Centennial Coal Company limited AnnuAl RepoRt For personal ... · The company will conTinue To have...

AnnuAl RepoRt 2007

Centennial Coal Company limited

Centennial Coal Company lim

ited annual RepoRt 2007

www.centennialcoal.com.au

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coRpoRAte diRectoRy

directorsChairmanDr Kenneth J. Moss

Managing DirectorMr Robert G. Cameron

Non-Executive DirectorsMs Catherine M. BrennerDr Peter R. DoddDr Paul J. Moy

company SecretaryMr Tony Macko

Registered and company officeCentennial Coal Company LimitedLevel 18, BT Tower, 1 Market StreetSydney NSW 2000 AustraliaTel: (61-2) 9266 2700Fax: (61-2) 9261 5533

Email: [email protected]: www.centennialcoal.com.au

Australian Securities exchangeListing Code: Ordinary Shares – CEY

Share Registry *Computershare Investor Services Pty LimitedLevel 3, 60 Carrington StreetSydney NSW 2000Tel: 1300 855 080 (Investor Enquiries)Fax: (61-2) 8234 5050

Website: www.computershare.com and www.investorcentre.com/au

AuditorDeloitte Touche TohmatsuGrosvenor Place225 George StreetSydney NSW 2000

Senior Management CoRpoRate and administRation Robert CameronManaging Director

Louise BaldwinGeneral Counsel

Katie BrassilGroup Manager: External Affairs

Robert DougallChief Financial Officer

John HempenstallChief Risk Officer

Tony MackoGeneral Manager: Corporate Affairs and Company Secretary

Peter ParryGeneral Manager: Financial Control

maRketingRoger KnightGeneral Manager: Marketing

Ian WilliamsDeputy General Manager: Marketing

stRategy and developmentMichael NgoManager: Strategy and Development

opeRationsDavid MoultChief Operating Officer

Steve BrackenGeneral Manager: Northern Operations

Donna DrydenGeneral Manager: Sustainable Development

Mark LeveyGeneral Manager: Management Systems/Health & Safety

Bob MillerGeneral Manager: Western Operations

Andrew MyorsGeneral Manager: Business Support

Richard TaconDeputy General Manager: Western Operations

Gavin TaylorGeneral Manager: Tahmoor

* Our registrar, Computershare, has improved its online Investor Centre website www.investorcentre.com/au, which enables you to view your holding details, make secure online updates to your holdings and perform a range of transactions – improving the quality of information held on the Company’s register and lowering print and mail costs.

Investor Centre provides you with self-service options in an effective way, helping us to maintain an up-to-date register, while providing a user-friendly facility for you to manage your investments.

You can also update your details for other investments that you may have where Computershare acts as registrar.

centenniAl coAl – ouR ViSion, MiSSion And VAlueS

Who We ARe

Established in 1989 and listed on the Australian Securities Exchange in 1994, Centennial is a coal mining and marketing company supplying thermal and coking coal to the domestic and export markets. The Company is a major fuel supplier to the New South Wales energy industry, fuelling approximately 47% of the State’s coal-fired electricity.

Centennial sells approximately 20 – 30% of its coal into the export market. Coal is exported through ports at Newcastle and Port Kembla in NSW. Customers include power stations and steel mills in Japan, Korea, India and Europe.

We are securing our future through organic growth at existing operations, and focused portfolio management – including acquisitions, divestments and targeted exploration.

Through this strategy we have grown to a market capitalisation of approximately $1.2 billion and we are ranked around 145 in the S&P/ASX 200 Index with almost 10,000 Shareholders and 1,924 employees. Centennial is the largest independent coal company in Australia in terms of production and has 12 coal mines in NSW, making it one of the largest underground coal producers in NSW.

ouR ViSion

Centennial’s vision is to be the leading independent coal producer in Australia, supplying a range of coal types to domestic and export markets.

ouR MiSSion

Our mission is to maximise Shareholder value by acquiring, developing and operating a portfolio of coal resources. This entails positioning the Company to be resilient through the ups and downs of economic cycles by being a reliable supplier of choice to our diverse customer base.

We aim to provide above average returns to our Shareholders, secure employment for our people and operate to the benefit of our local communities and meet their changing expectations.

ouR VAlueS

In striving for our vision, we promote the following values:

1. We will not compromise safety.

2. Every employee and contractor shares responsibility for the safety of themselves and their fellow workers.

3. We work as a team to achieve positive results and value the contribution and diversity of our people.

4. We implement ethical business practices, integrity and transparency in all we do.

5. We communicate openly and effectively with all our stakeholders.

6. We contribute to sustainable development through achieving economic prosperity, respecting the environment and enhancing community benefits.

7. We invest in the research, development and commercialisation of clean coal technologies and other initiatives that aspire towards a cleaner environment.

Centennial Coal Company limited ACN 003 714 538

contentS 2 2007 Financial Summary 3 Corporate Reporting Calendar 4 Chairman’s Statement 6 Managing Director’s Report 9 Q&A with Robert Cameron 12 Centennial Mines at a Glance 18 Statement of Resources and Reserves

as at 30 June 2007 19 Safe, Competent and Productive Workforce 25 Sustaining the Future

30 Environmental Management and Community Relations

39 Review of Financial Performance 42 Review of Operating Performance 49 Review of Marketing 53 Strategy and Development 57 Senior Management 58 Board of Directors 60 Corporate Governance 65 Financial Statements 66 Directors’ Report

82 Income Statement 83 Balance Sheet 84 Statement of Changes in Equity 86 Cash Flow Statement 87 Notes to the Financial Statements 119 Directors’ Declaration 120 Independent Audit Report 121 Shareholder Information 123 Glossary 124 10-Year History iBC Corporate Directory

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This Annual Report is printed on Nordset paper. Nordset is an environmentally responsible paper, manufactured using Elemental Chlorine Free (ECF) pulp sourced from sustainable, well managed forests. Nordset is produced by Nordland Papier, a company certified with FSC Chain of Custody and ISO14001 enviro management systems and registered under the EU Eco-management and Audit Scheme EMAS (Reg. No.D-162-00007).

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Centennial Coal AnnuAl RepoRt 2007 1

The world’s demand for energy conTinues iTs inexorable growTh, wiTh exporT coal prices aT or near record levelscenTennial now has a significanTly sTrengThened balance sheeT wiTh reduced debT and a focused porTfolio of mines ThaT have a proven Track record of sTrong performance. The company will conTinue To have sTrong leverage To The exporT markeT boTh in Terms of iTs exporT driven expansions and The increasing flow-on effecTs inTo The domesTic markeT. as domesTic conTracTs roll-off, markeT-based prices will be soughT.

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2 Centennial Coal AnnuAl RepoRt 2007

2007 financial summarysales revenue $901.8 million, up 12%

ebiTda $193.5 million, up 28%

one-off, non-cash, pre-Tax wriTe-down – cenTral coasT $51.2 million

excluding wriTe-down, reporTed profiT would have been $39.1 million

neT profiT afTer Tax and minoriTies $3.3 million, down 81%

earnings per share 1.1 cents per share

final dividend 4 cents (unfranked) per share (8 cents unfRAnked foR the yeAR)

gearing – neT debT/(neT debT plus equiTy) 44.9%

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eBitda $193.5 million, up 28% on the prior corresponding period.

previously announced restructure of central coast assets resulted in a $51.2 million pre-tax, non-cash write-down.

excluding the cost of the central coast restructure, net profit Before tax would have been $39.1 million.

after the central coast write-down, centennial returned a $3.3 million post-tax profit (against guidance of break-even).

record profits from the mandalong and springvale longwall mines.

annual raw coal production under management totalled 20.1 million tonnes, a new record.

while ventilation issues impeded production at tahmoor, significantly impacting its first-half contribution, the mine enjoyed record production in the second half. new ventilation fans will be commissioned shortly.

one-off profit on sale of a 50% interest in angus place.

2008 financial Year off to a good start, continuing on from a strong final quarter.

Corporate reporting Calendar – indiCative timetable

late-october 2007 Annual Report and 2007 Annual General Meeting notice mailed

30 october 2007 september 2007 Quarterly Activities Report

30 november 2007 2007 Annual General Meeting

30 January 2008 december 2007 Quarterly Activities Report

20 february 2008 december 2007 half year Results Announcement Announcement of interim dividend and record date

29 April 2008 March 2008 Quarterly Activities Report

30 June 2008 financial year end

29 July 2008 June 2008 Quarterly Activities Report

20 August 2008 June 2008 full year Results Announcement Announcement of final dividend and record date

late-october 2008 Annual Report and 2008 Annual General Meeting notice mailed

30 october 2008 september 2008 Quarterly Activities Report

28 november 2008 2008 Annual General Meeting

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chairman’s sTaTemenTdear shareholder

2007 was again overshadowed by our problems at newstan, the result of the longwall having encountered a severely faulted zone within the existing area and culminating in the directors’ decision to make a one-off, non-cash, pre-tax write-down of $51.2 million as part of the restructure of the Group’s central coast assets, announced in november 2006. tahmoor, while finishing the year strongly, unfortunately performed well below our expectations and also contributed to our poor year.

the impact of newstan and tahmoor underperformance clearly overshadowed the many other positives around the Group, including record production and profitability at both springvale and Mandalong together with a strong finish to the year – which I am pleased to say has continued into the new financial year. our Western thermal export mines, clarence and charbon, also enjoyed a good year and can look forward to another year of record export contract prices, as too can springvale, as the Group enjoys the benefit of the recently consummated joint-venture agreement with Angus place and a greater emphasis on export sales from these two well-performing assets.

FinanCial results For the Year ended 30 June 2007centennial reported a profit after tax and minorities of $3.3 million. this result is after accounting for a one-off, non-cash write-down of $35.8 million after-tax charge as a result of the decision to restructure the Group’s central coast assets and the poor operating performances of newstan and tahmoor.

consequently, our earnings per share were significantly down on the previous year at 1.1 cents per share.

clearly, the central coast restructure has had a significant impact on Group profitability. excluding this impact, pre-tax profit from ordinary activities for the year ended 30 June 2007 would have been $55.1 million and profit after tax from ordinary activities would have been $39.1 million. Importantly, cash flow from operations for the year was $95.8 million compared with $32.8 million for the previous year. this significant improvement was attributed to increased coking coal prices, a 12% increase in production – boosted by newstan’s return to full production, and all longwall operations producing at levels above those of the previous year.

dividenddespite the company’s low reported 2007 financial year result, the directors were encouraged by the Group’s second-half performance, together with that of the opening period of the new financial year, and decided to declare a final dividend, albeit at the reduced rate of 4 cents (unfranked) per share. the dividend was paid on 5 october 2007, bringing total dividends for the year to 8 cents per share (unfranked).

strategiC outlookIn mid-september 2007, we announced that centennial had agreed to sell its Anvil hill project (“Anvil hill”) to Xstrata coal for $425 million (before adjustments). the sale of Anvil hill has since completed, with the proceeds from the sale used to reduce bank debt.

In addition, we also advised that the directors had been informed that Xstrata coal intended to make an off-market takeover offer to acquire all of the shares in Austral coal limited (“Austral”), the owner of the tahmoor Mine. the offer values centennial’s 86% shareholding in tahmoor at $479 million and, if successful, will trigger repayment of Austral debt owed to centennial of $156 million. since announcing, a bidder’s statement has been lodged with AsIc and sent to all Austral shareholders.

If centennial accepts the Xstrata coal offer for Austral, together with the completed sale of Anvil hill, total proceeds will be in excess of $1.1 billion, significantly above our internal valuation and book value. each transaction is significantly value accretive and represents a compelling opportunity for centennial to accelerate the realisation of returns from these two assets on a risk-free basis. the pre-tax profit will be approximately $350 million.

As noted above, the proceeds from the sale of Anvil hill have been used to repay bank debt. Assuming the completion of the sale of Austral, it is the directors’ intention to consider capital management initiatives with a view to reducing long-term gearing (on a net debt to net debt plus equity basis) to between 30 – 40%.

Both transactions represent a significant premium to centennial’s internal valuation and book value.

the year under review also saw a decision to restructure the Group’s central coast assets, culminating in the decision to place newstan and Mannering on care & maintenance at the end of the 2008 financial year, acknowledge the closure of Awaba in early 2009 (due to exhaustion of reserves), and refocus the Group’s resources to expand the Myuna and Mandalong operations. In addition, a decision was also made to sell a 50% interest in Angus place to the Group’s joint-venture partners at the neighboring springvale mine, thus creating a larger, more efficient joint-venture capable of taking maximum advantage of both domestic and export opportunities as production and marketing efficiencies are maximised.

looking to the future, the result of all this activity is that centennial will be a significantly more streamlined company, with a strong balance sheet, well-established operating mines that generate strong cash flows and a company that is well placed to capitalise on organic and external growth opportunities in a dynamic industry. this is consistent with the Group’s strategy to focus its energies on fewer, larger mines delivering increasing margins. F

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outlooklooking to the future, centennial is well placed to benefit from continuing export market strength as it flows into an improving domestic market. Many analysts and commentators have recently increased their long-term thermal coal prices as the world’s demand for energy shows no sign of slowing. domestically, we have already benefited from a 10% increase to one of our major domestic contracts. As further long-term contracts are “re-set” and others roll-off, centennial will be seeking to obtain export parity pricing where possible.

While it is too early to provide a forecast for the 2008 financial year, we look forward to a year of significant improvement, with most of our major mines having commenced the new financial year well. A number of factors are expected to drive profitability in 2008 and further in 2009, including:

• theexpansionofproductionatMandalongto4.4milliontonnesin2008and 5 million tonnes in 2009;

• onlytwolongwallchangeoversinthewholeof2009,oneineachhalf-yearat Mandalong; and

• thecontinuingstrongperformanceoftheGroup’sWesternoperations.

ConClusionon behalf of all shareholders, I would like to take this opportunity to thank our employees and my fellow directors for their dedication and support over the past two challenging years. 2007 has been a year overshadowed by the underperformance of newstan and tahmoor, but it is important to note that several of our operations returned record production and profitability – including Mandalong and springvale. We have started 2008 well and, through the Anvil hill and tahmoor transactions, we are substantially refocused and reinvigorated, ready to take advantage of continuing strong coal market fundamentals.

finally, on behalf of the Board and Management, I would also like to thank our shareholders for their ongoing interest and confidence in centennial coal and I look forward to a much improved year.

dr kenneth J. moss chairman

sydney, 19 october 2007

Corporate governanCeduring the year, we took the opportunity to review certain aspects of our remuneration practices; in particular, we will be seeking shareholder approval for new performance and retention equity incentive schemes.

In recommending to shareholders the need to introduce a new equity incentive plan, the directors considered the effectiveness of the existing plan and determined that the issue of retention of our skilled employees required a greater focus. the existing plan was considered to be overly complex, suffered from a general lack of understanding by employees and consequently did not act as an effective reward and retention mechanism.

A detailed Remuneration Report can be found on pages 68 to 79 in the directors’ Report, however, it should be noted that the Remuneration Report was completed before the conclusion of the necessary work with respect to the new performance and retention equity schemes had been finalised. therefore, I encourage you to read the notice of Meeting and the accompanying explanatory statement in consideration of this important matter, and I hope that you will find that it is fair and equitable for both shareholders and eligible employees.

board Compositionthe composition of the Board has again changed this year with the retirement of Bob duffin. Bob has been a long-serving and dedicated director of the company and it is with regret that we announced his retirement from the Board in May 2007 to pursue his interest with an emerging resources company where he is executive chairman.

the Board is currently undertaking a search for another non-executive director to join the Board. It is hoped that an individual(s) with relevant resource company experience can be found to supplement the Board’s existing knowledge and experience.F

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It is the view of the directors that the offer for Anvil hill represented an opportunity to crystallise and accelerate significant value for shareholders without incurring project development risk, both in terms of capital expenditure and the necessary skilled resources required to develop a project of this nature. With respect to tahmoor, the directors have indicated that it is their intention to accept Xstrata’s offer of $1.83 per Austral share subject to there being no higher offer and the independent expert report being prepared for the Austral directors. over the past two quarters, tahmoor’s production consistency has significantly improved, but it remains the case that tahmoor is centennial’s highest cost mine and also carries the greatest operational risk, given its inherent geological and gas regime.

If centennial accepts the offer for Austral (as is intended subject to no higher offer and the independent expert report being prepared for the Austral directors) the sale of Anvil hill having completed, total proceeds to centennial will be in the order of $1.1 billion. each transaction is significantly value accretive and represents a compelling opportunity for centennial to accelerate the realisation of returns from these two assets on a risk-free basis. the Anvil hill transaction represented an excellent opportunity to crystallise for shareholders the significant value created by centennial’s vision and planning for Anvil hill, with the price received reflecting the greater synergistic value of Anvil hill in the hands of Xstrata coal than under centennial’s ownership. In particular, Xstrata coal is able to add value through greater blending opportunities and operational synergies. Importantly, it is also better positioned to absorb the risks involved in the development of such a large project, particularly in the current macro-economic environment.

With respect to the price offered for Austral, it too represents a significant return for shareholders and recognises the improvements in tahmoor’s performance under centennial’s ownership. When evaluated in conjunction with the sale of Anvil hill, it provides centennial with the opportunity to reduce Group borrowings, instigate capital management initiatives and maintain its leading position as Australia’s largest independent coal company by production. We also believe this is an outcome that will be well received by other stakeholders and is consistent with our portfolio management approach.

the year under review also saw a decision to restructure the Group’s central coast assets, culminating in the decision to place newstan and Mannering on care & maintenance at the end of the 2008 financial year, acknowledge the closure of Awaba in early 2009 (due to exhaustion of reserves), and refocus the Group’s resources to expand the Myuna and Mandalong operations. In addition, a decision was also made to sell a 50% interest in Angus place to the Group’s joint-venture partners at the neighbouring springvale mine, thus creating a larger, more efficient joint-venture capable of taking maximum advantage of both domestic and export opportunities as production and marketing efficiencies are maximised.

dear shareholder

the past year has been one of significant change for centennial with the recently announced sale of Anvil hill; Xstrata coal’s announced intention to bid for Austral coal limited, the owner of tahmoor; the sale of a 50% interest in Angus place to create a joint-venture over a combined Angus place and springvale; and the restructure of the Group’s central coast mines.

While the export-led expansion of Mandalong has been flagged to shareholders for some time on the back of Mandalong’s outstanding performance since its commencement as a longwall mine in January 2005, the sales of Anvil hill and tahmoor were perhaps unexpected but for centennial’s long-held view that certain of the Group’s mines may be more valuable to another party with greater synergies.

the 2006 Annual Report again reiterated centennial’s long-held portfolio management approach that requires all existing mining operations to undergo regular review and be measured against criteria similar to those used as part of the Group’s acquisition criteria. In particular, it was noted that certain of the Group’s mines may be more appropriately owned and operated by, and therefore more valuable to, a party other than centennial.

consistent with our portfolio management approach, the directors considered the offers from Xstrata, totalling over $1.1 billion (after adjustments), and determined that they represented compelling value and significantly reduce centennial’s operating risk profile. the transactions will result in an approximate $350 million pre-tax profit on disposal. While a portion of the taxable profits arising from these transactions will be offset against centennial’s carried forward tax losses, some tax will be payable. As a result, it is expected that this transaction will result in the company being able to frank future dividends.

following completion of these two transactions, the directors believe that centennial will be well positioned to consider future growth opportunities.

managing direcTor’s reporT

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results and operationscentennial’s equity share of raw coal production (“RoM”) for the year to 30 June 2007, at 17.5 million tonnes, was 12% above that of the prior corresponding year, benefiting from increased production from each of Mandalong and springvale, and newstan’s return to full production. centennial’s equity share of sales, at 16.6 million tonnes, was 9% above that of the prior corresponding year.

centennial generated a 28% increase in earnings before interest, tax, depreciation & amortisation (“eBItdA”) to $193.5 million and a 192% increase in operating cash flow for the year to 30 June 2007, following a record year at Mandalong and springvale, and newstan’s return to full production. In addition, the Group’s Western operations again delivered a consistent and positive contribution to the year’s result.

on a reported after tax and minority basis, centennial returned a net profit of $3.3 million for the year, after a one-off, non-cash write-down of $35.8 million post-tax following the decision to restructure the Group’s central coast operations announced in november 2006. this compares with a net profit of $17.1 million for the previous year.

In addition to the one-off, non-cash write-down associated with the central coast restructure, the full year result was also negatively impacted by the well-documented geological issues at newstan, which resulted in an operating loss of $21.8 million. Including the non-cash write-down, the total impact on the 2007 result from newstan is therefore a loss of $70.5 million ($49.3 million after tax). It is also important to note that in spite of relatively strong coking coal prices, the impact of the ventilation problems at tahmoor, compounded by lower coking yields mid-year, meant that tahmoor made no contribution to Group profitability. (As noted above and as previously reported, Xstrata coal has advised that it intends to make an offer for Austral coal limited, the owner of tahmoor. consequently, if the offer is successful, tahmoor will not make a major operating contribution to the Group’s 2008 results.)

In considering the 2007 result, it is important to note that the second-half result also represented a significant improvement over the first-half reported loss of $15.1 million, and more accurately demonstrates the capability of the Group’s portfolio, particularly when considering that tahmoor (and Anvil hill) made no material contribution to profits.

As part of the central coast restructuring, newstan will cease operations at the end of the 2008 financial year. newstan is expected to make a positive contribution to 2008 results, with action taken to reduce the risk of mining the remaining longwall by “side-stepping” the known fault zones and concluding all development activities once the final longwall panel is developed ready for extraction by december 2007. the restructure will also result in the planned closure of Mannering in mid-2008 while Awaba will cease production at the end of the March 2009 Quarter when reserves are expected to be exhausted.

the redeployment of resources from these mines will enable centennial to accelerate Mandalong’s expansion into the export market, assist with the expansion of Myuna, and allow a greater focus on fewer, higher margin mines. one development unit has already been successfully deployed from newstan to Mandalong with an improvement in its development performance already evident.

clearly, the impacts of the central coast restructure and tahmoor’s lower than expected performance have overshadowed the strong, positive contributions from Mandalong and the Group’s Western operations. excluding the impact of the newstan write-down, pre-tax profit from ordinary activities for the year ended 30 June 2007 would have been $55.1 million. profit after tax from ordinary activities would have been $39.1 million.

sustainabilitYcentennial believes that the provision of adequate, reliable and affordable energy is critical to society sustaining its future. As the leading independent coal producer in Australia, centennial invests in research for clean coal technologies and other initiatives that aspire towards a cleaner environment.

for centennial, sustainability includes recognising and balancing the economic, environmental and social impacts of its activities. the company believes that good social and environmental performance is integral to its ongoing successful performance. As the producer of approximately 47% of new south Wales’ energy coal requirements, centennial has a major role in the provision of sustainable and economical energy, critical for maintaining and further developing our way of life.

centennial is involved in a number of industry funded research programmes, the latest of which is the new coAl21 fund, an Australian black coal industry

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managing direcTor’s reporT continued

initiative that will raise up to $1 billion over the next decade. coal producers in nsW, including centennial, will contribute approximately $400 million to the coAl21 fund over the next 10 years. the fund is a world-leading example of an industry coming together to work with the electricity generation industry to demonstrate promising technologies for reducing greenhouse gas emissions from coal-fired power stations.

you can read more about the various direct and indirect projects that centennial is involved with in the sustainability section of this Annual Report, where you will also find website links to various research bodies that are progressing cleaner coal technologies.

health & saFetY risk managementcentennial continues to seek improvements in occupational health & safety (“oh&s”) performance through regular Management participation in external and internal debate and the introduction of behavioural-based training and leadership training for supervisors and management personnel.

Myuna won the inaugural centennial hsec innovations award 2007 for its hydraulic Advancing temporary support system (“hAts”). hAts is a revolutionary system allowing a series of commercially available and lightweight hydraulic (water) roof props to be remotely installed from a safe location, permitting temporary roof support to be installed while eliminating the requirement for mineworkers to be exposed to an unsupported roof.

the hAts innovation, along with three other centennial innovations, were also entered into the nsW Minerals council’s occupational health & safety Innovations conference, in May 2007, where it received top industry honours and broad industry recognition.

centennial’s ongoing commitment to improving safety within the company and the industry saw the Angus place colliery mines rescue team representing Australia in the 5th International Mine Rescue contest in china early in the financial year. the Angus place team demonstrated their skill and professionalism, while at the same time the competition provided centennial with a great opportunity to measure itself against the world’s best. following a presentation to the international mines rescue community, Australia has won the right to host the 2008 world championships. on the team’s return to Australia, Angus place then competed in and again won the Western district mines rescue competition. since then, springvale has won the recent 2007 competition.

As previously reported, despite centennial’s efforts and the improvements in safety culture achieved across the Group, a fatal accident occurred at Angus place shortly after the beginning of the 2006/07 financial year. the accident involved a technician employed by fuchs lubricants (Australasia) pty ltd who was carrying out oil sampling at the mine.

trainingtraining continues to be a major focus across all operations. centennial recognises that a skilled workforce is essential in the competitive marketplace in which we operate. to this end, competency-based training systems are in place at all sites with programmes to ensure the continued enhancement of employee skills, particularly in relation to improving safety awareness and increasing productivity.

of increasing relevance is our planning for the future, with centennial actively involved in several training initiatives. these include strong regionally-based partnerships with training companies for the provision of mining traineeships and almost 40 apprentices.

In addition, we are working closely with the university of new south Wales (“unsW”) to further develop a Graduate programme to promote the Group as an employer of choice. this already includes annual scholarships and vacation work experience in various mining disciplines.

outlookI am pleased to confirm that the new financial year is off to a good start. the newstan operations have been substantially de-risked, Mandalong’s expansion to 5 million tonnes per annum is firmly on track and the Group’s Western operations continue to perform strongly.

centennial’s ongoing portfolio has an average mine life of over 20 years, with total Group coal reserves over 430 million tonnes. the company’s future strategy will continue to focus on developing export opportunities, such as those at Mandalong and springvale, supported by the supply of quality thermal coals (priced in Australian dollars) to the domestic power market from mines uniquely placed to serve the state’s growing energy needs. centennial also expects to grow revenue as old contracts expire and are replaced with new sales which are market-priced.

the sale of Anvil hill to Xstrata coal was completed on 17 october. Xstrata coal has also announced its intention to make takeover offers for all of the shares in Austral. Assuming both transactions are consummated, centennial will have significantly strengthened its balance sheet and reduced debt. the directors have indicated that they will consider capital management initiatives with respect to the surplus funds from these two transactions and have indicated that we intend to target a long-term gearing ratio of between 30 – 40% (on a net debt to net debt plus equity basis).

As I noted above, the Group has commenced the new financial year well, with strong and consistent production. Mandalong started the year by breaking its July 2006 production record with 513,000 tonnes produced in August, and is on track to meet its 4.4 million tonnes production target for this financial year. I believe that centennial is now well-positioned to benefit from its well performing portfolio, reduced gearing and export-focused expansions, supported by the continuing strong demand outlook – with coal prices at or near record levels.

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Q&aAfter an absence of a few years, we have decided to reintroduce the popular Q&A section, which immediately follows this report. In the Q&A, I answer some of the more commonly asked questions, including questions relating to our operations, climate change, and future growth etc. I trust that you will find this section both interesting and informative.

ConClusion2007 was again a particularly challenging year for all of us at centennial. Importantly, neither of the 2006 or 2007 years is illustrative of the ongoing level of the Group’s profitability. following completion of the two transactions noted above, centennial’s portfolio will be substantially restructured and our efforts redoubled on improving productivity and production, with fewer lower-risk, but higher margin mines providing a solid platform for future growth.

throughout the past two difficult years, we have continued to work together as a team. I believe we can now put the past behind us and continue to work together to rebuild investor confidence and step out of the shadow cast by newstan’s and tahmoor’s underperformance. I thank shareholders for their patience during these past two years and look forward with confidence.

In conclusion, I would like to take this opportunity to extend my personal thanks to my senior Management team and all our employees across the Group for their hard work and dedication during this past year. I look forward to working with you all as we continue on our journey.

robert g. Cameron Managing director

sydney, 19 october 2007

Q. What is the future of coal mining given increasing pressures globally to use other energy sources to generate electricity?the reality is coal will remain an important part of the energy mix for at least the next 50 years, a fact supported by the internationally recognised stern Report released last year. As demand for electricity continues to almost outstrip supply in the developed world, and more developing nations are demanding access to affordable electricity, the market for coal will remain strong.

While other energy sources will increase their market share, driven by private sector investment, public policy initiatives, and consumer demand, coal will remain a dominant supply source because no government can afford to ignore the economic impacts that a loss of a reliable, cheap and efficient energy source would create. not only that, coal companies continue to be one of the largest investors in research to achieve a cleaner environment.

Q. how will climate change impact on Centennial’s ability to grow?climate change is having an impact on all aspects of the economy, a reality that is not exclusive to the coal mining industry.

coal is a $24.5 billion industry, supporting 130,000 employees and generates 84% of Australia’s electricity.

It is important that the introduction of any national carbon trading scheme does not negatively impact the Australian coal industry and disadvantage Australian industry in general so that Australia’s global competitiveness is reduced.

furthermore, the significant industry investment into the research, development and commercialisation of clean coal technologies will ensure that the coal industry is in the best position possible to further minimise our environmental footprint by significantly reducing greenhouse emissions.

q&a wiTh roberT cameron

roberT cameron answers quesTions abouT The company and iTs fuTure

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q&a wiTh roberT cameron continued

Q. do you think there will be another coal-fired base load power station built in nsW, and if so, where should it be located?With the exception of nuclear power, which is opposed by the nsW state Government, the reality is coal is the only known energy source that can provide base load capacity in nsW.

the question of if, when and what model would be used are public policy questions for the nsW Government.

What is imperative is that the latest technological advances are utilised in the event a new power station is built (or an existing one is refurbished) and that it is located in close proximity to a fuel source, thereby minimising transport, infrastructure and environmental impacts.

Q. What is Centennial’s growth strategy going forward?the macro-economic fundamentals of the global coal market are exceptionally strong, with unprecedented demand for coal. Accordingly, we aim to increase the share of the company’s earnings derived from market-priced sales.

In Australia, centennial is currently the largest supplier of coal into the nsW power generation market and, through it, a significant contributor to the national electricity Market. this position is not inconsistent with centennial’s growing export capability, as export opportunities are developed from the predominantly domestically orientated springvale and Mandalong. these opportunities are in addition to the well-established clarence and charbon export focused mines.

It remains centennial’s intention to reduce the proportion of sales under long-term fixed prices in favour of increases in market-priced sales. this may be achieved through:

• expansionofexportsalesfromexistingmines;

• acquisitionofpredominantlyexport-orientedmines;

• salesofinterestsinmineswithlong-termcontracts;

• otherformsofrestructuring;or

• acombinationoftheabove.

centennial has a strong blend of growth opportunities and intends to continue to grow, through selective acquisition and internal project development, where such growth is judged to add to long-term shareholder value. Going forward, forecast strong growth in demand underpins centennial’s belief that shareholders will receive greater benefit through increased leverage to the export market.

Q. Why sell mines now, when there seems to be no stopping coal prices?the sale of Anvil hill and the intended sale of our interest (subject to the receipt of no higher offer) in Austral, the owner of the tahmoor mine, will create significant value for our shareholders. the directors believe that the prices offered by Xstrata coal for these assets is compelling and crystallises greater value to the company on a risk-free basis than we could realise by retaining them.

In addition, the proposed sales will significantly reduce the Group’s operational risk and place centennial on a sound foundation for future growth, supported by a portfolio of mines which have a proven track record of performance.

Q. anvil hill was considered Centennial’s prize asset; why then does Centennial not develop it itself? the price offered by Xstrata for Anvil hill is more than double the investment made to date by centennial and reflects the various project milestones achieved to date. A sale demonstrably brings forward the benefits of owning the project without taking on the risks of developing a new greenfields mine. In particular, the current construction market is extremely tight, with numerous capital projects recently reporting significant cost blow-outs. In addition, the market for labour and mining material is also extremely tight, putting upward pressure on operating costs and the likely construction time. Rail and port capacity remain constrained, with further delays expected before capacity can be increased. Accordingly, whilst export coal prices have remained strong, a number of coal mining companies with operations in the hunter Valley have reported decreases in profitability due to cost pressures and infrastructure bottlenecks.

Q. What will be the split of domestic to export sales? on the assumption that both the Anvil hill and Austral transactions are completed, it will initially move from 75:25 to approximately 80:20, before swinging back toward 70:30 by 2009 with increased export sales from springvale and Mandalong.

Q. What dividend payout policy will the board adopt?excluding any specific capital management initiatives, the directors anticipate paying surplus cash, after debt service, to shareholders as dividends. historically, the directors have considered a payout ratio of between 50 – 60% to be appropriate and have, on occasion, paid out in excess of this level when the company has outperformed.

on the assumption that both the Anvil hill and Austral transactions are completed, it is anticipated that centennial will be able to frank future dividends.

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Q. the skills shortage has been widely acknowledged; how is this impacting Centennial’s ability to attract skilled personnel and keep costs under control?the national skills shortage has directly impacted on the number of skilled workers available across a broad range of industries, with competition in the mining industry for engineers and geologists remaining high.

centennial participates in a range of programmes to minimise the impact of this issue. these include partnerships with training companies through which centennial hosts mine and administrative trainees, and apprentices. centennial has formed a partnership with central West Group Apprentices to instigate a Mining engineering cadet scholarship.

In addition, our graduate programme with unsW provides scholarships to assist students with study costs, while also building our relationship with the unsW school of Mining engineering. centennial also encourages students of various disciplines to undertake vacation work experience at its operations. Vacation work experience is offered in mining engineering, geology, environmental, electrical engineering, mechanical engineering and human resource disciplines.

Q. are the long-term contracts to supply coal to nsW power generators secure? does “secure” also mean fixed low price?contracts entered into with the nsW state generators are certainly secure as they are effectively backed by the nsW Government and accordingly have a AAA credit rating. centennial benefits from regular monthly sales receipts and low borrowing rates.

As a bulk commodity producer, certainty of tonnage off-take is valued for business planning and logistics purposes. Given increasing demand for electricity and limited generation capacity, generator performance is not in question.

We have a number of contracts with a range of attaching price mechanisms. some of these use cpI as an escalator, but more recently we have been moving to a basket of indices, more reflective of industry costs. the price reset provisions contained in some of our contracts have resulted in different outcomes, but one of the most recent is calculated to give us the maximum 10% increase allowable. With the recent strong growth in electricity prices, this can be expected to continue to have a positive influence on future price resets.

Q. When do domestic contracts come up for renewal and does Centennial expect to realise increased prices when placing such tonnage?over the coming 18 months, a number of contracts to the nsW generators roll-off. some of these are term contracts, while others are spot contracts that were entered into to cover unplaced production over different timeframes. As the contracts roll-off, it gives us the opportunity to increase physical exports or obtain export price parity if further sales are made to the local generators. however, although we are expanding production at Mandalong from 3.3 million tonnes in the 2007 financial year to a targeted 5 million tonnes in 2009, this increased production will initially cover newstan’s obligations, part of which rolls-off in June 2009, before becoming available for export.

certainly, new agreements will increasingly reflect returns available on the export market.

Q. What will you do with the proceeds from the sale of anvil hill and tahmoor, are you looking at making an acquisition?proceeds from the sale will first be used to reduce debt to a more conservative level and will allow the directors to consider potential capital management initiatives. our initial focus will be on growth from its existing assets. the company will continue to evaluate opportunities to improve returns for shareholders, as it has successfully done in the past.

Q. Centennial has previously tried selling its Central Coast assets without success, choosing instead to restructure them. doesn’t this suggest that Centennial is left with unwanted assets, which now make up a much larger proportion of the overall remaining portfolio? not at all. the directors concluded that the best option for our central coast portfolio was to restructure them. the restructure allows Management to focus its efforts on Mandalong by redeploying resources (labour & equipment) from newstan. Mandalong is the key asset on the central coast. It has already benefited from the transfer of the first newstan development unit and has begun the new financial year breaking production records, and is on track for an export-led expansion to 5 million tonnes per annum.

the Group’s other mines, Angus place, springvale, clarence/charbon and Mandalong have perhaps been overshadowed over the past two years, but all consistently performed under centennial’s management. As with Mandalong, all have begun the 2008 financial year well.

Q. does Centennial consider it has the necessary resources and abilities required to develop a greenfields project?since centennial acquired the Anvil hill project, as part of the powercoal acquisition in 2002, significant progress was made to develop the project. this included negotiating a long-term off-take contract with Macquarie Generation, preparing a detailed environmental impact study, preparing the development consent Application in accordance with the nsW Government’s requirements, undertaking further technical and mine planning work over the design, construction and operation of the mine, acquisition of land required for the mine and consultation with the local community and other stakeholders.

Importantly, centennial’s vision and plan for the project culminated with the nsW Minister for planning granting development approval in June 2007. Although centennial has chosen to sell the Anvil hill project, it has clearly demonstrated a capability to take a greenfields project and deliver significant value to shareholders.

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Wolgan Road Project

Tahmoor

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Myuna

Mannering

Bayswater PSLiddell PS

Munmorah PS

Vales Point PSEraring PS

Wallerawang PS

Mt. Piper PS

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Berrima

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Centennial Mines at a glanCe a DiVeRsiFieD PORtFOliO OF Mines seRVing DOMestiC anD eXPORt CUstOMeRs

Mine liFe – YeaRS Mine life (Years) – Based on reserves at 30 June 2007 Mine life (Years) – Based on potential conversion of resources

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Tahmoor

Newstan

Myuna

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Bayswater PSLiddell PS

Munmorah PS

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• LocatednearTorontointheNewcastleCoalfieldofNewSouthWales.

• Exportquality,lowsulphur,mediumash,thermalcoal.

• Undergroundcontinuousmineroperation,comprisingtwoproductionunits,includinghighcapacitypillarstrippingutilisingBreakerLineSupports(“BLS”).

• Plannedproductionof700,000tonnesforthe2008financialyear.

• LinkedbydedicatedhaulroadtoNewstanMineandEraringPowerStation.

• UtilisesNewstan’scoalpreparationandrailloadingfacilitiesforexport.

• NewJoint-venturearrangements–managedbyCentennialCoal–withimprovedsynergies.

• Located15kmnorthwestofLithgowintheWesternCoalfieldofNewSouthWales.

• Nominalannualproductioncapacityexceeds7milliontonnesperannum.

• Domesticandexportthermalcoalproduction.

• Attractivelong-termdomesticcontractswithWallerawangandMtPiperpowerstationstotalling4.1milliontonnesperannum.

• Dedicatedconveyorsandhaulroaddeliverytodomesticcustomers.

• ExportsalesviaunderutilisedPortKemblaandexpandingLidsdaleSiding.

awaba

angUs PlaCe/sPRingVale

• Twolongwallunitsandcontinuousminerdevelopment.

• AngusPlacecoalclearancesystemupgradecompletedin2004–deliveringsignificantlyimprovedproductivity.

• NewlongwallsupportsorderedforAngusPlace,tobeinstalledinJune2008.

• LeaseextensionatSpringvaleapproved,increasingreservesto75milliontonnes.

• Goodlongwallminingconditions–relativelybenignconditions,withnogas.

• Totalresourceof435milliontonnes,includingtheWolganRoad,NeubecksCreekandKeroseneValeopen-cutprojects.

(Centennial 50% ShaRe)

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• LocatedintheSouthernHighlandsofNewSouthWales.

• Continuousmineroperation.

• Productioncapacityofupto250,000tonnesperannumonasingleunit,singleshiftoperation–annualproductiondependentonmarketrequirement.

• Conventionalbord‘n’pillaroperationwithpillarsbeingextractedonretreatutilisingbreakerlinesupports.

• Singleunitoperation.

• Surfacecrushingandscreeningplant.

• Locatedadjacenttoitscontractedmajorcustomer,BCSCBerrimaCementWorks.

beRRiMa

ChaRbOn UnDeRgROUnD anD ChaRbOn OPen-CUt

• LocatedatKandosintheWesternCoalfieldofNewSouthWales.

• Undergroundcontinuousminerandopen-cutoperations.

• Predominantlyexportwithsomedomesticsales.

• Productioncapacityofupto1.2milliontonnesperannum.

• Surfacefacilitiescomprisingmodernrailloadingfacilityandadense-mediumcoalpreparationplant.

• CoaltransportedbyrailtothePortKemblacoal-loaderforexportandbyroadtoadjacentcementworks.

• Additionalresourceopportunities–Kandosarea,CherryTreeHill.


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• LocatednearLithgowintheWesternCoalfieldofNewSouthWales.

• Largegoodqualityreservessufficienttosupportminingformorethan25years,withresourcesofapproximately200milliontonnes.

• Marketablereservesestimatedtobe49milliontonnesfollowingrecentreceiptofadditionalminingleasearea.

• Productioncapacityofupto2.5milliontonnesperannum–Australia’smostproductivecontinuousmineroperation.

• Utilisesacombinationof“placechanging”,“superpanel”,“superplacechanging”and“partialextraction”continuousminertechniques.

• PredominantlyanexportproducerthroughthePortKemblacoal-loader.

• Coalpreparationplantavailable,ifrequired.

• Coalsizingplantfordomesticmarket.

• Newtechnology,highcapacityminingsystemsbeinginvestigated.

ClaRenCe

laMbeRts gUlly

ManDalOng

• LocatedadjacenttotheSpringvalecoalpreparationplantandDeltaElectricity’stwoWesternpowerstations.

• Truckandshovelopen-cutoperation.

• Swingproducerforexportanddomesticmarkets.

• LocatednearMorissetintheNewcastleCoalfieldofNewSouthWales.

• Newmine–longwallminingcommencedinJanuary2005.

• State-of-the-arthigh-capacitylongwallunit,miningupto5metresofcoal,andcontinuousminerdevelopment.

• SecondJoyshearerorderedtofurtherreducelongwallchangeovertimes.

• Recoverablereservesestimatedtobe104milliontonnes.

• Productioncurrently3.5milliontonnesperannum,increasingto5milliontonnesperannumby2009.

• Substantial,attractivelong-termcontractstolocalpowergenerators,deliveredviadedicatedconveyors.

• Targetexportsalesof2milliontonnesperannumby2010.

• Currentlongwallblockofwidthof150mdeliveringrecordproduction(previously115m)–widerblocksbeinginvestigated.

• AGLgasutilisationproject.

• Additionalunitsandequipmentex-Newstantoassistdevelopmentandreducelongwallrelocationtime.



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• LocatedintheNewcastleCoalfieldofNewSouthWales.

• TwocontinuousminerunitsintheFassifernSeam.

• Theoperationutilisesthe“superpanel”techniquewhichincorporatestwocontinuousminersinthesamesection.

• Re-openedwithanewworkforceinJanuary2005.

• Productioncapacityof1milliontonnesperannum,targeting800,000tonnesforthe2008financialyear.

• Incloseproximitytoitsmajorcustomer,DeltaElectricity,supplyingcoalviaadedicatedconveyor.

• Resourcesexceed290milliontonnes.

• Decisiontoplacemineoncare&maintenancebyJune2008,unlessasuitablereplacementdomesticcontractcanbenegotiated.


• Continuousmineroperation.

• Currentproductioncapacityof1.5milliontonnesperannum–expandingto2milliontonnesperannumwithnewunitintheWallarahSeam.

• Coalresourcesexceed380milliontonnes–lowsulphurthermalcoalsuitableforeitherexportordomesticmarkets.

• FassifernSeamdevelopmentestablished–expansionintohighqualityWallarahSeam.

• Closeproximityanddedicatedconveyortoitsmajorcustomer,EraringEnergy.

• DomesticcontractexpiresatendofJune2008.

ManneRing

MyUna

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newstan

• LocatedintheSouthernHighlandsofNewSouthWales,nearthevillageofTahmoor.

• HardcokingcoalproducedfromtheBulliseam.

• Longwallextractionandcontinuousminerdevelopment.

• 2007financialyearrawoutputof2.3milliontonnes,arecordforthemine.

• Installedcapacityofapproximately4milliontonnesperannum.

• Highcapacity,efficienton-sitecoalpreparationplant.

• PrimarilyanexportproducerwithcoalbeingshippedviarailtothePortKemblacoal-loader,nearWollongong.


• Longwalloperationwithcontinuousminerdevelopment.

• Infrastructurecapacityexceeds4milliontonnesperannum.

• Scheduledtoceaselongwalloperationsinmid-2008.

• Significantresourcebaseprovidesopportunityforreconfiguredmineplan,withafeasibilitystudycommenced.

• Highcapacitycoalpreparationplant.

• On-siterailloopfortransportofdomesticandexportproducts.

• DedicatedhaulroadtoEraringPowerStation.

• NearthePortofNewcastleforsemi-softandthermalcoalexports.

• Potentialforlowcostaugerproject.

tahMOOR(Centennial 85.85% ShaRe)

(SUBJECTTOANOFFERFROMXSTRATACOALFORAUSTRALCOALLIMITED,THEMINE’SOWNER)

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stateMent OF ResOURCes anD ReseRVesStateMent oF ReSouRCeS and ReSeRveS (MillionS oF tonneS) – aS at 30 June 2007

Measured indicated inferred total Proved Probable total Coal (4) MarketableMine/Project Mining Method Resource Resource Resource Resource Reserve Reserve Reserves Reserve (5)

Airly underground project 0.0 107.7 10.0 117.7 0.0 27.8 27.8 27.8Angus place longwall 89.7 153.3 0.0 243.0 31.9 1.9 33.8 33.8Anvil Hill (11) open-cut project 162.7 22.5 315.0 500.2 135.0 23.0 158.0 125.0Awaba Cont. Miner & Auger 44.1 15.0 13.0 72.1 1.3 0.0 1.3 1.3Berrima Cont. Miner 6.3 99.9 27.0 133.2 0.3 9.7 10.0 10.0Charbon (6) Cont. Miner & open-cut 6.4 8.0 0.0 14.4 1.6 7.1 8.7 7.4Clarence Cont. Miner 43.4 155.6 0.0 199.0 7.8 44.3 52.1 49.0Mandalong longwall 116.7 192.8 23.0 332.5 44.4 59.6 104.0 104.0Mannering Cont. Miner 60.8 188.7 42.0 291.5 2.0 3.7 5.7 5.7Munmorah Closed 18.8 67.9 119.0 205.7 0.0 0.0 0.0 0.0Myuna Cont. Miner 0.0 330.8 57.0 387.8 0.0 26.6 26.6 26.6neubecks Creek open-cut project 5.8 1.8 0.0 7.6 4.4 1.7 6.1 6.1newstan (7) longwall, Cont. Miner & Auger 40.0 181.2 26.0 247.2 5.0 65.0 70.0 56.5Springvale longwall & open-cut 46.6 116.2 0.0 162.8 5.9 69.1 75.0 75.0tahmoor (11) longwall 157.6 66.9 0.0 224.5 46.4 40.6 87.0 74.0Wolgan Road open-cut project 22.5 0.0 0.0 22.5 12.0 0.0 12.0 12.0

TOTAL 821.4 1,708.3 632.0 3,161.7 298.0 380.1 678.1 614.2

notes to be read in conjunction with this JoRC Statement:(1) Resources and Reserves are reported as at 30 June 2007 and are in accordance with the 2004 Australasian Code for Reporting Identified Mineral Resources and ore Reserves

(JoRC Code). All figures reported are on a 100% holding basis. In some cases, where there has been no material change in exploration data or other information relevant to the estimation of resources and reserves, the figures stated have been derived by adjusting reserves by the amount of mineral extracted over the period. Resources are then adjusted accordingly, having regard to the overall extraction ratio of resource area.

(2) the Measured and Indicated Resources are inclusive of those Resources modified to produce the proved and probable Reserves. Inferred Resources are rounded down to the nearest million tonnes.

(3) the above table has been compiled from Resource and Reserve estimate reports prepared by Competent persons (considered suitably experienced under the JoRC Code). the Competent persons consent to the inclusion in this Statement of matters based on their work in the form and context in which it appears. the Competent persons who have prepared the estimates are: J. Brunton of Centennial Coal Company limited (Resources for Anvil Hill); M. Ives of Centennial Coal Company limited (Resources for Airly, Angus place, Awaba, Berrima, Charbon, Clarence, Mandalong, Mannering, Munmorah, Myuna, neubecks Creek, newstan, Springvale, tahmoor and Wolgan Road); M. Kankkunen from thiess pty ltd (Reserves for Anvil Hill); D. thomas of IMC Mining Solutions pty ltd (Reserves for tahmoor); D. Moult of Centennial Coal Company limited (Reserves for Airly, Berrima, Charbon, neubecks Creek and Wolgan Road); and n. Alston of Centennial Coal Company limited (Reserves for Angus place, Awaba, Clarence, Mandalong, Mannering, Myuna, newstan and Springvale).

(4) For all mines, total Coal Reserves are an aggregate on a 100% yield basis.(5) For Airly, Angus place, Awaba, Berrima, Mandalong, Mannering, Myuna and Springvale, Marketable Reserves are reported on a 100% yield basis as raw coal from these mines is

considered to be 100% marketable. For the remaining mines, coal preparation facilities are used to enhance product specifications and hence Marketable Reserves are stated subject to the following yields:

Anvil Hill 79% tahmoor 85% Charbon 85% newstan upper Seams Domestic thermal 92% Clarence 94% newstan lower Seams Domestic thermal and Semi-soft 80%(6) the Charbon Resource figures do not include A414.(7) newstan includes both upper and lower seam Resources and Reserves. Marketable reserves reflect a mix of domestic thermal and export semi-soft sales.

upper seam products are sold into domestic thermal markets and overall yield is 92%. lower seam yield can vary from 70 to 90% depending on market mix.(8) Resources for Anvil Hill, Awaba, Mandalong, Mannering, Munmorah, Myuna and newstan are stated on an “in-situ” moisture basis.(9) Resources for Airly, Angus place, Berrima, Charbon, Clarence, neubecks Creek, Springvale and Wolgan Road are stated on an “air-dried” moisture basis. (10) Reserves and marketable reserves are quoted on an “as-received” moisture basis, except tahmoor which is stated on an “air-dried” basis.(11) the sale of Anvil Hill was completed on 17 october 2007. on 19 october, Xstrata Coal formally announced a takeover offer for all of the shares in Austral.

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our PeoPle – Centennial emPloyees the 2006/07 financial year was largely a year of consolidation with regard to Centennial’s people management systems. Whilst Centennial believes that certain processes, such as policy development, must be dealt with centrally to ensure a consistent approach across the Group, other procedures and systems can and should be decentralised where appropriate, with responsibility passed to the local mine manager. In so doing, employees are encouraged to align themselves with their local business unit and foster closer links with the local management team.

In adopting this strategy of alignment, Centennial is seeking to reinforce a workplace culture where employees understand that employment security, conditions of employment and job satisfaction are interdependent with the need to generate profits and provide an adequate return to Shareholders so as to ensure continuing investment in the business. to assist with the achievement of this strategy, Centennial Management continually communicates with each business unit’s employees, providing them with the necessary information to understand the needs of the business.

employee communication is an important aspect of managing any operation. Regular briefing sessions are also the source of consultation with the workforce, discussing Health, Safety, environment and Community (“HSeC”) issues, business improvement recommendations and future developments for the operation. employees are regularly involved in risk assessments, process improvement initiatives, development of management plans and training. these initiatives actively encourage open lines of communication among the workforce and result in improvements to operational systems.

Safe, competent and productive workforce

the company’S open lineS of communication encourage operational improvementS and increaSed Safety awareneSS

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Safe, competent and productive workforce continued

HealtH & safety risk managementthe Company’s commitment to occupational Health & Safety (“oH&S”) continued throughout the year under review, with a combination of leading and lagging key performance indicators of safety in routine use throughout the Group, including at Board level. In addition, this commitment has been demonstrated throughout the year in many forms, varying from proactive improvements to corporate safety systems, to reviewing and improving routine work practices at the coal face.

During the 2007 financial year, the first of the broadened “Centennial Coal Health, Safety, environment and Community (“HSeC”) Innovations and excellence Conference” was held, providing an opportunity for Centennial to formally recognise continuous improvement in these key areas underpinning successful performance.

the HSeC conference also provides a platform for each site to present the improvements they have achieved and to promote and share these achievements with other Group sites. A panel of internal and external judges was given the task (using a predetermined set of key criteria) of selecting the winning entries.

Myuna won the Centennial HSeC innovations award 2007 for its Hydraulic Advancing temporary Support system (“HAtS”). HAtS is a revolutionary solution allowing a series of commercially available and lightweight hydraulic (water) roof props to be remotely installed from a safe location, permitting temporary roof support to be installed while eliminating the requirement for mineworkers to be exposed to an unsupported roof.

the HAtS innovation, along with three other Centennial innovations, was entered into the nSW Minerals Council’s occupational Health & Safety Innovations Conference, where it received top industry honours and broad industry recognition.

the Coal Mine Health and Safety Act 2002 and the accompanying new 2006 Regulations were gazetted in December 2006. these new regulations place a greater emphasis on identifying the responsible operator(s) for each mine and require a significantly increased level of incident reporting to the Department of primary Industries – Mineral Resources (“DpI-MR”). As a result, the new regulations were the basis of extensive training sessions, with the assistance of external legal support, for Group employees.

In addition, the new regulations also place a significant emphasis on contractors and the management of contractors, major hazard management plans and risk management. All mine sites have complied with the Coal Mine Health and Safety Act 2002 and the accompanying new 2006 Regulations. Further new requirements will be introduced over the next six months.

During the year under review, Centennial’s corporate emergency response procedures were the subject of a comprehensive review process, with a much expanded Corporate HSeC emergency Response Manual developed. this manual will assist senior mine site and Sydney office personnel with the management of critical incidents arising in the areas of health, safety, environment and community. the procedures outlined in the manual have been designed to provide the highest level of assistance to all our employees, while at the same time ensuring that Group personnel fully cooperate with regulatory authorities and communicate appropriately with all stakeholders.

the Group’s enhanced corporate HSeC emergency response procedures were then tested with an unannounced full corporate simulated emergency. the response to the simulation by all employees was excellent, providing a high level of confidence that all possible preparation for an emergency has been considered. As part of Centennial’s continual improvement, the Corporate HSeC emergency Response Manual was updated to reflect the experience gained from the emergency simulation.

Work has begun with regard to the development of a Centennial Integrated Management operating System (“CIMoS”) framework, including corporate-wide minimum standards for managing all operating aspects of the business. the development of these standards is being conducted in consultation with all stakeholders, with the objective of achieving a consistent minimum level of practice in each important area of our business.

During the year, a survey of all sites was carried out in relation to the general management of health and safety matters from a corporate perspective. the survey challenged several areas of management, including:

• Whatisbeingdonewell?

• Whatcanbedonebetter?

• Whatmattersshouldbedealtwithatacorporateratherthanindividualsitelevel?

pleasingly, the results were both positive and constructive and have provided the basis for a review of how corporate assistance is provided to the individual mine sites.

Work is currently underway to maximise the Corporate Accounting and executive Information System “pulse” computer system with the establishment of a Group-wide oH&S module to increase the efficiency of Group data collection and facilitate greater, timelier analysis and report writing. In addition, “easy audit”, a specialised auditing software package, has been adopted and integrated into pulse. Most sites are also installing “Arrow logic”, a specialist software system used for contractor and visitor data and record management. Arrow logic allows site personnel to instantly check contractor and visitor credentials and in particular their induction status and insurance coverage before commencing any work on the mine site.

Centennial’s ongoing commitment to improving safety within the Company and the industry saw the Angus place Colliery mines rescue team representing Australia in the 5th International Mine Rescue Contest in China during the financial year. the Angus place team demonstrated their skill and professionalism, while at the same time the competition provided Centennial with a great opportunity to measure itself against the world’s best. Following a

Accepting the Centennial HSeC innovations award for HAtS – Steve Screen (Mine Deputy & presenter), nikki Williams (nSWMC), Bill Grundy (Mine operator & presenter) and terry o’Brien (Centennial Myuna Mine Manager)

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Safe production iS achieved through competent people, following Safe work practiceS, uSing fit for purpoSe equipment in a controlled work environment

presentation to the international mines rescue community, Australia has won the right to host the 2008 world championships. on the team’s return to Australia, Angus place then competed in and again won the Western District mines rescue competition. Since then, Springvale has won the recent 2007 competition.

Additional initiatives include further management systems and audit training for employees and participation in Australian Coal Association Research projects (“ACARp”). these research projects aim to improve health and safety outcomes for industry employees and further demonstrate Centennial’s efforts to provide industry leadership in this important area.

Centennial remains committed to continual improvement in its oH&S performance. During the 2007 financial year Centennial achieved a 12-month moving average (12mma) lost time Injury Frequency Rate (“ltIFR”) of 23 and the 12mma total Recordable Injury Frequency Rate (“tRIFR”) of 101 to June 2007.

Both indicators are improvements on the previous year’s performance.

As reported last year, in spite of Centennial’s efforts and the improvements in safety culture achieved across the Group, a fatal accident occurred at Angus place in July 2007. the accident involved a technician employed by Fuchs lubricants (Australasia) pty ltd, who was carrying out oil sampling of their supplied product.

the precise details of the circumstances leading to this tragic incident are still subject to investigation by the DpI-MR. Centennial Angus place continues to cooperate fully with DpI-MR. the safety of people is Centennial’s number one priority and the Company continues to do everything possible to support the family and other employees affected by this tragedy.

As part of Centennial’s drive for continual improvement, independent oH&S audits are regularly carried out across the Group. these audits go beyond simple prescriptive legislative requirements and seek best practice results in the oH&S arena to assist in a proactive drive to continually improve the health, safety and welfare of all employees.

At the same time, regular internal audits of statutory management systems, as required by the nSW occupational Health and Safety Act and the Coal Mines Health and Safety Act, continue as an integral part of the Group’s oH&S regime. (Centennial personnel have been trained in auditing techniques for oH&S management systems, by registered training organisations.)

Centennial remains actively involved in the wider mining industry’s attempts to improve safety, including ACARp initiatives, and safety training issues addressed within the nSW Minerals Council and the Resource and Infrastructure Industry Skills Council (“RIISC”). Centennial was also an active participant in the drafting of the new Coal Mine Health & Safety Regulations 2006, regularly making submissions focused on improving the safety outcomes for all in the industry.

In keeping with Centennial’s philosophy of delegating business responsibility (and accountability) to the local mine manager, each mine has been free to choose leadership and behaviour-based safety programmes that are considered suitable to the individual site. this approach has resulted in a general improvement in lag safety performance indicators at Group sites, consistent with Centennial’s goal of continual improvement.

Staff and workforce health programmes are currently being evaluated for use within the Group. this is an area of recent focus. It is planned to run a pilot programme(s) and to assist with the implementation of effective site-based health programmes that will benefit both Centennial and employees through improved health practices.

safety PerformanCeFrequency rate (millions of employee hours)

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Centennial ltIFR underground Industry ltIFR Centennial ltI Duration Centennial tRIFR

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driving our production centennial’s output is driven by a workforce that is committed, skilled and highly valued

photo courtesy of r.v. photographers

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the Centennial oH&S logo continues to be a focal point to reinforce the oH&S message, appearing at all industry conferences attended by Centennial personnel, and on internal communications and other sponsored promotional material.

Workers’ ComPensationCentennial continues to work tirelessly with its workers’ compensation insurer, Coal Mines Insurance (“CMI”), and its rehabilitation providers to improve claims and injury management processes throughout the Company through a partnership designed to provide a structured and systematic process for the management of employees injured while at work.

Representatives from each of the partnership organisations meet on a regular basis to identify and implement individual case management strategies for injured employees, including as a priority, early intervention processes designed to rehabilitate and aid recovery. this involves the identification of the best means of treatment, the most appropriate medical practitioner to carry out treatment and the design of any return to work programmes with appropriate milestones to assist employees in their return to full duties.

to further assist in improving focus and reducing workers’ compensation premium costs, Centennial engaged a Workers’ Compensation Manager during the year. the role has already been successful in reducing outstanding claims estimates and providing a generally stronger focus on claims management.

Improved outcomes have been achieved through the introduction of Centennial’s own workers’ compensation injury management programme, which includes the engagement of local doctors, placing greater emphasis on early intervention in the management of injuries. Research has shown that the earlier an intervention process is established, the more likely it is that an employee makes a fuller and faster recovery from injury, and consequently the sooner the employee is able to return to work. pleasingly, Centennial’s initiatives in this regard also show positive signs for the prevention of recurring injuries, a decrease in lost time (with employees returning to work sooner), and a positive impact on workers’ compensation premiums and claim management costs.

overall, Group workers’ compensation performance continues to improve due to an ongoing focus on safety systems and working procedures by both senior management and all employees.

emPloyee relationsEnterprise AgreementsSeveral workplace agreement negotiations were conducted during the year at the Charbon, Clarence and tahmoor operations. these were the first agreements for the Group under the new WorkChoices legislation. All general workforce and deputy enterprise agreements provided for wage increases in return for productivity and efficiency improvements to better utilise labour resources.

the opportunity was also taken during these discussions to further align employees with business objectives and provide for the continued development of employee skills. As a result, all enterprise agreements contain clauses allowing for the development and introduction of performance reviews for employees with a specific focus on safety, work skills and standards, initiative and career development plans.

Training and Developmenttraining continues to be a major focus across all operations, recognising that a skilled workforce is essential in the competitive marketplace in which Centennial operates.

Competency-based training systems are in place at all sites. Continued enhancement of employees’ skills, particularly in relation to improving safety awareness and increasing productivity, is an organisational priority. As a result, employees can be sponsored by the Company to undertake external technical training and skills acquisition through the Company’s Study Assistance programme (“SAp”). the SAp aims to provide employees with the opportunity to undertake external studies such as tAFe and/or university courses to attain skills and qualifications, which will be mutually beneficial for the employee and the Company in the future.

Centennial recognises that its frontline team leaders are a crucial part of its workforce who by their actions have a major impact on the motivation of their team members to achieve safety and production targets. the engagement of team members was recognised by Centennial as essential to developing a workforce that is committed to achieving mutual goals. As a result, Centennial has commenced the introduction of Certificate IV Frontline leadership training, with a view to making such training compulsory at all sites. the training provides leadership and initiative skills to team leaders to assist them to effectively lead their team members, while at the same time achieving a nationally accredited qualification.

Planning our Human ResourceAs part of Centennial’s commitment to training and development of personnel for the future of the coal industry, Centennial is involved with various training initiatives.

Apprentices: Following the early success of the Group’s partnership apprenticeship training schemes, Centennial has increased its commitment to improving employee skills and providing job opportunities through the recruitment of additional apprentices in partnership with the Hunter Valley training Company in the northern region and Central West Group Apprentices in the Western region. under the partnership arrangement, Hunter Valley training Company and Central West Group Apprentices employ the apprentices while Centennial “hosts” the apprentices at its various mine sites in the respective regions.

Currently, there are 20 apprentices being hosted by Centennial in the northern region and 27 apprentices in the Western region, with Centennial’s Western region now one of the largest host employers of Central West Group. under the apprenticeship schemes, all apprentices are regularly monitored and reviewed to ensure they are attaining the required skills to become proficient tradesmen.

Mining Trainees: During the financial year, Centennial continued to offer mining traineeships as a further response to address skilled labour shortages. Similar to the partnership apprenticeship arrangements noted above, mining trainees are employed by a registered training organisation and hosted by

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Centennial mines. partnerships have been formed with Central West Group Apprentices and the Community West College in the Western region and teSA Mining in the northern region.

All mining trainees undertake the nationally accredited Certificate II in underground Coal operations, which provides them with a structured training regime and a national qualification upon completion of the training. the objective of the traineeship system is to increase the amount of competency-based training available at the operator level, which in turn provides for a practical “hands on” learning experience. this new initiative has proven to be a great success.

Trainees: Centennial also has several administration/commercial trainees at its sites. Katie Young who is an administrative trainee at Clarence Colliery recently won the Central West Group Apprentice Regional trainee of the Year Award. Katie is completing a Certificate III Business traineeship. Katie won the Regional award after first being named the lithgow trainee of the Year. the traineeship has been based on a work based flexible delivery model where assessment is undertaken on the job.

the apprentice and trainee initiatives are part of Centennial’s strategy to manage an ageing workforce and to provide job opportunities for young people within the region’s operations.

Graduate Programme: Another initiative that Centennial has been pursuing is that of working closely with the university of new South Wales (“unSW”) to strengthen its ties with the Department of Mining engineering. Centennial provides annual scholarships through the unSW Co-op programme for students with the objective of assisting them with their study costs while at university. In addition, Centennial encourages students of various disciplines to undertake vacation work experience at its operations.

Vacation work experience is offered in mining engineering, geology, environmental, electrical engineering, mechanical engineering and human resource disciplines.

In recognising the shortage of mining engineers in the coal industry and the difficulty attracting people to the lithgow region, Centennial has formed a partnership with Central West Group Apprentices to instigate a Mining engineering Cadet Scholarship. the scholarship is intended to encourage year 12 students to undertake mining engineering at unSW. Scholarship holders will attend university for four years, while gaining valuable work experience at lithgow mine sites. At the end of their university studies, students will enter Centennial’s graduate development programme. this initiative is intended to provide young people with an opportunity to attend university, while receiving financial assistance during their studies and to be guaranteed a graduate position with the Centennial Group at the end of their mining engineering degree course.

the Centennial Graduate programme and use of vacation work experience is another part of Centennial’s strategy to encourage young people to consider careers within the coal industry and promote Centennial as an employer of choice.

Performance Reviews and MeasurementA Staff performance and Development Review System is in operation for all staff, with the aim of improving personal effectiveness and aligning individual objectives with those of the business. the main objective of the system is to develop our people for the future by working with them to create a personal development plan to enhance their skills and performance, and to increase their personal efficiencies, effectiveness and contribution to Centennial’s future performance. the system has also been introduced at some sites for team leaders (Mine Deputies) to assist in focusing their attention on achieving production outcomes in their particular work section.

Policies and ProceduresAs a growing business it is necessary to maintain and continually develop employee policies and procedures to ensure that the Company not only operates in a legal, ethical and responsible manner but that its operational, ethical and personnel philosophies are effectively communicated to each autonomous business unit.

throughout the year all major employee policies were reviewed to ensure that they continue to meet current legal obligations and desired community standards.

During the year, a Whistleblower policy was introduced across the Company. the policy provides for the introduction of systems and processes where a person can report improper conduct that they consider may be corrupt, illegal or unethical. the policy incorporates an anonymous telephone hotline, administered by McGrath nichol Forensic. the hotline may be used to make complaints about the Company or its employees. one of the key points of the policy is the protection of the identity of the whistleblower by ensuring the matter is handled in a confidential manner. Any complaints are fully investigated with final outcomes from any investigation reported to the Centennial Audit & Risk Committee.

Centennial now has a comprehensive suite of policies governing the standards of behaviour expected in many situations that all employees are required to adhere to.

Equal EmploymentCentennial continues to acknowledge the importance and benefits of equal employment opportunity (“eeo”) with respect to its workforce, with its equal employment programme now a firm part of the Group’s business development strategies, particularly as it relates to new employment opportunities.

When seeking to engage new staff, Centennial encourages and now employs an increasing number of women in the non-traditional site-based roles of mining engineering, environmental, geology and other operational roles at several operations.

Safe, competent and productive workforce continued

Katie Young receives the Central West Group Apprentice Regional trainee of the Year Award.

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Centennial believes that the provision of adequate, reliable and economic energy is critical to society sustaining its future. It is committed to being a sustainable supplier of energy and has adopted an environmental policy whose “values and commitments” include:

“Centennial Coal values its role in sustainable development and will manage the environmental aspects of its activities to consider economic and social benefits.

We are committed to our operations and to continual improvement in environmental management and performance.”

Sustainable development is recognised as a key value in the Group’s environmental policy. A copy of Centennial’s full environmental policy can be found on the Company’s website at www.centennialcoal.com.au.

As the producer of approximately 47% of new South Wales’ energy coal requirements, Centennial has a major role in the provision of adequate, reliable and economical energy, critical for sustaining and further developing our society. For Centennial, sustainability includes recognising and balancing the economic, environmental and social impacts of its activities. the Company believes that good social and environmental performance is integral to its ongoing successful performance. It is integral to the Group’s operating policies and drives Centennial’s investment in research for clean coal technologies, protection of its people and other initiatives that aspire towards a cleaner environment.

SuStaining the future

centennial’S role in the proviSion of reliable and economical energy iS critical for SuStaining and developing our Society

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SuStaining the future continued

Energy and Greenhouse Legislative FrameworkAn emerging regulatory regime governing energy and greenhouse matters is being developed within both State and Federal Government. Currently, the only applicable legislation to which Centennial must comply is centred on energy efficiency. this is discussed below.

However, during the period under review, there have been two significant developments in the emerging greenhouse legislative regime. Firstly, the nSW land and environment Court made a decision that major projects such as coal mines are required to consider the downstream greenhouse impacts from a proposed development. this decision was made in the case involving the Anvil Hill project. Fortunately, Centennial had already given this matter appropriate consideration prior to the commencement of the Court hearing.

the second issue is the growing discussion with respect to emission trading schemes, again both at the State and Federal level of politics.

Centennial continues to both monitor the progress of these discussions and develop its greenhouse reduction initiatives to minimise any impact such a scheme could potentially impose on the Group’s activities.

Energy EfficiencyIn 2005, the nSW State Government introduced an amendment to the energy and utilities Administration Act 1987 to promote energy saving measures to reduce energy costs, greenhouse gas emissions and peak loads, and introduced the requirement for energy Savings Action plans (“eSAps”) to be developed by “designated energy users”. Five Centennial sites have been deemed “designated energy users” and are required to prepared eSAps. these have been prepared in accordance with Department of energy and Climate Change (“DeCC”) guidelines and aim to identify potential actions to reduce on-site energy use.

one such project involved the installation of variable speed drives on mine water pumping systems at Springvale. this project attracted funding for its implementation from the nSW State Government energy Savings Fund, which is a recognition of the efforts of Springvale Colliery in energy reduction.

During the period under review, Centennial joined the Federal Government’s energy efficiency opportunities programme (“eeo”). the eeo programme is targeted at corporations that use greater than 0.5 petajoules of energy (equivalent to the energy use of 10,000 households). this programme requires participating corporations (estimated to be approximately 250 of Australia’s larger energy users) to report publicly on the results of energy efficiency initiatives and related projects with financial paybacks of up to four years.

Centennial is currently working through the eeo programme requirements to develop a reporting and assessment schedule for energy efficiency and, importantly, include the consideration of energy efficiency in business decision making.

Centennial believes that sustainability is dependent on:

• Goodenvironmentalmanagementandcommunity relations.

• Safe,efficientandproductiveoperations.

• Appropriatereturnsoninvestment.

• Continuingenvironmentalimprovements in the use of coal.

Centennial recognises that future carbon constraints will be a feature of business and, as such, continues to place significant importance on energy and greenhouse management initiatives within its business operations.

the following three key aspects of Sustainable Development encapsulate Centennial’s approach:

• EnergyandGreenhouse;

• Environment;and

• Community.

energy anD greenHouseCentennial Energy and Greenhouse Management FrameworkIn recognition of the important role energy and greenhouse management matters play in Centennial’s current and future operations, a Greenhouse Steering Committee (“GSC”) has been established. the GSC comprises members of the senior executive team and the General Manager – Sustainable Development. the purpose of the GSC is to oversee Centennial’s energy and greenhouse initiatives, raise awareness of the issues, keep abreast of regulatory and community expectations, guide an appropriate response strategy for managing the important aspects of greenhouse reduction whilst maintaining business momentum and reviewing opportunities for competitive advantage from energy and greenhouse management initiatives.

the GSC has prepared a draft energy and Greenhouse policy (“eGp”) as a starting point for a Centennial energy and Greenhouse Management System (“eGMS”). the eGp will shortly be finalised and then made available on the Company’s website. An eGMS will be progressively developed to ensure the appropriate systems are in place to achieve eGp objectives. F

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researCH & DeveloPmentThe COAL21 Fundthe CoAl21 Fund is an Australian black coal industry initiative to raise up to $1 billion over the next decade. Coal producers in nSW, including Centennial, will contribute around $400 million to the Fund over the next 10 years.

the establishment of a CoAl21 Fund is a world first whole-of-industry funding approach to greenhouse gas abatement. Industry has come together to develop the new fund, being raised by a voluntary levy on coal producers based on their production levels.

ultimately the technology being targeted through the CoAl21 Fund aims to achieve sustainable reductions in greenhouse gas emissions while maintaining a secure, reliable and affordable energy supply.

the CoAl21 Fund complements and extends the coal industry’s existing commitment to greenhouse gas abatement through the CoAl21 programme.

Australian Coal Association Research ProgrammeAustralian black coal producers have a long-term commitment to pay 5 cents per saleable tonne to fund the Australian Coal Association Research programme (“ACARp”). During the year under review, Centennial contributed approximately $0.7 million to ACARp. ACARp conducts a programme of collaborative research for the benefit of the coal mining industry, including anumberofprojectsaimedatmeasurementofemissions;cleancoal burning technology and other ways of reducing emissions from coal burning. ACARp projects also address safety, environmental and community matters, which all combine to increase the sustainability of the industry.

ACARp funds projects that help the industry to accurately measure the emissions from mining operations, and act to reduce these emissions. As fugitive gases, in particular methane, are the largest recognised source of greenhouse gas emissions from mining operations, this is the primary focus of ACARp research in this area.

Centennial is represented on the ACARp Greenhouse Gas Mitigation Committee. this Committee has research priorities in the areas of measurement of fugitive emissions, capture of mine gas and utilisation or destruction of mine gas.

Centennial’s involvement WitH government anD inDustry energy anD greenHouse management initiativesGreenhouse Challenge PlusCentennial continues to participate in the Greenhouse Challenge plus programme, a voluntary agreement with the Federal Government to monitor and reduce greenhouse emissions. this programme was launched in Canberra in March 2005 and builds on the success of the Greenhouse Challenge programme that Centennial has been involved in since 1998. under its agreement with the Australian Greenhouse office (“AGo”), Centennial reports its greenhouse emissions from energy use and fugitive emissions and provides an update on greenhouse gas emission abatement initiatives on an annual basis.

During the period under review, Centennial was subject to a random audit by the AGo. the audit recognised the good work Centennial has been doing in this important area, but also identified some opportunities for improvement. Centennial will be reviewing these opportunities with a view to improving future reporting and making it even more useful.

Details of Centennial’s latest report is available both on Centennial’s website at www.centennialcoal.com.au and on the AGo’s website at www.greenhouse.gov.au.

Energy & Greenhouse Working GroupCentennial is represented on the energy & Greenhouse Working Group that was established by the nSW Minerals Council in 2006. the working group comprises representatives from major mining companies in nSW with a vision to develop and implement innovative and effective solutions to deliver energy savings and reductions in greenhouse emissions above and beyond regulatory requirements. the working group meets regularly to implement a work plan, which includes such actions as developing an industry fugitive emissions strategy and the development of a research database to increase awareness and access to existing resources in this area.

photo courtesy of r.v. photographers

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Methane Utilisation at Mandalong MineCentennial and AGl energy limited (“AGl”) are investigating the use of waste coal mine methane gas, generated through the mining process at Mandalong, to produce on-site electricity for the equivalent of 6,400 homes and significantly reduce greenhouse gas emissions, under a Memorandum of understanding (“Mou”) signed in January 2007.

the Mou outlines how the parties will work cooperatively on the gas project that will see AGl design, own and operate an enclosed flare and on-site generation facility, utilising waste coal mine methane gas supplied by the mine. AGl will employ a staged approach to ensure the development of optimal technical and commercial solutions to fully capture the benefits available from the methane delivered by Mandalong’s existing gas drainage plant.

A feasibility study is currently being concluded, with the design and construction of an enclosed flare installation anticipated early next year as an interim and ongoing abatement measure. upon the successful determination of the feasibility study, it is expected that the on-site generation plant will be installed in late 2008. the capacity of an on-site generation plant is expected to be at least five megawatts (equivalent to power the needs of the mine or approximately 6,400 residential homes).

AGl’s innovative flare and generation proposal, when successfully deployed, will significantly reduce fugitive emissions and produce useful energy to meet Mandalong’s growing energy demands as the mine continues to increase production. this project is an excellent demonstration of Centennial’s commitment to reducing Mandalong’s impact on the environment, while also meeting the mine’s growing energy needs.

Central Coast Methane Utilisation Opportunities In December 2006, Centennial Mannering and Delta electricity agreed to a commercial gas supply contract to utilise gas from the sealed mine workings of the former newvale Colliery (now a part of Mannering Colliery) to Vales point power Station near Doyalson on the Central Coast. the gas serves as a fuel accelerant for boiler start-up, thus increasing the process efficiency.

the mine will supply waste coal mine methane via a 1.4km underground pipeline to the nearby power station where plant is established to dilute the methane for injection into the boiler fan intake of one of the station’s two 660MW units.

the resumption of gas supplies from Mannering represents a reduction in Centennial’s environmental impact while assisting one of the Group’s major customers and providing sound commercial benefits to Shareholders.

GreenfleetCentennial joined the “Greenfleet” initiative in May 2005, a programme which involves payment of an annual fee to offset the greenhouse emissions from road vehicles with the planting of trees. Centennial’s Greenfleet membership covers 100% of the Group’s road fleet and 20% of staff novated lease vehicles. During 2007, Greenfleet plans to plant 850,000 trees. Centennial is proud to be associated with this simple and effective initiative.

Centennial, together with all other Australian black coal producers, contributes funds through ACARp to three important collaborative research centres addressing various aspects of clean coal technology consistent with the CoAl21 national Action plan. these are the Cooperative Research Centre (“CRC”) for Coal in Sustainable Development (“CCSD”), Cooperative Research Centre for Greenhouse Gas technologies (“Co2CRC”) and the Centre for low emission technology (“Clet”). the total of government, industry and researcher funding committed to these programmes is in excess of $210 million.

Centennial Energy Efficiency Fund one of the first key initiatives emanating from the Group’s recently established GSC is the set-up of an internal fund for energy efficiency projects – the Centennial energy efficiency Fund (“CeeF”). this is a proactive means of addressing energy efficiency initiatives, so rather than on-site energy initiatives being assessed against other sustaining capital expenditure, energy efficiency initiatives can now be assessed against other energy efficiency initiatives to ensure these important projects get maximum consideration in the distribution of funding.

Tahmoor Power Stationtahmoor operates a gas utilisation plant comprising 7x1MW spark ignition gas engines to generate electricity which is fed into the local electricity grid under a long-term supply contract. Gas is supplied to the plant from the mine’s extensive in-seam gas drainage system. potential exists to increase plant generation capacity as the mine’s workings progress into a higher methane environment. utilisation of this gas not only provides a useful energy source for the mine but also significantly reduces greenhouse gas emission from the site.

SuStaining the future continued

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furtHer informationFurther information can be found by visiting the websites of the various organisations mentioned above. For ease of reference, these are:

• AustralianGreenhouseOffice–www.greenhouse.gov.au

• NSWDepartmentofEnergy,UtilitiesandSustainability(“DEUS”) – www.deus.nsw.gov.au

• AustralianCoalAssociation(“ACA”)–www.australiancoal.com.au

• CSIROEnergyDivision–CoalResearch–www.australiancoal.csiro.au

• COAL21–www.coal21.com.au

• AustralianCoalAssociationResearchProgramme(“ACARP”) – www.acarp.com.au

• CooperativeResearchCentre(“CRC”)forCoalinSustainableDevelopment(“CCSD”) – www.ccsd.biz

• CRCforGreenhouseGasTechnologies(“CO2CRC”)–www.co2crc.com.au

sustainable energy suPPlyAustralia is currently the world’s fourth largest coal producer, producing around 308 million tonnes a year and exporting around 234 million tonnes annually. With 73 billion tonnes of demonstrated coal reserves, Australia is in an excellent position to meet the increasing worldwide demand for coal and to continue to play a major role in supplying the domestic and world economies with affordable energy.

export coals from Australia are highly regarded in world markets as cost competitive and of superior quality to many competing sources, being high in energy and low in sulphur. Coal remains as one of the most economic and reliable sources of fuel for electricity generation. As a result, Australian coal will continue to be a major part of the world’s energy supply.

Domestically, coal accounts for more than 80% of Australia’s electricity production and is the dominant low-cost fuel for Australia’s energy industry and consequently for industry and private consumption. Centennial plays its role in this supply chain, providing fuel for approximately 47% of new South Wales’ coal-fired generating requirements. notwithstanding the development of alternative energy sources, coal is forecast to remain the dominant source of the world’s and Australia’s growing electricity needs for the foreseeable future. However, concern about the impacts of climate change requires new approaches to ensure that coal has a continued role in providing the world’s future energy needs and that its use is more widely understood in the community.

the Australian Coal Industry, through its representative body, the Australian Coal Association (“ACA”), and individual coal companies are working with electricity generators, Federal and State Government agencies, CSIRo and other research bodies to undertake vital research into clean coal technologies, carbon sequestration and gas management techniques. Centennial is involved through its membership of the ACA, of which it is a longstanding and prominent member. Centennial’s Managing Director sits on the board of the ACA and has also served as Chairman of the Association.

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environmental management and community relationS

PoliCy frameWork/internal stanDarDs – environmental management systemCentennial’s Directors and Management are committed to continual improvement in the environmental management of the Company’s operations and to developing effective community relationships. the Company recognises the importance of effectively managing the environmental impacts associated with each mine and has developed, over the years, an environmental policy that commits the Company to continual improvement in its environmental management and performance.

this objective is pursued through the implementation of the Company’s environmental Management System (“eMS”), designed to assist Centennial in meeting its goal of continual improvement in its environmental management and performance. the dynamic nature of the environment means that the Company’s eMS continues to evolve and remains pivotal in guiding the Group’s environmental direction. the eMS sets down procedures and standards for the management of areas of environmental significance and mechanisms whereby the environmental performance of each operation can be measured and assessed, and appropriate action taken where necessary.

Consistent with Centennial’s goal of continual improvement, the eMS framework document, which outlines a range of procedures and minimum standards, was reviewed and updated during the year to take account of changing community, industry and government perceptions, expectations and standards. the eMS is available to Group personnel via the Company’s intranet system and is the basis upon which all Centennial sites’ environmental performance is measured. Accordingly, each site will be progressively working toward the ratification of individual on-site systems to ensure compliance with the updated eMS.

centennial actively and openly manageS itS activitieS to comply with environmental planning and natural reSource legiSlation

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Following the completion of the annual review of the eMS, early in the period, two key objectives were immediately targeted:

• thecontinuedimplementation/upgradeofminimum performance standards in accordance with the updated eMS framework document;and

• theintroductionofperformanceauditsandincident management protocols.

the minimum performance standards have been reviewed and new standards developed. these standards are developed consultatively to reflect not only Centennial’s expectations, but also regulatory policy, industry activities and community expectations. Minimum standards, which include basic environmental performance requirements for each site, have been extended to other key operational areas to include provision for environmental performance auditing and incident management protocols. each site is required to develop and implement its individual plan to ensure minimum performance standards are met with respect to the site’s particular activities.

In addition, a standardised environmental auditing protocol has been implemented during the year across all sites benefiting from synergies gained from the now well-established oH&S auditing process and utilises a risk-based approach to audit frequency.

A range of tools have been developed to assist in the implementation of the eMS. these are available on the Company’s intranet and include eMS summary guides for mine managers and implementation/reference guidelines for key operational areas.

the development of an electronic management system for data, incidents, inspections and reporting has been a key part of the implementation of the eMS. this electronic system, known as eCD, is centralised on the Company’s intranet and is being developed to be compatible with the Centennial Geographical Information System (“GIS”).

legislative frameWorkthe Group’s operations are governed by a variety of environmental legislation. legislative controls principally relate to emissions and discharge standards and environmental planning requirements. Key environmental regulators in nSW include the Department of environment and Climate Change (“DeCC”), the Department of primary Industries – Mineral Resources (“DpI-MR”) and the Department of planning (“Dop”).

there are significant penalties associated with environmental breaches under government legislation. In recognition of these obligations and the expectations of Government and the community, Centennial has adopted an open and transparent approach to environmental management, keeping regulatory authorities fully informed of the Group’s activities. More importantly, to meet these obligations and expectations, Centennial has implemented its well-developed/detailed eMS (the objectives and strategies of which are kept regularly under review to meet changing needs).

the centennial environmental viSion and logo, deSigned to aSSiSt in raiSing the awareneSS and viSibility of the group’S environmental effortS, SeekS to deliver two meSSageS:

• firstly,thattheenvironmentmatterstoCentennial,i.e.itisafundamentalpart of Centennial’s business; and

• secondly,environmentalmatters,orelementsofthebiophysicalenvironment (air,plantsandanimals,ground/soilandwater)thatsustainsocietycanbeaffectedbyCentennial’sactivitiesifnotappropriatelymanaged.

Ina“branding”sense,themotto“environmentmatters”isdesignedtobeadistinctivereminder of Centennial’s aims and commitments.

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environmental management and community relationS continued

environmental management PerformanCethe Company’s eMS sets down guidelines for the management of areas of environmental significance and mechanisms whereby the environmental performance of each operation can be measured, assessed and corrected (where appropriate). the eMS also contains a framework to assist with the monitoring and ranking of incidents.

this consists of both lag indicators and positive performance indicators, with the former categorised into four levels (graded 1 to 4 in terms of severity) consistent with Centennial’s previous environmental performance reporting. these are described below together with the results for the year.

During the year, a total of 51 Category 4 incidents (technical/minor) were recorded. of these, 39 related to exceedence of specific licence/approval conditions and 12 were community complaints. All exceedences were minor in nature and did not result in any further action.

As a result of the introduction of standard auditing practices across the Group’s sites during the year, these results also include the occurrence of non-compliances determined through independent audits. Reporting and monitoring of such incidents assists Centennial in improving its on-site practices and procedures.

All community complaints received were investigated in accordance with site procedures and followed up with the complainants. Where a valid cause was determined, remedial action was implemented to mitigate the issue.

A total of 26 Category 3 (reportable or recurrent) incidents occurred during the period, but were managed without material damage to the local environment and include:

• EightseparatedischargeeventsthatoccurredattheFassifernAugerMine/newstan Southern Reject emplacement area were reported to the epA. Mining has been completed at the Auger Mine and the development of the Reject emplacement Area has commenced. the mine has adopted a precautionary and conservative approach with respect to possible reportable events while ongoing discussions continue with the DeCC to establish an appropriate licence regime for the greater newstan site.

• FourreportabledischargeincidentsoccurredatNewstanColliery.Threeofthese related to a discharge occurring under conditions that triggered reporting, i.e. no exceedence occurred, but a report is required if certain rainfall conditions occur resulting in a site discharge. the fourth of these related to an exceedence of quality limits.

• FiveCategory3incidentsoccurredatTahmoor:

– Recurrent community complaints at tahmoor relating to a claim of nuisance noise at one residential location. Monitoring has shown that there are no significant exceedences of the relevant noise limits, however, tahmoor has implemented various mitigation measures and continues to work with the DeCC on noise management.

– Recurrent water volume exceedence at one discharge point as a result of rainfall. there were no quality issues and the volume limit has now been increased to reflect a more realistic limit.

environmental regulationAs noted above, Centennial actively manages its activities to comply with relevant environmental, planning and natural resource legislation. However, despite Centennial’s sincere commitment to environmental management and the provision of significant resources to effect compliance, one of the Company’s sites has inadvertently caused an unauthorised water discharge.

the incident occurred at the Fassifern Auger Mine in February 2005 and, following a lengthy investigation, the environment protection Authority (“epA”) commenced proceedings in the land and environment Court against Centennial newstan pty limited (“newstan”) as the owner of the Fassifern Auger Mine. this matter was before the Court at the time of publication of the 2006 Annual Report, with newstan answering a charge of causing pollution of waters under the protection of the environment operations Act 1997.

As previously advised, the Directors decided to make an early plea admitting guilt and provided evidence to the Court to support newstan’s position and fully explain the circumstances that led to the unauthorised discharge before the Court determined any penalty. In considering a proposed penalty, the Court recognised the “good corporate character” of the Centennial Group and the contrition shown in response to the incident. In determining the penalty, the Court accepted Centennial’s proposition that it contribute $50,000 to the Hunter-Central Rivers Catchment Management Authority to enable it to undertake regeneration works in lt Creek, in lieu of a fine. Following this contribution, newstan continues to be involved in the implementation of the lt Creek regeneration project and other initiatives in the catchment.

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– two separate water quality related incidents with respect to recurrent turbidity and total suspended solids at one licensed discharge point.

– one soluble oil spill occurred that had potential to harm the environment. the spill was appropriately managed without harm to the environment, but in accordance with licence requirements, the epA was notified of the incident.

• OnerecurringwaterqualityissueatClarence.this is a reflection of licence conditions using old standards. Clarence has been working through the current water assessment standards in an effort to seek contemporary limits with respect to its discharge licence.

• Inaccordancewithsubsidenceapprovalconditions, two reportable incidents occurred at Mandalong, two occurred at Awaba and two occurred at Angus place. the incidents did not result in any significant environmental harm, but reflect the cautious approach required by the Department of primary Industries in gaining subsidence approvals. Where required, rectification works or increased monitoring was implemented.

• Onereportablewaterdischargeincidentoccurred at Angus place. Investigation and further testing did not reveal any significant environmental harm, but identified some site improvement works that could be undertaken to further minimise the potential for future similar discharges.

• Onereportablewaterdischargeincidentoccurred at Mandalong. Monitoring and investigation of the discharge indicated that no environmental harm was caused, but in accordance with licence requirements, the epA was notified of the incident.

It should be noted that the general increase in reportable incidents reflects a more conservative approach to incident identification and action.

other than as noted above, the Group’s operations were in compliance with their statutory obligations.

environmental improvements continue to be actioned across all existing Group operations whilst new operations undergo detailed preparatory work before any site disturbance or mining commences to maximise protection of the local environment.

Positive PerformanCe inDiCatorsCentennial also uses positive performance indicators to develop good practices, change behaviour and generally raise standards. positive performance targets are set annually as part of each site’s business plan. progress is reported each month to Senior Management and is included in management reports to the Centennial Board. the following positive performance indicators are currently in use/were used during the period under review.

Key Policy Theme (Objective) Indicator

•Environmentaladvocacy/integration •EnvironmentalManagementCommittee (site stakeholder involvement) meetings

•Audit,continualimprovement •Environmentalsystems/standards/proceduresaudit

•Continualimprovement •Implementationofidentifiedcorrectiveactions

•Awareness •Environmentalarticlesinsitenewsletters,Intranet “Good news”

•Duediligence/awareness •Employeeenvironmentaltrainingsessions

•Training/integration •Site“areasofresponsibility”audits

•Wastereduction •Reductioninsolidwastetolandfillon 2003/04 volumes

•Wastereduction/sustainability •Energysavingsactionplanachieved

•Community •Stakeholdermanagementplanimplemented

Although performance against these criteria was varied across sites, all sites made progress towards meeting the targets set within each indicator.

inDustry environmental initiatives NSWMC Environment Committee: Centennial is represented on the nSW Minerals Council (“nSWMC”) environment Committee and provides resources to chair a number of environmental working groups within the nSWMC.

NSWMC EnviroSmart Awards for Schools: enviroSmart Grants are designed to encourage, promote and recognise environmental excellence in schools that develop and implement a School environmental Management plan (“SeMp”) based on the same model used by mine sites around the State.

the 2006/07 year’s grant programme assisted a record number of 56 schools across nSW, helping to make a difference to their local environments. 13 local schools were awarded $500 enviroSmart grants from Centennial and the nSWMC to help them implement their own School environmental Management plans.

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valuing our water reSource the springvale mine water recycling initiative has been widely recognised and applauded

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Centennial environmental initiativesAn environmental policy is nothing without commitment and action. During the period under review, Centennial has committed much effort and resources to turn stated policy into action to achieve many positive local environment outcomes. examples of some of these initiatives are outlined below.

Springvale Water Transfer: As reported over several years, Springvale has worked with the adjacent State generator, Delta electricity, to provide mine water to the Western power stations. During the year, the environmental and community benefits of this initiative were recognised both by industry peers and the broader community. the Springvale Water transfer was a finalist in the Inaugural nSW Minerals Council environment and Community Awards and won the Department of energy, utilities and Sustainability (“DeuS”), Green Globe Award for Water Recycling and Conservation. the Green Globe Awards honour leadership and commitment in the sustainable use of energy and urban water in nSW. the Water Recycling and Conservation Award honours the achievements of an organisation demonstrating outstanding commitment and innovation in water recycling and conservation that have replaced the use of potable water.

e-Tree: Centennial has taken advantage of the recently enacted legislation designed to reduce paper usage and facilitate shareholder communications via electronic means utilising e-mail and the Company’s website, by providing Shareholders with the option of receiving correspondence electronically via “soft copy” rather than a paper “hard copy”. Following the enactment of this legislation, Centennial has taken the opportunity to promote “e-tree”, an environmental initiative designed to promote the delivery of shareholder communications via softcopy. For every Shareholder choosing to receive Company communications by supplying their e-mail address to the Company’s registrar, Centennial will donate $1 to landcare. this initiative provides funds to one of Australia’s best known and respected environmental protection and restoration groups. At the date of publication, 596 Shareholders out of an approximate 10,000 have responded positively to the e-tree initiative. However, to put this apparently low number in context, only 1,047 Shareholders have requested to continue to receive a paper annual report and hence this initiative will save a significant quantity of trees and water.

Waste Reduction at Newstan: newstan set a waste reduction target as part of its positive performance goals for the year. As part of newstan’s assessment of the potential for this initiative, the mine decided to go beyond the minimum target set and conducted a waste audit to identify potential areas of waste and cost savings. Following a major site clean-up and employee engagement programme, a new waste management philosophy has been successfully implemented. this relies on sorting waste to target reuse and then recycling before disposal. this has resulted in an approximate 60% reduction in volume of material waste leaving the mine-site for landfill, which translates to around $30,000 per month in initial savings from reuse of materials and reduced waste fees. this initiative is being assessed for how it may be applied across all Centennial sites.

Centennial Environmental Innovations Award: In December 2006, Centennial held its first Health, Safety, environment and Community (“HSeC”) Innovations Awards, a development from Centennial’s Health & Safety Innovations Conference to include environment and Community under a broader HSeC. this initiative not only encourages workforce involvement, but creates opportunities for the transfer of innovations across all Group sites. the next conference is scheduled for December 2007.

Endeavour Colliery Decommissioning: the decommissioning and rehabilitation of the old endeavour Colliery site (inherited as part of the powercoal acquisition in 2002) presented several positive environmental and community opportunities. on the environmental side, the decommissioning had potential to create a large volume of waste material and consequent landfill requirements. A detailed assessment of potential reuse and recycling opportunities was undertaken, which identified a range of economic reuse and recycling options. As a result of this focus on waste reduction, 99% of all material on-site was reused or recycled rather than sent to landfill. this project won the Centennial environmental Innovations Award in December 2006. the approach and philosophy is currently being transferred to the Munmorah Colliery decommissioning project, where similar results are expected.

®

Centennial’s Barry McMahon (left) and David Carey (right) accepting the Green Globe Award for Water Recycling and Conservation.

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Ivanhoe Riparian Biodiversity Enhancement: Ivanhoe sources its water from the pipers Flat Dam, an area that Centennial has volunteered as a Wildlife Refuge. the Dam is within the Sydney Drinking Water Catchment and the surrounding area was identified as overgrown with weeds, particularly willow trees, and suffering from bank instability. Ivanhoe has partnered with the Hawkesbury-nepean Catchment Management Authority to establish a 10-year Willow Control, Stream Bed Stabilisation and Biodiversity enhancement project. the initial stages of the project will focus on seed collection and planting programmes for native species.

Community relations – management frameWorkStakeholder and Community management and involvement is an important part of the Company’s approach to business, representing the “people” part of Centennial’s Sustainable Development Strategy. From a policy position, Centennial is committed to:

“recognising our stakeholders and maintaining an effective working relationship with them.”

Community Relations – Legislative and Regulatory Framework: Centennial aims to conduct its business to be compatible with broad community expectations, recognising that community consultation is a key driver in maintaining good community relations. Simply, good community relations make good business sense.

to understand these expectations, Centennial regularly consults with the community through a variety of forums, open days, 24-hour environmental hotlines and a feedback link on Centennial’s website. More recently, Centennial has expanded the environmental section of the Company’s website to provide the community with more information and regularly monitor feedback with respect to the Group’s various activities.

While there is no specific legislative framework for community management, a number of Centennial mine sites are required to convene Community Consultative Committees (“CCC”) as a condition of their development consents.

Centennial is an active participant in formal CCCs at Airly, Angus place, Charbon, Clarence, lamberts Gully, Mandalong, newstan, Springvale and tahmoor.

Stakeholder and Community Performance: With 12 mines, the majority of which are located in urban fringe areas with close neighbours, the scrutiny on the Group’s operations from the community and regulators is high. throughout the year, there was a recurrent complaint from a resident adjacent to tahmoor with regard to nuisance noise. Monitoring has shown that there are no significant exceedences of the relevant noise limits, however, the Colliery has implemented various mitigation measures and continues to work with the DeCC on noise management.

other than this recurrent complaint, there were 12 other individual community complaints received. these were investigated in accordance with site procedures and followed up with the complainants. Where a valid cause was determined, remedial action was implemented to mitigate the issue.

Involvement with Industry Initiatives: Centennial participates in the nSWMC’s Community and Social Working Group, which aims to identify issues and actions to improve the industry’s performance and/or community perception. During the report period, the nSWMC developed a Community engagement Handbook. the Handbook was designed for industry with the aim of building stronger community relationships. Centennial actively participated in the preparation of this handbook and provided case study material for inclusion.

Community and Stakeholder Initiatives: Centennial believes in contributing to the communities in which it operates. one mechanism to do this is by direct donations and sponsorship and, although less measurable, Centennial also makes a contribution to its surrounding local communities through the consultation process. the Group’s employees also provide generous help and financial support either directly or through joint initiatives with Centennial as evidenced through sponsorships and contributions to a wide range of community-based activities.

Centennial has continued to support the community partnership with the Smith Family, to assist financially disadvantaged children and young people living in the communities of lake Macquarie and lithgow.

the success of this programme in lake Macquarie, and the interest and support shown by the Group’s Western district employees, has facilitated the extension of this programme to the lithgow area.

learning for life helps disadvantaged students stay at school, supports them in their studies and fosters better school retention rates. the programme also aims to address confidence and self-esteem issues, as well as improve numeracy and literacy skills.

In addition to this major sponsorship, Centennial continued to support many worthwhile local sporting, education and charitable events and programmes through monetary donations and in-kind actions. Some examples are set out below.

A major new community partnership was entered into with the Macquarie Scorpions Rugby league Football Club. the Macquarie Scorpions Rugby league Football Club is one of 11 district clubs that make up the newcastle Division of the Country Rugby league. As a first grade club within the newcastle Rugby league the Macquarie Scorpions also administer a strong junior competition.

the junior clubs affiliated with Macquarie Scorpions are:

• Macquarie,whichembracesthegeographicalareasofToronto;and

• Morisset(Northernboundary–Boolaroo/SpeersPoint,Westernboundary– Mount Vincent, Southern boundary – Wyong Council border).

In total there are over 700 players representing Macquarie Scorpions at both the senior and junior level.

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this new partnership has resulted in Centennial being clearly associated with a “grass roots” sporting organisation that seeks to deliver a number of unique and innovative youth programmes in the area of driver and drug awareness. All Centennial employees at the five Central Coast mines were also provided with a family pass for the season, resulting in a higher patronage at local games.

the Westpac Rescue Helicopter is a vital part of the Hunter region’s emergency service capability and is particularly highly regarded by those engaged in the mining industry. It is a service you would hope that you never need to call upon, but in the event that you did, there would be no more dependable hands to find yourself in.

Centennial welcomed the opportunity to support the fundraising efforts of the service this year, in particular, supported the fundraising efforts of the Centennial Mandalong Green team in raising funds for this worthy service. In a testament to their dedication, the Mandalong Green team combined a 700 kilometre ride over eight consecutive days on mountain bikes. All five members of the team (phil Govoronsky, Jack Gillard, Alan Maurer, David Webb and Mick Berry) work at Centennial’s Mandalong Mine and united to compete in the 2007 Annual West’s Cycle Classic.

As a result of their fundraising efforts and with the support of Centennial and the Mandalong Mine, the Centennial Mandalong Green team contributed $20,000 to the total of $100,000 raised at this year’s Westpac Rescue Helicopter fundraising event.

As part of Centennial’s involvement with the Anvil Hill community, the Company was also the major sponsor of the Muswellbrook fundraising committee’s Westpac Rescue Helicopter’s Annual Black Coal Ball, one of their major fundraising events for the year.

By promoting active involvement in community events many mines have found new and innovative ways in which to build upon already well-developed community relationships. Centennial has actively participated in a variety of events ranging from Australia Day celebrations, community festivals, Clean up Australia Day, Wine and Food Fairs, landcare, schools, sporting, historical and recreational groups.

Centennial was committed to minimising the Anvil Hill Mine’s environmental impact and working with Muswellbrook Shire Council and the broader community to promote local employment opportunities, community benefits and deliver long-term economic outcomes to the Hunter. the appointment in november 2006 of a Manager of Stakeholder Relations for the Anvil Hill project clearly demonstrated the importance placed on developing and maintaining good community relations in the community. the Community enhancement programme valued at $4.5 million was agreed with Muswellbrook Shire Council and included in the project’s conditions of consent. this programme will deliver long-term environmental, recreational, employment, education and training outcomes to the Muswellbrook Shire and its residents.

left: Centennial’s Mandalong Green team (left to right) David Webb, Jack Gillard, Mick Berry, Allan Maurer and phil Govoronsky.Above: Fun at the Morisset Fair.F

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native titleCentennial recognises the importance of Aboriginal Cultural Heritage and that its operations may have the potential to impact upon Aboriginal sites. As a result, the Company, in consultation with the Aboriginal community affected and DeCC, seeks to find mutually acceptable solutions to minimise any impacts that may arise as a result of the Group’s mining activities.

Centennial currently has two native title Agreements and is negotiating a third. the two agreements are:

• IntheGroup’sNorthernregion–AnIndigenousland use Agreement (“IluA”) with the Wonnarua nation Aboriginal Corporation (“WnAC”), which covers newstan and Awaba.

• IntheGroup’sWesternregion–TheCentennialCoal projects Ancillary Deed (“CCpAD”) with the Gundungurra tribal people, which covers Centennial’s operations and projects in the lithgow region.

Northern Region: Centennial has been working with representatives of the Wonnarua nation Aboriginal Corporation (“WnAC”) through a difficult period as the WnAC’s affairs were placed in the hands of an administrator in December 2006 by the Registrar of Aboriginal Corporations. the Administrator, with the assistance of representatives of the WnAC and Centennial, has stabilised the WnAC’s financial position allowing it to move forward in the latter part of 2007.

In addition, employment opportunities for members of the local Aboriginal community have been enhanced through a partnership between Yunaga Mine Services, the Koompahtoo local Aboriginal land Council and Centennial. As a result of this partnership, Yunaga Mine Services provided training and employment for five local Aboriginals over a 13-week period while fencing Centennial owned property, at Freeman’s Waterhole near the newstan and Awaba Collieries.

With planning approval for the Anvil Hill project received, Centennial was preparing to implement an Aboriginal Cultural Heritage Management plan (“ACHMp”), which would be formulated in consultation with local Aboriginal stakeholder groups and DeCC.

Centennial had already committed to the protection of a number of Aboriginal sites already identified in “offset areas” outside the mining area and these areas will be covered in the ACHMp.

Western Region: As reported last year, Centennial had entered into negotiations with the north-east Wiradjuri people (“neWp”) in relation to the Ivanhoe north Rehabilitation project, with the objective of formulating a similar agreement to facilitate the granting of a surface mining lease. these negotiations have now been successfully concluded, with the principles of the proposed agreement determined and a Settlement Deed expected to be signed shortly. the agreement with neWp will pave the way for a fruitful and long-lasting relationship, which may involve other Centennial sites north of Ivanhoe. Signing of the agreement will also facilitate the granting of a new surface mining lease at Ivanhoe in anticipation of the commencement of Ivanhoe north Rehabilitation project.

In accordance with the 2003 agreement with the Gundungurra people, Centennial’s relationship continues to develop with respect to Angus place, Clarence and Springvale.

In addition, borne out of these good relationships, forged during the “Right to negotiate” process, local indigenous groups have had extensive involvement in archaeological assessment and clearance work required for various projects in the Western region.

Koompahtoo members learn fencing skills from Yunaga Mine Services.

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FinanCial Results FoR the YeaR ended 30 June 2007Centennial Coal Company limited (“Centennial”) returned a 28% increase in eBItDA to $193.5 million and a 192% increase in operating cash flow for the year to 30 June 2007, following a record year at Mandalong and Springvale and newstan’s return to full production. In addition, the Group’s Western operations again delivered a consistent and positive contribution to the year’s result.

on an after tax and minority basis, Centennial returned a net profit of $3.3 million for the year, compared with a net profit of $17.1 million for the prior corresponding period, after a one-off, non-cash write-down of $35.8 million post-tax as a result of the restructure of the Group’s Central Coast operations (announced in november 2006).

In addition to this one-off, non-cash write-down, the full year result has been negatively impacted by the well-documented geological issues at newstan, resulting in a pre-tax loss of $21.8 million and ventilation problems at tahmoor, reducing its pre-tax contribution by $8.6 million. (Since the 2007 full-year result was announced, Xstrata Coal has advised that it intends to make an offer for Austral Coal limited, the owner of tahmoor. Consequently, if the offer is successful, tahmoor will not make a major operating contribution to the Group’s 2008 results.)

As part of the Central Coast restructuring, newstan will cease operations at the end of the 2008 financial year. newstan is expected to make a positive contribution to 2008 results, with action taken to de-risk remaining longwall mining by “side-stepping” the known fault zones and concluding all development activities once the final longwall panel is developed ready for extraction in September 2007. the restructure will also result in the planned closure of Mannering in mid-2008 while Awaba will cease production at the end of the March 2009 Quarter when reserves are expected to be exhausted.

Review of financial peRfoRmance

The full yeaR pRofiT of $3.3 million is afTeR accounTing foR a $35.8 million wRiTe-down of The cenTRal coasT asseTs

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Review of financial peRfoRmance continued

the redeployment of resources from these mines will enable Centennial to accelerate Mandalong’s expansion into the export market, assist with the expansion of Myuna, and allow a greater focus on fewer, higher margin mines. A first development unit has already been successfully deployed from newstan to Mandalong with an improvement in its development performance already evident.

Clearly, the impacts of the Central Coast restructure and tahmoor’s lower than expected performance have overshadowed strong positive contributions from Mandalong and the Group’s Western operations.

A number of factors are expected to drive a significant increase in profitability in 2008 including:

• theexpansionofMandalongto4.4milliontonnes (5 million tonnes in 2009); and

• thecontinuingstrongperformanceoftheGroup’s Western operations.

dividendDespite the Company’s low reported 2007 financial year result, which was caused largely by the well documented problems at newstan and tahmoor, the Directors continue to remain confident in the Group’s future performance and growth prospects (as noted above).

In determining whether to declare a final dividend, the Directors have taken into account the significant impact on the 2007 result of the non-cash write-down resulting from the Central Coast restructure and the Group’s improving operating cash flow. In so doing, they have decided to declare a final dividend, but at the reduced rate of4cents(unfranked)pershare.Dividendstotalled8 cents per share (unfranked) for the year.

the Company’s Dividend Reinvestment plan (“DRp”) continues to be available at a discount of 2.5%.

Key dates to note with respect to the final dividend were:

• 17September2007–sharestraded“ex-div”.

• 21September2007–recorddatefordividendentitlement and notification for DRp purposes.

• 5October2007–dividendpaymentdate.

CommentaRYearnings before interest, tax, depreciation & amortisation (“eBItDA”) rose 28% to $193.5 million compared to the previous year.

the Group reported a full-year profit of $3.3 million, a significant improvement over the first half reported loss of $15.1 million. the profit result is after accounting for a $35.8 million (after tax) non-cash write-down of the carrying value of the Central Coast assets following the decision to cease mining in mid-2008 at newstan and Mannering.

Cash flow from operations for the year ended 30 June 2007 was $95.8 million compared with $32.8 million for the previous year. this significant improvement in cash flow is attributed to increased coking coalprices,a12%increaseinproduction–boostedbyNewstan’sreturn to full production and all longwall operations producing at levels above those of the previous year.

Capital expendituReCapitalexpenditure(excludingland)fortheyearwas$161.4million(2006:$186.9million),14%lowerthantheprioryear.ThisamountincludesprojectexpenditureandcapitalisedinterestonAnvilHillof$39.4million.

property purchases totalled $76.1 million for the year compared to $20.5 million in the previous year, with $69.1 million (2006: $10.9 million) relating to land purchases associated with the Anvil Hill project. (As previously reported, Centennial has sold the Anvil Hill project to Xstrata Coal, materialising a significant risk-free profit. this is discussed elsewhere in this report.)

Depreciation & amortisation (includes the non-cash write-down) for the year rose 85% to $161.8 million. excluding the $51.2 million write-down of the carrying value of the Central Coast assets, depreciation & amortisation rose 26%, in line with the increased production levels and the capital investment programme undertaken by the Group in the previous few years.

FinanCial positionAs at 30 June 2007, total assets exceeded $2 billion with the Group benefiting from a diversified portfolio of mines, production flexibility and security of supply. Consequently, Centennial is able to finance its assets and growth opportunities with a mix of equity and debt financing that best balances risk and reward to Shareholders.

this was demonstrated in March 2007 when Centennial successfully completed a A$165 million issue of Subordinated Convertible notes (“notes”). the notes, which mature in March 2012, carry a coupon of 6.20%. the conversion price of the notes is A$3.666 per ordinary share, representing a 32.5% premium to the Company’s share price on 26 February 2007. the proceeds were applied to repay short-term bank debt and progress Anvil Hill’s land acquisition programme.

At 30 June 2007, net debt was $736.1 million (2006: $670.7 million), a net increaseof$65.4millionafteraccountingforthereceiptof$65millionfromthe sale of a 50% interest in Angus place. As noted above, this increase in debt was largely used to fund the Group’s capital and property expenditure programmes (including $69.1 million associated with land purchases for the Anvil Hill project).F

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When compared with the prior corresponding period, gearing (measured as net debt to net debt plusequity)rosefrom42.9%to44.9%andfinancecostsfrom$49.3millionto$51.8million.As a consequence of expenditure associated with the Anvil Hill project, capitalised interest increased by $5.9 million.

total equity increased by $13.1 million during the 2007 financial year, principally as a result of the recognition of a proportion of the convertible notes as equity (in accordance with accounting standards).

(Since the 2007 full-year result was announced, Xstrata Coal has agreed to purchase the Anvil Hill project and announced that it intends to make takeover offers for all the shares in Austral Coal limited, the owner of tahmoor. Consequently, if the two transactions are completed successfully, Centennial will receive proceeds in excess of $1.1 billion, which will be used to repay bank debt in the first instance. Centennial intends to then consider capital management initiatives with a view to targeting a long-term gearing level of approximately30–40%(onanetdebttonetdebtplus equity basis.)

tax and FRankingthe 2007 result includes a tax benefit of $21.4millioncomparedto$1.8millionintheprevious year. this large tax benefit includes a tax credit of $3.3 million relating to R&D expenditure and a $10.9 million over provision for tax relating to the prior year (including a $7 million R&D adjustment).

(As noted above, the successful completion of the sale of the Anvil Hill project and the proposed takeover of Austral will result in the Company returning to a tax-paying situation. Consequently, it is envisaged that Centennial may return to franked dividends with respect to any final dividend for the 2008 financial year.)

hedgingDuring the year, Centennial continued to deliver into its foreign exchange hedge programme, utilising foreign exchange forward and option contracts to hedge the Group’s uS Dollar export sales revenue, achieving an average rate of A$1=US$0.7410inthe12monthsunderreview(2006:A$1=US$0.7438).Thiscompareswiththeaverage spot rate of A$1=uS$0.7873 that would have been achieved if Centennial had simply delivered all its uS Dollar revenues at the prevailing spot foreign exchange rates at the time of receipt.

FoReign exChange hedging disClosuRe – 30 June 2007

2007/08 2008/09 total

FORWARDSPrincipal US$M 48.0 18.0 66.0Rate A$/US$ 0.7234 0.7150 0.7211

BOUGHT A$ CALL OPTIONSprincipal uS$M 99.0 39.0 138.0Strike price A$/uS$ 0.8025 0.7995 0.8017

SOLD A$ PUT OPTIONS (1)

principal uS$M 99.0 39.0 138.0Strikeprice A$/US$ 0.7679 0.7643 0.7669

TOTAL HEDGEDPrincipal US$M 147.0 57.0 204.0Rate A$/uS$ 0.7767 0.7728 0.7756

TOTAL COMMITTEDPrincipal US$M 147.0 57.0 204.0Rate A$/US$ 0.7534 0.7487 0.7521

notes accompanying foreign exchange hedging disclosure:(1) Sold A$ put options allow Centennial to participate in a depreciation of the A$, if that was to occur, to the average

levels specified.(2) the mark to market valuation of the foreign exchange hedge book at 30 June 2007 was an unrealised profit of

$21.2million(atanexchangerateofA$1=US$0.8498).

theRmal Coal hedging disClosuRe – 30 June 2007

2007/08 2008/09 2009/10 total

COAL SWAPSQuantity Metric tonnes (“mt”) 720,000 555,000 120,000 1,395,000Fixedprice US$/mt 47.24 48.47 52.00 48.14

notes accompanying thermal coal hedging disclosure:(1) the coal swaps are against the GlobalCoAl neWC Index.(2) the coal swaps are over-the-Counter (“otC”) products executed with Centennial’s banks.(3) the mark to market valuation of the coal hedge book at 30 June 2007 was an unrealised loss of $20.1 million

(atanaverageforwardcoalpriceofUS$60permetrictonneandanexchangerateofA$1=US$0.8498).

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Review of opeRaTing peRfoRmance

Production & Sales: Centennial’s equity share of RoM production for the year to 30 June 2007 was 17.5 million tonnes. this was 12% above the prior corresponding period benefiting from newstan’s return to longwall production, record production from Mandalong and Springvale and improving production consistency at tahmoor. on a tonnes under management basis, RoM production was 20.1 million tonnes and sales were 19.0 million tonnes,up14%and10%respectivelyoverthe2006 financial year.

Sales for the year to 30 June 2007 were 16.6 million tonnes, 9% above the priorcorrespondingperiod,splitapproximately75:25–domestic:export.newstan’s increased production, combined with significantly higher production from Springvale and Mandalong, underpinned the increase in domestic sales.

Sales revenue was $901.8 million compared to $807.9 million in the previous year, an increase of 12%. Revenue growth was achieved as a result of higher production and higher average coking coal prices received following completion of deliveries under lower price “carry-over” arrangements inherited with the acquisition of tahmoor. this was partly offset by marginally lower thermal coal prices and the effect of a higher Australian dollar.

Operational Performance: In operational terms, the Group’s various mines returned a mixed result, with the strong performances of Mandalong and the Western operations largely overshadowed by the underperformance of tahmoor and the impact of the Central Coast restructure during the period.

The ResTRucTuRe will see an expoRT dRiven expansion of mandalong and enhancemenT of The sTRongly peRfoRming wesTeRn mines

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In mid-november, Centennial announced the result of the strategic review of a number of its mining assets, with the Directors deciding to implement a restructure of the Central Coast operations. this restructure has four key elements:

• Newstan–completelongwalls23and24andcease longwall operations in mid-2008.

• Mandalong–accelerateexpansionbyutilisingnewstan plant & equipment, labour and infrastructure.

• ManneringandAwaba–ceaseoperationsin2008 and 2009 respectively.

• Myuna–expansion.

While the consequence of the restructure was a large one-off, non-cash write-down of the carrying value of the Central Coast assets, the restructure is already enabling Centennial to accelerate expansion of the Group’s successful Mandalong mine while reducing losses at newstan, thereby improving cash flow and profitability.

the restructure will also enable a greater emphasis on the export driven expansion of Mandalong and the enhancement of the Group’s strongly performing Western assets, including the expansion of export infrastructure at lidsdale enabling Springvale to increase its export tonnages.

In addition to the one-off, non-cash write-down associated with the restructure of the Central Coast assets, newstan incurred operating losses of $21.8 million, higher than initially expected as the mine encountered further difficulties (as previously reported) during March and April. As a consequence of this unexpected difficulty, a larger “side-step” than originally contemplated will be made in April 2008 to lower the risk with respect to the final longwall in this area of the mine. Including the non-cash write-down, the total impact on the 2007 result from newstan is thereforealossof$70.5million($49.3millionafter tax).

poor geological conditions at Mannering resulted in a net loss of $10.0 million for the year ($7.0 million after tax). Included in this figure is a $2.5 million charge with respect to the acceleration of depreciation & amortisation following a reduction to the mine’s life, with its closure planned for mid-2008.

Following action taken under the restructuring plan to de-risk the operating performance as much as possible, both newstan and Mannering are currently operating profitably and will close by mid-2008.

As noted above, tahmoor’s underperformance also impacted the year’s result, with an $8.6 million ($6.0 million after tax) decline in profitability compared to the previous year. this was caused by a difficult longwall changeover in the September 2006 Quarter followed by production in the new block being affected by Co

2 gas trips halting production. In addition,

tahmoor also suffered from a lower than anticipated coking coal yield.

looking to the 2008 financial year, production is expected to improve. Mandalong is now mining the first of its wider longwall blocks, tahmoor’s ventilation issue is currently being rectified with the installation of a new main fan due to be commissioned shortly and newstan’s mining risk has been substantially lowered by operating only in longwall blocks that are free of known adverse geological features. pleasingly, the 2008 financial year has started well.

(note: Xstrata Coal has announced that it intends to make takeover offers for all the shares in Austral Coal limited, the owner of the tahmoor mine. If accepted by Centennial, tahmoor is expected to have a limited operational impact on the 2008 results.)

WesteRn RegionAngus Place finished the 2007 financial year strongly, with a new monthly mine production record of 359,000 tonnes achieved in June and producing 792,000 tonnes for the June quarter. Full-year production was 2,629,000 tonnes. this represents an increase of 13% over the previous financial year, which was impacted by adverse mining conditions associated with negotiating the geologically disturbed Wolgan Zone.

Coalsalestotalled2,639,000tonnesfortheyearcomparedto2,324,000tonnes for the previous year, with surplus coal made available to meet other Group domestic contracts and freeing up Springvale coal for export.

the year also represented Angus place’s second best year ever, with the 2008 year expected to surpass the 2007 performance and challenge the mine’s best ever year as it benefits from a continuous longwall production run until June 2008 when the longwall is next scheduled for changeover. Consequently, Angus place will benefit from its longer and wider longwalls in the 2009 financial year when no changeover will be required and the new longwall equipment will have been installed (in June 2008).

Roadway development performance continued to improve during the year, with well in excess of 1,000 metres being achieved in consecutive months. If this rate is sustained, a sufficient development float will be established to provide for the pre-installation of the recently purchased replacement longwall equipment in 950 longwall panel, so reducing the downtime and recommencing production sooner.

Year Ended Year Ended 30 June 2007 30 June 2006 Change Tonnes Tonnes %

ROMProduction 17,476,115 15,610,675 +12%Saleable 15,768,717 14,341,172 +10%Sales 16,564,867 15,244,690 +9%

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Clarence produced 1.6 million tonnes (RoM), 4%downonthepreviousyear,withoperations in the 600-area affected by groundwater from adjacent partially extracted panels, while production from the newly developed 700-area was limited by the need for additional roadway drivage, necessary for the installation of ventilation and coal clearance infrastructure. At first sight, this appears disappointing when measured against Clarence’s own high standards, however, in the context of rebuilding production consistency following a couple of challenging years as the mine encountered uncharacteristically poor geological conditions and commenced development activities in a new area closer to pit-bottom, the year was successful.

During the year, Clarence took a number of significant steps to improve production levels and consistency. In the earlier part of the year, the operation was consolidated from three to two units in the 600-area, mining over a seven-day cycle and enabling development of the access roads into the new (700) lease areas adjacent to pit-bottom. upon completion of the access to the 700-area, rostering was again altered to take advantage of the shorter travel times and newly available pit room, with a move back to a three-unit operation, working five days.

2008 is expected to benefit from the full utilisation of resources within the new 700-area, with two installed units; and an extraction unit and a spare unit in the 600-area.

Strengthening coal prices should provide an incentive for Clarence to seek further productivity improvements, as the vast majority of its coal is sold into the highly sought-after low sulphur coal market, and deliver a much improved result in 2008.

the Charbon underground and open-cut mines achieved a new annual production record of 1,168,000 tonnes.

During the financial year, the underground operation successfully completed mining of the partial extraction areas within the 800-panel district and successfully developed into the new 900-panel extraction panel by June 2007.

In response to harder interburden material, blasting was required in the open-cut operation for the first time since open-cut operations began in the mid-90s. By introducing blasting, the open-cut operation is able to maintain existing extraction rates despite the variable conditions (necessitating the use of blasting).

As the mine predominantly services the export market in conjunction with Clarence, Charbon has enjoyed strong prices for its product providing the mine with a healthy return and making a useful contribution to Group profitability. Going into 2008, export prices remain strong. However, Charbon’s export upside has been limited by coal price hedges at lower prices than currently prevailing. these coal hedges were put in place to ensure that Charbon did not suffer losses in the event of a price downturn, being that its greater distance to port impacts it more acutely than any other Group mine.

Springvale had another excellent year, again achieving record production and profitability.

DuringtheMarch2006Quarter,SpringvalecommencedminingLW411,the first of a series of 3.5km long, 305 metre wide blocks each containing approximately 5 million tonnes and expected to take approximately 18 months to mine. Consequently, Springvale enjoyed a full financial year without a longwall changeover. As a result, Springvale enjoyed increased longwall utilisationandachievedanewannualproductionrecordof3.4milliontonnes.together with a contribution of 180,000 tonnes from the lamberts Gully open-cut, Springvale produced a total 3.6 million tonnes for the year.

DevelopmentofLW412wascompletedinJune2007,withSpringvale’slongwallchangeoverfromLW411toLW412duetocommenceontargetinoctober 2007. As this changeover marks the end of the first of the longer and wider blocks, whereby the equipment has been insitu for the duration of the block, a major planned overhaul is scheduled to occur during the changeover period to ensure the next 5 million tonne block can be reliably extracted.

the Lamberts Gully open-cut mine continues to make a valuable contribution to the Springvale operation mining remnant coal reserves and freeing up other coal for export. At present, there is sufficient identified coal for a further 12 months operation, with the prospect of additional coal as the lamberts Gully area is progressively mined and the adjacent areas economically evaluated.

Given Springvale’s consistent production above its domestic contractual obligations, together with surplus Angus place coal, every opportunity is being taken to boost the Springvale/Angus place joint-venture’s exposure to the buoyant export market.

southeRn RegionTahmoor experienced a slow start to the 2007 financial year, but ended on a high,withrecordannualproductionabove2.3milliontonnes,some400,000tonnes higher than the previous year.

the slow start to the year was caused by unexpected variable conditions in the final stages of lW23B, which not only negatively impacted production, but also ultimately hampered the scheduled longwall changeover when a localised fall of immediate roof in an adjacent roadway to the production face occurred in late August.

Recovering from this early setback, tahmoor began to claw back lost production, but was hampered by the mine’s well-documentated ventilation problems arising from pre-existing sub-standard ventilation practices, and a main fan installation incapable of delivering the pressure and quantity of air required for a high productivity longwall face. With some innovative engineering, air quantities were increased to the longwall face, with a resultant increase in production levels and tonnage most evident in the record-breaking June 2007 Quarter (up 12% on the previous best).

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noRtheRn Regionunfortunately, Newstan’s performance during the 2007 financial year, again overshadowed much of the good work achieved at the Group’s other major mines, following its well-documented problems after encountering a severely faulted zone. the ongoing problems experienced at the mine ultimately led to a decision, in november 2006, to prepare the mine for care & maintenance and a cessation of longwall production in June 2008. A consequence of this decision was the need to make a one-off, non-cash write-downof$34.1million(aftertax).

During the early part of the financial year, newstan experienced a number of factors that restricted its performance. these were the delayed start-up of lW23; the underperformance of the new equipment installed on lW23; high levels of methane in the longwall return airways; seam rolls; and poor roof conditions.

While the mine solved many of these problems, they came at a significant cost. For example, a surface methane drainage programme was installed to reduce the gas load, arising from the high gas emissions from the seams above the working horizon, entering the longwall return airways.

In addition, premature failure of critical items of equipment severely limited the performance of the operations. the majority of these equipment failures were addressed during the mid-block “step-around” of a major fault area.

other problems, such as the seam rolls that had appeared longitudinally in the longwall block, and consequently had not been geologically mapped, reduced the performance of the longwall as it experienced difficult cutting conditions.

on a positive note, bi-directional cutting and the full automation of the longwall face was successfully introduced following the start up sequence of lW23 and the nitrogen inertisation of the lW21 “goaf” was decommissioned in the first half of the year, with the goaf successfully sealed with fly ash.

unfortunately, the impact of these problems was to significantly raise newstan’s break-even level and therefore in november 2006, it was announced that newstan would move to care & maintenance in June 2008, with an immediate cessation of all development activities not associated withLW24.

labour and equipment (development unit) were deployed to Mandalong in December 2006 to provide that mine with resources to increase roadway development to support Mandalong’s planned increase in production. A second development unit, currently concluding development activities associatedwithLW24AandLW24C,willbedeployedintheDecember2007Quarter, after newstan completes its last full longwall changeover.

Studies are now underway to determine how to optimise the extensive reserve base that exists at newstan. As part of this study, a programme of targeted exploration will be carried out commencing in 2008.

the new main fans, designed to provide the pressures and quantities required for higher production, are in the final stages of installation and will be commissioned during the next longwall changeover in october, ready for the commencementofLW24AinNovember.Withthecommissioning of the new fans, the final piece of the jigsaw, necessary to raise production up to the targeted 3.5 million tonnes per annum, is the upgrade of the main drift belt. this will be completed during the longwall changeover from LW24AtoLW25,whichisscheduledforApril2008. lW25 is the first of the longer longwall blocks, containing approximately 3.2 million tonnes of coal.

Following the increase in development metres achieved last year, development consistency was maintained with over 15 kilometres achieved. on the assumption that these development rates are maintained, longwall continuity is assured for LW24AandLW25,with18kilometresrequired in the 2008 financial year to ensure continuity for lW26.

With just under 1.5 million tonnes produced in the first half of this calendar year and with additional ventilation to be provided together with the planned increase in coal clearance capacity planned for later in the 2008 financial year, tahmoor remains on track to achieve its production and profitability targets after a few years of underperformance.

(As noted elsewhere in this Annual Report, the directors of Austral Coal limited, the owner of tahmoor, have been advised that Xstrata Coal intends to make an off-market takeover offer to acquire all of the shares in the company, valuing Centennial’s86%interestat$479million.this offer represents a significant premium to Centennial’s internal valuation and book value.)

Following a difficult end to the 2006 financial year, Berrima steadily improved with a sustained increase in output over the second six months of the year, benefiting from a revised sequence of development and extraction activities and the introduction of overhauled BlS units providing improved equipment availability.

It is anticipated that Berrima should have a consistent 2008 as the mine will be operating predominantly on extraction within the existing panel. A review of the life of mine plan is currently underway to identify means to improve efficiencies within the existing market constraints. F

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RecoRd pRoducTion of qualiTy coals • RecoRd managed pRoduction

of 20.1 million tonnes, up 14%• equity Rom pRoduction of

17.5 million tonnes, up 12%

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Awaba has continued to perform strongly, producing over 739,000 tonnes in the 2007 financial year. Coal from Awaba has been supplied to the domestic power generation market in support of newstan’s commitments.

the mine operates continuous miners in a retreat configuration, mining small panels via pillar quartering. this method has consistently delivered a steady production rate above targeted levels, with resulting cost savings.

the mine is now working to a revised operating plan that will provide an extended mine life. this has enabled remnant blocks of coal to be mined by “place change” methods and the accessing of old pillar panels in preparation for the commencement of secondary extraction.

the new plan will ensure the mine is able to continue to deliver a low cost product into 2009, approximately four months beyond the previously anticipated closure date of December 2008.

As a result of the revised operating plan, Awaba Mine received national recognition at the 2007 Australian Mining prospects Awards winning Coal Mine of the Year and the prestigious Australian Mine of the Year. Awaba’s Mine Manager, Keith Falconer, was highly commended in the Mine Manager of the Year category in recognition of leading a team that has improved productivity, safety and environmental management.

Myuna continued to experience variable geological conditions during the 2007 financial year and, as a result, production for the year was below expectations and coal quality suffered.

In the coming 12 months, Myuna will focus on the continued development of main roads to the south in the new Fassifern South mining area. this will afford better flexibility of mining layouts and improve underground logistics, necessary to achieve the operational and productivity benefits required for the mine to meet its planned 2 million tonnes per annum production target over the next few years. the first of three more efficient roof bolting machines has been successfully deployed, with an encouraging improvement in roof stability and coal quality. two further roof bolting machines are on order and are expected to be delivered shortly. these should assist in driving further operational improvements.

As part of the Myuna’s expansion plan, a mining unit has been successfully introduced into the Wallarah seam during the September 2007 Quarter. the Wallarah seam offers better conditions and improved coal quality, which should assist Myuna to achieve a more consistent return.

Importantly, the workforce has shown great commitment to safe mining practices and was rewarded with the nSW Minerals Council’s, “Missionpossible”, oH&S Innovation Award for 2007 for its innovative “HAtS” (a hydraulic advancing temporary roof support system).

Mannering completed its second full year as an operating mine, supplying thermal coal to Delta electricity’s Vales point power Station. like the first, the mine’s second full year was characterised by the need to create adequate pit room, to enable flexible panel layouts that will lead to operational and productivity benefits. With the benefit of the development work carried out in the previous year, Mannering delivered a 36% increase in production compared to the previous financial year.

throughout the year, the Mannering workforce continued to demonstrate their productive capacity and a strong commitment to safe mining practices, evident in the mine’s low injury and incident rates, despite a decision to place the mine on care & maintenance as part of the Centennial Group’s restructuring of its Central Coast assets.

As a result of this decision, Mannering will focus on optimising resource recovery during 2008, targeting higher productive potential sections and using innovative mining system processes that have already shown an increase in productivity and reduction in costs in the September 2007 Quarter.

(note: As part of the Central Coast restructure, announced in november 2006, Mannering’s existing contract will terminate upon the mine being placed on care & maintenance in June 2008, unless an appropriately priced coal supply contract can be negotiated.)

the 2007 financial year only represents Mandalong’s second full year as a longwall mine. Since commencing longwall production in January 2005, Mandalong has quickly demonstrated its productive capability, producing 3,353,000 tonnes for the year, a 12% increase on the previous year.

Members of the Awaba team celebrating national success with Bob Cameron (Managing Director) and Keith Falconer (Awaba Mine Manager) after being named Australian Mine of the Year.

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Mandalong is distinguished from other longwall mines by the fact that it mines narrower blocks (recently increased from an initial 115 metres to 150 metres wide) compared to other longwall mines (traditionally around 250 metres wide). this is partially offset, however, by the advantage of a 7 metre thick coal seam, of which up to 5 metres is mined, significantly greater than is typical for other Australian longwall operations. Consequently, as with its first year, Mandalong carried out two longwall changeovers, meaning that the mine was effectively only at full production for approximately 9-10 months.

During the year under review, Mandalong completedminingofits3rdand4thlongwallblocks, setting a number of new performance records: a daily production record of 26,375 tonnes; a weekly record of 125,986 tonnes; a monthly record of 502,378 tonnes; and a quarterly record of 930,892 tonnes. At the same time, development performance also reached a new high, with weekly and monthly records being established at 268 metres and 1,060 metres respectively. Since the 2008 financial year has commenced, Mandalong has again exceeded performance and development records.

Importantly, these performance records were set against a background of improved safety performance, with an ltIFR of 17, being a significantreductionoverthepreviousyear–represented by a 37% reduction in the number of lost time injuries.

In June 2007, Mandalong commenced mining of lW5, which is the first block with a face width of 150 metres, as opposed to the previous panels widths of 115 metres. As noted above, this face length extension is already demonstrating its value withMandalongaveraginginexcessof460,000tonnes per month, peaking at 513,000 tonnes in August. In addition, as the workforce continue to gain in experience, the longwall start-up performance for this block has exceeded those of previous blocks.

With the strong start to the 2008 financial year, Mandalong is clearly demonstrating that it is well on its way to achieving further production increasesastheminetargets4.5milliontonnesfor the 2008 financial year.

the plan to increase Mandalong’s productive capability up to 5 million tonnes per annum is being implemented, with the first intake of ex-newstan employees (60) successfully integrated into the Mandalong workforce. As a result, Mandalong employees have replaced contractors on development duties, with a noted improvement in development rates, and now conduct all development activities at the mine.

As the mine moves toward its 5 million tonnes per annum target, the wider blocks will both enhance production efficiencies and improve the current demanding roadway development schedule required to maintain longwall continuity.

looking to the future, the feasibility of installing an export capability at the mine continues with an on-site solution as well as utilising newstan’s export infrastructure being considered. As various domestic contract obligations roll-off, Mandalong can expect to export up to 2 million tonnes per annum by 2009/10.

anvil hill pRoJeCton 7 June 2007, the nSW Minister for planning granted planning approval for the Anvil Hill project.

notwithstanding the decision by Centennial to sell its interest in Anvil Hill, there are some important points that should be understood with regard to Centennial’s vision, planning and achievement in obtaining government approval to proceed, given its “greenfields” status upon its acquisition in 2002.

the Anvil Hill environmental Assessment has withstood the comprehensive technical and scientific scrutiny of the nSW Government’s rigorous planning and assessment process including the Independent Hearing and Assessment panel and a challenge in both the Federal and nSW land and environment Courts.

Government planning approval and vindication of the project by both Courts demonstrates Centennial’s capacity and technical expertise in generating significant value from a large and complex greenfields project, making it acceptable to the local community, attractive to customers and ultimately a third party buyer, hence delivering a substantial return to Shareholders.

the sale of Anvil Hill represents an opportunity for Centennial to realise the significant value added to the project through the pre-development phase and delivers an immediate risk-free return for Shareholders, representing a significant premium to Centennial’s internal valuation and that of the general investment community.

the sale price reflects the greater synergistic value of Anvil Hill in the hands of Xstrata Coal than under Centennial’s ownership. In particular, Xstrata Coal is able to add value through greater blending opportunities and operational synergies. It is also better positioned to absorb the risks involved in the development of such a large project, particularly in the current macro-economicenvironment.The$4.5millioncommittedbyCentennialtoaVoluntary planning Agreement which will deliver long-term environmental, recreational, employment, education and training outcomes to the local community will transfer with the sale to the new owner.F

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For the second successive year, coal prices finished the reporting period significantly higher than those forecast ahead of the annual negotiations. Contract thermal coal prices settled at a record high in the mid-uS$50s while spot prices exceeded the uS$60 barrier and are currentlyUS$70+.Surprisingly,thisactivityisoccurring at a time when the coal market is usually quiet during the northern hemisphere summer. In each of the past two years, prices have fallen substantially during this period on thin trading, a trend not repeated this year.

While much attention is focused on the large vessel queues anchored off the newcastle and Queensland ports, which has largely been blamed on inadequate infrastructure, the reality is that demand for thermal coal continues to increase while availability from some supply sources continues to be constrained or even reduced. this is most noticeable in the Chinese market, where increasing domestic demand has seen a

sharp decline in Chinese thermal exports to the extent that, in early 2007, China became a net coal importer.

A relatively mild european winter has seen an easing in coal consumption, but any demand/price pressure that this had been expected to have on South African and/or Columbian prices has not materialised. South African coal supply surpluses have been taken up by increasing Indian demand and, more recently, Korean and taiwanese buying. Consequently, prices are heading back towards historical highs. Significantly, this is the first evidence of Korean buying of South African coal for some seven years and landed prices into europe have exceeded $100 per tonne for the first time.

As a result of this strong demand, Centennial’s thermal coal, shipped from the underutilised port Kembla terminal, continues to be in increasing demand, with exports in the coming year expected to achieve record levels. Centennial’s traditional supply from Clarence and Charbon will be supplemented by a significant increase in exports from Springvale as it increases its export tonnage.

demand foR TheRmal coal conTinues To incRease wiTh pRices aT oR neaR hisToRical highs

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Importantly, a successful trial cargo to a Japanese power company during the year has confirmed a successful combination of our Western nSW thermal coals, which together with the benefit of a reliable shipping terminal in port Kembla, has resulted in a term contract.

In spite of its impending closure, newstan’s semi-soft coking coal continues to prove popular with customers, with recent sales concluded above uS$70 per tonne. Current expectations are that semi-soft coking coal will be priced around uS$80 in 2008. It is intended that newstan’s semi-soft coking coal fraction will continue to be produced until the mine’s planned closure in mid-2008. In the meantime, the higher semi-soft prices provide added support to the decision to continue mining until mid-2008, underpinning newstan’s 2008 cash flow and profitability.

As almost universally forecast, hard coking coal prices declined for a second successive year, with much speculation as to whether prices would be maintained above the uS$100 level. to the surprise of many producers, the final benchmark price was struck at uS$98 per tonne, lower than actual market dynamics at the time were indicating. this view was quickly vindicated following the results of several tenders by Indian steel mills. All the signs are that 2008 will see a return to the uS$125 level of two years ago and probably higher, with some commentators even suggestingthatUS$140ispossibleontheback of recently reported spot business at uS$150.

pleasingly for tahmoor’s supportive customer base, the June 2007 Quarter saw record production levels achieved and with the new ventilation system being commissioned shortly and with the benefit of mining longer blocks from the second-half of the 2008 financial year, export levels will continue to increase.

As noted in last year’s Annual Report, customers continue to acknowledge the technical merit of tahmoor’s coal, including its negative wall pressure in coke ovens, is important together with the reliability that shipping out of port Kembla provides. the outlook for tahmoor coal continues to be positive.

the general coal market outlook remains very positive, with strong demand for good quality coking coal continuing to ensure price levels that will provide producers with a healthy return on their substantial investments. In common with the coking market, the thermal market, usually seen as being the most susceptible to downward price pressure, is also experiencing strong demand and is perhaps more susceptible to upward price pressure as consumer energy demand continues unabated. thermal demand, together with the interlinking of fuel prices, means that the thermal coal market can probably also look forward to a continued strengthening of prices, at least over the next two years.

impliCations FoR Centennial oF the Continuing gRoWth in eleCtRiCitY demandA significant proportion of Centennial’s coal output is consumed by new South Wales power generators, all of whom are currently upgrading their generating capacity. exports to Asian power generators continue to increase. Growing demand for energy means that Centennial’s future continues to be strongly linked to the projected growth in coal-fired electricity consumption, both domestically and overseas.

Centennial presently provides more than 80% of the fuel requirements of the Western region power stations operated by Delta electricity and approximately 60% of the new South Wales Central Coast power stations operated by Delta electricity and eraring energy. As previously reported, a substantial proportion of the Company’s projected sales continues to be to these nSW Government-owned power generators under long-term A$ denominated coal supply contracts. Centennial has 12 such contracts with a weighted average life of nine years, the longest extending to 2022.

total remaining tonnages contracted to be sold under these contracts as at July 2007 is over 97 million tonnes, excluding buyer’s options. Delivery tonnages and prices (subject to escalation and periodic price review) are fixed and provide significant revenue certainty. the majority of these contracts, obtained as part of the purchase of the ex-powercoal mines from the nSW Government in August 2002, are subject to annual CpI increases and a price reset mechanism that could see the then escalated price go up ordownbyamaximumof10%(i.e.+/-10%).

A recent reset of an ex-powercoal contract has resulted in a 10% increase and, in particular, given the strong recent increase in domestic electricity prices, similar increases for future reviews would not be unrealistic.

Driven by strong export thermal prices and an increasing expectation that this may well continue for longer than had previously been anticipated, domestic generators are, as are some overseas generators, beginning to recognise that security of tonnage may be more important than price.

Another factor that may be causing local generators to rethink pricing levels is the need to maximise extraction from existing supply sources given the increased difficulty in gaining new mining approvals, particularly where such existing reserves are adjacent to their stations. the increasing conditions attaching to new mining projects and the sheer effort required by Centennial in its successful application for the Anvil Hill project approval should not be underestimated.

Given the dichotomy between society’s continued growing need for energy and increasing difficulty in procuring new, cheap and easily accessible supply sources, it would appear that existing resources will become more valuable and that therefore the prospect that domestic contract prices will need to increase is real.

With respect to exports, whilst there has been a clear return to term contracts, these contracts are normally only for three years, with prices set according to the prevailing market each year. Centennial does, however, have some “evergreen” export contracts, albeit subject to annual price negotiations in the same way as term contracts. In total, Centennial currently has 3.5 million tonnes of thermal coal under contract. Recent buyer experiences indicate that Centennial will maintain a healthy export contract position, particularly given the Company’s status as a reliable supplier and Australia’s largest “independent” coal producer.

photo courtesy of R.V. photographers

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keeping The lighTs on 47% of nsW electRicity is geneRated by coal supplied by centennial

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Coal is the Fuel oF the national eleCtRiCitY maRketCoal accounts for more than 80% of Australia’s electricity production. Its abundant supply and relatively low cost makes it the most economical source of energy within Australia and overseas.

In 1996, the Governments of the Australian Capital territory, new South Wales, Queensland, South Australia, tasmania and Victoria established the national electricity Market Management Company (“neMMCo”) to implement, administer and operate the wholesale national electricity Market (“neM”), continually improve its efficiency and manage the security of the power system.

the neM operates between electricity generators and electricity wholesalers along the east coast of Australia and commenced operation in December 1998. the neM has the following market objectives:

• themarketshouldbecompetitive;

• customersshouldbeabletochoosewhichsuppliertheywilltradewith;

• anypersonwishingtodososhouldbeabletogainaccesstotheinterconnecter transmission and distribution network;

• apersonwishingtoenterthemarketshouldnotbetreatedmorefavourably or less favourably than if that person were already participating in the market;

• aparticularenergysourceortechnologyshouldnotbetreatedmorefavourably or less favourably than another energy source or technology; and

• theprovisionsregardingtradingofelectricityinthemarketshouldnottreatintrastate trading more favourably or less favourably than interstate trading of electricity.

poRt CapaCitYAs advised last year, the newcastle Coal Infrastructure Group (“nCIG”) submitted its application under the nSW environmental planning & Assessment Act, part 3A for approval of a new loader. this was granted by the nSW Minister for planning in April 2007.

planning is close to finalisation and construction should commence such that first coal is scheduled to be shipped through the new loader in the 2010 financial year. It is intended that the capital cost of the new loader will be financed through a “take-or-pay” style arrangement with the proposed shippers.

the new coal loader will not only provide a significant increase in port capacity, it will also provide increased certainty that adequate port capacity should be available to support plans to commence exporting from Mandalong.

essential inFRastRuCtuRethe reliability and capacity of Centennial’s various methods of delivering coal to its customers is of vital significance. one of the comparative advantages of Centennial’s mines is the extensive and dedicated network of efficient delivery systems into the domestic power stations. In the Western region, Centennial is the only major supplier that can deliver coal without using public roads. Increasingly, local communities are voicing their objection to the transportation of coal on public roads. Consequently, the value of Centennial’s existing reserves and infrastructure should not be underestimated.

With respect to export customers, Centennial also enjoys the benefit of currently shipping most of its exports through the underutilised port Kembla coal-loader at Wollongong. the reliability and quick turnaround times of this facility are greatly appreciated by the Company’s customers during this prolonged period of severe capacity constraints at many ports. Following the acquisition of Austral, Centennial and its subsidiaries became the largest shareholders in port Kembla Coal terminal limited. (note: As mentioned elsewhere in this Annual Report, Xstrata Coal intends to make an offer for Austral Coal limited, the owner of tahmoor. Should the offer be successful, Centennial will become a 20% shareholder in the port facilities, with Xstrata Coal taking ownership of Austral’s 20% interest.

At newcastle, port Waratah Coal Services (“pWCS”) completed an expansion of capacity early in 2007, raising the existing coal-loader’s capacity up to 102 million tonnes per annum. Further expansion is planned for 2009/10 to bring pWCS’s capacity up to 119 million tonnes per annum. However, with a continued growth in demand expected, more capacity is needed.

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sTRaTegy and developmenT

2007 oveRvieWthe 2006 Annual Report again reiterated Centennial’s long-held portfolio management approach that requires all existing mining operations to undergo regular review and be measured against criteria similar to those used as part of the Group’s acquisition criteria. In particular, it was noted that certain of the Group’s mines may be more appropriately owned and operated by, and therefore more valuable to, a party other than Centennial.

the past year has been one of significant change for Centennial with the recently announced sale of Anvil Hill; Xstrata Coal’s announced intention to bid for Austral Coal limited, the owner of tahmoor; the sale of a 50% interest in Angus place to create a joint-venture over a combined Angus place and Springvale; and the restructure of the Group’s Central Coast mines.

the 2006 Annual Report also identified Anvil Hill, tahmoor and Mandalong as world-class assets that will provide significant growth opportunities for the Company and drive Shareholder growth by utilising scarce resources efficiently and delivering a higher than average return on investment. While the export led expansion of Mandalong has been flagged to Shareholders for some time on the back of Mandalong’s outstanding performance since its commencement as a longwall mine in January 2005, the sale of Anvil Hill and tahmoor were perhaps unexpected but for Centennial’s long-held view that certain of the Group’s mines may be more appropriately owned and operated by, and therefore more valuable to, another party.

cenTennial is well posiTioned To consideR fuTuRe gRowTh oppoRTuniTies

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It is the view of the Directors that the offer for Anvil Hill represented an opportunity to crystallise and accelerate significant value for Shareholders without incurring project development risk, both in terms of capital expenditure and the necessary skill resources required to develop a project of this nature. With respect to tahmoor, the Directors have indicated that it is their intention to accept Xstrata’s offer of $1.83 per Austral share subject to there being no higher offer and the independent expert report being prepared for the Austral directors. over the past two quarters, tahmoor’s production consistency has significantly improved, but it remains the case that tahmoor is Centennial’s highest cost mine and carries the greatest operational risk, given its inherently more complex geology and gas regime.

the Directors believe that the offers from Xstrata, totalling over $1.1 billion (after adjustments), represent compelling value and reduces significantly Centennial’s operating risk profile. the transactions will result in an approximate $350 million pre-tax profit on disposal. While a portion of the taxable profits arising from these transactions will be offset against Centennial’s carried forward tax losses, some tax will be payable.

the Directors intend to use the proceeds from the sale of Anvil Hill to repay Australian debt and to consider other capital management initiatives, with a view to reducing long-term gearing (on a net debt to net debt plus equity basis) to between 30%to40%.Followingcompletionofthese two transactions, the Directors believe that Centennial will be well positioned to consider future growth opportunities.

the year under review also saw a decision to restructure the Group’s Central Coast assets culminating with the decision to place newstan and Mannering on care & maintenance at the end of the 2008 financial year, acknowledge the closure of Awaba in early 2009 (due to exhaustion of reserves), and refocus the Group’s resources to expand the Myuna and Mandalong operations. In addition, a decision was also made to sell a 50% interest in Angus place to the Group’s joint-venture partners at the neighbouring Springvale mine, thus creating a larger more efficient joint-venture capable of taking maximum advantage of both domestic and export opportunities as production and marketing efficiencies are maximised.

sale oF anvil hill and tahmooRon 17 September 2007, Centennial announced that it had agreed to sell its AnvilHillProjecttoXstrataCoalfor$425million(subjecttocertainadjustments). It should be noted that payment of $25 million of the Anvil Hill sale proceeds may be deferred until a date after completion of the sale. At the same time, Xstrata Coal also announced its intention to make an off-market takeover offer to acquire all of the shares in Austral Coal limited, the owner of the tahmoor mine. the offer values Centennial’s interest in the tahmoor mine at$635million(equityof$479millionanddebtof$156million).Thetotalproceeds from the two transactions will be in the order of $1.1 billion, resulting in a pre-tax profit of approximately $350 million and highlights the significant value that Centennial has been able to crystallise for Shareholders and demonstrates the value that Centennial has added to these two assets over the past few years.

As noted above, the decision to sell these two assets has and, in the case of tahmoor, will continue to be carefully considered by Directors and Management, with the assistance of its external advisers. It is agreed that Xstrata Coal’s offer for the two assets represented compelling value. In determining the decision to sell these assets, the interests of the various stakeholders, including Shareholders, employees, the community and government were also carefully considered.

Since Centennial acquired the Anvil Hill project, as part of the powercoal acquisition in 2002, significant progress has been made to develop the project. this included negotiating a long-term off-take contract with Macquarie Generation, preparing a detailed environmental impact study, preparing the Development Consent Application in accordance with the nSW Government’s requirements, undertaking further technical and mine planning work over the design, construction and operation of the mine, acquisition of land required for the mine and consultation with the local community and other stakeholders. Importantly, Centennial’s vision and plan for the project culminated with the nSW Minister for planning granting development approval in June 2007. Although Centennial has chosen to sell the Anvil Hill project, it has clearly demonstrated a capability to take a greenfields project and deliver significant value to Shareholders.

the consideration paid by Xstrata for Anvil Hill is more than double the investment made to date by Centennial and reflects the various project milestones achieved. the sale demonstrably brings forward the benefits of owning the project without incurring the risks of developing a new greenfields mine. In particular, the current construction market is extremely tight, with numerous capital projects recently reporting significant cost blow-outs. In addition, the market for labour and mining material is also extremely tight, putting upward pressure on operating costs and the likely construction time. Rail and port capacity remain constrained, with further delays expected before capacity can be increased. Accordingly, whilst export coal prices have remained strong, a number of coal mining companies with operations in the Hunter Valley have reported decreases in profitability due to cost pressures and infrastructure bottlenecks.

In agreeing to the sale of Anvil Hill, the Directors also recognised that there are significant synergies available to Xstrata Coal that are not available to Centennial, which clearly enables Xstrata Coal to put a higher value on the asset than Centennial. this includes the greater opportunity available to Xstrata to blend Anvil Hill coal with its other coals and other operating cost savings consistent with its already large Hunter Valley presence.

Since Centennial acquired tahmoor in 2005, significant progress has been made in the redesign of the mine, addressing gas and ventilation issues, and generally improving efficiency. However, tahmoor will always be a high cost operation, with its inherently challenging geological conditions and gas regime. the sale price offered by Xstrata Coal is well above the indicative value ascribed to tahmoor by KpMG Corporate Finance in its Independent expert’s Report on the transaction to the Austral board. the value offered implicitly assumes a significant increase in the annual production of tahmoor from historical levels, very high coking coal prices in the next few years and a long-term price that is much higher than the historical average.

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sale oF 50% inteRest in angus plaCeon 1 December 2006, Centennial reached an in-principle agreement to sell a 50% interest in its Angus place mine to SK Corporation and Korea Resources Corporation (“KoReS”), Centennial’s existing joint-venturers at the neighbouring Springvale mine. the transaction was completed in May 2007. the consideration of $80 million comprises $65 million in cash upon completion plus $2 per tonne royalty over coal mined from the neubecks Creek and Wolgan Road projects. In addition, Centennial will receive a royalty of $2 per tonne over the balance of undeveloped resources. the transaction is expected to generate operational synergies given the proximity of the two mines, including sharing of equipment, infrastructure, resources, reduced stockpiles and greater flexibility over lease boundaries. Importantly, given common ownership, export opportunities will be maximised with both mines focused on exporting all surplus coal produced above their combined domestic obligations via the lidsdale export siding. In this regard, plans are currently being progressed to increase train loading capacity to approximately 2 million tonnes per annum.

CentRal Coast RestRuCtuReearly in the second half of the 2006 financial year, Centennial announced a strategic review of its Central Coast assets with a view to their sale or restructure. While various bids were received and considered by the Directors, a decision was made in november 2006 to restructure the Central Coast mines as this represented the best long-term outcome. In summary, the restructure involved the gradual closure of newstan, Awaba and Mannering and expansion of Mandalong and Myuna. unfortunately this decision also resulted in a one-off, pre-tax, non-cash write-down of $35.8 million with respect to the Central Coast restructure. the restructure is consistent with Centennial’s philosophy of operating fewer mines and focusing on the larger mines.

Centennial oF the FutuRelooking forward, Centennial will be a much more streamlined Company with a strong balance sheet, well-established operating mines that generate strong cash flows and a company that is well placed to capitalise on organic and external growth opportunities in a dynamic industry. the Company has significant coal resources, including extensive reserves within the Awaba/newstan lease area that may be conducive to continuous miner and/or longwall mining. Conceptual studies are currently underway. Given the increasingly difficult process to obtain development approval for new mines, these reserves, including a meaningful high-quality semi-soft fraction, and its proximity to both domestic and export infrastructure, means that it remains a valuable asset.

In addition, several projects are being assessed in the Western region to increase export sales, with a view to first production in 2009. these include the neubecks Creek open-cut project, Airly underground project and both underground and open-cut opportunities at Charbon.

Following completion of the Anvil Hill and tahmoor transactions, Centennial will be well placed to consider further growth opportunities. In the meantime, Centennial remains a strong industry participant with particularly strong expertise in operating underground mines. As open-cut mining opportunities become more scarce and existing ones become deeper, with a need to extend underground, this experience will become increasingly more valuable.

FutuRe gRoWth Rationalethe standard of living of Australians is being increasingly supported by coal exports, with coal the country’s leading export earner, amounting to $25 billion in the 2006 fiscal year. Globally and domestically, demand for coal continues to grow. By some estimates, global coal demand is expected to double by 2030. Given this unprecedented demand for coal, the Directors have determined to increase the share of the Company’s earnings derived from market-priced sales.

In Australia, Centennial is currently the largest supplier of coal into the new South Wales power generation market and, through it, a significant contributor to the national electricity Market (“neM”). this position is not inconsistent with Centennial’s growing export capability, as export opportunities are developed from Springvale and Mandalong in addition to the well-established Clarence and Charbon mines.

It remains Centennial’s intention to reduce the proportion of sales under long-term fixed prices in favour of increases in market-priced sales. this may be achieved through:

1. expansion of export sales from existing mines;

2. acquisition/development of predominantly export-oriented mines;

3. sales of interests in mines with long-term contracts;

4. otherformsofrestructuring;or

5. a combination of the above.

Centennial has a clear set of criteria for reviewing investment and acquisition opportunities, including consideration of:

• theExistenceofSynergies:whyaparticularopportunityshouldbemoreattractive to Centennial than another buyer, be it possible operational synergies or coal blending opportunities;

• theBalanceofRisks:whethertheopportunityisconsistentwithmaintaining a reasonable balance of risks, be it product or geographic diversification or market price versus long-term fixed-price sales; and

• theAcquisitionTerms:whetheranystrategicorotherreasonshavebeenidentified as to why the price and offer terms necessary to secure the opportunity might be attractive to the seller whilst at the same time add to Centennial Shareholder value.

these criteria apply equally to the potential investment in new opportunities and also to increased investment in existing assets.

Centennial continues to have a strong blend of growth opportunities and intends to continue to grow, through selective acquisition and internal project development, where such growth is judged to add to long-term Shareholder value. Going forward, forecast strong growth in demand underpins Centennial’s belief that Shareholders will receive greater benefit through increased leverage to the export market.

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Climate Changethe topic of climate change has attracted considerable interest with the release of various reports such as the uK Government’s Stern Report on Climate Change.

Centennial (as part of the broader mining industry) is dedicated to finding solutions to reduce the impacts of climate change. this includes funding for research on new clean coal technologies, participating in discussions with regard to future emissions trading schemes and looking at alternative sources of energy supply. Centennial is also committed to being a responsible corporate citizen and has recently adopted an energy and Greenhouse policy. under this policy, Centennial aims to increase its energy efficiency and reduce greenhouse gas emissions across all its sites. You can read more about this initiative and other projects in this area in the Sustainability section of this Annual Report.

notwithstanding efforts to reduce greenhouse gas emissions, it is acknowledged by both sides of the debate that fossil fuels will continue to be the primary source of fuel for many years to come. this makes it incumbent upon coal companies, Centennial included, to focus on clean coal technologies such as those carried out under the auspices of CoAl21, a coal industry initiative that will spend up to $1 billion over the next 10 years on various research projects.

the 2006 International energy outlook, prepared by the well-respected energy Information Administration (“eIA”), reports that world net electricity consumption will more than double by 2030. Most of the growth will occur in non-oeCD nations, that is, primarily in the fast emerging industrialising countries of China and India. the IeA projects that oil, natural gas and coal will continue to supply up to about 82% of world energy needs over this period, with renewables growing to nearly 11% of the total, ahead of nuclear energy at 7% growth.

the recent report of the energy Supply Association of Australia confirmed that while development of renewable energy sources such as solar and wind power may be desirable, they will not be sufficiently developed to represent a major solution to society’s energy needs in the short to medium term.

nuCleaR poWeRIn June 2006, the prime Minister announced the appointment of a taskforce headed by Dr Ziggy Switskowski to undertake an objective, scientific and comprehensive review of uranium mining, processing and nuclear energy. the taskforce released a draft report for public comment in november 2006, which, in brief, advocates nuclear reactors as an alternative source of electricity generation to reduce Australia’s current dependency on fossil fuels (primarily coal) and to reduce greenhouse gas emissions. the draft report states that the introduction of nuclear power is at least 10 to 15 years away and will only be commercially viable with the introduction of a carbon trading scheme. Cost estimates suggest that in Australia nuclear power will be on average some 20% to 50% more expensive to produce than coal-fired power. therefore, without such a scheme, electricity generation will continue to be dominated by conventional fossil fuels.

emission tRadingIn June 2007, the prime Minister announced that the Commonwealth Government will introduce an Australian emissions trading Scheme (“AetS”) by 2012. the overall intent of the policy announcement is to maintain the strength of the Australian economy (including the competitiveness of the energy and resources sectors), whilst providing mechanisms for structural adjustment, over time, to a carbon constrained future. the exact design and operation of the scheme is currently being worked on by various Federal Government agencies and includes the aim of setting a long-term aspirational emission reduction goal. the introduction of the AetS is likely to impact the cost of electricity generation and, consequently, the competitiveness of coal versus alternative forms of energy.

Australia accounts for around 1% of the total global emissions compared to theUSAat20.6%,Chinaat14.7%andtheEUat14%.Fortheabovenotedreasons, Centennial believes that any emissions trading scheme should be a global initiative for it to have a measurable impact on the environment.

However, as discussed earlier, fossil fuels are likely to remain the primary source of fuel supply for the foreseeable future. ultimately, any impost on the cost of energy must eventually flow through to the consumer.

Centennial will continue to monitor developments in this area and the potential implications for the coal business and energy in general.

developments in the nsW poWeR geneRation maRketCentennial is currently the largest supplier of coal into the new South Wales power generation market and therefore has a strong interest in developments in this sector. In early 2007, the nSW Government commissioned professor owen to undertake an inquiry into the nSW electricity industry focusing on ownership options. In September 2007, the findings of the owen Inquiry were made public. In brief, the owen Inquiry called for the privatisation of nSW’s retail and generation assets, but the privatisation of the transmission and distribution assets was ruled out, consistent with the nSW Government’s position. the Inquiry also found that nSW needed a new base load generatorby2013/14,andthatitshouldbefinancedbytheprivatesector.Centennial’s views were sought and proffered as part of the owen Inquiry.F

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1. louise BaldWin General Counsel

louise joined centennial as general counsel in april 2006. in this role, louise is responsible for the management and conduct of all legal matters, including regulatory matters affecting the centennial group, as well as providing independent legal advice to management and the centennial board. prior to joining centennial, louise spent the previous nine years working in the corporate and commercial department of allens arthur Robinson lawyers.

2. RoBeRt dougallChief Financial Officer

Robert was appointed as chief financial officer of centennial in september 2004. He has over 15 years experience in the mining industry, with particular strengths in corporate finance, capital markets, m&a and treasury.

prior to joining centennial, he held various executive roles including general manager: treasury & Risk management at auriongold limited, general manager: commercial at goldfields limited, group financial controller at Rgc limited and group treasurer at pancontinental mining limited. prior to this, he practised as a chartered accountant with coopers & lybrand (now known as pricewaterhousecoopers).

senioR managemenT

3. RogeR knightGeneral Manager: Marketing

Roger has enjoyed a long career in coal export marketing. His previous experience included two years running his own consultancy business and 18 years with coalex/oakbridge limited. He has been general manager: marketing of centennial since its listing on the australian securities exchange in 1994, and has directed centennial’s export and local marketing strategy since inception. in his position as general manager: marketing he is responsible for annual coal sales of over 19 million tonnes.

4. tonY maCkoGeneral Manager: Corporate Affairs and Company Secretary

tony is a dual qualified chartered accountant, with over 21 years in the minerals industry. He began his career in resources with a mining finance house, specialising in the provision of corporate, management and accounting services to the independent resource sector. His association with centennial commenced in 1989, during his time as chief accountant for centennial’s uK-based major shareholder. in 1994, he took up the role of general manager: finance & administration of centennial coal and assisted with its ipo. tony has extensive experience in corporate finance, treasury and general management. in 2006, he assumed the role of general manager: corporate affairs, with particular responsibility for investor relations. He is also the group company secretary.

5. david moultChief Operating Officer

david qualified as a mining engineer in 1979, followed by an mba obtained from nottingham university in the uK. He spent nine years as a mine manager with both british coal and then RJb mining plc (now uK coal plc). in 1995, he moved to pittsburgh, usa as global business development manager for Joy mining machinery with responsibility for the us, uK, Rsa and australia. in January 1998, he joined centennial coal as its general manager: operations. He has over 25 years global coal mining experience.

6. peteR paRRYGeneral Manager: Financial Control

peter has 22 years experience as a certified accountant working in the oil and gas, and coal industries in nsW. He worked for exxon and Hartogen energy before joining the coal industry in 1989 with the liddell Joint Venture and savage Resources. He joined centennial in 1996 and is responsible for financial control and accounting for the centennial group.

7. ian WilliamsDeputy General Manager: Marketing

ian holds a degree in mining engineering and has 25 years experience in the coal industry in both coal marketing and mining engineering positions. He joined centennial in april 2003 as deputy general manager: marketing. He previously held positions at oakbridge limited and Hellensburgh coal, where he specialised in coking coal sales. ian is responsible for both domestic and export coal sales, developing new and strengthening existing relationships with power generators, steel mills, joint-venture partners and our many international customers.

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BoaRd of diRecToRs

1. kenneth J. mossBe (Hons), phD, Hon. FIeAust, Cpeng, FAICD

Chairman (Non-Executive Director) Appointed 9 August 2000

dr moss graduated in mechanical engineering at the university of newcastle and worked for bHp northern collieries and equipment suppliers to the mining industry. He commenced his highly successful career with Howard smith limited in 1974. He held senior positions both in australia and overseas with Howard smith limited before becoming managing director in 1993 until august 2000. He is chairman of boral limited and a director of several other companies and organisations, including gpt group, macquarie capital alliance group and the australian brandenburg orchestra.

2. RoBeRt g. CameRonBe (Hons), MBA, GradDip Geoscience, FAusIMM, FAIM, FAICD

Managing Director Appointed 29 June 1989

mr cameron holds engineering and business management qualifications. He has had a long career as a senior manager in the coal industry and has been managing director of centennial coal since 1989. He is the immediate past chairman of the nsW minerals council and the australian coal association. He is also a director of port Kembla coal terminal limited.

3. CatheRine m. BRenneRBec, llB, MBA

Non-Executive Director Appointed 6 October 2005

ms brenner is a non-executive director of trafalgar corporate group limited, cryosite limited and the australian brandenburg orchestra. she is a former managing director at abn amRo Rothschild, part of the abn amRo investment banking business. ms brenner is experienced in corporate advisory and equity capital markets including takeovers, capital raisings, trade sales and privatisations. prior to becoming an investment banker, she was a corporate lawyer. ms brenner is a member of the takeovers panel.

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4. peteR R. doddBComm, MComm, MSc, phD, Dip ed

Non-Executive Director Appointed 19 April 2006

dr dodd has over 20 years experience in investment banking. He is currently managing director of access macquarie limited, the commercial arm of macquarie university. He is chairman of transgrid which owns and manages the nsW transmission network and is currently on the board of bluglass ltd and ascendis macquarie goodman which is the manager of aReit, a singapore listed property trust. He is also on the board of the centre for independent studies. His previous board experience includes chairman of delta electricity, director of macquarie goodman industrial property trust, brierley investments, the industry Research and development board and multigroup ltd (startrack express). He is a former chairman of the autism association of nsW and chief executive and dean of the australian graduate school of management.

5. paul J. moYBA (Hons), Dip ed, phD

Non-Executive Director Appointed 18 March 2003

dr moy is a managing director at ubs global asset management. He has wide-ranging experience in utility reform, including the power industry, and extensive experience in both investment banking at ubs Warburg and public policy in his former role as deputy secretary of the nsW treasury. dr moy was previously chairman of the electricity distribution Reform group in nsW and a member of the queensland electricity industry Reform task force. He is also a former member of the national competition council. dr moy is chairman of austral coal limited, in which centennial holds an 86% interest. dr moy is a former non-executive director of transgrid, Western power corporation, diversified utility and energy trust and Railcorp.

Resigned duRing the FinanCial YeaR

RoBeRt h. duFFin BSc (Hons), MSc (Hons), Grad Dip Mgt, FAusIMM, Cp Man

Non-Executive Director Appointed 15 June 1992. Resigned 22 May 2007

mr duffin is a mining investment adviser and is managing director of Resource equity consultants pty ltd, a firm specialising in the provision of mining and investment advisory services to the wholesale and retail investment communities. He is currently executive chairman of Western plains Resources ltd.

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coRpoRaTe goveRnanceintRoduCtionthe Centennial Board commenced a review of its Corporate Governance practices in the 2003 financial year, based on the Australian Securities exchange Corporate Governance Council’s (“ASXCGC”) “principles of Good Corporate Governance and Best practice Recommendations” published in March 2003 (“Guidelines”), in recognition of its responsibility to protect and enhance Shareholder value. the results of that review showed that Centennial compared well with the ASXCGC’s Guidelines, but also highlighted some areas for further development consistent with the Company’s growth and strategic direction.

the ASXCGC recently announced the results of its review of the Corporate Governance principles and recommendations introduced in 2003. the result of the review will become effective from the first financial year commencing after 1 January 2008. From an initial review of the key changes, the Directors believe that Centennial continues to compare well with the objectives set by the ASXCGC. A more detailed review will be carried out during the 2007/08 financial year.

the Centennial Board endorses each of the principles set out in the 2003 Guidelines as they pertain to the business of Centennial Coal Company limited, its Directors, Management and employees.

the essential CoRpoRate goveRnanCe pRinCiplesthe ASXCGC’s Guidelines recommend that a company should:

1. Lay solid foundations for management and oversight. Recognise and publish the respective roles and responsibilities of board and management.

2. Structure the board to add value. Have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.

3. Promote ethical and responsible decision-making. Actively promote ethical and responsible decision-making.

4. Safeguard integrity in financial reporting. Have a structure to independently verify and safeguard the integrity of the company’s financial reporting.

5. Make timely and balanced disclosure. promote timely and balanced disclosure of all material matters concerning the company.

6. Respect the rights of shareholders. Respect the rights of shareholders and facilitate the effective exercise of those rights.

7. Recognise and manage risk. establish a sound system of risk oversight and management and internal control.

8. Encourage enhanced performance. Fairly review and actively encourage enhanced board and management effectiveness.

9. Remunerate fairly and responsibly. ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined.

10. Recognise the legitimate interests of stakeholders. Recognise legal and other obligations to all legitimate stakeholders.

Also included within the Guidelines are recommendations for enhanced:

• reportingofremuneration,directorandmanagementperformancereporting;

• AnnualReportreportingthroughtheAnnualReviewinaccordancewithListingRule4.10.17whichendorsestheGroupof100Incorporated’s“Guide to the Review of operations and Financial Condition”; and

• disclosureofvariouscompanypoliciesandcommitteecharters through a prominently placed Corporate Governance section within the company’s website.

Centennial’s CoRpoRate goveRnanCe statementthis statement outlines the main Corporate Governance practices of the Company.

ResponsiBilitY oF the BoaRd oF diReCtoRsthe Board is responsible for the overall Corporate Governance of the Centennial Group of Companies, in particular the Board:

• promotesethicalandresponsibledecision-making;

• ensurescompliancewiththeAustralianCorporationsAct,AccountingStandards, Australian Securities exchange (“ASX”) listing Rules and all other appropriate laws;

• ensurescompliancewithOH&S,miningandenvironmentalregulations;

• setsandreviewsstrategicdirectionandapprovestheannualoperating budget;

• establishesgoalsforManagementandmonitorstheachievementofthese goals;

• monitorstheoperatingandfinancialperformanceoftheCentennialGroup;

• monitorstheperformanceoftheBoard,theManagingDirectorandSeniorexecutive Management, ensuring a clear link between performance and remuneration;

• ensuresthatanappropriateoverallframeworkofinternalcontrolisinplaceto facilitate efficient decision-making and monitor business risk;

• ensuresthatcapitalmarketsandShareholdersarefullyinformedofmaterial developments through effective compliance with continuous disclosure best practice; and

• recognisesthelegitimateinterestsofallstakeholders.

to assist in the execution of its responsibilities, the Board has established an Audit and Risk Committee and a Remuneration Committee. In addition, senior managers meet regularly to assess the performance of Group Companies and to monitor assessed risk areas.

the Board meets up to 10 times a year as part of a regular reporting cycle, including at least two meetings held in conjunction with mine visits, one entirely dedicated to strategic issues and otherwise as required.

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Full Board papers are prepared and circulated to Directors in advance of each meeting to ensure that Directors are made aware of current and forthcoming issues relevant to the Company’s operations, safety and financial performance. these papers include monthly and year-to-date performance summaries of all mines, a comparison against budget and regularly revised forecasts. Senior Management regularly present to the Board and provide the Directors with a direct opportunity to raise issues of concern, discuss necessary actions and generally be informed of the Company’s activities.

Where deemed necessary, the Board may request further information on any issue and request that a particular member of Senior Management present to it on the performance, strategy or outlook for the Company or one of its operations.

the Board does not have a formal charter at this time. It is anticipated that a final draft charter will be circulated and adopted shortly.

Composition of the BoardAt the date of this statement, the Board comprises one executive Director and four non-executive Directors. the Board is currently undertaking a search for another non-executive Director to join the Board. It is hoped that an individual(s) with relevant resource company experience can be found to supplement the Board’s existing knowledge and experience.

the members of the Board during the year and their qualifications are set out below:

Kenneth J. Moss Be (Hons), phD, Hon. FIeAust, Cpeng, FAICD chairman (non-executive director). Appointed 9 August 2000. specialisation: Company Management.

Catherine M. Brenner Bec, llB, MBA non-executive director. Appointed 6 october 2005. specialisation: legal, Corporate Finance and Financial Markets.

Robert G. Cameron Be (Hons), MBA, GradDip Geoscience,

FAusIMM, FAIM, FAICD managing director. Appointed 29 June 1989. specialisation: Company Management and engineering.

Peter R. Dodd BComm, MComm, MSc, phD, Dip ed non-executive director. Appointed 19 April 2006. specialisation: Company Management and Corporate Finance.

Paul J. Moy BA (Hons), Dip ed, phD non-executive director. Appointed 18 March 2003. specialisation: Company Management and Corporate Finance.

Robert H. Duffin BSc (Hons), MSc (Hons), Grad Dip Mgt, FAusIMM Cp Man non-executive director. Appointed 15 June 1992. Resigned 22 May 2007. specialisation: Mining Investment Analysis.

Brief resumés of the members of the Board are contained on pages 58 and 59 and in the Directors’ Report.

Centennial acknowledges the importance of having independent Directors as determined by objective criteria and the important role they serve in assuring Shareholders that the Board is properly fulfilling its role and is diligent in holding Senior Management accountable for its performance. Importantly, Centennial is committed to having a Board whose members have the capacity to act independently and have the composite skills to optimise the financial and operational performance of the Company and maximise returns to Shareholders.

the Board considers all of its non-executive Directors to be independent.

A non-executive Director is considered to be independent having met the following criteria:

• IsnotasubstantialShareholder(i.e.holdingmorethan5%oftheCompany’s issued share capital), a representative of an investor considered to be a substantial Shareholder or able to influence the voting decision of a substantial Shareholder.

• Hasnot,withinthelastthreeyears,beenemployedinanexecutivecapacity by any Group Company.

• Hasnot,withinthelastthreeyears,beenaprincipalofamaterialprofessional adviser to the Centennial Group or an employee materially associated with the service provided.

• IsnotamaterialsupplierorcustomertotheCentennialGrouporanofficerof, or otherwise associated (directly or indirectly) with a material supplier or customer.

• HasnomaterialcontractualrelationshipwiththeCentennialGroupotherthan as a non-executive Director.

• Isfreefromanyinterestandanybusinessorotherrelationship,whichcould, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of Centennial.

Should a conflict of interest (real or potential) arise, it is mandatory for a Director to be excused from taking part in any discussion or involvement in the making of any decision thereon.

Independent Professional Adviceeach Director has the right to seek independent professional advice at the Group’s expense. prior approval of the Chairman is required, however, which is not unreasonably withheld.

Directors’ Deed of Indemnity and AccessAt the 1999 Annual General Meeting, Shareholders approved the entering of a Directors’ Deed of Indemnity and Access (“Deed”) with each Director. Similar Deeds were entered into with each member of the senior Management team. During the 2006 financial year, these Deeds were updated to reflect contemporary practices and changes in legislation since the Deeds were originally drafted. the purpose of the Deed is to:

• confirmtheindemnityprovidedbyCentennialinfavourofDirectorsandcertain officers (and former officers) under the Company’s Constitution;

• includeanobligationuponCentennialtomaintainanadequate Directors & officers liability insurance policy; and

• providearightofaccesstocertaindocuments.

Board Committeeseach of the Audit and Risk Committee and the Remuneration Committee comprise entirely of independent Directors. Following Mr Duffin’s retirement as a non-executive Director and Chairman of the Remuneration Committee in April 2007, Ms Brenner recently assumed the role of Chairperson of the Remuneration Committee. As noted elsewhere, the Board is currently conducting a search for a suitable individual(s) to fill a non-executive Director vacancy and supplement the Board’s existing knowledge and experience. upon the successful completion of this task, it is envisaged that non-executive Directors will revert to membership of one committee only.

each committee is chaired by a Director other than the Chairman of the main Centennial Board. Dr Dodd has been elected as Chairman of the Audit and Risk Committee, while (as noted above) Ms Brenner was recently elected as Chairperson of the Remuneration Committee.

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Furthermore, the Board maintains its belief that a separate nominations Committee would not serve any useful purpose and remains inconsistent with the Company’s current size and status. Responsibilities normally associated with such a committee in larger organisations remain with the main Centennial Board. these responsibilities include:

• ReviewingtheperformanceoftheBoardanditscommittees.

• PeriodicallyreviewingthecompositionoftheBoardtomaintainanappropriate mix of qualifications, skills and experience consistent with Centennial’s needs and strategic direction.

• Appointinganappropriateindividualtofulfilavacancy.TheBoardmay use the services of a professional recruitment services firm to assist with this task.

no separate fee is payable to non-executive Directors for attendance at or chairing the Audit and Risk Committee or the Remuneration Committee meetings. Details of the attendance of Directors at meetings of the Board, the Audit and Risk Committee and the Remuneration Committee are set out in the Directors’ Report.

audit and Risk CommitteeCentennial has maintained an Audit Committee since shortly after its listing on theASXinAugust1994,includingadocumentedCharterapprovedbytheBoard of Directors at that time. Following a review of the Committee’s role duringthe2004financialyear,itwasdecidedtoadoptanewCharterandrename the Committee as the Audit and Risk Committee.

In summary, the Committee shall oversee:

• theadequacyofCentennial’saccountingsystemsandinternalcontrolenvironment;

• theadequacyofCentennial’ssystemforcompliancewithrelevantlaws,regulations, standards and codes;

• theeffectivenessofitsinternalaccountingcontrolsandriskmanagementsystems;

• improvementsthatcanorshouldbemadetoCentennial’sinternalcontrols,policies and financial disclosures;

• thefrequency,significanceandproprietyofalltransactionswithrelatedparties;

• theintegrityandqualityofCentennial’sfinancialinformationincludingfinancial information provided to ASIC, ASX and Shareholders; and

• theindependence,objectivity,scopeandqualityoftheexternalaudit.

In accordance with this Charter, all members of the Committee are non-executive Directors. the following non-executive Directors served as members of the Committee during the year:

• DrP.R.Dodd(ChairmansinceJune2006)

• MsC.M.Brenner

• DrP.J.Moy.

the Company Secretary, Mr t. Macko, acts as Secretary to the Audit and Risk Committee.

the Chairman may invite members of Management, any internal auditor and representatives of the external auditor to be present at meetings as necessary.

A copy of the Audit and Risk Committee Charter has been posted on the Company’s website and can be found in the easily identifiable “Corporate Governance Section”.

External Auditor Independencethe Board and the Audit and Risk Committee reviews the performance of and monitors the independence of the external auditor, Deloitte touche tohmatsu, on a semi-annual basis. In accordance with the Corporations Act 2001, a copy of Deloitte touche tohmatsu’s Independence Statement is set out in their Audit Report on page 120.

the Audit and Risk Committee meets with Management, with and without the auditor being present, and also with the auditor but without Management being present.

It has been Centennial’s practice for many years to invite Deloitte touche tohmatsu to attend Shareholder meetings and be available to answer Shareholders’ questions about the conduct of the audit and their audit report.

RemuneRation CommitteeAs noted above, the composition of the Remuneration Committee changed during the year. the following non-executive Directors served as members of the Committee during year:

• MrR.H.Duffin(Chairman)(RetiredasamemberfromtheBoardandtheCommittee in May 2007)

• MsC.M.Brenner(AppointedasChairpersoninAugust2007)

• DrK.J.Moss.

the Company Secretary, Mr t. Macko, provides assistance to the Committee.

the Managing Director, Mr R.G. Cameron, is invited to Remuneration Committee meetings as required to discuss Management performance and remuneration packages. the Remuneration Committee meets as required.

the Remuneration Committee advises the Board on remuneration policies and practices generally, reviews and makes specific recommendations on the remuneration package and other terms of employment of the Managing Director, other senior executives and non-executive Directors.

A copy of the Remuneration Committee Charter has been posted on the Company’s website and can be found in the easily identifiable “Corporate Governance Section”.

Remuneration Policythe Committee, having regard to performance against goals set at the start of the year, relevant comparative information and independent expert advice, reviews executive remuneration and other terms of employment annually, where appropriate. Remuneration packages are set at levels that are intended to attract and retain senior executives of sufficient calibre to facilitate the efficient and effective management of the Company’s operations.

this is achieved via a mixture of:

• FixedAnnualRemuneration(“FAR”);

• Short-termcashbonusincentive;and

• Medium/Long-termequityincentivethroughtheissueofequityincentivesunder an approved Share option Scheme (approved by Shareholders in 1999) with appropriate performance hurdles.

Remuneration practices are currently under review, with a new long-term incentive plan being proposed for adoption at the 2007 Annual General Meeting in november 2007.

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the guiding principles in managing senior executive remuneration are that:

• allelementsofremunerationshouldbesetatanappropriatelevelhavingregard to market practice for similar roles;

• incentivesshouldbeusedtodifferentiaterewardforhighperformersandto encourage continuous improvements in performance levels; and

• theissueofequityincentiveswillaligntheinterestsofexecutiveswiththose of Shareholders, support and encourage a culture of employee ownership and act as a retention initiative.

Remuneration of non-executive Directors is determined by the Board, upon the recommendation of the Remuneration Committee, within the maximum amount approved by Shareholders from time to time. the Committee avails itself of outside professional advice to assist it with its deliberations.

the Board undertakes an annual review of its performance and the performance of its Committees via a performance evaluation questionnaire to be completed by each Director independently. the Company Secretary compiles the results of the responses and provides those results to the Board for discussion. Individual responses are not disclosed for the purposes of this discussion. Individual Directors may request a one-on-one discussion with the Chairman about the results of the review as it applies to the Board as a whole or to that Director as an individual. In the first instance, this process forms the basis of a decision as to whether the Directors support the re-election of non-executive Directors whose term is to expire at the next Annual General Meeting of the Company.

While performance related bonuses are available to executives, they are not payable to non-executive Directors.

Details regarding the remuneration of the Directors and Key Management PersonnelaresetoutinNote4totheFinancialStatementsandtheDirectors’ Report.

inteRnal ContRol FRameWoRkthe Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost-effective internal control system will preclude all errors and irregularities. to assist in discharging this responsibility, the Board has instigated an internal control framework that can be described under five headings:

• Financial reporting –thereisacomprehensivebudgetingsystemwith an annual budget approved by the Directors. Monthly actual results are reported against budget and revised forecasts for the year are prepared regularly. Centennial reports financial performance to Shareholders semi-annually and provides an operational update with the issue of Quarterly Activities Reports.

• Quality and integrity of personnel –allDirectors,managersandemployees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Company.AnEmployeeCodeofConductwasadoptedinApril2004.every employee has a nominated supervisor to whom they may refer any issues arising from their employment. Formal appraisals are conducted annually for all senior employees. During the 2007 financial year, a Whistleblower policy was introduced with an anonymous free-phone facility. this facility is maintained by McGrath nicol.

• Operating unit controls–financialcontrolsandprocedures,includinginformation systems controls, are the subject of ongoing review and updating and, as a result, a formal system of delegated authority was introducedinAugust2004.Thesystemofdelegatedauthorityissubjecttoreview from time to time to ensure that it continues to meet the needs of the business.

• Functional speciality reporting–theDirectorshaveidentifiedanumberofkey areas which are subject to regular reporting to the Board, such as treasury and Derivatives operations, Safety and Risk Management and environmental matters. As part of this process, Senior Management regularly meet with the Board of Directors to discuss such matters. the Directors have formally adopted a treasury policy, a Safety and Risk Management policy and an environmental policy. In mid-2006, the Company engaged an in-house lawyer to provide independent legal advice to Directors and Management on various matters in response to the increasingly complex business environment in which it operates.

• Investment appraisal –theCompanyhasclearlydefinedguidelinesforcapital expenditure. they include annual budgets, detailed appraisal and review procedures and set levels of authority.

Trading in the Company’s Securities: Centennial has in place procedures that specify how Directors and executives may trade in the Company’s shares. Specifically trading in the Company’s shares is prohibited between:

• semi-annualreportingdatesandthedatethatpreliminaryresultsarereleased to ASX; and

• quarterlyactivitiesreportingdatesandthedatethatQuarterlyActivitiesReports are released to ASX;

and in advance of any significant announcement that a reasonable person would expect to have a material impact on the Company’s share price. In cases of uncertainty, the Company Secretary, and if need be the Chairman, is called upon to determine whether a contemplated trade may be undertaken.

these arrangements are aimed at ensuring that:

• theinsidertradingprohibitionsundertheCorporationsAct2001arenotbreached; and

• anytradinginCentennial’ssharesbyDirectorsortheirrelatedentitiesisdisclosed in accordance with the Corporations Act 2001 and the ASX listing Rules.

Although Centennial does not yet have a formal trading policy, it should be noted that the hedging of pre-vested entitlements is not permitted. executives may make their own choice regarding hedging of shareholdings subsequent to vesting. If the executive is required to make a disclosure under s205G of the Corporations Act 2001 (primarily a director of a listed entity), then that individual will be required to disclose such arrangements in a Form 3Y to be lodged with the ASX.

Centennial anticipates adopting a formal policy to govern trading in the Company’s shares by Directors, executives and employees shortly. A copy of the adopted policy will be placed in a clearly marked section of the Company’s website www.centennialcoal.com.au under “Corporate Governance”.

Safeguard Integrity in Financial Reportingthe Managing Director and the Chief Financial officer have stated in writing to the Board that the Company’s Financial Statements present a true and fair view, in all material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards.

the Managing Director and the Chief Financial officer have stated in writing to the Board that the:

• statementgivenregardingtheintegrityofFinancialStatementsisfoundedon a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and

• Company’sriskmanagementandinternalcomplianceandcontrolsystemis operating efficiently and effectively in all material respects.

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the Role oF shaReholdeRsthe Board of Directors aims to ensure that Shareholders are informed of all major developments affecting the Company‘s state of affairs. procedures are in place to ensure that price sensitive information is reported to ASX in accordance with continuous disclosure requirements, including systems of regular reporting and review by Senior Management, on an at-least weekly basis, of the Company’s activities.

Information is communicated to Shareholders as follows:

• TheAnnualFinancialReportislodgedwithASICviatheASXanddistributed to all Shareholders who have specifically requested to receive the document. the Board ensures that the Annual Financial Report includes relevant information about the operations of the Company during the year, changes in the state of affairs of the Company and details of future developments, in addition to the other disclosures required by Accounting Standards, the Corporations Act 2001 and other mandatory professional reporting requirements.

• Thehalf-yearlyreportislodgedwiththeASICviatheASX.Thisdocumentcontains summarised financial information and a review of the operations of the Company during the period. Half-year financial statements, which have been the subject of audit review and are prepared in accordance with the requirements of Accounting Standards and the Corporations Act 2001, are lodged with the ASIC via the ASX.

• TheQuarterlyActivitiesReportislodgedwiththeASXandisdistributedtoall Shareholders who have specifically requested to receive the document. this document contains production and sales information, a review of the operations of the Company during the period and provides Shareholders with a regular report of the Company’s activities.

• Allannouncementsandbroker/investorrelationspresentationsaremadeavailable on the Company’s website as soon as practical after their release to ASX.

• ProposedmajorchangesintheCompany,whichmayimpactonshareownership rights, are submitted to a vote of Shareholders in accordance with the Corporations Act 2001 and ASX listing Rules.

the Board encourages full participation of Shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the Company’s strategy and goals. Shareholders are provided with an accompanying explanatory memorandum explaining the purpose of the resolutions proposed through the notice of Meeting. Important issues are presented to the Shareholders as single resolutions. the Shareholders are responsible for voting on the appointment of non-executive Directors.

unless specifically stated on the notice of Meeting, all holders of fully paid ordinary shares are eligible to vote on each resolution. In the event that Shareholders cannot attend the Annual General Meeting, they are able to lodge a proxy in accordance with the Corporations Act 2001. proxy forms may be lodged by facsimile with the Company’s registrar.

ComplianCe With the asxCgC’s guidelinesthis Corporate Governance Statement reflects the practices of Centennial Coal Company limited during the year under review. unless otherwise stated, they operated for the entire financial year.

this Corporate Governance Statement is lodged in a clearly marked section of the Company’s website www.centennialcoal.com.au. As new Charters are developed (or updated) and adopted by Directors, as a part of the ongoing review of Centennial’s Corporate Governance practices, they will also be placed on the Company’s website.

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Financial StatementS

66 Directors’ Report 82 Income Statement 83 Balance Sheet 84 Statement of Changes in Equity 86 Cash Flow Statement 87 Notes to the Financial Statements 119 Directors’ Declaration 120 Independent Audit Report 121 Shareholder Information

notes to the Financial Statements 87 1 Summary of Accounting policies 93 2 profit/(loss) from operations 94 3 Income taxes 96 4 Remuneration of Key

Management personnel 97 5 Remuneration of Auditors 97 6 earnings per Share 98 7 Dividends 98 8 Current trade and

other Receivables 99 9 other Current Financial Assets 99 10 Current Inventories 99 11 other Current Assets 99 12 non-current trade and

other Receivables 99 13 other non-current Financial Assets 99 14 non-current Inventories 100 15 Investments Accounted for using

the equity Method 101 16 Joint Venture operations 102 17 property, plant and equipment 103 18 other non-current Assets 103 19 Assets pledged as Security

103 20 Current trade and other payables 103 21 Current Borrowings 103 22 Current provisions 103 23 other Current liabilities 104 24 non-current Borrowings 104 25 non-current provisions 104 26 provisions 104 27 Issued Capital 105 28 Reserves 105 29 Capitalised Borrowing Costs 106 30 Commitments for expenditure 106 31 Superannuation 106 32 long Service leave 107 33 Contingent liabilities 107 34 leases 107 35 economic Dependency 108 36 Subsidiaries 109 37 Minority Interest 109 38 Segment Information 109 39 Related party Disclosures 111 40 Subsequent events 112 41 notes to the Cash Flow Statement 114 42 Financial InstrumentsF

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DirectorS’ report

the Directors of Centennial Coal Company limited (“Centennial”) present the Annual Financial Report for the financial year ended 30 June 2007. In accordance with the provisions of the Corporations Act 2001, the Directors report as follows:

DiReCtoRSthe names and particulars of the Directors of the Company in office during or since the end of the financial year are:

Kenneth J. Moss Be (Hons), phD, Hon.FIeAust, Cpeng, FAICD

Chairman (Non-Executive Director). Appointed 9 August 2000.

Dr Moss graduated in mechanical engineering at the university of newcastle and worked for BHp northern collieries and equipment suppliers to the mining industry. He commenced his highly successful career with Howard Smith limited in 1974. He held senior positions both in Australia and overseas with Howard Smith limited before becoming managing director in 1993 until August 2000. He is chairman of Boral limited and a director of several other companies and organisations, including Gpt Group and Macquarie Capital Alliance Group.

Robert G. Cameron Be (Hons), MBA, GradDip Geoscience, FAusIMM, FAIM, FAICD

Managing Director. Appointed 29 June 1989.

Mr Cameron holds engineering and business management qualifications. He has had a long career as a senior manager in the coal industry and has been Managing Director of Centennial Coal since 1989. He is the immediate past chairman of the nSW Minerals Council and the Australian Coal Association. He is also a director of port Kembla Coal terminal limited.

Paul J. Moy BA (Hons), Dip ed, phD

Non-Executive Director. Appointed 18 March 2003.

Dr Moy is a Managing Director at uBS Global Asset Management. He has wide-ranging experience in utility reform including the power industry, and extensive experience in both investment banking at uBS Warburg and public policy in his former role as deputy secretary of the nSW treasury. Dr Moy was previously chairman of the electricity Distribution Reform Group in nSW and a member of the Queensland electricity Industry Reform task Force. He is also a former member of the national Competition Council. Dr Moy is Chairman of Austral Coal limited, in which Centennial holds an 86% interest. Dr Moy is a former non-executive director of transgrid, Western power Corporation, Diversified utility and energy trust and Railcorp.

Catherine M. Brenner Bec, llB, MBA

Non-Executive Director. Appointed 6 october 2005.

Ms Brenner is a non-executive director of trafalgar Corporate Group limited and Cryosite limited, and a former managing director at ABn AMRo Rothschild, part of the ABn AMRo Investment Banking business. Ms Brenner is experienced in both corporate advisory and equity capital markets, including takeovers, capital raisings, trade sales and privatisations. prior to becoming an investment banker, she was a corporate lawyer. Ms Brenner is a member of the takeovers panel.

Peter R. Dodd BComm, MComm, MSc, phD, Dip ed

Non-Executive Director. Appointed 19 April 2006.

Dr Dodd has over 20 years experience in investment banking. He is currently managing director of Access Macquarie limited, the commercial arm of Macquarie university. He is Chairman of transgrid which owns and manages the nSW transmission network and is currently on the board of BluGlass ltd and Ascendis Macquarie Goodman which is the manager of AReIt, a Singapore listed property trust. He is also on the Board of the Centre for Independent Studies. His previous board experience includes chairman of Delta electricity, director of Macquarie Goodman Industrial property trust, Brierley Investments, the Industry Research and Development Board and Multigroup ltd (Startrack express). He is a former chairman of the Autism Association of nSW and chief executive and dean of the Australian Graduate School of Management.

Robert H. Duffin BSc (Hons), MSc (Hons), Grad Dip Mgt, FAusIMM Cp

Non-Executive Director. Appointed 15 June 1992. Resigned 22 May 2007.

Mr Duffin is a mining investment adviser and is managing director of Resource equity Consultants pty ltd, a firm specialising in the provision of mining and investment advisory services to the wholesale and retail investment communities. He is currently executive chairman of Western plains Resources ltd.

CoMPanY SeCRetaRYtony Macko BA in Accountancy CA, ACA (ICAeW), SA Fin, FtA, Dip Inv Relations (AIRA)

Company Secretary. Appointed 6 october 1994.

Mr Macko is a Chartered Accountant having worked in london and Sydney in various finance and accounting roles with companies involved in the resources sector. He has been Company Secretary for the Company since its Ipo in 1994. In addition to being the Group Company Secretary, he is also General Manager: Corporate Affairs, with particular responsibility for investor relations.

DiReCtoRSHiPS oF otHeR liSteD CoMPanieSDirectorships of other listed companies held by Directors in the three years immediately before the end of the financial year are as follows:

Director Company Period of directorship

Kenneth J. Moss Boral limited 1999 – presentGpt Management limited 2000 – presentAdsteam Marine limited 2001 – 2007

Robert G. Cameron Austral Coal limited 2005 – presentRobert H. Duffin Western plains Resources ltd 2005 – presentCatherine M. Brenner trafalgar Corporate Group limited 2003 – present

Cryosite limited 2006 – presentpaul J. Moy Austral Coal limited 2005 – presentpeter R. Dodd BluGlass limited 2007 – present

PRinCiPal aCtiVitieSthe Group’s principal activities in the course of the financial year were the mining and marketing of coal to Australian and export markets. During the financial year there was no significant change in the nature of those activities.

ReSUltSthe consolidated net profit after income tax of the Group for the financial year, attributable to the members of the Company, is $3.3 million (30 June 2006: $17.1 million).

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DiViDenDSthe dividends paid during the financial year were in respect of ordinary shares. Such dividends amounted to $25.1 million (30 June 2006: $26.0 million) and were paid as follows:

$M

october 2006 15.3 Being a final unfranked dividend in respect of the financial year ended 30 June 2006

April 2007 9.8 Being an interim unfranked dividend in respect of the financial year ended 30 June 2007

total cash dividends paid to Shareholders

25.1

In addition to the cash dividend paid, a further $7.7 million was allocated pursuant to Shareholder elections under the Company’s Dividend Reinvestment plan (“DRp”). Such Shareholder elections resulted in the issue of 2,429,144 ordinary shares at a discount of 2.5%. this discount is calculated as the five-day weighted average share price commencing with the date that the Company’s shares are quoted “ex-dividend” and concluding on the fifth day thereafter.

Since the end of the 2007 financial year, the Directors have declared the payment of a final dividend in respect of the financial year ended 30 June 2007 amounting to $12.2 million, equivalent to $0.04 per ordinary share unfranked (30 June 2006: $20.7 million, equivalent to $0.07 per ordinary share unfranked) payable on 5 october 2007. In accordance with Australian equivalents to International Financial Reporting Standards (“A-IFRS”), the final dividend has not been accounted for in these Financial Statements as it was not declared prior to 30 June 2007.

ReVieW oF oPeRationSCentennial’s equity share of RoM production for the year to 30 June 2007 was 17.5 million tonnes. this was 12% above the prior corresponding period benefiting from newstan’s return to longwall production, record production from Mandalong and Springvale and improving production consistency at tahmoor.

Sales for the year to 30 June 2007 were 16.6 million tonnes, 9% above the prior corresponding period, split approximately 75:25 – domestic:export. newstan’s increased production, combined with significantly higher production from Springvale and Mandalong, underpinned the increase in domestic sales.

Sales revenue was $901.8 million compared to $807.9 million in the previous year, an increase of 12%. Revenue growth was achieved as a result of higher production and higher average coking coal prices received following completion of deliveries under lower price “carry-over” arrangements inherited with the acquisition of tahmoor. this was partly offset by marginally lower thermal coal prices and the effect of a higher Australian dollar.

Centennial returned a 28% increase in eBItDA to $193.5 million and a 199% increase in operating cash flow for the year to 30 June 2007, following a record year at Mandalong and Springvale and newstan’s return to full production. In addition, the Group’s western operations again delivered a consistent and positive contribution to the year’s result.

on an after tax and minority basis, Centennial returned a net profit of $3.3 million for the year, compared with a net profit of $17.1 million for the prior corresponding period, after a one-off non-cash write-down of $35.8 million post-tax as a result of the restructure of the Group’s Central Coast operations (announced in november 2006).

In addition to this one-off non-cash write-down, the full year result has been negatively impacted by the well-documented geological issues at newstan, resulting in a pre-tax loss of $21.8 million and ventilation problems at tahmoor, reducing its pre-tax contribution by $8.6 million.

As part of the Central Coast restructuring, newstan will cease operations at the end of the 2008 financial year. newstan is expected to make a positive contribution to 2008 results, with action taken to de-risk remaining longwall mining by “side-stepping” the known fault zones and concluding all development activities once the final longwall panel is developed ready for extraction in September 2007. the restructure will also result in the planned closure of Mannering in mid-2008 while Awaba will cease production at the end of the March 2009 Quarter when reserves are expected to be exhausted.

the redeployment of resources from these mines will enable Centennial to accelerate Mandalong’s expansion into the export market, assist with the expansion of Myuna, and allow a greater focus on fewer, higher margin mines. A first development unit has already been successfully deployed from newstan to Mandalong with an improvement in its development performance already evident.

At tahmoor, the installation of the new fans is almost complete. tahmoor’s ventilation issues should be resolved when the new fans are commissioned.

Clearly, the impacts of newstan; the Central Coast restructure; and tahmoor’s lower than expected performance have overshadowed the strong positive contributions from Mandalong and the Group’s western operations.

A detailed review of the operations of the Group during the financial year is set out in the 2007 Annual Report.

eaRninGS PeR SHaReDetails of earnings per Share are set out in note 6 to the Financial Statements.

Details of movements in the number of shares issued during the year are set out in note 27 to the Financial Statements.

CHanGeS in State oF aFFaiRSDuring the financial year, there was no significant change in the state of affairs of the Group other than that referred to in this report, the review of operations, or in the Financial Statements or notes thereto.

SUBSeQUent eVentSthere has not been any other matter or circumstance, other than that referred to in the Financial Statements or notes thereto, that has arisen since the end of the financial year that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years.

FUtURe DeVeloPMentSIn the opinion of the Directors, disclosure of information regarding likely developments in the operations of the Group in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the Group. Accordingly, this information has not been disclosed in this report.

MeetinGS oF DiReCtoRSDuring the financial year, the number of meetings held and attended by Directors was as follows:

Number of meetings held

Directors’ meetings 14Audit & Risk Committee meetings 4Remuneration Committee meetings 3

DiReCtoRSHiPS oF otHeR liSteD CoMPanieSDirectorships of other listed companies held by Directors in the three years immediately before the end of the financial year are as follows:

Director Company Period of directorship

Kenneth J. Moss Boral limited 1999 – presentGpt Management limited 2000 – presentAdsteam Marine limited 2001 – 2007

Robert G. Cameron Austral Coal limited 2005 – presentRobert H. Duffin Western plains Resources ltd 2005 – presentCatherine M. Brenner trafalgar Corporate Group limited 2003 – present

Cryosite limited 2006 – presentpaul J. Moy Austral Coal limited 2005 – presentpeter R. Dodd BluGlass limited 2007 – present

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MeetinGS oF DiReCtoRS (ContinUeD)Attendance at meetings was as follows:

Directors’ meetingsaudit & Risk

Committee meetingsRemuneration

Committee meetings

Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend

K.J. Moss 14 14 – – 3 3C.M. Brenner 14 14 4 4 – – R.G. Cameron 14 14 – – – – p.R. Dodd 14 14 4 4 – – R.H. Duffin (resigned 22 May 2007) 10 11 – – 3 3p.J. Moy 10 14 4 4 – –

DiReCtoRS’ inteReStS in SHaReS anD oPtionS oF tHe CoMPanYparticulars of Directors’ interests in ordinary shares and options to acquire ordinary shares of the Company at the date of this report are as follows:

Ordinary sharesEmployee options(a)

2004 – 2007Employee options(b)

2005 – 2008Employee options(c)

2006 – 2009Employee options(d)

2007 – 2010Employee options(e)

2009 – 2011

K.J. Moss 324,341 – – – – – R.G. Cameron 5,357,688 333,333 333,333 333,333 333,333 400,000p.J. Moy 27,997 – – – – – C.M. Brenner 10,931 – – – – – p.R. Dodd 2,591 – – – – –


DirectorS’ report

Details of the employee options are as follows:(a) on 23 December 2002, 333,333 options were issued to a Director of

the Company under the Company’s Senior executive and Director Share option Scheme at an exercise price of $2.16.

(b) on 2 December 2003, 333,333 options were issued to a Director of the Company under the Company’s Senior executive and Director Share option Scheme at an exercise price of $2.47.

(c) on 14 December 2004, 333,333 options were issued to a Director of the Company under the Company’s Senior executive and Director Share option Scheme at an exercise price of $3.86.

(d) on 16 December 2005, 333,333 options were issued to a Director of the Company under the Company’s Senior executive and Director Share option Scheme at an exercise price of $3.77.

(e) on 21 December 2006, 400,000 options were issued to a Director of the Company under the Company’s Senior executive and Director Share option Scheme at an exercise price of $2.78.

each option entitles the holder to acquire one ordinary share in the capital of the Company following the achievement of a performance hurdle and the repayment of an interest free loan granted for the purpose of acquiring the option. Such options are exercisable on a sliding scale and only on the achievement of the performance hurdle, being the Company’s total Shareholder Return (“tSR”) as measured against the S&p/ASX 200 Accumulation Index.

ReMUneRation RePoRt1 Introductionthis Remuneration Report outlines the remuneration arrangements for Centennial’s Directors and executives in accordance with the requirements of the Corporations Act 2001 and its Regulations. It also provides the remuneration disclosures required by Accounting Standard AASB 124 Related party Disclosures, which have been included in the Remuneration Report in accordance with Regulation 2M.6.04. the remuneration disclosures required by AASB 124 have been audited.

the disclosures in this Remuneration Report cover the non-executive Directors and the executives of Centennial, which include the Managing Director and all other key management personnel having the authority and responsibility for planning, directing and controlling the activities of Centennial, including the five executives of Centennial receiving the highest remuneration for the year.

2 Remuneration principlesthe Remuneration Committee, consisting of two non-executive Directors, advises the Board on remuneration policies and practices generally, reviews and makes specific recommendations on the remuneration package and other terms of employment of the Managing Director, other executives and non-executive Directors.

the Committee, having regard to performance against goals set at the start of the year, relevant comparative information and independent expert advice, reviews executive remuneration, including performance related bonuses and other terms of employment annually, where appropriate.

Remuneration packages are set at levels that are intended to attract and retain executives of sufficient calibre to facilitate the efficient and effective management of the Company’s operations.

the guiding principles in managing executive remuneration are that:– all elements of remuneration should be set at an appropriate level having

regard to market practice for similar roles;– incentives should be used to differentiate reward for high performers and

to encourage continuous improvements in performance levels; and– the grant of medium/long-term equity incentives are designed to align the

interests of executives with those of Shareholders, support and encourage a culture of employee ownership and act as a retention incentive.

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3 Remuneration structureRemuneration packages are currently structured via a combination of:– Fixed Annual Remuneration (“FAR”) comprising base salary,

superannuation and fringe benefits;– short-term cash bonus; and– medium/long-term equity incentives through the issue of options

under the Company’s Senior executive & Director Share option Scheme (approved by Shareholders in 1999) with appropriate performance hurdles.

As noted below, the Directors are currently considering the introduction of a new medium/long-term equity incentive plan(s).

4 Relationship between remuneration policy and Company performance

the Company’s earnings and total Shareholder returns over the past five years are summarised in the following table:

2007 2006 2005 2004 2003

net profit after tax and minorities (millions) $3.3 $17.1 $24.2 $52.4 $40.2

total Shareholder Return (“tSR”) % 0.8 (34.1) 56.6 52.4 33.6

Annualised five-year tSR % 26.6 – – – –

the remuneration policy provides for a fixed component of remuneration irrespective of Company performance, with performance related bonuses granted after taking into account the Company’s performance and that of the individual executive. performance related bonuses for the 2006 financial year were paid at levels significantly less than the maximum permitted under individual executive service contracts, reflecting the Company’s reduced earnings in 2006 when compared with the 2005 financial year. performance related bonuses for the 2007 year have not yet been determined.

Despite the reduction in profitability over the past three years caused by the one-off early closure of Munmorah, the severe faulting experienced at newstan and the subsequent write-down in assets, shareholder wealth has increased at an annualised 26.6% per annum, being the annualised five-year tSR. In the Directors’ opinion, these two events have overshadowed strong achievements elsewhere; including the construction of the world-class Mandalong longwall mine, the acquisition of the tahmoor coking coal mine following a competitive process and the obtaining of development approval for Anvil Hill.

While recent profit performance has not met market expectations, the Group is well positioned for an improved 2008 financial year. targeted investment at the Group’s key mines should result in improved earnings and returns to Shareholders in the medium term. Coal mining is a long-term and capital-intensive business and without the necessary hard work and dedication of Company personnel, both in terms of day-to-day operations, forward planning and the execution thereof, the Company’s recovery would not be assured. Accordingly, Directors are of the opinion that executive remuneration has been appropriately set to achieve the remuneration objectives outlined in the guiding principles (noted above) adopted as part of the Board’s remuneration policy.

5 Non-Executive Director remunerationRemuneration of non-executive Directors is determined by the Board, upon the recommendation of the Remuneration Committee, and is structured in accordance with advice provided by external independent advisers. the fees are set within the maximum amount approved by Shareholders from time to time. the current maximum Directors’ fee pool, which was approved by Shareholders at the Annual General Meeting in 2005, is $1 million. Directors’ remuneration is set out in the table below on page 73.

With effect from 1 January 2006, the non-executive Directors’ Retirement Benefits Scheme (“Retirement Scheme”), which was adopted by Shareholders at the 1999 Annual General Meeting, has been “grandfathered” and all benefits frozen. entitlements at this date will not be paid out to Directors until retirement, at which point this frozen entitlement, plus interest accrued at the Company’s bank deposit rate, will be paid to the Director. All eligible Directors have entered into a Retirement Deed termination Agreement confirming these arrangements.

As a result of this decision to “grandfather” the Retirement Scheme, $10,902 of accrued interest was incurred on outstanding entitlements. With respect to the 2006 financial year, $11,319 of accrued interest was incurred from 1 January 2006, with a further $64,436 attributed to entitlements under the adjusted December 2002 arrangements (now “grandfathered”).

Following the cessation of the Retirement Scheme, Directors’ fees were reset as follows:– non-executive Director – $100,000 per annum, inclusive of

Superannuation Guarantee levy; and– Chairperson – $200,000 per annum, inclusive of

Superannuation Guarantee levy.

no additional fees are paid as a result of membership of a Board committee. Membership of Board committees is set out on page 68.

non-executive Directors continue to be required to take a minimum of 10% of their annual fee in the form of Centennial shares. Such shares are purchased “on-market” through the direct sacrificing of fees for this purpose. Directors may choose to meet their obligation by participating in the Company’s Deferred employee Share plan (a salary sacrifice share purchase plan established in 2002 for the benefit of employees) or through their personal superannuation plans.

the Board undertakes an annual review of its performance and the performance of its Committees. While performance related bonuses are available to executives, they are not payable to non-executive Directors.

6 Short-term incentivesShort-term performance related cash incentives are possible and are dependent on the satisfaction of a variety of conditions, specific to the individual executive’s responsibilities and the Company’s overall performance. performance objectives for each executive are set at the beginning of each year and compared with actual performance upon that individual’s annual performance review. the performance objectives are carefully selected for each executive to focus their efforts on the achievement of the Group’s business strategy. the objectives typically include individual KpIs and Company/Group safety, production, cost, profit and other commercial targets as well as a discretionary element to reward effort and achievement and generally encourage continuous improvements in performance levels.

MeetinGS oF DiReCtoRS (ContinUeD)Attendance at meetings was as follows:

Directors’ meetingsaudit & Risk

Committee meetingsRemuneration

Committee meetings

Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend

K.J. Moss 14 14 – – 3 3C.M. Brenner 14 14 4 4 – – R.G. Cameron 14 14 – – – – p.R. Dodd 14 14 4 4 – – R.H. Duffin (resigned 22 May 2007) 10 11 – – 3 3p.J. Moy 10 14 4 4 – –

DiReCtoRS’ inteReStS in SHaReS anD oPtionS oF tHe CoMPanYparticulars of Directors’ interests in ordinary shares and options to acquire ordinary shares of the Company at the date of this report are as follows:

Ordinary sharesEmployee options(a)

2004 – 2007Employee options(b)

2005 – 2008Employee options(c)

2006 – 2009Employee options(d)

2007 – 2010Employee options(e)

2009 – 2011

K.J. Moss 324,341 – – – – – R.G. Cameron 5,357,688 333,333 333,333 333,333 333,333 400,000p.J. Moy 27,997 – – – – – C.M. Brenner 10,931 – – – – – p.R. Dodd 2,591 – – – – –


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ReMUneRation RePoRt (ContinUeD)the Managing Director’s short-term incentive is dependent on corporate performance measured against the following criteria, together with an individual discretionary performance element:– Safety: achievement of budgeted targets.– Costs: achievement of budgeted targets.– profit: achievement of budgeted targets.– Share price: Company share price performance as measured against

several share indices, including the S&p/ASX 200 Index and the Company’s peer group.

the above performance hurdles were selected to determine the Managing Director’s short-term incentive as they reflect Centennial’s short-term corporate objectives and build strong foundations for the creation of longer-term value.

Following the end of the financial year, the Remuneration Committee is provided with relevant financial information to assess the performance of the Managing Director. It is also provided with details of the performance review of each direct report of the Managing Director and the various departmental heads, together with the Managing Director’s recommendation for the Committee’s consideration.

7 Long-term incentives – share-based incentives7a Review of the incentive planthe Remuneration Committee has embarked upon a comprehensive review of share-based incentive arrangements and has engaged independent consultants to review the Group’s medium and long-term incentive structures. the review is being undertaken to ensure that the Group’s incentive plans continue to meet the commercial needs of Centennial, remain aligned with Shareholder interests, and pay key management staff appropriately and competitively in a manner which focuses on both corporate and individual performance outcomes as the drivers of ‘at risk’ elements of pay.

7b Overview and purpose of planthe Centennial Senior executive and Director Share option Scheme (“option Scheme”), as set out in this report, has been in place since 1999.

entitlement to participate in the option Scheme by executives is dependent on achieving their respective performance criteria and the Company’s overall performance. Details of awards granted under the option Scheme are set out on page 79.

the option Scheme is not, however, solely limited to senior executives. It has been established to assist with the attraction of and retention of executives and mining professionals of sufficient calibre to facilitate the efficient and effective management of the Company’s operations. It is considered an integral part of the Company’s remuneration toolkit and an effective means of:– encouraging continuous improvements in performance levels;– aligning the interests of executives with those of Shareholders;– supporting and encouraging a culture of employee ownership; and– attracting and retaining highly skilled executives.

the importance of this last point has grown in recent times, given the worldwide shortage of professional mining executives and professionals with the necessary mining knowledge and skills required to manage the demands of modern coal mining in Australia. Consequently, during the year, the Directors again saw fit to issue options to a greater number of executives than in the prior financial year as a means of reducing competition for the services of key personnel and at the same time encouraging these same executives to achieve higher levels of performance and achievement. undoubtedly, the Company’s option Scheme has played an important role in executive remuneration, linking performance and reward.

7c Summary of Option Schemethe following table summarises the current option Scheme as it applies to grants prior to and including the 2007 financial year. (As noted above, the Directors are currently considering the appropriateness of the existing scheme).

DirectorS’ report

Grants prior to and including the 2006 financial year Grants beginning with the 2007 financial year

Form of award Market priced options purchased by participants with acquisition cost funded by an interest free non-recourse loan.

performance measure tSR measured against companies in the S&p/ASX 200 Index at the date of grant.

tSR was selected as the performance measure for the option Scheme to directly link executive rewards to the returns received by Shareholders.

performance period performance condition must be achieved over any rolling 12 month period from the date of grant.

Following the first test conducted on the third anniversary of the grant of options, the testing period will accumulate with each passing quarter thereafter to the maximum five-year life of the option.

performance schedule 50% vests if 50th percentile ranking achieved, 100% vests for achieving 75th percentile ranking, with straight-line vesting between 50th percentile and 75th percentile.

How is tSR performance measured and why? to ensure the independence of calculation, the Company Secretary obtains tSR information from an external source for the purposes of determining the status of outstanding option grants.

Vesting period First date options can be exercised is the second anniversary of grant subject to meeting performance hurdle.

First date options can be exercised is the third anniversary of grant subject to meeting performance hurdle.

Service criteria If a participant ceases employment due to retirement, redundancy, disablement or other circumstances as determined by the Board, or in the case of an executive director, the participant ceases to be a Director, options may be exercised within a specified period.

If a participant ceases employment in other circumstances, options lapse.

on death of a participant, options can be exercised subject to Board approval.

Change of control under a change of control (as defined in the option Scheme rules) or if certain events occur in relation to a takeover offer for Centennial, options may be exercised within 60 days.

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Centennial notes that unlike many other option schemes, Centennial employees are required to purchase the options offered and so the effective exercise price of the options is increased by the multiple 1.116 (e.g. 100 cents exercise price plus repayment of the 11.6-cent loan). From the executive’s point of view, the structure of the option Scheme allows the executive to participate in a potentially more tax effective manner (utilising the incentive structure available under Division 13A, part III of the Income tax Assessment Act 1936, as amended).

Since the introduction of the option Scheme, Centennial has made available to option Scheme participants non-recourse loans, equivalent to 11.6% of the five-day weighted average price of the Company’s shares that forms the purchase price of the option, to enable participants to purchase the options offered.

upon exercise of any options, the appropriate portion of the non-recourse loan must be repaid (i.e. in effect raising the exercise price as described above). In the event that the option expires worthless, the executive is not burdened with a debt that may negatively affect his/her future performance. Without the offer of the non-recourse loan, many executives would be unable to accept any options offered and the incentive value of this remuneration component would be lost.

Accordingly, the Remuneration Committee believes that the loan feature of the option Scheme increases its effectiveness from a retention and incentive perspective, and is therefore in the best interests of Centennial and its Shareholders. (this feature is also taken into account in determining the size/number of options granted.)

7d Details of Option Schemethe following details apply to all options granted to Directors, other key management personnel and other personnel under the Senior executive and Director Share option Scheme.

As at 30 June 2007, Centennial had on issue 8,727,332 options (30 June 2006: 6,485,332) under the Company’s Senior executive and Director Share option Scheme (“the Scheme” or “option Scheme”). the terms of the Scheme are outlined below:

(a) options to be issued under the option Scheme will be issued at market price calculated in accordance with Division 13A of part III of the Income tax Assessment Act 1936. under those provisions, the market price of an option under the option Scheme will be 11.6% of the amount that must be paid to exercise the option. the exercise price is calculated as the weighted average of Australian Securities exchange (“ASX”) traded prices of the Company’s ordinary shares over the seven days up to and including the date the option is granted. each option will entitle the option holder to subscribe for one ordinary share in the capital of the Company.

(b) except where a specified exercise event occurs an option may only be exercised during the respective option exercise period as detailed in respect of each tranche of options outlined below.

(c) All options expire on the fifth anniversary of the granting of the option.(d) options may also be exercised upon the occurrence of an exercise event

as defined in the rules of the Scheme. In this case, an option may be exercised notwithstanding that the exercise period has not arrived or that any performance hurdle has not been satisfied.

(e) An exercise event occurs: (i) where a person, or two or more persons who are acting in concert,

are in a position to cast, or control the casting of, 30% or more of the maximum number of votes that might be cast at a general meeting of the Company;

(ii) where a takeover offer is made to purchase all or some of the ordinary shares in Centennial; or

(iii) where Special Circumstances exist. Special Circumstances exist if cessation of employment of an employee occurs as a result of retirement, redundancy or disablement or a Director ceases to be a Director for any reason other than fraud, defalcation or a Corporations Act offence.

(f) Where an exercise event occurs, options must be exercised within 60 days. In the case of death of an employee or Director, or where it would be in the Company’s best interests (e.g. termination of employment of a long serving employee), the Board may determine the circumstances and timeframe for exercise of an option.

(g) option holders are not entitled to sell, mortgage, charge, assign or otherwise dispose of an option without the authority of the Board.

(h) option loan: under section 260A of the Corporations Act 2001 a company may

financially assist a person to acquire shares in the company or a holding company of the company if, amongst other reasons, the assistance under subsection 260A(1)(a) does not materially prejudice the interests of the company or its shareholders; or the company’s ability to pay its creditors. In this regard:

(i) the Directors have been advised that the financial assistance being provided satisfies the requirements of section 260A(1)(a);

(ii) the Scheme enables the Company to offer participants in the option Scheme an interest free loan (“option loan”) to enable them to acquire options; and

(iii) the full terms and conditions on which the option loan will be offered are set out in the rules of the Scheme.

the maximum amount of any option loan is equal to the sum of the issue price of the options granted and any government charges or duties that are payable by the participant in respect of the option loan.

the option loan is secured against the participant’s interest in the Scheme. Should the value of the Company’s ordinary shares fall below the issue

price of the options, the option loan is only recoverable up to, but not exceeding, that value.

the option loan is to be repaid upon the occurrence of one of the following circumstances:

(i) the occurrence of an exercise event, where the participant ceases to be employed by the Group or upon the death of an option holder;

(ii) the date of expiry of the option to which the option loan relates; or (iii) the date on which the participant exercises the option.(i) Where an unexercised option is about to expire, the Company will buy

back the option for an amount equal to the issue price of the option. Centennial will apply the buy-out price against the amount of the option loan outstanding in respect of the option.

(j) performance hurdles with respect to exercising options: (i) the Board has the right to determine what the appropriate

performance hurdle should be for each issue of options under the Scheme to Senior executives of the Company;

(ii) if options are issued to Directors of the Company, authority must be obtained via a special resolution of Shareholders in General Meeting and the issue must be in accordance with the listing Rules of the ASX; and

(iii) the Directors have determined that the options issued under the Scheme may only be exercised where a performance hurdle occurs before or during the option exercise period.

(k) the following tranches of options have been granted under the Scheme and remain in issue. they are exercisable on a sliding scale and only on the achievement of the performance hurdle over a rolling 12 month period from the date of issue, being the Company’s total Shareholder Return (“tSR”) as measured against the S&p/ASX 200 Index:

Grants prior to and including the 2006 financial year Grants beginning with the 2007 financial year

Form of award Market priced options purchased by participants with acquisition cost funded by an interest free non-recourse loan.

performance measure tSR measured against companies in the S&p/ASX 200 Index at the date of grant.

tSR was selected as the performance measure for the option Scheme to directly link executive rewards to the returns received by Shareholders.

performance period performance condition must be achieved over any rolling 12 month period from the date of grant.

Following the first test conducted on the third anniversary of the grant of options, the testing period will accumulate with each passing quarter thereafter to the maximum five-year life of the option.

performance schedule 50% vests if 50th percentile ranking achieved, 100% vests for achieving 75th percentile ranking, with straight-line vesting between 50th percentile and 75th percentile.

How is tSR performance measured and why? to ensure the independence of calculation, the Company Secretary obtains tSR information from an external source for the purposes of determining the status of outstanding option grants.

Vesting period First date options can be exercised is the second anniversary of grant subject to meeting performance hurdle.

First date options can be exercised is the third anniversary of grant subject to meeting performance hurdle.

Service criteria If a participant ceases employment due to retirement, redundancy, disablement or other circumstances as determined by the Board, or in the case of an executive director, the participant ceases to be a Director, options may be exercised within a specified period.

If a participant ceases employment in other circumstances, options lapse.

on death of a participant, options can be exercised subject to Board approval.

Change of control under a change of control (as defined in the option Scheme rules) or if certain events occur in relation to a takeover offer for Centennial, options may be exercised within 60 days.

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ReMUneRation RePoRt (ContinUeD)

If at any time during the exercise period of the options the TSR of the Company The percentage of options which become exercisable is

Does not reach the 50th percentile of the tSR of the S&p/ASX 200 Index 0%Reaches the 50th percentile of the tSR of the S&p/ASX 200 Index 50%Reaches or exceeds the 75th percentile of the tSR of the S&p/ASX 200 Index 100%

Issue dateNo. of options

issued Exercise price

Status of performance

hurdle Status of vestingNo. of options

exercisedNo. of options

lapsed

23/12/02 653,333 $2.16 Fully achieved Vested 320,000 – 29/05/03 435,000 $2.31 Fully achieved Vested 208,000 – 2/12/03 333,333 $2.47 Fully achieved Vested – – 16/06/04 1,350,000 $3.02 Fully achieved Vested 20,000 95,00014/02/04 1,523,333 $3.86 not achieved not vested – 60,00016/12/05 2,473,333 $3.77 not achieved not vested – 450,00021/12/06* 3,473,000 $2.78 not achieved not vested – 361,000

* options issued under this tranche are subject to a modified testing regime, with the first test carried out upon the third anniversary of the date of grant. thereafter, the testing period will accumulate with each passing quarter to the maximum five-year life of the option.

8 Securities tradingShareholder governance groups have expressed concern regarding the use of derivatives to hedge against an executive’s pre-vested equity incentive.

the Directors advise that the hedging of pre-vested entitlements is not permitted, given that Centennial holds all options as security against the non-recourse loans (referred to above). executives may make their own choice regarding hedging of shareholdings subsequent to vesting. If the executive is required to make a disclosure under section 205G of the Corporations Act 2001 (primarily a director of a listed entity), then that individual will be required to disclose such arrangements in a Form 3Y to be lodged with the ASX.

9 Service agreements applying to key management personnelRemuneration and other terms of employment for executives (including the Managing Director) are formalised in service contracts. these agreements do not have a fixed term and provide for a total remuneration package amount that is reviewed annually.

the service agreements stipulate that in the event that the Company terminates their employment, the Company will be required to compensate the executive for loss of income based on a specified notice period of 12 months. the service agreements also contain clauses regarding protection of the Company’s intellectual property and requirements governing the behaviour of the executive during his/her employment, including non-competition with the Company.

10 Remuneration and fees paidDetails of the emoluments of key management personnel of the Company and the Group for the 2007 and 2006 financial years are set out below.

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Remuneration packages of the Directors of the Company:

Financial Year – 2007

Short-term benefits Post-employment benefitsShare-based

payment

OfficeSalary and fees

$Cash bonus

$Non-monetary

$Superannuation

$

Other (Directors’

Retirement Scheme)

$

Termination benefits

$Options

$Total

$

K.J. Moss Chairman 183,480 – – 16,520 10,902 – – 210,902R.G. Cameron Managing Director 988,784 80,000 142,256 18,960 – – 147,298 1,377,298R.H. Duffin Director 67,427 – – 6,068 8,059 – – 81,554p.J. Moy Director 91,740 – – 8,260 – – – 100,000C.M. Brenner Director 91,740 – – 8,260 – – – 100,000p.R. Dodd Director 91,740 – – 8,260 – – – 100,000

1,514,911 80,000 142,256 66,328 18,961 – 147,298 1,969,754

(1) the assumptions supporting the value of options in the 2007 financial year are set out on page 78.

(2) non-executive Directors are required to salary sacrifice a minimum of 10% of their fee for the purchase of Company shares. this sacrificed amount is included in Salary and Fees.

(3) entitlement to a benefit under the Directors’ Retirement Scheme is limited to those non-executive Directors in office at December 2002. As the Retirement Scheme was frozen with effect from 1 January 2006, these amounts represent interest earned on entitlements at the Company’s deposit rate of interest.

(4) Mr R.H. Duffin retired in May 2007. Consequently, his accrued benefits under the Retirement Scheme have been paid.



payment

OfficeSalary and fees

$Cash bonus

$Non-monetary

$Superannuation

$

Other (Directors’

Retirement Scheme)

$


$Options

$Total

$

K.J. Moss Chairman 146,740 – – 13,210 42,040 – – 201,990R.G. Cameron Managing Director 861,824 192,000 118,216 18,960 – – 129,537 1,320,537R.H. Duffin Director 71,102 – – 6,399 17,673 – – 95,174p.J. Moy Director 75,870 – – 6,830 – – – 82,700J.S. Roth Director 50,435 – – 4,540 16,042 – – 71,017C.M. Brenner Director 60,171 – – 5,418 – – – 65,589p.R. Dodd Director 18,349 – – 1,651 – – – 20,000

1,284,491 192,000 118,216 57,008 75,755 – 129,537 1,857,007


(2) non-executive Directors are required to salary sacrifice a minimum of 10% of their fee for the purchase of Company shares. this sacrificed amount is included in Salary and Fees.

(3) entitlement to a benefit under the Directors’ Retirement Scheme is limited to those non-executive Directors in office at December 2002. As the Retirement Scheme was frozen with effect from 1 January 2006, these amounts represent a final six-month accrual to 31 December 2005 plus interest earned on entitlements at the Company’s deposit rate of interest from 1 January 2006.

(4) Mr J.S. Roth retired in April 2006. Consequently, his accrued benefits under the Retirement Scheme have been paid.

ReMUneRation RePoRt (ContinUeD)

If at any time during the exercise period of the options the TSR of the Company The percentage of options which become exercisable is

Does not reach the 50th percentile of the tSR of the S&p/ASX 200 Index 0%Reaches the 50th percentile of the tSR of the S&p/ASX 200 Index 50%Reaches or exceeds the 75th percentile of the tSR of the S&p/ASX 200 Index 100%

Issue dateNo. of options

issued Exercise price

Status of performance

hurdle Status of vestingNo. of options

exercisedNo. of options

lapsed

23/12/02 653,333 $2.16 Fully achieved Vested 320,000 – 29/05/03 435,000 $2.31 Fully achieved Vested 208,000 – 2/12/03 333,333 $2.47 Fully achieved Vested – – 16/06/04 1,350,000 $3.02 Fully achieved Vested 20,000 95,00014/02/04 1,523,333 $3.86 not achieved not vested – 60,00016/12/05 2,473,333 $3.77 not achieved not vested – 450,00021/12/06* 3,473,000 $2.78 not achieved not vested – 361,000

* options issued under this tranche are subject to a modified testing regime, with the first test carried out upon the third anniversary of the date of grant. thereafter, the testing period will accumulate with each passing quarter to the maximum five-year life of the option.

8 Securities tradingShareholder governance groups have expressed concern regarding the use of derivatives to hedge against an executive’s pre-vested equity incentive.

the Directors advise that the hedging of pre-vested entitlements is not permitted, given that Centennial holds all options as security against the non-recourse loans (referred to above). executives may make their own choice regarding hedging of shareholdings subsequent to vesting. If the executive is required to make a disclosure under section 205G of the Corporations Act 2001 (primarily a director of a listed entity), then that individual will be required to disclose such arrangements in a Form 3Y to be lodged with the ASX.

9 Service agreements applying to key management personnelRemuneration and other terms of employment for executives (including the Managing Director) are formalised in service contracts. these agreements do not have a fixed term and provide for a total remuneration package amount that is reviewed annually.

the service agreements stipulate that in the event that the Company terminates their employment, the Company will be required to compensate the executive for loss of income based on a specified notice period of 12 months. the service agreements also contain clauses regarding protection of the Company’s intellectual property and requirements governing the behaviour of the executive during his/her employment, including non-competition with the Company.

10 Remuneration and fees paidDetails of the emoluments of key management personnel of the Company and the Group for the 2007 and 2006 financial years are set out below.

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ReMUneRation RePoRt (ContinUeD)Remuneration packages paid to the executives that met the definition of key management personnel of the Company and the Group:



payment

Name and titleSalary and fees

$Cash bonus

$Non-monetary

$Superannuation

$

Other long-term benefits

$


$Options

$Total

$

D.J. Moult Chief operating officer 435,994 27,300 27,006 60,000 – – 59,708 610,008

M.B. Clyde General Manager: Strategy and Development 237,463 25,200 21,587 103,200 – 42,106 59,708 489,264

R.J. Dougall Chief Financial officer 363,067 22,260 43,433 20,500 – – 43,696 492,956

R.W. Knight General Manager: Marketing 224,940 15,000 14,068 105,992 – – 25,983 385,983

t. Macko General Manager: Corporate Affairs and Company Secretary 286,567 14,200 3,526 36,906 – – 30,101 371,300

p.W. parry General Manager: Financial Control 244,541 12,650 16,678 29,781 – – 30,101 333,751l. Baldwin General Counsel 175,540 6,000 1,000 16,460 – – 10,368 209,368

1,968,112 122,610 127,298 372,839 – 42,106 259,665 2,892,630

(1) Centennial operates a total cost to the Company approach with respect to executive remuneration. As a result, base salary is net of superannuation guarantee levy payments.

(2) the above executives have entered into service contracts with the Company, which stipulate that in the event that the Company terminates their service contracts early, the Company will be required to compensate the executive for loss of income based on a specified notice period of 12 months.



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payment


$Cash bonus

$Non-monetary

$Superannuation

$


$


$Options

$Total

$

D.J. Moult Chief operating officer 382,360 96,900 14,640 58,000 – – 57,279 609,179M.B. Clyde General Manager: Strategy and Development 358,545 82,562 16,860 44,595 – – 57,279 559,841



t. Macko General Manager: Corporate Affairs and Company Secretary 261,294 59,687 – 22,706 – – 31,731 375,418

p.W. parry General Manager: Financial Control 203,582 54,812 19,637 29,781 – – 31,731 339,543

l. Baldwin General Counsel (appointed April 2006) 31,064 – – 2,795 – – – 33,859

1,755,387 411,711 92,272 269,200 – – 249,793 2,778,363




ReMUneRation RePoRt (ContinUeD)Remuneration packages paid to the executives that met the definition of key management personnel of the Company and the Group:



payment


$Cash bonus

$Non-monetary

$Superannuation

$


$


$Options

$Total

$

D.J. Moult Chief operating officer 435,994 27,300 27,006 60,000 – – 59,708 610,008

M.B. Clyde General Manager: Strategy and Development 237,463 25,200 21,587 103,200 – 42,106 59,708 489,264



t. Macko General Manager: Corporate Affairs and Company Secretary 286,567 14,200 3,526 36,906 – – 30,101 371,300

p.W. parry General Manager: Financial Control 244,541 12,650 16,678 29,781 – – 30,101 333,751l. Baldwin General Counsel 175,540 6,000 1,000 16,460 – – 10,368 209,368

1,968,112 122,610 127,298 372,839 – 42,106 259,665 2,892,630




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ReMUneRation RePoRt (ContinUeD)Bonus details relating to the Managing Director and executives are as follows:

Bonus payment details

% of bonus paid/vested

2007(1)

% of bonus forfeited

2007(1)

Subsequent financial years in whichbonus payable(2)

Max/min value of bonus payable in

subsequent financial years(2)

R.G. Cameron Managing Director 20% 70% 2007 & 2008 5% in each yearD.J. Moult Chief operating officer 20% 70% 2007 & 2008 5% in each year

M.B. Clyde General Manager: Strategy and Development 20% 70% 2007 & 2008 5% in each year

R.J. Dougall Chief Financial officer 20% 70% 2007 & 2008 5% in each year

t. Macko General Manager: Corporate Affairs and Company Secretary 20% 70% 2007 & 2008 5% in each year

R.W. Knight General Manager: Marketing 20% 70% 2007 & 2008 5% in each yearp.W. parry General Manager: Financial Control 20% 70% 2007 & 2008 5% in each year

(1) Bonuses paid during the 2007 financial year relate to the previous financial year. Annual reviews with respect to the 2007 financial year are yet to be completed.

(2) Cash bonuses have been split, with two-thirds representing a short-term incentive and the balance representing a retention bonus to be paid on 1 July in each of 2007 and 2008.

11 Summary of issued options(a) Balance at the beginning of the 2007 Financial Year

Date options issued NumberStart date of

exercise period Expiry date Exercise price

2 Apr 2002 175,000 2 Apr 2004 2 Apr 2007 $2.13723 Dec 2002 423,333 23 Dec 2004 23 Dec 2007 $2.16029 May 2003 247,000 29 May 2005 29 May 2008 $2.3102 Dec 2003 333,333 2 Dec 2005 2 Dec 2008 $2.47016 Jun 2004 1,310,000 16 June 2006 16 Jun 2009 $3.02014 Dec 2004 1,523,333 14 Dec 2006 14 Dec 2009 $3.86016 Dec 2005 2,473,333 16 Dec 2007 16 Dec 2010 $3.770

6,485,332

(b) (i) Granted during the 2007 Financial Year


exercise period Expiry date Exercise price Fair value per option

21 Dec 2006 3,473,000 21 Dec 2009 21 Dec 2011 $2.7763 $0.37

(b) (ii) Granted during the 2006 Financial Year



16 Dec 2005 2,473,333 16 Dec 2007 16 Dec 2010 $3.77 $0.51


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ReMUneRation RePoRt (ContinUeD)Bonus details relating to the Managing Director and executives are as follows:

Bonus payment details

% of bonus paid/vested

2007(1)

% of bonus forfeited

2007(1)

Subsequent financial years in whichbonus payable(2)

Max/min value of bonus payable in

subsequent financial years(2)

R.G. Cameron Managing Director 20% 70% 2007 & 2008 5% in each yearD.J. Moult Chief operating officer 20% 70% 2007 & 2008 5% in each year

M.B. Clyde General Manager: Strategy and Development 20% 70% 2007 & 2008 5% in each year

R.J. Dougall Chief Financial officer 20% 70% 2007 & 2008 5% in each year

t. Macko General Manager: Corporate Affairs and Company Secretary 20% 70% 2007 & 2008 5% in each year

R.W. Knight General Manager: Marketing 20% 70% 2007 & 2008 5% in each yearp.W. parry General Manager: Financial Control 20% 70% 2007 & 2008 5% in each year

(1) Bonuses paid during the 2007 financial year relate to the previous financial year. Annual reviews with respect to the 2007 financial year are yet to be completed.

(2) Cash bonuses have been split, with two-thirds representing a short-term incentive and the balance representing a retention bonus to be paid on 1 July in each of 2007 and 2008.

11 Summary of issued options(a) Balance at the beginning of the 2007 Financial Year


exercise period Expiry date Exercise price

2 Apr 2002 175,000 2 Apr 2004 2 Apr 2007 $2.13723 Dec 2002 423,333 23 Dec 2004 23 Dec 2007 $2.16029 May 2003 247,000 29 May 2005 29 May 2008 $2.3102 Dec 2003 333,333 2 Dec 2005 2 Dec 2008 $2.47016 Jun 2004 1,310,000 16 June 2006 16 Jun 2009 $3.02014 Dec 2004 1,523,333 14 Dec 2006 14 Dec 2009 $3.86016 Dec 2005 2,473,333 16 Dec 2007 16 Dec 2010 $3.770

6,485,332

(b) (i) Granted during the 2007 Financial Year



21 Dec 2006 3,473,000 21 Dec 2009 21 Dec 2011 $2.7763 $0.37

(b) (ii) Granted during the 2006 Financial Year



16 Dec 2005 2,473,333 16 Dec 2007 16 Dec 2010 $3.77 $0.51

(c) (i) Exercised during the 2007 Financial Year

Exercise dateNumber of options

exercisedDate options

issued Expiry dateNumber of

shares issued

Exercise price per share

$Cash received

$

11 Sep 2006 90,000 23 Dec 2002 23 Dec 2007 90,000 $2.41 216,90031 Oct 2006 20,000 29 May 2003 29 May 2008 20,000 $2.58 51,60012 Nov 2006 20,000 16 Jun 2004 16 Jun 2009 20,000 $3.37 67,40013 Mar 2007 25,000 2 Apr 2002 2 Apr 2007 25,000 $2.39 59,75028 Mar 2007 50,000 2 Apr 2002 2 Apr 2007 50,000 $2.39 119,50030 Mar 2007 50,000 2 Apr 2002 2 Apr 2007 50,000 $2.39 119,500

255,000

(c) (ii) Exercised during the 2006 Financial Year

Exercise dateNumber of options

exercisedDate options

issued Expiry dateNumber of

shares issued

Exercise price per share

$Cash received

$

8 Aug 2005 55,000 29 May 2003 29 May 2008 55,000 $2.58 $141,90024 Aug 2005 25,000 29 May 2003 29 May 2008 25,000 $2.58 $64,50026 Sep 2005 8,000 29 May 2003 29 May 2008 8,000 $2.58 $20,64028 nov 2005 60,000 29 May 2003 29 May 2008 60,000 $2.58 $154,80015 Mar 2006 50,000 20 Mar 2001 20 Mar 2006 50,000 $1.18 $59,000

198,000

(d) Lapsed during the 2007 Financial Year 945,667 options issued to executives lapsed during the 2007 financial year.

(e) Balance at the end of the 2007 Financial Year

Date options issuedNumber vested and exercisable

Number vested and not exercisable

Numberunvested

Start date of exercise period Expiry date Exercise price

23 Dec 2002 333,333 – – 23 Dec 2004 23 Dec 2007 $2.1629 May 2003 227,000 – – 29 May 2005 29 May 2008 $2.312 Dec 2003 333,333 – – 2 Dec 2005 2 Dec 2008 $2.4716 Jun 2004 1,235,000 – – 16 Jun 2006 16 Jun 2009 $3.0214 Dec 2004 – – 1,463,333 14 Dec 2006 14 Dec 2009 $3.8616 Dec 2005 – – 2,023,333 16 Dec 2007 16 Dec 2010 $3.7721 Dec 2006 – – 3,112,000 21 Dec 2009 21 Dec 2011 $2.78

2,128,666 – 6,598,666

(f) Employee expenses

ConSoliDateD CoMPanY

2007$M

2006$M

2007$M

2006$M

Share options granted in 2006 – 0.9 – 0.9Share options granted in 2007 1.0 – 1.0 –

total expense recognised as employee costs 1.0 0.9 1.0 0.9

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ReMUneRation RePoRt (ContinUeD)12 (a) Value of options issued to Director and executives the following table discloses the value of options granted, exercised or lapsed during the 2007 financial year:

Options grantedOptions

exercisedOptions lapsed

Total value of options granted,

exercisedand lapsed(1)

$

Value of options included in

remuneration for the year

$

Percentage of total remuneration

for the year that consists of options

%Value at grant date

$

Value at exercise date

$

Value at time of lapse

$

R.G. Cameron Managing Director 148,597 – – 148,597 147,298 11.5%D.J. MoultChief operating officer 62,411 74,700 – 137,111 59,708 9.8%

M.B. ClydeGeneral Manager: Strategy and Development 62,411 – – 62,411 59,708 12.2%

R.J. DougallChief Financial officer 53,495 – – 53,495 43,696 8.9%

R.W. KnightGeneral Manager: Marketing 44,579 – – 44,579 25,983 6.7%

t. MackoGeneral Manager: Corporate Affairs and Company Secretary 53,495 – – 53,495 30,101 8.1%

p.W. parryGeneral Manager: Financial Control 53,495 – – 53,495 30,101 9.0%l. Baldwin General Counsel 53,495 – – 53,495 10,368 5.0%

(1) the total value of options granted, exercised and lapsed are calculated based on the fair value of the option at grant, exercise and lapsed date respectively multiplied by the number of options granted, exercised and lapsed during the year. the value of options granted has been calculated in accordance with AASB 2 Share-based payment.

12 (b) Valuation assumptions used in the calculation of the value of share optionsthe fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. the estimate of the fair value of the share options granted is measured based on the Black-Scholes formula. expectations of early exercise are incorporated into the Black-Scholes formula:

Assumptions used in the valuation model for share options 2007 2006

Share price at grant date $2.77 $3.80exercise price $3.10 $4.21expected volatility 48% 34%option life 5 years 5 yearsDividend yield 3.64% 2.60%Risk-free interest rate 5.22% 5.34%

(1) the expected volatility is based on the historic volatility (which is calculated over the weighted average remaining life of the share option) adjusted for any expected changes to future volatility arising from publicly available information.


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12 (c) Share options granted to Senior ExecutivesShare options over unissued ordinary shares of Centennial granted during or since the end of the financial year to key management personnel of the Company and Group as part of their remuneration package were as follows:

Senior Executive and Director share options. Exercise period 2009 – 2012

Exercisable @ $2.78 per option(2)

Number

R.G. Cameron – Managing Director 400,000D.J. Moult – Chief operating officer 168,000M.B. Clyde – General Manager: Strategy and Development 168,000R.J. Dougall – Chief Financial officer 144,000R.W. Knight – General Manager: Marketing 120,000t. Macko – General Manager: Corporate Affairs and Company Secretary 144,000p.W. parry – General Manager: Financial Control 144,000l. Baldwin – General Counsel 144,000

(1) under the Centennial Senior executive and Director Share option Scheme, a total of 8,727,332 share options, representing 2.86% of the Company’s issued share capital as at 30 June 2007, have been issued to executives, Senior Management and the Managing Director of the Company. no other options are outstanding at the date of this report.

(2) the exercise price noted above represents the five-day weighted average price per share before taking into account an additional 11.6% of this calculated exercise price that is attributed to the purchase cost of the option. In effect, the cost to the employee becomes $3.21 per share. Additionally, this calculated exercise price should not be confused with the share price at date of grant used in the calculation of the value of share options in the table above.

ReMUneRation RePoRt (ContinUeD)12 (a) Value of options issued to Director and executives the following table discloses the value of options granted, exercised or lapsed during the 2007 financial year:

Options grantedOptions

exercisedOptions lapsed

Total value of options granted,

exercisedand lapsed(1)

$

Value of options included in

remuneration for the year

$

Percentage of total remuneration

for the year that consists of options

%Value at grant date

$

Value at exercise date

$

Value at time of lapse

$

R.G. Cameron Managing Director 148,597 – – 148,597 147,298 11.5%D.J. MoultChief operating officer 62,411 74,700 – 137,111 59,708 9.8%

M.B. ClydeGeneral Manager: Strategy and Development 62,411 – – 62,411 59,708 12.2%

R.J. DougallChief Financial officer 53,495 – – 53,495 43,696 8.9%

R.W. KnightGeneral Manager: Marketing 44,579 – – 44,579 25,983 6.7%

t. MackoGeneral Manager: Corporate Affairs and Company Secretary 53,495 – – 53,495 30,101 8.1%

p.W. parryGeneral Manager: Financial Control 53,495 – – 53,495 30,101 9.0%l. Baldwin General Counsel 53,495 – – 53,495 10,368 5.0%

(1) the total value of options granted, exercised and lapsed are calculated based on the fair value of the option at grant, exercise and lapsed date respectively multiplied by the number of options granted, exercised and lapsed during the year. the value of options granted has been calculated in accordance with AASB 2 Share-based payment.

12 (b) Valuation assumptions used in the calculation of the value of share optionsthe fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. the estimate of the fair value of the share options granted is measured based on the Black-Scholes formula. expectations of early exercise are incorporated into the Black-Scholes formula:

Assumptions used in the valuation model for share options 2007 2006

Share price at grant date $2.77 $3.80exercise price $3.10 $4.21expected volatility 48% 34%option life 5 years 5 yearsDividend yield 3.64% 2.60%Risk-free interest rate 5.22% 5.34%

(1) the expected volatility is based on the historic volatility (which is calculated over the weighted average remaining life of the share option) adjusted for any expected changes to future volatility arising from publicly available information.

enViRonMental ReGUlationSCentennial is subject to a number of environmental controls, legislation and governmental requirements covering each of its mining operations.

Legislative frameworklegislative controls principally relate to emission and discharge standards and environmental planning requirements. Key environmental regulators in nSW include the Department of environment and Conservation (“DeC”) which incorporates the former environment protection Authority (“epA”), the Department of primary Industries – Mineral Resources (“DpI-MR”) and the Department of planning (“Dop”).

Rehabilitation bonds, administered by the DpI-MR, are required to be lodged by Centennial as a condition of each lease held by a Group company to cover the rehabilitation liability of each mine site. the DpI-MR, in discussion with the Company, determines an appropriate level for each bond on a case-by-case basis. A number of Centennial sites had their bonds reviewed during the reporting period. these bonds are returned upon the Company satisfying the DpI-MR that the mine site has been satisfactorily rehabilitated. this process provides the community with assurance that the rehabilitation obligations of mining operations are adequately fulfilled.

the DpI-MR has implemented a new regulatory standard for mines that have the potential to cause subsidence. this Subsidence Management plan (“SMp”) requires detailed and early environmental investigation, risk assessments and community consultation. Centennial has committed significant time and resources on gaining appropriate approvals and thereby contributing to a sustainable minerals industry.

Government and community liaisonCentennial is fully aware of its environmental obligations and the expectations of government and the community. We have an open and transparent approach to environmental management and keep regulatory authorities fully informed of our activities.

the Company maintains an active approach in keeping Shareholders (via the Quarterly Activities Report) and local communities informed of our activities. In addition, the Company is increasingly involving the local communities in which the Group operates to provide a better understanding of Centennial’s activities, which assists in meeting our corporate goal of balanced environmental, economic and social outcomes.

aUDitoR’S inDePenDenCe anD non-aUDit SeRViCeSCentennial is committed to audit independence. the Audit & Risk Committee reviews the independence of the external auditor on an annual basis. this process includes confirmation from the auditor that, in its professional judgment, it is independent of the Centennial Group. to ensure that there is no potential conflict of interest in work undertaken by the external auditor (Deloitte touche tohmatsu), it may only provide services that are consistent with the role of the Company’s auditor.

the Board of Directors has considered the position and, in accordance with the advice from the Audit & Risk Committee, is satisfied that the provision of the non-audit services during the period is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

the Directors are of the opinion that the services as disclosed below do not compromise the external auditor’s independence, based on advice received from the Audit & Risk Committee, for the following reasons:(a) all non-audit services have been reviewed and approved to ensure that

they do not impact the integrity and objectivity of the auditor; and(b) none of the services undermine the general principles relating to auditor

independence as set out in the Institute of Chartered Accountants in Australia and CpA Australia’s “Section 290: Independence – Assurance engagements” of ApeS 110, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards.

the following fees for non-audit services were paid/payable to the Company’s auditor during the year ended 30 June 2007:

2007A$’000

2006A$’000

tax services 158 132Allume tax software* 40 39Subordinated Convertible notes issue 120 –

318 171

* Allume is a joint venture in which Deloitte touche tohmatsu is a 50% partner.

the auditor’s independence declaration is set out on page 120.

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inDeMniFiCation oF oFFiCeRS anD aUDitoRSDuring the financial year, the Company paid an insurance premium in respect of a Directors’ and officers’ liability policy covering all Directors and officers of the Company and of any related body corporate against a liability incurred as a Director or officer to the extent permitted by the Corporations Act 2001. the contract of insurance prohibits the disclosure of the amount of the premium paid and the liability covered.

In addition to the above, the Directors and certain officers of the Company have entered into a Deed of Indemnity and Access confirming the Company’s obligation to maintain an adequate Director and officer liability policy and confirming the individual Director’s and officer’s right to access board papers and other Company documents. In return, the individual Director and officer has agreed to allow the Company to conduct the case for the defence should the event arise.

the Company has not otherwise, during or since the end of the financial year, indemnified or agreed to indemnify an officer or Auditor of the Company or of any related body corporate against a liability incurred as such an officer or Auditor.

RoUnDinG oFF oF aMoUntS the Company is a company of the kind referred to in Australian Securities and Investments Commission (“ASIC”) Class order 98/0100, dated 10 July 1998, and in accordance with that Class order amounts in the Directors’ Report and the Financial Statements are rounded off to the nearest hundred thousand dollars, unless otherwise indicated.

Signed in accordance with a resolution of the Directors, made pursuant to section 298(2) of the Corporations Act 2001.

on behalf of the Directors

K.J. MossChairman

R.G. CameronManaging Director

Dated at Sydney this 12th day of September 2007


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auDitor’S inDepenDence Declarationto CentennIAl CoAl CoMpAnY lIMIteD

12 September 2007

Dear Board Members

Centennial Coal Company LimitedIn accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the Directors of Centennial Coal Company limited.

As lead audit partner for the audit of the financial statements of Centennial Coal Company limited for the financial year ended 30 June 2007, I declare that to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

(ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely

DELOITTE TOUCHE TOHMATSU

R.W. SmithpartnerChartered Accountants

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Consolidated Company

Note2007

$m2006

$M2007

$m2006

$M

Revenue 2 901.8 807.9 85.5 54.2Cost of sales (724.0) (658.3) (81.0) (49.8)

Gross profit 177.8 149.6 4.5 4.4other income 2 27.4 20.6 175.1 109.0Share of profits of associates and jointly controlled entities accounted for using the equity method 15 – – – – Distribution expenses (87.6) (78.2) (0.4) – Administration expenses (34.8) (27.2) (26.8) (21.8)Finance costs 2 (51.8) (49.3) (47.0) (44.1)Allowance against intercompany receivables – – (96.3) – Write-down of non-current assets 2 (48.7) – – – other expenses (1.6) – (1.6) –

Profit/(loss) before income tax 2 (19.3) 15.5 7.5 47.5Income tax (expense)/benefit 3 21.4 1.8 13.2 6.5

Profit for the year 2.1 17.3 20.7 54.0

Attributable to:equity holders of the parent 3.3 17.1 20.7 54.0

Minority interest (1.2) 0.2 – –

2.1 17.3 20.7 54.0

Cents Cents

Earnings per share – Basic 6 1.1 5.9 – Diluted 6 1.1 5.9

notes to the Financial Statements are included on pages 87 to 118.


Income StatementFoR the FInAnCIAl yeAR enDeD 30 June 2007

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Note2007

$m2006

$M2007

$m2006

$M

Revenue 2 901.8 807.9 85.5 54.2Cost of sales (724.0) (658.3) (81.0) (49.8)

Gross profit 177.8 149.6 4.5 4.4other income 2 27.4 20.6 175.1 109.0Share of profits of associates and jointly controlled entities accounted for using the equity method 15 – – – – Distribution expenses (87.6) (78.2) (0.4) – Administration expenses (34.8) (27.2) (26.8) (21.8)Finance costs 2 (51.8) (49.3) (47.0) (44.1)Allowance against intercompany receivables – – (96.3) – Write-down of non-current assets 2 (48.7) – – – other expenses (1.6) – (1.6) –

Profit/(loss) before income tax 2 (19.3) 15.5 7.5 47.5Income tax (expense)/benefit 3 21.4 1.8 13.2 6.5

Profit for the year 2.1 17.3 20.7 54.0

Attributable to:equity holders of the parent 3.3 17.1 20.7 54.0

Minority interest (1.2) 0.2 – –

2.1 17.3 20.7 54.0

Cents Cents

Earnings per share – Basic 6 1.1 5.9 – Diluted 6 1.1 5.9



Note2007

$m2006

$M2007

$m2006

$M

CURRENT ASSETSCash and cash equivalents 41 36.1 58.8 36.0 5.7trade and other receivables 8 135.5 116.4 11.0 4.0other financial assets 9 21.5 9.1 15.6 5.3Inventories 10 36.7 30.0 1.3 1.5other 11 129.4 104.6 17.3 9.2

Total current assets 359.2 318.9 81.2 25.7

NON-CURRENT ASSETStrade and other receivables 12 22.2 6.0 1,071.0 1,044.1other financial assets 13 2.2 2.4 368.5 368.9Inventories 14 7.5 8.2 – – Investments accounted for using the equity method 15 – 0.7 – – property, plant and equipment 17 1,662.0 1,604.4 6.1 4.6Deferred tax assets 3 8.5 10.9 132.6 100.2other 18 18.6 31.7 – –

Total non-current assets 1,721.0 1,664.3 1,578.2 1,517.8

TOTAL ASSETS 2,080.2 1,983.2 1,659.4 1,543.5

CURRENT LIABILITIEStrade and other payables 20 172.9 130.2 21.8 18.1Borrowings 21 5.3 7.5 – – employee benefits 70.1 69.0 2.2 1.8provisions 22 2.8 3.5 – – other 23 41.3 11.2 41.0 10.6

Total current liabilities 292.4 221.4 65.0 30.5

NON-CURRENT LIABILITIEStrade and other payables 0.8 0.8 – – Borrowings 24 764.7 722.0 751.5 697.4Deferred tax liabilities 3 96.8 123.0 – 1.4employee benefits 0.6 1.3 – – provisions 25 21.7 24.6 – –

Total non-current liabilities 884.6 871.7 751.5 698.8

TOTAL LIABILITIES 1,177.0 1,093.1 816.5 729.3

NET ASSETS 903.2 890.1 842.9 814.2

EQUITYIssued capital 27 814.3 765.8 814.3 765.8Reserves 28 (6.7) (1.6) (10.5) (2.8)Retained earnings 39.1 68.6 39.1 51.2

parent entity interest 846.7 832.8 842.9 814.2Minority interest 37 56.5 57.3 – –

TOTAL EQUITY 903.2 890.1 842.9 814.2


Balance SheetAS At 30 June 2007

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Statement of changeS In equItyFoR the FInAnCIAl yeAR enDeD 30 June 2007

Consolidated – 2007

Share capital$M

Share-basedpayments

$MHedging reserve

$MRetained earnings

$MMinority interest

$MTotal equity

$M

Balance as at 1 July 2006 765.8 1.2 (2.8) 68.6 57.3 890.1

Employee options – 1.0 – – – 1.0Cash flow hedges: Gain/(loss) taken to equity – – (5.5) – 0.2 (5.3) Transferred to profit or loss for the year – – (0.6) – 0.2 (0.4)

Net income/(loss) recognised directly in equity – 1.0 (6.1) – 0.4 (4.7)Profit/(loss) for the year – – – 3.3 (1.2) 2.1

Total recognised income and expense for the year – 1.0 (6.1) 3.3 (0.8) (2.6)Shares issued 32.5 – – – – 32.5Share issue costs (0.3) – – – – (0.3)Convertible notes equity component 16.7 – – – – 16,7Note issue costs (0.5) – – – – (0.5)Option premium 0.1 – – – – 0.1Dividends to shareholders – – – (32.8) – (32.8)

Balance as at 30 June 2007 814.3 2.2 (8.9) 39.1 56.5 903.2


Share capital$M

Share-basedpayments

$MHedging reserve

$MRetained earnings

$MMinority interest

$MTotal equity

$M

Balance as at 1 July 2005 638.4 0.3 – 89.3 58.4 786.4

employee options – 0.9 – – – 0.9Adjustment on adoption of AASB 132 and 139, net of tax – – (1.3) – – (1.3)Cash flow hedges: Gain/(loss) taken to equity – – 0.3 – 0.2 0.5 transferred to profit or loss for the year – – (1.8) – – (1.8)

net income/(loss) recogniseddirectly in equity – 0.9 (2.8) – 0.2 (1.7)profit for the year – – – 17.1 0.2 17.3

total recognised income and expense for the year – 0.9 (2.8) 17.1 0.4 15.6Shares issued 129.5 – – – – 129.5Share issue costs (2.1) – – – – (2.1)Dividends to shareholders – – – (37.8) – (37.8)Minority interest acquired – – – – (1.5) (1.5)



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Company – 2007

Share capital$M

Share-basedpayments

$MHedging reserve

$MRetained earnings

$MTotal equity

$M

Balance as at 1 July 2006 765.8 1.2 (4.0) 51.2 814.2

Employee options – 1.0 – – 1.0Cash flow hedges: Gain/(loss) taken to equity – – (11.5) – (11.5) Transferred to profit or loss for the year – – 2.8 – 2.8

Net income/(loss) recognised directly in equity – 1.0 (8.7) – (7.7)Profit/(loss) for the year – – – 20.7 20.7

Total recognised income and expense for the year – 1.0 (8.7) 20.7 13.0Shares issued 32.5 – – – 32.5Share issue costs (0.3) – – – (0.3)Convertible notes equity component 16.7 – – – 16.7Note issue costs (0.5) – – – (0.5)Option premium 0.1 – – – 0.1Dividends to shareholders – – – (32.8) (32.8)

Balance as at 30 June 2007 814.3 2.2 (12.7) 39.1 842.9

Company – 2006

Share capital$M

Share-basedpayments

$MHedging reserve

$MRetained earnings

$MTotal equity

$M

Balance as at 1 July 2005 638.4 0.3 – 35.0 673.7

employee options – 0.9 – – 0.9Adjustment on adoption of AASB 132 and 139, net of tax – – (1.3) – (1.3)Cash flow hedges: Gain/(loss) taken to equity – – (1.0) – (1.0) transferred to profit or loss for the year – – (1.7) – (1.7)

net income/(loss) recogniseddirectly in equity – 0.9 (4.0) – (3.1)profit for the year – – – 54.0 54.0

total recognised income and expense for the year – 0.9 (4.0) 54.0 50.9Shares issued 129.5 – – – 129.5Share issue costs (2.1) – – – (2.1)Dividends to shareholders – – – (37.8) (37.8)

Balance as at 30 June 2006 765.8 1.2 (4.0) 51.2 814.2



Share capital$M

Share-basedpayments

$MHedging reserve

$MRetained earnings

$MMinority interest

$MTotal equity

$M

Balance as at 1 July 2006 765.8 1.2 (2.8) 68.6 57.3 890.1

Employee options – 1.0 – – – 1.0Cash flow hedges: Gain/(loss) taken to equity – – (5.5) – 0.2 (5.3) Transferred to profit or loss for the year – – (0.6) – 0.2 (0.4)

Net income/(loss) recognised directly in equity – 1.0 (6.1) – 0.4 (4.7)Profit/(loss) for the year – – – 3.3 (1.2) 2.1

Total recognised income and expense for the year – 1.0 (6.1) 3.3 (0.8) (2.6)Shares issued 32.5 – – – – 32.5Share issue costs (0.3) – – – – (0.3)Convertible notes equity component 16.7 – – – – 16,7Note issue costs (0.5) – – – – (0.5)Option premium 0.1 – – – – 0.1Dividends to shareholders – – – (32.8) – (32.8)



Share capital$M

Share-basedpayments

$MHedging reserve

$MRetained earnings

$MMinority interest

$MTotal equity

$M

Balance as at 1 July 2005 638.4 0.3 – 89.3 58.4 786.4

employee options – 0.9 – – – 0.9Adjustment on adoption of AASB 132 and 139, net of tax – – (1.3) – – (1.3)Cash flow hedges: Gain/(loss) taken to equity – – 0.3 – 0.2 0.5 transferred to profit or loss for the year – – (1.8) – – (1.8)

net income/(loss) recogniseddirectly in equity – 0.9 (2.8) – 0.2 (1.7)profit for the year – – – 17.1 0.2 17.3

total recognised income and expense for the year – 0.9 (2.8) 17.1 0.4 15.6Shares issued 129.5 – – – – 129.5Share issue costs (2.1) – – – – (2.1)Dividends to shareholders – – – (37.8) – (37.8)Minority interest acquired – – – – (1.5) (1.5)



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Note2007

$m2006

$M2007

$m2006

$M

CASH FLOWS FROM OPERATING ACTIVITIESReceipts from customers 980.1 876.4 78.5 60.2payments to suppliers and employees (837.5) (804.1) (76.6) (66.2)Interest and other costs of finance paid (44.6) (43.0) (42.4) (40.2)Income taxes refunded – 3.5 – 3.5

Net cash provided by/(used in) operating activities 41(b) 98.0 32.8 (40.5) (42.7)

CASH FLOWS FROM INVESTING ACTIVITIESDividends received 0.2 0.2 113.9 70.0Interest received and bill discounts 0.8 1.2 16.7 15.8payments for property, plant and equipment (237.5) (207.4) (3.2) (2.2)proceeds from sale of property, plant and equipment 65.7 0.9 – 3.5loans advanced to subsidiaries – – (122.8) (244.0)

Net cash provided by/(used in) investing activities (170.8) (205.1) 4.6 (156.9)

CASH FLOWS FROM FINANCING ACTIVITIESproceeds from issues of equity securities 24.8 115.6 24.8 115.6payment of share issue costs (0.3) – (0.3) – proceeds from issue of 6.2% subordinated convertible notes 165.0 – 165.0 – payment for convertible notes issue costs (4.8) – (4.8)Dividends paid (25.1) (26.0) (25.1) (26.0)payment for borrowing costs – (1.6) – (1.6)proceeds from borrowings 77.8 369.7 77.8 369.0Repayment of borrowings (171.8) (295.5) (171.2) (277.0)Repayment of lease liabilities (15.5) (7.5) – –

Net cash provided by financing activities 50.1 154.7 66.2 180.0

Net increase/(decrease) in cash and cash equivalents (22.7) (17.6) 30.3 (19.6)Cash and cash equivalents at the beginning of the financial year 58.8 76.4 5.7 25.3

Cash and cash equivalents at the end of the financial year 41(a) 36.1 58.8 36.0 5.7


caSh flow StatementFoR the FInAnCIAl yeAR enDeD 30 June 2007

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1. Summary of accounting policies(a) Statement of compliancethe financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and interpretations and complies with other requirements of the law. Accounting Standards include Australian equivalents to International Financial Reporting Standards (“A-IFRS”). Compliance with A-IFRS ensures that the consolidated financial statements and notes of the Group comply with International Financial Reporting Standards (“IFRS”). the Company financial statements and notes also comply with IFRS except for the disclosure requirements in IAS 32 Financial Instruments: Disclosure and presentation as the Australian equivalent Accounting Standard, AASB 132 Financial Instruments: Disclosure and presentation does not require such disclosures to be presented by the Company where its separate financial statements are presented together with the consolidated financial statements of the Group.

the financial statements were authorised for issue by the Directors on 12 September 2007.

(b) Basis of preparationthe financial report has been prepared on a historical cost basis, except for derivative financial instruments and share-based payments that have been measured at fair value. the carrying values of recognised assets and liabilities that are hedged with fair value hedges are adjusted to record changes in the fair values attributable to the risks that are being hedged.

In the application of A-IFRS management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. the estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments. 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.

Judgments made by management in the application of A-IFRS that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements.

Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

the accounting policies set out below have been applied consistently in preparing the financial statements for all periods presented in these financial statements and have been applied consistently by Group entities.

the following standards and amendments were available for early adoption but have not been applied by the Group in these 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 2005-10 Amendments to Australian Accounting Standards (September 2005) makes consequential amendments to AASB 132 Financial Instruments: Disclosure 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;

– AASB 8 operating Segments is applicable for annual reporting periods beginning on or after 1 January 2009. AASB 8 replaces the presentation requirements of segment reporting in AASB 114 Segment Reporting;

– AASB 2007-3 Amendments to Australian Accounting Standards arising from AASB 8 makes amendments to AASB 5 non-current Assets held for Sale and Discontinued operations, AASB 6 exploration for and evaluation of Mineral Resources, AASB 102 Inventories, AASB 107 Cash Flow Statements, AASB 119 employee Benefits, AASB 127 Consolidated and Separate Financial Statements, AASB 134 Interim Financial Reporting, AASB 136 Impairment of Assets, AASB 1023 General Insurance Contracts and AASB 1038 life Insurance Contracts. AASB 2007-3 is applicable for annual reporting periods beginning on or after 1 January 2009 and must be adopted in conjunction with AASB 8 operating Segments;

– AASB 2007-4 Australian Additions to and Deletions from IFRS allows all options that currently exist under IFRS and eliminates additional Australian disclosures, other than those considered particularly relevant in the Australian reporting environment. It is applicable for annual reporting periods on or after 1 July 2007;

– Interpretation 10 Interim Financial Reporting and Impairment prohibits the reversal of an impairment loss recognised in a previous interim period in respect of goodwill, and investment in an equity instrument or a financial asset carried at cost. Interpretation 10 will become mandatory for the Group’s 2008 financial statements, and will apply to goodwill, investments in equity instruments, and financial assets carried at cost prospectively from the date that the Group first applied the measurement criteria of AASB 136 and AASB 139 respectively (i.e. 1 July 2004 and 1 July 2005, respectively). there is no current impact of an adoption of this interpretation; and

– Interpretation 11 AASB 2 Share-based payment – Group and treasury Share transactions addresses the classification of a share-based payment transaction (as equity or cash settled), in which equity instruments of the parent or another group entity are transferred, in the financial statements of the entity receiving the services. Interpretation 11 will become mandatory for the Group’s 2008 financial report. Interpretation 11 is not expected to have any impact on the financial report.

the Group plans to adopt AASB 7 and AASB 2005-10 in the 2008 financial year.

the initial application of AASB 7, AASB 2005-10, AASB 8 and AASB 2007-3 is not expected to have an impact on the financial results of the Company and the Group as the standards amendments are concerned only with disclosures.


Note2007

$m2006

$M2007

$m2006

$M

CASH FLOWS FROM OPERATING ACTIVITIESReceipts from customers 980.1 876.4 78.5 60.2payments to suppliers and employees (837.5) (804.1) (76.6) (66.2)Interest and other costs of finance paid (44.6) (43.0) (42.4) (40.2)Income taxes refunded – 3.5 – 3.5

Net cash provided by/(used in) operating activities 41(b) 98.0 32.8 (40.5) (42.7)

CASH FLOWS FROM INVESTING ACTIVITIESDividends received 0.2 0.2 113.9 70.0Interest received and bill discounts 0.8 1.2 16.7 15.8payments for property, plant and equipment (237.5) (207.4) (3.2) (2.2)proceeds from sale of property, plant and equipment 65.7 0.9 – 3.5loans advanced to subsidiaries – – (122.8) (244.0)

Net cash provided by/(used in) investing activities (170.8) (205.1) 4.6 (156.9)

CASH FLOWS FROM FINANCING ACTIVITIESproceeds from issues of equity securities 24.8 115.6 24.8 115.6payment of share issue costs (0.3) – (0.3) – proceeds from issue of 6.2% subordinated convertible notes 165.0 – 165.0 – payment for convertible notes issue costs (4.8) – (4.8)Dividends paid (25.1) (26.0) (25.1) (26.0)payment for borrowing costs – (1.6) – (1.6)proceeds from borrowings 77.8 369.7 77.8 369.0Repayment of borrowings (171.8) (295.5) (171.2) (277.0)Repayment of lease liabilities (15.5) (7.5) – –

Net cash provided by financing activities 50.1 154.7 66.2 180.0

Net increase/(decrease) in cash and cash equivalents (22.7) (17.6) 30.3 (19.6)Cash and cash equivalents at the beginning of the financial year 58.8 76.4 5.7 25.3

Cash and cash equivalents at the end of the financial year 41(a) 36.1 58.8 36.0 5.7


noteS to the fInancIal StatementSFoR the FInAnCIAl yeAR enDeD 30 June 2007

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1. Summary of accounting policies (continued)(c) Basis of consolidationthe consolidated financial statements comprise the financial statements of Centennial Coal Company limited and its subsidiaries (“the Group”). the financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Subsidiaries are consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group.

In a business combination, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. 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 value of the identifiable net assets acquired exceeds the costs of acquisition, the excess is credited to profit and loss in the period of acquisition.

Minority interest represents the interest in Austral Coal limited, not held by the Company.

(d) Investment in associatesthe Group’s investment in its associates is accounted for under the equity method of accounting in the consolidated financial statements. these are entities in which the Group has significant influence and which are neither a subsidiary nor a joint venture.

the investments in the associates are carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associates, less any impairment in value. the consolidated income statement reflects the Group’s share of the results of operations of the associates.

(e) Interests in joint venturesInterests in jointly controlled assets and operations where the Group is a venturer are reported in the financial statements by including the Group’s share of assets employed in the joint ventures, the share of liabilities incurred in relation to the joint ventures and the share of any expense incurred in relation to the joint ventures in their respective classification categories.

(f) Foreign currencyBoth the functional and presentation currency of Centennial Coal Company limited and its subsidiaries is Australian dollars (A$).

transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.

Foreign exchange differences arising on translation are recognised in the income statement.

(g) Property, plant and equipmentland and buildings, plant and equipment and equipment under finance lease are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition.

Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculated on either a straight line or units of production basis so as to write off the depreciable amount of each asset over its expected useful life to its estimated residual value. the estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period.

the following estimated useful lives are used in the calculation of depreciation:– plant and equipment 5-20 years– equipment under finance lease 5-15 years

(h) Exploration, evaluation, development and restoration costsexploration and evaluation expenditures in relation to separate areas of interest are capitalised in the year in which they are incurred and are carried at cost less accumulated impairment losses where the following conditions are satisfied:(i) the rights to tenure of the area of interest are current; and(ii) at least one of the following conditions is also met: – the exploration and evaluation expenditures are expected to be

recouped through successful development and production from the area of interest, or alternatively, by its sale, or

– exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.

Capitalised exploration costs are reviewed each reporting date as to whether an indication of impairment exists. If any such indication exists, the recoverable amount of the capitalised exploration costs is estimated to determine the extent of the impairment loss (if any). Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in previous years.

Where a decision is made to proceed with development, accumulated expenditure is tested for impairment, and transferred to development properties, and then amortised over the life of the reserves associated with the area of interest once mining operations have commenced.

(i) Mining and development propertiesMining and development properties include the cost of acquiring and developing mining properties, mineral rights and exploration, evaluation and development expenditure carried forward relating to areas where production has commenced. these assets are amortised using the unit of production basis over the economically recoverable reserves. Amortisation starts from the date when commercial production commences.

(j) Major plant overhaulsMaintenance, repair costs and minor renewals are charged as expenses as incurred. Where the economic benefit of major overhauls will be realised over more than one accounting period, the costs are capitalised and amortised over the life of the asset or until the next major overhaul, whichever is the shorter. the carrying amount of replaced parts is derecognised and the loss included in the Income Statement.


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(k) Borrowing costsBorrowing 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. other borrowing costs are expensed.

the capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity’s outstanding borrowings during the period.

(l) Impairment of assetsAt each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows (unadjusted for risk) 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 which estimates of future cash flows have not been adjusted.

(m) Financial assetsInvestments are recognised and derecognised on trade date where purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value.

Subsequent to initial recognition, investments in subsidiaries are measured at cost in the company financial statements. Subsequent to initial recognition, investments in associates are accounted for under the equity method in the consolidated financial statements and the cost method in the company financial statements.

other financial assets are classified into the following specified categories: financial assets “at fair value through profit or loss”, “held-to-maturity” investments, “available-for-sale” financial assets, and “loans and receivables”. the classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Financial assets at fair value through profit or lossFinancial assets subject to fair value calculation are classified as current assets and are stated at fair value, with any resultant gain or loss recognised in profit or loss.

Available-for-sale financial assetsGains and losses arising from changes in fair value are recognised directly in the available-for-sale revaluation reserve, until the investment is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in the available-for-sale revaluation reserve is included in profit or loss for the period.

Loans and receivablestrade receivables, loans, and other receivables are recorded at amortised cost less impairment.

(n) Cash and cash equivalentsCash and short-term deposits in the Balance Sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(o) Trade and other receivablestrade and other receivables, which generally have less than 30 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

(p) InventoriesInventories are valued at the lower of cost and net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:

StoresCost comprises average cost or purchase price and associated charges. A regular and ongoing review is undertaken to establish the extent of surplus items, and a write down is recognised for any potential loss on their disposal. Items that are not expected to be utilised in the next 12 months are classified as non-current stores.

Coal stocksCost comprises average mining cost under normal mining conditions or actual purchase price and where applicable, coal preparation expenditure, fixed and variable overhead costs and transportation costs.

net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

(q) Deferred mining costsLongwall changeoversCosts incurred during longwall changeovers are deferred. Deferred costs include all direct and indirect costs incurred during the full period of the changeovers and are amortised over the life of the next longwall block on a units of production basis.

Deferred longwall development costsCosts associated with the development of future longwall blocks ahead of production are deferred. When production commences, the accumulated costs for the relevant area are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves on a units of production basis.

Open-cutsCosts incurred in the removal of overburden ahead of coal recovered are deferred and amortised on a unit of production basis and included in the cost of production as the underlying coal is recovered.

(r) Trade and other payablesthese amounts represent liabilities for goods and services provided to the Group prior to the end of financial period which are unpaid. the amounts are unsecured and are usually paid within 30 days of recognition.

(s) Interest bearing loans and borrowingsAll loans and borrowings are initially recognised at fair value net of transaction costs.

After initial recognition, interest bearing loans and borrowings are measured at amortised cost using the effective interest method.

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1. Summary of accounting policies (continued)(t) Provisionsprovisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. the expense relating to any provision is presented in the Income Statement net of any reimbursement.

If the effect of the time value of money 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, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Mine site rehabilitationMine site rehabilitation costs include the dismantling and demolition of infrastructure and the removal of residual materials and remediation of disturbed areas. Mine site rehabilitation costs are provided for in the accounting period when the obligation arising from the related disturbance occurs, whether this occurs during the mine development or during the production phase, based on the net present value of estimated future costs.

the costs are estimated on the basis of a closure plan. the cost estimates are calculated annually during the life of the operation to reflect known developments and are subject to formal review at regular intervals.

the amortisation or “unwinding” of the discount applied in establishing the net present value of provisions is charged to the Income Statement in each accounting period. the amortisation of the discount is shown as a financing cost, rather than as an operating cost. other movements in the provision for mine site rehabilitation, including those resulting from new disturbance, updated cost estimates, changes to the lives of operations and revisions to discount rates are capitalised within property, plant and equipment. these costs are then depreciated over the lives of the assets to which they relate.

(u) Employee benefitsA liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave and sick leave when it is probable that settlement will be required and they are capable of being measured reliably.

Where the settlement of employee benefit liabilities gives rise to the payment of employment on-costs, a liability is recognised for those on-costs as well as for the employee benefits. the only on-cost determined to arise upon the settlement of employee benefits is payroll tax.

the liability recognised in respect of employee benefits that have vested, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

the liability recognised in respect of employee benefits which have not vested and are not expected to settle within 12 months are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date.

Additional long service leave payments are made monthly to the Coal Mining Industry (long Service leave Funding Corporation) based on the eligible monthly payroll of employees involved in the mining of black coal. Reimbursement is sought from the fund when long service leave is paid to employees involved in the mining of black coal. An asset for the amount recoverable from the Coal Mining Industry (long Service leave Funding Corporation) is recognised in the Balance Sheet.

Defined contribution plansContributions to defined contribution superannuation plans are expensed when incurred.

(v) Share-based transactionsthe Group provides benefits to employees (including executive directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (“equity-settled transactions”).

Currently, the Group operates the Senior executive and Director Share option Scheme (“option Scheme”), which provides benefits to the Managing Director and senior executives.

options granted after 7 november 2002 which vest after 1 January 2005 are measured at fair value at the date of grant. Fair value is measured by using the Black-Scholes option pricing model.

the fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest.

there is no expense recognised in respect of options that were granted before 7 november 2002 and/or vested before 1 January 2005. Shares issued following the exercise of options are recognised at that time and the proceeds received allocated to share capital.

(w) LeasesFinance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments.

lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.

leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term.

(x) RevenueRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. the following specific recognition criteria must also be met before revenue is recognised:

Sale of coalRevenue is recognised when the significant risks and rewards of ownership of the coal have passed to the buyer and can be measured reliably. Risk and rewards are considered passed to the buyer at the time of delivery of the coal to the customer and the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the coal sold.


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InterestRevenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset.

DividendsRevenue is recognised when the Group’s right to receive the payment is established.

(y) Income taxCurrent tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using the tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

Deferred income tax is accounted for using the comprehensive balance sheet liability method, with certain limited exceptions, in respect of all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences except:(i) where the deferred income tax liability arises from the initial recognition

of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

(ii) in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised except:(i) where the deferred income tax asset relating to the deductible temporary

difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

(ii) in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

the carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the company/consolidated entity intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax is recognised as an expense or income in the income statement, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess.

Tax consolidationthe Company and all its wholly-owned Australian resident entities are part of a tax-consolidated group under Australian taxation law with effect from 1 July 2003. Centennial Coal Company limited is the head entity in the tax-consolidated group. tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the “separate taxpayer within group” approach. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group).

Nature of tax funding arrangements and tax sharing agreementsentities within the tax-consolidated group have entered into a tax funding arrangement and a tax-sharing agreement with the head entity. under the terms of the tax funding arrangement, Centennial Coal Company limited and each of the entities in the tax-consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax-consolidated group.

the tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. no amounts have been recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote.

the Company holds a majority interest in Austral Coal limited which is the head entity of all its wholly-owned Australian resident entities. the principles of tax consolidation outlined above have also been applied to the Austral Coal limited tax-consolidated group.

(z) Goods and Services Tax (“GST”)Revenues, expenses and assets are recognised net of the amount of GSt except:(i) where the GSt incurred on a purchase of goods and services is not

recoverable from the taxation authority, in which case the GSt is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

(ii) receivables and payables are stated with the amount of GSt included.

the net amount of GSt recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Balance Sheet.

Cash flows are included in the Cash Flow Statement on a gross basis and the GSt component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GSt recoverable from, or payable to, the taxation authority.

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1. Summary of accounting policies (continued)(aa) Derivative financial instrumentsthe Group uses derivative financial instruments such as foreign currency forwards and options and interest rate swaps to hedge its risk associated with foreign currency and interest rate fluctuations. Such derivative financial instruments are stated at fair value.

the fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. the fair value of foreign currency options and interest rate swap contracts is determined by reference to market values for similar instruments.

For the purposes of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; or cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction.

In relation to fair value hedges which meet the condition for hedge accounting, any gain or loss from remeasuring the hedging instrument at fair value is recognised immediately in the Income Statement.

Any gain or loss attributable to the hedged risk on re-measurement of the hedged item is adjusted against the carrying amount of the hedged item and recognised in the Income Statement. Where the adjustment is to the carrying amount of a hedged interest-bearing financial instrument, the adjustment is amortised to the Income Statement such that it is fully amortised by maturity.

In relation to cash flow hedges to hedge forecast transactions which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement.

When a hedged forecast transaction results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability.

For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the Income Statement in the same period in which the hedged forecast transaction affects the profit and loss, for example, when a future sale actually occurs.

For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the Income Statement.

hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs.

If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the Income Statement.

(ab) Issued capitalOrdinary shares are classified as equity.Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration.

(ac) Dividendsprovision is made for the amount of any dividend declared on or before the end of the financial period but not distributed at balance date.

(ad) Discontinued operations and non-current assets held for saleA discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale. Classification of a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. on initial classification as held for sale, non-current assets of disposal groups are recognised at the lower of carrying amount and fair value less costs to sell.

(ae) Earnings per shareBasic earnings per shareBasic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

Diluted earnings per shareDiluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(af) Financial instruments issued by the CompanyCompound instrumentsthe component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. this amount is recorded as a liability on an amortised cost basis until extinguished on conversion or upon the instruments reaching maturity. the equity component initially brought to account is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. this is recognised and included in equity, net of income tax effects and is not subsequently remeasured.


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2007$m

2006$M

2007$m

2006$M

2. Profit/(loss) from operationsthe operating profit/(loss) before income tax includes the following items of revenue and expense:

(a) Revenue

Coal sales 901.8 807.9 85.5 54.2

(b) otheR inComeDividends:

Associates 0.2 0.2 – – Subsidiaries – – 113.9 70.0

Management fees:Subsidiaries and joint ventures 2.3 1.9 24.2 21.5

Interest revenue:other entities 0.8 1.2 0.7 1.0Subsidiaries – – 16.0 14.8

net foreign exchange gain 9.9 2.4 12.6 0.7net profit on sale of property, plant and equipment in the ordinary course of business 8.5 4.3 – – other operating income 5.7 10.6 7.7 1.0

27.4 20.6 175.1 109.0

(C) expensesDepreciation and amortisation:

plant and equipment 69.5 53.7 1.6 1.0Mining and development properties 39.0 28.7 – – equipment under finance lease 4.6 5.1 – –

113.1 87.5 1.6 1.0Write-down of mining and development properties 48.7 – – –

161.8 87.5 1.6 1.0

net transfers:employee entitlements 19.6 27.1 0.9 0.7Mine site rehabilitation (2.8) (3.1) – –

16.8 24.0 0.9 0.7

Royalties paid 42.0 37.8 – – operating lease rental expenses 1.4 1.4 0.4 0.3

(d) FinanCe CostsInterest expense:

other entities 42.5 40.2 42.5 40.2Finance charges on leased assets 2.1 2.8 – –

total interest expense 44.6 43.0 42.5 40.2

Amortisation of deferred borrowing costs 4.9 5.2 3.6 3.9unwind of discounts relating to provisions 2.3 1.1 0.9 –

51.8 49.3 47.0 44.1

(e) employee beneFit expensepost employment benefits:

Defined contribution plans 28.2 24.4 1.1 0.8Share-based payments:

equity-settled share-based payments 1.0 0.9 1.0 0.9other employee benefits:

Salaries and wages 185.9 156.5 10.3 9.0

215.1 181.8 12.4 10.7

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2007$m

2006$M

2007$m

2006$M

3. Income taxes(a) inCome tax ReCognised in pRoFit oR loss

Tax (expense)/income comprises:Current tax (expense)/income 10.5 – 10.2 –Adjustments recognised in the current year in relation to the current tax of prior years 10.9 1.8 3.0 0.4Deferred tax (expense)/income relating to the origination and reversal of temporary differences – – – 6.1

Total tax (expense)/benefit 21.4 1.8 13.2 6.5

The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows:

Profit/(loss) from operations (19.3) 15.5 7.5 47.5

Income tax (expense)/benefit calculated at 30% 5.8 (4.7) (2.2) (14.3)

non-deductible expenses (0.6) (0.7) (29.2) (0.6)other deductible expenses 1.8 – 7.2 –non-assessable income – Dividends from within the tax group – – 34.2 21.0Deductible expenditure in issued capital 0.2 0.8 0.2 0.8Research and Development deductions 3.3 4.6 – –over/(under) provision of income tax in previous year 10.9 1.8 3.0 (0.4)

Total income tax (expense)/benefit in income statement 21.4 1.8 13.2 6.5

the tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. there has been no change in the corporate tax rate when compared with the previous reporting period.

(b) deFeRRed tax balanCes

Deferred tax assets comprise:tax losses – revenue 171.0 137.8 129.0 97.6temporary differences 18.1 18.1 0.7 2.6other 3.5 – 5.5 –

192.6 155.9 135.2 100.2

Deferred tax liabilities comprise:temporary differences 280.9 268.0 2.6 1.4

280.9 268.0 2.6 1.4

the utilisation of the carried-forward tax losses is expected from improvements in profits driven by operational performance and continuing high export coal prices.


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2007$m

2006$M

2007$m

2006$M

3. Income taxes(a) inCome tax ReCognised in pRoFit oR loss

Tax (expense)/income comprises:Current tax (expense)/income 10.5 – 10.2 –Adjustments recognised in the current year in relation to the current tax of prior years 10.9 1.8 3.0 0.4Deferred tax (expense)/income relating to the origination and reversal of temporary differences – – – 6.1

Total tax (expense)/benefit 21.4 1.8 13.2 6.5

The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows:

Profit/(loss) from operations (19.3) 15.5 7.5 47.5

Income tax (expense)/benefit calculated at 30% 5.8 (4.7) (2.2) (14.3)

non-deductible expenses (0.6) (0.7) (29.2) (0.6)other deductible expenses 1.8 – 7.2 –non-assessable income – Dividends from within the tax group – – 34.2 21.0Deductible expenditure in issued capital 0.2 0.8 0.2 0.8Research and Development deductions 3.3 4.6 – –over/(under) provision of income tax in previous year 10.9 1.8 3.0 (0.4)

Total income tax (expense)/benefit in income statement 21.4 1.8 13.2 6.5

the tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. there has been no change in the corporate tax rate when compared with the previous reporting period.

(b) deFeRRed tax balanCes

Deferred tax assets comprise:tax losses – revenue 171.0 137.8 129.0 97.6temporary differences 18.1 18.1 0.7 2.6other 3.5 – 5.5 –

192.6 155.9 135.2 100.2

Deferred tax liabilities comprise:temporary differences 280.9 268.0 2.6 1.4

280.9 268.0 2.6 1.4

the utilisation of the carried-forward tax losses is expected from improvements in profits driven by operational performance and continuing high export coal prices.

Reconciliation of opening to closing balance of deferred tax arising from temporary differences and carry-forward tax losses:

Consolidated – 2007Opening balance

$M

Credited/ (charged) to

income$M

Charged toequity

$M

Acquisitions/ disposals

$MClosing balance

$M

Gross deferred tax liabilities:property, plant and equipment (260.5) (8.4) – – (268.9)Inventories and consumables (4.8) 0.5 – – (4.3)Borrowings (2.2) 2.0 – – (0.2)other items (0.5) (7.0) – – (7.5)

Gross deferred tax assets:Accrued expenses 0.4 (0.2) – – 0.2provisions 16.3 0.4 – – 16.7Foreign currency monetary items 0.1 0.6 – – 0.7Cash flow hedges 1.1 – 2.4 – 3.5other 0.2 0.3 – – 0.5tax value of losses carried-forward 137.8 33.2 – – 171.0

Net tax assets/(liabilities) (112.1) 21.4 2.4 – (88.3)

Balance sheet disclosure:Deferred tax assets 8.5Deferred tax liabilities (96.8)

(88.3)

Consolidated – 2006Opening balance

$M


income$M

Charged toequity

$M

Acquisitions/ disposals

$MClosing balance

$M

Gross deferred tax liabilities:property, plant and equipment (241.6) (18.9) – – (260.5)Inventories and consumables (4.4) (0.4) – – (4.8)Borrowings – (2.2) – – (2.2)other items – (0.5) – – (0.5)

Gross deferred tax assets:Accrued expenses 0.4 – – – 0.4provisions 22.7 (6.4) – – 16.3Foreign currency monetary items 0.2 (0.1) – – 0.1Cash flow hedges – – 1.1 – 1.1Capital losses 1.4 (1.4) – – –other 5.4 (5.2) – – 0.2tax value of losses carried-forward 100.9 36.9 – – 137.8

net tax assets/(liabilities) (115.0) 1.8 1.1 – (112.1)

Balance sheet disclosure:Deferred tax assets 10.9Deferred tax liabilities (123.0)

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Company – 2007Opening balance

$M


income$M

Charged toequity

$MTransfers

$MClosing balance

$M

3. Income taxes (continued)Gross deferred tax liabilities:Foreign exchange (0.8) (1.8) – – (2.6)other (0.6) 0.6 – – –

Gross deferred tax assets:tax value of losses carried-forward 97.6 14.6 – 16.8 129.0Accrued expenses 0.3 (0.2) – – 0.1provisions 0.5 0.1 – – 0.6Cash flow hedges 1.7 – 3.8 – 5.5other 0.1 (0.1) – – –

Net tax assets/(liabilities) 98.8 13.2 3.8 16.8 132.6


$M


income$M

Charged toequity

$MTransfers

$MClosing balance

$M

Gross deferred tax liabilities:Foreign exchange (0.3) (0.5) – – (0.8)other – (0.6) – – (0.6)

Gross deferred tax assets:tax value of losses carried-forward 71.5 – – 26.1 97.6Accrued expenses 0.2 0.1 – – 0.3provisions 0.5 – – – 0.5Cash flow hedges – – 1.7 – 1.7other 0.1 – – – 0.1

net tax assets/(liabilities) 72.0 (1.0) 1.7 26.1 98.8

4. Remuneration of key management personnelthe Remuneration Committee reviews the remuneration packages of all Directors and executives that meet the definition of key management personnel on an annual basis and makes recommendations to the Board. Remuneration packages are reviewed and determined with due regard to current market rates and are benchmarked against comparable industry salaries, adjusted by a performance factor to reflect changes in the performance of the Company and the individual.

(a) total RemuneRation oF key management peRsonnel

directors and executives

short-term benefits post-employment benefits

Salary and fees$

Cash bonus$

Non-monetary$

Super- annuation

$Other

$


$

Share-based payments –

options$

Total$

Year ended 30 June 2007 3,483,023 202,610 269,554 439,167 18,961 42,106 406,963 4,862,384year ended 30 June 2006 3,039,878 603,711 210,488 326,208 75,755 – 379,330 4,635,370

(b) individual diReCtoRs’ and exeCutives’ Compensation disClosuResInformation regarding individual Directors’ and executives’ compensation and some equity instruments disclosures as permitted by Corporations Regulations 2M.3.03 and 2M.6.04 are provided in the Remuneration Report section of the Directors’ Report on pages 68 to 79.

Apart from the details in this note, no Director has entered into a material contract with the Company or the Group since the end of the previous financial year and there were no material contracts involving Directors’ interests existing at year-end.


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2007$m

2006$M

2007$m

2006$M

5. Remuneration of auditors(a) auditoR oF the paRent entityAudit or review of the financial report 868,645 840,000 190,000 170,000taxation services 158,080 131,980 158,080 131,980tax software paid to related practice – Allume 50% interest 40,283 38,850 40,283 38,850other services 120,100 – 120,100 –

1,187,108 1,010,830 508,463 340,830

(b) otheR auditoRsAudit of the financial report 42,000 42,541 – –other services 7,525 5,625 – –

49,525 48,166 – –

1,236,633 1,058,996 508,463 340,830

Consolidated

2007Cents

2006Cents

6. earnings per shareBasic earnings per share 1.1 5.9Diluted earnings per share 1.1 5.9

2007$m

2006$M

Basic earnings per sharethe earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:(a) profit from operations 3.3 17.1

earnings used in the calculation of basic epS 3.3 17.1

2007 no. 000s

2006No. 000s

(b) Weighted average number of ordinary shares used in basic epS 300,705 288,415

the options are considered to be potential ordinary shares and are therefore excluded from the weighted average number of ordinary shares used in the calculation of basic earnings per share. Where dilutive, potential ordinary shares are included in the calculation of diluted earnings per share (see below).

Consolidated

2007$m

2006$M

Diluted earnings per sharethe earnings and weighted average number of ordinary and potential ordinary shares used in the calculation of diluted earnings per share are as follows:

(a) earnings (see basic earnings per share above) 3.3 17.1


$M


income$M

Charged toequity

$MTransfers

$MClosing balance

$M

3. Income taxes (continued)Gross deferred tax liabilities:Foreign exchange (0.8) (1.8) – – (2.6)other (0.6) 0.6 – – –

Gross deferred tax assets:tax value of losses carried-forward 97.6 14.6 – 16.8 129.0Accrued expenses 0.3 (0.2) – – 0.1provisions 0.5 0.1 – – 0.6Cash flow hedges 1.7 – 3.8 – 5.5other 0.1 (0.1) – – –

Net tax assets/(liabilities) 98.8 13.2 3.8 16.8 132.6


$M


income$M

Charged toequity

$MTransfers

$MClosing balance

$M

Gross deferred tax liabilities:Foreign exchange (0.3) (0.5) – – (0.8)other – (0.6) – – (0.6)

Gross deferred tax assets:tax value of losses carried-forward 71.5 – – 26.1 97.6Accrued expenses 0.2 0.1 – – 0.3provisions 0.5 – – – 0.5Cash flow hedges – – 1.7 – 1.7other 0.1 – – – 0.1

net tax assets/(liabilities) 72.0 (1.0) 1.7 26.1 98.8

4. Remuneration of key management personnelthe Remuneration Committee reviews the remuneration packages of all Directors and executives that meet the definition of key management personnel on an annual basis and makes recommendations to the Board. Remuneration packages are reviewed and determined with due regard to current market rates and are benchmarked against comparable industry salaries, adjusted by a performance factor to reflect changes in the performance of the Company and the individual.

(a) total RemuneRation oF key management peRsonnel

directors and executives

short-term benefits post-employment benefits

Salary and fees$

Cash bonus$

Non-monetary$

Super- annuation

$Other

$


$

Share-based payments –

options$

Total$

Year ended 30 June 2007 3,483,023 202,610 269,554 439,167 18,961 42,106 406,963 4,862,384year ended 30 June 2006 3,039,878 603,711 210,488 326,208 75,755 – 379,330 4,635,370

(b) individual diReCtoRs’ and exeCutives’ Compensation disClosuResInformation regarding individual Directors’ and executives’ compensation and some equity instruments disclosures as permitted by Corporations Regulations 2M.3.03 and 2M.6.04 are provided in the Remuneration Report section of the Directors’ Report on pages 68 to 79.

Apart from the details in this note, no Director has entered into a material contract with the Company or the Group since the end of the previous financial year and there were no material contracts involving Directors’ interests existing at year-end.

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2007 no. 000s

2006 No. 000s

6. earnings per share (continued)(b) Weighted average number of ordinary shares and potential ordinary shares 301,397 290,175

(i) Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows:

Weighted average number of ordinary shares used in the calculation of basic epS 300,705 288,415 Shares deemed to be issued for no consideration in respect of: outstanding employee options 654 1,716 Converted employee options 38 44

Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted epS 301,397 290,175

(ii) the following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share:

employee options 8,534 4,769

(iii) Weighted average number of converted, lapsed, or cancelled potential ordinary shares used in the calculation of diluted earnings per share:

employee options 38 44

2007 2006

Cents per share $m

Cents per share $M

7. Dividendsunfranked:Interim dividend paid 4.0 12.1 6.0 17.6

Final dividend proposed (unrecognised) 4.0 12.2 7.0 20.7

8.0 24.3 13.0 38.3


2007$m

2006$M

2007$m

2006$M

Adjusted franking account balance @ 30% (tax paid basis) 0.3 0.2 0.3 0.2

As described in note 1(ac) dividends are recognised when the Directors have declared, determined or publicly recommended the dividend. Accordingly, the 2007 final dividend of $12.2 million declared by the Directors on 22 August 2007 has not been provided for in the Financial Statements.


2007$m

2006$M

2007$m

2006$M

8. current trade and other receivablestrade receivables 94.2 77.2 9.9 3.2Goods and services tax (“GSt”) recoverable 5.2 4.9 1.0 0.7long service leave coal industry fund receivable 36.1 34.3 0.1 0.1

135.5 116.4 11.0 4.0


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2007$m

2006$M

2007$m

2006$M

9. other current financial assetsDeferred loss on interest swaps 0.3 – 0.3 –Derivative hedge receivable – foreign currency 21.2 9.1 15.3 5.3

21.5 9.1 15.6 5.3

10. current inventoriesStockpiles of coal: At cost 16.3 10.4 1.3 1.5 At net realisable value 4.7 3.3 – –Consumable supplies and spare parts: At cost 15.7 16.3 – –

36.7 30.0 1.3 1.5

11. other current assetsDeferred mining costs 93.0 87.9 – –prepayments and sundry debtors 36.4 16.7 17.3 9.2

129.4 104.6 17.3 9.2

12. non-current trade and other receivablesAmounts receivable from wholly-owned subsidiaries – – 960.8 882.7Allowance against intercompany receivables – – (96.3) (6.2)

– – 864.5 876.5Amounts receivable from partly-owned subsidiaries – – 156.4 161.6Royalty receivable 12.1 – – –other 10.1 6.0 50.1 6.0

22.2 6.0 1,071.0 1,044.1

the amounts receivable from wholly-owned subsidiaries are mainly interest bearing and have no fixed terms for repayment.

13. other non-current financial assetsShares at cost: In other corporations (non-quoted) 2.1 1.9 0.2 0.2 In subsidiaries (non-quoted) – – 22.1 22.1 In partly-owned subsidiaries (non-quoted) – – 346.1 346.1other 0.1 0.5 0.1 0.5

2.2 2.4 368.5 368.9

14. non-current inventoriesConsumable supplies and spare parts:

At cost 7.5 8.2 – –

2007 no. 000s

2006 No. 000s

6. earnings per share (continued)(b) Weighted average number of ordinary shares and potential ordinary shares 301,397 290,175

(i) Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows:

Weighted average number of ordinary shares used in the calculation of basic epS 300,705 288,415 Shares deemed to be issued for no consideration in respect of: outstanding employee options 654 1,716 Converted employee options 38 44

Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted epS 301,397 290,175

(ii) the following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share:

employee options 8,534 4,769

(iii) Weighted average number of converted, lapsed, or cancelled potential ordinary shares used in the calculation of diluted earnings per share:

employee options 38 44

2007 2006

Cents per share $m

Cents per share $M

7. Dividendsunfranked:Interim dividend paid 4.0 12.1 6.0 17.6

Final dividend proposed (unrecognised) 4.0 12.2 7.0 20.7

8.0 24.3 13.0 38.3


2007$m

2006$M

2007$m

2006$M

Adjusted franking account balance @ 30% (tax paid basis) 0.3 0.2 0.3 0.2

As described in note 1(ac) dividends are recognised when the Directors have declared, determined or publicly recommended the dividend. Accordingly, the 2007 final dividend of $12.2 million declared by the Directors on 22 August 2007 has not been provided for in the Financial Statements.


2007$m

2006$M

2007$m

2006$M

8. current trade and other receivablestrade receivables 94.2 77.2 9.9 3.2Goods and services tax (“GSt”) recoverable 5.2 4.9 1.0 0.7long service leave coal industry fund receivable 36.1 34.3 0.1 0.1

135.5 116.4 11.0 4.0

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15. Investments accounted for using the equity method

ownership interestConsolidated

carrying amount

Name of entity* Principal activity Balance date2007

%2006

%2007

$m2006

$M

Springvale Coal Sales pty limited Coal Mining 31 December 50 50 – –port Kembla Coal terminal limited Coal loading terminal 30 June 40 40 – –Springvale Coal pty limited (a) Coal Mining 31 December 100 50 – 0.7

* the above companies are all incorporated in Australia.

(a) Springvale Coal pty limited became a wholly-owned subsidiary on 31 May 2007.

Consolidated

2007$m

2006$M

Movement in investment in associatesequity accounted amount of investment at the beginning of the financial year 0.7 1.0Investment in associates – acquired, became wholly-owned subsidiary (0.7) –Share of profits before income tax – (0.3)

Equity accounted amount of investment at the end of the financial year – 0.7

the associate company port Kembla Coal terminal limited made an operating loss of $2.4 million after income tax for the year. the Company has not taken up its share of this loss as the accumulated equity accounted loss is in excess of the original cost of the investment.

the cumulative unrecognised share of losses is $1.0 million.

Springvale Coal Sales pty limited is jointly owned by the joint venture parties. the Group’s investment in the Springvale Joint Venture is accounted for through its wholly-owned subsidiary, Centennial Springvale pty limited.

Consolidated

2007$m

2006$M

Summarised financial position of associated entities

Current assets 7.6 9.0Non-current assets 11.1 8.4

Total assets 18.7 17.4

Current liabilities 11.4 12.1Non-current liabilities 11.0 5.0

Total liabilities 22.4 17.1

Net assets/(liabilities) (3.7) 0.3

Group’s share of associates’ net assets (1.5) 0.1

Share of reserves attributable to associatesAccumulated losses:At the beginning of the financial year (0.8) –

At the end of the financial year (4.3) (0.8)

Contingent liabilities and capital commitmentsthe Group’s share of contingent liabilities, capital commitments and other expenditure commitments of associates are disclosed in notes 30 and 33.


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16. Joint venture operationsthe Group has an interest in the following unincorporated joint ventures:

interest

Principal activity2007

%2006

%

Charbon Joint Venture Coal Mining 95 95Clarence Joint Venture Coal Mining 85 85Springvale Joint Venture Coal Mining 50 50Angus place Joint Venture Coal Mining 50 –

the Group’s interest in the assets employed in the above joint venture operations is detailed below. the amounts are included in the consolidated financial statements under their respective asset categories:

Consolidated

2007$m

2006$M

CuRRent assetsCash and cash equivalents – 0.4trade and other receivables 8.3 13.3Inventories 10.4 6.4other 19.1 8.4

Total current assets 37.8 28.5

non-CuRRent assetsproperty, plant and equipment 220.2 96.0other 5.8 48.2

Total non-current assets 226.0 144.2


Contingent liabilities, capital commitments and operating lease commitmentsthe contingent liabilities, capital commitments and operating lease commitments arising from the Group’s interest in joint venture operations are disclosed in notes 30, 33 and 34 respectively.

15. Investments accounted for using the equity method

ownership interestConsolidated

carrying amount

Name of entity* Principal activity Balance date2007

%2006

%2007

$m2006

$M

Springvale Coal Sales pty limited Coal Mining 31 December 50 50 – –port Kembla Coal terminal limited Coal loading terminal 30 June 40 40 – –Springvale Coal pty limited (a) Coal Mining 31 December 100 50 – 0.7

* the above companies are all incorporated in Australia.

(a) Springvale Coal pty limited became a wholly-owned subsidiary on 31 May 2007.

Consolidated

2007$m

2006$M

Movement in investment in associatesequity accounted amount of investment at the beginning of the financial year 0.7 1.0Investment in associates – acquired, became wholly-owned subsidiary (0.7) –Share of profits before income tax – (0.3)

Equity accounted amount of investment at the end of the financial year – 0.7

the associate company port Kembla Coal terminal limited made an operating loss of $2.4 million after income tax for the year. the Company has not taken up its share of this loss as the accumulated equity accounted loss is in excess of the original cost of the investment.

the cumulative unrecognised share of losses is $1.0 million.

Springvale Coal Sales pty limited is jointly owned by the joint venture parties. the Group’s investment in the Springvale Joint Venture is accounted for through its wholly-owned subsidiary, Centennial Springvale pty limited.

Consolidated

2007$m

2006$M

Summarised financial position of associated entities

Current assets 7.6 9.0Non-current assets 11.1 8.4


Current liabilities 11.4 12.1Non-current liabilities 11.0 5.0

Total liabilities 22.4 17.1

Net assets/(liabilities) (3.7) 0.3

Group’s share of associates’ net assets (1.5) 0.1

Share of reserves attributable to associatesAccumulated losses:At the beginning of the financial year (0.8) –

At the end of the financial year (4.3) (0.8)

Contingent liabilities and capital commitmentsthe Group’s share of contingent liabilities, capital commitments and other expenditure commitments of associates are disclosed in notes 30 and 33. F

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Consolidated

Land at cost$M

Plant and equipment at cost

$M

Mining and development

propertiesat cost

$M

Equipmentunder financelease at cost

$MTotal

$M

17. Property, plant and equipmentgRoss CaRRying amountBalance at 1 July 2005 36.9 597.8 1,000.1 49.4 1,684.2Additions 20.5 130.0 55.8 1.1 207.4Disposals (1.0) (15.4) – – (16.4)

Balance at 1 July 2006 56.4 712.4 1,055.9 50.5 1,875.2Additions 97.1 126.6 41.6 1.1 266.4Disposals (0.2) (57.4) (94.0) (20.9) (172.5)

Balance at 30 June 2007 153.3 781.6 1,003.5 30.7 1,969.1

aCCumulated depReCiation/amoRtisationBalance at 1 July 2005 – (133.0) (56.7) (7.1) (196.8)Disposals – 13.5 – – 13.5Depreciation expense – (53.7) (28.7) (5.1) (87.5)

Balance at 1 July 2006 – (173.2) (85.4) (12.2) (270.8)Disposals – 31.1 59.5 9.3 99.9Depreciation expense – (69.5) (62.1) (4.6) (136.2)

Balance at 30 June 2007 – (211.6) (88.0) (7.5) (307.1)

net book valueAs at 30 June 2006 56.4 539.2 970.5 38.3 1,604.4

As at 30 June 2007 153.3 570.0 915.5 23.2 1,662.0

Company

Land at cost$M

Plant and equipment

at cost$M

Total$M

gRoss CaRRying amountBalance at 1 July 2005 3.2 4.9 8.1Additions – 2.2 2.2Disposals (3.2) (0.4) (3.6)

Balance at 1 July 2006 – 6.7 6.7Additions – 3.2 3.2Disposals – (0.2) (0.2)

Balance at 30 June 2007 – 9.7 9.7

aCCumulated depReCiationBalance at 1 July 2005 – (1.4) (1.4)Disposals – 0.3 0.3Depreciation expense – (1.0) (1.0)

Balance at 1 July 2006 – (2.1) (2.1)Disposals – 0.1 0.1Depreciation expense (1.6) (1.6)

Balance at 30 June 2007 – (3.6) (3.6)

net book valueAs at 30 June 2006 – 4.6 4.6

As at 30 June 2007 – 6.1 6.1

Aggregate depreciation allocated during the year is recognised as an expense and is disclosed in note 2.


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2007$m

2006$M

2007$m

2006$M

18. other non-current assetsDeferred mining costs 18.6 31.7 – –

19. assets pledged as securitythe Group is partly financed by the Company’s bank loans through a Senior Facility Agreement and notes issued through a uS private placement. the bank loans were secured over the assets of the Group up until 13 September 2005 at which time the security was released.

the Company and each wholly-owned subsidiary in the Group, except for members of the powercoal pty limited group (the assets of which were immediately transferred to newly established subsidiaries upon its acquisition), are providing guarantees to ensure full payment of the money owed under the Senior Facility Agreement and the uS private placement.

the Group does not hold title to the equipment under finance leases pledged as security.


2007$m

2006$M

2007$m

2006$M

20. current trade and other payablestrade payables 56.0 66.6 1.4 1.0other payables and accruals 113.5 59.3 20.3 17.0Goods and Services tax (“GSt”) payable 3.4 4.3 0.1 0.1

172.9 130.2 21.8 18.1

the credit terms on trade payables varies from 7 to 30 days. no interest is charged on trade payables if paid within credit terms. the Group has procedures in place to ensure payables are paid within the respective credit timeframe.

21. current borrowingsseCuRed

Finance lease liabilities (note 21 and note 34) 5.3 7.5 – –

Secured by the assets leased, refer note 19.

22. current provisionsMine site rehabilitation 2.8 2.8 – –onerous contracts – 0.7 – –

2.8 3.5 – –

23. other current liabilitiesDerivative hedge payable – coal price swaps 20.1 4.2 18.6 4.2 – interest rate swaps 21.2 6.4 22.4 6.4other – 0.6 – –

41.3 11.2 41.0 10.6

Consolidated

Land at cost$M

Plant and equipment at cost

$M

Mining and development

propertiesat cost

$M

Equipmentunder financelease at cost

$MTotal

$M

17. Property, plant and equipmentgRoss CaRRying amountBalance at 1 July 2005 36.9 597.8 1,000.1 49.4 1,684.2Additions 20.5 130.0 55.8 1.1 207.4Disposals (1.0) (15.4) – – (16.4)

Balance at 1 July 2006 56.4 712.4 1,055.9 50.5 1,875.2Additions 97.1 126.6 41.6 1.1 266.4Disposals (0.2) (57.4) (94.0) (20.9) (172.5)

Balance at 30 June 2007 153.3 781.6 1,003.5 30.7 1,969.1

aCCumulated depReCiation/amoRtisationBalance at 1 July 2005 – (133.0) (56.7) (7.1) (196.8)Disposals – 13.5 – – 13.5Depreciation expense – (53.7) (28.7) (5.1) (87.5)

Balance at 1 July 2006 – (173.2) (85.4) (12.2) (270.8)Disposals – 31.1 59.5 9.3 99.9Depreciation expense – (69.5) (62.1) (4.6) (136.2)

Balance at 30 June 2007 – (211.6) (88.0) (7.5) (307.1)

net book valueAs at 30 June 2006 56.4 539.2 970.5 38.3 1,604.4

As at 30 June 2007 153.3 570.0 915.5 23.2 1,662.0

Company

Land at cost$M

Plant and equipment

at cost$M

Total$M

gRoss CaRRying amountBalance at 1 July 2005 3.2 4.9 8.1Additions – 2.2 2.2Disposals (3.2) (0.4) (3.6)

Balance at 1 July 2006 – 6.7 6.7Additions – 3.2 3.2Disposals – (0.2) (0.2)

Balance at 30 June 2007 – 9.7 9.7

aCCumulated depReCiationBalance at 1 July 2005 – (1.4) (1.4)Disposals – 0.3 0.3Depreciation expense – (1.0) (1.0)

Balance at 1 July 2006 – (2.1) (2.1)Disposals – 0.1 0.1Depreciation expense (1.6) (1.6)

Balance at 30 June 2007 – (3.6) (3.6)

net book valueAs at 30 June 2006 – 4.6 4.6

As at 30 June 2007 – 6.1 6.1

Aggregate depreciation allocated during the year is recognised as an expense and is disclosed in note 2.

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2007$m

2006$M

2007$m

2006$M

24. non-current borrowingsunseCuRedBank loans 355.0 430.0 355.0 430.0uS private placement notes 256.7 277.0 256.7 277.06.2% Subordinated Convertible notes 149.3 – 149.3 –other loans – 0.7 – –

seCuRedFinance lease liabilities (note 21(a) and note 34) 13.6 25.6 – –

774.6 733.3 761.0 707.0

Deferred borrowing costs (31.9) (27.5) (26.7) (22.3)Accumulated amortisation 22.0 16.2 17.2 12.7

(9.9) (11.3) (9.5) (9.6)

764.7 722.0 751.5 697.4

25. non-current provisionsMine site rehabilitation 21.7 24.6 – –

Consolidated

Onerous contracts $M

Mine site rehabilitation

$M

Total

$M

26. ProvisionsBalance at 1 July 2006 0.7 27.4 28.1Reductions arising from payments/other sacrifices of future economic benefits – (1.3) (1.3)Reductions resulting from re-measurement or settlement without cost (0.7) (2.8) (3.5)unwinding of discount and effect of changes in the discount rate – 1.2 1.2

Balance at 30 June 2007 – 24.5 24.5

Current (note 22) – 2.8 2.8non-current (note 25) – 21.7 21.7

– 24.5 24.5

(a) the provision for onerous contracts represents the estimated loss on coal sale contracts established in prior years and expected to be settled within 12 months. the calculation of the provision is based on the difference between the contract price and the current estimated cost of production. the provision has been reversed to the Income Statement as each contract was delivered.

(b) the provision for restoration of mine sites represents the present value of the costs for reclamation, waste disposal, plant closure and other costs associated with the restoration of a mining site. In determining the provision, it has been assumed no significant changes will occur in the relevant State and Federal legislations. over time the estimates calculated could differ to actual costs due to changes in legislation and changes in cost estimates.


2007$m

2006$M

2007$m

2006$M

27. Issued capital305,589,725 fully paid ordinary shares(2006: 295,134,280) 797.4 765.2 797.4 765.2Senior executive & Director option premium to subscribe for ordinary shares in the Company 0.7 0.6 0.7 0.6Convertible notes equity component 16.2 – 16.2 –

814.3 765.8 814.3 765.8


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2007 2006

no. millions $m No. Millions $M

Fully paid oRdinaRy shaRes

Balance at the beginning of the financial year 295.1 765.2 268.5 637.8

Number of shares issued

Average issue price Basis of issue

255,000 $2.2279 exercise of employee options 0.3 0.6 – –

1,691,914 $3.1098Shareholder elections under Dividend Reinvestment plan 1.7 5.4 – –

4,776,287 $3.1583 underwriting of Dividend Reinvestment plan 4.8 15.1 – –

737,230 $3.0237Shareholder elections under Dividend Reinvestment plan 0.7 2.2 – –

2,995,014 $2.9934 underwriting of Dividend Reinvestment plan 3.0 8.9 – –

326,259 $4.8969Scrip for scrip takeover offer for Austral Coal limited – – 0.3 1.6

198,000 $2.0715 exercise of employee options – – 0.2 0.520,000,000 $4.9500 Share placement – – 20.0 99.0

Share placement transaction costs – – – (2.0)

1,368,270 $4.9100Shareholder elections under Dividend Reinvestment plan – – 1.4 6.8

3,374,543 $4.8772 Share purchase plan – – 3.3 16.5Share purchase plan transaction costs – – – (0.1)

1,370,866 $3.7332Shareholder elections under Dividend Reinvestment plan – – 1.4 5.1

Balance at the end of the financial year 305.6 797.4 295.1 765.2

(a) Fully paid ordinary shares carry one vote per share and carry the right to dividends.


2007$m

2006$M

2007$m

2006$M

28. ReservesHedging reserve (8.9) (2.8) (12.7) (4.0)

the hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. the cumulative deferred gain or loss on the hedge is recognised in profit or loss when the hedged transaction impacts the profit or loss, or is included as a basis adjustment to the non-financial hedged item, consistent with applicable accounting policy.

Employee equity-settled benefits reserve 2.2 1.2 2.2 1.2

the employee equity-settled benefits reserve arises on the grant of share options to executives under the option Scheme. Amounts are transferred out of the reserve and into issued capital when the options are exercised. Further information about share-based payments to employees is disclosed in the Remuneration Report.

Total reserves (6.7) (1.6) (10.5) (2.8)

29. capitalised borrowing costsBorrowing costs capitalised to qualifying assets during the financial year 9.7 3.8 – –

Weighted average capitalisation rate on funds borrowed generally 7.1% 6.6% – –


2007$m

2006$M

2007$m

2006$M

24. non-current borrowingsunseCuRedBank loans 355.0 430.0 355.0 430.0uS private placement notes 256.7 277.0 256.7 277.06.2% Subordinated Convertible notes 149.3 – 149.3 –other loans – 0.7 – –

seCuRedFinance lease liabilities (note 21(a) and note 34) 13.6 25.6 – –

774.6 733.3 761.0 707.0

Deferred borrowing costs (31.9) (27.5) (26.7) (22.3)Accumulated amortisation 22.0 16.2 17.2 12.7

(9.9) (11.3) (9.5) (9.6)

764.7 722.0 751.5 697.4

25. non-current provisionsMine site rehabilitation 21.7 24.6 – –

Consolidated

Onerous contracts $M

Mine site rehabilitation

$M

Total

$M

26. ProvisionsBalance at 1 July 2006 0.7 27.4 28.1Reductions arising from payments/other sacrifices of future economic benefits – (1.3) (1.3)Reductions resulting from re-measurement or settlement without cost (0.7) (2.8) (3.5)unwinding of discount and effect of changes in the discount rate – 1.2 1.2

Balance at 30 June 2007 – 24.5 24.5

Current (note 22) – 2.8 2.8non-current (note 25) – 21.7 21.7

– 24.5 24.5

(a) the provision for onerous contracts represents the estimated loss on coal sale contracts established in prior years and expected to be settled within 12 months. the calculation of the provision is based on the difference between the contract price and the current estimated cost of production. the provision has been reversed to the Income Statement as each contract was delivered.

(b) the provision for restoration of mine sites represents the present value of the costs for reclamation, waste disposal, plant closure and other costs associated with the restoration of a mining site. In determining the provision, it has been assumed no significant changes will occur in the relevant State and Federal legislations. over time the estimates calculated could differ to actual costs due to changes in legislation and changes in cost estimates.


2007$m

2006$M

2007$m

2006$M

27. Issued capital305,589,725 fully paid ordinary shares(2006: 295,134,280) 797.4 765.2 797.4 765.2Senior executive & Director option premium to subscribe for ordinary shares in the Company 0.7 0.6 0.7 0.6Convertible notes equity component 16.2 – 16.2 –

814.3 765.8 814.3 765.8

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2007$m

2006$M

2007$m

2006$M

30. commitments for expenditureCapital expendituRe Commitmentsproperty, plant and equipment:

not longer than 1 year 45.3 26.7 0.1 0.8

Joint venture operations:

not longer than 1 year 28.6 1.8 – –

lease Commitments

Finance lease liabilities and non-cancellable operating lease commitments are disclosed in note 34.

31. Superannuationthe Group provides for superannuation as follows:

(a) industRy sChemeunder the terms of the Coal and oil Shale Mine Workers (Superannuation) Act 1941, the Group is required to make contributions to the industry superannuation fund on behalf of employees engaged at the Group’s mine sites. the actuarial assessment of the fund performed by peter R. hughes of Mercer human Resource Consulting pty limited, as at 30 June 2006, determined that the fund had an unfunded industry liability of $6.8 million. the nSW Government has planned for the unfunded liability to be eliminated by additional contributions by employers and employees. the Group has not made any provision in these Financial Statements in respect of this unfunded liability, as Centennial is unable to reliably estimate its share of the industry fund shortfall.

(b) Company sChemesIn addition to the industry scheme, the Company contributed to accumulated benefit master funds. these funds are accumulation funds with a lump sum benefit on retirement, withdrawal, death or disability, and as such an actuarial review is not required. the rate of contribution to the funds by the Group in respect of each member in any one year is such amount as the Company determines from time to time within prescribed limitations. the trustees are of the opinion that all vested benefits are covered by the available assets in the event of termination of the plans, voluntary termination of employment or compulsory termination of employment of each employee.

the Group has a legal obligation to contribute as set out in each of the trust deeds governing the schemes noted in 31(a) and 31(b) above, and to vary the rate of or terminate contributions upon giving notice as prescribed in either deed accordingly.

32. long service leaveunder the Coal Mining Industry (long Service leave Funding) Act 1992, the Company is required to make contributions to the Coal Mining Industry long Service leave Scheme for long service leave payments to employees under the terms of various coal mining industry awards.

the actuarial assessment of the long Service leave Fund, as at 30 June 2004, has shown an unfunded industry liability of $42 million. In accordance with the Act, the unfunded liability was being financed by a levy imposed on all coal producers and on other organisations employing people in the black coal mining industry. the unfunded liability was extinguished in november 2005 and the additional levy ceased from that date.


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2007$m

2006$M

2007$m

2006$M

33. contingent liabilitiesperformance guarantees provided to external parties (a) 50.9 40.1 50.9 40.1Guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute (a) 28.8 15.7 28.8 15.7Guarantees provided in respect of employee entitlements inherited as part of the acquisition of powercoal pty limited (a) 35.0 35.0 35.0 35.0Contingent liabilities arising from service contracts (b) 3.2 3.0 3.2 3.0

(a) the guarantees provided are for a specified amount and the amount is not subject to uncertainty. In the unlikely event of a default by the Group of its specific obligations to third parties, the contingent liability would be realised.

(b) Specified senior executives have entered into service contracts with the Company, which stipulate that in the event that their service contracts are terminated early by the Company, the Company will be required to compensate the executive for loss of income based on a specified notice period of 12 months. the aggregate amount that would be paid out if these contracts were terminated at reporting date is disclosed above.

(c) Centennial hunter pty limited is a party to a Federal Court application for judicial review of the decision of the delegate of the Minister for environment and Water Resources that the Anvil hill project is not a controlled action under the environment protection and Biodiversity Conservation Act 1999. the matter was expedited and heard on 21 and 22 August 2007 with the judgement not handed down at the date of these accounts. the exact consequences of this action on the Anvil hill project are therefore uncertain at this stage.

34. leasesFinanCe leasesLeasing arrangementsFinance leases relate to plant and equipment with lease terms between one and seven years. the Group has options to purchase the leased assets at the residual values on the expiry of the leases. there are no contingent lease payments and no restrictions imposed on leasing arrangements.


2007$m

2006$M

2007$m

2006$M

Finance lease liabilitiesno later than 1 year 6.6 9.8 – –later than 1 year and not later than 5 years 14.6 29.0 – –

Minimum finance lease payments 21.2 38.8 – –Deduct future finance charges (2.3) (5.7) – –

Finance lease liabilities 18.9 33.1 – –

Included in the Financial Statements as:Current borrowings (note 21) 5.3 7.5 – –non-current borrowings (note 24) 13.6 25.6 – –

18.9 33.1 – –

opeRating leasesLeasing arrangementsoperating leases relate to mining equipment and office facilities. there is no option to extend the lease period. the Group does not have an option to purchase the leased asset at the expiry of the lease period.

Non-cancellable operating lease paymentsnot longer than 1 year 1.2 1.2 0.3 0.3longer than 1 year and not longer than 5 years 1.3 2.5 0.5 0.8

2.5 3.7 0.8 1.1

35. economic dependencyA significant volume of the Group’s coal sales are sold into long-term contracts with the nSW Government statutory bodies, Delta electricity and eraring energy.


2007$m

2006$M

2007$m

2006$M

30. commitments for expenditureCapital expendituRe Commitmentsproperty, plant and equipment:

not longer than 1 year 45.3 26.7 0.1 0.8

Joint venture operations:

not longer than 1 year 28.6 1.8 – –

lease Commitments

Finance lease liabilities and non-cancellable operating lease commitments are disclosed in note 34.

31. Superannuationthe Group provides for superannuation as follows:

(a) industRy sChemeunder the terms of the Coal and oil Shale Mine Workers (Superannuation) Act 1941, the Group is required to make contributions to the industry superannuation fund on behalf of employees engaged at the Group’s mine sites. the actuarial assessment of the fund performed by peter R. hughes of Mercer human Resource Consulting pty limited, as at 30 June 2006, determined that the fund had an unfunded industry liability of $6.8 million. the nSW Government has planned for the unfunded liability to be eliminated by additional contributions by employers and employees. the Group has not made any provision in these Financial Statements in respect of this unfunded liability, as Centennial is unable to reliably estimate its share of the industry fund shortfall.

(b) Company sChemesIn addition to the industry scheme, the Company contributed to accumulated benefit master funds. these funds are accumulation funds with a lump sum benefit on retirement, withdrawal, death or disability, and as such an actuarial review is not required. the rate of contribution to the funds by the Group in respect of each member in any one year is such amount as the Company determines from time to time within prescribed limitations. the trustees are of the opinion that all vested benefits are covered by the available assets in the event of termination of the plans, voluntary termination of employment or compulsory termination of employment of each employee.

the Group has a legal obligation to contribute as set out in each of the trust deeds governing the schemes noted in 31(a) and 31(b) above, and to vary the rate of or terminate contributions upon giving notice as prescribed in either deed accordingly.

32. long service leaveunder the Coal Mining Industry (long Service leave Funding) Act 1992, the Company is required to make contributions to the Coal Mining Industry long Service leave Scheme for long service leave payments to employees under the terms of various coal mining industry awards.

the actuarial assessment of the long Service leave Fund, as at 30 June 2004, has shown an unfunded industry liability of $42 million. In accordance with the Act, the unfunded liability was being financed by a levy imposed on all coal producers and on other organisations employing people in the black coal mining industry. the unfunded liability was extinguished in november 2005 and the additional levy ceased from that date.

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36. Subsidiariesownership interest

Name of entityCountry of

incorporation2007

%2006

%

Parent entityCentennial Coal Company limited (a) Australia

SubsidiariesAirly Coal pty limited Australia 100 100Anvil hill operations pty limited Australia 100 –Anvil hill (Sales and Marketing) pty limited Australia 100 –Berrima Coal pty limited Australia 100 100Centennial Angus place pty limited Australia 100 100Centennial Anvil hill pty limited Australia 100 100Centennial Fassifern pty limited Australia 100 100Centennial hunter pty limited Australia 100 100Centennial Mandalong pty limited Australia 100 100Centennial Mannering pty limited Australia 100 100Centennial Munmorah pty limited Australia 100 100Centennial Myuna pty limited Australia 100 100Centennial newstan pty limited Australia 100 100Centennial Springvale holdings pty limited Australia 100 100Centennial Springvale pty limited Australia 100 100Charbon Coal pty limited Australia 100 100Clarence Coal Investments pty limited Australia 100 100Clarence Coal pty limited Australia 100 100Clarence Colliery pty limited Australia 100 100Coalex pty limited Australia 100 100hartley Valley Coal Company pty limited Australia 100 100Ivanhoe Coal pty limited Australia 100 100Japan energy (Australia) pty limited Australia 100 100preston Coal pty limited Australia 100 100Springvale Coal pty limited (e) Australia 100 50Springvale Coal Sales pty limited Australia 50 50

Powercoal Pty Ltd Group: Collieries Superannuation pty limited Australia 100 100 elcom Collieries pty limited Australia 100 100 huntley Colliery pty limited Australia 100 100 Mandalong pastoral Management pty limited Australia 100 100 powercoal employee entitlements Company pty limited Australia 100 100 powercoal pty limited Australia 100 100 powercoal Superannuation pty limited Australia 100 100

Austral Coal Limited Group: Austral Coal limited (c) Australia 85.85 85.85 Austral operations pty limited Australia 85.85 85.85 Bargo Collieries pty limited Australia 85.85 85.85 Gigalink pty limited Australia 85.85 85.85 tahmoor Coal pty limited Australia 85.85 85.85

(a) Centennial Coal Company limited is the head entity within the tax-consolidated group.(b) All 100% owned subsidiaries are members of the Centennial Coal tax-consolidated group.(c) on 7 April 2005, Austral Coal limited became a subsidiary of Centennial Coal Company limited and as at 30 June 2007

the parent entity had a relevant interest of 85.85%.(d) All subsidiaries of Austral Coal limited (head entity) are members of the Austral Coal limited tax-consolidated group.(e) on 31 May 2007, Springvale Coal pty limited became a wholly-owned subsidiary of Centennial Coal Company limited.


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Consolidated

2007$m

2006$M

37. minority interestMinority interests in subsidiaries comprises:Issued capital 19.8 19.8Reserves 0.6 0.2Retained profits 36.1 37.3

56.5 57.3

38. Segment informationDuring the 2007 financial year, the Group operated solely in the coal mining industry in new South Wales.

39. Related party disclosures(a) equity inteRests in Related paRties Equity interests in subsidiaries Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 36.

Equity interests in associates and joint ventures Details of interests in associates and joint ventures are disclosed in note 15 and note 16.

(b) key management peRsonnel Compensation Details of specified Directors’ and executives remuneration are disclosed in note 4 and the Remuneration Report section of the Directors’ Report.

(C) loan disClosuRes

2007

Balance at beginning

of year$

Interest notcharged

$

Balance atend of

year$ No. in Group

Directors 443,468 38,090 572,268 1executives 780,124 66,187 984,874 7

Total 1,223,592 104,277 1,557,142 8

2006

Directors 297,277 25,925 443,468 1executives 321,756 38,565 780,124 6

total 619,033 64,490 1,223,592 7

Individuals with loans above $100,000 in the reporting period:


of year$

Interest notcharged

$

Balance atend of

year$

Highest inperiod

$

diReCtoRsR.G. Cameron 443,468 38,090 572,268 572,268

exeCutivesD.J. Moult 172,494 14,119 204,036 204,036M.B. Clyde 149,940 13,274 204,036 204,036R.J. Dougall 106,200 9,704 152,568 152,568R.W. Knight 79,250 7,393 117,890 117,890t. Macko 83,620 8,010 129,988 129,988p.W. parry 83,620 8,010 129,988 129,988

pursuant to the Senior executive and Director Share option Scheme, interest free option loans (as disclosed in the Remuneration Report section of the Directors’ Report) have been provided to a Director and executives as set out above. loans are provided for a maximum period of five years.

36. Subsidiariesownership interest

Name of entityCountry of

incorporation2007

%2006

%

Parent entityCentennial Coal Company limited (a) Australia

SubsidiariesAirly Coal pty limited Australia 100 100Anvil hill operations pty limited Australia 100 –Anvil hill (Sales and Marketing) pty limited Australia 100 –Berrima Coal pty limited Australia 100 100Centennial Angus place pty limited Australia 100 100Centennial Anvil hill pty limited Australia 100 100Centennial Fassifern pty limited Australia 100 100Centennial hunter pty limited Australia 100 100Centennial Mandalong pty limited Australia 100 100Centennial Mannering pty limited Australia 100 100Centennial Munmorah pty limited Australia 100 100Centennial Myuna pty limited Australia 100 100Centennial newstan pty limited Australia 100 100Centennial Springvale holdings pty limited Australia 100 100Centennial Springvale pty limited Australia 100 100Charbon Coal pty limited Australia 100 100Clarence Coal Investments pty limited Australia 100 100Clarence Coal pty limited Australia 100 100Clarence Colliery pty limited Australia 100 100Coalex pty limited Australia 100 100hartley Valley Coal Company pty limited Australia 100 100Ivanhoe Coal pty limited Australia 100 100Japan energy (Australia) pty limited Australia 100 100preston Coal pty limited Australia 100 100Springvale Coal pty limited (e) Australia 100 50Springvale Coal Sales pty limited Australia 50 50

Powercoal Pty Ltd Group: Collieries Superannuation pty limited Australia 100 100 elcom Collieries pty limited Australia 100 100 huntley Colliery pty limited Australia 100 100 Mandalong pastoral Management pty limited Australia 100 100 powercoal employee entitlements Company pty limited Australia 100 100 powercoal pty limited Australia 100 100 powercoal Superannuation pty limited Australia 100 100

Austral Coal Limited Group: Austral Coal limited (c) Australia 85.85 85.85 Austral operations pty limited Australia 85.85 85.85 Bargo Collieries pty limited Australia 85.85 85.85 Gigalink pty limited Australia 85.85 85.85 tahmoor Coal pty limited Australia 85.85 85.85

(a) Centennial Coal Company limited is the head entity within the tax-consolidated group.(b) All 100% owned subsidiaries are members of the Centennial Coal tax-consolidated group.(c) on 7 April 2005, Austral Coal limited became a subsidiary of Centennial Coal Company limited and as at 30 June 2007

the parent entity had a relevant interest of 85.85%.(d) All subsidiaries of Austral Coal limited (head entity) are members of the Austral Coal limited tax-consolidated group.(e) on 31 May 2007, Springvale Coal pty limited became a wholly-owned subsidiary of Centennial Coal Company limited.

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39. Related party disclosures (continued)(d) key management peRsonnel equity holdings in Fully paid oRdinaRy shaRes issued by Centennial Coal Company limited


of yearNo.

Received on exercise of options

No.

Option exercise price

$

Net otherchange

No.

Balance atend of year

No.

DirectorsR.G. Cameron 5,417,490 – – (59,802) 5,357,688K.J. Moss 310,990 – – 13,351 324,341p.J. Moy 20,686 – – 7,311 27,997C.M. Brenner 5,249 – – 5,682 10,931p.R. Dodd – – – 2,591 2,591

ExecutivesD.J. Moult 137,963 90,000 $2.16 (91,696) 136,267M.B. Clyde 288,829 – – (162,710) 126,119R.J. Dougall 18,152 – – 8,010 26,162t. Macko 289,061 – – (25,347) 263,714R.W. Knight 185,952 – – (59,392) 126,560p.W. parry 181,018 – – (70,000) 111,018l Baldwin – – – 324 324

6,855,390 90,000 (431,678) 6,513,712

(e) shaRe options issued undeR the Centennial Coal Company limited senioR exeCutive and diReCtoR shaRe option sCheme


of yearNo.

Granted asremuneration

No.Exercised

No.

Balance atend of

yearNo.

Balance vested atend of year

No.

Vested but not exercisable

No.

Vested and exercisable

No.

Options vested during year

No.

DirectorsR.G. Cameron 1,333,332 400,000 – 1,733,332 666,666 – 666,666 –K.J. Moss – – – – – – –p.J. Moy – – – – – – –C.M. Brenner – – – – – – –p.R. Dodd – – – – – – –

ExecutivesD.J. Moult 450,000 168,000 90,000 528,000 100,000 – 100,000 –M.B. Clyde 360,000 168,000 – 528,000 100,000 – 100,000 –R.J. Dougall 240,000 144,000 – 384,000 – – – –t. Macko 210,000 144,000 – 354,000 100,000 – 100,000 –R.W. Knight 200,000 120,000 – 320,000 100,000 – 100,000 –p.W. parry 210,000 144,000 – 354,000 100,000 – 100,000 –l Baldwin – 144,000 – 144,000 – – – –

3,003,332 1,432,000 90,000 4,345,332 1,166,666 – 1,166,666 –


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(F) tRansaCtions with otheR Related paRtiesother related parties includes the parent entity, partly owned subsidiaries, associates and key management personnel of related parties and their related entities.

Details of interest revenue and expense from other related parties are disclosed in note 2.

Aggregate amounts receivable from other related parties are disclosed in note 12.

During the financial year, Centennial newstan pty limited sold coal to tahmoor Coal pty limited on normal commercial terms and conditions totalling $967,153 (2006: $1,210,462).

During the financial year, Coalex pty limited sold coal to tahmoor Coal pty limited on normal commercial terms and conditions totalling $nil (2006: $248,896).

During the financial year, tahmoor Coal pty limited sold coal to Centennial Coal Company limited on normal commercial terms and conditions totalling $11,208,444 (2006: $4,089,731).

During the financial year, Centennial Coal Company limited provided management services to Austral Coal limited on normal commercial terms and conditions totalling $5,778,320 (2006: $4,594,119).

During the financial year, Ivanhoe Coal pty limited hired mining equipment to tahmoor Coal pty limited on normal commercial terms and conditions totalling $129,300 (2006: $nil).

During the financial year, tahmoor Coal pty limited provided casual labour services to Berrima Coal pty limited on normal commercial terms and conditions totalling $7,576 (2006: $nil).

During the financial year, Centennial Mannering pty limited sold stores and supplies to tahmoor Coal pty limited on normal terms and conditions totalling $11,043 (2006: $nil).

(g) tRansaCtions within the wholly-owned gRoupthe wholly-owned group includes the ultimate parent entity in the wholly-owned group, wholly-owned subsidiaries and other entities in the wholly-owned group.

the Company and its subsidiaries maintain intercompany balances. Interest is charged on specific items within these balances. these intercompany balances are disclosed in note 12 and details of the interest charged is disclosed in note 2.

During the current financial year, the Company received $113,900,000 in dividends from its subsidiaries and received $24,190,576 in management fees (2006: $70,000,000 and $21,460,022 respectively) as disclosed in note 2.

40. Subsequent eventsthe final dividend relating to the year ended 30 June 2007 has not been included as a provision in the financial statements because the dividend was declared after balance date. the final, unfranked dividend declared on 22 August 2007 at 4 cents per share amounted to $12.2 million.

there has not been any other matter or circumstance that has arisen since the end of the financial year that has significantly affected, or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in the future.

39. Related party disclosures (continued)(d) key management peRsonnel equity holdings in Fully paid oRdinaRy shaRes issued by Centennial Coal Company limited


of yearNo.

Received on exercise of options

No.

Option exercise price

$

Net otherchange

No.

Balance atend of year

No.

DirectorsR.G. Cameron 5,417,490 – – (59,802) 5,357,688K.J. Moss 310,990 – – 13,351 324,341p.J. Moy 20,686 – – 7,311 27,997C.M. Brenner 5,249 – – 5,682 10,931p.R. Dodd – – – 2,591 2,591

ExecutivesD.J. Moult 137,963 90,000 $2.16 (91,696) 136,267M.B. Clyde 288,829 – – (162,710) 126,119R.J. Dougall 18,152 – – 8,010 26,162t. Macko 289,061 – – (25,347) 263,714R.W. Knight 185,952 – – (59,392) 126,560p.W. parry 181,018 – – (70,000) 111,018l Baldwin – – – 324 324

6,855,390 90,000 (431,678) 6,513,712

(e) shaRe options issued undeR the Centennial Coal Company limited senioR exeCutive and diReCtoR shaRe option sCheme


of yearNo.

Granted asremuneration

No.Exercised

No.

Balance atend of

yearNo.

Balance vested atend of year

No.

Vested but not exercisable

No.

Vested and exercisable

No.

Options vested during year

No.

DirectorsR.G. Cameron 1,333,332 400,000 – 1,733,332 666,666 – 666,666 –K.J. Moss – – – – – – –p.J. Moy – – – – – – –C.M. Brenner – – – – – – –p.R. Dodd – – – – – – –

ExecutivesD.J. Moult 450,000 168,000 90,000 528,000 100,000 – 100,000 –M.B. Clyde 360,000 168,000 – 528,000 100,000 – 100,000 –R.J. Dougall 240,000 144,000 – 384,000 – – – –t. Macko 210,000 144,000 – 354,000 100,000 – 100,000 –R.W. Knight 200,000 120,000 – 320,000 100,000 – 100,000 –p.W. parry 210,000 144,000 – 354,000 100,000 – 100,000 –l Baldwin – 144,000 – 144,000 – – – –

3,003,332 1,432,000 90,000 4,345,332 1,166,666 – 1,166,666 –

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2007$m

2006$M

2007$m

2006$M

41. notes to the cash flow statement(a) ReConCiliation oF CashFor the purposes of the Cash Flow Statement, cash includes cash on hand and in banks and investments in money market instruments net of outstanding bank overdrafts and short-term commercial bills. Cash at the end of the financial year as shown in the Cash Flow Statement is reconciled to the related items in the Balance Sheet as follows:

Cash and cash equivalents 36.1 58.8 36.0 5.7

(b) ReConCiliation oF net Cash pRovided by opeRating aCtivities to opeRating pRoFit aFteR inCome tax

profit for the year 2.1 17.3 20.7 54.0

Depreciation and amortisation 136.2 87.5 1.6 1.0Amortisation of deferred borrowing costs 4.9 5.2 3.6 3.9Share of (profit)/loss from associated company – 0.3 – – (profit)/loss on sale of property, plant and equipment (8.5) (4.3) – – Dividend income (0.2) (0.2) (113.9) (70.0)Interest capitalised on qualifying assets (9.7) (3.8) – Allowance against intercompany receivables – – 96.3 – Interest income (0.8) (1.2) (16.7) (15.8)Changes in assets and liabilities: (Increase)/decrease in current receivables (11.9) (12.6) (7.0) (2.1) (Increase)/decrease in other financial assets (12.4) (7.7) (10.3) (11.5) (Increase)/decrease in inventories (5.9) 8.7 0.2 (0.7) (Increase)/decrease in other current assets (24.8) (14.3) (8.1) (3.5) (Increase)/decrease in non-current receivables (4.1) (2.6) – – (Increase)/decrease in other non-current assets 13.2 (14.2) – – (Increase)/decrease in deferred tax assets 2.4 4.9 (32.4) (0.9) Increase/(decrease) in current payables 21.9 (16.1) 3.8 (1.7) Increase/(decrease) in current provisions (3.2) (13.0) 0.4 0.3 Increase/(decrease) in other current liabilities 30.1 6.7 30.4 5.6 Increase/(decrease) in deferred tax payable (26.2) (7.8) (1.4) (1.3) Increase/(decrease) in reserves (5.1) – (7.7) –

Net cash provided by/(used in) operating activities 98.0 32.8 (40.5) (42.7)

(C) non-Cash FinanCing and investing aCtivities (i) Property, plant and equipment During the financial year, the Group acquired property, plant and

equipment which was financed through the draw down of finance leases. the finance lease portion of the asset acquisition is not reflected in the Cash Flow Statement. the amounts are as follows:

Aggregate value of property, plant and equipment 1.3 1.1 – –

Finance lease liability drawdown 1.3 1.1 – –

(ii) Dividend Reinvestment Plan During the financial year, Shareholders elected to accept new shares in

the Company in lieu of receiving dividends

7.7 11.8 7.7 11.8

(iii) Interest free loans During the financial year, interest free loans were made available to a

Director and certain executives of the Group to enable the purchase of options under the Company’s Senior executive and Director Share option Scheme

1.1 1.0 1.1 1.0


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2007$m

2006$M

2007$m

2006$M

41. notes to the cash flow statement (continued)(d) FinanCing FaCilitiesthe Group’s finance facilities are summarised below: (i) Facility amount: Senior Facility Agreement – term loan 200.0 200.0 200.0 200.0 – Revolving credit 250.0 250.0 250.0 250.0 uS private placement notes 256.7 277.0 256.7 277.0 6.2% Subordinated Convertible notes 165.0 – 165.0 – lease finance facility 50.0 50.0 50.0 50.0 trade receivable finance facility 25.0 25.0 25.0 25.0 11am bank facility 10.0 10.0 10.0 10.0

956.7 812.0 956.7 812.0

(ii) unused facilities: Senior Facility Agreement – term loan – – – – – Revolving credit 95.0 20.0 95.0 20.0 uS private placement notes – – – – 6.2% Subordinated Convertible notes – – – – lease finance facility 31.1 16.9 31.1 16.9 trade receivable finance facility 25.0 25.0 25.0 25.0 11am bank facility 10.0 10.0 10.0 10.0

161.1 71.9 161.1 71.9

Interest rates are variable under the Senior Facility Agreement, trade receivable finance facility and 11am bank facility. uS$60.0 million of the uS$165.0 million tranche of the uS private placement has been swapped to A$ floating rate debt. the Company manages its exposure to floating rate debt by hedging a proportion of its exposure with interest rate swaps.

the lease finance facility includes lease agreements in relation to mining equipment and motor vehicles.

the maturity date for the Senior Facility Agreement is 6 August 2008.

the maturity profile for the uS private placement notes is as follows:

Maturity dateUS$ notes

US$MA$ notes

A$M

5.81% Series A-1 Senior notes 7 December 2012 92.0 – Floating Rate Series A-2 Senior notes 7 December 2012 – 13.55.94% Series B-1 Senior notes 7 December 2015 56.0 – Floating Rate Series B-2 Senior notes 7 December 2015 – 13.56.04% Series C-1 Senior notes 7 December 2017 11.0 – Floating Rate Series C-2 Senior notes 7 December 2017 – 13.56.19% Series D-1 Senior notes 7 December 2020 6.0 – Floating Rate Series D-2 Senior notes 7 December 2020 – 13.5

165.0 54.0

the other facilities, including the lease finance facility, trade receivable finance facility and 11am bank facility are renewable annually at the discretion of the facility providers.

6.2% Subordinated Convertible Noteson 15 March 2007, the Company issued subordinated convertible notes in the amount of $165 million due 15 March 2012. the five year notes carry a coupon of 6.2% per annum and will, unless previously converted, be redeemed at their principal amount on maturity. the conversion price of the notes has been set at A$3.666 per ordinary share. the conversion price is subject to adjustment, among other things, change of control, subdivision or consolidation of shares, dividends (including extraordinary dividends) bonus issues and other dilutive events in accordance with customary market practice.

the notes may be converted into ordinary shares at any time during the applicable conversion period being currently until 10 days prior to the maturity date. Centennial also has the right to redeem all outstanding notes at any time on or after 15 March 2010, if on each of more than 20 dealing days during any period of 30 consecutive dealing days, the closing price for an ordinary share exceeds 125% of the conversion price.


2007$m

2006$M

2007$m

2006$M

41. notes to the cash flow statement(a) ReConCiliation oF CashFor the purposes of the Cash Flow Statement, cash includes cash on hand and in banks and investments in money market instruments net of outstanding bank overdrafts and short-term commercial bills. Cash at the end of the financial year as shown in the Cash Flow Statement is reconciled to the related items in the Balance Sheet as follows:

Cash and cash equivalents 36.1 58.8 36.0 5.7

(b) ReConCiliation oF net Cash pRovided by opeRating aCtivities to opeRating pRoFit aFteR inCome tax

profit for the year 2.1 17.3 20.7 54.0

Depreciation and amortisation 136.2 87.5 1.6 1.0Amortisation of deferred borrowing costs 4.9 5.2 3.6 3.9Share of (profit)/loss from associated company – 0.3 – – (profit)/loss on sale of property, plant and equipment (8.5) (4.3) – – Dividend income (0.2) (0.2) (113.9) (70.0)Interest capitalised on qualifying assets (9.7) (3.8) – Allowance against intercompany receivables – – 96.3 – Interest income (0.8) (1.2) (16.7) (15.8)Changes in assets and liabilities: (Increase)/decrease in current receivables (11.9) (12.6) (7.0) (2.1) (Increase)/decrease in other financial assets (12.4) (7.7) (10.3) (11.5) (Increase)/decrease in inventories (5.9) 8.7 0.2 (0.7) (Increase)/decrease in other current assets (24.8) (14.3) (8.1) (3.5) (Increase)/decrease in non-current receivables (4.1) (2.6) – – (Increase)/decrease in other non-current assets 13.2 (14.2) – – (Increase)/decrease in deferred tax assets 2.4 4.9 (32.4) (0.9) Increase/(decrease) in current payables 21.9 (16.1) 3.8 (1.7) Increase/(decrease) in current provisions (3.2) (13.0) 0.4 0.3 Increase/(decrease) in other current liabilities 30.1 6.7 30.4 5.6 Increase/(decrease) in deferred tax payable (26.2) (7.8) (1.4) (1.3) Increase/(decrease) in reserves (5.1) – (7.7) –

Net cash provided by/(used in) operating activities 98.0 32.8 (40.5) (42.7)

(C) non-Cash FinanCing and investing aCtivities (i) Property, plant and equipment During the financial year, the Group acquired property, plant and

equipment which was financed through the draw down of finance leases. the finance lease portion of the asset acquisition is not reflected in the Cash Flow Statement. the amounts are as follows:

Aggregate value of property, plant and equipment 1.3 1.1 – –

Finance lease liability drawdown 1.3 1.1 – –

(ii) Dividend Reinvestment Plan During the financial year, Shareholders elected to accept new shares in

the Company in lieu of receiving dividends

7.7 11.8 7.7 11.8

(iii) Interest free loans During the financial year, interest free loans were made available to a

Director and certain executives of the Group to enable the purchase of options under the Company’s Senior executive and Director Share option Scheme

1.1 1.0 1.1 1.0

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42. financial instruments(a) FinanCial Risk management objeCtivesthe Group enters into a variety of derivative financial instruments to manage its exposures to the export thermal coal price, foreign exchange rate and interest rate risks, including:(i) coal swap contracts to mitigate the risk of falling export thermal coal prices;(ii) forward foreign exchange contracts and foreign exchange option contracts to hedge the exchange rate risk arising on the export of coal denominated in

uS Dollars; and(iii) interest rate and cross currency swaps to mitigate the risk of rising interest rates and the exchange rate risk arising on uS Dollar denominated borrowings.

the Group does not enter into or trade derivative financial instruments for speculative purposes.

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, liability and equity instrument are disclosed in note 1.

(b) expoRt theRmal Coal pRiCe Risk managementthe Group enters into coal swap contracts to sell specified tonnages of export thermal coal in the future at a fixed uS Dollar price per metric tonne. the objective is to avoid or minimise possible adverse financial effects of downward price movements in future export thermal coal sales.

these coal swap contracts are specifically designated to forecast export thermal coal sales tonnages at the inception of the hedge contracts. Gains or losses on such hedging transactions are deferred in the hedging reserve up to the date of sale and then included in the measurement of sales when they occur.

At balance date, the details of outstanding coal swap contracts are:

Fixed price metric tonnes Fair value

2007us$/mt

2006US$/Mt

2007mt ’000

2006Mt ’000

2007$m

2006$M

Coal swapsless than 1 yearGreater than 1 year, less than 2 yearsGreater than 2 years, less than 5 years

47.2448.6552.00

47.0047.1247.54

720.0585.0150.0

330.0690.0405.0

48.30 47.21 1,455.0 1,425.0 (20.1) (4.2)

exchange rate price

2007a$1 = us$

2006A$1 = US$

2007us$/mt

2006US$/Mt

year end rates used in calculating deferred unrealised gain/(loss) 0.8498 0.7432 68.00 50.00

(C) FoReign CuRRenCy Risk managementthe Group enters into forward foreign exchange contracts and foreign exchange option contracts to sell specified amounts of uS Dollars in the future at stipulated exchange rates. the objective is to avoid or minimise possible adverse financial effects of movements in exchange rates on future sales of coal denominated in uS Dollars.

the Company’s current policy is to hedge within a range of 40% to 90% of forecast uS Dollar export sales on a rolling 12 months basis, and a range of 20% to 60% out to two years and then 0% to 30% out to three years, using forward foreign exchange contracts and foreign exchange option contracts. these hedging contracts are specifically designated to forecast uS Dollar export sales at the inception of the hedge contracts. the remainder of export sales are converted at the spot A$/uS$ exchange rate. exchange gains or losses on such hedging transactions are deferred in the hedging reserve up to the date of sale and then included in the measurement of sales.


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In addition, forward foreign exchange contracts are entered into from time to time to fix a portion of the purchase price of imported mining equipment contracted in foreign currencies. exchange gains or losses on such hedging transactions are deferred up to the date of purchase and then included in the measurement of the equipment purchased.

At balance date, the details of outstanding forward foreign exchange contracts and foreign exchange option contracts are:

average exchange rate principal amount Fair value

2007 a$1 = us$

2006 A$1 = US$

2007us$m

2006US$M

2007 $m

2006 $M

FoRwaRd ContRaCts – sell us$less than 1 yearGreater than 1 year, less than 2 yearsGreater than 2 years, less than 5 years

0.72340.7150

–

0.72640.72000.7150

48.018.0

–

20.336.018.0

bought us$ put optionsless than 1 yearGreater than 1 year, less than 2 years

0.80250.7995

0.7310 –

99.039.0

204.0 –

sold us$ Call optionsless than 1 yearGreater than 1 year, less than 2 years

0.76790.7643

0.6970 –

99.039.0

204.0 –

total eFFeCtive hedging (at woRst Case Rate)less than 1 yearGreater than 1 year, less than 2 years

0.77670.7728

0.73060.7200

147.057.0

224.336.0

15.55.7

7.61.0

Greater than 2 years, less than 5 years – 0.7150 – 18.0 – 0.5

204.0 278.3 21.2 9.1

Centennial’s current policy of utilising outstanding forward foreign exchange contracts and foreign exchange option contracts to hedge its uS Dollar export sales revenue has resulted in such revenue, during the financial year, being converted to Australian Dollars at an average exchange rate of A$1=uS$0.7410 (2006: A$1=uS$0.7438).

Consolidated

2007$m

2006$M

the amount of unrealised foreign exchange gains/(losses) in respect of open forward foreign exchange contracts and foreign exchange option contracts at balance date are:

unrealised deferred exchange gain/(loss) 21.2 9.1

year end exchange rate A$/uS$ used in calculating deferred unrealised exchange gain/(loss) 0.8498 0.7432

In the current year, these unrealised gains have been deferred in the hedging reserve to the extent the hedge is effective.

42. financial instruments(a) FinanCial Risk management objeCtivesthe Group enters into a variety of derivative financial instruments to manage its exposures to the export thermal coal price, foreign exchange rate and interest rate risks, including:(i) coal swap contracts to mitigate the risk of falling export thermal coal prices;(ii) forward foreign exchange contracts and foreign exchange option contracts to hedge the exchange rate risk arising on the export of coal denominated in

uS Dollars; and(iii) interest rate and cross currency swaps to mitigate the risk of rising interest rates and the exchange rate risk arising on uS Dollar denominated borrowings.

the Group does not enter into or trade derivative financial instruments for speculative purposes.

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, liability and equity instrument are disclosed in note 1.

(b) expoRt theRmal Coal pRiCe Risk managementthe Group enters into coal swap contracts to sell specified tonnages of export thermal coal in the future at a fixed uS Dollar price per metric tonne. the objective is to avoid or minimise possible adverse financial effects of downward price movements in future export thermal coal sales.

these coal swap contracts are specifically designated to forecast export thermal coal sales tonnages at the inception of the hedge contracts. Gains or losses on such hedging transactions are deferred in the hedging reserve up to the date of sale and then included in the measurement of sales when they occur.

At balance date, the details of outstanding coal swap contracts are:

Fixed price metric tonnes Fair value

2007us$/mt

2006US$/Mt

2007mt ’000

2006Mt ’000

2007$m

2006$M

Coal swapsless than 1 yearGreater than 1 year, less than 2 yearsGreater than 2 years, less than 5 years

47.2448.6552.00

47.0047.1247.54

720.0585.0150.0

330.0690.0405.0

48.30 47.21 1,455.0 1,425.0 (20.1) (4.2)

exchange rate price

2007a$1 = us$

2006A$1 = US$

2007us$/mt

2006US$/Mt

year end rates used in calculating deferred unrealised gain/(loss) 0.8498 0.7432 68.00 50.00

(C) FoReign CuRRenCy Risk managementthe Group enters into forward foreign exchange contracts and foreign exchange option contracts to sell specified amounts of uS Dollars in the future at stipulated exchange rates. the objective is to avoid or minimise possible adverse financial effects of movements in exchange rates on future sales of coal denominated in uS Dollars.

the Company’s current policy is to hedge within a range of 40% to 90% of forecast uS Dollar export sales on a rolling 12 months basis, and a range of 20% to 60% out to two years and then 0% to 30% out to three years, using forward foreign exchange contracts and foreign exchange option contracts. these hedging contracts are specifically designated to forecast uS Dollar export sales at the inception of the hedge contracts. the remainder of export sales are converted at the spot A$/uS$ exchange rate. exchange gains or losses on such hedging transactions are deferred in the hedging reserve up to the date of sale and then included in the measurement of sales.

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42. financial instruments (continued)(d) inteRest Rate Risk managementthe Group has an exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates.

under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating interest rate amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of rising interest rates.

the following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at the reporting date:

average interest rate

notional principal amount Fair value

Outstanding contracts2007

%2006

%2007

$m2006

$M2007

$m2006

$M

less than 1 year 5.79 5.87 51.0 67.3 0.1 – 1 to 2 years 6.13 5.76 160.0 26.0 1.1 0.22 to 5 years – 6.09 – 185.0 – 0.3Greater than 5 years 6.80 6.80 155.6 155.6 (22.4) (6.9)

(21.2) (6.4)

In the current year, these unrealised losses have been deferred in the hedging reserve to the extent the hedge is effective.

Maturity profile of financial instrumentsthe following table details the Group’s exposure to interest rate risk:

Fixed interest rate maturity

As at 30 June 2007

Weighted average effective interest

rate%

Variable interest rate$M

Less than 1 year$M

1 to 5 years$M

More than 5 years$M

Non-interest bearing

$MTotal

$M

FinanCial assetsCash and cash equivalents 5.7 36.1 – – – – 36.1trade receivables – – – – – 99.4 99.4Shares in other corporationsand associated entities – – – – – 2.1 2.1Royalty receivable – – – – – 12.1 12.1other loans – – – – – 10.1 10.1long service leave receivable – – – – – 36.1 36.1Derivative hedge receivable – – – – – 21.2 21.2

36.1 – – – 181.0 217.1

FinanCial liabilitiestrade and other payables – – – – – 172.9 172.9Senior Facility Agreement 7.4 355.0 – – – – 355.0uS private placement notes 5.9 54.0 – – 202.7 – 256.7Subordinated convertible notes 8.7 – – 149.3 – – 149.3Finance lease liabilities 7.1 – 5.3 13.6 – – 18.9Interest rate swap contracts 6.1 (128.8) 51.0 160.0 (82.2) – – Derivative hedge payable – – – – – 41.3 41.3

280.2 56.3 322.9 120.5 214.2 994.1


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As at 30 June 2006


rate%


Less than 1 year$M

1 to 5 years$M

More than 5 years$M


$MTotal

$M

FinanCial assetsCash and cash equivalents 5.2 58.8 – – – – 58.8trade receivables – – – – – 82.1 82.1Shares in other corporationsand associated entities – – – – – 1.9 1.9other loans – – – – – 6.5 6.5long service leave receivable – – – – – 34.3 34.3Derivative hedge receivable – – – – – 9.1 9.1

58.8 – – – 133.9 192.7

FinanCial liabilitiestrade and other payables – – – – 130.2 130.2other loans – – – – 1.3 1.3Senior Facility Agreement 6.9 430.0 – – – – 430.0uS private placement notes 5.9 54.0 – – 223.0 – 277.0Finance lease liabilities 7.1 – 7.5 25.6 – – 33.1Interest rate swap contracts 6.1 (196.1) 67.3 211.0 (82.2) – – Derivative hedge payable – – – – – 10.6 10.6

287.9 74.8 236.6 140.8 142.1 882.2

(e) CRedit Riskthe Group has credit risk exposures to nSW Government Statutory Bodies, Delta electricity and eraring energy. there are no other significant credit risk exposures to any single counterparty or group of counterparties having similar characteristics.

the carrying value of financial assets recorded in the Financial Statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk.

(F) FaiR valueexcept as noted below, the carrying amount of financial assets and financial liabilities recorded in the Consolidated Financial Statements represents their respective net fair value.

the fair values of financial assets and financial liabilities are determined as follows:

(i) the fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices;

(ii) the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow theory; and

(iii) the fair value of derivative instruments included in hedging assets and liabilities are calculated using quoted prices. Where such prices are not available use is made of discounted cash flow analysis using the applicable yield curve for the duration of the instruments.

42. financial instruments (continued)(d) inteRest Rate Risk managementthe Group has an exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates.

under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating interest rate amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of rising interest rates.

the following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at the reporting date:

average interest rate

notional principal amount Fair value

Outstanding contracts2007

%2006

%2007

$m2006

$M2007

$m2006

$M

less than 1 year 5.79 5.87 51.0 67.3 0.1 – 1 to 2 years 6.13 5.76 160.0 26.0 1.1 0.22 to 5 years – 6.09 – 185.0 – 0.3Greater than 5 years 6.80 6.80 155.6 155.6 (22.4) (6.9)

(21.2) (6.4)

In the current year, these unrealised losses have been deferred in the hedging reserve to the extent the hedge is effective.

Maturity profile of financial instrumentsthe following table details the Group’s exposure to interest rate risk:


As at 30 June 2007


rate%


Less than 1 year$M

1 to 5 years$M

More than 5 years$M


$MTotal

$M

FinanCial assetsCash and cash equivalents 5.7 36.1 – – – – 36.1trade receivables – – – – – 99.4 99.4Shares in other corporationsand associated entities – – – – – 2.1 2.1Royalty receivable – – – – – 12.1 12.1other loans – – – – – 10.1 10.1long service leave receivable – – – – – 36.1 36.1Derivative hedge receivable – – – – – 21.2 21.2

36.1 – – – 181.0 217.1

FinanCial liabilitiestrade and other payables – – – – – 172.9 172.9Senior Facility Agreement 7.4 355.0 – – – – 355.0uS private placement notes 5.9 54.0 – – 202.7 – 256.7Subordinated convertible notes 8.7 – – 149.3 – – 149.3Finance lease liabilities 7.1 – 5.3 13.6 – – 18.9Interest rate swap contracts 6.1 (128.8) 51.0 160.0 (82.2) – – Derivative hedge payable – – – – – 41.3 41.3

280.2 56.3 322.9 120.5 214.2 994.1

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42. financial instruments (continued)the following table details the fair value of derivative financial assets and financial liabilities.

Consolidated Note

Carrying amount

2007$m

Fair value2007

$m

Carrying amount

2006$M

Fair value2006

$M

Interest rate swap contracts: liabilities 23 (21.2) (21.2) (6.4) (6.4)uS$ coal price swap contracts: liabilities 23 (20.1) (20.1) (4.2) (4.2)Foreign currency contracts: Assets 9 21.2 21.2 9.1 9.1

(20.1) (20.1) (1.5) (1.5)

the Financial Statements include holdings in unlisted investments (note 13). Fair value is estimated using a discounted cash flow model, which includes some assumptions that are not supportable by observable market prices or rates. Changes in these assumptions do not significantly change the fair value recognised.

Changes in the fair value of unlisted investments are recognised through the profit or loss. the fair value movement recognised in the Income Statement for the period was nil (2006: nil).

the fair value of the uS private placement notes not in a fair value hedge (uS$105.0 million) is A$126.5 million (30 June 2006: A$143.7 million). the carrying value of the other financial assets and liabilities approximates their fair values.

(g) hedges oF antiCipated FutuRe tRansaCtionsthe Group has export sales contracts to supply coal to overseas customers, the price of which is denominated in uS Dollars. the Group has entered into forward foreign exchange contracts and foreign exchange option contracts to hedge a proportion of the exchange rate risk arising from these anticipated future transactions. Also, a proportion of the price risk has been hedged with coal swap contracts.

As at the reporting date the aggregate amount of unrealised gains/(losses) under forward foreign exchange, foreign exchange option contracts and coal swap contracts relating to anticipated future transactions is a gain of $1.1 million (2006: $4.9 million gain). Such unrealised gains may be realised during the next three financial years when the anticipated future transactions take place if the 2007 financial year-end A$/uS$ exchange rate and coal price rate prevails at that time.

(h) liquidity Risk managementthe Group manages liquidity risk by maintaining adequate share capital and reserves and borrowing facilities with appropriate capacity by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

(i) sensitivity analysisIn managing commodity price, interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. over the longer term, however, permanent changes in commodity prices, foreign exchange and interest rates would have an impact on consolidated earnings.

At 30 June 2007, it is estimated that a general increase of 1% in interest rates would decrease the Group’s full year profit before tax by approximately $2.8 million (2006: $2.7 million). Interest rate swaps have been included in this calculation.

It is estimated that a general increase of 1 cent in the value of the AuD against the uSD would have decreased the Group’s profit before tax by approximately $0.7 million for the year ended 30 June 2007 (2006: $2.5 million). the forward foreign exchange and option contracts have been included in this calculation.


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the Directors declare that:

(a) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;

(b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Company and the Group; and

(c) the Directors have been given the declarations required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act 2001.

on behalf of the Directors

K.J. MossChairman

R.G. CameronManaging Director

Dated at Sydney this 12th day of September 2007

DIRectoRS’ DeclaRatIonFoR the FInAnCIAl yeAR enDeD 30 June 2007

42. financial instruments (continued)the following table details the fair value of derivative financial assets and financial liabilities.

Consolidated Note

Carrying amount

2007$m

Fair value2007

$m

Carrying amount

2006$M

Fair value2006

$M

Interest rate swap contracts: liabilities 23 (21.2) (21.2) (6.4) (6.4)uS$ coal price swap contracts: liabilities 23 (20.1) (20.1) (4.2) (4.2)Foreign currency contracts: Assets 9 21.2 21.2 9.1 9.1

(20.1) (20.1) (1.5) (1.5)

the Financial Statements include holdings in unlisted investments (note 13). Fair value is estimated using a discounted cash flow model, which includes some assumptions that are not supportable by observable market prices or rates. Changes in these assumptions do not significantly change the fair value recognised.

Changes in the fair value of unlisted investments are recognised through the profit or loss. the fair value movement recognised in the Income Statement for the period was nil (2006: nil).

the fair value of the uS private placement notes not in a fair value hedge (uS$105.0 million) is A$126.5 million (30 June 2006: A$143.7 million). the carrying value of the other financial assets and liabilities approximates their fair values.

(g) hedges oF antiCipated FutuRe tRansaCtionsthe Group has export sales contracts to supply coal to overseas customers, the price of which is denominated in uS Dollars. the Group has entered into forward foreign exchange contracts and foreign exchange option contracts to hedge a proportion of the exchange rate risk arising from these anticipated future transactions. Also, a proportion of the price risk has been hedged with coal swap contracts.

As at the reporting date the aggregate amount of unrealised gains/(losses) under forward foreign exchange, foreign exchange option contracts and coal swap contracts relating to anticipated future transactions is a gain of $1.1 million (2006: $4.9 million gain). Such unrealised gains may be realised during the next three financial years when the anticipated future transactions take place if the 2007 financial year-end A$/uS$ exchange rate and coal price rate prevails at that time.

(h) liquidity Risk managementthe Group manages liquidity risk by maintaining adequate share capital and reserves and borrowing facilities with appropriate capacity by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

(i) sensitivity analysisIn managing commodity price, interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. over the longer term, however, permanent changes in commodity prices, foreign exchange and interest rates would have an impact on consolidated earnings.

At 30 June 2007, it is estimated that a general increase of 1% in interest rates would decrease the Group’s full year profit before tax by approximately $2.8 million (2006: $2.7 million). Interest rate swaps have been included in this calculation.

It is estimated that a general increase of 1 cent in the value of the AuD against the uSD would have decreased the Group’s profit before tax by approximately $0.7 million for the year ended 30 June 2007 (2006: $2.5 million). the forward foreign exchange and option contracts have been included in this calculation.

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InDePenDent auDIt RePoRtto the MeMBeRS oF CentennIAl CoAl CoMpAny lIMIteD

Report on the financial Report and aaSB 124 compensation Disclosures in the Directors’ ReportWe have audited the accompanying financial report of Centennial Coal Company limited (the “Company”), which comprises the balance sheet as at 30 June 2007, and the income statement, cash flow statement and statement of changes in equity for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the Directors’ declaration of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 82 to 119.

We have also audited the compensation disclosures contained in the Directors’ Report. As permitted by the Corporations Regulations 2001, the Company has disclosed information about the compensation of key management personnel (“compensation disclosures”) as required by paragraphs Aus 25.4 to Aus 25.7.2 of Accounting Standard AASB 124 Related party Disclosures (“AASB 124”), under the heading “remuneration report” on pages 68 to 79 of the Directors’ Report, and not in the financial report.

diReCtoRs’ Responsibility FoR the FinanCial RepoRt and the aasb 124 Compensation disClosuRes Contained in the diReCtoRs’ RepoRtthe Directors of the Company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. this responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. the Directors are also responsible for the compensation disclosures contained in the Directors’ Report.

auditoR’s Responsibilityour responsibility is to express an opinion on the financial report and compensation disclosures contained in the Directors’ Report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. these Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement and the compensation disclosures comply with AASB 124.

liability limited by a sCheme appRoved undeR pRoFessional standaRds legislationAn audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report and the compensation disclosures contained in the Directors’ Report. the procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report and the compensation disclosures contained in the Directors’ Report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report and the compensation disclosures contained in the Directors’ Report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report and the compensation disclosures contained in the Directors’ Report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

auditoR’s independenCe deClaRationIn conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

auditoR’s opinion on the FinanCial RepoRtIn our opinion, the financial report of Centennial Coal Company limited is in accordance with the Corporations Act 2001, including:

(a) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2007 and of its performance for the year ended on that date; and

(b) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.

auditoR’s opinion on the aasb 124 Compensation disClosuRes Contained in the diReCtoRs’ RepoRtIn our opinion, the compensation disclosures that are contained on pages 68 to 79 under the heading “remuneration report” of the Directors’ Report, comply with paragraphs Aus 25.4 to Aus 25.7.2 of Accounting Standard AASB 124 Related party Disclosures.

DELOITTE TOUCHE TOHMATSU

R.W. SmithpartnerChartered Accountants

Sydney, 12 September 2007

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capital structure(a) oRdinaRy shaRe Capital305,589,725 fully paid ordinary shares are held by 10,330 shareholders.

All issued ordinary shares carry one vote per share and carry the right to receive dividends when declared.

(b) senioR exeCutive and diReCtoR options333,333 employee options are held by one individual optionholder.executive options to subscribe for one ordinary share exercisable at $2.16 each on the second anniversary of their issue and up to five years from 23 December 2002, being the date of original grant of such options. Such options are subject to a performance hurdle which requires that the options can only be exercised if the Company’s total Shareholder Return (“tSR”) outperforms the S&p/ASX 300 Accumulation Index over a rolling 12 month period by at least 10%.

227,000 employee options are held by eight individual optionholders.executive options to subscribe for one ordinary share exercisable at $2.31 on the second anniversary of their issue and up to five years from 29 May 2003, being the date of original grant of such options. Such options are subject to a performance hurdle which requires that the options can only be exercised if the Company’s total Shareholder Return (“tSR”) outperforms the S&p/ASX 300 Accumulation Index over a rolling 12 month period by at least 10%.

All the following option tranches are subject to a performance hurdle which requires that the options can only be exercised if the total Shareholder Return (“tSR”) over a rolling 12 month period from the date of issue, as measured against the S&p/ASX 200 Index, is as follows:

If at any time during the exercise period of the options the TSR of the Company

The percentage of options which become exercisable is

Does not reach the 50th percentile of the tSR of the S&p/ASX 200 Index 0%Reaches the 50th percentile of the tSR of the S&p/ASX 200 Index 50%*Reaches or exceeds the 75th percentile of the tSR of the S&p/ASX 200 Index 100%

* the percentage of options which become exercisable increases from the 50th percentile up to the 75th percentile by 2% for each 1% increase in the percentile of the tSR of Centennial, compared to the tSR of the S&p/ASX 200 Index.

333,333 employee options are held by one individual optionholder.executive options to subscribe for one ordinary share exercisable at $2.47 on the second anniversary of their issue and up to five years from 2 December 2003, being the date of original grant of such options.

1,235,000 employee options are held by 27 individual optionholders.executive options to subscribe for one ordinary share exercisable at $3.02 on the second anniversary of their issue and up to five years from 16 June 2004, being the date of original grant of such options.

1,463,333 employee options are held by 32 individual optionholders.executive options to subscribe for one ordinary share exercisable at $3.86 on the second anniversary of their issue and up to five years from 14 December 2004, being the date of original grant of such options.

2,023,333 employee options are held by 71 individual optionholders.executive options to subscribe for one ordinary share exercisable at $3.77 on the second anniversary of their issue and up to five years from 16 December 2005, being the date of original grant of such options.

3,112,000 employee options are held by 86 individual optionholders.executive options to subscribe for one ordinary share exercisable at $2.78 on the third anniversary of their issue and up to five years from 21 December 2006, being the date of original grant of such options. the testing period for this tranche of options is quarterly from the third anniversary.

An employee option does not entitle the holder to a vote in respect of that option nor participate in dividends until such time as the option is exercised and subsequently registered as an ordinary share.

ShaReholDeR InfoRmatIonAS At 31 AuGuSt 2007

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Statement regarding Shareholders of the company as at 31 august 2007distRibution analysis

Size of holdingNumber of

shareholders

1 – 1,000 2,305 1,001 – 5,000 4,900 5,001 – 10,000 1,558 10,001 – 100,000 1,441100,001 – and over 126

Total holders 10,330

holdings less than a marketable parcel 406

Dividend Reinvestment plan take-up 8.9%

Substantial shareholders (as advised Note 1) Number of shares Percentage (%)

orbis Global equity Fund limited 41,026,768 13.43%M&G Investment Management limited 29,560,000 10.01%Suncorp-Metway limited and subsidiaries 28,319,168 9.38%Maple-Brown Abbott limited 27,208,657 8.90%thornburg Investment Management 17,429,192 5.78%Vanguard precious Metals and Mining Fund 15,775,000 5.16%M&G Investment Funds (note 2) 15,000,000 5.08%

notes: 1. Does not necessarily take account of recent changes in the Company’s share capital.

2. M&G Investment Funds is a subset of M&G Investment Management limited and having reached the 5% disclosure threshold within its own right has lodged a separate disclosure statement.

list of the top 20 Shareholders of the company – ordinary sharesShareholder name Number of shares (%)

hSBC Custody nominees (Australia) limited 94,177,458 30.82Jp Morgan nominees Australia limited 25,816,893 8.45RBC Dexia Investor Services Australia nominees pty limited 17,181,215 5.62national nominees limited 13,524,943 4.43Cogent nominees pty limited 11,274,618 3.69tasman Asset Management ltd <tyndall Australian Share Wholesale portfolio A/C> 9,215,047 3.02AnZ nominees limited <Cash Income A/C> 8,760,854 2.87Mr Stephen Craig Jermyn 8,547,260 2.80Citicorp nominees pty limited 7,520,774 2.46promina equities limited 3,257,542 1.07hSBC Custody nominees (Australia) limited – A/C 2 2,794,123 0.91uCA Growth Fund limited 2,500,000 0.82tasman Asset Management ltd <tyndall Australia Core Share Value Fund A/C> 2,414,334 0.79Citigroup nominees pty ltd <CFS Future leaders Fund A/C> 2,339,814 0.77Mrs leonie Jan Bell 1,600,000 0.52Croftwell pty ltd 1,381,080 0.45Queensland Investment Corporation 1,309,473 0.43MleQ nominees pty limited <unpaid 1 A/C> 1,291,054 0.42Mr Robert Graham Cameron 1,198,000 0.39Mrs paula Suzanne Cameron 1,140,245 0.37

Top 20 total 217,244,727 71.10%

ShaReholDeR InfoRmatIonAS At 31 AuGuSt 2007

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Statement regarding Shareholders of the company as at 31 august 2007distRibution analysis

Size of holdingNumber of

shareholders

1 – 1,000 2,305 1,001 – 5,000 4,900 5,001 – 10,000 1,558 10,001 – 100,000 1,441100,001 – and over 126

Total holders 10,330

holdings less than a marketable parcel 406

Dividend Reinvestment plan take-up 8.9%

Substantial shareholders (as advised Note 1) Number of shares Percentage (%)

orbis Global equity Fund limited 41,026,768 13.43%M&G Investment Management limited 29,560,000 10.01%Suncorp-Metway limited and subsidiaries 28,319,168 9.38%Maple-Brown Abbott limited 27,208,657 8.90%thornburg Investment Management 17,429,192 5.78%Vanguard precious Metals and Mining Fund 15,775,000 5.16%M&G Investment Funds (note 2) 15,000,000 5.08%

notes: 1. Does not necessarily take account of recent changes in the Company’s share capital.

2. M&G Investment Funds is a subset of M&G Investment Management limited and having reached the 5% disclosure threshold within its own right has lodged a separate disclosure statement.

list of the top 20 Shareholders of the company – ordinary sharesShareholder name Number of shares (%)

hSBC Custody nominees (Australia) limited 94,177,458 30.82Jp Morgan nominees Australia limited 25,816,893 8.45RBC Dexia Investor Services Australia nominees pty limited 17,181,215 5.62national nominees limited 13,524,943 4.43Cogent nominees pty limited 11,274,618 3.69tasman Asset Management ltd <tyndall Australian Share Wholesale portfolio A/C> 9,215,047 3.02AnZ nominees limited <Cash Income A/C> 8,760,854 2.87Mr Stephen Craig Jermyn 8,547,260 2.80Citicorp nominees pty limited 7,520,774 2.46promina equities limited 3,257,542 1.07hSBC Custody nominees (Australia) limited – A/C 2 2,794,123 0.91uCA Growth Fund limited 2,500,000 0.82tasman Asset Management ltd <tyndall Australia Core Share Value Fund A/C> 2,414,334 0.79Citigroup nominees pty ltd <CFS Future leaders Fund A/C> 2,339,814 0.77Mrs leonie Jan Bell 1,600,000 0.52Croftwell pty ltd 1,381,080 0.45Queensland Investment Corporation 1,309,473 0.43MleQ nominees pty limited <unpaid 1 A/C> 1,291,054 0.42Mr Robert Graham Cameron 1,198,000 0.39Mrs paula Suzanne Cameron 1,140,245 0.37

Top 20 total 217,244,727 71.10%

mining methodsAuger mine: A system of mining that involves the use of a large diameter scroll drill to recover coal near seam outcrops or in open-cut mines where the strip ratio exceeds economic limits.

Bord ‘n’ pillar: A continuous miner system of mining whereby a series of parallel roadways or headings are driven into the block of coal and interconnected by roadways known as cut-throughs to form solid coal blocks or pillars. pillar dimensions vary from 10 to 110 metres.

Development activities: the process of establishing a mining panel (pillars or longwall block).

Longwall mining: A system of mining that involves the extraction of large blocks of coal, with the coal being mined on retreat in slices up to 1.0 metre thick from the longwall face.

Key longwall mining equipment includes:• ashearer,usedtocutandloadthecoalfromtheface;• asteelchainedarmouredfaceconveyor,usedtotransferthe

coal across the face;• selfadvancing,highcapacity,hydrauliclongwallsupports,

used to support the immediate face area as the coal is mined;

• abeamstageloader,usedtotransferthecoalfromtheface to the longwall panel conveyor;

• acrusher,usedtosizethecoal;and• thepantechniconthatincorporatesthelongwallservices,

including power supply.

Open-cut: A type of mining where the overburden is removed to expose coal seams and allow their extraction by surface means.

Partial extraction: A continuous miner system of mining whereby some of the coal pillars in a panel, or parts thereof, are systematically extracted. the total recovery factor (coal extracted as a percentage of coal insitu) is generally in the range of 40 – 60%.

Pillar extraction panel: A continuous miner system of mining whereby coal pillars are systematically extracted. the total recovery factor (coal extracted as a percentage of coal insitu) generally exceeds 60%.

Pillar quartering: A secondary system of mining, involving the formation of smaller sized pillars to improve overall coal recovery.

Place change or cut ‘n’ flit: A continuous miner system of mining used to develop a panel, typically seven headings wide, that involves the continuous miner cutting out a designated length of roadway and flitting to another working face in a predetermined sequence within the panel. A roof bolting machine then moves into the place left by the miner and installs roof support concurrently with coal production in another roadway.

Super panel: A continuous miner system of mining used to develop a panel, typically seven headings wide, that involves the concurrent use of two continuous bolter miners in the same panel to increase productivity.

Super place change: A continuous miner system of mining used to develop a panel, typically seven headings wide, that involves the concurrent use of two continuous miners and a mobile bolter in the same panel to increase productivity.

Underground: A type of mining where the coal seam is accessed by shaft or drift into underground workings.

RESOURCES AND RESERVESCoal reserve: the economically mineable part of the coal resource, as defined in the JoRC Code. It includes diluting materials and allowances for losses.

Coal resource: Coal in the ground with reasonable prospects for eventual economic extraction, as defined in the JoRC Code.

JORC Code: 2004 Australasian Code for Reporting Identified Mineral Resources and ore Reserves. Australian mining exploration and production companies are bound to produce Resource and Reserves Statements using the JoRC Code in accordance with the listing Rules of the Australian Securities exchange.

Marketable reserve: the beneficiated or otherwise enhanced coal product, as defined in the JoRC Code, after accounting for impact of mining, dilution and processing.

Recoverable reserve: Similar to coal reserve, a term used to describe the amount of coal that can physically be mined from a reserve at an acceptable cost, as defined in the JoRC Code.

types oF CoalCoke: Generated from coking coal after being heated at high temperature in an atmosphere substantially devoid of oxygen, passing through a transient plastic stage in which the coal successively softens, swells and resolidifies into a coherent cellular coke ready for use in the steel making process.

Coking coal: Coal suitable for coke making.

Energy, steaming or thermal coal: Coal used to provide heat for steam raising as part of the electricity generation process.

ROM or run-of-mine: Raw coal as mined that has not undergone any screening, crushing or beneficiation.

Semi-soft coal: A type of coking coal that can be blended with a hard coking coal to produce an acceptable hard coke.

otheR Commonly used teRmsAssessment Lease: title granted under the Mining Act 1992 to allow exploration and the retention of rights in a coal resource until a mining lease is granted.

Bolting machines or rigs: equipment used to install bolts into the roof, sides or floor surrounding mine roadways.

Box-cut: the initial opening used to access coal seams in an open-cut operation.

Carbon sequestration: the capture and long-term storage of Co

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Clean coal: the coal product that has undergone processing (wet or dry).

Clean coal technologies: technologies that are being developed to significantly reduce greenhouse gas emissions from coal-fired electricity generation to near-zero levels.

Coal blending: Coal that is mixed in predetermined and controlled quantities to give a uniform feed or product.

Coal block: A section of insitu coal that may range in size, generally pillar to longwall block.

Coal clearance system: A system used to transfer coal from the working faces to the surface.

Coal handling & preparation plant CHPP or CPP: A plant used to upgrade the quality of coal including crushing, sizing and drying. usually refers to the reduction of ash forming mineral in coal.

Coal sizing plant: plant used to size, crush or screen coal to market specifications.

Coke oven: An enclosed vessel in which coking coal is converted to coke for use in steel making.

Continuous miner: A remote-controlled, tracked, electrically powered coal cutting and loading machine used to form mine roadways and extract coal pillars.

Decline: An inclined roadway or drift used to provide surface access to an underground coal seam or underground access between seams or to different levels within the one seam.

Development Approval or Development Consent: A formal planning approval, issued for proposed developments under the environmental planning and Assessment Act 1979.

Enterprise Agreement: A collective agreement under industrial relations legislation.

Environmental Assessment (“EA”): A detailed assessment of environmental matters relating to a major project as defined under part 3A of the environmental planning and Assessment Act 1979.

Exploration Tenement: A licence granted under the Mining Act 1992 to allow exploration to be undertaken with the objective of determining the occurrence and extent of a coal resource and to assess the potential for mining.

Extracted on retreat: Coal that is recovered from coal pillars once the panel has been fully developed to its designed boundary by retreating and extracting the previously formed pillars. often in conjunction with the use of hydraulic supports (breaker line supports or BlSs) to protect the immediate working area.

Fault and dyke structures: Discontinuities in the coal seam that may impact upon the mineability or quality of the surrounding coal.

Gate roads: Access roadways connecting the longwall working face with the Main Roadways.

“GlobalCOAL” trading system for Newcastle coal: An online marketplace formed to facilitate physical or derivative coal trading and the provision of coal related services and information.

“Goaf” (voids): the space left following extraction of the coal seam where the roof material is allowed to collapse.

In-seam gas drainage system: A method of reducing the insitu gas content of the seam to within acceptable limits by drilling holes into the seam or surrounding strata ahead of mining.

Longwall changeover: the process of relocating longwall equipment from one panel to another, often coincides with major planned maintenance.

Longwall continuity: Critical to economic well-being of a longwall operation. longwall continuity is achieved when the expected time-lag between the completion of one panel and the start of the next relates purely to the time taken to transfer equipment, i.e. no additional time is required to shape-up the next longwall block to its designed dimensions because of insufficient development.

Longwall panel/block: A large contiguous block of coal, typically 100-300 metres wide and 1-3.5 kilometres long, suitable for longwall extraction.

Low strip-ratio: An overburden to coal ratio, measured in bank cubic metres to insitu tonnes. the lower the ratio generally means a lower cost of extraction.

Low sulphur and ash content coal: Coal that is generally less than 0.4% total sulphur and 18% ash.

Main and tailgate drives: high capacity motors, situated at either end of the longwall face, used to power the armoured face conveyor that removes the cut coal from the coal face to the main drift conveyor.

Main roadways: Roadways that are used as the means of primary access/egress, to supply materials, provide ventilation and enable coal to be conveyed to the surface.

Methane: A gaseous compound of carbon and hydrogen naturally emitted from coal that can be explosive when mixed with air or oxygen between certain limits.

Mine plan: A two-dimensional representation of the proposed or existing mine workings, usually prepared as part of an economic assessment of the coal reserve (through the JoRC process).

Mining Lease: title granted under the Mining Act 1992 that provides rights to mine a coal resource.

Nitrogen inertisation: the process of introducing inert gases into the vicinity of a heating or unstable atmosphere in order to lower the percentage of oxygen in the atmosphere.

Overburden: top soil/strata overlying the coal seam.

Pit-bottom: An area where the mine drift used to access the coal seam intersects with mine workings.

Product dilution: non-coal or poorer quality roof or floor coal that is mined and included in the coal product.

Production under management: total production that is derived from mines under Centennial management, i.e. includes production from mines not exclusively owned by Centennial.

Ramp-up/down: An adjustment to the mining rate to account for panel start-up or completion.

“Step-around” or “Side-step”: the process of moving longwall equipment a relatively short distance within the same panel to avoid mining through a specific section of the panel, e.g. to avoid mining through a major geological feature or mining beneath a sensitive surface feature.

Stoppings: Ventilation structures used to segregate air within underground workings.

Subsidence Management Plan (“SMP”): Detailed environmental assessment and monitoring, requiring early mine planning to determine the impact of proposed mining prior to receiving consent to mine a particular area.

Tradeable carbon credits: Derivative instruments that can be traded between scheme participants that allow the authorised holder to emit a specified amount of greenhouse gas, typically expressed as units of one tonne of Co

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FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 Fy07

Tonnes under managementRoM coal production 000’s 2,111 2,958 2,635 3,505 5,074 13,520 13,485 16,615 17,669 20,066Saleable coal production 000’s 1,850 2,604 2,489 3,299 4,806 12,749 12,637 15,656 16,290 18,216Sales 000’s 2,026 2,811 2,732 3,767 4,583 13,140 14,556 16,763 17,295 18,981

Company’s share of tonnes under managementRoM coal production 000’s 1,850 2,543 2,155 2,632 3,440 11,667 11,825 14,908 15,611 17,476Saleable coal production 000’s 1,609 2,247 2,071 2,483 3,243 10,978 11,081 13,975 14,341 15,769Sales 000’s 1,716 2,411 2,218 2,805 3,142 11,517 12,622 15,151 15,245 16,565

Safety recordlost time InjuryFrequency Rate (ltIFR) MMh 64 28 23 40 39 33 38 35 26 23

note: MMh = Measured in millions of man hours

Financial informationeBItDA $M 6.6 9.4 7.1 22.7 43.7 101.2 110.5 129.3 151.1 193.5profit before income tax $M 4.1 4.8 0.1 10.0 29.2 46.9 51.0 38.7 15.5 (19.3)profit after income tax $M 2.7 3.0 1.3 9.7 29.0 40.2 52.4 35.9 17.3 2.1

epS – basic cents 8.0 8.9 3.7 22.7 29.5 27.1 30.0 17.2 5.9 1.1 – diluted cents 7.2 8.7 3.6 21.9 28.8 26.8 29.8 17.1 5.9 1.1

Dividends – interim cents 2.0* 2.5 2.5+ 2.5+ 8.0+ 5.0+ 6.0+ 6.0+ 6.0+ 4.0+

– final cents 3.0 3.0* 2.5+ 4.5+ 8.0+ 5.0+ 7.0+ 7.0+ 7.0+ 4.0+

(* = 50% franked) (+ = unfranked)

net assets $M 48.7 49.9 49.8 95.3 115.6 252.4 380.7 795.6 890.1 903.2total assets $M 72.2 102.4 92.0 161.8 178.9 731.4 928.5 1,877.5 1,983.2 2,077.7Return on equity at 30 June % 5.6 6.2 2.6 10.2 25.1 15.9 13.8 4.5 1.9 0.2

10 yeaR hIStoRy – key StatIStIcS foR the gRouP

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directorsChairmanDr Kenneth J. Moss

Managing DirectorMr Robert G. Cameron

Non-Executive DirectorsMs Catherine M. BrennerDr Peter R. DoddDr Paul J. Moy

company SecretaryMr Tony Macko

Registered and company officeCentennial Coal Company LimitedLevel 18, BT Tower, 1 Market StreetSydney NSW 2000 AustraliaTel: (61-2) 9266 2700Fax: (61-2) 9261 5533

Email: [email protected]: www.centennialcoal.com.au

Australian Securities exchangeListing Code: Ordinary Shares – CEY

Share Registry *Computershare Investor Services Pty LimitedLevel 3, 60 Carrington StreetSydney NSW 2000Tel: 1300 855 080 (Investor Enquiries)Fax: (61-2) 8234 5050

Website: www.computershare.com and www.investorcentre.com/au

AuditorDeloitte Touche TohmatsuGrosvenor Place225 George StreetSydney NSW 2000

Senior Management CoRpoRate and administRation Robert CameronManaging Director

Louise BaldwinGeneral Counsel

Katie BrassilGroup Manager: External Affairs

Robert DougallChief Financial Officer

John HempenstallChief Risk Officer

Tony MackoGeneral Manager: Corporate Affairs and Company Secretary

Peter ParryGeneral Manager: Financial Control

maRketingRoger KnightGeneral Manager: Marketing

Ian WilliamsDeputy General Manager: Marketing

stRategy and developmentMichael NgoManager: Strategy and Development

opeRationsDavid MoultChief Operating Officer

Steve BrackenGeneral Manager: Northern Operations

Donna DrydenGeneral Manager: Sustainable Development

Mark LeveyGeneral Manager: Management Systems/Health & Safety

Bob MillerGeneral Manager: Western Operations

Andrew MyorsGeneral Manager: Business Support

Richard TaconDeputy General Manager: Western Operations

Gavin TaylorGeneral Manager: Tahmoor

* Our registrar, Computershare, has improved its online Investor Centre website www.investorcentre.com/au, which enables you to view your holding details, make secure online updates to your holdings and perform a range of transactions – improving the quality of information held on the Company’s register and lowering print and mail costs.

Investor Centre provides you with self-service options in an effective way, helping us to maintain an up-to-date register, while providing a user-friendly facility for you to manage your investments.

You can also update your details for other investments that you may have where Computershare acts as registrar.

centenniAl coAl – ouR ViSion, MiSSion And VAlueS

Who We ARe

Established in 1989 and listed on the Australian Securities Exchange in 1994, Centennial is a coal mining and marketing company supplying thermal and coking coal to the domestic and export markets. The Company is a major fuel supplier to the New South Wales energy industry, fuelling approximately 47% of the State’s coal-fired electricity.

Centennial sells approximately 20 – 30% of its coal into the export market. Coal is exported through ports at Newcastle and Port Kembla in NSW. Customers include power stations and steel mills in Japan, Korea, India and Europe.

We are securing our future through organic growth at existing operations, and focused portfolio management – including acquisitions, divestments and targeted exploration.

Through this strategy we have grown to a market capitalisation of approximately $1.2 billion and we are ranked around 145 in the S&P/ASX 200 Index with almost 10,000 Shareholders and 1,924 employees. Centennial is the largest independent coal company in Australia in terms of production and has 12 coal mines in NSW, making it one of the largest underground coal producers in NSW.

ouR ViSion

Centennial’s vision is to be the leading independent coal producer in Australia, supplying a range of coal types to domestic and export markets.

ouR MiSSion

Our mission is to maximise Shareholder value by acquiring, developing and operating a portfolio of coal resources. This entails positioning the Company to be resilient through the ups and downs of economic cycles by being a reliable supplier of choice to our diverse customer base.

We aim to provide above average returns to our Shareholders, secure employment for our people and operate to the benefit of our local communities and meet their changing expectations.

ouR VAlueS

In striving for our vision, we promote the following values:

1. We will not compromise safety.

2. Every employee and contractor shares responsibility for the safety of themselves and their fellow workers.

3. We work as a team to achieve positive results and value the contribution and diversity of our people.

4. We implement ethical business practices, integrity and transparency in all we do.

5. We communicate openly and effectively with all our stakeholders.

6. We contribute to sustainable development through achieving economic prosperity, respecting the environment and enhancing community benefits.

7. We invest in the research, development and commercialisation of clean coal technologies and other initiatives that aspire towards a cleaner environment.

Centennial Coal Company limited ACN 003 714 538

contentS 2 2007 Financial Summary 3 Corporate Reporting Calendar 4 Chairman’s Statement 6 Managing Director’s Report 9 Q&A with Robert Cameron 12 Centennial Mines at a Glance 18 Statement of Resources and Reserves

as at 30 June 2007 19 Safe, Competent and Productive Workforce 25 Sustaining the Future

30 Environmental Management and Community Relations

39 Review of Financial Performance 42 Review of Operating Performance 49 Review of Marketing 53 Strategy and Development 57 Senior Management 58 Board of Directors 60 Corporate Governance 65 Financial Statements 66 Directors’ Report

82 Income Statement 83 Balance Sheet 84 Statement of Changes in Equity 86 Cash Flow Statement 87 Notes to the Financial Statements 119 Directors’ Declaration 120 Independent Audit Report 121 Shareholder Information 123 Glossary 124 10-Year History iBC Corporate Directory

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This Annual Report is printed on Nordset paper. Nordset is an environmentally responsible paper, manufactured using Elemental Chlorine Free (ECF) pulp sourced from sustainable, well managed forests. Nordset is produced by Nordland Papier, a company certified with FSC Chain of Custody and ISO14001 enviro management systems and registered under the EU Eco-management and Audit Scheme EMAS (Reg. No.D-162-00007).

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AnnuAl RepoRt 2007

Centennial Coal Company limited

Centennial Coal Company lim

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www.centennialcoal.com.au

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