				(57	)
Total non – profit items recognised directly in equity			(413	)			(706	)			(71	)			(6,733	)			29				(7,894	)			(887	)			(8,781	)
Net profit			—				98,062				—				—				—				98,062				8,908				106,970
Total recognised income and expense for the period			(413	)			97,356				(71	)			(6,733	)			29				90,168				8,021				98,189
Shares issued net of transaction costs			102,713				—				—				—				—				102,713				—				102,713
Dividends			—				(59,860	)			—				—				—				(59,860	)			(9,152	)			(69,012	)
Closing balance at 30 June 2006			283,999				89,124				110				(6,733	)			29				366,529				26,198				392,727

Amounts are stated net of tax

     The statement of changes in equity are to be read in conjunction with the notes to the consolidated financial statements.

Balance sheet
As at 30 June 2006

				Consolidated
								Unaudited
				2006				2005
		Note		$000				$000
Current assets
Cash and cash equivalents		11			39,802				105,005
Trade and other receivables		12			84,963				61,488
Inventories		13			108,254				25,449
Other financial assets		14			3,191				3,611
Other					3,605				8,476
Total current assets					239,815				204,029
Non-current assets
Trade and other receivables		12			7,878				9,927
Other financial assets		14			1,157				1,337
Investments accounted for using the equity method		16			10,106				9,664
Deferred tax assets		18			48,413				38,853
Property, plant and equipment		19			538,747				231,733
Intangible assets		20			113,205				109,056
Other					3,867				4,885
Total non-current assets					723,373				405,455
Total assets					963,188				609,484
Current liabilities
Trade and other payables		21			106,278				95,467
Interest bearing loans and borrowings		22			24,262				14,154
Deferred revenue		21			28,208				—
Employee benefits		23			8,493				5,928
Income tax payable		15			22,321				12,173
Provisions		24			3,436				5,668
Total current liabilities					192,998				133,390
Non-current liabilities
Interest bearing loans and borrowings		22			275,508				168,695
Deferred tax liabilities		18			43,141				21,014
Employee benefits		23			4,963				4,056
Provisions		24			14,483				14,364
Deferred revenue		21			25,266				—
Other					14,102				7,128
Total non-current liabilities					377,463				215,257
Total liabilities					570,461				348,647
Net assets					392,727				260,837

Balance sheet (continued)
As at 30 June 2006

						Consolidated
										Unaudited
						2006				2005
Note						$000				$000
Equity
Issued capital			25				283,999				181,699
Reserves							(6,594	)			181
Retained earnings/(accumulated losses)							89,124				51,628
Total equity attributable to equity holders of the parent							366,529				233,508
Minority interest							26,198				27,329
Total equity							392,727				260,837

The balance sheet is to be read in conjunction with the notes to the consolidated financial statements.

Statement of cash flows
For the year ended 30 June 2006

				Consolidated
								Unaudited
				2006				2005
		Note		$000				$000
Cash flows from operating activities
Cash receipts from customers					480,237				365,610
Cash paid to suppliers and employees					(367,403	)			(249,378	)
Cash generated from operations					112,834				116,232
Interest paid					(16,274	)			(8,681	)
Income taxes paid					(22,371	)			(6,959	)
Interest received					4,460				4,571
Dividends received					125				5,930
Net cash from operating activities		32			78,774				111,093
Cash flows from investing activities
Proceeds from sale of property, plant and equipment					651				—
Proceeds from sale of investments					2,535				230
Payments for investments					(1,953	)			(1,334	)
Payments for security deposits					(8,176	)			(12,710	)
Acquisition of subsidiary, net of cash acquired		31			—				(35,639	)
Acquisition of property, plant and equipment					(279,826	)			(87,927	)
Repayment/(advances) to other parties					—				1,263
Exploration and evaluation expenditure					(7,948	)			(6,922	)
Net cash from investing activities					(294,717	)			(143,039	)
Cash flows from financing activities
Proceeds from the issue of share capital					102,713				13,905
Proceeds from borrowings – other parties					92,748				140,611
Proceeds from deferred revenue					53,474				—
Repayment of borrowings – other parties					(8,000	)			(30,989	)
Dividends paid to members of the parent entity					(59,860	)			(26,920	)
Dividends paid to minority interests					(20,362	)			(11,696	)
Finance lease payments					(9,973	)			(8,750	)
Net cash from financing activities					150,740				76,161
Net increase/(decrease) in cash and cash Equivalents					(65,203	)			44,215
Cash and cash equivalents at 1 July					105,005				60,790
Cash and cash equivalents at 30 June		11			39,802				105,005

The statement of cash flows is to be read in conjunction with the notes to the consolidated financial statements.

Notes to the consolidated financial statements
1. Significant accounting policies

Excel Coal Limited (the “Company” or Excel) is a company domiciled in Australia. The consolidated financial report of the Company for the year ended 30 June 2006 and 2005 comprise the Company and its subsidiaries (together referred to as the “consolidated entity” or “Group”) and the consolidated entity’s interest in associates.

The consolidated financial report was authorised for issue by the directors on 29 September 2006.

(a) Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (“AAS”), being the Australian equivalent to International Financial Reporting Standards (“IFRS”), adopted by the Australian Accounting Standards Board(“AASB”).

(b) Basis of preparation

The financial report is presented in Australian dollars.

The financial report is prepared on the historical cost basis except that derivative financial instruments and financial instruments classified as available for sale assets are stated at their fair value.

The entity has elected early adoption of the following accounting standards:

•		AASB 119 Employee Benefits (December 2004);
•		AASB 2004-3 Amendments to Australian Accounting Standards (December 2004) amending AASB 1 First Time Adoption of Australian Equivalents to International Financial Reporting Standards (July 2004), AASB 101 Presentation of Financial Statements, AASB 124 Related Party Disclosures;
•		AASB 2005-1 Amendments to Australian Accounting Standards (May 2005) amending AASB 139 Financial Instruments: Recognition and Measurement;
•		AASB 2005-3 Amendments to Australian Accounting Standards (June 2005) amending AASB 119 Employee Benefits (either July or December 2004);
•		AASB 2005-4 Amendments to Australian Accounting Standards (June 2005) amending AASB 139 Financial Instruments : Recognition and Measurement, AASB 132 Financial Instruments: Disclosure and Presentation, AASB 1 First Time Adoption of Australian Equivalents to International Financial Reporting Standards (July 2004);
•		AASB 2005-5 Amendments to Australia Accounting Standards (June 2005) amending AASB 1 First Time Adoption of Australian Equivalents to International Financial Reporting Standards (July 2004) and AASB 139 Financial Instruments: Recognition and Measurement;
•		AASB 2005-6 Amendments to Australian Accounting Standards (June 2005) amending AASB 3 Business Combinations;
•		AASB 2005-11 Amendments to Australian Accounting Standards (September 2005) amending AASB 101 Presentation of Financial Statements, AASB 112 Income Taxes, AASB 132 Financial Instruments: Disclosure and Presentation, AASB 133 Earnings per Share, AASB 139 Financial Instruments: Recognition and Measurement, and AASB 141 Agriculture; and
•		Urgent Issues Group 4 Determining whether an Arrangement contains a lease.

The above standards have been applied consistently in the periods presented.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(b) Basis of preparation (continued)
Issued standards not early adopted

The following standards and amendments were available for early adoption but have not been applied by the consolidated entity in these accompanying financial statements:

•		AASB 7 Financial instruments: Disclosure (August 2005) replacing the presentation requirements of financial instruments in AASB 132. AASB 7 is applicable for annual reporting periods beginning on or after 1 January 2007;
•		AASB 2005-9 Amendments to Australian Accounting Standards (September 2005) requires that liabilities arising from the issue of financial guarantee contracts are recognised in the balance sheet. AASB 2005-9 is applicable for annual reporting periods beginning on or after 1 January 2006
•		AASB 2005-10 Amendments to Australian Accounting Standards (September 2005) makes consequential amendments to AASB 132 Financial Instruments: Disclosures and Presentation, AASB 101 Presentation of Financial Statements, AASB 114 Segment Reporting, AASB 117 Leases, AASB 133 Earnings per Share, AASB 139 Financial Instruments: Recognition and Measurement, AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts, arising from the release of AASB 7. AASB 2005-10 is applicable for annual reporting periods beginning on or after 1 January 2007.

The consolidated entity will adopt AASB 7, AASB 2005-9 and AASB 2005-10 in the 2007 financial year.

The initial application of AASB 7 and AASB 2005-10 is not expected to have an impact on the financial results of the consolidated entity as the standard and the amendment are concerned only with disclosures.

The initial application of AASB 2005-9 could have an impact on the financial results of the consolidated entity as the amendment could result in liabilities being recognised for financial guarantee contracts that have been provided by the consolidated entity. However, the quantification of the impact is not known or reasonably estimable in the current financial year as an exercise to quantify the financial impact has not been undertaken by the consolidated entity to date.

The preparation of a financial report in conformity with Australian Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of Australian Accounting Standards that have a significant effect on the financial report and estimates with a significant risk of material adjustment in the next year are discussed in note aa.

The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial report except for AASB 132: Disclosure and Presentation and AASB 139: Recognition and Measurement which was adopted on 1 July 2005, as set out in note 36.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(c) Basis of consolidation
Subsidiaries

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in these financial statements from the date that control commences until the date that control ceases.

Associates

Associates are those entities for which the consolidated entity has significant influence, but not control, over the financial and operating policies. The financial report includes the consolidated entity’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the consolidated entity’s share of losses exceeds its interest in an associate, the consolidated entity’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the consolidated entity has incurred legal or constructive obligations or made payments on behalf of an associate.

Joint ventures

Joint ventures are those entities over whose activities the consolidated entity has joint control, established by contractual agreement.

Jointly controlled entities

In the consolidated financial statements, investments in jointly controlled entities are accounted for using equity accounting principles. Investments in joint venture entities are carried at the lower of the equity accounted amount and recoverable amount.

The consolidated entity’s share of the jointly controlled entity’s net profit or loss is recognised in the consolidated income statement from the date joint control commenced until the date joint control ceases. Other movements in reserves are recognised directly in the consolidated reserves.

Jointly controlled operations and assets

The interest of the consolidated entity in unincorporated joint ventures and jointly controlled assets are brought to account by recognising in its financial statements the assets it controls and the liabilities that it incurs, and the expenses it incurs and its share of income that it earns from the sale of goods or services by the joint venture.

Transactions eliminated on consolidation

Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in preparing the financial report.

Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the consolidated entity’s interest in the entity, with adjustments made to the “Investment in associates” and “Share of associates’ net profit” accounts.

Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Gains and losses are recognised as the relevant assets are consumed or sold by the associate or jointly controlled entities or, if not consumed or sold by the associate or jointly controlled entity, when the consolidated entity’s interest in such entities is disposed of.

Changes in ownership interest

When a controlled entity makes a new issue of capital and the consolidated entity’s percentage ownership changes, the share of retained profits and reserves attributed to the Company and minority interest is adjusted to reflect the new ownership interest. The adjustment is not reflected in net profit but as a direct adjustment to the specific equity accounts.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(d) Foreign currency
Foreign currency transactions

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates ruling at the dates the fair value was determined.

Financial statements of foreign operations

The assets and liabilities for foreign operations, including goodwill and fair value adjustments arising on consolidation, generally are translated to Australian dollars at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to Australian dollars at rates approximating the foreign exchange rates ruling at the dates of the transactions.

Net investment in foreign operations

Exchange differences arising from the translation of the net investment in foreign operations, and of related hedges are taken to translation reserve. They are released into the income statement upon disposal.

(e) Derivative financial instruments
Current period policy (from 1 July 2005)

The consolidated entity uses derivative financial instruments to hedge its exposure to foreign exchange arising from operational and financing activities. In accordance with its treasury policy, the consolidated entity does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Derivative financial instruments are initially recognised at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged (see accounting policy f).

The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.

Comparative period policy (to 30 June 2005) — Unaudited

The consolidated entity is exposed to changes in interest rates, foreign exchange rates and commodity prices from its activities. The consolidated entity uses forward foreign exchange contracts to hedge these risks. Derivative financial instruments are not held for speculative purposes. The accounting policy in respect of these derivatives are described in accounting policy note (f).

The impact of the change in accounting policy is set out in note 36.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(f) Hedging
Current period policy (from 1 July 2005)
Cash flow hedges

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity. When the forecast transaction subsequently results in the recognition of a non financial asset or non financial liability, or the forecast transaction for a non financial asset or non financial liability, the associated cumulative gain or loss is removed from equity and included in the initial cost or other carrying amount of the non financial asset or liability. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, then the associated gains or losses that were recognised directly in equity are reclassified into profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss (i.e., when interest income or expense is recognised).

For cash flow hedges, other than those described above, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or periods during which the hedged forecast transaction affects profit and loss. The ineffective part of any gain or loss is recognised immediately in the income statement.

When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to occur, then the cumulative unrealised gain or loss, previously recognised in equity, is transferred to the income statement.

Hedge of monetary assets and liabilities

When a derivative financial instrument is used to hedge the foreign exchange exposure of a recognised monetary asset or liability, hedge accounting is not applied and any gain or loss on the hedging instrument is recognised in the income statement.

Comparative period policy (to 30 June 2005) — Unaudited

Transactions are designated as a hedge of the anticipated specific purchase or sale of good or services, only when they are expected to reduce exposure to the risks being hedged, are designated prospectively so that it is clear when an anticipated transaction has or has not occurred and it is probable the anticipated transaction will occur as designated.

Gains or losses on the hedge arising up to date of the anticipated transaction, together with any costs or gains arising at the time of entering into the hedge, are deferred and included in the measurement of the anticipated transaction when the transaction has occurred as designated. Any gains or losses on the hedge transaction after that date are included in the income statement.

The net amounts receivable or payable under forward foreign exchange contracts and the associated deferred gains and losses are recorded on the balance sheet from the date of the inception of the hedge transaction. When recognised, the net receivables or payables are revalued using the foreign currency current at reporting date.

Option premiums are recorded in “other assets” when paid and included in the measurement of the transaction when it occurs.

When the anticipated transaction is no longer expected to occur as designated, the deferred gains or losses relating to the hedged transaction are recognised immediately in income statement.

Where a hedge transaction is terminated early and the anticipated transaction is still expected to occur as designated, the deferred gains or losses that arose on the hedge prior to its termination continue to be deferred and are included in the measurement of the purchase or sale or interest transaction when it occurs. Where a hedge transaction is terminated early because the anticipated transaction is no longer expected to occur as designated, deferred gains or losses that arose on the hedge prior to its termination are included in the income statement for the period.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(f) Hedging (continued)

Where a hedge is redesignated as a hedge of another transaction, gains or losses arising on the hedge prior to its redesignation are deferred only where the original anticipated transaction is still expected to occur as designated. When the original anticipated transaction is no longer expected to occur as designated, any gains or losses relating to the hedge instrument are included in the income statement for the period.

Gains or losses that arise prior to and upon the maturity of transactions entered into under hedge rollover strategies are deferred and included in the measurement of the hedged anticipated transaction if the transaction is still expected to occur as designated. If the anticipated transaction is no longer expected to occur as designated, the gains or losses are recognised immediately in the income statement.

Hedge of monetary assets and liabilities

All other hedge transactions are recorded initially at the relevant rate at the date of the transaction. Hedges outstanding at reporting date are valued at the rate ruling on that date and any gains or losses are brought to account in the income statement.

Costs or gains arising at the time of entering into the hedge are deferred and amortised over the life of the hedge.

(g) Property, plant and equipment
Owned assets

Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see accounting policy n). The cost of self constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. The cost of self constructed assets and acquired assets includes:

(i)		the initial estimate at the time of installation and during the period of use, when relevant, of the costs of dismantling and removing the items and restoring the site on which they are located; and
(ii)		changes in the measurement of existing liabilities recognised for these costs resulting from changes in the timing or outflow of resources required to settle the obligation or from changes in the discount rate.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Leased assets

Leases which the consolidated entity assumes substantially all of the risks and rewards of ownership are classified as finance leases. The owner occupied property acquired by way of a finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses (see accounting policy n). Lease payments are accounted for as described in accounting policy w.

Subsequent costs

The consolidated entity recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(g) Property, plant and equipment (continued)
Depreciation

Depreciation is charged to the income statement on a straight line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives in the current and comparative periods are as follows:

				2006		2005 (unaudited)
•		buildings		20 years		20 years
•		open cut infrastructure		6 to 14 years		6 to 14 years
•		plant and equipment		3 to 11 years		3 to 11 years
•		leased assets		5 to 7 years		5 to 7 years

The residual value, if not insignificant, is reassessed annually.

(h) Intangible assets
Goodwill
Business combinations (since 1 July 2004)

All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired including coal reserves and exploration and evaluation expenditure.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units and is not amortised but is tested annually for impairment (see accounting policy n). In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate.

Negative goodwill arising on an acquisition is recognised directly in profit or loss.

Coal reserves

Coal reserves are stated at cost. The carrying value is assessed annually for impairment.

Subsequent expenditure

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

Amortisation

Amortisation of coal reserves is based on saleable coal production and is charged to the income statement on a unit of production basis over the economically recoverable reserves. Goodwill and intangible assets with an indefinite useful life are tested for impairment at each annual balance sheet date.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(i) Investments
Investments in debt and equity securities

All investments are recognised initially at cost, being the fair value of consideration given and include acquisition costs associated with the investment.

After initial recognition, investments which are classified as available for sale are measured at fair value. Gains and losses on available for sale investments are recognised as a separate component of equity until the investment is sold, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is transferred to the income statement.

For investments that are actively traded in organised financial markets the fair value is determined by reference to the Stock Exchange quoted market bid prices at the close of business at the balance sheet date.

Comparative period policy (to 30 June 2005) — Unaudited

Investments in other listed entities and other unlisted entities are measured at the lower of cost and recoverable amount. Investments in marketable securities held for the purpose of trading are measured at fair value.

The quantitative effect of the change in accounting policy is set out in note 36.

(j) Trade and other receivables

Current accounting policy (from 1 July 2005)

Trade and other receivables are stated at their invoiced amount less impairment losses (see accounting policy n).

Comparative period policy (to 30 June 2005) — Unaudited

Trade and other receivables are carried at invoiced amounts. The collectability of debts is assessed at reporting date and specific provision is made for any doubtful accounts. Bad debts are written off as incurred.

(k) Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated selling costs.

The cost of coal stocks is based on a running average cost basis and includes an appropriate share of both fixed and variable costs incurred in extracting the coal and bringing it to its existing condition and location.

(l) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are payable on demand and form an integral part of the consolidated entity’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(m) Exploration, and evaluation expenditure

Pre licence costs are recognised in the income statement as incurred.

Exploration and evaluation expenditure, including the costs of acquiring licences, are capitalised as exploration and evaluation assets on an area of interest basis. The capitalised costs are presented as intangible exploration and evaluation assets. When a licence is relinquished or a project abandoned, the related costs are recognised in profit or loss.

Exploration and evaluation assets are only recognised if the rights of the area of interest are current and either:

(i)		the expenditures are expected to be recouped through successful development and exploitation of the area of interest; or
(ii)		activities in the area of interest have not at the reporting date, reached a stage which permits a reasonable assessment of the existence or other wise of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing.

Exploration and evaluation assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount (see impairment, accounting policy n). For the purposes of impairment testing, exploration and evaluation assets are allocated to cash-generating units to which the exploration activity relates. The cash generating unit shall not be larger than the area of interest.

Exploration and evaluation assets that have reached the development and production phase are reclassified as property, plant and equipment and are depreciated (amortised) on a units of production basis over the life of the economically recoverable reserve.

(n) Impairment

The carrying amounts of the consolidated entity’s assets other than, inventories (see accounting policy k), and deferred tax assets (see accounting policy x), are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated (see below).

For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated annually.

An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the income statement unless the asset has been revalued previously in which case the impairment loss is recognised as a reversal to the extent of the previous revaluation with any excess recognised through the income statement.

Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash generating unit (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

When a decline in the fair value of an available for sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is recognised in profit or loss. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(n) Impairment (continued)

Calculation of recoverable amount

The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.

Reversals of impairment

An impairment loss in respect of an investment in an equity instrument classified as available for sale is not reversed through profit or loss. If the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in the income statement.

In respect of assets, other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(o) Dividends

Dividends are recognised as a liability in the period in which they are declared.

(p) Interest bearing borrowings
Current accounting policy (from 1 July 2005)

Interest bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.

Comparative period policy (to 30 June 2005) — Unaudited

Bank loans are recognised at the principal amount, subject to set off arrangements. Interest expense is accrued at the contracted rate and included in Trade and other payables.

The quantitative effect of the change in accounting policy is set out in note 36.

(q) Net financing costs

Financing costs include interest payable on borrowings, calculated using the effective interest rate method, finance charges in respect of leases, exchange differences arising from foreign currency borrowing to the extent that they are regarded as an adjustment to interest costs and differences relating to the unwinding of the discount of assets and liabilities measured at amortised costs.

Financing costs are recognised as an expense in the period in which they are incurred, unless they relate to a qualifying asset. Financing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale.

Financial income is recognised as it accrues taking into account the effective yield on the financial asset.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(r) Earnings per share

Basic earnings per share (EPS) is calculated by dividing the net profit attributable to members of the parent entity for the reporting period, after excluding any costs of servicing equity (other than ordinary shares and converting preference shares classified as ordinary shares for EPS calculation purposes), by the weighted average number of ordinary shares of the Company, adjusted for any bonus issue.

Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by the tax effect of financial costs associated with dilutive ordinary shares and the effect on revenues and expenses of conversion to ordinary shares associated with dilutive potential ordinary shares, by the weighted average number of ordinary and dilutive potential ordinary shares adjusted for any bonus issue.

(s) Employee benefits
Defined contribution plans

Controlled entities of the Company contribute to various funds including the AUSCOAL superannuation fund. Contributions are charged against income as they are made.

Long term service benefits

The consolidated entity’s net obligation in respect of long term service benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related on costs and expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the balance sheet date which have maturity dates approximating to the terms of the consolidated entity’s obligations.

Wages, salaries, annual leave, sick leave and non monetary benefits

Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from employees’ services provided to the reporting date, calculated at undiscounted amounts based on remuneration wage and salary rates that the consolidated entity expects to pay as at reporting date including related on costs, such as, workers compensation insurance and payroll tax.

Non accumulating non monetary benefits, such as medical care, housing and cars, are expensed based on the net marginal cost to the consolidated entity as the benefits are taken by the employees.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(t) Provisions

A provision is recognised in the balance sheet when the consolidated entity has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability.

Mine rehabilitation

Provisions are made for the estimated cost of rehabilitation relating to areas disturbed during the mine’s operation up to reporting date but not yet rehabilitated. Provision has been made in full for all disturbed areas at the reporting date based on current estimates of costs to rehabilitate such areas, discounted to their present value based on expected future cash flows. The estimated cost of rehabilitation includes the current cost of recontouring, topsoiling and revegetation employing legislative requirements. Changes in estimates are dealt with on a prospective basis as they arise.

Significant uncertainty exists as to the amount of rehabilitation obligations which may be incurred due to the impact of possible future changes in environmental legislation.

The amount of the provision relating to rehabilitation of mine infrastructure and dismantling obligations is recognised at the commencement of the mining project and/or construction of the assets where a legal or constructive obligation exists at that time. The provision is recognised as a liability with a corresponding asset included in mining property and development assets.

At each reporting date the rehabilitation liability is re-measured in line with changes in discount rates, and timing or amount of the costs to be incurred. Changes in the liability relating to rehabilitation of mine infrastructure and dismantling obligations are added to or deducted from the related asset, other than the unwinding of the discount which is recognised as a finance cost in the income statement as it occurs.

If the change results in a liability that exceeds the carrying amount of the asset, the asset is written-down to nil and the excess is recognised immediately in the income statement. If the change in the liability results in an addition to the cost of the asset, the recoverability of the new carrying amount is considered. Where there is an indication that the new carrying amount is not fully recoverable, an impairment test is performed with the write-down recognised in the income statement in the period in which it occurs.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(u) Trade and other payables

Current period policy (from 1 July 2005)

Trade and other payables are stated at their invoiced amount.

Comparative period policy (to 30 June 2005) — Unaudited

Trade and other payables are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the company.

(v) Revenue

Revenue from the sale of coal is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer, as specified by individual sale agreements, and is usually the date the goods are received by the shipping agent. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, the costs incurred cannot be measured reliably, there is a risk of return of goods or there is continuing management involvement with the goods.

Deferred revenue

Deferred revenue is recognised as revenue when the significant risks and rewards of ownership have been transferred to the buyer.

(w) Leases
Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total leased expense and spread over the lease term.

Finance lease payments

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce constant periodic rate of interest on the remaining balance of the liability.

(x) Income tax

Income tax on the profit and loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill, the initial recognition of assets and liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

Notes to the consolidated financial statements
Significant accounting policies (continued)
(y) Goods and services tax

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet.

Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

(z) Deferred stripping costs

Expenditure incurred to remove overburden or waste material during the production phase of a mining operation is deferred as work in progress and capitalised as inventory to the extent it gives rise to future economic benefits and charged to operating costs on a units of production basis using the estimated average stripping ratio for the area being mined. Changes in estimates of average stripping ratios are accounted for prospectively.

For the purposes of assessing impairment, deferred stripping costs are grouped with other assets of the relevant cash generating unit.

(aa) Accounting estimates and judgements

Management discussed with the Audit and Corporate Governance Committee the development, selection and disclosure of the consolidated entity’s critical accounting policies and estimates and the application of these policies and estimates. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Key sources of estimation uncertainty

Note 20 contains information about the assumptions and their risk factors relating to goodwill impairment. In note 26 detailed analysis is given of the foreign exchange exposure of the consolidated entity and risks in relation to foreign exchange movements.

Recoverability of development costs

The Group’s net assets held in Venezuela amount to $15,962,000 as at 30 June 2006, its carrying value is supported by discounted cash flows.

The Government of Venezuela has announced plans to nationalise certain privately held mining interests but it is not clear whether this policy will be implemented as announced or whether it will apply to Excel’s assets in Venezuela. If the policy does apply to Excel’s assets in Venezuela, it is not yet clear whether the carrying value of the asset will be affected. At the date of this report the Directors are of the opinion that the carrying value of the assets are not impaired.

Coal reserves amortisation

Coal reserves are being amortised based on saleable coal production over economically recoverable reserves. The amount of reserves that may be actually mined in future and the Company’s estimates of reserves from time to time in future may vary from current reserve estimates.

Critical accounting judgements in applying the consolidated entity’s accounting policies

Certain critical accounting judgements in applying the consolidated entity’s accounting policies are described below.

Business combinations

Under Australian Accounting Standards there are a number of options allowed when accounting for the acquisition of additional interests subsequent to acquiring control. Excel has elected to allocate the additional consideration over the net assets acquired to equity.

Notes to the consolidated financial statements

2. Segment reporting
Business and geographical segments

The consolidated entity operates predominantly within the coal industry in Australia.

3. Revenue

		Consolidated
						Unaudited
		2006				2005
			$000				$000
Coal sales			512,289				353,853
Other revenue
Other revenue			2,167				3,876
Port fees			3,465				—
			517,921				357,729

4. Other income

		Consolidated
						Unaudited
		2006				2005
			$000				$000
Net gain on disposal of property, plant and equipment			606				107
			606				107

5. Results from operating activities

		Consolidated
						Unaudited
		2006				2005
			$000				$000
Depreciation and amortisation			24,589				20,973

6. Personnel expenses

		Consolidated
						Unaudited
		2006				2005
			$000				$000
Wages and salaries			41,267				31,629
Contributions to defined contribution plans			2,756				2,099
Increase in liability for long service leave			907				546
			44,930				34,274

Notes to the consolidated financial statements

7. Auditors’ remuneration

		Consolidated
						Unaudited
		2006				2005
		$ 000				$ 000
Audit Services
Auditors of the Company
KPMG Australia:
Audit and review of financial reports			337				275
Other regulatory services			8				5
Overseas KPMG firms:
Audit and review of financial reports			35				28
			380				308
Other Services
Auditors of the Company
Other audit related services
KPMG Australia:
IFRS accounting services			52				50
Accounting interpretation advice			24				33
			76				83
Other non audit related services
KPMG Australia:
Other assurance services			18				60
Taxation compliance services			59				79
Due diligence services			200				—
Overseas KPMG firms:
Due diligence services			73				—
			350				139
			806				530

8. Net financing costs

		Consolidated
						Unaudited
		2006				2005
		$000				$000
Interest income			4,460				4,571
Dividend income			125				120
Financial income			4,585				4,691
Other investments:
Net loss on disposal			(1,022	)			—
Interest expense			(13,243	)			(9,624	)
Unwinding of discount			(637	)			(102	)
Net foreign exchange loss			(287	)			—
Financial expenses			(15,189	)			(9,726	)
Net financing (costs)/income			(10,604	)			(5,035	)

Notes to the consolidated financial statement

9. Income tax expense
Recognised in the income statement

						Consolidated
										Unaudited
						2006				2005
		Note				$ 000				$ 000
Current tax expense
Current year							31,784				14,793
Adjustments for prior years							—				(115	)
							31,784				14,678
Deferred tax expense
Origination and reversal of temporary differences							22,197				1,235
(Benefit)/reversal of tax losses recognised							(8,639	)			15,316
			18				13,558				16,551
Total income tax expense/(benefit) in income Statement (substantially domestic)							45,342				31,229

Numerical reconciliation between tax expense and pre-tax net profit

		Consolidated
						Unaudited
		2006				2005
		$ 000				$ 000
Profit before tax (substantially domestic)			152,312				109,032
Income tax using the domestic corporation tax rate of 30% (2005: 30%)			45,694				32,710
Increase/(decrease) in income tax expense due to:
Share of associates’ net profit			(133	)			(1,864	)
R&D claims			(277	)			—
Other non-deductible /(assessable) items			58				1,048
Tax losses recognised			—				(550	)
Under/(over) provided in prior years			—				(115	)
Income tax expense on pre-tax net profit			45,342				31,229

Deferred tax recognised directly in equity

						Consolidated
										Unaudited
						2006				2005
		Note				$ 000				$ 000
Relating to equity securities available for sale							12				—
Relating to hedge reserve							(1,416	)			—
IPO Costs							413				582
Total deferred tax recognised through equity			18				(991	)			582

Notes to the consolidated financial statements

10. Earnings per share
Basic and diluted earning per share

The calculation of basic earnings share at 30 June 2006 was based on the profit attributable to ordinary shareholders of $98,062,000 (2005-Unaudited: $62,848,000) and a weighted average number of ordinary shares outstanding during the year ended 30 June 2006 of 204,878,114 (2005-Unaudited: 192,725,185), calculated as follows:

Profit attributable to ordinary shareholders

		Consolidated
						Unaudited
		2006				2005
		$ 000				$ 000
Profit for the period attributable to ordinary shareholders			98,062				62,848

Weighted average number of ordinary shares

		Weighted average
		number of shares
						Unaudited
		2006				2005
Issued ordinary shares at 1 July			199,870,470				182,742,325
Effect of shares issued – Institutional placement			4,879,512				—
Effect of shares issued – Share purchase plan			128,132				—
Effect of shares issued to acquire 25% of HunterCoal Pty Ltd			—				6,312,329
Effect of shares issued to acquire 51% of Millennium Coal Pty Ltd			—				1,829,285
Effect of shares issued to acquire 26% of Millennium Coal Pty Ltd			—				1,308,421
Effect of shares issued to acquire 8% of Millennium Coal Pty Ltd			—				532,825
Weighted average number of ordinary shares at 30 June			204,878,114				192,725,185
Basic and diluted earnings per share attributable to ordinary shareholders			47.9c				32.6c

There were no potential dilutive ordinary shares. The number of shares on issue at 30 June 2006 was 214,977,360 (Refer note 25 for details of movements in capital)

11. Cash and cash equivalents

		Consolidated
						Unaudited
		2006				2005
		$ 000				$ 000
Bank balances			32,972				66,889
Call deposits			6,830				38,116
Cash and cash equivalents			39,802				105,005

Notes to the consolidated financial statements

12. Trade and other receivables

		Consolidated
						Unaudited
		2006				2005
		$ 000				$ 000
Current
Trade receivables			45,495				12,190
Security deposits			25,052				16,892
Other receivables and prepayments			10,725				6,040
Fair value derivatives			3,691				26,366
			84,963				61,488
Non current
Loan to associate			—				1,304
Other debtors			7,878				8,623
			7,878				9,927

13. Inventories

		Consolidated
						Unaudited
		2006				2005
		$ 000				$ 000
Current
Raw materials and consumables			923				1,194
Work in progress			80,111				8,995
Finished goods			27,220				15,260
			108,254				25,449

14. Other financial assets

		Consolidated
						Unaudited
		2006				2005
		$ 000				$ 000
Current investments
Listed equity securities available for sale			143				—
Listed investments			—				3,611
Other investments			3,048				—
			3,048				3,611
			3,191				3,611
Non current investments
Listed investments			—				47
Unlisted investments			1,157				1,290
			1,157				1,337

Notes to the consolidated financial statements

15. Current tax assets and liabilities

The current tax liability for the consolidated entity of $22,321,000 (2005-Unaudited: $12,173,000) represents the amount of income taxes payable in respect of current and prior periods. In accordance with the tax consolidation legislation, the Company as the head entity of the Australian tax-consolidated group has assumed the current tax liability initially recognised by the members in the tax consolidation group.

16. Investments accounted for using the equity method
Investments in associates

Ownership interest

Unaudited

Name

Principal activities

Country of incorporation

Reporting date

2006

2005

ICC Holdings Pty Ltd

Manufacturers of metallurgical coke

Australia

30 June

50%

50

%

Excel Coal Marketing Pty Ltd

Coal marketing

Australia

30 June

30%

—

GTN Copper Technology Ltd

Dormant

Australia

30 June

55.9%

55.9

%

Antrim Coal Ltd

Dormant

UK

31 December

50%

50

%

The consolidated entity has the following investments in associates:

										Share of												Net assets as				Share of
						Profit/				associates net				Total				Total				reported by				associate’s net
		Revenues				(loss)				profit/(loss)				Assets				Liabilities				associates				assets equity
		(100%)				(100%)				recognised				(100%)				(100%)				(100%)				accounted
		$000				$ 000				$ 000				$ 000				$ 000				$ 000				$ 000
2006
ICC Holdings Pty Ltd			53,246				68				34				29,850				11,058				18,792				9,396
Excel Coal Marketing Pty Ltd			35,627				1,363				409				25,329				23,966				1,363				409
GTN Copper Technology Ltd			—				—				—				537				—				537				300
Antrim Coal Ltd			—				—				—				2				—				2				1
			88,873				1,431				443				55,718				35,024				20,694				10,106
2005 (Unaudited)
ICC Holdings Pty Ltd			58,468				12,428				6,214				32,620				13,894				18,726				9,363
GTN Copper Technology Ltd			—				—				—				537				—				537				300
Antrim Coal			—				—				—				2				—				2				1
			58,468				12,428				6,214				33,159				13,894				19,265				9,664

Notes to the consolidated financial statements

16. Investments accounted for using the equity method
Investments in associates (continued)
Results of associates

		Consolidated
						Unaudited
		2006				2005
		$ 000				$ 000
Share of associate profit before income tax			636				9,001
Share of income tax expense			(193	)			(2,787	)
Share of associates net profit – accounted for using the equity method			443				6,214

Associates did not have capital or expenditure commitments or contingent liabilities at 30 June 2006 (2005 Unaudited:$Nil).

17. Interest in joint venture operation

The consolidated entity has an 80% (2005-Unaudited: 80%) interest in the Wallarah Coal Joint Venture an unincorporated joint venture whose principal activity is coal mining at Chain Valley. For the year ended 30 June 2006, the contribution of the joint venture to the operating profit of the consolidated entity was $3,569,000 (2005-Unaudited: $2,322,000). Included in the assets and liabilities of the consolidated entity’s interest in the assets and liabilities employed in the joint venture:

		Consolidated
						Unaudited
		2006				2005
		$ 000				$ 000
Current assets
Cash assets			1,928				1,649
Trade and other receivables			3,393				2,262
Inventories			828				1,244
Total current assets			6,149				5,155
Non current assets
Receivables			537				169
Plant and equipment			9,101				5,137
Total non current assets			9,638				5,306
Total assets			15,787				10,461
Current liabilities
Trade creditors			3,392				2,214
Interest bearing liabilities			1,286				1,052
Provisions			4,019				3,251
Total current liabilities			8,697				6,517
Non current liabilities
Interest bearing liabilities			1,368				1,351
Provisions			—				—
Total non current liabilities			1,368				1,351
Total liabilities			10,065				7,868

Notes to the consolidated financial statements

18. Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

		Assets								Liabilities								Net
						Unaudited								Unaudited								Unaudited
		2006				2005				2006				2005				2006				2005
Consolidated		$000				$000				$000				$000				$000				$000
Property, plant and equipment			(11	)			(9	)			14,308				9,897				14,297				9,888
Intangible assets			—				—				22,099				21,626				22,099				21,626
Other investments			(32	)			(32	)			137				—				105				(32	)
Inventories			—				—				18,900				396				18,900				396
Interest bearing loans and borrowings			—				(588	)			(810	)			(145	)			(810	)			(733	)
Employee benefits			(2,451	)			(1,719	)			—				—				(2,451	)			(1,719	)
Provisions			(4,323	)			(3,307	)			—				—				(4,323	)			(3,307	)
Contributed equity			(1,333	)			(1,746	)			—				—				(1,333	)			(1,746	)
Other items			(2,802	)			(263	)			3,045				1,411				243				1,148
Tax value of loss carry-forwards			(51,999	)			(43,360	)			—				—				(51,999	)			(43,360	)
Tax (assets)/liabilities			(62,951	)			(51,024	)			57,679				33,185				(5,272	)			(17,839	)
Set off of tax			14,538				12,171				(14,538	)			(12,171	)			—				—
Net tax (assets)/liabilities			(48,413	)			(38,853	)			43,141				21,014				(5,272	)			(17,839	)

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items:

		Consolidated
						Unaudited
		2006				2005
		$ 000				$ 000
Capital tax losses			3,393				—

Tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of capital tax losses because it is not probable that future taxable profit will be available against which the consolidated entity can utilise the benefits from the capital tax losses.

Notes to the consolidated financial statements

18. Deferred tax assets and liabilities (continued)
Movement in temporary differences during the year

		Consolidated
		Balance				Recognised				Recognised				Balance
		1 July 2005				in income				in equity				30 June 2006
		$ 000				$ 000				$ 000				$ 000
Property, plant and equipment			9,888				4,409				—				14,297
Intangible assets			21,626				473				—				22,099
Other investments			(32	)			137				—				105
Inventories			396				18,504				—				18,900
Interest bearing loans and borrowings			(733	)			(77	)			—				(810	)
Employee benefits			(1,719	)			(732	)			—				(2,451	)
Provisions			(3,307	)			(1,016	)			—				(4,323	)
Contributed equity			(1,746	)			—				413				(1,333	)
Other items			1,148				499				(1,404	)			243
Tax value of loss carry-forwards (recognised)/derecognised			(43,360	)			(8,639	)			—				(51,999	)
			(17,839	)			13,558				(991	)			(5,272	)

		Consolidated (unaudited)
		Balance								Recognised								Balance
		1 July				Recognised				on				Recognised				30 June
		2004				in income				acquisition				in equity				2005
		$ 000				$ 000				$ 000				$000				$ 000
Property, plant and equipment			9,194				694								—				9,888
Intangible assets			8,815				1,085				11,726				—				21,626
Other investments			(32	)			—								—				(32	)
Inventories			266				130								—				396
Interest bearing loans and borrowings			(676	)			(57	)							—				(733	)
Employee benefits			(1,413	)			(306	)							—				(1,719	)
Provisions			(3,192	)			(115	)							—				(3,307	)
Contributed equity			(2,328	)			—								582				(1,746	)
Other items			1,344				(196	)							—				1,148
Tax value of loss carry-forwards (recognised)/derecognised			(58,676	)			15,316								—				(43,360	)
			(46,698	)			16,551				11,726				582				(17,839	)

Notes to the consolidated financial statements

19. Property, Plant and equipment

		Consolidated
										Plant				Leased
		Land and				Open cut				and				plant and				Capital WIP
		buildings				infrastructure				equipment				equipment				at cost				Total
		$ 000				$ 000				$ 000				$000				$000				$000
Cost
Unaudited
Balance at 1 July 2004			19,324				6,027				202,028				48,945				8,907				285,231
Acquisitions through business combinations			—				—				1,143				—				—				1,143
Additions			24,454				—				13,556				2,233				74,447				114,690
Disposals			—				—				(2,660	)			—				—				(2,660	)
Transfers											819				(819	)			—				—
Balance at 30 June 2005 (Unaudited)			43,778				6,027				214,886				50,359				83,354				398,404
Balance at 1 July 2005			43,778				6,027				214,886				50,359				83,354				398,404
Additions			2,017				93				13,362				41,935				274,906				332,313
Transfers			(931	)			613				50,951				—				(50,633	)			—
Disposals			(91	)			—				(227	)			(7,140	)			(12	)			(7,470	)
Balance at 30 June 2006			44,773				6,733				278,972				85,154				307,615				723,247
Unaudited
Depreciation
Balance at 1 July 2004			2,600				1,415				137,246				11,015				—				152,276
Depreciation charge for the year			68				364				10,726				5,772				—				16,930
Disposals			—				—				(2,535	)			—				—				(2,535	)
Balance at 30 June 2005 (Unaudited)			2,668				1,779				145,437				16,787				—				166,671
Balance at 1 July 2005			2,668				1,779				145,437				16,787				—				166,671
Depreciation charge for the Year			45				376				13,079				7,231				58				20,789
Transfers			(1,064	)			673				391				—				—				—
Disposals			(71	)			—				(216	)			(2,673	)			—				(2,960	)
Balance at 30 June 2006			1,578				2,828				158,691				21,345				58				184,500
Carrying amounts
At 1 July 2004 (Unaudited)			16,724				4,612				64,782				37,930				8,907				132,955
At 30 June 2005 (Unaudited)			41,110				4,248				69,449				33,572				83,354				231,733
At 1 July 2005			41,110				4,248				69,449				33,572				83,354				231,733
At 30 June 2006			43,195				3,905				120,281				63,809				307,557				538,747