2010 Annual Report - Grange Resources

56 GRANGE RESOURCES LIMITED
Notes to the Financial Statements (cont.)
NOTE 2.
FINANCIAL RISK
MANAGEMENT (cont.)
Going forward, the Group may consider using financial
instruments to manage commodity price risk given exposures to
market prices arising from recent changes to pricing
mechanisms.
(iii) Cash flow and fair value interest rate risk
The Group’s main interest rate risk arises from long term
borrowings. Borrowings are issued at variable rates exposing the
Group to cash flow interest rate risk. Borrowings issued at fixed
rates expose the Group to fair value interest rate risk if the
borrowings are carried at fair value.
As at the reporting date, the Group has the following variable rate
borrowings outstanding:
December 2010 June 2010
Weighted
Weighted
average
average
interest
interest
rate Balance rate Balance
% $’000 % $’000
Borrowings 2.47 9,177 2.54 9,282
The Group’s fixed rate borrowings are carried at amortised cost.
As they are fixed rate borrowings, they are not subject to interest
rate risk as defined by AASB 7, Financial Instruments:
Disclosures.
The Group analyses its interest rate exposure on a dynamic
basis. Various scenarios are simulated taking into consideration
refinancing, renewal of existing positions, alternative financing
and hedging. Based on these scenarios, the Group calculates
the impact on profit and loss of a defined interest rate shift. No
financial instruments are used to manage interest rate risk.
(b) Credit Risk
Credit risk is managed on a Group basis. Credit risk arises from
cash and cash equivalents and deposits with banks and financial
institutions, as well as credit exposures to customers, including
outstanding receivables and committed transactions.
The Group is exposed to a concentration of risk with sales of iron
ore being made to a limited number of customers. The maximum
exposure to credit risk at the reporting date is limited to the
carrying value of trade receivables, cash and cash equivalents
and deposits with banks and financial institutions.
The Group has no receivables past due as at 31 December
2010.
(c) Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient
cash and marketable securities, the availability of funding through
an adequate amount of committed credit facilities and the ability
to close out market positions. The Group manages liquidity risk
by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial assets and liabilities.
Financing arrangements
The Group has fully drawn available borrowing facilities as at the
reporting date.
Maturities of financial liabilities
The table below analyses the Groups financial liabilities into
relevant maturity groupings based on the remaining period as at
the reporting date to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash
flows.
Group sensitivity
The Group’s fixed rate borrowings are carried at amortised cost.
As they are fixed rate borrowing, they are not subject to interest
rate risk and are excluded from the interest rate sensitivity
analysis.
At 31 December 2010, if interest rates had increased by 5 basis
points (bps) or decreased by 5 basis points from the period end
rates with all other variables held constant, post tax profit for the
period would have been $0.4 million higher / $0.4 million lower
(June 2010 changes of 5 bps / 5 bps: $0.3 million higher / $0.3
million lower).
Overview
Review Of Operations
Corporate Governance