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Phosphate Mining Company of Christmas Island - Report - Year - 1983-84


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The Parliament of the Commonwealth of Australia

PH O SPH A TE M INING COMPANY OF C H R ISTM A S ISLA ND LIM ITED

Annual Report

1983-84

Presented 27 February 1985 Ordered to be printed 28 March 1985

Parliamentary Paper No. 7/1985

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Annual Report 1983-1984

Principal Office: Christmas Island Indian Ocean

Mainland Business Offices: PERTH: 5 Mill Street

Perth WA

Phone (09) 322 6611

MELBOURNE: 8th Floor 440 Collins Street Melbourne Victoria

Phone (03) 60 1836

Registered Office: Incorporated in ACT 1st Floor Sydney Building

121 London Circuit Canberra ACT 2600

Phone (062) 46 2546

Secretary PS Macpherson

Communications: Telecommunication access to Christmas Island is by radio­ telephone. Connection is via international exchange.

Index Statement by Board of Directors 2

Review of Operations 4 Report of Directors 9

Profit and Loss Statement 12 Balance Sheet 13

Statement of Sources and Applications of Funds 14 Notes to and forming part oflthe Accounts 15

Auditor’s Report 24

The Company The Phosphate Mining Company of Christmas Island Limited (PMCI) was incorporated in the Australian Capita Territory on 24 June 1981 as a company with limited ' liability wholly owned by the Australian Government.

From the date of incorporation the Company replaced the British Phosphate Commission (BPC) as the managing agent for the Christmas Island Phosphate Commission | (ClPC) — a joint enterprise of the Australian and New i Zealand Governments through which the Christmas Islanl mining rights had been acquired.

Arrangements were finalised in 1983/84 so that, with effet from 1 July 1983, PMCI conducts the mining operation in its own right.

Phosphate mining on the Island began in 1899 and has been continuous to the present day except for a four-year period (1942-1945) during World War II.

The Company has an annual turnover of about $A50 mil and at 30 June 1984 its employees numbered 1276.

1

Company Symbol • the stars are for association with Australia

• the sea is for Christmas Island

• the plant is for growth and food

• the hands are for caring for the future of the Island, for respecting the different cultural backgrounds of its inhabitants, for the relationship between workers and management and for caring for the environment.

Highlights of the year • PMCI became principal of the operation in its own right, following the wind-up of CIPC.

• Deficit on phosphate operations increased to $11.7 million from $4.5 million in 1982/83. Net deficit increased to $4.44 million from $0.19 million, after drawing fully on the balance of provision for market

fluctuation.

• Net sales revenue slumped further to $43.7 million, a decrease of 12% on 1982/83 and 33% on 1981/82. Total costs were up by only 2.2 percent.

• Sales to Asian markets increased by 85% and now account for 31% of total sales volume.

• Government announced plans for normalisation of Christmas Island community, involving the introduction of income taxation and transfer of non-mining functions from PMCI to other Government authorities.

• On the basis of a report prepared by management consultants the decision was made to restructure the Company. Agreement was reached with UCIW and the Government on a voluntary

redundancy scheme aimed at reducing the size of the workforce by 35%.

Management General Manager: WS Padgett B.Sc. (Hons) MAIME AM. Aus IMM

Manager-Finance and Administration DC Crichton B.Sc. a a s a a c m a

Operations Manager JE Rutherford Certificate of Mechanical Engineering (UK)

Chief Engineer R Rigo B.App.Sc. (Mech. Eng) MIE (Aust Grad (AASC)

Chief Accountant F Gardiner f c c a (UK)

Melbourne Office Commercial Manager CJ de Guingand AASA

Perth Office Supply and Administration Manager J Crawford B.Sc. (Hons)

Corporate Objectives To satisfy as far as possible the often conflicting claims of customers, shareholders, employees and the

environment.

Customers: □ to maintain for as long as possible the viability of the mining operation based on

the continuity of supply to Australia and New Zealand and other markets as appropriate of phosphate rock of specified quality and quantity with maximum efficiency of production and minimum

cost.

Shareholders: □ to manage the resource in our trust and to obtain maximum practicable utilisation

of all grades of ore; □ to maintain at all times a positive cash flow.

Employees: □ to preserve the safety, health and welfare of our employees; □ to follow policies and practices

conducive to industrial harmony consistent with efficiency of production □ to appreciate the rights, aspirations and culture of the individual and provide

opportunities for training and advancement.

The Environment: □ to maintain in all industrial activities a responsible attitude to environmental management.

Board of Directors Richard Austen AO Sydney, Chairman Donald Blesing Caltowie

Nominated by the Minister for Primary Industry Kevin Edwards Perth, Executive Director Stanley Padgett Christmas Island, General Manager

Hylda Rolfe Sydney Teo Boon How Christmas Island

Nominated by the Australian Council for Trade Unions

1

STATEMENT BY BOARD OF DIRECTORS The Honorable T Uren MP Minister for Territories and Local Government Parliament House Canberra ACT 2600

Dear Minister,

I have pleasure in submitting the Annual Report of the Phosphate Mining Company of Christmas Island Limited for the year ended 30th June, 1984.

1983/84 has been a watershed in the history of phosphate rock mining on Christmas Island with major changes to all aspects of the Company’s operations.

Sales to our two major traditional customers (Australia and New Zealand) continued to decline. Tonnage to the Australian market is now 35% below average offtakes over the past 20 years and has fallen by 50% since 1981/82. New Zealand purchased 332,000 tonnes in 1983/84 (485,000 tonnes in 1981/82). Only twice in the last two decades has the combined tonnage sold to Australia and New Zealand fallen below 800,000 tonnes.

The reduced demand reflects not only recent bad seasonal conditions but also a lessening of the traditional reliance on single superphosphate (SSP) and a shift to higher analysis fertilisers. This latter move has been influenced mainly by the present competitive position

of higher analysis fertilisers and to a lesser extent an increase in cropping at the expense of pastures.

Underlying the factors influencing a shift away from SSP is the freight contract between the Australian importer (APC) and ANL which imposes a freight component of $30 per tonne onto the fob price as against comparable world shipping rates of about $10 per tonne. This impediment not only distorts the real competitive position of SSP (the major end product of Christmas Island rock in Australia) but with bontinuing low levels of world freight rates it directly affects the viability of the only working phosphate rock mine in Australia

The world scene for phosphate rock remained in an over-supply position throughout 1983/84. Competition was particularly strong from Government controlled industries in the Middle East — economies where foreign exchange earnings from phosphate rock exports are critical. Against these factors the Company has maintained its successful marketing development and diversification programme in Asia. Malaysia in particular is a valued long­ term customer for B grade phosphate rock and dust.

The Company with the co-operation of the Union of Christmas Island Workers has commenced a restructuring programme of its operations. By the end of calendar 1984 it is expected a net figure of some 450 employees will leave the Company on terms of a special redundancy package. The impact of this programme on the Company’s Balance

Sheet will not be visible until 1984/85.

PMCI recorded a net deficit for the year of $4.44 million as against $0.19 million in 1982/83. The net revenue from sales of phosphate fell from $49.8 million last year to $43.7 in 1983/84. This latest net revenue from sales compares to an equivalent figure of $65.0 million in 1981/82. The dramatic decline in sales revenue reflects a drop in total shipments of around 400,000 M.T. since 1981/82 and the smaller percentage offtake by Australia and

New Zealand — the Company’s most important markets. It is also significant that the fob price for A grade rock in real terms to Australia and New Zealand has now fallen by 18 percent since 1981/82.

At the end of 1983, legislative and administrative arrangements were completed for the winding up of the Christmas Island Phosphate Commission (CIPC) and non-cash assets and liabilities of CIPC were transferred to the Company.This arrangement, which means PMCI will now manage the phosphate operation in its own right, was made retrospective to 1st July, 1983. In the absence of the CIPC cash assets, the Government has undertaken, subject to certain conditions, to meet any excess of liabilities over assets up to $15.7m when PMCI ceases operations.

During February Directors were greatly saddened by the untimely passing of their colleague Mr Richard Lane. His contribution not only to this Company but the agricultural industry as a whole will be greatly missed. Mr. Don Blesing was nominated by the Minister for Primary Industry to succeed Mr. Lane.

In April 1984, Mr. George Warwick Smith, CBE (the Company’s founding Chairman), Mr. Eugene Falk, OBE, and Mr. Jim Craig left the Board. Directors acknowledge the considerable service provided by each member during the Company’s formative years. Additionally, Mr. Michael Houston, the Company’s first General Manager, resigned from this position on 25 May. The Board expresses its appreciation for the significant contribution by Mr. Houston to the development of the Company and the Island community — a task he always approached with diligence and fairness.

The Minister for Territories and Local Government, Mr. Tom Uren, MR, in consultation with the ACTU, the UCIW and the Board, increased the direct representation of parties on the Island with the appointment to the Board of Mr. Teo Boon How, General Secretary of the UCIW and Mr. Stan Padgett, the Company’s General Manager. Mrs. Hylda Rolfe was also appointed as a Director and Mr. Kevin Edwards accepted the newly created position

of Executive Director, resident on Christmas Island.

In April, Mr. Uren announced the Government’s plans for normalising the Christmas Island community over a four year period. Among the measures to be progressively introduced will be taxation, full mainland rates of pay, social security benefits and charging for services. Important for the Company will be the divestment of non-mining functions to

local government and other authorities which should produce a net reduction to operating costs.

The Board is confident that the changes already outlined will go a considerable way to turning around the fortunes of the Company.

• Restructuring will produce a leaner, more efficient operation.

• Normalisation will allow a more concentrated effort on mining and marketing of current products and the development of alternative applications for the resource.

• Island based representation on the Board together with continued adherence to the Government’s Prices and Income Accord will improve employee relations.

These moves go a long way in improving the prospects of viability for a continued mining presence on the Island. The main objectives now before the Company are to lift sales volume and at the same time to achieve a fair return for its product thus providing improved job security for the workforce.

The Board strongly supports the Government’s repeatedly stated position that it would in no way subsidise the mining operation. However, Directors together with fertilizer manufacturers and farmers can see no justification for the continuance of the inequitable freight burden placed on our largest market. This not only disadvantages PMCI but it also

retards prospects for employment growth in the fertilizer manufacturing industry and raises the cost of single superphosphate to the farming community.

During the last twelve months the Company has been faced with not only difficult trading conditions but also organisational restructuring and community unease. For employees this has been the second consecutive year of uncertainty. Directors extend their thanks to the whole workforce for their valued support and dedication in difficult times and trust that

moves presently underway will bring a change of fortune in the Company’s operations.

The Board are also most appreciative of the assistance given by officers of the Department of Territories and Local Government together with that of other Commonwealth Departments. w

Yours sincerely,

Chairman

3

REVIEW OF OPERATIONS

Finance and Marketing The Company incurred a net deficit after provisions of $4.44 million as against a net deficit of $0.19 million in 1982/83.

• Sales A further significant reduction in sales to the Australian market was the major reason for the worsening of the net deficit. Tonnage shipped to this market was 463,000 tonnes compared with 658,000 tonnes in 1982/83 — a drop of just over 30 percent in twelve

months. The decline is even more marked when seen against an average historical offtake around 700,000 tonnes or the 914,000 tonnes shipped in 1981/82.

New Zealand sales remained virtually unchanged at 332,000 tonnes (359,000 in 1982/83) with the small fall attributable to a delay in presentation of the last nominated vessel for 1983/84 which loaded in July.

The Company’s strategy to lift its sales to Asian markets continued successfully against strong competition from Middle East and U.S. suppliers.

Sales of A grade rock to markets other than Australia and New Zealand rose from the 1982/83 figure of 18,000 tonnes to 141,000 tonnes while combined shipments of B grade rock and dust were up by 50 percent to just over 200,000 tonnes.

This market development strategy has enabled the Company to build on its traditional business in Malaysia and to place introductory sales of A Grade rock to the People’s Republic of China, Korea and Japan. Further work is being undertaken to find other markets for A Grade rock in Asia, to maintain existing sales of B grade rock and dust to Malaysia, and to develop new markets for direct application fertilizers in the Asia/Pacific region.

• Costs The Company’s ongoing programme to hold the level of costs of the operation continued in 1983/84 with total costs up only 2.2 percent from 1982/83, despite wage and salary costs rising by 6 percent and Government Administration costs rising by 14 percent.

A total of 75 employees left the Island under phase two of the Company’s redundancy programme which commenced in January 1983 and was refered to in the 1982/83 Report. This phase continued until April 1984. Additional savings were gained through the introduction of a system of leave without pay and reduction of overtime.

The combined savings of these measures was however offset by the need to recruit additional staff for new single employee messes. This failure to gain significant savings from these initiatives forced the Company to instigate a much broader investigation of its operations and in April, management consultants presented a comprehensive review of organisation and manning levels. As a result of this Report the Company undertook, with the assistance of the UCIW, to work towards achieving an objective of a further net 450 voluntary redundancies by 1 October 1984.

By the end of the financial year 473 employees had applied for redundancy under the terms of the special redundancy package and 43 had left the Island. This restructuring should have a significant impact on the 1984/85 accounts.

Capital expenditure totalled $2.43 million. Projects started in 1982/83 and completed this financial year included the new burners and controls for No. 2 Dryers, a high tension feeder to connect Nos. 1 and 2 power stations, a new sampling plant, and wash-screen plant expansion.

The major emphasis of capital spending however continued to be employee welfare projects associated in the main with upgrading accommodation and messing facilities both for single employees.

Production Total material mined in the quarries during 1983/84 was 1.9 million wet tonnes of which 974,000 tonnes was A Grade phosphate (a 9% drop from 1982/83). However, due to a reduction in shipments there was a net buildup of 32,100 tonnes in wet A Grade stocks.

Preliminary trials were conducted with the prototype suction miner and several modifications were made to the unit. Excessively wet weather from December to May inhibited further developmental work.

Arrangements are under way to reduce the Company’s dependence on clamshell grabs in mining by greater use of hydraulic shovels and backhoes which should improve quarry productivity.

The Company continued discussion with the Australian National Parks and Wildlife Service (ANPWS) on its clearing plans for the future orderly development of the resource. Lengthy delays in clearing approvals have become a matter of some concern.

The Abbott’s Booby Study Team completed the first full year of its monitoring programme. The programme is jointly funded by PMCI and ANPWS. Among the tentative findings was the indication that the breeding population is probably some 20 percent larger than previously estimated.

Processing Modifications were made to the wash-screen plant to improve its performance, particularly in relation to size classification and tailings disposal. A comprehensive series of plant trials were conducted to determine the washability of stockpiled B Grade and in some areas B

Grade ore in-situ. The results of these trials have improved the Company’s definition of this segment of the resource. The prolonged period of wet weather during the year resulted in abnormally wet feed to the Dryers and prevented a precise measure of benefits from expenditure on new burners and computerised control systems in the dryers. The

new sampling plant provided improved feedback on the quality of products entering the dry product storage bins.

Shipping Although the number of ships despatched was higher (86 being handled as against 76 in 1982/83), tonnage moved was down 5 percent because the increased sales to Asian

markets were made in vessels smaller than the 25/30,000 t size in the Australian/New Zealand trade. Bad weather, and industrial action to a smaller degree disrupted the shipping programme during the first three months of calendar 1984.

Total shipdays lost 1983/84 1982/83

Industrial 27 36

Weather 51 19

Nil stocks 26 25

104 80

Research and Development Research and development efforts continued to concentrate on possible use and application of lower grade ore resources. The Company has initiated laboratory investigations into the use of alkaline leach technology to process C Grade phosphate and

barrandite ore. It has also given assistance to other parties to look into the use of the hydrochloric acid process for producing phosphoric acid from C Grade ore. Studies have also been undertaken into handling and packaging methods in A Grade dust.

Employee Relations The Consultative meeting process between the Company and the Union established in 1982/83 was disbanded in November.

Overshadowing this, however, was the repeal of the Wages Pause legislation in October, 1983 and its replacement with the National Wage Case (NWC) decision by the Commonwealth Conciliation and Arbitration Commission. The first hearing to determine the application of the NWC decision to Christmas Island was held in December 1983. That hearing and a subsequent one in May 1984 established the pattern of a flow on of wage indexation from the Mainland to the Island.

Wages fixation on the Island in a more general sense, is now based on the principles which guide wage fixation on the Mainland. As a result negotiation over logs of claims for a new award did not proceed.

The number of manhours lost due to industrial action during 1983/84 was 41,541 compared to 77,988 in the previous year. The majority of these lost manhours was due to 24 hour stoppages after meetings held to discuss various impacts of redundancy proposals.

Personnel As already reported the decision was taken in April to restructure the Company’s organisation and manning levels. The task force co-ordinating this exercise has been most successful to date in ensuring changes are handled with the minimum disruption to the continuing operation of the Company.

At 30 June 1984 the PMCI workforce on Christmas Island totalled 1,244 persons compared to 1,291 a year earlier. In addition the Company had 32 mainland employees as against 33 at 30 June 1983.

The safety incentive scheme established in 1982/83 continued with a reduction in severity of industrial injuries as measured by the rate of average duration of time lost. There was, however, one fatal injury during the period. A Hearing Conservation Programme was inaugurated with the assistance of the Public Health Department of W.A. in the latter part of the financial year.

Cafeteria style messes (one providing a Chinese diet, the other Malay) have now been established for single wages employees. Capital expenditure on these facilities was $340,000 and the ongoing operation costs are estimated around $1.7 million per annum after recoveries.

The Company’s training programme in 1983/84 placed emphasis on upgrading supervisory skills and 80 employees participated. Specialised courses were also conducted in safety and industrial relations in addition to continuing plant operator and apprentice training programmes. Total expenditure on training and development was $1.2 million.

Ore Reserves The 1984 Ore Reserves statement introduces a Reconciliation Table linking current Reserves to those of 1983.

The format is adapted from “Financial Reporting in the Mining Industry, an International Survey” by Coopers and Lybrand (U.S.A.) 1979. Except as noted below the methods of estimating and classifying are unchanged from 1983.

All reserves are expressed as millions of wet tonnes recoverable by current mining methods. Tonnages are calculated from drilling and survey information plus recovery factors (yields) derived from long term reconciliation.

Measured reserves are those which have been drilled sufficiently to allow accurate measurement of volume and grade and for which mineable recovery factors have been estimated on the basis of past mining results.

Indicated reserves are those which have been drilled sufficiently to allow volume and grade estimations at a lower level of confidence. New reserves defined by the 1983/84 drilling programme and secondary recovery A grade have been included in this category.

Inferred ore is that which has been insufficiently defined by drilling to accurately estimate volumes and grade. Potential suction mineable ore is included in this category because of the difficulty in estimating the recoverable material from between the pinnacles.

Reclassifications 1. AL grade reserves have been moved from measured to indicated and are now combined with indicated A grade.

2. Some A grade ore has been reclassified to B grade following a review of market grade requirements.

3. Some A grade ore has been reclassified into measured reserves following reassessment of previously mined areas.

4. Stockpiled B grade is now included in measured reserves.

5. A geological drilling programme in 1983 has enabled some inferred ore to be upgraded to indicated reserves. It also enabled new ore to be added to the indicated and inferred categories as “New Discoveries”.

6. Except for suction mineable material, inferred ore is now reported as washable B due to its occurrence and composition.

Washable and Non-Washable B Grade Full scale ore washing trials in 1983/84 have permitted subdivision of B grade into washable and non-washable classifications. Results are extrapolated to all in-ground and

stockpiled B grade.

Washable B grade reserves are 7.8 million tonnes;

Non-washable B grade reserves total 12.7 million tonnes.

Abbott’s Booby and Other Sea Birds Measured and indicated A grade reserves include 1.2 million tonnes of ore beneath forest areas identified as nesting habitat of various sea birds.

Two thirds of this ore underlies habitat of the endemic Abbott’s Booby; the balance is terrace deposits hosting other species including the endemic Christmas Island Frigate bird.

Another 1.2 million tonnes of washable B grade reserves are on these terraces.

Adjustments The adjustments have been necessary so as to reconcile the 1983 and 1984 statements. These reflect variations in recovery factors (yields) and inaccuracies in production reporting and reserves estimates.

1984 Ore Reserves Reconciliation

MEASURED INDICATED INFERRED RESERVES RESERVES ORE

ORE TYPE MWT

%

P205

%

R203 MWT % P205 %

R203 MWT % P205 %

R203

A GRADE REPORTED 1983 6.4 35.5 5.6 1.3 35.5 5.3 3.0 — —

PLUS New Discoveries — — — 0.2 35.8 4.3 — — —

PLUS Reclassifications 0.4 36.0 5.6 0.7 26.4 3.3 — — —

LESS Reclassifications 0.9 27.6 5.5 — — — 1.0 — —

LESS Extraction 1983/84 0.9 36.1 6.2 0.1 30.0 3.0 — — —

Adjustment + or (-) 0.4 — — (0.1) — — — — —

BALANCE 1984 5.4 36.8 5.6 2.0 32.7 4.6 2.0 — —

B GRADE — WASHABLE REPORTED 1983 7.2 34.1 16.9 10.3 32.9 16.0 5.0 —

PLUS New Discoveries — — — 0.7 34.8 10.4 0.1 —

PLUS Reclassifications 0.8 32.7 13.9 0.6 32.1 15.8 1.0 —

LESS Reclassifications 4.1 33.6 17.8 5.7 32.1 16.5 0.7 — —

LESS Extraction 1983/84 0.9 34.8 13.0 0.1 34.0 13.0 — — -

Adjustment + or (-) 0.2 — — (1.2) — — (0.3) - —

BALANCE 1984 3.2 34.5 15.6 4.6 34.2 15.1 5.1 — —

B GRADE — NON-WASHABLE REPORTED 1983 2.9 30.8 27.5

PLUS Reclassifications 4.1 33.6 17.8 5.7 32.1 16.5 — — —

BALANCE 7.0 32.4 21.8 5.7 32.1 16.5 — — —

8

REPORT OF THE DIRECTORS The Directors submit their report for the twelve months ended 30 June 1984.

The Directors in office at the date of this report are:

Richard Austen Donald Blesing Kevin John Edwards William Stanley Padgett

Hylda Anne Rolfe Teo Boon How

The principal activity of the Company was in the mining, treatment and sale of phosphate from deposits at Christmas Island together with the operation of ancillary services and offices in Perth, Melbourne and Sydney.

Following the proclamation of the Christmas Island Agreement Amendment Act 1983 on 21 December 1983, a Deed of Transfer was executed between the Christmas Island Phosphate Commission (CIPC) and the Company which allowed the Company retrospectively to 1 July 1983 to assume responsibility as Principal for carrying on all functions which it had previously undertaken as Managing Agent for CIPC and to transfer

all assets and liabilities relating to CIPC Island operations to PMCI.

The net deficit for the year was $4,438 million.

The amounts and particulars of material transfers to and from reserves and provisions during the financial year were:

Capital Reserves Surplus arising from acquisition of CIPC Island

T ransfers from CIPC

$’000

T ransfers from P & L Account $’000

T ransfers to P & L

Account $’000

operations 3,885 — —

Provisions Employee benefits 14,940 6,156 3,911

Cessation of mining operations 14,299 — 1,785

Market fluctuations 4,000 — 4,000

Research & development 423 — 388

Depreciation — 2,706 -

The provision for cessation of mining operations was reduced due to the elimination of the requirement to provide for the net cost of Government Administration on Christmas Island during the close-down period and an enhancement of the estimated net realisable value of assets at close-down.

The Company issued no shares or debentures during the year.

No dividends have been paid or declared since the end of the previous financial period and no dividends have been recommended by the Directors.

In the opinion of the Directors the results of the Company’s operations during the year were not substantially affected by any item, transaction, or event of a material and unusual nature other than set out in this report and in the accounts.

The Directors took reasonable steps before the Profit and Loss Statement and Balance Sheet were made out to:

(a) ascertain that there were no known bad debts and that no provision was necessary for doubtful debts.

(b) ascertain whether current assets other than debtors were unlikely to realise in the ordinary course of business, their value as shown in the accounting records of the Company and concluded that there were none.

At the date of this report:

(a) the Directors are not aware of any circumstances which would require an amount to be written off for bad debts or to be provided for doubtful debts.

(b) the Directors are not aware of any circumstances which would render the values attributed to current assets in the accounts misleading.

(c) no charge on the assets of the Company exists which has arisen since 30 June 1984 and secures the liability of any other person.

(d) no contingent liability has arisen since 30 June 1984.

(e) the Directors are not aware of any circumstances not otherwise dealt with in the report or accounts which would render any amount stated in the accounts misleading.

No contingent or other liability has become enforceable or is likely to become enforceable, within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Company to meet its obligations when they fall due.

The results of the Company’s operations may be substantially affected during the next succeeding financial year by:

(a) the restructuring operation involving the reduction of the workforce by about 450 employees through a voluntary redundancy package

(b) the planned Normalisation of Christmas Island announced by the Minister for Territories and Local Government in April 1984. This will relieve the Company of some of the cost of Government and infrastructure currently borne but will also result in charges for services and municipal rates and taxes and will involve adjustments to remuneration levels of employees

(c) the transfer to the Company, as assets of the Company, Commonwealth owned stockpiles of phosphate rock on the mainland. Details of these arrangements are still to be worked out.

At the date of this report the Directors are unable to ascertain the financial effect of restructuring and planned Normalisation.

Except for items set out in this report, in the interval between the end of the financial year and the date of this report, no item, transaction or event of a material and unusual nature has arisen which is likely in the opinion of the Directors, to affect substantially the results of the Company’s operations for the next succeeding financial year.

No Director, since the end of the previous financial year, has received or become entitled to receive a benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by the Directors as shown in the accounts) by reason of a contract made by the Company or a related Corporation with the Director or with a firm of which the Director is a member or with a Company in which the Director has a substantial

financial interest.

The Company is a Company of the kind referred to in Regulation 58(6) of the Companies Act 1981 and amounts in the accounts and this report have been rounded off to the nearest thousand dollars in accordance with Section 271 and Regulation 58.

The foregoing report is made in accordance with a resolution of Directors of Phosphate Mining Company of Christmas Island Limited.

Chairman of Directors Director

22nd October, 1984

Phosphate Mining Company of Christmas Island Limited Profit and Loss Statement for the year ended 30 June 1984

Notes 1984 1983 1983

Cl PC AS PRINCIPAL

$’000 $’000 $’000

Gross Income from Sales of Phosphate 48,975 — 53,455

Less shipping and realisation costs 5,276 — 3,673

Net Income from Sales of Phosphate 43,699 — 49,782

Less operating expenditure: Direct production costs 25,603 26,460

Indirect production costs Commercial and administration

7,009 7,736

expenses 7,418 — 7,007

Community and municipal costs 3 10,637 — 8,851

Government administration costs 4 4,779 — 4,198

Total Operating Expenditure . 55,446 — 54,252

(Deficit) from Phosphate Operation Add other income: (11,747) — (4,470)

Interest 2 1,370 — 2,582

Other income 154 - 440

Operating (Deficit) for year before following items Less provisions:

(10,223) — (1,448)

Provision for cessation of mining operations 6 ( 1,785) 1,544

Operating (Deficit) ( 8,438) — (2,992)

Transfer from provision for market fluctuations 6 4,000 2,800

(Deficit) Carried Forward ( 4,438) — ( 192)

All figures in far righthand column relate to CIRC as Principal.

The accompanying notes form part of these accounts.

12

Phosphate Mining Company of Christmas Island Limited Balance Sheet as at 30 June 1984 Notes 1984 1983 1.7.83

TRANSFERRED FROM CIRC

$’000 $’000 $’000

Share Capital and Reserves: Authorised Capital 10,000,000 ordinary shares of $1 each 11 10,000 10,000 —

Issued and Paid Capital 11 — — —

Capital Reserves: Surplus arising from acquisition of CIRC Island operations 10 3,885 — 3,885

Revenue Reserves: Accumulated deficits (4,438) — —

Capital and Reserves (553) — 3,885

Represented by: Mining Properties and Fixed Assets 15 11,451 — 11,804

Current Assets: Phosphate stocks 16 5,554 — 5,693

Stores 3,920 — 3,453

Prepayments 107 — 131

Accounts receivable 17 3,951 — 4,636

Short term deposits 18 6,328 — 15,153

Cash at bank and in hand 19 582 — 103

20,442 — 29,169

TOTAL ASSETS 31,893 — 40,973

Deduct: Non Current Liabilities: Provision for cessation of mining operations 6 10,112 — 14,299

Provision for employee benefits 5 7,822 — 12,297

17,934 — 26,596

Current Liabilities: Provision for cessation of mining operations 6 2,402 — —

Provision for market fluctuations 6 — — 4,000

Provision for research and development 6 35 — 423

Provision for employee benefits 5 9,363 — 2,643

Accounts payable and accruals 2,712 — 3,390

Bank overdraft — — 36

14,512 — 10,492

TOTAL LIABILITIES 32,446 — 37,088

Net Assets (553) — 3,885

The accompanying notes form part of these accounts.

13

Statement of Sources and Applications of Funds for year ended 30 June 1984

Sources of Funds Proceeds of sales of fixed assets Reduction (Increase) in current assets: Phosphate stock Prepayments Accounts receivable Short term investments and cash Stores

Notes

Application of Funds

Deficit Add (Less) items not involving the outlay of funds: Depreciation

Provision for market fluctuations 6

Provision for employee benefits 5

Provision for cessation of mining operations 6

Profit on sale of fixed assets 2

Purchases of fixed assets Employee benefits paid 5

Reduction in current liabilities: Provision for research and development 6 Accounts payable and accruals

The accompanying notes form part of these accounts.

$’000 $’000

40

139 24 685

8,310 (467)

8,691 8,731

4,438

(2,706) 4,000 (6,156)

1,785 20

(3,057) 1,381 2,373 3,911

388 678

1,066 8,731

14

Notes to and forming part of the Accounts as at 30 June 1984 Background

(a) The Phosphate Mining Company of Christmas Island Limited (PMCI) was incorporated in the Australian Capital Territory on 24 June 1981 with a paid-up capital of $5 comprising five $1 shares held by representatives of the Commonwealth of Australia.

(b) The Act which foreshadowed the creation of PMCI is the Christmas Island Agreement Amendment Act 1981. This act removed the requirement of Christmas Island Phosphate Commission (CIPC) to appoint The British Phosphate Commissioners (BPC) as their Managing Agent.

(c) In July 1981 the Governments of Australia and New Zealand jointly nominated PMCI to CIPC as Managing Agent in accordance with Article One of the Schedule to the Christmas Island Agreement Amendment Act 1981 and PMCI was duly appointed by CIPC.

(d) From July 1981 to June 1983 PMCI carried out, in its own name but as Managing Agent for CIPC, all functions associated with the mining, treatment and sale of phosphate from deposits at Christmas Island together with the operation of ancillary services and offices in Perth, Melbourne and Sydney.

(e) On 19 June 1983 the Christmas Island Agreement Amendment Act 1983 was enacted. This Act was proclaimed on 21 December 1983 and enabled the winding-up of CIPC to take place.

(f) Subsequent to this event and retrospective to 1 July 1983, the Company assumed responsibility for carrying on in its own right, all functions previously undertaken as Managing Agent for CIPC as Principal.

(g) In April 1984, the Minister for Territories and Local Government announced plans for the normalisation of Christmas Island. This is the process by which living conditions are brought into line with those on the mainland and will require PMCI to divest itself of many of its non-mining activities.

(h) Following a report by management consultants on the Company’s organisation and manning levels, agreement was reached in May 1984 between the Union of Christmas Island Workers, ACTU, the Australian Government and PMCI to restructure the Company by reducing the workforce by about 450 employees under the terms of a special voluntary redundancy package.

Continuity of Operations The continuation of mining operations is dependent on the availability of economically recoverable reserves of A-grade phosphate ore on Christmas Island. Current estimates of

A-grade phosphate on Christmas Island represent a future 8 years production at the present rate of extraction and this has been used as a basis for determining the depreciation of fixed plant and the progressive raising of the provision for cessation of mining operations. Extensive drilling has taken place during the year and the reserves yvill

be reassessed in the near future.

Apart from geological life of mine considerations, continuity of operations depends on a number of other factors, especially;

• maintenance of adequate sales revenue; • environmental requirements; • satisfactory industrial relations; • reduction and containment of operating costs; • reduction and containment of Australian National Line shipping freight costs so that

Christmas Island is a competitive source of supply.

The effect of restructuring the operation by reducing the workforce will make a contribution to the reduction of operating costs. As already stated in the Directors’ Report the planned Normalisation will involve the Company in both savings and increased costs and the Directors are unable to ascertain the financial effect at the date of this report.

However, the imminent transfer to the Company of Commonwealth owned stockpiles of phosphate rock is considered to provide sufficient asset backing to meet future liabilities of the Company.

Commonwealth Undertaking The Board has been advised by the Minister for Territories and Local Government that if necessary, the Commonwealth would meet any excess of liabilities over assets up to $15.7 million (the net liability if closure had occurred at 1 July 1981) when the Company ceases mining operations. It was a requirement of PMCI to make every effort to earn sufficient funds to off-set the inherited liability as quickly as possible.

Note 1 — Statement of significant Accounting Policies

(a) BASIS OF ACCOUNTING The Balance Sheet as at 30 June 1984 and the Profit and Loss Statement for the year ended 30 June 1984 have been prepared on the basis that the Company is the Principal, having assumed responsibility as from 1 July 1983 for carrying on in its own right all functions previously undertaken as Managing Agent for CIPC.

The accounts have been prepared under the historical cost convention which does not necessarily take into account changing money values or current valuations of non­ monetary assets.

(b) MINING PROPERTIES & FIXED ASSETS As all land on Christmas Island belongs to the Crown, the rights and interests of the Company to fixtures to land are established on an equitable basis only.

Details of asset values and depreciation are set out in Note 15.

BUILDINGS & FIXED PLANT Buildings and fixed plant items are stated at cost, less depreciation, the cost representing:

1. The written down amounts of the buildings, fixed plant and moorings transferred from CIPC at 1 July 1983.

2. Actual cost of acquisitions since 1 July 1983.

Depreciation is being provided by the straight-line method over the remaining estimated operating life of the mine. A full year’s depreciation is provided in the year of acquisition.

PLANT AND EQUIPMENT Movable plant is stated at cost, less depreciation, the cost representing:

1. The written-down amounts of vehicles and other movable plant transferred from CIPC at 1 July 1983.

2. The actual cost of acquisitions since 1 July 1983.

Depreciation is being provided over the estimated useful life of each item.

(c) PHOSPHATE STOCKS A-grade phosphate stocks are valued at the lower of cost and net realisable value. The cost of stocks includes variable and certain fixed costs of the mining and production processes through which the phosphate has passed. Christmas Island indirect costs are excluded.

Apart from a small quantity of B-grade phosphate stock which has been processed for the purpose of sale in what is presently a limited market, no valuation has been placed

on wet B-grade phosphate field stockpiles which arise as a by-product of the A-grade mining and treatment processes.

Details of stock values are set out in Note 16.

(d) STORES Stores, with the exception of retail trade stores, are valued at average Island landed cost after provision for obsolescence. Retail trade store values, which represent a minor proportion of the total, do not include shipping and handling costs.

Spare parts are written off in the year of purchase because of their remote location and the adverse effects of the climatic conditions.

(e) FOREIGN EXCHANGE All assets and liabilities held in foreign currencies have been converted to Australian currency at the actual exchange rate if known, otherwise at the prevailing rate of exchange (mid-rate) at 30 June 1984.

(f) SALES AND ACCOUNTS RECEIVABLE Sales of phosphate ore are taken up at estimated realisable value when shipped from the Island in accordance with various sales contracts. This estimated value is subject to adjustment on settlement of final proceeds due to quality, weight, currency variations and shipping and landing costs.

(g) EMPLOYEE BENEFITS Provisions are made in the accounts for recreational leave, sick leave, long service leave and redundancy payments accruing to employees. Non-current amounts comprise long service leave, redundancy and sick leave provisions in respect of

payments not expected to be made within twelve months. Current amounts include benefits to all employees volunteering to take redundancy according to the terms of a special redundancy package. Details of Employee Benefits are set out in Note 5.

(h) CESSATION OF MINING OPERATIONS Provisions included in Note 6 have been made for a due proportion of expenditure required associated with the wind-down and cessation of mining operations over the remaining saleable tonnage of A-grade phosphate. In making these provisions, the total amount of the eventual expenditure is reassessed each year using the most

recent information available. The amount charged each year fluctuates according to production and the above reassessment.

Included in this provision is an amount set aside for rehabilitation of areas disturbed by mining where this is considered practicable. While PMCI accepts responsibility for undertaking rehabilitation of areas disturbed prior to the Company’s inception, it will

need financial assistance from the Australian Government in order to discharge this responsibility. Also included are amounts relating to administration and maintenance expenses, accelerated obsolescence of stores and accumulated benefits for Government employees not provided for in the accounts of the Christmas Island Administration.

It has been confirmed that the requirement of the Company to reimburse the Commonwealth with the net cost of Government Administration on Christmas Island will no longer be applicable after 1 July 1985. Accordingly the amount previously provided as a cost for this item during the wind-up has been written back.

Following an independent professional assessment of the value of assets, an estimation of the realisable value of plant, equipment and buildings was used to offset assessed cessation expenditure. Due to the write back of Government Administration costs and the reappraisal of the realisable value of assets, the total provision balance

has been reduced during the financial year.

It is anticipated that there will be a significant further reduction to the provision balance during the 1984/85 year as repatriation expenses are charged to the provision during the restructuring operation. It is also expected that normalisation will relieve the

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Company of meeting the costs of Government employee benefits and some Island services during the cessation period.

(i) MARKET FLUCTUATIONS Pricing agreements with Australia and New Zealand envisage phosphate to be sold where practicable on a break-even basis. However, the market price and sales volume of phosphate are largely determined by volatile supply and demand factors. There is a

requirement to use any surplus funds which might accrue from any one year to abate the price of phosphate to Australia and New Zealand in subsequent years.

In the Managing Agency Accounts for the year ended 30 June 1982, the Directors of the Managing Agent made a provision of $6,800,000 for adverse market fluctuations which were expected to occur during future years. The establishment of the provision was in line with recommendation 8 of the report of the Commission of Inquiry into the viability of the Christmas Island Phosphate Industry issued in February 1980 and approved by the then Australian Government.

In the Managing Agency Accounts to 30 June 1983, the provision for market fluctuations was reduced by $2,800,000 in recognition of the inability to set prices at a break-even level to cover high unit costs resulting from lower sales volumes and depressed world market prices. The remainder of the provision has been used in the year ended 30 June 1984 reflecting the continuing adverse conditions. Details of this provision are set out in Note 6.

(j) RESEARCH AND DEVELOPMENT A provision established in the Managing Agency Accounts for the year ended 30 June 1982 for research and development expenditure has been utilized to the extent of $387,678 in the current year as shown in Note 6. It is expected that the balance of this provision will be utilized for further research and development in the coming year. The objective of this provision is to develop and market the resources of lower grade phosphate rock that are available on the Island and to fully utilize the remaining A- grade deposits.

(k) LEASES Details of operating lease commitments are set out in Note 13. These include office leases and ship charters.

(l) INCOME TAX No taxation has been provided in the accounts as PMCI was informed by the Government in June 1982 that income tax would not be payable by the Company.

(m) NORMALISATION With the exception of the write-back of the costs of Commonwealth Administration in the provision for cessation of mining operations no cognizance has been taken in the accounts of normalisation. It is expected that most transfers of non-mining activities will take place during 1984/85 year and the full effect on asset values, stores and provisions for employee benefits and cessation of mining operations will be taken up in that year.

(n) RESTRUCTURING In order to improve productivity and reduce costs, a major restructuring operation is taking place involving the reduction of the workforce by about 450 employees. To encourage their departure, a special voluntary redundancy package has been developed which has been included in employee benefit provisions for those employees who are

known to be departing. A contingent liability outlined in Note 14 has been raised to cover employees who may volunteer before the expiry date of the package.

Repatriation and relocation costs will be charged to the corresponding section of the provision for cessation of mining operations.

The operating (deficit)Zsurplus was determined after:

Note 2 — Operating (Deficit)ZSurplus

Notes 1984 1983 1983

Cl PC AS PRINCIPAL

CREDITING: Interest received from unrelated

$’000 $’000 $’000

parties 1,370 — 2,582

Profit on disposal of assets 20 — 168

Transfer from other provisions 6 Abnormal items — stores 1,785 (1,532)

valuation adjustment*

CHARGING:

666

Depreciation 2,706 — 3,946

Interest — — 2

Directors’ emoluments 8 49 — 52

Audit fees 9 44 — 51

Loss on disposal of assets Abnormal items — phosphate

— — 8

stock reclassification f 411 — —

* The amount provided for obsolescence of stores was reassessed and reduced, t A phosphate stockpile was downgraded from A grade to B grade.

Note 3 — Community and Municipal Costs

Community and municipal costs are shown in the Profit and Loss Statement. These are incurred on various municipal services including the hospital, airport, housing, subsidy to Trade Store, water supply, sewerage and power.

Note 4 — Government Administration Costs

The provisions of Article Nine of the Christmas Island Agreement Act 1958 require that net expenditure incurred by the Government of Australia in administering Christmas Island be reimbursed by CIRC. This requirement has been maintained since the change in Principal by Administrative Instruction from the Minister for Territories and Local Government.

Note 5 — Provisions for Employee Benefits

(See Note 1 (g))

30.6.83 1.7.83 Charged to Paid 30.6.84

T ransferred from Cl PC Earnings

$’000 $’000 $'000 $’000 $’000

Long service leave — 2,124 676 442 2,358

Recreation leave — 1,018 1,991 1,931 1,078

Redundancy — 6,127 2,237 731 7,633

Sick leave — 5,671 1,252 807 6,116

— 14,940 6,156 3,911 17,185

Amounts payable within twelve months Amounts payable after

2,643 9,363

twelve months 12,297 7,822

Note 6 — Other Provisions

(See Notes 1(h), 1(i), 1 (j), 7)

30.6.83 1.7.83

T ransferred from CIPC

Written Back

Used 30.6.84

Provisions for: Cessation of mining

$’000 $’000 $’000 $’000 $’000

operations — 14,299 1,785 — 12,514

Market fluctuations Research and

4,000 4,000

development — 423 — 388 35

Doubtful debts — — — — —

— 18,722 1,785 4,388 12,549

* Provision includes $1,395,000 (1983 $1,200,000) to meet accumulated benefits for Government employees which are not provided for in the accounts of the Christmas Island Government Administration.

Note 7 — Bad and Doubtful Debts

(See Note 6)

1984 1983 1983

CIPC AS PRINCIPAL

$’000 $’000 $’000

Bad debts written back from provisions for doubtful debts to the Profit and Loss Statement as no longer required in respect of other debtors 12

Bad debts written off against provision for doubtful debts set aside in prior years in respect of other debtors — — 8

Note 8 — Directors’ Emoluments

1984 1983

$ $

Emoluments received or due and receivable by the Directors in accordance with Determinations of the Remuneration Tribunal and the Minister for Territories and Local Government.

Directors engaged in the full time employment of the Company (excluding fixed salaries) — —

Other Directors 49,050 52,200

Fixed salaries amounting to $4,493 (1983 Nil) were paid to full time Directors as employees. The above amount of $52,200 for the year ended 30 June 1983 was recoverable from the Principal, CIPC, as a Managing Agency cost.

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Note 9 — Auditors’ Remuneration

Amounts received or due and receivable by the Auditors for: Auditing of the accounts Other services

No other benefits were received by the Auditors. The above amount of $50,600 for the year ended 30 June 1983 was recoverable from the Principal, CIPC, as a Managing Agency cost.

Note 10 — Capital Reserves

In accordance with an agreement dated 19 April 1984 all of the assets and liabilities as at 1 July 1983 relating to the mining operations carried out on Christmas Island by the Christmas Island Phosphate Commission were transferred to the Company. The total assets exceeded the total liabilities by $3,884,898 and this amount has been transferred to a capital reserve.

Note 11 — Share Capital

1984 1983

$ $

Authorised capital comprised 10,000,000 shares of $1 each 10,000,000 10,000,000

Issued and paid capital comprises 5 5

Issued and paid up capital comprises 5 ordinary shares of $1.00 each fully paid totalling $5. However, because of rounding to the nearest thousand dollars, this is shown as zero in the Balance Sheet of the Company.

Note 12 — Capital Expenditure Commitments

1984 1983 1983

CIPC AS PRINCIPAL

$’000 $’000 $’000

Due within one year 6 — 126

Note 13 — Operating Lease Commitments

(See Note 1 (k))

1984 1983 1983

CIPC AS PRINCIPAL

$’000 $’000 $’000

Not later than one year 1,367 — 1,174

Later than one year and not later than two years 913 — 865

2,280 — 2,039

Note 14 — Contingent Liabilities

Unsecured contingent liabilities exist from the following items:

(a) Legal claims amounting to $103,000. Counsel’s advice and other supporting documents indicate that the Company has minimal liability.

(b) Additional employees who may wish also to volunteer for redundancy in accordance with the terms of a special redundancy package before 1 October 1984. The maximum amount of this contingent liability has been assessed at $623,000.

1984 1983

$ $

44,000 50,600

Note 15 — Mining Properties and Fixed Assets

(See Note 1(b))

1984 1984 1984 1.7.83 1983

Gross Book Accumulated Net

Transferred from CIRC Net Net

Value Depreciation Fixed Fixed Fixed

$’000 $’000

Assets $’000

Assets $’000

Assets $’000

Buildings and fixed plant at cost: 9,690 1,077 8,613 8,164 —

Movable plant and equipment at cost: 3,941 1,629 2,312 2,724 —

Capital work in progress at cost: 526 — 526 916 —

14,157 2,706 11,451 11,804 —

Note 16 — Phosphate Stock

(See Note 1(c))

1984 1.7.83 1983

$’000

Transferred from CIRC $’000 $’000

A-grade wet stocks (partly processed) 4,135 3,744 —

A-grade dry stocks (finished product) 1,107 1,641 —

Other products 312 308 —

5,554 5,693 —

Note 17 — Accounts Receivable

1984 1.7.83 1983

$000

T ran sf erred from CIRC $’000 $’000

Phosphate sales debtors 3,295 3,901 —

Other debtors 656 735 —

Less provision for doubtful debts —

656 735 —

3,951 4,636 —

Note 18 — Short Term Investments

Short Term Investments at 30 June 1984 included Australian Savings Bonds totalling $ 200,000.

Note 19 — Cash at Bank

Cash at Bank at 30 June 1983 was $5. However, because of rounding to the nearest thousand dollars, this is shown as zero in the Balance Sheet of'the Company as at 30 June 1983.

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Where necessary these figures have been adjusted to conform with changes in presentation made in 1984.

Also to provide an effective comparison, the figures for the previous year, where necessary, include either those relating to CIRC as Principal or to assets and liabilities transferred to PMCI from the former Principal, CIPC, on 1 July 1983.

A Sources and Applications of Funds Statement was not provided in the Managing Agency Accounts of CIPC for the year ended 30 June 1983 as this was not required at that time. There were no funds received or applied in the Company’s own name and accordingly no comparison is shown in that statement in the accounts of the

Company for the previous year.

Note 21 — Post Balance Date Event

The Commonwealth Government has decided to transfer to the Company as assets of the Company, Commonwealth owned stockpiles of phosphate rock on the mainland. The details of the arrangements for the control and disposal of these are to be worked out

between the Ministers for Territories and Local Government and Finance. There will be some off-setting transfer of assets relating to Government and infrastructure functions from PMCI to the Commonwealth as part of normalisation.

Although the full effect has yet to be quantified, it is considered that the revised asset backing of the Company will be sufficient to meet future commitments.

Statement by Directors In the opinion of the Directors of Phosphate Mining Company of Christmas Island Limited:

1. The accompanying Profit and Loss Statement is drawn up so as to give a true and fair view of the results of the Company for the year ended 30 June 1984 and the accompanying Balance Sheet is drawn up so as to give a true and fair view of the state of affairs of the Company as at 30 June 1984.

2. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

Signed in accordance with a resolution of the Board.

Note 20 — Comparative Figures for 1983

Director Director

22nd October 1984

Auditor’s Report to the Members of the Phosphate Mining Company of Christmas Island Limited I have audited the accounts of the Phosphate Mining Company of Christmas Island Limited, comprising a balance sheet, profit and loss statement, notes to and forming part of the accounts, statement of sources and applications of funds and statement by

Directors.

In my opinion:

(a) the accompanying accounts, which have been prepared in accordance with the policies stated in Note 1, are properly drawn up in accordance with the provisions of the Companies Act 1981, and so as to give a true and fair view of —

• the state of affairs of the Company at 30 June 1984 and of the loss of the company for the year ended on that date, and

• the other matters required by section 269 of the Act to be dealt with in the accounts;

and are in accordance with Australian Accounting Standards;

(b) the accounting records and other records and the registers required by the Act to be kept by the Company have been properly kept for the year ended 30 June 1984 in accordance with the provisions of the Act.

16 November 1984

K.F. BRIGDEN Auditor-General