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5.2 Waste stripping costs
The rate at which costs associated with the removal of overburden or
waste material is capitalised as development costs or charged as an
operating costs is calculated using management’s best estimates of the:
The average LOM stripping ratio and the average LOM mining cost are
recalculated annually in light of additional knowledge and changes in
estimates. Any change in management’s estimates would impact the
stripping costs capitalised charged to operating costs.
5.3 Impairment of non-financial assets
The group reviews and tests the carrying value of assets when
events or changes in circumstances indicate that the carrying
amount may not be recoverable by comparing expected future cash
flows to these carrying values. Such events or circumstances include
movements in exchange rates, iron ore prices and the economic
environment in which its businesses operate. Assets are grouped
at the lowest level for which identifiable cash flows are largely
independent of cash flows of other assets and liabilities. If there
are indications that impairment may have occurred, estimates are
prepared of expected future cash flows of each group of assets.
Expected future cash flows used to determine the value in use of
non-financial assets are inherently uncertain and could materially
change over time. They are significantly affected by a number
of factors including iron ore reserves and production estimates,
together with economic factors such as future iron ore prices,
discount rates, foreign currency exchange rates, estimates of
production and logistics costs, future capital expenditure and
discount rates used.
5.4 Provision for environmental
rehabilitation and decommissioning
The provisions for environmental rehabilitation and decommissioning
are calculated using management’s best estimate of the costs to be
incurred based on the group’s environmental policy taking into account
current technological, environmental and regulatory requirements
discounted to a present value. Estimates are based upon costs that
are regularly reviewed, by internal and external experts, and adjusted
as appropriate for new circumstances. Actual costs incurred in future
periods could differ from the estimates. Additionally, future changes to
environmental laws and regulations, LOM estimates and discount rates
used could affect the carrying amount of this provision. As a result, the
liabilities that we report can vary if our assessment of the expected
expenditures changes.
5.6 Equity-settled share-based
payment reserve
Management makes certain judgements in respect of selecting
appropriate fair value option pricing models to be used in estimating
the fair value of the various share-based payment arrangements in
respect of employees and special purpose entities. Judgements and
assumptions are also made in calculating the variable elements used
as inputs in these models. The inputs that are used in the models
include, but are not limited to, the expected vesting period and
related conditions, share price, dividend yield, share option life, risk
free interest rate and annualised share price volatility (refer note 22).
5.7 Estimation of deemed gross sales value
of revenue for calculating mineral royalty
In terms of The Mineral and Petroleum Resources Royalty Act,
No. 28 of 2008 and the Mineral and Petroleum Resources Royalty
Administration Act, No. 29 of 2008, the specified condition for iron
ore used to calculate the mining royalty payable will be deemed to
have been extracted at a 61.5% Fe specified condition. Management
is required to make certain judgements and estimates in determining
the gross sales value of the ore extracted at the group’s mines.
5.8 Discount rates
The discount rates used are the appropriate pre-tax rates that reflect
the current market assessment of the time value of money and the
risks specific to the assets and liabilities being measured for which
the future cash flow estimates have not been adjusted.
5.9 Segment reporting
In applying IFRS 8, ‘Operating segments’, management makes
judgements with regard to the identification of reportable operating
segments of the group.
5.10 Going concern
Management considers key financial metrics and loan covenant
compliance in its approved medium-term budgets, together with
its existing-term facilities, to conclude that the going-concern
assumption used in the compiling of its annual financial statements,
is appropriate.
Audited annual financial statements
5.5 Deferred tax assets
The group recognises the net future tax benefit related to deferred
income tax assets to the extent that it is probable that the deductible
temporary differences will reverse in the foreseeable future, or the
probability of utilising assessed losses. Assessing the recoverability
of deferred income tax assets requires the group to make significant
estimates related to expectations of future taxable income on a
subsidiary by subsidiary level. Estimates of future taxable income
are based on forecast cash flows from operations. To the extent that
future cash flows differ significantly from estimates, the ability of the
group to realise the net deferred tax assets recorded at the balance
sheet date could be impacted.
Annual Financial Statements 2011
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