GLOUCESTER COAL LIMITED 
By MARKET RELEASE 30 November 2011
ABN 66 008 881 712
Level 7, 167 Macquarie Street
Sydney NSW 2000 Australia
Telephone: +612 9220 9900
Facsimile: +612 9220 9999
Chairman's address
Annual General Meeting
Address for today's Annual General Meeting is attached.
GLOUCESTER COAL LTD ACN 008 881 712
Date: Wednesday, 30 November 2011
Time: 9:30am (AEDT) Place: Minter Ellison
Level 19
88 Phillip Street
Sydney, New South Wales
For Further InformationMarie Festa
Investor Relations Director+61 405 494 705
ME_95378280_1 (W2007)
MARKET RELEASE 30 November 2011
CHAIRMAN'S ADDRESS
GLOUCESTER COAL ANNUAL GENERAL MEETING
The 2011 Financial Year was a transformational one for
Gloucester Coal. The near 50 per cent acquisition of
Middlemount, and the decisions to purchase the Donaldson and
Monash Assets, have significantly altered Gloucester Coal's
growth prospects and enhanced its overall investment
proposition. These strategic transactions have created a
solid
foundation for Gloucester Coal and are expected to deliver
significant value to shareholders over the medium to long
term.
During the year the Board of Gloucester Coal considered a
range of strategic initiatives which we believed were
necessary to transform the Company from a relatively small
coal producer operating only in the Gloucester Basin to a
multi-site operation with significant growth potential. I am
pleased that we were able to close four significant
acquisitions, being:
• The near 50% share of the Middlemount mine which is located in Queensland's Bowen Basin and produces hard coking coal and low volatile pulverised coal injection ("LV PCI"). I am pleased to be able to stand here today and say that the Middlemount Project is now in full ramp up mode following the completion of the rail
spur earlier this month. The project, although having
suffered some delays due to the
Queensland floods earlier in 2011, has been delivered
successfully and will continue to be an important asset in
the Gloucester Coal portfolio.
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• In addition to the near 50% share of the Middlemount asset, Gloucester Coal also acquired the marketing rights and a marketing commission of 4 per cent on all of the Free On Board Trimmed Sales from Middlemount.
• In May this year we announced the acquisition of Donaldson. Donaldson is a high energy thermal and coking coal producer based in New South Wales with mining operations in the Hunter Valley just south of Maitland, 25 kilometres from the Port of Newcastle. The 3 Donaldson mines produce a mix of thermal and soft coking coal, with some ability to vary this production mix in response to prevailing market conditions and pricing. Importantly the purchase of Donaldson included an 11.6 per cent founding shareholding in NCIG Holdings Pty Limited. The port allocation linked to this shareholding has provided a strategic advantage to Gloucester Coal being
only one of three producers with additional port capacity in NSW in the medium term.
• At the same time as the Donaldson transaction, Gloucester Coal purchased Monash, a prospective export semi-soft coking and thermal coal early-stage exploration
project strategically located near existing infrastructure in
the Hunter Valley.
Gloucester Coal also undertook two significant share issues
raising a total of $671 million. The four transactions and
associated capital raisings were complex and comprehensive
and required a significant commitment from both the Directors
of the Board and the management team. Your Directors believe
that the acquisitions will prove to be value accretive and
critical to the medium to long term future of Gloucester
Coal.
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MARKET RELEASE 30 November 2011
Since these transactions it has become increasingly evident
that the "new Gloucester Coal", with its four clearly defined
domains of production and development, is much better placed
to deal with external factors. This includes fluctuations in
coal markets, adverse weather conditions, delays to
approvals, port and rail infrastructure issues and so on.
Having mines in different regions with different operating
methods diversifies our risks and means we can always be
producing coal, be flexible in the mix of coal types we
produce, and allocate capital and resources across our asset
portfolio to where we will get the best returns.
With this transformation your Directors believe that
Gloucester Coal has an enhanced growth profile. We now expect
that total annual coal production will increase to over 12
million tonnes in fewer than 10 years, and double from
current levels within the next four years. The plan to move
to approximately 10 million tonnes of production by the
2015
Financial Year is contingent on the delivery of well-defined
projects which are currently at various stages of
development. Based on preliminary forecasts, Gloucester Coal
expects to have a resource base capability to produce between
40 and 50 per cent coking coal.
In the midst of a busy period of corporate activity,
Gloucester Coal managed to achieve pleasing results for the
2011 Financial Year. It is fair to say that this positive
performance was delivered despite some very challenging
circumstances. There were difficult operating conditions
throughout the year driven by adverse weather conditions
experienced in NSW,
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MARKET RELEASE 30 November 2011
delays to the Duralie and Stratford extension projects, and a
softening of demand from Japanese steel mills following the
earthquake and tsunami disasters. Nevertheless, the
Gloucester Coal team delivered a solid performance.
Overall coal sales increased by eight per cent despite lower
production volumes. The increased sales volumes combined with
a five per cent increase in coking coal sales contributed to
a 34 per cent increase in total revenue for the Company.
Earnings before interest, tax and depreciation increased by
57 per cent to $90 million, excluding transaction costs. This
earnings growth was driven once again by increased sales and
higher average coal sales prices. The benefits of higher
sales and average pricing was offset in part by an increase
in unit production costs as a result of higher strip ratios,
increased contractor mining rates and impacts on production
due to wet weather.
During the year, a number of executive management changes
were made, including the appointment in February 2011 of
Brendan McPherson as Chief Executive Officer and Tim Crossley
as Deputy Chief Executive Officer. Both Mr McPherson and Mr
Crossley are highly experienced Australian mining industry
executives. There have been a number of other key senior
appointments made over the past year.
The Board believes that the experience and calibre of the
management team is a valuable asset to Gloucester Coal and is
a reflection of the Company's ability to attract high
quality talent and expertise. We are confident that the team
we have today can successfully execute the Company's growth
plans.
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MARKET RELEASE 30 November 2011
I will take a moment to touch on the year ahead for
Gloucester Coal. The foundations that were put in place in
the 2011 Financial Year with the Company's
transformation programme are expected to be developed further
and to include the progression of major projects. As stated
at the Company's full year results briefing in September this
year, management has commenced, and is close to completing, a
review of the Gloucester Basin and Donaldson operations. A
range of business improvement initiatives resulting from this
review will be rolled out over coming months. Management
intends to share some of the key outcomes of the review with
the market in due course.
I should also mention the exploration work that has commenced
at Monash, and the update to Resources announced to the
market a few weeks ago. This was a pleasing result for the
Company and suggests that the Monash asset has the potential
to become one of Gloucester Coal's most valuable assets in
the medium to long term. Our objective over the next 12 to 18
months will be to progress exploration at Monash to the point
that a JORC- compliant assessment of Reserves can be
released.
On a more sombre note, the export coal market outlook remains
somewhat uncertain. In recent months there has been a slowing
in demand for export coal and in particular coking coals.
This is also being reflected in lower coal prices being
achieved in the market today than in previous quarters.
External factors including global economic conditions and
global steel markets will determine the extent and duration
of the softening in demand.
Management is targeting production of 5.5 million tonnes for
the financial year, however we
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MARKET RELEASE 30 November 2011
will continue to monitor the coal market situation. Having
said this, we continue to believe that the demand for both
coking and thermal coal will remain steady over the medium to
long term.
Returning to the achievements of the 2011 Financial Year, it
is important to recognise that the company's achievements are
the result of very hard work and enormous dedication
from the employees and Directors of Gloucester Coal. At this
time I would like, on behalf of the Board of Directors, to
thank all employees for their tireless efforts over the past
12 months.
I would also like to thank CEO Brendan McPherson and Deputy
CEO Tim Crossley and
their teams for their commitment in what has proven to be a
challenging period. In addition, thank you to my fellow
Directors on the Board of Gloucester Coal who have carried an
enormous load during this transformational year in assisting
me in creating and executing the vision of the Company.
I think this is an appropriate time for me to move on to the
matters being voted upon at today's meeting. I will comment
on the items of business and address some of the questions
that have been raised by some shareholders.
Turning first to the election of the new Directors, it is
pleasing to note that the response from shareholders to the
appointments of both Denis Gately and Julie Beeby has been
positive. The skills and attributes that each of them bring
to the Gloucester Board is
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MARKET RELEASE 30 November 2011
invaluable and I am extremely pleased to have them as my
fellow members of the Board.
Denis Gately has joined the Board as an Independent
Non-Executive Director. He is a corporate and commercial
lawyer with more than 30 years' experience working in the
resources and energy sectors. He has extensive experience in
the coal sector in Queensland and New South Wales, both in
the sale and purchase of assets and businesses. Denis was a
partner at Minter Ellison and was head of the firm's national
energy and resources group for four years. His experience and
expertise is a great asset to the Gloucester Coal Board.
Julie Beeby has also joined the Board as Independent
Non-Executive Director. She is the CEO of WestSide
Corporation a Queensland based coal seam gas explorer and
producer. Previously, she was General Manager, Strategic
Planning and Projects at Peabody Pacific, where she was
closely involved in the development and expansion of
Peabody's mining operations in Australia. Julie is also
a Director of Queensland Electricity Transmission Corporation
Ltd (Powerlink) and Chairperson of ZeroGen, a Queensland low
emission coal project. Julie's industry knowledge and
experience will be invaluable to the Board of Gloucester
Coal.
I take this opportunity to advise you all that Ricardo Leiman
has chosen not to stand for re- election. As a result the
resolution regarding his re-election will not be considered
at this meeting. Today we will also be saying goodbye to
David Brownell. Both Ricardo and David have played a key role
in the strategic direction of the company over the past few
years. I
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MARKET RELEASE 30 November 2011
would like to take this opportunity to personally thank David
and Ricardo for their hard work and commitment to Gloucester
Coal and wish them all the best in the future.
As a leader in its sector, Gloucester Coal recognises the
importance of offering competitive rewards to both attract
and retain high calibre executives. The success of the
Company's acquisition strategy and the achievement of
significant strategic and operational milestones was due in
no small part to the combined work of your Board of Directors
and the senior management team.
Due to the related party nature of the Middlemount and
Donaldson transactions, it was necessary that we form an
Independent Board Committee (IBC) of independent directors of
Gloucester to supervise and control consideration and
negotiation of the transactions on behalf of the Company.
We have recognised the additional demands made upon members
of the IBC. Their remuneration for the year was in line with
the workload associated with the role, and the importance of
these projects to our company
The payment of additional fees to IBC members has been
raised. I would like to reiterate to everyone that these
payments were for the work undertaken to manage the four
acquisitions Gloucester closed during the year. In most
circumstances the company's management team would deliver the
services provided by our independent Board
Committee but due to the need to ensure appropriate protocols
for related party
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MARKET RELEASE 30 November 2011
transactions and the depth of skills and resources required,
this was not a realistic option. I can say with confidence
that if our IBC had not provided these services we would not
have achieved the results we have.
Turning to the remuneration of our key executives, your Board
is acutely aware that the market for senior executive talent,
especially in the mining sector, is extremely challenging,
and we will continue to ensure that Gloucester has in place
remuneration practices that allow us to retain our key
executives. Our incentive schemes are intended to reward our
executives over the short and long term and play a
significant role in our retention strategy. Our short term
incentive plan and long term incentive plans have been
reviewed over the past 6 months. Benchmarking with other
similar sized companies within our sector was completed and
changes were made to the existing plans to reflect feedback
received.
Concerns around the payment of short term incentives for the
FY11 period were raised by some shareholders and have been
taken into consideration for the FY12 period. Our
shareholders have requested more detail on the key
performance indicators associated with our short term
incentive plan. I can assure you that the next Remuneration
report will provide greater disclosure in relation to these
measures. The measures include both financial and operational
metrics that are aligned with the growth objectives of the
Company. It is not appropriate, for obvious competitive
reasons, to disclose them in advance.
In relation to the Long term incentive plan, some
shareholders have expressed confusion
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MARKET RELEASE 30 November 2011
around the conditions associated with the vesting of options.
Gloucester Coal has amended the long term incentive plan to
ensure it is consistent with the intentions of the Board and
aligns with shareholder expectations. The amendments relate
specifically to the measurement of total shareholder returns
as the key performance hurdle for vesting of the options. The
Notice of Meeting indicated that, providing that Gloucester
Coal only exceeded the ASX 200 total shareholder return over
any continuous 12 month period between 2011 and 2018,
tranches of options would vest in 2013, 2014 and 2015. This
was not the intention of the Remuneration Committee and was
not presented clearly to shareholders.
I confirm that this issue has been clarified and the Long
term incentive plan is now aligned with the Board's
expectations. Under the revised arrangements, if the
Gloucester Coal total shareholder return exceeds the ASX 200
over 2 years from the date of issue the first
tranche will vest. If the Gloucester Coal total shareholder
return exceeds the ASX 200 over
3 years the second tranche will vest, and if it exceeds it
over 4 years, the third tranche will vest. We will continue
to review industry benchmarks and assess the viability of our
long term incentive plan each year to ensure it is an
appropriate plan for both employees and shareholders.
Before I move on to the formal business of the meeting, I
would like to take this opportunity to thank all shareholders
who have continued to support Gloucester Coal over the past
12 months in what has been a truly transformational year for
the Company. I look forward to working with you all in the
year ahead.
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