for personal use only - australian securities exchange · abn 34 009 356 665 asx code: bnd section...

Bandanna Energy Limited Annual Report 2010

For

per

sona

l use

onl

y

In its second year of operation as a coal explorer, Bandanna has consolidated its position as an emerging force in the Australian thermal coal sector

South Galilee Project

For

per

sona

l use

onl

y

www.bandannaenergy.com.au ABN 34 009 356 665

ASX Code: BND

Section 1Who we are 5

Operational highlights 6

Chairman’s report 7

Managing directors report 10

Operation review 15

Competent person’s statement 39

Corporate governance statement 40

Section 2DIRECTORS REPORT & ANNUAL FINANCIAL REPORT

Report of the directors 47

Remuneration report 51

Declaration of independence by lead auditor to the directors of Bandanna Energy Limited

56

ANNUAL FINANCIAL REPORT

Statement of comprehensive income 57

Statement of financial position 58

Statements of changes in equity 59

Statement of cash flows 60

Notes to the financial statements 61

Directors’ declaration 94

Independent auditors report 95

Additional information for listed public companies

97

Corporate directory 100

contentsF

or p

erso

nal u

se o

nly

Bandanna Energy Limited is an emerging, ASX-listed coal exploration company with 15 Exploration Permits for Coal in the world-class Bowen and Galilee Basins of Queensland. The Company is participating in significant exploration in the Alpha area with its farminee and coventurer AMCI in addition to its extensive exploration work in the Bowen Basin. The Board and senior management are committed to making Bandanna Energy Limited a strong mid-tier player within the coal sector.

Investor highlights

› Market capitalisation of approximately $300 million with $20 million in cash and no debt with more than 1,300 Million tonnes of JORC compliant resources

› Exposure to infrastructure basin developments in two eastern Australian basins, the Galilee and Bowen

› Only ASX listed company with completed Concept Study for mine development in the Galilee Basin which has now moved into a prefeasibility study status

› Potential for significant multiple thermal coal mine development in the Bowen Basin where JORC compliant resources exceed 750 Mt

› Strategic alliances with AMCI and the South Korean private coal producer SAMTAN

Who we are

Drilling at Springsure Creek

5

For

per

sona

l use

onl

y

Operational highlights

› South Galilee Project declared a State Significant Project by the Queensland Government

› Completion of Concept Study for South Galilee Project which recognises 15 to 20 Mtpa production over a 40+ year mine life

› Increased JORC compliant resources for the Springsure Creek Project to 305Mt, with an exploration target of 417 to 600Mt

› Completion of a Concept Study for Arcturus as a potential thermal coal mine, with the delineation of 154Mt JORC compliant resources, comprising 99Mt inferred and 55Mt indicated

› Submitted expressions of interest for Stages 1 and 2 of the Wiggins Island Coal Export Terminal development

› Completion of a 2D seismic program in the Dingo West Prospect as part of the delineation of a multiple satellite pit style open cut development

› SAMTAN Co Ltd of South Korea (through its wholly owned subsidiary SAMTAN Aures Pty Ltd) became a 10% shareholder in Bandanna following the placement of 37,532,016 shares for $22.5m

Summary of ResourcesThe JORC compliant coal resources at the end of the Reporting Period stood as follows:

Number Name Holding Company Bandanna Share

Inferred Resource

Mt

Indicated Resource

Mt

Total Resource

Mt

EPC 881 Dingo WestDingo West Coal Pty Ltd

100% 91 91

EPC 1049 South Galilee Alpha Coal Pty Ltd 50%* 461 30 491

EPC 891 Springsure CreekSpringsure Creek Coal Pty Ltd

100% 270 35 305

EPC 1221 ArcturusSpringsure Creek Coal Pty Ltd

100% 99 55 154

EPC 1742 Arcadia Arcadia Coal Pty Ltd 100% 273 273

Total Resources 1,194 120 1,314

* Reflects position should AMCI earn a share of 50% as part of farm-in section 1F

or p

erso

nal u

se o

nly

Dear Shareholders,It is a pleasure to present to you the Company’s Annual Report for the year ended 30th June 2010.

This Annual Report highlights what has been another very formative year for your Company. It has been a year underpinned by consolidation of the strategies which were outlined last year. Our focus remains on our key assets in the Bowen and Galilee basins in Queensland. In May 2010 we received a major boost to the profile of our South Galilee Project (formerly called the Alpha Project) following the announcement by the Queensland Government that the project was now one of State Significance. Whilst this declaration is not an indication of approval or support for the Project by the Queensland Government, it will significantly aid in the governmental administrative processes.

The Queensland Government has made it very clear that it intends to have a “whole of basin” approach to the development of what I believe is a globally significant new thermal coal province located in the Galilee Basin. In this regard, important milestones towards the development of the basin have been the selection of Hancock Prospecting as one of the preferred tenderers for the expansion of the Abbot Point coal loading port, and funding for the development of the Conners River dam and proposed large diameter pipeline to provide water for Galilee Basin coal mine infrastructure through Sunwater.

The Government is keen to ensure that there will be third party access to new rail and port infrastructure. Hancock Prospecting and Waratah Galilee projects are likely to provide much of the backing for this infrastructure and these developments are welcomed. I note that BHP Billiton has also been named as a preferred tenderer for the port expansion at Abbot Point. That company’s participation sends a clear signal of confidence about the expansion of coal exports from North Queensland as too does the reported sale of Linc Energy’s coal assets to Adani.

Jeremy W BarlowNon Executive Chairman

Chairmans Report

7

For

per

sona

l use

onl

y

AMCI, as operator and farminee to our South Galilee Project, has now moved into the prefeasibility stage. This will see a significant amount of drilling, environmental and mine design work over the coming months as our Project rapidly gathers momentum. As was announced during the year we expect our project to have an eventual capacity of 15-20 Mtpa. My personal view, yet to be confirmed by our partner AMCI, is that the South Galilee Project could eventually have a capacity well in excess of 20 Mtpa.

On our other key asset front, Bandanna has had a busy year pursuing its “Golden Triangle” and Dingo West opportunities. We hold high hopes for these projects and it has been somewhat disappointing that a prolonged period of wet weather effectively curtailed our operational window to around seven months during the past financial year. Nevertheless, significant exploration was undertaken on Arcturus, Springsure Creek and Dingo West, the details of which are contained in the Operations Report Section of this report.

Pivotal to future development of our “Golden Triangle” opportunities is access to port and rail. In December last year Bandanna lodged an Expression of Interest for a port allocation in the proposed expansion of the Gladstone Port facilities at Wiggins Island. Thanks to the very good work of our management team, Bandanna remains one of a number of proponents seeking to obtain an allocation in stage 1 of Wiggins Island Coal Export Terminal. Such an allocation would greatly enhance our ability to move with certainty towards development of one or more of our Bowen Basin projects over the coming 3 to 4 years. I expect that a Stage 1 allocation would see our Company rerated as a producer over that period as we mature our plans for project development and production and move from a pure explorer to a producer.

Access to port also brings with it obligations for rail and other infrastructure. Bandanna is stepping up its dialogue and negotiations with major Bowen Basin infrastructure providers. Quite separately we have

continued to undertake exploration in our Dingo West Project area. Dingo West represents a relatively low entry cost, high product yield, enterprise and one which can be developed in a shorter time frame than our major greenfields projects. The main product to be produced at Dingo West will be high quality PCI coal.

Unfortunately, and as I feared last year, we have been exposed to a number of Federal Government policies which have the potential to significantly reduce Australia’s prosperity and the international competitive position in the coal industry. The ill-fated Resource Super Profits Tax (RSPT), its replacement, the new Minerals Resource Rent Tax (MRRT) and the prospect of a new Emissions Trading Scheme (ETS) caused, and continue to cause, significant damage to our international reputation despite the naive denials from bureaucrats in Treasury and members of Federal Government.

Bandanna, in line with the equity market generally, had to pay the direct price of this maladministration with dramatic declines in our share price, following

the announcement of the RSPT. With lack of details on how the MRRT will work, and what form any future ETS (or other carbon tax) will have it is difficult to see how resource companies such as Bandanna can have their true intrinsic value reflected in the share market. Whilst the implementation of an MRRT and possibly an ETS represent major uncertainties at a federal level mining companies face unprecedented challenges at a state level as well. Recent changes to land access and compensation in amendments of the Minerals Act and the proposed Strategic Cropping Lands policy have the potential to seriously impede our business and will, if fully implemented, significantly downgrade the attractiveness of Queensland as an exploration destination.

In line with growing our coal business as our core activity we have decided to divest our conventional oil and gas interests. These are now largely legacy assets and their perceived limited potential for wealth creation does not justify their on-going holding costs. You will see

We have laid the foundations for continued growth and will now capitalise on new opportunities to expand the business


8

For

per

sona

l use

onl

y

that there has been some impairment of these assets reflected in the Financial Report.

The growth of any company can only be achieved with the engagement of management, staff, professional consultants and contractors who share a common vision and purpose. During the Financial Year we added to our senior management team by engaging Mr David Campbell as our new Manager –Exploration. In recognition of the serious commitment to our stakeholders Bandanna also engaged a permanent, full time, field liaison officer based in Emerald. Already, we have seen a significant improvement in relationships with landowners and others in the areas in which we conduct our field activities.

Our unswerving focus on growth could not happen unless there was a collective commitment by my fellow directors; Rob Johansen, David Graham, Park Soon IL, and our Managing Director, Ray Shaw. I personally wish to thank each of them for their fine contributions. Mr Park Soon IL joined us following the last Annual General Meeting. As a representative of SAMTAN he has injected an abundance of practical experience and knowledge, especially of the Asian coal sector. In doing so, SAMTAN has cemented itself as an extremely valuable shareholder and Mr Park as an integral member of the Board.

I take this opportunity to publicly thank our management team and each of our staff. Special mention is made of Matthew Scott who has taken on the joint roles of Company Secretary and Chief Financial Officer. It has been a very demanding year for Matthew, given his commitment to also carrying much of the burden of the WICET negotiations as well as these other duties.

The Company continues its working relationship with a number of very professional and competent advisors. I thank them all most sincerely for their support.

Ultimately however it is the confidence that you, our shareholders, have in us which keeps us striving for success in the future. For this we are most indebted.

Jeremy Barlow Chairman

Drilling at Springsure Creek

99

For

per

sona

l use

onl

y

Dr Ray ShawManaging Director

Managing Director’s Report

Highlights › South Galilee Project declared a State Significant Project by the

Queensland Government

› Completion of Concept Study for South Galilee Project which recognises 15 to 20 Mtpa production over a 40+ year mine life

› JORC compliant resources for the Springsure Creek Project increased to 305Mt, with an exploration target of 417 to 600Mt

› Completion of a Concept Study for Arcturus as a potential thermal coal mine, with the delineation of 154Mt JORC compliant resources, comprising 99Mt inferred and 55Mt indicated

› Submitted expressions of interest for Stages 1 and 2 of the Wiggins Island Coal Export Terminal development.

› Completion of a 2D seismic program in the Dingo West Prospect as part of the delineation of a multiple satellite pit style open cut development

› SAMTAN Co Ltd of South Korea (through its wholly owned subsidiary SAMTAN Aures Pty Ltd) became a 10% shareholder in Bandanna following the placement of 37,532,016 shares for $22.5m


10

For

per

sona

l use

onl

y

SummaryIn its second year of operation as a coal explorer, Bandanna has consolidated its position as an emerging force in the Australian thermal coal sector.

Through an active drilling program and with a solid cash position, established following the placement of shares to SAMTAN Aures Pty Ltd, Bandanna has continued to increase not only the overall resource inventory but also the confidence levels of those resources.

In addition, Bandanna has made solid progress with concept and pre-feasibility studies of a number of potential mine development scenarios. It has also pursued negotiations aimed at providing long term access to key infrastructure, particularly port facilities at Gladstone and rail access.

During the Reporting Period and reflecting the increase level of our activities Bandanna employed a Manager - Exploration to oversee the Company’s exploration. Likewise, and as part of our commitment to work cooperatively within the community, and with our stakeholders generally, an Emerald based full-time field liaison officer, has been employed.

OperationsField operations during the Reporting Period were significantly hindered because of unseasonal wet weather experienced from mid December 2009 until late April 2010. This restricted the effective operational season to approximately seven months.

Nevertheless, outside of this period Bandanna participated in the drilling of a total of 11,728 m of coal exploration holes, comprising 63 chip holes and 47 cored holes. Bandanna also operated a 53 km, 2D high-resolution seismic survey as part of its coal exploration activities in Dingo West. Total exploration expenditure for the Reporting Period was some $6.537 million, approximately $3.342 million of which was fully funded by AMCI under its Farmin Agreement for the South Galilee Project. The bulk of the activity was concentrated on coal exploration in four key projects; South Galilee, Arcturus, Springsure Creek and Dingo West. Reconnaissance drilling was undertaken in the Gemini and Fernlee North tenements.

Details of these operations are included in the separate Operations Report.

Other than the acquisition of an airborne passive transient electromagnetic (P-TEM) survey over selected permits in the Cooper Basin, there was no significant field activity undertaken in Bandanna’s oil and gas interests, which are held by its wholly owned subsidiary Traditional Oil Exploration Pty Ltd. The Cleansweep-1 well, in which the Company has a 5% interest, was shut-in on 1 July 2009 for the entirety of the Reporting Period. Beach Petroleum, as Operator of the Udacha Block and in which Traditional holds 12.5% sought petroleum retention licences on behalf of the Joint Venture. Details of these activities are also included in the separate Operations Report.

Bandanna is the only ASX-listed company with a project interest in the Galilee Basin to have completed a Concept Study and moved to Pre-Feasibility Study (PFS) status

11

For

per

sona

l use

onl

y

During the Reporting Period, the Board considered the efficacy of maintaining our historical oil and gas interests. These are now considered non-core and legacy assets of the former Enterprise Energy. Whilst they retain intrinsic value, their full value cannot be realised without the significant investment of additional funds which could otherwise be directed towards coal activities. Accordingly, the Board decided to investigate means for divesting of these interests. At the end of the Reporting Period discussions for the sale of these interests were advanced with a number of parties (Refer to Subsequent Events in the financial report).

The Company has not undertaken any field activities in its oil shale tenements during the Reporting Period. This is in response to the on-going policy decision by the Queensland Government to effectively suspend development of an oil shale industry for two years pending investigation of the economic, environmental and social impact of such an industry. However, the Company did apply for an additional Exploration Permit for Minerals (EPM) involving the mineral bentonite.

CorporateAs announced to the market on 24 September 2009, a significant strategic relationship was established following the conclusion of a share sale agreement with SAMTAN Aures Pty Ltd. Under the terms of that agreement SAMTAN acquired 37,532,016 ordinary shares in Bandanna at 60 cents per share, raising a total of $22.5 million. This shareholding represents 10% of the fully diluted shares on issue immediately post the placement. Proceeds from the placement are being used to fund on-going programs of exploration, future development and infrastructure appraisal.

Under the terms of the agreement SAMTAN also has the right to market Bandanna’s coal in South Korea and the right to negotiate the purchase of 20% of Bandanna’s coal from its Bowen Basin projects, at market prices. Additionally, Senior Managing Director of SAMTAN, Mr Park Soon IL, joined the Board of Bandanna on 19 November 2009.

As announced to the market on 11 September 2009 59,871,803 shares, granted to vendors of Bandanna Coal Pty Ltd, were released from escrow on 26 September 2009. Also announced to the market was the lapsing of 300,000 options to Dr Ray Shaw on 25 July 2009.

Board & ManagementAs part of the SAMTAN transaction, Mr Park Soon IL was appointed to the Board of Directors on 19 November 2009. Mr David Graham, having resigned as a Director and offering himself for re-election, was reappointed at the Annual General Meeting held on 19 November 2009.

On 1 March 2010, Bandanna announced the appointment of David Campbell as Manager - Exploration. David has more than 30 years experience as a mining professional, having held diverse technical positions in exploration and mining geology and particularly in the coal industry where he has worked extensively in both Queensland and New South Wales, including Vice President-Exploration of Waratah Coal Inc which holds extensive exploration areas in the Galilee basin.

InfrastructureWith Bandanna now having over 1,300 million tonnes of JORC compliant resources, the Company has focused on infrastructure development and the upgrading of its confidence levels of these resources in order to progress future mine development and production. To this end Bandanna is exposed to three, quite independent, infrastructure scenarios making it unique amongst the Queensland-based thermal coal players.

Firstly, Bandanna is the only ASX-listed company with a project interest in the Galilee Basin to have completed a Concept Study and moved to Pre-Feasibility Study (PFS) status. With estimates that the Basin could provide enormous resources for many decades and major developments proposed immediately to the north of our South Galilee Project by Hancock Prospecting and Waratah/Resource House, the Galilee Basin is destined to become a new globally-significant source of thermal coal.

Secondly, and through its shareholding in the Wiggins Island Coal Export Terminal (WICET), Bandanna submitted an Expression of Interest for allocation of coal in the Stage 1 expansion of the Gladstone port facilities. Bandanna remains one of a number of proponents seeking to obtain an allocation in stage 1 of Wiggins Island Coal Export Terminal development. As currently envisaged first coal shipments are expected to begin in early to mid 2014 and our participation in this project would add a new level of certainty to any timetable to develop our Bowen Basin opportunities.


12

For

per

sona

l use

onl

y

Bandanna has also consolidated on this position through lodging an Expression of Interest for Wiggins Island expansion - Stage 2. Associated below rail access will be prioritised with Queensland Rail subject to the outcome of Stage 1 allocations.

Ultimately all of our Galilee and Bowen basin project developments will depend upon large integrated infrastructure construction, much of which will be beyond the control and timetable of Bandanna. Accordingly, Bandanna has opted to implement as a third strategy: the potential development of Dingo West as a small (500 – 1000 ktpa) open cut satellite pit operation. Located at a site adjacent to the main Blackwater rail corridor, it is an attractive proposition and one Bandanna has prioritised for future exploration and development studies. In this way Bandanna is ensuring, as far as possible, that it is not unduly beholden to any one major infrastructure scenario, or industry stakeholder group, as it moves towards first coal production in the coming years.

Enviromental, Native Title & Cultural HeritageEnvironmental, native title and cultural heritage obligations continue to be given a high priority by the

directors, management, employees and contractors of Bandanna.

There is a strong focus on maintaining all of our operations within the very strict conditions imposed by the relevant authorities with respect to environmental, native title and cultural heritage obligations and to minimise any adverse impact on the communities and stakeholders in the areas in which we operate. During the Reporting Period Bandanna has continued to work constructively with various stakeholder, native title and cultural heritage indigenous groups, for which their genuine co-operation and assistance is greatly appreciated.

Community Relations In addition to our native title and cultural heritage relations, Bandanna is committed to supporting and strengthening good local community relations with all landowners, occupiers and other parties who have interests within, or surrounding, Bandanna’s tenements.

This applies particularly to the Springsure, Emerald, Dingo and Alpha communities where Bandanna plans in future to develop its coal interests. Conducting exploration activities on agricultural and grazing

Coal laboratory testing – drop shatter

13

For

per

sona

l use

onl

y

undertaken several improvements during the Reporting Period aimed at minimising health and safety risks. During the Reporting Period there were no significant reportable events or days lost due to accidents by contractors.

OutlookCoal prices have recovered quite dramatically during the Reporting Period as the world economies, and particularly that of China, rebound following the global financial crisis. Merger and acquisition activity in the Australian coal sector has continued to reduce the number of serious players and as such concentrate investor interest.

Immediately prior to the Federal Government’s announcement of a Resource Super Profits Tax these factors combined to see the Company’s share price reach new heights. Whilst the proposed substituted Mineral Resource Rent Tax appears to be less onerous, a period of fiscal stability coupled with delivery of detailed workings of the MRRT will be required before we are likely to see a renewal of sustained investor support in the coal sector generally.

Nevertheless, the fundamentals look good. The ongoing development of our South Galilee Project, together with those of the nearby Hancock and Waratah/Resource House projects, will continue to fuel a groundswell of interest in our Galilee Basin assets. Exploration and study of development scenarios for the Golden Triangle and Dingo West projects provide independent strategies for achieving our goal of becoming a substantial coal producer. Future activities will continue to focus on maturing these projects.

Our agreement with SAMTAN has given Bandanna access to significant cash, which coupled with funding by AMCI in the South Galilee Project, sees the Company very favourably placed to continue current high levels of exploration and maintain our high equity interests in our projects as we move into the next financial year.

Dr Ray Shaw Managing Director

properties is becoming both more contentious and sensitive. During the Reporting Period the Company has reviewed protocols for its own, third-party, and contractor activities and now has in place strict guidelines aimed at minimising their impacts. As part of strengthening our community relationships, Bandanna appointed Mr Trevor Hamilton as a full-time field liaison officer in early 2010. Based in Emerald, Mr Hamilton has a strong background in the resources industry and close connections with rural and agricultural pursuits.

Bandanna, itself as an important stakeholder in the community, has adopted a policy of engaging local workforce, suppliers and contractors and it has participated through sponsorship in a number of local community events, including the Alpha Show and Emerald Rodeo.

Health & SafetyBandanna has a strong commitment to ensuring that its employees and contractors adhere to, and are observant of, the health and safety issues, especially given the significant level of field exploration activites.

The Company continues to monitor, revise and upgrade its health and safety management systems and has


14

For

per

sona

l use

onl

y

6,630km2

total coal exploration acreage

Operations Review

Drilling at Arcturus

1515

For

per

sona

l use

onl

y

Bandanna Energy Coal Portfolio

Tenement No. Tenement Name Location Interest

EPC 1048 South Galilee – Tahi Galilee Basin, Queensland 100(1)

EPC 1049 South Galilee – Rua Galilee Basin, Queensland 100(1)

EPC 1179 South Galilee – Toru Galilee Basin, Queensland 100(1)

EPC 1180 South Galilee – Wha Galilee Basin, Queensland 100(1)

EPC 1742 Arcadia Bowen Basin, Queensland 100

EPC 1221 Arcturus Bowen Basin, Queensland 100

EPC 1189 Carnarvon Bowen Basin, Queensland 100

EPC 1195 Carnarvon South Bowen Basin, Queensland 100

EPC 1140 Denison Bowen Basin, Queensland 100

EPC 881 Dingo West Bowen Basin, Queensland 100

EPC 1103 Fernlee Bowen Basin, Queensland 100

EPC 1185 Fernlee North Bowen Basin, Queensland 100

EPC 1131 Gemini Bowen Basin, Queensland 100

EPC 891 Springsure Creek Bowen Basin, Queensland 100

EPC 1197 Wanella Bowen Basin, Queensland 100

Despite unseasonal wet weather restricting Bandanna’s effective operational season to approximately seven months, the company significantly increased the overall inventory and confidence levels of its resources by maintaining an active drilling program.

Bandanna participated in the drilling of a total of 11,728 m of coal exploration holes, comprising 63 chip holes and 47 cored holes and advanced various surveys, concept and pre-feasibility studies for potential development scenarios throughout the year.

The bulk of the activity was concentrated on coal exploration in four key projects: South Galilee, Arcturus, Springsure Creek and Dingo West with reconnaissance drilling also undertaken in the Gemini and Fernlee North tenements.

(1) Subject to Farmin by AMCI, which can earn up to 50%

Operations Review


16

For

per

sona

l use

onl

y

Coal Assets

17

For

per

sona

l use

onl

y

Figure 1 - Location Plan for Bandanna Energy Limited EPC Interests


18

For

per

sona

l use

onl

y

The proposed South Galilee Project (SGP) could produce up to 20 Million tonnes per annum (Mtpa) of high volatile, low sulphur thermal coal for export to international markets

The South Galilee Project (Minimum 50 %)The Reporting Period proved to be very significant for the South Galilee Project with the drilling of over 6,700 m of bore holes, commencement of a Pre-Feasibility Study and declaration by the Queensland State Government that the project was one of State Significance.

Formerly referred to as the Alpha Project, the South Galilee Project comprises four EPCs; 1048, 1049, 1179 & 1180. Located to the west of the township of Alpha these tenements cover a combined area of 2,698km2 in the eastern Galilee Basin (Figure 2). The tenements are 100% held by Alpha Coal Pty Ltd, a wholly owned subsidiary of Bandanna Energy Limited however, and under the terms of a farmin agreement, AMCI will earn up to 50% interest from Bandanna by spending up to $25 million. As the operator and farminee, AMCI is currently funding all exploration activity for the South Galilee Project (SGP) under the terms of the Farmin Agreement. On the basis that AMCI proceeds to earn its entire 50% interest by committing to the $25 million expenditure, Bandanna, through its wholly owned subsidiary Alpha Coal Pty Ltd, will retain 50% share of the Project including any delineated JORC compliant resources.

During the Reporting Period AMCI expended approximately $3.34 million on exploration and associated activities, bringing its total expenditure under the farmin to approximately $8.64 million. Operationally this entailed a total of 6772.4m of drilling, comprising 41 chip holes (3679 m) and 31 core holes (3093.4 m).

The South Galilee Project area is located approximately 170 km west of Emerald. The Project lies adjacent to Waratah Coal’s/Resource House’s “China First” Project and south of Hancock Prospecting’s Kevin’s Corner and Alpha projects (refer Figure 2), the respective proponents of both projects being currently involved in the submission of Environmental Impact Statements with a view to fast-tracking development of their respective projects, both targeting first coal production by the end of 2013. Bandanna is the only ASX listed entity with a project interest in this newly emerging, world class, thermal coal province to have completed a Concept Study and moved through to Pre-Feasibility Study (PFS) status.

The Longreach – Rockhampton rail line and Capricorn Highway are conveniently located at the northern-most extent of the South Galilee Project tenements. Exploration within the South Galilee Project has targeted up to six individual coal seams, each lying within the Bandanna Formation. The geological setting is benign; there is minimal faulting and the coal sequences gently dip to the west across the the easterly shallowing flank of the Galilee Basin. The principal targets are the “D1” and “D2” seams. The coal is bituminous and would yield a thermal product.

The D1 and D2 seams lie at depths consistent with potential for commercial exploitation by both shallow open-cut and underground operations. A Concept Study was undertaken during 2009 and results from that indicated a potential mine life of some 43 years with an annual ROM production rate of between 15 and 20 Mt. The initial mine development envisages a five pit open-cut mine for the first 20 years, focusing on the D1 and D2

19

For

per

sona

l use

onl

y

seams, followed by two long wall underground units for the remainder of the mine life, focusing on the D2 seam.

Preliminary coal quality work suggests product ash content averages around 14% but spikes at 18% in Yr 15 before declining gradually to 10%. Corresponding calorific values commence around 5700 Kcal/kg before increasing to 6250 Kcal/kg at the end of the Project life, reflecting greater contribution from long wall operations where product is only D2. During the Pre-Feasibility Stage (PFS) further studies will be made on beneficiation of coal output, including washability.

A prolonged wet season delayed commencement of field activities associated with the PFS. With a budget of some $8.5 million this study will see the drilling of a further 15,000 metres mainly focusing on the area of the 982Mt JORC compliant Resource within EPC 1049

which had been previously announced to the ASX in June 2009. In addition to drilling, analytical (coal quality) work, environmental monitoring, mine planning and infrastructure studies will be undertaken as part of the PFS which will be completed during the first half of 2011.

MB Mining has been contracted to undertake open cut and underground studies of a number of mining scenarios and to provide details on equipment, capital and operating costs as part of a detailed mining method analysis. Aurecon Hatch has been appointed as contractor to work through site infrastructure requirements and complete the overall PFS. Coal quality and processing requirements will be undertaking by A & B Mylec Pty Ltd. Matrixplus is undertaking the environmental studies as part of an Environmental Impact Statement.

Figure 2: South Galilee Basin Project


20

For

per

sona

l use

onl

y

The announcement by the Queensland Government that the South Galilee Project is one of State Significance follows the submission in March 2010 of an Initial Advice Statement to the Queensland Department of Infrastructure and Planning for determination of the approval route. In addition, during the Reporting Period, the Commonwealth Government determined that the South Galilee Project will be a controlled action requiring approval under the Environmental Protection and Biodiversity Conservation (EPBC) Act, consistent with other projects in the Galilee Basin.

Waratah has proposed to develop a US$5.15 billion, 40Mtpa mine based on coal resources, located just to the north of the South Galilee Project (Figure 2) in conjunction with Metallurgical Corporation of China Ltd (MCC). Hancock proposes a 490km standard gauge heavy-haul railway line to an export terminal at Abbot Point. Coupled with significant resources announced by Hancock in their tenements to the north of Waratah’s, and the recent Linc Adani deal, the introduction of major international end-users should provide a major impetus for Galilee Basin development. This region could be the next major globally significant thermal coal province.

AMCI and Bandanna are progressing studies into how to develop this resource given its potentially massive scale. In this regard, the Queensland Minister for Infrastructure and Planning wrote to the South Galilee Joint Venture and other stakeholders in September 2009 expressing the Queensland Government’s intentions that key infrastructure development (rail, port, water pipelines and electricity transmission) “be developed in a manner which optimises potential access and utility for all future users”. In this regard the Government has set aside $800 million for the development of the Conners River dam and for a large diameter pipeline to provide water to Moranbah and then to the Galilee Basin through Sunwater, as part of its commitment to assist in infrastructure development. AMCI and Bandanna are participants in this development.

The Government favours a private consortium approach for the construction of rail and of new coal port facilities at Abbot Point. This is consistent with a decision by the North Queensland Bulk Port Corporation in April 2010 to award both BHP and Hancock preferred developer status for two new coal terminals at Abbot Point. The South Galilee Project Joint Venture has, and will continue to, monitor and participate in various stakeholder negotiations concerning future regional infrastructure planning and development of the Galilee Basin coal resources at a level commensurate with its status as a significant stakeholder.

Dingo West Project (EPC 881) Dingo West is 100% owned and operated by Bandanna through the fully-owned subsidiary Dingo West Coal Pty Ltd. EPC 881 was acquired by Dingo West Coal Pty Ltd on 21 October 2004. During the Reporting Period this tenement was renewed for an additional four year period.

Dingo West is located west of the township of Dingo where it occupies a convenient position close to key infrastructure; the main Blackwater-Gladstone rail line and Capricorn Highway traversing the northern part of the lease. By rail, Gladstone Port is connected to the tenement approximately 200 km to the east. Strategically, a mine at Dingo West would be approximately 60 km closer to this port facility than any existing operating mines situated along the Blackwater rail corridor.

Dingo West Project has been an operational focus for exploration activity during the Reporting Period with 1112 metres of further drilling undertaken, comprising eight drill holes including four cored holes, together with the acquisition of 53 km of 2D seismic data.

Seismic survey at Dingo West

21

For

per

sona

l use

onl

y

The primary exploration target is the Rangal Coal Measures and in particular the Aries, Castor, Pollux, Orion and Pisces seams. Structurally, the region is extensively faulted and folded making it difficult to delineate and correlate individual coal seams over significant distances, using borehole data alone. The coal quality data indicates a potential PCI/thermal product. The ash content varies from 7 - 9% (adb), sulphur <0.6%, volatile matter 13-15% and typically the coal has a good specific energy of 7,135 - 7,350 kcal/kg (GAD Basis). Previously the Company had announced a JORC Code compliant Inferred Resource of 91 Mt within the tenement.

During the Reporting Period the Company completed the acquisition of the Dingo West 2D High Resolution Seismic Survey. This survey was recorded using Envirovibes as the source. The processed seismic data has been used to identify structurally less deformed areas in which shallow occurrences of coal might provide opportunities for open cut production. A long wet season interrupted seismic acquisition just prior to Chrismas 2009 with recording not recommencing again until ground conditions had dried out late April 2010. Proocessing and interpretation of this seismic data

had not been completed by the end of the Reporting Period, however, preliminary results have confirmed the presence of up to three localised areas which may be suitable for future open cut exploitation. It is intended that drilling and ground-truthing of the seismic interpretation will be undertaken during the third quarter of 2010.

At this stage it is anticipated that any development of Dingo West would involve open-cut mining of one or more of these areas as satellite pits. Modelling of various mine development scenarios involving third-party toll washing of run-of-mine (ROM) coal and/or the production of raw (unwashed) coal are all potential options, which could see development fast-tracked on a two to three year timetable.

Output of the order of 500,000 to 1,000,000 tonnes per annum is estimated. This quantum provides for some degree of flexibility in seeking port and rail allocations, which coupled with the attractive positioning of any proposed mine site near the existing Blackwater rail corridor, has led Bandanna to prioritise the progress of its studies into a Prefeasibility stage at the earliest possible time.


22

For

per

sona

l use

onl

y

Roof core - Arcadia23

For

per

sona

l use

onl

y

Collectively the three Projects of the Golden Triangle have the potential to produce in excess of 20 Mtpa of thermal coal product.

The “GOLDEN TRIANGLE” Projects – Arcturus, Springsure Creek & ArcadiaThe Golden Triangle is identified as a potential “multi-project” precinct in that it comprises three major potential thermal coal projects (Arcturus, Springsure Creek and Arcadia) clustered in a highly prospective portion of the Bowen Basin situated between the townships of Emerald, Springsure and Rolleston.

All three projects would lie within 50 km of each other and so offer synergistic development potential through the sharing of infrastructure including coal handling, washing, power, water, rail, and accommodation as well as scope for enhancing value through blending of coal products from individual mines to meet specific end-user requirements. Collectively the three projects of the Golden Triangle have the potential to produce in excess of 20 Mtpa of thermal coal product.

ARCTURUS – EPC 1221 Arcturus is 100% owned and operated by Bandanna through the wholly owned subsidiary Springsure Creek Coal Pty Ltd. Arcturus was one of the main areas of focus for Bandanna’s exploration activity during the Reporting Period with a total of 2,973 m of drilling completed. This drilling included 27 holes in which 11 were cored holes. Raw coal quality and washability analyses have been undertaken on many of the cored holes.

The current exploration program is designed to increase confidence for a thermal resource which may be suitable for mining by open cut or underground methods. Exploration activity has been centred on the southeastern portion of EPC 1221— across the flanks of the north plunging Arcturus Anticline. The target coals are the Aries, Castor, Pollux and Orion seams, which can be correlated to the Rangal Coal Measure seams mined

at BMA’s Blackwater Mine located to the north east. Data indicates that these coals include seams with low sulphur, moderate ash and moderate calorific values. The primary target is the Pollux Seam.

As announced to the ASX on 7 August 2009 a Concept Study was commenced. Field operations associated with this Study were retarded as a result of a significant period of unseasonal wet weather with consequent flooding. In addition concerns by members of the local community restricted access onto some agricultural lands at various times.

Total JORC compliant resources now stand at 154 Mt, consisting of 99 Mt of Inferred and 55 Mt of Indicated Resources. Exploration is on-going and further infill drilling, currently underway, is expected to result in changes to these resource figures.

The Arcturus Project is strategically located with respect to existing infrastructure, for example the Springsure rail corridor (servicing the Minerva Mine) is located to the west and the Rolleston rail corridor (servicing Xstrata’s Rolleston Mine) is located to the east of the tenement. The Project has the potential for development of a shallow open-cut and/or underground thermal coal mine to produce between 3-5 Mtpa of thermal lower calorific bituminous product coal.

SPRINGSURE CREEK – EPC 891 Springsure Creek is 100% held by Springsure Creek Coal Pty Ltd, a wholly owned subsidiary of Bandanna.

The Springsure Creek Project covers an area of 462 km2 some 40 km south of Emerald and 60 km southwest of Blackwater in the “Golden Triangle”. To the west it abuts the Arcturus Project. As such, it too is conveniently located with respect to existing infrastructure, being bound by the Springsure rail corridor (servicing the Minerva mine) located to the west, and Rolleston rail corridor (servicing the Xstrata


24

For

per

sona

l use

onl

y

mine) located to the east. The principal target is the Aries 2 seam which occurs within the tenement at shallow depths along a number of anticlines; the Turkey Creek, Springton, Memoolloo and Arcturus.

The current exploration program is concentrated along the larger Springton Anticline, a north-south trending anticline with a broad (6-8 km wide) crest upon which coals occur at depths of around 200 m. The thickness of the principal target, the Aries 2 Seam, averages approximately 3 m. Exploration drilling suggests that the Springton Anticline is structurally benign with lateral coal continuity favouring potential long wall development. On 25 March 2010 the Company announced to the ASX the presence of a large Exploration Target involving the Aries 2 Seam, ranging between 417 Mt and 600 Mt and a JORC compliant Resource totaling 304.7 million tonnes; comprising 270 Mt of Inferred Resource and 34.7 Mt of Indicated Resource. Limited coal quality information suggests that coal ash content (<10%), inherent moisture of 8% (adb), sulphur content of <0.3% and a calorific values of 6650 kcal/kg (GAD basis) could result in the coal being sold as raw thermal product, with no requirement for wash beneficiation.

The Springsure Creek tenement remains one of the Company’s key focus areas and exploration will continue during the 2011 financial year as part of a Concept Study assessment of the Springsure Creek Project and possible dual development in conjunction with any future development of Arcturus. As with other tenements, exploration activities during the Reporting Period were hampered by unseasonal wet weather and flooding. Consequently only four core holes were drilled for a total of 528 m. An additional 32 cored holes are planned for this tenement and will be completed before the end of 2010. Conceptually, Springsure Creek may prove to have a resource capable of supporting development of an underground operation involving up to two longwalls, with a combined production of 8 to 9 Mtpa of low-ash raw thermal coal.

ARCADIA – EPC 1742 EPC 1742 is located 4 km south of the township of Rolleston, and is bound to the north by the Dawson Highway. The Arcadia Project area is conveniently located 19 km from the Rolleston-Blackwater rail line.

Originally the area was held under two tenements, EPC 892 and EPC 1204, by Arcadia Coal Pty Ltd a wholly owned subsidiary of Bandanna. However, on 5 November 2009, and as part of a rationalisation of the area, Arcadia Coal Pty Ltd was granted permission to combine the two EPCs into one tenement, EPC 1742. Arcadia Coal Pty Ltd now holds a 100% interest in EPC 1742.

Known as the Arcadia Project, it represents another potential underground project within the Golden

Casing activities at Dingo West

25

For

per

sona

l use

onl

y

Triangle precinct. Most of the exploration has been focused on the Purbrook Anticline where the target Aries 2 seam occurs at depths as shallow as 210 m. The Purbrook Anticline is one of two major anticlines identified within the tenement. The Company believes that shallow underground development potential exists within the areas proximal to the crest of the north-west trending Rolleston and Purbrook anticlines. Penetrated thicknesses range from 1.35 m to 4 m and average 2.5 m.

Previous drilling has also enabled a JORC compliant Inferred Resource of 273 Mt to be delineated. Using exploration data as a basis, Bandanna commissioned a Concept Study for Arcadia to investigate the technical feasibility of underground longwall mining. The study concluded that long wall mine development of the

Purbrook Anticline is possible, and indeed the deposit may support a second longwall unit.

Bandanna’s vision for the Arcadia Project initially is to develop an underground operation producing at least 8 to 9 Mtpa of high quality thermal coal from at least two operating longwalls beneath the Purbrook Anticline.

Although no new field work was conducted during the Reporting Period, previous drilling has indicated that the raw coal beneath the Purbrook Anticline has an inherent moisture content of approximately 4.7%, ash content of 14%, sulphur content of 0.33% and a calorific value of approximately 6440 kcal/kg. Coal quality testing implies potential for a washed semi-coking product as well as excellent thermal coal.


26

For

per

sona

l use

onl

y

EPC 1103 - Fernlee The tenement EPC 1103 was granted 100% to Fernlee Coal Pty Ltd, a wholly owned subsidiary of Bandanna, on 30 January 2007. It is considered that open cut development potential may exist within the areas proximal to the throw of the Merivale Fault, and on the eastern limb of the Springsure Anticline, which both traverse the tenement.

During the Reporting Period, Fernlee Coal Pty Ltd completed six bore holes, including two water bores, totaling 772 m of drilling. Two coal seams were intersected in one of the drilled holes. Bandanna is currently reviewing the drilling data prior to planning further exploration.

EPC 1185 - Fernlee North Lying immediately to the north of the Fernlee tenement, EPC 1185 was granted 100% to Fernlee Coal Pty, a wholly owned subsidiary of Bandanna, on 23 January 2008. The Fernlee North tenement is considered to offer scope for potential open cut development within those areas proximal to the throw of the Merivale Fault, and potentially, on the eastern limb of the Springsure Anticline where it projects northward from the adjoining Springsure Project area.

No field work was conducted during the Reporting Period. Bandanna is currently reviewing previous drilling data together with that from Fernlee prior to planning further exploration.

Other Projects

EPC 1197 indicates a high potential for a hard coking coal and/or PCI coals

27

For

per

sona

l use

onl

y

NUMBER NAME TARGET % INTEREST HELD EVENTS

EPCA 1452 Coolibah Coal Coal 100% Competing Application made 1 July 2008. Application is still pending.

EPCA 1439 Comet Coal Coal 100% Competing Application submitted 1 July 2008. Still pending.

EPC 1742 Arcadia Coal 100%Application submitted 29 April 2009 with proposal to combine EPC892 with EPC1204 into one tenement. Granted 5 November 2009.

EPC 1131 – Gemini EPC 1131 Gemini was granted 100% to Springsure Creek Coal Pty Ltd, a wholly owned subsidiary of Bandanna, on 19 June 2007. The southern boundary of the tenement is located 12 km north of the township of Rolleston. It is considered that underground development potential may exist.

During the Reporting Period, one cored hole and a single water bore involving a total of approximately 683 m of drilling were completed. Several seams were intersected in the core hole and Bandanna is currently reviewing the drilling data prior to planning further exploration.

EPC 1140 – Denison EPC 1140 Denison was granted 100% to Springsure Creek Coal Pty Ltd, a wholly owned subsidiary of Bandanna, on 7 August 2007. The tenement is located approximately 17 km south-southeast of Emerald. This location, coupled with the presence of the Springsure rail line only 4 km to the west of the tenement, makes it ideally suited from an infrastructure viewpoint.

No field exploration occurred during the Reporting Period, however, and following drilling during the last financial year, a further program to investigate that potential is being considered.

EPC 1189 - Carnarvon & EPC 1195 - Carnarvon SouthThe Carnarvon Project area comprises two tenements. EPC 1189 (Carnarvon) was granted on 27 April 2009 and EPC 1195 (Carnarvon South) was granted on 19 January 2009. Both tenements are held 100% by Carnarvon Coal Pty Ltd, a wholly owned subsidiary of Bandanna.

Whilst located in a relatively remote, frontier, area both tenements are considered, on regional grounds, to have potential for the presence of coal seams of the Bandanna Formation at depths which may be compatible for shallow underground mine operations. Additionally, there may be potential within these areas for a coal liquefaction resource from overlying Jurassic coals or lignite.

A field program of geological mapping was scheduled to be undertaken during the Reporting Period. However, this had to be postponed due to the unseasonal wet weather and local flooding from December through to late April. In the interim desktop studies and data compilation, including compilation of a significant amount of 1970 and 1980 vintage petroleum seismic data, will continue. The purpose of the proposed field mapping is to obtain any available geological data as an aid to the planning of drill site locations, which is scheduled to be undertaken during the next Reporting Period.

EPC 1197 – WanellaEPC 1197 Wanella was granted on 7 February 2008 100% to Waitara Coal Pty Ltd, a wholly owned subsidiary of Bandanna. The principal exploration target within the tenement is the late Permian aged Leichhardt Seam, within the Rangal Coal Measures (Blackwater Group).

This seam is extensively mined in nearby areas and has been penetrated in boreholes adjacent to the tenement. Existing coal analyses from surrounding areas indicates a high potential for a hard coking coal and/or PCI coals to be found at depths between 360 and 825 m.

During the Reporting Period and following field mapping, three bore hole locations were selected and Cultural Heritage clearances conducted. It is anticipated that drilling of Wanella will be undertaken during the second half of 2010.

Summary of Coal Tenement Changes


28

For

per

sona

l use

onl

y

Oil Shale Tenements

Bandanna, through its various subsidiaries, holds 100% interest in a number of oil shale and mineral tenements all located in Queensland.

During the Reporting Period the Company has not completed any on-site activities in any of its oil shale tenements following the announcement by the Premier of Queensland of a policy decision to effectively suspend the development of an oil shale industry in Queensland for at least two years pending further thorough investigation of such an industry’s economic, environmental and social impacts. In addition to this policy, a decision was also made to suspend the exploration and development over the McFarlane oil shale resource near Proserpine for at least 20 years. This decision was extended to Bandanna Oil Shale’s EPM16668.

Bandanna maintains the view that it would be irresponsible of the Company to spend shareholders funds in these tenements, where commercialisation is now barred, until a Government review is completed and the forward situation clarified.

EPM 16553 (Mt Bison) was granted on 14 January 2008. Application was made to allow for investigation of the potential for economic quantities of oil shale within the Styx Basin. This tenement has been renewed for a further two year period during this Reporting Period.

EPM 16666 (Toolabuc) was granted on 22 October 2008. The tenement is situated on prospective Mesozoic to Tertiary sediments of the northern Eromanga Basin with a Quaternary basalt plateau towards the northern portion of the EPM.

EPM 16668 (North Proserpine) was granted on 14 January 2008. The tenement was applied for to investigate the potential of the Hillsborough Basin for economic extraction of oil shale. This tenement has been renewed for a further two year period during this Reporting Period.

EPM 16667 (South Duaringa) was granted on 15 January 2008. The tenement was applied for to investigate the potential for oil shale production in

Figure 3 - Location Plan for Bandanna Oil Shale and Mineral Tenements

this part of the Duaringa Basin. This tenement, which covers more than 10% of the Duaringa Basin, has been renewed for a further two year period during this Reporting Period.

EPM 17567 (Plevna) was granted 16 June 2010. Plevna is situated 18 km south of Eungella (north-west of Mackay), where the target is oil shale.

29

For

per

sona

l use

onl

y

NUMBER NAME TARGET % INTEREST HELD EVENTS

EPM 16553 Mt Bison Oil Shale 100% 2 year renewal granted

EPM 16668 Nth Proserpine Oil Shale 100% 2 year renewal granted

EPM 16667 South Duaringa Oil Shale 100% 2 year renewal granted

EPM 17567 Plevna Oil Shale 100% Granted for a 2 year period

Summary of Oil Shale and Mineral Tenement Changes Bandanna Energy Limited Annual Report 2010

30

For

per

sona

l use

onl

y

Through its subsidiaries, Bandanna holds 100% interests in a number of Queensland oil shale and mineral tenements

Minerals Tenements

Bandanna, holds a number of mineral tenements for the purposes of pursuing bentonite exploration. Bentonite is an absorbent aluminium phyllosilicate clay usually formed by the weathering of volcanic ash.

It generally occurs as either a sodium or calcium rich variety and is used in a wide range of applications from absorbent materials (e.g. oil spill kits), agricultural purposes to cosmetics. Its occurrence has been largely identified by Bandanna in conjunction with field activities associated with coal exploration.

EPM 17568 (Planet Creek) was granted on 9 February 2009. The tenement was applied for to target shallow occurrences of bentonite.

An initial field sampling and testing program has been conducted, with some encouraging results. A more comprehensive program of exploration is being considered for the coming year.

EPM 17932 (Planet Creek 2) was granted on 20 July 2009. This tenement was applied for to target shallow bentonite deposits. No field work was conducted during the reporting period, however a program of exploration is being considered for the coming year.

31

For

per

sona

l use

onl

y

Insitu Gasification Projects

During the Reporting Period Bandanna submitted an Expression of Interest to the Queensland Government for Insitu Gasification Projects.

These areas correspond to Bandanna’s coal tenements where there is no tenure for petroleum. The intention of these expressions of interest is to preserve Bandanna’s flexibility in being able to fully exploit its interests under its existing EPCs. Expressions of interest closed in February 2010.

Figure 4 - Location Plan for Bandanna Insitu Gasification Projects


32

For

per

sona

l use

onl

y

With some 1,300 million tonnes of JORC compliant resource Bandanna is now increasingly focused on developing its infrastructure access in order to commercialise these vast coal assets.

As virtually any future coal production by Bandanna will be destined for overseas markets key access to export ports is vital if Bandanna is to achieve any significant level of coal production. Our current portfolio of coal assets lends itself to two principal export port destinations; Gladstone Port for the Bowen Basin “Golden Triangle” projects and Abbot Point for the South Galilee Project.

With respect to Abbot Point each of the major Galilee Basin proponents (Hancock, Waratah/Resource House and AMCI/Bandanna) have agreed that Abbot Point is the preferred location to export future coal products. Currently there are no producing coal mines

in the Galilee Basin nor is there any Galilee Basin rail connection to Abbot Point. However, and importantly, both Hancock prospecting and Waratah/Resource House have indicated their preference to see an approximate 500 km heavy duty standard gauge rail corridor constructed to Abbot Point.

The Queensland Government is keen to see a “whole of basin” approach to the development of infrastructure necessary for the development of the Galilee Basin. This includes rail, port, power and water usage. In this regard the Queensland Minister for Infrastructure and Planning in September 2009 wrote to the South Galilee Joint Venture, and other stakeholders, expressing the Queensland Government’s intentions that key infrastructure development “be developed in a manner which optimises potential access and utility for all future users”.

Infrastructure

33

For

per

sona

l use

onl

y

The Queensland Government has set aside $800 million for the development of the Conners River dam and for a large diameter pipeline to provide water to Moranbah and then to the Galilee Basin through Sunwater, as part of its commitment to assist in infrastructure development. AMCI and Bandanna are participants in this development.

The Government favours a private consortium approach for the construction of rail and of new coal port facilities at Abbot Point. This is consistent with a decision by the North Queensland Bulk Port Corporation in April 2010 to award both BHP and Hancock preferred developer status for two new coal terminals at Abbot Point.

The South Galilee Joint Venture has, and will continue to, monitor and participate in various stakeholder negotiations concerning future regional infrastructure planning and development of the Galilee Basin coal resources at a level commensurate with its status as a significant stakeholder. The Joint Venture views the development of key regional infrastructure and third party access as vital to the future development of the South Galilee Project.

With respect to Bandanna’s development of its Golden Triangle and Dingo West projects, access to the export coal terminal facilities at Gladstone is equally vital. Bandanna is a shareholder in the Wiggins Island Coal Export Terminal (WICET) which together with 16 other stakeholders is an industry lead consortium spearheading the expansion of the existing 70 Mtpa export capacity of the Gladstone Port. In conjunction with the Gladstone Port Authority (GPA) and Queensland Government Expressions of Interest were invited during the Reporting Period for coal export allocations as part of the first stage of the proposed WICET expansion – a nominal 25 Mtpa expansion. This expansion was expected to see the first export coal delivered by mid 2013.

Bandanna has submitted an Expression of Interest and as of 30 June 2010 no final decisions had been made by WICET confirming the Stage 1 proponents. However, given the strong industry demand, the stakeholders have indicated that Stage 2, comprising a nominal additional 30 Mtpa capacity, will be fast-tracked. Expressions of interest were called for in July 2010. Bandanna has submitted its Expression of Interest for Stage 2.

At this point, first coal shipments from Stage 1 are now likely in early to mid 2014. Successful proponents to Stage 1 will be required to sign 10 year “take or pay” agreements and provide a bank guarantee for one year’s charges under the take or pay agreement. Companies, which currently only hold EPC’s at the date of signing the take or pay agreement, rather than a mining lease, will be required to provide their bank guarantee at financial close which is expected by the end of April 2011.

Bandanna remains one of a number of proponents seeking to obtain an allocation in stage 1 of Wiggins Island Coal Export Terminal development. As currently envisaged first coal shipments are expected to begin in early to mid 2014 and our participation in this project would add a new level of certainty to any timetable to develop our Bowen Basin opportunities. Bandanna hopes to consolidate on this position through participating in Wiggins Island expansion - Stage 2.

In April 2010, Bandanna submitted a Request for Information (RFI) to QR Network Pty Ltd for the required below rail capacity to support the company’s expression of interest for port allocation in WICET. Bandanna will continue to prioritise below rail access negotiations with QR Network and work with above rail providers subject to the outcome of WICET Stage 1 allocations.

The Queensland Government is keen to see a ‘whole of basin’ approach to the development of Infrastructure necessary for the development of the Galilee Basin


34

For

per

sona

l use

onl

y

Oil and Gas Activities

During the Reporting Period Bandanna Energy Limited’s conventional oil and gas activities were undertaken by its 100% wholly owned subsidiary Traditional Oil Exploration Pty Ltd (“Traditional”).

Highlights

› Retention Licences applied for over the Udacha gas/condensate discovery

› Successful completion of an aerial P-TEM reconnaissance geophysical survey over portions of PEL 88, ATP 539P and ATP 549P West

› Field activities in PEL 88 and PEL 100 hampered due to an extended period of flooding

LICENCE INTEREST BASIN STATE

PEL 88 50% Cooper SA

PEL 100 5% Cooper SA

PEL 106 (Smegsy) 25%(1) Cooper SA

PEL 106 (Rossco) 12.5% (1) Cooper SA

PEL 106 (Udacha) 12.5% (4) Cooper SA

PEL 106 (Paprika) 12.5% (1) Cooper SA

ATP 539P 50% (3) Cooper QLD

ATP 549 41.66% Cooper QLD

PL 18 10%(2) Surat QLD

“(1)” Interest in this licence is subject to the issuance of a Petroleum Production Licence.

“(2)” Under the terms of the relevant Farmin Agreement, Traditional has now earned 10% interest in this licence, but excluding the areas of known oil fields.

“(3)” Under the terms of the relevant Farmin Agreement, Traditional is earning a 50% interest in this permit.

“(4)” Applications for two Retention Licences covering the Udacha Block have been lodged with the Primary Industries and Resources, South Australia on behalf of the Joint Venture by the Operator Beach Petroleum Limited.

The petroleum asset portfolio at the end of the Reporting Period is as follows: -

During the Reporting Period there was no production of hydrocarbons following the suspension of production from Cleansweep-1 as of 1 July 2009 following a cash flow neutral position being reached. There was no oil production from the Yellowbank Creek-4 well in PL18, which has been shut-in since March 2006. The Smegsy-1, Paprika-1 Rossco-1 or Udacha-1 gas and condensate discoveries remain cased and suspended, although two Retention Licences were applied for over the Udacha Block.

Traditional participated in and operated a 500 km Passive-Transient Electromagnetic (P-TEM) aerial reconnaissance geophysical survey over portions of PEL 88, ATP 539P and ATP 549P West as a “proof-of-concept” trial.

At the end of the Reporting Period the Company held, or was earning, interests in nine conventional oil and gas permits/blocks located either in the Cooper Basin or the Surat Basin.

35

For

per

sona

l use

onl

y

Following a review of its conventional oil and gas interests during the reporting period, Bandanna decided to rationalise these interests in view of their non-core value.

As outlined in the Subsequent Events section, Traditional has agreed to sell its interests in blocks in PEL106 to Drillsearch Energy Limited (Drillsearch) for fully paid ordinary shares in Drillsearch to the value of $1,300,001. Traditional has executed a Letter Agreement with Victoria Petroleum N.L (Victoria Petroleum) for the sale of Traditional’s interests in PEL100 and PEL88 for fully paid ordinary shares in Victoria Petroleum to the value of $500,000.

ATP 539P, Cooper Basin, Queensland (Earning 50%)Traditional as operator of the P-TEM survey acquired approximately 130 line kilometers of data within ATP 539P as part of a proof-of-concept trial to determine if this technology could be used as an exploration aid. In essence the technology is claimed to identify potential electromagnetic fields associated with petroleum accumulations. The technique has been moderately successful in other geological settings and the intention was to ascertain whether the likely combination of geology and anticipated petroleum migration pathways and accumulation distribution might be amenable to this type of technology. The survey was focused on the Curalle Anticline where Traditional and Great Artesian Oil and Gas Pty Ltd (Great Artesian) drilled the Planet Downs-1 well in early 2009. Despite encouraging oil shows in the Murta, Westbourne, basal-Birkhead Formations and Hutton Sandstone, the well was plugged and abandoned.

Several P-TEM survey lines were also flown over existing, known, oil fields in order to provide suitable benchmarks. Interpretation and evaluation of the results are on-going but preliminary findings provide encouragement. It is likely that the technique may provide another aid to highgrading structural trends for future exploration. The method is not intended as a substitute for any other conventional exploration methodologies, particularly seismic imaging.

Traditional is still awaiting the Queensland Department of Mines and Energy to finalise the renewal of ATP 539P. Under the terms of the Farmin Agreement with Great Artesian, Traditional will contribute 50% of the cost of at least one further exploration well, or an equivalent amount of seismic, in order to earn a 50% participating interest in the Permit.

ATP 549P (West), (41.67%).Traditional holds 41.66% interest in this Block which is operated by Icon Energy Limited. During the recent P-TEM survey 105 line kilometres were flown across portions of ATP 549P (West). Similar results to those described for ATP 539P above were obtained.

The petroleum plays in the ATP 549 (West) Block are similar to those perceived to be pertinent in the adjacent ATP 539 as well as more basinward, gas-prone, plays such as those associated leads on the MacKillop Anticline.

The recent P-TEM survey was designed to provide coverage across a number of structural faulted highs and other structural trends which had been previously identified by seismic imaging and which might play a role in controlling migration and the accumulation of hydrocarbons within the Block.

Renewal of this permit is still awaiting finalisation from the Queensland Department of Mines and Energy and it is subject to a reduction in area.

PEL 100, Cooper Basin, SA (5%)During the Reporting Period production from the Cleansweep-1 well remained suspended and the operator Stuart Petroleum has applied for a Retention Licence over the field in order to preserve any long term residual value.

PEL 100 covers an area of 296 km2 and is located on the Deramookoo Shelf, adjacent to the Patchawarra Trough in the northeastern portion of South Australian Cooper Basin. The Permit lies adjacent to numerous oil and gas discoveries, including Cuttapirrie, Telopea, Keleary and Tarragon. The Cleansweep-1 structure coincides with a faulted anticline on the edge of the Deramookoo Shelf. Whilst only a small discovery, it does nevertheless highlight the exposure of the southern margin of PEL 100 to migrating oil. Future joint venture activity will concentrate along this southern margin trend. The Permit is operated by Stuart Petroleum and is in the third year of a five year renewal, after which time it must be relinquished. Accordingly, the Joint Venture is proposing a significant 3D seismic campaign in the coming year in order to identify other possible structures which might be associated with the accumulation of commercial quantities of hydrocarbons. In particular, there is growing evidence from other western Cooper Basin margin permits that the Birkhead Formation may contain stratigraphic oil accumulations associated with channel sand developments.


36

For

per

sona

l use

onl

y

During the Reporting Period much of the PEL was inundated by flood waters from the Cooper Creek. As a result the Joint Venture sought, and was granted a suspension of its work commitments, until it was able to recommence field activities. Traditional holds a 5% participating interest in this PEL.

PEL 88, Cooper Basin, SA (50%)Traditional holds a 50% interest in PEL 88 which covers an area of approximately 3,315 km2 in the northeastern corner of the South Australian Cooper Basin. During the Reporting Period Traditional acquired 325 line kilometers of P-TEM data over portions of the permit. The P-TEM survey comprised a number of dip oriented lines designed to highlight any potential anomalies which may be associated with subtle structuring which is evident across the deeper eastern portion of the PEL, especially in the James Oil Field region. As with the play concept strategy in PEL 100 the exploration focus is now on attempting to delineate areas which may have favourable Birkhead Formation channel development with associated stratigraphic trapping potential. Similar results to those described for ATP 539P above were obtained. Discussions with the operator, Victoria Petroleum, are underway in regards to the forward program for this Permit.

During the Reporting Period much of the PEL was inundated by flood waters from the Cooper Creek. As a result the Joint Venture sought, and was granted a suspension of its work commitments until it was able to recommence field activities. Traditional holds a 50% participating interest in this PEL.

PEL-106 Cooper Basin, SA (Smegsy Block - earning 25%), Rossco, Udacha and Paprika (each earning 12.5%)Traditional will earn a 25% interest in the Smegsy Farmin Block, subject to a commercial discovery and granting of a Production Licence. Smegsy-1 is one of a number of small gas fields and wells which produced gas from the Patchawarra Formation. Its initial production rate was approximately 6 million cubic feet per day. Following completion and the construction of a tie-in pipeline connection to adjacent South Australian Cooper Basin Producer’s (SACBP)

Drilling operations at Planet Downs-1 well37

For

per

sona

l use

onl

y

gas pipeline infrastructure, production unexpectedly declined rapidly, due to the incursion of formation water. Subsequently, and following the shut-in of the well Drillsearch, as the operator of the Smegsy Block Joint Venture, commissioned an engineering review of possible commercialisation scenarios. One of these involves aggregating the production from Smegsy with a number of other currently shut-in or potential similar sized gas accumulations (including Rossco, Paprika and Udacha) located in and adjacent to PEL 106, via a low-pressure gas gathering system.

Progress on these developments is intrinsically linked to negotiation of gas sales agreements by participants in surrounding fields and or discoveries, including other discoveries in PEL 106 which Traditional does not participate. At this stage these negotiations have been progressing slowly although subsequent discoveries and recent very strong flow rates from cased hole production tests in other portions of PEL 106 have added impetus to gas sales agreements being concluded in a shorter time frame than previously anticipated.

Rossco-1 was drilled in September 2005. The well is located 7 km northeast of Smegsy-1 and 6 km north of the Jack Lake gas field in a portion of PEL 106 known as the Rossco Block. The well encountered gas within the Patchawarra Formation and subsequently a Cased Hole Production Test (CHPT) confirmed the presence of gas, although the test was prematurely aborted due to weather conditions. Since then the well has been suspended awaiting a decision on aggregated gas development. Should development take place Bandanna will earn a 12.5% interest in the Rossco Block.

Udacha-1 was spudded on January 11 2006 and reached a total depth of 2728 metres on February 4 2006. One drill stem test (DST) of a middle Patchawarra sand was carried out and it flowed gas at 441,000 cubic feet per day. During September and October 2006, the Udacha-1 well was subject to CHPT. During that test flow rates improved to approximately 1 million cubic feet per day, however, the operator Beach, believes that the rates may increase to 2 million cubic feet per day if the interval were subject to fracture stimulation. Beach Petroleum has announced reserve estimates with a mean of 4.7Bcf in place with 1.8 PJs of sales gas, 7.8 ktonnes of LPG and 50 kbbls of condensate. Traditional will earn a 12.5% interest in the Udacha Block, subject to commercialisation of

this project. The Udacha Block is an unitisation block formed from portions of PEL 106 and 91. Recently the Operator, Beach, recommended that Retention Licences be applied for over the Udacha Block.

Paprika-1, located in the Paprika Block of PEL 106, was drilled in June 2006 and cased and suspended as a potential new field gas discovery. The Operator, Drillsearch, has proposed that the well be subject to further evaluation by CHPT, following the identification of several gas bearing zones, including the zone between 2795-2805m within the Patchawarra Formation.

Since the well was drilled a 3D seismic survey recorded across the Paprika area has confirmed that the well is a valid structural test, adding confidence to the outcome of any future CHPT. Traditional will earn a 12.5% interest subject to the well being declared a commercial discovery.

PL -18 Surat Basin, Queensland (10%, excluding existing oil fields)PL 18 is located in the Bowen/Surat Basin in Queensland where it encompasses the Yellowbank Oil Field. Previously Traditional had participated in the drilling of Yellowbank Creek-4 which, although it produced a small amount of oil (five barrels per day), suffered engineering problems which resulted in production being halted. The Yellowbank Creek-4 well has remained shut-in and produced no oil during the Reporting Period. No field work has been undertaken during the Reporting Period.

Traditional has earned a 10% interest in PL-18, outside of the existing Yellowbank Creek and Thromby Creek Fields and a 50% interest in revenue from Yellowbank Creek-4 (once cost recovery is reached), as a result of its participation in the drilling of that well. At this stage the operator, Brisbane Petroleum, has no plans for exploration outside of the existing oil fields.


38

For

per

sona

l use

onl

y

Competent person’s statement

Statement of complianceThe information compiled in this document from Bandanna Energy Limited, including any relating to coal resources, is based on information compiled by Gordon Saul, who is a member of the Australian Institute of Geoscientists and who is employed by Resolve Geo Pty Ltd.

Gordon Saul has sufficient experience which is relevant to the style of mineralisation and types of deposit under consideration and to the activity he is undertaking to qualify as a Competent Person as defined in the 2004 edition of the “Australasian Code for reporting of Exploration Results, Mineral Resources and Ore Reserves”. Gordon Saul consents to the inclusion in this report of the matters based on his information and in the form and context in which it appears. Resolve Geo Pty Ltd is a shareholder in Bandanna Energy Limited.

With respect to exploration target tonnes, these are conceptual in nature. There is insufficient exploration to define a Mineral Resource across the target area (excluding any existing inferred or indicated resources) and it remains uncertain if further exploration will result in the determination of a Mineral Resource across the whole area.

In the case of the Springsure Creek Project the range of exploration target was determined from bore hole and seismic information within the exploration lease which points to a continuous A2 seam averaging 3.09 metres in thickness, mineable with underground methods, underlying an area of at least 97.8klm2 to 140.8klm2.

In the case of South Galilee (formerly Alpha) Project the range of exploration target was determined by projecting D1 and D2 seam intersections from the eastern indicated and inferred resource area to the western boundary of EPC 1049. Supported by petroleum holes to the west, a 9966 Ha area has been estimated to contain an average of 5.6m of coal, providing a target tonnage of between 570 and 960 Mt.

39

For

per

sona

l use

onl

y

The ASX Corporate Governance Council released its “Principles of Good Corporate Governance and Best Practice Recommendations” in 2003. Ten principles of corporate governance were developed, supported by best practice and implementation recommendations.

Further, in August 2007 the ASX Corporate Governance Council released the second edition of the Corporate Governance Principles and Recommendations (“Revised Principles”). Listed entities will be required to report against these Revised Principles in the first financial year commencing on or after 1 January 2008. Bandanna now reports against these Revised Principles in this report.

The Council has recognised that these principles and recommendations do not contain a “one size fits all” solution and that it will be necessary for companies to adopt a “fit for purpose” solution in the adoption of these practices. The table on page 45 shows which of the Best Practice Recommendations Bandanna has complied with.

The ASX Listing Rules require listed entities to disclose the extent to which they have followed the best practice recommendations set by the ASX Corporate Governance Council during the financial year. This corporate governance statement summarises the corporate governance practices that have been formally reviewed and adopted by Bandanna’s Board, with a view to ensuring continued investor confidence in the operations of the Company and endorsing the corporate governance principles relevant to a company of Bandanna’s nature and size.

Board of Directors

Role of the Board

The responsibilities of the Board are to:

› set the strategic direction for the Company and monitor progress of those strategies;

› establish policies appropriate for the Company;

› monitor the performance of the Company, the Board and management;

› approve the business plan and annual work programmes and budgets;

› authorise and monitor major investment and strategic commitments;

› review and ratify systems for health, safety and environmental management; risk management and internal control;

› codes of conduct and regulatory compliance;

› appoint and monitor performance of the Managing Director;

› report to shareholders, including but not limited to, the financial statements of the Company;

› evaluate the performance of the Board and identify and appoint new directors to the Board; and

› take responsibility for corporate governance.

Composition of the Board

The names of the directors of the Company in office at the date of this statement and information regarding directors’ experience and responsibilities are set out in the Directors’ Report.

The number of directors is specified in the Constitution of the Company as a minimum of three up to a maximum of 10. The Board has resolved that it will aim for, so far is practicable given the size of the Company to have a majority of independent directors, the appointment of a Chairman who is an independent director, a chairperson who is not the chief executive officer.

Chairman of the Board

The Chairman of the Board, Mr Jeremy Barlow, is not an independent director, contrary to the Council’s recommendation 2.2. The Board does not consider it appropriate to comply with the recommendation at this time given its size, nature and shareholding demographics. The Board is of the opinion that the objectives and current strategy of the Company are best served by Mr Jeremy Barlow.

Corporate Governance Statement


40

For

per

sona

l use

onl

y

Corporate Governance Statement (continued)

Independent Directors

The Board considers that a director is independent if that director complies with the following criteria:

› apart from director’s fees and shareholdings, independent directors should not have any business dealings which could materially affect their independent judgment;

› must not have been in an executive capacity in the Company in the last three years;

› must not have been in an advisory capacity to the Company in the last three years;

› must not be a significant customer or supplier for the Company;

› must not be appointed through a special relationship with another Board member;

› must not owe allegiance to a particular group of shareholders which gives rise to a potential conflict of interest;

› must not hold conflicting cross directorships; and

› must not be a substantial shareholder or a nominee of a substantial shareholder (as defined under section 9 of the Corporations Act).

The Board considers that, of a total of five current directors, one is considered independent (Mr David Graham) and four are considered not to be independent (Mr Jeremy Barlow, Dr Ray Shaw, Mr Park Soon IL and Mr Robert Johansen).

Retirement and Rotation of Directors

Retirement and rotation of directors are governed by the Corporations Act 2001 and the Constitution of the Company. Each year, one third of directors must retire and offer themselves for re-election. Any casual vacancy filled will be subject to shareholder vote at the next Annual General Meeting of the Company.

Independent Professional Advice

Each director has the right to seek independent professional advice at the Company’s expense after

consultation with the Chairman. Once received, the advice is to be made immediately available to all Board members.

Directors’ and Officers’ Liability Insurance

Directors’ and officers’ insurance for directors will be arranged by the Company at the Company’s expense.

Share Ownership

Directors are encouraged to own Company shares.

Board Meetings

The Board currently holds regular meetings each year, plus any extraordinary meetings at such times as may be necessary to address significant matters. Meetings can be held by telephone link; and information provided to the Board includes all material information on operations, budgets, cash flows, funding requirements, shareholder movements, broker activity in the Company’s securities, assets and liabilities, disposals, financial accounts, external audits, internal controls, risk assessments, new venture proposals, and health, safety and environmental reports.

The number of directors’ meetings (including meetings of committees of directors) and the number of meetings attended by each of the directors of the Company during the financial year are set out in the Directors’ Report.

Board Performance Review

During the Reporting Period the Board and Remuneration Committee have conducted performance reviews of senior executives or individual directors. These reviews were conducted as part of a regular annual performance review.

The Board currently undertakes an annual assessment of the Audit Committee, Risk Management Committee and the Remuneration Committee. The Board considers that the Company is not currently of a size or complexity to justify a separate Nominations Committee and Corporate Governance Committee. The role of the Nominations Committee and Corporate

41

For

per

sona

l use

onl

y

Governance Committee will be carried out by the full Board (subject to the members voting rights in general meeting), with advice of an external consultant where necessary.

Other Areas for Board Review

› Reporting to shareholders and the market to ensure trade in the Company’s securities takes place in an efficient, competitive and informed market;

› succession planning for senior executives and the Board;

› corporate and joint venture related insurances; and

› approval of external directorships for the Managing Director and senior executives and disclosure of external directorships by other directors.

Board Committees

Audit Committee

The Board has established an Audit Committee, the members of which are Mr David Graham (Chairperson), Dr Ray Shaw and Mr Robert Johansen. The Company Secretary and representatives of the auditors may be invited to form part of the Audit Committee from time to time.

The Committee’s primary function is to assist the Board in discharging its responsibility to exercise due care, diligence and skill in relation to the Company by:

› ensuring that the quality of financial controls is appropriate for the business of the Company;

› reviewing the scope and results of external and internal audits;

› monitoring corporate conduct and business ethics, including Auditor Independence and ongoing compliance with laws and regulations;

› maintaining open lines of communication between the Board, management and the external auditors, thus enabling information and points of view to be freely exchanged;

› reviewing matters of significance affecting the financial welfare of the Company;

› ensuring that systems of accounting and reporting of financial information to shareholders, regulators and the general public are adequate;

› reviewing the Company’s internal financial control system;

› considering the appointment of the external auditor and to approve the remuneration and terms of engagement of the external auditor;

South Galilee Project


42

For

per

sona

l use

onl

y

› monitor and review the external auditor’s independence, objectivity and effectiveness, taking into consideration relevant professional and regulatory requirements; and

› developing and implementing policy on the engagement of the external auditor to supply non audit services, taking into account relevant ethical guidance regarding the provisions of non-audit services by the external audit firm.

Remuneration Committee

The role, responsibilities and objectives of the Remuneration Committee are included in the Remuneration Report.

For details of remuneration paid to directors and officers for the Reporting Period and the process for evaluating the performance of senior executives, please refer to the Remuneration Report. The Remuneration Report is included in the Directors’ Report on pages 51 to 54. The members of this committee are Mr Jeremy Barlow (Chairman), Mr Robert Johansen and Mr David Graham.

Risk Management

The potential exposures with running the Company have been managed by the appointment of senior staff who have significant broad-ranging industry experience, work together as a team and regularly share information on current activities. Additionally, it is the responsibility of the Audit Committee to assess the adequacy of the Company’s internal control systems and to ensure that its financial affairs comply with applicable laws and regulations and professional practices.

The Managing Director and the Chief Financial Officer have declared in writing to the Board that the financial reporting risk management and associated compliance and controls have been assessed and found to be operating effectively. This representation is made by the Managing Director and Chief Financial Officer prior to the directors’ approval of the release of the annual and six monthly accounts. This representation is made after enquiry of, and representation by, appropriate levels of management.

Risk Management Committee

The role of the Risk Management Committee is documented in a formal charter approved by the Board.

The Risk Management Committee’s primary corporate governance role is to advise and assist the Board of Directors in assessing risk factors associated with the execution of projects in which the consolidated entity has equity or participatory interests.

The responsibilities of the Risk Management Committee are:

› ensuring the development of an appropriate risk management policy framework that will provide guidance to Management in implementing appropriate risk management practices throughout the Company’s operations, practices and systems;

› defining and periodically reviewing key business risks as they apply to the Company and clearly identify all stakeholders;

› ensuring the Committee clearly communicates the Company’s risk management philosophy, policies and strategies to Directors, Management, employees, contractors and appropriate stakeholders;

› ensuring that Directors and Management establish a risk aware culture which reflects the Company’s risk policies and philosophies;

› reviewing methods of identifying broad areas of risk and setting parameters or guidelines for business risk reviews;

› making informed decisions regarding business risk management, internal control systems, business policies and practices and disclosures; and

› considering capital raising, treasury and market trading activities with particular emphasis on risk treatment strategies, products and levels of authorities.

The Risk Management Committee will be comprised of not less than three members, with a preference for a majority of Non Executive Directors and preference with be given to an Independent Chairperson where available. The members of the Risk Management Committee are Mr Robert Johansen (Chairperson), Dr Ray Shaw, Mr Jeremy Barlow, Mr Park Soon IL and Mr David Graham.

Corporate Governance Statement (continued)

43

For

per

sona

l use

onl

y

Promotion of Ethical and Responsible Decision-Making

Code of Conduct

The Board has adopted a Code of Conduct for directors and employees of the Company. The Company’s goal of increasing value for our shareholders should be enhanced by complying with this Code of Conduct, which provides principles with which directors, key executives and employees should be familiar and with which they are expected to adhere and advocate.

It is the responsibility of the Board to monitor the Company’s performance under these Codes and for their regular review.

Trading in Company Securities by Directors, Officers and Employees

The Company strongly encourages its directors and employees to become shareholders in the Company. However, when a director trades in shares of the Company it is important to ensure that these transactions do not reflect badly on either the director or the Company.

The Company’s policy regarding dealings by directors in the Company’s shares is that directors should never engage in short term trading, the director must notify the Chairperson of the intended transaction at least 24 hours beforehand and should not enter into transactions when they are in possession of price sensitive information not yet released by the Company to the market.

For details of shares held by directors and officers, please refer to the Directors’ Report.

Shareholder Communications

The Board aims to ensure that shareholders and investors have equal access to the Company’s information.

The Company has policies and procedures that are designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance. This disclosure policy includes processes for the identification of matters that may have a material effect on the price of the Company’s securities, notifying them to the ASX and posting them on the Company’s website.

The Company also has a strategy to promote effective communication with shareholders and encourage effective participation at general meetings through a policy of open disclosure to shareholders, regulatory authorities and the broader community of all material information with respect to the Company’s affairs including, but not limited to:

› conflicts of interest and related party transactions;

› executive remuneration;

› grant of options and details of Share Option Plans;

› external directorships;

› process for performance evaluation of the Board, its committees, individual directors and key executives;

› the link between remuneration paid to directors and key executives and corporate performance; and

› communications with shareholders and the investor community.

The following information is communicated to shareholders:

› the Annual Report and notices of meetings of shareholders;

› for those shareholders electing not to be mailed a copy of the Annual Report, a copy can be viewed on the Company’s website;

› quarterly reports reviewing the operations, activities and financial position of the Company;

› all documents that are released to the ASX are made available on the Company’s website;

› all other information on the Company’s website is updated as the need arises;

› Regular interviews with Boardroom Radio, which are posted onto our web-site.


44

For

per

sona

l use

onl

y

ASX Best Practice Recommendations

Note:

1 With the current size and complexity of the Company, the board does not consider it appropriate at this time to comply with this recommendation.

2 Having regard to the current membership of the Board and the size, organisational complexity and scope of operations of the Company, an individual committee has not been formed at this time. The role of this committee will be carried out by the full board.

3 The Board does not consider it appropriate at this time to comply with this recommendation due to the current size and membership of the Board.

The Company’s website; www.bandannaenergy.com.au, contains a corporate governance section that includes copies of the Company’s corporate governance policies mentioned in this statement.

RECOMMENDATION COMPLIED

1.1 Companies should recognise and disclose the functions reserved to the board and those delegated to senior executives. Y

1.2 Companies should disclose the process for evaluating the performance of senior executives. Y

1.3 Companies should provide the information indicated in the Guide to reporting on Principle 1. Y

2.1 A majority of the board should be independent directors. N1

2.2 The chair should be an independent director. N1

2.3 The roles of chair and chief executive officer should not be exercised by the same individual. Y

2.4 The board should establish a nomination committee. N2

2.5 Companies should disclose the process for evaluating the performance of the board, its committees and individual directors.

Y


3.1 Companies should establish and disclose a code of conduct at to:• thepracticesnecessarytomaintainconfidenceinthecompany’sintegrity• thepracticesnecessarytotakeintoaccounttheirlegalobligationsandtheexpectationsoftheirstakeholders• theresponsibilityandaccountabilityofindividualsforreportingandinvestigatingreportsofunethicalpractices.

Y

3.2 Companies should establish and disclose the policy concerning trading in company securities by directors, senior executives and employees.

Y


4.1 The board should establish an audit committee. Y

4.2 The audit committee should be structured so that it:• consistsonlyofnon-executivedirectors• consistsofamajorityofindependentdirectors• ischairedbyanindependentchair,whoisnotchairoftheboard• hasatleastthreemembers

N3

4.3 The audit committee should have a formal charter. Y


5.1 Companies should establish and disclose written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance.

Y


6.1 Companies should design and disclose a communications strategy to promote effective communication with shareholders and encourage their participation at general meetings.

Y


7.1 The board should establish policies on risk oversight and management. Y

7.2 The chief executive officer (or equivalent) and the chief financial officer (or equivalent) should state tot eh board in writing that the statement given in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control which implements the policies adopted by the board in relation to financial reporting risks, and that the system is operating effectively in all material respects.

Y

7.3 The chief executive officer (or equivalent) and other responsible senior executives should state to the board in writing that there is a sound system of risk management and internal control which implements the policies adopted by the board in relation to material business risks other than those covered by Recommendation 7.2, and that the system is operating effectively in all material respects.

Y


9.1 The board should establish a remuneration committee. Y

9.2 Companies should clearly distinguish the structure of non-executive directors remuneration from that of senior executives. Y

9.3 Companies should ensure that payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders.

Y


45

For

per

sona

l use

onl

y


46

Financial Report 2010

Bandanna Energy Limited

ABN 34 009 356 665

DIRECTORS REPORT & ANNUAL FINANCIAL REPORTFor the year ended 30 June 2010

CONTENTS

Report of the directors 47

Remuneration report 51

Declaration of independence by lead auditor to the directors of Bandanna Energy Limited

56

ANNUAL FINANCIAL REPORTFor the year ended 30 June 2010

CONTENTS

Statement of comprehensive income 57

Statement of financial position 58

Statements of changes in equity 59

Statement of cash flows 60

Notes to the financial statements 61

Directors’ declaration 94

Independent auditors report 95

section 2F

or p

erso

nal u

se o

nly

The Directors of Bandanna Energy Limited (“Bandanna” or the “Company”) present their report, together with the financial statements of the Group, being the Company and its controlled entities (“Consolidated Group”), for the financial year ended 30 June 2010. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

PRINCIPAL ACTIVITIES AND SIGNIFICANT CHANGES IN NATURE OF ACTIVITIES

The principal activity of the Consolidated Group during the financial year was the exploration for coal in the Bowen and Galilee Basins in Queensland. The Consolidated Group also holds interests in conventional oil and gas tenements and other mineral tenements (bentonite and oil shale).

OPERATING RESULTS AND REVIEW OF OPERATIONS FOR THE YEAR

Operating ResultsThe consolidated operating loss after income tax for the year ended 30 June 2010 was $13,455,203 (2009 $721,982 loss after income tax).

Review of Corporate ActivitiesAs announced to the market on 24 September 2009, Bandanna entered into a share subscription agreement (‘Subscription Agreement’) with the Korean based SAMTAN Aures Pty Ltd, a wholly owned subsidiary of SAMTAN Co., Ltd (‘SAMTAN’) to issue 37,532,016 fully paid ordinary shares to SAMTAN, (equating to 10.0% of Bandanna’s fully diluted shares on issue post placement) at an issue price of A$0.60 per share, raising A$22.5 million. The transaction was subject to certain condition precedents, which were fulfilled during the Reporting Period. Under the terms of the agreement SAMTAN have the right to market Bandanna’s coal in South Korea and the right to negotiate the purchase of 20% of Bandanna’s coal from its Bowen Basin Projects at market prices. Additionally Senior Managing Director of SAMTAN, Mr Park Soon IL, joined the Board of Bandanna on 19 November 2009. Proceeds of the placement are to be used for on going programs of exploration, future development appraisal and infrastructure requirements.

As announced to the market on 11 September 2009, 59,871,803 shares granted to vendors of the Bandanna Coal Pty Ltd were released from escrow on 26 September 2009. A further 242,003,203 shares granted to the vendors of

Bandanna Coal Pty Ltd are due to be released from escrow on 9 October 2010.

300,000 options granted to Dr Ray Shaw, Managing Director, at an exercise price of $1.50 expired on 24 July 2009.

Review of OperationsCoal

During the Reporting Period the following coal exploration activities were undertaken.

• Exploration drilling totaling 11,728 metres completed, comprising 63 chip holes and 47 cored holes

• Exploration drilling was hindered for five months, from December 2009 to April 2010, due to extended wet weather

• Increased JORC compliant resources for the Springsure Creek Project to 304Mt and announced an exploration target of 417 to 600Mt

• AMCI completed a Concept Study for the South Galilee Project which indicates a mine life in excess of 40 years with an annual production rate of between 15 to 20 Mt

• AMCI commenced a pre-feasibility study for the South Galilee Project

• AMCI expended approximately $3.34 million on exploration and associated activities

• The Queensland State Government declared the South Galilee Project as a State Significant Project on 31 May 2010

• Bandanna completed a Concept Study for Arcturus as a potential thermal coal project

• Completion of 2D seismic program at the Dingo West Project as part of the delineation of an open cut development containing PCI/thermal coal

• Dingo West Project tenement EPC881 was renewed for an additional four years effective 21 October 2009

• An application for conditional surrender of the Arcadia Project tenements EPC892 and EPC1204 with the creation of EPC1742 was granted on 5 November 2009.

Infrastructure

• Bandanna Energy Limited became a shareholder in WICET Holdings Pty Ltd effective 16 July 2009. WICET Holdings

Report of the directors

47

For

per

sona

l use

onl

y

Pty Ltd is an industry owned consortium with a State Government mandate to develop the Wiggins Island Coal Terminal at Gladstone.

• Bandanna submitted an Expression of Interest (EOI) for port allocation in stage 1 of Wiggins Island Coal Export Terminal (WICET) in December 2009. Refer After Balance Date Events.

• Bandanna submitted an Expression of Interest for port allocation in Stage 2 of Wiggins Island Coal Export Terminal (WICET) on 31 August 2010.

• Bandanna has submitted a Request for Information (RFI) to QR Network Pty Ltd in April 2010 for the required below rail capacity to support the Company’s EOI for port allocation in WICET.

Oil & Gas

The following oil and gas activities were undertaken during the Reporting Period.

• Retention Licences applied for over the Udacha gas/condensate discovery

• Successful completion of an aerial P-TEM reconnaissance geophysical survey over portions of PEL 88, ATP 539P and ATP 549P West

• Field activities in PEL 88 and PEL 100 hampered due to an extended period of flooding

The Board has concluded that the full value of the legacy oil and gas assets from the former Enterprise Energy Limited cannot be realised without significant additional investment which could otherwise be directed to the Consolidated Group’s coal activities to produce a higher return for shareholders. Refer After Balance Date Events.

Other Minerals (Bentonite and Oil Shale)

The Consolidated Group has not completed any on site activities in any of its oil shale tenements during the Reporting Period following the policy announcement by the Queensland State Government to suspend development of an oil shale industry in Queensland for two years.

On 20 July 2009, EPM 17932 Planet Creek 2 was granted to Advocate Holding Pty Ltd (a wholly owned subsidiary of Bandanna Energy Limited).

Dividends Paid or RecommendedNo dividends were paid or declared for payment during the Financial Year. No recommendation for payment of a dividend has been made.

After Balance Date EventsAs reported to the ASX on 28 July 2010 300,000 options granted to Dr Raymond Douglas Shaw, Managing Director, at an exercise price of $2.00 expired on 24 July 2010.

On 20 August 2010, Traditional Oil Exploration Pty Ltd (Traditional), a wholly owned subsidiary of Bandanna, executed a Letter Agreement with Victoria Petroleum N.L. for the sale of Traditional’s interests in PEL88 and PEL100 with consideration by way of allotment of fully paid ordinary shares in Victoria Petroleum N.L. to the value of $500,000. The transaction is subject to consent of assignment from joint venture partners in PEL88 and PEL100 and Ministerial Approval.

As reported to the ASX on 12 August 2010 the company issued 1,159,000 unlisted options being options issued to Matthew Scott, Chief Financial Officer and Company Secretary on the following basis. 538,000 options exercisable at $0.80 once the Company’s share price has increased to at least $1.50 at any time between 21/6/2010 anbd 21/6/2013 and 621,000 options exercisable at $0.80 once the Company’s share price has increased to at least $2.00 at any time between 21/6/2010 and 21/6/2013.

Bandanna submitted an Expression of Interest (EOI) for port allocation in Stage 2 of Wiggins Island Coal Export Terminal on 31 August 2010.

On 3 September 2010, Traditional Oil Exploration Pty Ltd (Traditional), a wholly owned subsidiary of Bandanna, entered into a Asset Sale Agreement with Great Artesian Oil and Gas Pty Ltd, a wholly owned subsidiary of Drillsearch Energy Limited (Drillsearch), for the sale of Traditional’s interests in blocks in PEL106 with consideration by way of allotment of fully paid ordinary shares in Drillsearch to the value of $1,300,001.

Bandanna Energy Limited has been advised by Wiggins Island Coal Export Terminal Pty Ltd (WICET) that its Expression of Interest for four (4) million tonnes of capacity in Stage 1 of the proposed new coal terminal at Gladstone has satisfied the initial due diligence requirements for prospective users. Further due diligence is currently being undertaken by WICET as part of an Information Memorandum being prepared for the purposes of project financing. The Company has entered into a Deed detailing


Bandanna Energy Limited Annual Report 2010 48

For

per

sona

l use

onl

y

its intention to execute a binding Take or Pay Agreement upon Financial Close, scheduled for the end of April 2011, and to meet its proportionate share, estimated to be $5.9 million, of WICET’s ongoing project development costs of $40 million to that time. The Company has provided a bid bond for $3.066 million to support its obligations under the Deed. The Deed and bid bond are currently held in escrow by WICET pending receipt of certain project authorisation milestones from the interested parties including the State Government, Gladstone Ports Corporation and Wiggins Island consortium. WICET Stage 1 project and construction costs will be funded post Financial Close from finance facilities obtained by WICET.

On 9 October 2010, 242,003,203 fully ordinary paid shares will be released from escrow and listed as quotable securities on the ASX.

On 23 August 2010, the Minister of Natural Resources Mines and Energy, Mr Stephen Robertson MP, announced a new policy framework aimed at protecting Queensland’s strategic cropping land. The framework includes a set of trigger maps identifying approximately 4% of the State which has the potential to be declared strategic cropping land. These trigger maps cover areas of our tenements including some potential future mine development sites within Bandanna’s Golden Triangle. In response to the Government’s invitation, Bandanna will lodge a submission by 30 September 2010. At this stage and until policy and draft legislation has been finalised Bandanna does not know the extent of the impact of this policy on its future exploration and development activities. Legislation is anticipated to be passed early in 2011.

Future Developments, Prospects and Business StrategiesThe transaction with SAMTAN has provided Bandanna with access to sufficient cash to pursue an active exploration and feasibility program focusing on its coal assets in the Bowen Basin, in particular the Springsure Creek, Arcturus and Dingo West projects. Together with the funding by AMCI in the South Galilee Project, the strong cash position will allow Bandanna to continue to increase the level of JORC resources and reserves through exploration drilling, fund feasibility studies and pursue access to port and rail infrastructure to enable the Company to become a coal producer.

ENVIRONMENTAL REGULATIONS

The parent entity is subject to significant environmental regulation in respect of its operated and non-operated joint venture interests in the coal, mining and oil and gas activities. Each of the operators in its oil and gas ventures complies with all relevant environmental legislation. Its coal operations in the South Galilee Project are operated by AMCI which complies with all relevant environmental legislation. Various subsidiaries of Bandanna operate coal and mineral licences in Queensland and these operations all comply with relevant environmental legislation.

INFORMATION ON THE DIRECTORS

The following persons were Directors of Bandanna Energy Limited during the Financial Year and up to the date of this Report:

• Jeremy Warde Barlow

• David Douglas Heydon Graham

• Robert Karlo Johansen

• Raymond Douglas Shaw

• Park Soon IL (appointed 19 November 2009)

Details of directors at the date of this report are as follows:

Jeremy Warde Barlow (Chairman)Jeremy Barlow has had a long career in the coal and petroleum industries. He was a principal of the Barlow Jonker consulting group which provided a wide range of specialist consulting to the coal industry, prior to its acquisition in 2007 by Wood Mackenzie.

Mr Barlow was a director of CH4 Gas Limited and upon its merger with Arrow Energy Limited he became a non-Executive Director of Arrow Energy Limited in August 2006. Jeremy Barlow has had diverse technical and commercial experience in the energy industry including senior management and executive positions with a number of operating companies in Australia and overseas, as well as having been a consultant to major international clients.

He is a Fellow of the Australasian Institute of Mining and Metallurgy. His qualifications include a Bachelor of Engineering (Mining) and a Master of Business Administration.

Directorships in Other Listed EntitiesNon-executive director of Arrow Energy Limited, from August 2006 to 23 August 2010.

David Douglas Heydon GrahamDavid Graham has an extensive history in the financial sector specialising in capital market transactions having worked with organisations such as Ord Minnet, Bankers Trust Australia, Bankers Trust International and CitiNational Limited. Mr Graham is Executive Chairman of DDH Graham Limited, an advisory and funds management company he founded in 1981.

He has extensive public company experience including having served on the boards of Santos Limited, Crusader Limited and Mincom Limited and is currently a non-executive director of Bank of Queensland Limited.

His qualifications include Bachelor of Economics (Hons) and Bachelor of Commerce and a Master of Business Administration.

Directorships in Other Listed EntitiesNon Executive Director of the Bank of Queensland since October 2006.

49

For

per

sona

l use

onl

y

Robert Karlo Johansen Robert Johansen was responsible for the incorporation, development and operation of Bandanna Coal Pty Ltd and its subsidiaries from its inception until its acquisition by Bandanna Energy Limited. Prior to that he held various operational and management positions in the Australian and South African coal industries over a 10 year period.

He holds a first class honours degree in Mining Engineering and bachelor degrees in Commerce and Law. He is a Member of the Australasian Institute of Mining and Metallurgy and is a member of the society of Certified Practicing Accountants.

Directorships in Other Listed EntitiesNil

Park Soon IL – Appointed 19th November 2009Mr Park Soon IL is the Senior Managing Director of SAMTAN’s Energy and Resources Development Division of which SAMTAN Aures Pty Ltd is a wholly owned subsidiary.

Mr Park is a qualified mining engineer with more than 30 years experience in South Korean and Indonesian coal mining operations both at an operational level and at a senior management level. Mr Park Soon IL brings significant coal industry knowledge to the Board of Bandanna through his involvement particularly with the development of SAMTAN’s Kideco mine in Indonesia through its interests in PT Kideco Jaya Agung, developed from the early 1980’s in Paser East Kalimantan.

Directorships in Other Listed EntitiesNil

Raymond Douglas Shaw (Managing Director)Dr Ray Shaw has over 30 years’ experience in the resources industry. He commenced his professional career as a petroleum explorationist with Shell Development Australia in Perth, then as a principal of a geophysical consulting firm in Sydney, prior to becoming Vice-President and resident director of the

Swiss based international consulting firm, Petroconsultants SA, in Singapore. Dr Shaw was a Sydney based independent consultant to industry and government and was founding Managing Director of Great Artesian Oil and Gas Limited from 2003 until April 2007.

Dr Shaw was appointed to the Board of Enterprise Energy Limited as executive Director and Chairman in May 2007 and oversaw the merger and relisting of the Company as Bandanna Energy Limited in October 2008, from which time he has held the position of Managing Director. He holds a B.Sc (Hons 1) and Ph.D from the University of Sydney, and a Dip. Law (SAB) and is a Member of the AusIMM.

Directorships in Other Listed EntitiesNon Executive Director of Fall River Resources Limited since January 2010 (name changed to Earth Heat Resources Ltd on 24 July 2010).

COMPANY SECRETARY

The following person held the position of Company Secretary at the end of the financial year:

Matthew Scott CA Matthew Scott has worked for Bandanna Energy Limited since 3 November 2008 as Chief Financial Officer and was appointed Company Secretary on 10 March 2009.

Meetings of Directors

Name of Director Directors’ Meetings

Audit Committee

RemunerationCommittee

Risk ManagementCommittee

a b a b a b a b

Mr Jeremy Barlow 18 18 – – 1 1 1 1

Mr David Graham 18 16 2 2 1 – 1 1

Mr Robert Johansen 18 17 2 2 1 1 1 1

Dr Ray Shaw 18 18 2 2 – – 1 1

Mr Park Soon IL 9 8 – – – – – –

‘a’ represents number of meetings eligible to attend‘b’ represents number of meetings attended

From left to right: David Graham, Park Soon IL, Robert Johansen, Jeremy Barlow, Dr Ray Shaw, Matthew Scott


For

per

sona

l use

onl

y

IndemnificationThe Company has given indemnity to the Directors and other Officers of the Company against any liabilities incurred by the Directors and Officers that may arise from their position as Directors and Officers of the company. No costs were incurred during the financial year pursuant to this indemnity.

Insurance PremiumsDuring the Financial Year, the Company has paid insurance premiums of $44,980 in respect of directors and officers liability insurance.

REMUNERATION REPORT (AUDITED)

Remuneration Policy The remuneration policy of the Company has been designed to align key management personnel objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives. The Board believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best key management personnel to run and manage the Consolidated Group, as well as create goal congruence between directors, executives and shareholders.

The Board’s policy for determining the nature and amount of remuneration for key management personnel of the Consolidated Group is as follows:

• The remuneration policy was developed by the Remuneration Committee and approved by the Board after professional advice was sought from independent external consultants.

• The Remuneration Committee reviews key management personnel packages annually by reference to the status of the Consolidated Group’s projects, executive performance and comparable information from industry sectors.

Key Management Remuneration The employment terms and conditions of key management personnel are formalised in contracts of employment. All key management personnel, with the exception of the Managing Director, Dr Ray Shaw, are permanent employees of Bandanna Energy Limited. Dr Shaw is employed under a fixed two year contract which commenced on 3 November 2008 and expires on 2 November 2010. The renewal of Dr Shaw’s employment contract for a further period is currently being negotiated.

Terms of employment require that the company provide an executive contracted person with a minimum of three months notice prior to termination of contract. A contracted person deemed employed on a permanent basis may terminate their employment by providing at least three months notice. Termination payments are not payable on resignation or under the circumstances of unsatisfactory performance.

All key management personnel receive a base salary (which is based on factors such as length of service and experience), employer superannuation, fringe benefits, and short and long term incentives. All remuneration paid to key management personnel is valued at the cost to the Company and expensed.

The short term incentive comprises an annual cash bonus payable on the Board’s discretion and based on an assessment by the Board of the individual performance of the Key Management Personnel.

The long term incentive scheme comprises unlisted options granted annually to the Key Management Personnel with a remuneration value equal to 70% of the base package of the Key Management Personnel (100% of the base package for the Managing Director). The number of options granted is based on the LTI value divided by the option value determined by the Black Scholes or Binomial valuation methodology. The performance conditions applied to the vesting of the options include:

1. Exercise price (currently $0.80 per share)

2. Option term to apply over a three year period (two years for Managing Director)

3. Options equating to 50% of the LTI value to vest after the Company’s share price reaches a level 50% greater than the exercise price or a level as determined by the Board

4. Options equating to 50% of the LTI value to vest after the Company’s share price reaches a level 100% greater than the exercise price or a level as determined by the Board

Options granted under the arrangement do not carry dividend or voting rights. Each option is entitled to be converted into one ordinary share.

Non Executive Directors

The Board’s policy is to remunerate directors at market rates for time, commitment and responsibilities. The Remuneration Committee determines payments to the directors and reviews


51

For

per

sona

l use

onl

y

Report of the directorscontinued ›

Table of Benefits and Payments for the year ended 30 June 2010

Short-term benefits

Post- employment

benefitsTermination

Benefits

Other long-term employee

benefitsShare-based

payments

Year

Salary and fees

$

Cash Bonus

$

Non-monetary

$

Total

$

Super-annuation

$

Options

$

Total

$

Value of LTI as a proportion of

remuneration

%

Directors

J Barlow(1) 2010 183,486 – – 183,486 16,514 – – – 200,000 –

2009 81,957 – – 81,957 68,043 – – – 150,000 –

M Elliott(2) 2010 – – – – – – – – – –

2009 – – – – 9,538 – – – 9,538 –

D Graham(1) 2010 91,743 – – 91,743 8,257 – – – 100,000 –

2009 68,807 – – 68,807 6,193 – – – 75,000 –

R Johansen(1) 2010 91,743 – – 91,743 8,257 – – – 100,000 –

2009 68,807 – – 68,807 6,193 – – – 75,000 –

D Lindh(2) 2010 – – – – – – – – – –

2009 – – – – 17,500 – – – 17,500 –

SI Park(3) 2010 61,408 – – 61,408 – – – – 61,408 –

2009 – – – – – – – – – –

R Shaw(4) 2010 351,682 – 5,841 357,523 31,651 – 395,000 – 784,174 50

2009 293,817 – 6,566 300,383 26,763 – – 388,035 715,181 54

N Zillman(2) 2010 – – – – – – – – – –

2009 – – – – 9,538 – – – 9,538 –

Directors 2010 780,062 – 5,841 785,903 64,679 – 395,000 – 1,245,582

2009 513,388 – 6,566 519,954 143,768 – – 380,035 1,051,757

Executives

D Campbell(5) 2010 76,453 – 2,700 79,153 6,881 – – 175,000 261,034 67

2009 – – – – – – – – – –

J Porter(6) 2010 84,518 – 2,330 86,848 11,769 182,136 – – 280,753 –

2009 138,390 – 4,551 142,941 12,455 – – 211,580 366,976 58

M Scott(7) 2010 244,648 10,000 8,100 262,748 22,018 – – 192,500 477,266 40

2009 152,905 – 4,725 157,630 13,761 – – 199,698 371,089 54

Executives 2010 405,619 10,000 13,130 428,749 40,668 182,136 – 367,500 1,019,053

2009 291,295 – 9,276 300,571 26,216 – – 411,278 738,065

Total 2010 1,185,681 10,000 18,971 1,214,652 105,347 182,136 395,000 367,500 2,264,635

2009 804,683 – 15,842 820,525 169,984 – – 799,313 1,789,822

(1) Appointed 3 October 2008(2) Resigned 3 October 2008(3) Fees paid to Samtan Co. Ltd under Services Agreement from date of appointment of Mr Park Soon IL as non executive director on 19 November 2009(4) On 21 June 2010, the Board of Directors approved the grant of options to Dr Ray Shaw under the Long Term Initiative Scheme for the year commencing 4 November 2009 .

These options are subject to Shareholder Approval at the Annual General Meeting. In the event the options under the LTI scheme do not receive shareholder approval, Dr Shaw’s employment contract requires the company to provide a cash bonus of no less value than would have been generated under the LTI scheme].

(5) David Campbell, Manager Exploration, commenced on 1 March 2010(6) James Porter, Chief Operating Officer, commenced on 8 December 2008, ceased employment on 14 October 2009(7) Matthew Scott, Chief Financial Officer & Company Secretary, commenced on 3 November 2008

their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to Non Executive Directors is subject to approval by shareholders at the

Annual General Meeting.

Remuneration Details for the year ended 30 June 2010

The following table of benefits and payments details, in respect to the Financial Year, the components of remuneration for each member of the key management personnel of the Consolidated Group.


For

per

sona

l use

onl

y

SHAREHOLDINGS

The number of shares in the Company held during the year by directors and executives, directly or indirectly, are set out below.

Balance

1 July 2009 Sales/Purchases* Options ExercisedBalance

30 June 2010

Directors

J Barlow(8) 116,423,599 100,000 – 116,523,599

D Graham 250,000 50,000 – 300,000

R Johansen(8) 96,937,311 20,000 – 96,957,311

SI Park(9) – – – –

R Shaw 1,352,000 – – 1,352,000

214,962,910 170,000 – 215,132,910

*Refers to shares purchased or sold during the Financial Year.

(8) J Barlow and R Johansen shareholdings include 96,902,311 shares held by entities in which both have an interest.(9) SI Park is one of three Directors of SAMTAN Aures Pty Ltd which holds 37,532,016 shares in the company.


OPTIONS AND RIGHTS GRANTED

The number of options held during the year by directors and executives are set out below.

Balance 1 July 2009

Options Granted

Options Exercised

Options Lapsed

Balance 30 June 2010

Total Vested 30 June 2010

Total Exercisable 30 June 2010

Directors

J Barlow – – – – – – –

D Graham – – – – – – –

R Johansen – – – – – – –

SI Park – – – –

R Shaw 3,070,000 – – (300,000) 2,770,000 2,770,000 –

Executives

D Campbell – 847,000 – – 847,000 847,000 –

J Porter 1,460,000 – – – 1,460,000 1,460,000 –

M Scott(10) 1,378,000 1,159,000 – – 2,537,000 2,537,000 –

5,908,000 2,006,000 – (300,000) 7,614,000 7,614,000 –

(10) On 21 June 2010, the Board of Directors approved the grant of options to Mr Matthew Scott under the Long Term Initiative Scheme for the year commencing 4 November 2009.

All options exercised resulted in the issue of ordinary shares in Bandanna Energy Limited on a 1:1 basis.

53

For

per

sona

l use

onl

y

Description of Options/Rights Issued as Remuneration

Details of the options granted as remuneration to those directors and executives listed in the previous table are as follows:

Grant Date No. of Options Expiry Date Exercise Price Value per Option Value

Directors

R Shaw 25 July 2007 300,000 24 July 2010 $2.00 $0.02757 $8,271

23 Dec 2008 1,200,000 23 Dec 2010 $0.80 $0.149 $178,800

23 Dec 2008 1,270,000 23 Dec 2010 $0.80 $0.141 $179,070

J Porter 8 Dec 2008 715,000 8 Dec 2011 $0.80 $0.149 $106,535

8 Dec 2008 745,000 8 Dec 2011 $0.80 $0.141 $105,045

M Scott 3 Nov 2008 675,000 3 Nov 2011 $0.80 $0.149 $100,575

3 Nov 2008 703,000 3 Nov 2011 $0.80 $0.141 $99,123

21 June 2010 538,000 21 June 2013 $0.80 $0.179 $96,250

21 June 2010 621,000 21 June 2013 $0.80 $0.155 $96,250

D Campbell 1 Mar 2010 409,000 1 Mar 2013 $0.80 $0.214 $87,500

1 Mar 2010 438,000 1 Mar 2013 $0.80 $0.200 $87,500

Option values at grant date were determined using the Black-Scholes and/or Binomial method.

Details relating to service and performance criteria required for vesting have been provided in the previous table.

Options

At the date of this report, the unissued ordinary shares of Bandanna Energy Limited under option are as follows:

Grant Date Date of Expiry Exercise Price Number under Option

25 July 2007 24 July 2010 $2.00 300,000

3 November 2008 3 November 2011 $0.80 1,378,000

8 December 2008 8 December 2011 $0.80 1,460,000

23 December 2008 23 December 2010 $0.80 2,470,000

1 March 2010 1 March 2013 $0.80 847,000

21 June 2010 21 June 2013 $0.80 1,159,000

Option holders do not have any rights to participate in any issues of shares or other interests in the Company or any other entity.

There have been no unissued shares or interests under option of any controlled entity within the Consolidated Group during or since reporting date.

Legal Proceedings on Behalf of Company (or subsidiaries)

No person has applied for leave of Court to bring proceedings on behalf of the Company (or subsidiaries) or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.

The Company was not a party to any such proceedings during the Financial Year.

Report of the directorscontinued ›


For

per

sona

l use

onl

y


Non Audit Services

The Board of Directors, in accordance with advice from the Audit Committee, is satisfied that the provision of non-audit services during the Financial Year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons:

• all non-audit services are reviewed and approved by the Audit Committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and

• the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.

The following fees were paid or payable to Grant Thornton for non audit services provided during the year ended 30 June 2010:

$

Taxation services –

Consulting service –

–

Auditor’s Independence Declaration

The lead auditor’s independence declaration for the Financial Year ended 30 June 2010 has been received and can be found on page 56 of the Financial Report.

The Company is an entity to which ASIC Class Order 98/100 applies and, accordingly, amounts in the financial statements and directors’ report have been rounded to the nearest thousand dollars.

This Report of the Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors.

Jeremy BarlowChairman

Dr Ray ShawManaging Director

Dated: 28 September 2010

55

For

per

sona

l use

onl

y


For

per

sona

l use

onl

y

Statement of comprehensive income› for the year ended 30 June 2010

Consolidated Group

Note2010

$2009

$

Continuing operations

Revenue 2 - -

Cost of sales - -

Gross profit - -

Other revenues 2 706,093 2,912,205

Employee Benefits Expense (2,627,114) (1,349,322)

Option Expense (367,500) (788,898)

Impairment Expense - (9,476)

Depreciation Expense (112,283) (38,720)

Administration Expense (1,518,029) (1,977,952)

Finance Cost (117,356) -

Other Expenses (12,427) -

Profit /(loss) before income tax (4,048,616) (1,252,163)

Income tax benefit/(expense) 4 - 528,470

Profit/(loss) from continuing operations (4,048,616) (723,693)

Discontinued operations

Revenue 3,570 12,038

Cost of Sales (5,632) (10,327)

Gross Profit (2,062) 1,711

Administration Expense (21,973) -

Impairment Expense 11 (9,382,552) -

Profit/(loss) from discontinued operations after tax (9,406,587) 1,711

Profit/(loss) for the year (13,455,203) (721,982)

Earnings per share

From continuing and discontinued operations

Basic earnings per share (cents per share) 7 (3.76) (0.22)

From continuing operations


From discontinued operations


These financial statements should be read in conjunction with the accompanying notes.

57

For

per

sona

l use

onl

y

Statement of financial position› as at 30 June 2010

Consolidated Group

Note 2010

$ 2009

$

ASSETS

Current assets

Cash and cash equivalents 8 20,342,436 6,115,791

Trade and other receivables 9 178,044 141,221

Inventories 10 237,044 -

Assets held for sale 11 2,000,000 -

Other current assets 12 155,173 113,503

Total current assets 22,912,697 6,370,515

Non-current assets

Financial Assets 13 1 -

Property, plant and equipment 15 380,046 311,112

Exploration and evaluation assets 16 9,893,151 17,303,354

Developmental assets 17 - 658,912

Total non-current assets 10,273,198 18,273,378

Total assets 33,185,895 24,643,893

LIABILITIES

Current liabilities

Trade and other payables 18 896,968 791,836

Employee benefits 19 513,793 78,107

Total current liabilities 1,410,761 869,943

Non-current liabilities

Trade and other payables 18 33,114 -

Employee benefits 19 6,638 2,583

Total non-current liabilities 39,752 2,583

Total liabilities 1,450,513 872,526

Net assets 31,735,382 23,771,367

EQUITY

Equity attributable to members of the parent entity:

Issued capital 20 42,468,775 21,417,057

Reserves 1,156,398 788,898

Retained earnings (11,889,791) 1,565,412

Total equity 31,735,382 23,771,367



For

per

sona

l use

onl

y

Statement of changes in equity› for the year ended 30 June 2010

Note

Share Capital

$

Retained earnings

$

Share Option Reserve

$

Total $

Consolidated Group

Balance at 1 July 2008 2,184,011 9,414,427 - 11,598,438

Total comprehensive income for the year - (721,982) - (721,982)

Transactions with owners in their capacity as owners:

Contributions of equity 20 10,000,000 - - 10,000,000

Capital raising costs (391,954) - - (391,954)

Cost of business combination 9,625,000 - - 9,625,000

Pre-Acquisition Dividends - (7,127,033) - (7,127,033)

Options issued to Directors & Executives - - 788,898 788,898

Sub-total 19,233,046 (7,849,015) 788,898 12,172,929

Balance at 30 June 2009 21,417,057 1,565,412 788,898 23,771,367

Total comprehensive income for the year - (13,455,203) - (10,502,263)

Transactions with owners in their capacity as owners:

Contributions of equity 20 22,519,210 - - 22,519,210

Capital raising costs 20 (1,467,492) - - (1,467,492)

Dividend paid or provided for - - - -

Options issued to Directors & Executives - - 367,500 367,500

Sub-total 21,051,718 (13,455,203) 367,500 7,964,015

Balance at 30 June 2010 42,468,775 (11,889,791) 1,156,398 31,735,382


59

For

per

sona

l use

onl

y

Statement of cash flows› for the year ended 30 June 2010

Consolidated Group

Note 2010$

2009$

Cash flows from operating activities

Receipts from customers 3,570 12,038

Payments to suppliers and employees (3,837,227) (3,694,964)

Interest received 605,354 387,718

Interest paid (41,433) -

Income tax paid - (3,860,998)

Net cash provided by (used in) operating activities 23 (3,269,736) (7,156,206)

Cash flows from investing activities

Proceeds from sale of tenements - 4,500,000

Farmin Contributions - 1,000,000

Farmin Settlement - 1,524,487

Cash acquired on acquisition of Bandanna Energy Ltd - 64,581

Business combination costs - (203,440)

Payments for property, plant and equipment (152,452) (205,331)

Payments for exploration activities (3,402,886) (5,221,993)

Payments for investments 1 -

Loans to related parties

- payments made - (2,500)

- proceeds from repayments - -

Net cash provided by (used in) investing activities (3,555,337) 1,455,804

Cash flows from financing activities

Proceeds from issue of shares 22,519,210 9,970,461

Payments for Capital raising (1,467,492) -

Dividends paid - (7,127,033)

Net cash provided by (used in) financing activities 21,051,718 2,843,428

Net change in cash and cash equivalents held 14,226,645 (2,856,974)

Cash and cash equivalents at beginning of financial year 6,115,791 8,972,765

Cash and cash equivalents at end of financial year 8 20,342,436 6,115,791



For

per

sona

l use

onl

y

NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The financial report is a general purpose financial report that has been prepared in accordance with Accounting Standards (including Australian Accounting Interpretations), other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

The financial statements cover Bandanna Energy Limited as an individual parent entity and Bandanna Energy Limited and its controlled entities as a consolidated entity (“Group”). Bandanna Energy Limited is a company limited by shares, incorporated and domiciled in Australia.

Statement of complianceCompliance with Australian Accounting Standards ensures that the financial statements and notes of Bandanna Energy Limited and its controlled entities comply with International Financial Reporting Standards (IFRS).

The financial statements were authorised for issue by the directors on 28 September 2010.

Basis of preparation The financial statements have been prepared on an accruals basis and are based on historical costs modified by the revaluation of selected non-current assets and financial instruments for which the fair value basis of accounting has been applied.

Third statement of financial positionTwo comparative periods are presented for the statement of financial position when the Group:

i Applies an accounting policy retrospectively,

ii Makes a retrospective restatement of items in its financial statements, or

iii Reclassifies items in the financial statements.

We have determined that only one comparative period for the statement of financial position was required for the current reporting period as the application of the new accounting standards have had no material impact on the previously presented primary financial statements that were presented in the prior year financial statements.

Adoption of new and revised accounting standardsIn the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board that are relevant to its operations and effective for the current annual reporting period. The 2009 comparatives contained in these financial statements therefore differ from those published in the financial statements for the year ended 30 June 2009 as described below.

Significant effects on current, prior or future periods arising from the first-time application of the standards discussed above in respect of presentation, recognition and measurement of accounts are described in the following notes.

Adoption of AASB 101 Presentation of Financial Statements (revisions), AASB 2007-8 and 2007-10 Amendments arising from the revisions to AASB 101 Bandanna Energy Limited and its controlled entities have adopted the revisions to AASB 101 Presentation of Financial Statements in these financial statements which has resulted in the introduction of the statement of comprehensive income, changes to the statement of changes in equity, and other terminology changes.

New accounting standards for Application in Future PeriodsThe AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods. The Group has decided against early adoption of these standards. A discussion of those future requirements and their impact on the Group follows.

• AASB 9: Financial Instruments and AASB 2009–11: Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12] (applicable for annual reporting periods commencing on or after 1 January 2013). These standards are applicable retrospectively and amend the classification and measurement of financial assets. The Group has not yet determined the potential impact on the financial statements. The changes made to accounting requirements include:

− simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value;

Notes to the financial statements

61

For

per

sona

l use

onl

y

− simplifying the requirements for embedded derivatives;

− removing the tainting rules associated with held-to-maturity assets;

− removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost;

− allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument; and

− reclassifying financial assets where there is a change in an entity’s business model as they are initially classified based on:

a. the objective of the entity’s business model for managing the financial assets; and

b. the characteristics of the contractual cash flows.

• AASB 124: Related Party Disclosures (applicable for annual reporting periods commencing on or after 1 January 2011). This standard removes the requirement for government related entities to disclose details of all transactions with the government and other government related entities and clarifies the definition of a related party to remove inconsistencies and simplify the structure of the standard. No changes are expected to materially affect the Group.

• AASB 2009–4: Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 2 and AASB 138 and AASB Interpretations 9 & 16] (applicable for annual reporting periods commencing from 1 July 2009) and AASB 2009-5: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 5, 8, 101, 107, 117, 118, 136 & 139] (applicable for annual reporting periods commencing from 1 January 2010). These standards detail numerous non-urgent but necessary changes to accounting standards arising from the IASB’s

annual improvements project. No changes are expected to materially affect the Group.

• AASB 2009–8: Amendments to Australian Accounting Standards — Group Cash-settled Share-based Payment Transactions [AASB 2] (applicable for annual reporting periods commencing on or after 1 January 2010). These amendments clarify the accounting for group cash-settled share-based payment transactions in the separate or individual financial statements of the entity receiving the goods or services when the entity has no obligation to settle the share-based payment transaction. The amendments incorporate the requirements previously included in Interpretation 8 and Interpretation 11 and as a consequence, these two Interpretations are superseded by the amendments. These amendments are not expected to impact the Group.

• AASB 2009–9: Amendments to Australian Accounting Standards — Additional Exemptions for First-time Adopters [AASB 1] (applicable for annual reporting periods commencing on or after 1 January 2010). These amendments specify requirements for entities using the full cost method in place of the retrospective application of Australian Accounting Standards for oil and gas assets, and exempt entities with existing leasing contracts from reassessing the classification of those contracts in accordance with Interpretation 4 when the application of their previous accounting policies would have given the same outcome. These amendments are not expected to impact the Group.

• AASB 2009–10: Amendments to Australian Accounting Standards — Classification of Rights Issues [AASB 132] (applicable for annual reporting periods commencing on or after 1 February 2010). These amendments clarify that rights, options or warrants to acquire a fixed number of an entity’s own equity instruments for a fixed amount in any currency are equity instruments if the entity offers the rights, options or warrants pro-rata to all existing owners of the same class of its own non-derivative equity instruments. These amendments are not expected to impact the Group.

• AASB 2009–12: Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139,

Notes to the financial statements › for the year ended 30 June 2010


For

per

sona

l use

onl

y

NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

• 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] (applicable for annual reporting periods commencing on or after 1 January 2011). This standard makes a number of editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of International Financial Reporting Standards by the IASB. The standard also amends AASB 8 to require entities to exercise judgment in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. These amendments are not expected to impact the Group.

• AASB 2009–13: Amendments to Australian Accounting Standards arising from Interpretation 19 [AASB 1] (applicable for annual reporting periods commencing on or after 1 July 2010). This standard makes amendments to AASB 1 arising from the issue of Interpretation 19. The amendments allow a first-time adopter to apply the transitional provisions in Interpretation 19. This standard is not expected to impact the Group.

• AASB 2009–14: Amendments to Australian Interpretation — Prepayments of a Minimum Funding Requirement [AASB Interpretation 14] (applicable for annual reporting periods commencing on or after 1 January 2011). This standard amends Interpretation 14 to address unintended consequences that can arise from the previous accounting requirements when an entity prepays future contributions into a defined benefit pension plan.

• AASB Interpretation 19: Extinguishing Financial Liabilities with Equity Instruments (applicable for annual reporting periods commencing on or after 1 July 2010). This Interpretation deals with how a debtor would account for the extinguishment of a liability through the issue of equity instruments. The Interpretation states that the issue of equity should be treated as the consideration paid to extinguish the liability, and the equity instruments issued should be

recognised at their fair value unless fair value cannot be measured reliably in which case they shall be measured at the fair value of the liability extinguished. The Interpretation deals with situations where either partial or full settlement of the liability has occurred. This Interpretation is not expected to impact the Group. The Group does not anticipate the early adoption of any of the above Australian Accounting Standards.

a. Principles of Consolidation A controlled entity is any entity over which Bandanna Energy Limited has the power to govern the financial and operating policies so as to obtain benefits from its activities. In assessing the power to govern, the existence and effect of holdings of actual and potential voting rights are considered.

A list of controlled entities is contained in Note 14 to the financial statements.

As at reporting date, the assets and liabilities of all controlled entities have been incorporated into the consolidated financial statements as well as their results for the year then ended. Where controlled entities have entered (left) the consolidated group during the year, their operating results have been included (excluded) from the date control was obtained (ceased).

All inter-group balances and transactions between entities in the consolidated group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those adopted by the parent entity.

Minority interests, being that portion of the profit or loss and net assets of subsidiaries attributable to equity interests held by persons outside the Group, are shown separately within the equity section of the consolidated statement of financial position and in the consolidated statement of comprehensive income.

Business Combinations

Business combinations occur where control over another business is obtained and results in the consolidation of its assets and liabilities. All business combinations, including those involving entities under common control, are accounted for by applying the purchase method.


63

For

per

sona

l use

onl

y

The purchase method requires an acquirer of the business to be identified and for the cost of the acquisition and fair values of identifiable assets, liabilities and contingent liabilities to be determined as at acquisition date, being the date that control is obtained. Cost is determined as the aggregate of fair values of assets given, equity issued and liabilities assumed in exchange for control together with costs directly attributable to the business combination.

Goodwill is recognised initially at the excess of cost over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If the fair value of the acquirer’s interest is greater than cost, the surplus is immediately recognised in profit or loss.

The accounting policies have been consistently applied by the entities in the consolidated group and are consistent with those in the June 2009 financial report.

b. Income TaxThe income tax expense (income) for the year comprises current income tax expense (income) and deferred tax expense (income). Current and deferred income tax expense (income) is charged or credited directly to other comprehensive income instead of the profit or loss when the tax relates to items that are credited or charged directly to other comprehensive income.

Current tax

Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority.

Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses.

Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity.

Deferred tax

Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets

and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability.

Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.

Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future.

Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.

Tax Consolidation

Bandanna Energy Limited and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under tax consolidation legislation. As a result of Bandanna Energy Limited’s acquisition of Bandanna Coal Pty Ltd, Bandanna Coal Pty Ltd and its subsidiaries joined the Bandanna Energy Limited tax consolidated group effective 3 October 2008. Each entity in the Group recognises its own current and deferred tax assets and liabilities. Such taxes are measured using the ‘stand-alone taxpayer’ approach to allocation. Current tax liabilities (assets)



For

per

sona

l use

onl

y



and deferred tax assets arising from unused tax losses and tax credits in the subsidiaries are immediately transferred to the head entity. The Group notified the Tax Office that it had formed an income tax consolidated group to apply from 1 July 2008. The tax consolidated group has entered a tax funding arrangement whereby each company in the Group contributes to the income tax payable by the Group in proportion to their contribution to the Group’s taxable income. Differences between the amounts of net tax assets and liabilities derecognised and the net amounts recognised pursuant to the funding arrangement are recognised as either a contribution by, or distribution to the head entity.

c. Inventories Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs.

Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

d. Plant and Equipment Each class of plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses.

Plant and equipment are measured on the cost basis.

The cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

DepreciationThe depreciable amount of all fixed assets is depreciated on a straight-line basis over the asset’s useful life to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset Depreciation Rate

Plant and equipment 10 - 33%

Furniture & Fittings 5 – 10%

Office Equipment 20 – 33%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

e. Exploration and Development ExpenditureExploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves.

Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made.

When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.

65

For

per

sona

l use

onl

y


A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis.

Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site.

f. LeasesLease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

g. Financial Instruments

Recognition and Initial MeasurementFinancial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the Company commits itself to either the purchase or sale of the asset (ie trade date accounting is adopted).

Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair value through profit or loss’, in which case transaction costs are expensed to profit or loss immediately.

Classification and Subsequent MeasurementFinance instruments are subsequently measured at either of fair value, amortised cost using the effective interest rate method, or cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active

market are used to determine fair value. In other circumstances, valuation techniques are adopted.

Amortised cost is calculated as:

1. the amount at which the financial asset or financial liability is measured at initial recognition;

2. less principal repayments;

3. plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and

4. less any reduction for impairment.

The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss.

The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments.

Financial assets at fair value through profit or lossFinancial assets are classified at ‘fair value through profit or loss’ when they are either held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss.


For

per

sona

l use

onl

y


Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost.

Held-to-maturity investmentsHeld-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Group’s intention to hold these investments to maturity. They are subsequently measured at amortised cost.

Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments.

Financial liabilitiesNon-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost.

Fair Value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.

ImpairmentAt each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement.

Financial GuaranteesWhere material, financial guarantees issued, which require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due, are recognised as a financial liability at fair value on initial recognition.

The guarantee is subsequently measured at the higher of the best estimate of the obligation and the amount initially recognised less, when appropriate, cumulative amortisation in accordance with AASB 118: Revenue. Where the entity gives guarantees in exchange for a fee, revenue is recognised under AASB 118.

The fair value of financial guarantee contracts has been assessed using a probability weighted discounted cash flow approach. The probability has been based on:

• thelikelihoodoftheguaranteedpartydefaultingina year period;

• theproportionoftheexposurethatisnotexpectedtobe recovered due to the guaranteed party defaulting; and

• themaximumlossexposediftheguaranteedpartywere to default.

DerecognitionFinancial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

h. Impairment of AssetsAt each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement.

Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.

Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.


67

For

per

sona

l use

onl

y

i. Foreign Currency Transactions and Balances

Functional and Presentation CurrencyThe functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

j. Employee BenefitsProvision is made for the Company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. Those cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows.

Past services costs are recognised when incurred to the extent that benefits are vested, and are otherwise amortised on a straight-line basis over the vesting period.

Equity-settled CompensationThe Group operates equity-settled share-based payment employee share and option schemes. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of shares is ascertained as the market bid price. The fair value of options is ascertained using a Black–Scholes or Monte Carlo pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

k. ProvisionsProvisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

l. Cash and Cash EquivalentsCash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of five months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet.

m. Revenue and Other IncomeRevenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. Any consideration deferred is treated as the provision of finance and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue.

Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods.

Interest revenue is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate inherent in the instrument. Dividend revenue is recognised when the right to receive a dividend has been established.

Dividends received from associates and joint venture entities are accounted for in accordance with the equity method of accounting.

Revenue recognition relating to the provision of services is determined with reference to the stage of completion of the transaction at reporting date and where outcome of the contract can be estimated reliably. Stage of completion is determined with reference to the services performed to date as a percentage of total anticipated services to be performed. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent that related expenditure is recoverable. All revenue is stated net of the amount of goods and services tax (GST).

n. Goods and Services Tax (GST)Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.



For

per

sona

l use

onl

y


Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

o. Comparative FiguresWhen required by accounting standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

p. Critical Accounting Estimates and JudgmentsThe directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best

available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group.

KEY JUDGMENTS

q. Exploration and Evaluation ExpenditureThe Group capitalises expenditure relating to exploration and evaluation where it is considered likely to be recoverable or where the activities have not reached a stage, which permits a reasonable assessment of the existence of reserves. While there are certain areas of interest from which no reserves have been extracted, the directors are of the continued belief that such expenditure should not be written off since feasibility studies in such areas have not yet concluded.


NOTE 2. REVENUEConsolidated Group

Note2010

$2009

$

Sales Revenue

Sales - -

Total Sales Revenue - -

Other Revenue

Farmin Contribution - 1,000,000

Farmin Settlement - 1,524,487

Interest received 2a 706,093 387,718

Total Other Revenue 706,093 2,912,205

Total Revenue 706,093 2,912,205

a. Interest revenue from

- other persons 706,093 387,718

Total interest revenue 706,093 387,718

b. Revenue and other income from discontinued operations

Sales Revenue

Sales of oil & gas attributable to members of the parent entity 3,570 12,038

Sales revenue attributable to non-controlling interest - -

3,570 12,038

c. Income from continuing operations and discontinued operations

Income attributable to members of the parent entity 709,663 2,924,243

Sales revenue attributable to non-controlling interest - -

709,663 2,924,243

69

For

per

sona

l use

onl

y


NOTE 3. RESULT FOR THE YEARThe result for the year has been arrived at after charging the following items:

Consolidated Group

Note2010

$2009

$

a. Employee expenses

Employee benefit expense 1,876,493 888,863

Directors fees 461,408 290,367

Superannuation expense 103,080 100,711

Employee expense on-costs 186,133 69,381

Total employee expenses 2,627,114 1,349,322

b. Administrative expenses:

Accounting, secretarial & tax fees 114,682 329,724

Audit fees 51,420 50,570

Consultancy fees 81,346 305,270

Management fees - 232,575

Legal fees 262,397 277,584

Listing & compliance costs 109,277 69,081

Insurance 53,589 31,109

Rental expense on operating leases 213,214 124,057

Occupancy costs 565 1,749

Other administrative expenses 546,334 461,951

Business Combination costs - 94,277

Total administrative costs 1,540,002 1,977,952

c. Depreciation/Impairment expense:

Depreciation expense 112,283 38,720

Impairment on exploration and evaluation assets 9,382,552 -

Total depreciation / impairment expense 9,494,835 38,720

d. Finance costs:

Interest expense 72,220 9,329

Bank guarantee charges 45,136 -

Total finance costs 117,356 9,329


For

per

sona

l use

onl

y


NOTE 4. INCOME TAX EXPENSEConsolidated Group

Note2010

$2009

$

a. The components of tax expense comprise

Current tax - -

Deferred tax - (528,470)

- (528,470)

b. The prima facie tax on profit before income tax is reconciled

to the income tax as follows:

Prima facie tax payable on profit before income tax at 30% (2009: 30%) (4,036,561) (375,136)

Add:

Tax effect of:

- Share options expensed during the year 110,250 236,669

- Impairment expense 2,814,766 2,843

- other non-allowable items - 31,336

- tax losses generated on consolidation - (49,391,021)

Less:

Tax effect of:

- Derecognition of prior year deferred tax balances - (528,470)

- Income tax losses for which deferred tax asset not yet recognised (1,111,545) (49,495,309)

Income tax expense - (528,470)

The applicable weighted average effective tax rates are as follows: -% 42%

Unrecognised deferred tax balance At the time the business combination, Bandanna Coal Pty Ltd and its subsidiaries joined the Bandanna Energy Limited consolidated tax group. As a result of this transaction, tax losses have been generated. These losses have a potential tax benefit in future periods. Given the net deferred tax position results in a significant deferred tax benefit, the directors have determined that the deferred tax balances do not meet the recognition criteria for the year ended 30 June 2010.

The benefit of the net unrecognised deferred tax asset will only be obtained if:

• TheGroupderivesfuturetaxableprofitofanatureandanamountsufficienttoenablethebenefittoberealised;

• TheGroupcontinuestocomplywiththedeductibilityimposedbythelaw;and

• NochangesintaxlegislationadverselyaffecttheGroupinrealisingthebenefit.

71

For

per

sona

l use

onl

y


NOTE 4. INCOME TAX EXPENSE (CONTINUED) Aggregate amounts of temporary differences and unused tax losses for which no deferred tax balances have been recognised.

Consolidated Group

Note2010

$2009

$

Net unrecognised deferred tax asset at beginning of the year 50,201,073 -

Total income tax benefit arising from unused tax losses for which no deferred tax asset has been recognised 866,373 55,300,297

Temporary differences for which no deferred tax asset/(liability) has been recognised (245,172) (5,099,224)

Net unrecognised deferred tax asset 50,822,274 50,201,073

NOTE 5. INTERESTS OF KEY MANAGEMENT PERSONNEL

a. The following persons were directors of Bandanna Energy Limited during the year ended 30 June 2010:

Name Position

Jeremy Barlow Chairman (Non Executive)

David Graham Director (Non Executive)

Robert Johansen Director (Non Executive)

Dr Ray Shaw Managing Director (Executive)

Park Soon IL Director (Non Executive) - Appointed 19 November 2009

b. The names and positions held of other key Management personnel at any time during the financial year are:

Name Position

Matthew Scott Chief Financial Officer & Company Secretary

David Campbell Manager Exploration - Employment commenced 1 March 2010

James Porter Chief Operating Officer - Employment ceased 14 October 2009

c. Key Management Personnel Remuneration

The key management personnel compensation included within employee expenses is:

Short-term benefits

$

Termination benefits

$

Post employment benefit

$

Other long-term benefits

$

Share based payments

$

Total

$

2010 1,214,652 182,136 105,347 395,000 367,500 2,264,635

2009 820,525 - 169,984 - 799,313 1,789,822

Further details regarding key management personnael renumerations can be found in the Renumeration Report section of the Directors Report.


For

per

sona

l use

onl

y


NOTE 5. INTERESTS OF KEY MANAGEMENT PERSONNEL (CONTINUED)

d. Key Management Personnel Options and Rights Holdings

The number of options held during the year by directors and executives are set out below:

Balance 1 July 2009

Options (Lapsed)/ Exercised

Options Granted


Total vested 30 June

2010

Total Exercisable 30 June

2010

Directors

J Barlow – – – – – –

D Graham – – – – – –

R Johansen – – – – – –

SI Park – – – – – –

R Shaw 3,070,000 (300,000) – 2,770,000 2,770,000 –

Executives

D Campbell – – 847,000 847,000 847,000 –

J Porter 1,460,000 – – 1,460,000 1,460,000 –

M Scott 1,378,000 – 1,159,000 2,537,000 2,537,000 –

5,908,000 (300,000) 2,006,000 7,614,000 7,614,000 –

e. Key Management Personnel Shareholdings

The number of shares in the company held during the year by directors and executives, directly or indirectly, are set out below:

Balance 1 July 2009

Options Exercised

(Sales)/ Purchases*


Directors

J Barlow(1) 116,423,599 – 100,000 116,523,599

D Graham 250,000 – 50,000 300,000

R Johansen(1) 96,937,311 – 20,000 96,957,311

SI Park(2) – – – –

R Shaw 1,352,000 _ – 1,352,000

Executives

M Scott _ _ 100,000 100,000

214,962,910 - 270,000 215,232,910

* Refers to shares purchased or sold during the Financial Year. (1) J Barlow and R Johansen shareholdings include 96,902,311 shares held by entities in which both have an interest.(2) SI Park is one of three Directors of SAMTAN Aures Pty Ltd which holds 37,532,016 shares in the company.

73

For

per

sona

l use

onl

y


NOTE 6. AUDITOR’S REMUNERATIONConsolidated Group

Note2010

$2009

$

Remuneration of Grant Thornton as the auditor of the parent entity (Bandanna Energy Limited) for:

- auditing the financial statements 51,420 50,570

- consulting services – 29,850

51,420 80,420

NOTE 7. EARNINGS PER SHARE

Consolidated Group

Note2010

$2009

$

a. Net Profit/(Loss)

Earnings used to calculate basic EPS from continuing & discontinued operations (13,455,203) (721,982)

Earnings used to calculate basic EPS from continuing operations (4,048,616) (723,693)

Earnings used to calculate basic EPS from discontinued operations (9,406,587) 1,711

b. Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS

357,545,187 324,292,503

c. In accordance with AASB133, there are no dilutive securities

NOTE 8. CASH AND CASH EQUIVALENTS

Consolidated Group

Note2010

$2009

$

Cash at bank and in hand 8,679,836 4,985,811

Short-term bank deposits 11,662,600 1,129,980

20,342,436 6,115,791

The effective interest rate on short-term bank deposits was 5.85% (2009: 3.6%); these deposits have an average maturity of 202 days.

Financial guarantees to the amount of $1,607,600 (2009: $1,074,980) are secured by short term deposits.

Reconciliation of cash

Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows:

Consolidated Group

Note2010

$2009

$

Cash and equivalents 20,342,436 6,115,791

Bank overdrafts - -

20,342,436 6,115,791


For

per

sona

l use

onl

y


NOTE 9. TRADE AND OTHER RECEIVABLESConsolidated Group

Note2010

$2009

$

Current

Trade receivables - -

Other receivables 178,044 141,221

178,044 141,221

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable in the financial statements. The Group does not hold any collateral as security over any receivable balance, nor does it hold any restrictions of title.

NOTE 10. INVENTORIESConsolidated Group

Note2010

$2009

$

Current

At cost

- Stores 38,848 -

38,848 -

At net realisable value

- Stores 198,196 -

198,196 -

237,044 -

NOTE 11. ASSETS HELD FOR RESALEConsolidated Group

Note2010

$2009

$

Oil and Gas exploration, evaluation and development assets held for resale 2,000,000 -

Movements in Carrying Amounts

Movement in the carrying amount for assets held for resale between the

beginning and the end of the financial year.

Consolidated Group

Balance at beginning of the year - -

Transferred from/(to) exploration and evaluation 16 10,723,640 -

Transferred from/(to) assets held for resale 17 658,912 -

Write down to net realisable value (9,382,552) -

Assets held for resale 2,000,000 -

75

For

per

sona

l use

onl

y


NOTE 11. ASSETS HELD FOR RESALE (CONTINUED)

During the reporting period, the Company’s Directors reviewed the oil and gas assets of the former Enterprise Energy Limited and determined their full value could not be realised without further significant investment which could otherwise be directed towards the coal activities. Accordingly the Directors decided to investigate means for divesting those assets.

The net cashflows of the discontinued oil and gas operations which have been incorporated into the statement of cashflows are as follows:

Consolidated Group

Note2010

$2009

4

Discontinued operations

Receipts from customers 3,570 12,038

Payments to suppliers and employees (5,632) (10,333)

Net Cash flow from discontinued operations (2,062) 1,705

NOTE 12. OTHER ASSETS

Consolidated Group

Note2010

$2009

$

Current

Security deposits 86,611 86,611

Prepayments 68,562 26,892

155,173 113,503

NOTE 13. FINANCIAL ASSETS

Consolidated Group

Note2010

$2009

$

Investment in unlisted company at cost 1 -

Bandanna Energy Limited became a shareholder in WICET Holdings Pty Ltd effective 16 July 2009, holding one fully paid ordinary share. WICET Holdings Pty Ltd is an industry owned consortium looking to develop the Wiggins Island Coal Export Terminal.


For

per

sona

l use

onl

y

NOTE 14. CONTROLLED ENTITIESConsolidated Group

Country of Incorporation

Percentage Owned (%)*

2010 2009

Controlled Entities Consolidated

Subsidiaries of Bandanna Energy Limited:

Advocate Holding Pty Ltd Australia 100 100

Enterprise Energy Pty Ltd (1) Australia 100 100

Traditional Oil Exploration Pty Ltd Australia 100 100

Bandanna Coal Pty Ltd Australia 100 100

Alpha Coal Pty Ltd Australia 100 100

Arcadia Coal Pty Ltd Australia 100 100

Bandanna Oil Shale Pty Ltd Australia 100 100

Carnarvon Coal Pty Ltd Australia 100 100

Dingo West Coal Pty Ltd Australia 100 100

DJB Coal Pty Ltd Australia 100 100

Fernlee Coal Pty Ltd Australia 100 100

Springsure Creek Coal Pty Ltd Australia 100 100

Waitara Coal Pty Ltd Australia 100 100

* Percentage of voting power in proportion to ownership. (1) Triplanetary Pty Ltd changed its name to Enterprise Energy Pty Ltd on 11 November 2008.


77

For

per

sona

l use

onl

y


NOTE 15. PLANT AND EQUIPMENT

Consolidated Group

Note 2010 $

2009 $

Plant and Equipment

At cost 515,396 267,228

Accumulated depreciation (181,349) (72,687)

Total plant and equipment 334,047 194,541

Furniture and Fittings -

At cost 35,874 35,512


Total Furniture and fittings 29,569 32,396

Office Equipment

At cost 3,291 3,291


Total Office Equipment 944 1,376

Geo Database

At cost 15,486 15,486

Accumulated depreciation - -

Total Geo Database 15,486 15,486

Work in Progress

At cost - 67,313

380,046 311,112


For

per

sona

l use

onl

y

NOTE 15. PLANT AND EQUIPMENT (CONTINUED)

a. Movements in Carrying Amounts

Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the financial year.

Plant and Equipment

Furniture & Fittings

Office Equipment

GEO Database

WIP

Total

$ $ $ $ $ $

Consolidated Group

Balance at 1 July 2008 - - 1,933 - - 1,933

Additions 157,002 19,040 429 - 67,313 243,784

Disposals - - - - - -

Additions through acquisition of entity 73,578 15,051 - 15,486 - 104,115

Depreciation expense (36,039) (1,695) (986) - - (38,720)

Balance at 30 June 2009 194,541 32,396 1,376 15,486 67,313 311,112

Additions 180,855 362 - - - 181,217

Disposals - - - - - -

Transferred from/(to) another asset category 67,313 - - - (67,313) -

Depreciation expense (108,662) (3,189) (432) - - (112,283)

Carrying amount at 30 June 2010 334,047 29,569 944 15,486 - 380,046


79

For

per

sona

l use

onl

y


NOTE 16. EXPLORATION AND EVALUATION ASSETS

Consolidated Group

Note2010

$2009

$

Costs carried forward in respect of exploration and evaluation expenditure 9,893,151 17,303,354


Movement in the carrying amount for exploration and evaluation assets

between the beginning and the end of the financial year.

Consolidated Group

Balance at the beginning of the year 17,303,354 2,744,702

Additions through acquisition of entity - 9,165,611

Amounts capitalised during the year 3,313,437 5,363,601

Asset impairment - (9,476)

Transferred from/(to) development 17 - 38,916

Transferred from/(to) assets held for resale 11 (10,723,640) -

9,893,151 17,303,354

a. Impairment Losses

The total impairment loss recognised in the statement of comprehensive income during the year amounted to $9,382,552 and is separately presented in the statement of comprehensive income. An impairment loss on Oil and Gas tenements was recognised in Traditional Oil Exploration Pty Ltd on the basis of independent offers received from the market for both tenement assets and shares in the Company, which were well below the capitalised value of these Oil and Gas tenements. The impairment loss recognised during the financial year results in the carrying amounts of these assets at 30 June 2010 reflecting the market value of these Oil and Gas tenement assets.

The total impairment loss of $9,382,552 is recognised in the statement of comprehensive income.


For

per

sona

l use

onl

y

NOTE 17. DEVELOPMENT ASSETS

Consolidated Group

Note2010

$2009

$

Costs carried forward in respect of development expenditure - 658,912


Movement in the carrying amount for for development assets between

the beginning and the end of the financial year.

Consolidated Group

Balance at the beginning of the year 658,912 -

Additions through acquisition of entity - 697,828

Amounts capitalised during the year - -

Amount reclassified as Exploration and Evaluation asset 16 - (38,916)

Transferred from/ (to) assets held for resale 11 (658,912) -

- 658,912

NOTE 18. TRADE AND OTHER PAYABLES

Consolidated Group

Note2010

$2009

$

Current

Unsecured liabilities 35,266 -

Trade payables 60,296 103,680

Sundry payables and accrued expenses 801,406 688,156

896,968 791,836

Non Current

Unsecured liabilities 33,114 -

33,114 -

All amounts are short term and the carrying values are considered to be a reasonable approximation of fair value.


81

For

per

sona

l use

onl

y


NOTE 19. EMPLOYEE BENEFITS

Consolidated Group

Note2010

$2009

$

Current

Annual leave 118,793 78,107

Long service leave - -

Long Term Incentive Scheme 395,000 -

513,793 78,107

Non-current

Long service leave 6,638 2,583

6,638 2,583

The current portion of these liabilities represents Bandanna Energy Limited obligations to which the employee has a current legal entitlement.

A provision has been recognised in relation to the long term incentive scheme for key management personnel. On 21 June 2010, the Board of Directors approved the grant of options to Dr Ray Shaw under the Long Term Initiative Scheme for the year commencing 4 November 2009 . These options are subject to Shareholder Approval at the Annual General Meeting. In the event the options under the LTI scheme do not receive shareholder approval, Dr Shaw’s employment contract requires the company to provide a cash bonus of no less value than would have been generated under the LTI scheme.

A provision has been recognised for employee entitlements relating to long service leave for employees. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based upon historical data. The measurement and recognition criteria, for employee benefits, has been included in Note 1.


For

per

sona

l use

onl

y

NOTE 20. ISSUED CAPITAL

Consolidated Group

Note2010

$2009

$

369,712,159 (2009: 332,180,143) fully paid ordinary shares 42,468,775 21,417,057

a. Ordinary Shares

At the beginning of reporting period 21,417,057 2,184,011

Shares issued through acquisition of entity - 9,625,000

Shares issued during the financial year:

- Issue of 12,500,000 ordinary fully paid shares at an issue

price of $0.80 per share on 9 October 2008- 10,000,000

- Issue of 37,532,016 ordinary fully paid shares at an issue

price of $0.60 per share on 27 October 200922,519,210 -

Cost of capital raising (1,467,492) (391,954)

At reporting date 42,468,775 21,417,057

Note2010

No.2009

No.

b. Ordinary Shares

At the beginning of reporting period 332,180,143 740,411

Shares issued through acquisition of entity - 174,300,836

Shares issued during 2009 financial year:

- Shares Issued during the period from exercise of options on 25 August 2008 - 3,000,000

- Shares issued pursuant to Share Sale Agreement - 3,018,750,000

- Conversion of 1 for 10 - (2,877,111,104)

- Issue of 12,500,000 ordinary fully paid shares at an issue price

of $0.80 per share on 9 October 2008- 12,500,000

Shares issued during 2010 financial year:

- Issue of 37,532,016 ordinary fully paid shares of an issue price of

$0.60 per share on 27 October 200937,532,016 -


Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.


83

For

per

sona

l use

onl

y


NOTE 20. ISSUED CAPITAL (CONTINUED)Note 2010 No. 2009 No.

c. Options

At the beginning of reporting period 5,908,000 9,300,000

Options issued during the year:

- 3 November 2008 - 1,378,000

- 8 December 2008 - 1,460,000

- 23 December 2008 - 2,470,000

- 1 March 2010 847,000 -

- 21 June 2010 1,159,000 -

Options exercised during the year:

- 25 August 2008 - (3,000,000)

Options lapsed during the year:

- 30 September 2008 - (300,000)

- 24 July 2009 (300,000)

Consolidation of Options 3 October 2008 - (5,400,000)


d. Capital Management

The capital structure of the Consolidated Group comprises the issued share capital and reserves of the Parent Entity, Bandanna Energy Limited. For the year ended 30 June 2010, the Consolidated Group had no interest bearing liabilities.

There are no externally imposed capital requirements applicable to the Consolidated Group.

The Parent Entity manages the capital of the Consolidated Group to ensure there is sufficient capital to fund the Group’s exploration and project evaluation activities and the Group continues as a going concern. The Parent Entity monitors the Consolidated Group’s capital requirement by reference to the forecast exploration and evaluation expenditure for its projects and other commitments. The Parent Entity may manage the capital structure of the Consolidated Group to meet these requirements through new share issues and management of debt levels.


For

per

sona

l use

onl

y

NOTE 21. CAPITAL AND LEASING COMMITMENTSConsolidated Group

Note 2010$

2009$

a. Exploration expenditure commitments relating to tenements

Payable:

- not later than 12 months 3,287,269 2,972,880

- between 12 months and five years 6,567,000 5,561,000

- greater than five years - -

Aggregate exploration expenditure contracted for at balance date 9,854,269 8,533,880

b. Operating lease commitments

Non-cancellable operating leases contracted for but not capitalised in the financial

statements. Minimal lease payments payable:

- not later than one year 186,325 138,727

- between 12 months and five years 531,566 236,472

- greater than five years - -

Aggregate lease expenditure contracted for at balance date 717,891 375,199

Items subject to operating leases are property leases. The remaining lease terms range from 11 months to 4 years 9 months. Contingent rental provisions within the lease agreement require the minimum lease payments shall be increased by 4% per annum.

The consolidated entity does not have the option to purchase the leased assets at the expiry of the lease period.


85

For

per

sona

l use

onl

y


NOTE 22. SEGMENT REPORTING Coal & Minerals

Total Continuing Operations

Oil & Gas

Total Discontinuing Operations 2010

$ $ $ $

Consolidated 2010

Revenue

Segment Revenue - - (3,570) (3,570)

Result

Segment Result (4,048,616) (4,048,616) (9,406,587) (9,406,587)

Income Tax Benefit /(Expense) - - - -

Profit after Income Tax (4,048,616) (4,048,616) (9,406,587) (9,406,587)

Reconciliation of segment result to Group net Profit/(Loss) after Tax

Unallocated items:

Interest revenue - 706,093 - -

Net Profit/(Loss) after Tax (4,048,616) (3,828,647) (9,406,587) (9,406,587)

Assets

Segment Assets 31,185,895 31,185,895 2,000,000 2,000,000

Liabilities

Segment Liabilities 1,450,513 1,450,513 - -

Other

Depreciation 112,283 112,283 - -

Consolidated 2009

Revenue

Segment Revenue 2,912,205 2,912,205 12,038 12,038

Result

Segment Result (1,252,163) (1,252,163) 1,711 1,711

Income Tax Benefit /(Expense - 528,470 - -

Net Profit/(Loss) after Tax (1,252,163) (723,693) 1,711 1,711

Assets

Segment Assets 13,141,792 13,141,792 11,502,101 11,502,101

Liabilities

Segment Liabilities 867,799 867,799 4,727 4,727

Other

Depreciation 38,720 38,720 - -


For

per

sona

l use

onl

y

NOTE 22. SEGMENT REPORTING (CONTINUED)

Accounting Policies

Segment revenues and expenses are those directly attributable to the segments. There is no allocation of administration costs to the oil and gas segment. Administration costs are allocated to the coal & minerals segment as the continuing operation.

The oil and gas segment assets represent capitalised exploration and development expenditure. Coal and Mineral segment assets represent capitalised exploration expenditure and other assets consisting primarily of cash, receivables and plant and equipment.

Segment liabilities for the oil and gas represent trade payables and accruals attributable to the segments. Coal and Mineral segment liabilities represent trade payables and accruals attributable to that segment and other liabilities including other accruals, payroll related liabilities and employee benefits.

There are no intersegment transfers or eliminations.

Geographical Segments

The consolidated groups segments are all located in Australia.

NOTE 23. CASH FLOW INFORMATIONConsolidated Group

Note 2010$

2009$

a. Reconciliation of Cash Flow from Operations with Profit / (Loss) after Income Tax

Profit/(loss) after income tax: (13,455,203) (721,982)

Non-cash flows in profit:

- Farmin Settlement - (1,524,487)

- Farmin Contribution - (1,000,000)

- Business Combination Expenses - 94,277

- Depreciation 112,283 38,720

- Impairment 9,382,552 9,476

- Share based payment expenses 367,500 788,898

Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries

- Increase/(decrease) in trade debtors 36,823 (39,171)

- Increase/(decrease) in other assets 41,670 -

- Increase/(decrease) in inventories 38,848 -

- (Increase)/decrease in trade creditors and accruals (233,950) (547,864)

- (Increase)/decrease in employee benefits 439,741 80,690

- (Increase)/decrease in provisions - (4,334,763)

Cash Flow from Operations (3,269,736) (7,156,206)

b. Non-cash Financing and Investing Activities

Property, plant and equipment: During the financial year, the Group acquired plant and equipment with an aggregate fair value of $150,000 (2009:$10,000) on deferred payment terms. These acquisitions are not reflected in the statement of cash flows.


87

For

per

sona

l use

onl

y


NOTE 24. SHARE-BASED PAYMENTS

The following Share based payment arrangements existed at 30 June 2010.

300,000 unlisted share options exercisable at $2.00.

1,200,000 unlisted share options exercisable at $0.80 once the Company’s share price has increased to at least $1.20 at any time between 23 December 2008 and 23 December 2010.

1,270,000 unlisted share options exercisable at $0.80 once the Company’s share price has increased to at least $1.50 at any time between 23 December 2008 and 23 December 2010.

715,000 unlisted share options exercisable at $0.80 once the Company’s share price has increased to at least $1.20 at any time between 8 December 2008 and 8 December 2011.

745,000 unlisted share options exercisable at $0.80 once the Company’s share price has increased to at least $1.50 at any time between 8 December 2008 and 8 December 2011.

675,000 unlisted share options exercisable at $0.80 once the Company’s share price has increased to at least $1.20 at any time between 3 November 2008 and 3 November 2011.

703,000 unlisted share options exercisable at $0.80 once the Company’s share price has increased to at least $1.50 at any time between 3 November 2008 and 3 November 2011.

409,000 unlisted share options granted during the year, exercisable at $0.80 once the Company’s share price has increased to at least $1.20 at any time between 1 March 2010 and 1 March 2013.

438,000 unlisted share options granted during the year, exercisable at $0.80 once the Company’s share price has increased to at least $1.50 at any time between 1 March 2010 and 1 March 2013.

538,000 unlisted share options granted during the year, exercisable at $0.80 once the Company’s share price has increased to at least $1.50 at any time between 21 June 2010 and 21 June 2013.

621,000 unlisted share options granted during the year, exercisable at $0.80 once the Company’s share price has increased to at least $2.00 at any time between 21 June 2010 and 21 June 2013.

Each option entitles the holder to subscribe for ordinary fully paid shares on a 1:1 basis, which will be issued by the company in consideration for receiving the exercise price of the option. The options hold no voting or dividend rights and are not transferable.


For

per

sona

l use

onl

y

NOTE 24. SHARE-BASED PAYMENTS (CONTINUED)

The number and weighted average exercise price of share options are as follows:

Parent Entity

2010 Number of

Options

2010 Weighted-Average

Exercise Price

2009 Number of

Options

2009 Weighted Average

Exercise Price

Outstanding at the beginning of the year 5,908,000 0.90 9,300,000 0.141

Granted 2,006,000 0.80 5,308,000 0.800

Forfeited - - - -

Exercised - - (3,000,000) 0.080

Expired (300,000) 1.50 (300,000) 0.074

Consolidation - - (5,400,000) 0.180

Outstanding at the end of the year 7,614,000 0.85 5,908,000 0.900

Exercisable at the end of the year - - - -

During the year ended 30 June 2010, 300,000 options expiring on 24 July 2009 lapsed. No options were exercised during the year ended 30 June 2010.

The options outstanding at 30 June 2010 had a weighted average exercise price of $0.85 and a weighted average remaining life of 1.4 years. Exercise prices range from $0.80 to $2.00 in respect of options outstanding at 30 June 2010.

The weighted average fair value of the options granted during the year was $0.183.

This price was calculated using a Binomial options pricing model applying the following inputs:

Grant Date 1 March 2010 21 June 2010

Expiry Date 1 March 2013 21 June 2013

Share price at grant date $0.65 $0.61

Exercise Price $0.80 $0.80

Life of the option 2.67 years 2.98 years

Expected share price volatility 80% 80%

Risk-free interest rate 4.855% 4.84%

Historical volatility has been the basis for determining expected share price volatility as it is assumed that this is indicative of future tender. The life of options is based on the historical exercise patterns, which may not eventuate in the future.

Included under Employee Benefits Expense in the income statement is $367,500 (2009 $799,313), and relates in full, to equity share-based payment transactions.


89

For

per

sona

l use

onl

y


NOTE 25. CONTINGENT LIABILITIES

For the year ended 30 June 2010, Bandanna had provided three bank guarantees totalling $1,539,389 to Gladstone Ports Corporation under the Master Terms Deed and Feasibility Funding Facility Agreement to fund Bandanna’s share of feasibility costs for Stage 1 of the Wiggins Island Coal Export Terminal development. Under the Feasibility Funding Facility Agreement, Bandanna’s total potential liability is $2,000,000. The bank guarantees will be cancelled and returned to Bandanna upon financial close for Stage 1 which is anticipated to be 30 April 2011.

Included within the cash and cash equivalents balance at 30 June 2010, are term deposits totalling $1,539,389 to secure the bank guarantees to Gladstone Ports Corporation.

NOTE 26. EVENTS AFTER THE BALANCE SHEET DATE

As reported to the ASX on 28 July 2010 300,000 options granted to Dr Raymond Douglas Shaw, Managing Director, at an exercise price of $2.00 expired on 24 July 2010.

On 20 August 2010, Traditional Oil Exploration Pty Ltd (Traditional), a wholly owned subsidiary of Bandanna, executed a Letter Agreement with Victoria Petroleum N.L. for the sale of Traditional’s interests in PEL88 and PEL100 with consideration by way of allotment of fully paid ordinary shares in Victoria Petroleum N.L. to the value of $500,000. The transaction is subject to consent of assignment from joint venture partners in PEL88 and PEL100 and Ministerial Approval.

As reported to the ASX on 12 August 2010 the company issued 1,159,000 unlisted options to Matthew Scott, Chief Financial Officer and Company Secretary on the following basis. 538,000 options exercisable at $0.80 once the Company’s share price has increased to at least $1.50 at any time between 21/6/2010 and 21/6/2013 and 621,000 options exercisable at $0.80 once the Company’s share price has increased to at least $2.00 at any time between 21/6/2010 and 21/6/2013.

Bandanna submitted an Expression of Interest (EOI) for port allocation in Stage 2 of Wiggins Island Coal Export Terminal on 31 August 2010.

On 3 September 2010, Traditional Oil Exploration Pty Ltd (Traditional), a wholly owned subsidiary of Bandanna, entered

into a Asset Sale Agreement with Great Artesian Oil and Gas Pty Ltd, a wholly owned subsidiary of Drillsearch Energy Limited (Drillsearch), for the sale of Traditional’s interests in blocks in PEL106 with consideration by way of allotment of fully paid ordinary shares in Drillsearch to the value of $1,300,001.

Bandanna Energy Limited has been advised by Wiggins Island Coal Export Terminal Pty Ltd (WICET) that its Expression of Interest for four (4) million tonnes of capacity in Stage 1 of the proposed new coal terminal at Gladstone has satisfied the initial due diligence requirements for prospective users. Further due diligence is currently being undertaken by WICET as part of an Information Memorandum being prepared for the purposes of project financing. The Company has entered into a Deed detailing its intention to execute a binding Take or Pay Agreement upon Financial Close, scheduled for the end of April 2011, and to meet its proportionate share, estimated to be $5.9 million, of WICET’s ongoing project development costs of $40 million to that time. The Company has provided a bid bond for $3.066 million to support its obligations under the Deed. The Deed and bid bond are currently held in escrow by WICET pending receipt of certain project authorisation milestones from the interested parties including the State Government, Gladstone Ports Corporation and Wiggins Island consortium. WICET Stage 1 project and construction costs will be funded post Financial Close from finance facilities obtained by WICET.

On 9 October 2010, 242,003,203 fully ordinary paid shares will be released from escrow and listed as quotable securities on the ASX.

On 23 August 2010, the Minister of Natural Resources Mines and Energy, Mr Stephen Robertson MP, announced a new policy framework aimed at protecting Queensland’s strategic cropping land. The framework includes a set of trigger maps identifying approximately 4% of the State which has the potential to be declared strategic cropping land. These trigger maps cover areas of our tenements including some potential future mine development sites within Bandanna’s Golden Triangle. In response to the Government’s invitation, Bandanna will lodge a submission by 30 September 2010. At this stage and until policy and draft legislation has been finalised Bandanna does not know the extent of the impact of this policy on its future exploration and development activities. Legislation is anticipated to be passed early in 2011.


For

per

sona

l use

onl

y

NOTE 27. RELATED PARTY TRANSACTIONSConsolidated Group

Note 2010$

2009$

a. Transactions with Director/Secretary related entities

Global Resource Asset Exchange Pty Ltd, owned by Jeremy Barlow (non executive Chairman) and Robert Johansen (Non Executive Director), provided management, administration and office services during the year

- 232 575

DFK Richard Hill Ltd provided accounting and secretarial services during the year. Richard Hill (Company Secretary) was a partner and Richard Collinge a director of DFK Richard Hill Pty Ltd during the year.

- 163,111

Director related entities DJ Mining Pty Ltd, Global Resource Asset Exchange Pty Ltd, J Barlow Caonsultants and Perusal Time Pty Ltd are parties to royalty deeds with various entities in the Bandanna Energy Limited group as disclosed in the prospectus dated 17 September 2008. No royalties were paid to the director related entities in the year ended 30 June 2010.

b. Wholly owned group The wholly owned group consists of those entities listed in note 14. Transactions between Bandanna Energy Limited and other entities in the group consist of the provision of working capital.

NOTE 28. JOINT VENTURES

a. Interest in Joint Ventures Alpha Coal Pty Ltd, a wholly owned subsidiary of Bandanna Energy Limited, entered into a Farmin and Joint Venture Agreement with AMCI in September 2008 in relation to the South Galilee project comprising four tenements: EPCs 1048, 1049, 1179 & 1180. The purpose of the Joint venture is the exploration and project evaluation of the South Galilee project tenements and if agreed development and mining within the tenement areas.

Under the terms of the Agreement, AMCI has the right to acquire up to a fifty percent (50%) participating interest by meeting expenditure obligations of $25 million in relation to exploration, evaluation and development work. To 30 June 2010, AMCI has spent $8.6 million.

Alpha Coal Pty Ltd has no commitments or contingent liabilities in respect of the South Galilee Joint Venture for the year ended 30 June 2010.

NOTE 29. FINANCIAL RISK MANAGEMENT

Financial Risk Management Policies The Group’s financial instruments consist mainly of deposits with banks, accounts receivable and payable, and loans to and from subsidiaries. The main purpose of non-derivative financial instruments is to raise finance for the group operations.

Treasury Risk Management Treasury risk management is addressed by the Risk Management Committee as required to assist the consolidated group in meeting its financial targets whilst minimising potential adverse effects on financial performance.


91

For

per

sona

l use

onl

y


Financial Risk Exposures and Management The main risks the Group is exposed to through its financial instruments are interest rate risk, liquidity risk, credit risk and price risk.

Interest rate risk analysisInterest rate risk is the risk that a financial instruments value will fluctuate as a result of changes in market interest rates. The Consolidated Group’s exposure to interest rate risk arises from cash and cash equivalent assets bearing variable interest rates as the consolidated entity intends to hold fixed rate assets to maturity. The weighted average effective interest rate on these assets is summarised below:

2010 2009 % %

Cash and cash equivalents 5.1 3.6

For each % increase/(decrease) in the weighted average effective interest rate, the Profit per annum from continuing operations before tax would increase/(decrease) by $203,424, respectively, based on the cash and cash equivalents balance for the year ended 30 June 2010 of $20,342,436.

Liquidity Risk analysis The Group manages liquidity risk by monitoring forecast cash flows.

At the reporting period date, these reports indicate that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances.

For the year ended 30 June 2010, the Group’s liabilities have contractual maturities which are summarised below.

Current Non-current

Consolidated Group

Not later than 1month

$

1 to 3 months

$

3 months to 1 year

$

1 to 5 years

$

Trade Payables 60,296 - - -

Other short term financial liabilities - 801,406 40,000 40,000

Total 60,296 801,406 40,000 40,000

The above contractual maturities reflect the gross cash flows, which may differ to the carrying values of the liabilities at the reporting period date.

Credit RiskThe maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is carrying the amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements.


For

per

sona

l use

onl

y

NOTE 30. BANDANNA ENERGY LIMITED PARENT COMPANY INFORMATIONParent entity

2010 $

2009 $

Assets

Current assets 23,472,073 6,301,445

Non-current assets 1,067,104 8,434,048

Total assets 24,539,177 14,735,493

Liabilities

Current liabilities 846,948 506,904

Non-current liabilities 39,753 2,583

Total liabilities 886,701 509,487

Equity

Issued capital 44,587,749 23,536,031

Retained earnings (22,300,281) (10,307,553)

Total equity 22,287,468 13,228,498

Reserves

Share option reserve 1,365,008 997,508

Total reserves 1,365,008 997,508

Financial performance

Profit for the year (11,992,748) (4,159,506)

Other comprehensive income - -

Total comprehensive income (11,992,748) (4,159,506)

For the year ended 30 June 2010, Bandanna Energy Limited had provided three bank guarantees totalling $1,539,389 to Gladstone Ports Corporation under the Master Terms Deed and Feasibility Funding Facility Agreement to fund Bandanna’s share of feasibility costs for Stage 1 of the Wiggins Island Coal Export Terminal development. Under the Feasibility Funding Facility Agreement, Bandanna’s total potential liability is $2,000,000. The bank guarantees will be cancelled and returned to Bandanna upon financial close for Stage 1 which is anticipated to be 30 April 2011.

Included within the cash and cash equivalents balance at 30 June 2010, are term deposits totalling $1,539,389 to secure the bank guarantees to Gladstone Ports Corporation.

Notes to the financial statements › For the year ended 30 June 2010

93

For

per

sona

l use

onl

y

Directors’ declaration

The directors of the Company declare that:

1. the financial statements and notes, as set out on pages 57 to 93, are in accordance with the Corporations Act 2001 and:

a. comply with Accounting Standards;

b. give a true and fair view of the financial position for the year ended 30 June 2010 and of the performance for the year ended on that date of the company and consolidated group; and

c. complies with International Financial Reporting Standards as disclosed in Note 1.

2. 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.

The directors have been given the declarations by the Managing Director and Chief Financial Officer required under section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the Board of Directors.

Jeremy Barlow Chairman

Dr Ray Shaw Managing Director

Dated: 28 September 2010


For

per

sona

l use

onl

y

95

For

per

sona

l use

onl

y


For

per

sona

l use

onl

y

The following additional information is required by the Australian Stock Exchange Ltd in respect of listed public companies only.

1. Shareholding

a. Distribution of Shareholders

Category (size of holding)Number Holders

1 – 1,000 2,897

1,001 – 5,000 838

5,001 – 10,000 316

10,001 – 100,000 468

100,001 and over 51

4,570

The number of shareholdings held in less than marketable parcels is 2,719. b. Substantial Shareholders

The names of the substantial shareholders listed in the holding company’s register for the year ended 30 June 2010 are:

Shareholder Number Ordinary

DJ MINING PTY LTD 87,845,788

RESOLVE GEO PTY LTD 87,845,788

SAMTAN AURES PTY LTD 37,532,016

LOCMARIA PTY LTD 21,810,391

J BARLOW CONSULTANTS PTY LTD 19,621,287

MATHEW CONSULTING PTY LTD 19,521,287

NORMAN JOSEPH ZILLMAN 18,866,908

NORMAN JOSEPH ZILLMAN + LORRAINE JEAN ZILLMAN (BANNERBLOCK SUPER FUND A/C) 18,866,908

c. Voting Rights

The voting rights attached to each class of equity security are as follows:

Ordinary sharesEach ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands.

Redeemable and converting preference sharesThese shares have no voting rights.

Additional information

97

For

per

sona

l use

onl

y

Additional information› For listed public companies

d. Restricted Securities

The following restricted securities are on issue:

Class of restricted security Number Escrow end date

Ordinary Shares 242,003,203 9 October 2010

e. 20 Largest Shareholders – Ordinary Shares

Name

Number of Ordinary Fully Paid

Shares Held

% Held of Issued Ordinary

Capital

1. DJ MINING PTY LTD 87,845,788 23.76

2. RESOLVE GEO PTY LTD 87,845,788 23.76

3. SAMTAN AURES PTY LTD 37,532,016 10.15

4. LOCMARIA PTY LTD 21,810,391 5.90

5. J BARLOW CONSULTANTS PTY LTD 19,621,287 5.31

6. MATHEW CONSULTING PTY LTD 19,521,287 5.28

7. NORMAN JOSEPH ZILLMAN 18,866,908 5.10

8. NORMAN ZILLMAN + LORRAINE ZILLMAN (BANNERBLOCK P/L SUPER A/C) 18,866,908 5.10

9. GAS STRATEGIES PTY LTD 14,540,125 3.93

10. GLOBAL RESOURCE ASSET EXCHANGE PTY LTD 9,056,524 2.45

11. ANZ NOMINEES LIMITED 2,589,266 0.70

12. DR RAYMOND DOUGLAS SHAW + MS RITA BARBARA JONES (SHAW JONES SUPER FUND A/C) 1,352,000 0.37

13. AMPLE SKILL LIMITED 1,300,000 0.35

14. SHIMMERING BRONZE PTY LTD 1,197,500 0.32

15. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 1,113,481 0.30

16. GANRA PTY LTD (FLANNERY FAMILY A/C) 625,000 0.17

17. ROMADAK PTY LTD (ROMADAK SUPER FUND A/C) 625,000 0.17

18. PRESSURE DROP PTY LTD <THE TAYLOR FAMILY A/C> 542,000 0.15

19. CITICORP NOMINEES PTY LTD 522,420 0.14

20. BARRINTOR PTY LTD 355,000 0.10

345,728,689 93.51


For

per

sona

l use

onl

y

Additional information› For listed public companies (continued)

2. Use of Cash

For the reporting period, Bandanna Energy Limited and its controlled entities used its cash in a manner consistent with its business objectives.

3. Tenement Listing

Tenement No. Tenement Name Location % Interest

EPC 1048 South Galilee – Tahi Galilee Basin, Queensland 100(1)

EPC 1049 South Galilee – Rua Galilee Basin, Queensland 100(1)

EPC 1179 South Galilee – Toru Galilee Basin, Queensland 100(1)

EPC 1180 South Galilee – Wha Galilee Basin, Queensland 100(1)

EPC 1742 Arcadia Bowen Basin, Queensland 100

EPC 1221 Arcturus Bowen Basin, Queensland 100

EPC 1189 Carnarvon Bowen Basin, Queensland 100

EPC 1195 Carnarvon South Bowen Basin, Queensland 100

EPC 1140 Denison Bowen Basin, Queensland 100

EPC 881 Dingo West Bowen Basin, Queensland 100

EPC 1103 Fernlee Bowen Basin, Queensland 100

EPC 1185 Fernlee North Bowen Basin, Queensland 100

EPC 1131 Gemini Bowen Basin, Queensland 100

EPC 891 Springsure Creek Bowen Basin, Queensland 100

EPC 1197 Wanella Bowen Basin, Queensland 100

EPM 16553 Mt Bison Styx Basin, Queensland 100

EPM 16666 Toolabuc Northern Eromanga Basin, Queensland 100

EPM 16667 Duaringa Duaringa Basin, Queensland 100

EPM 16668 North Proserpine Hillsborough Basin, Queensland 100

EPM 17568 Planet Creek Bowen Basin, Queensland 100

EPM 17932 Planet Creek 2 Bowen Basin, Queensland 100

EPM 17567 Plevna Eungella District, Queensland 100

PEL 88 – Cooper Basin, South Australia 50

PEL 100 – Cooper Basin, South Australia 5

PEL 106 Smegsy Cooper Basin, South Australia 25(2)

PEL 106 Rossco Cooper Basin, South Australia 12.5(2)

PEL 106 Udacha Cooper Basin, South Australia 12.5(2)

PEL 106 Paprika Cooper Basin, South Australia 12.5(2)

ATP 539P – Cooper Basin, Queensland 50(2)

ATP 549P (West) – Cooper Basin, Queensland 41.66

PL 18 – Surat Basin, Queensland 10

(1) Subject to Alpha Farmin Agreement. (2) Earning Interests, subject to various Farmin Agreements.

99

For

per

sona

l use

onl

y

Corporate Directory

DIRECTORSJeremy Barlow

David Graham

Robert Johansen

Park Soon IL

Dr Ray Shaw

COMPANY SECRETARYMatthew Scott

REGISTERED AND PRINCIPAL OFFICEBandanna Energy Limited

Level 12, 410 Queen Street

Brisbane QLD 4000

Tel 07 3041 4400

Fax 07 3041 4444

New South WalesSuite 2, Level 1, 80 Mount Street

North Sydney NSW 2060

Tel 02 9923 1520

Fax 02 9923 1528

SHARE REGISTRYComputershare Investor Services Pty Ltd

Level 5, 115 Grenfell Street

Adelaide SA 5000

Tel 1300 556 161

STOCK EXCHANGE LISTINGAustralian Stock Exchange

The home exchange is Adelaide

ASX Code BND

AUDITORSGrant Thornton Audit Pty Ltd

Ground Floor, 102 Adelaide Street

Brisbane QLD 4000

Tel 07 3222 0200

Desi

gned

and

pro

duce

d by

vill

aind

esig

ns.c

om For

per

sona

l use

onl

y

www.bandannaenergy.com.au

Registered OfficeLevel 12, 410 Queen Street, Brisbane Queensland 4000

ABN 34 009 356 665

For

per

sona

l use

onl

y

for personal use only - australian securities exchange · abn 34 009 356 665 asx code: bnd section...

Documents