2012 Annual Report (2 April 2013) - Grange Resources

60
PAGE
2012 ANNUAL REPORT
Notes to the Financial Statements (cont.)
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (cont.)
(ai) New accounting standards
and interpretations (cont.)
(vi) AASB Interpretation 20 Stripping Costs in the
Production Phase of a Surface Mine and AASB 2011-
12 Amendments to Australian Accounting Standards
arising from Interpretation 20 (effective 1 January 2013)
Interpretation 20 sets out the accounting for overburden
waste removal (stripping) costs in the production phase of a
mine. It states that these costs can only be recognised as an
asset if they can be attributed to an identifiable component
of the ore body, the costs relating to the improved access to
that component can be measured reliably and it is probable
that future economic benefits associated with the stripping
activity (improved access to the orebody) will flow to the
entity. The costs will be amortised over the life of the identified
component of the ore body.
This is different to the Group’s current accounting policy which
is to capitalise stripping costs based on a life of mine wasteto-ore
stripping ratio and amortise the costs over the life of
the mine. The interpretation must be applied prospectively
from earliest period presented and the Group will have to
write off existing stripping asset balances of $130.2 million as
at 1 January 2012 to retained earnings, unless they relate to
an identifiable component of the ore body.
The Group continues to review its existing stripping cost
assets in light of the requirements of the interpretation
and is unable to quantify the effect, if any, on the
amounts recognised in the financial statements as at
31 December 2012.
(vii) AASB 2012-5 Amendments to Australian Accounting
Standard arising from Annual Improvements 2009-2011
cycle (effective 1 January 2013).
In June 2012, the AASB approved a number of amendments
to Australian Accounting Standards as a result of the 2009-
2011 annual improvements project. The Group will apply
the amendments from 1 January 2013. The Group does not
expect that any adjustments will be necessary as a result of
applying the revised rules.
NOTE 2. FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks:
market risk (including currency risk, interest rate risk and price
risk), credit risk and liquidity risk. The Group’s overall risk
management program focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the
financial performance of the Group. The Group has previously
used derivative financial instruments such as foreign exchange
contracts to manage certain risk exposures. Derivatives are
exclusively used for hedging purposes, i.e. not as trading or other
speculative instruments. The Group uses different methods to
measure different types of risks to which it is exposed. These
methods include sensitivity analysis in the case of interest rate,
foreign exchange and commodity price risks and aging analysis
for credit risk.
Risk management is carried out by a Treasury Committee under
a policy approved by the Board of Directors. The Treasury
Committee identifies, evaluates and manages financial risks
according to parameters outlined in an approved Treasury
policy. The Treasury policy provides written principles for overall
risk management, as well as policies covering specific areas,
such as foreign exchange risk, interest rate risk, credit risk, use
of derivative financial instruments and non-derivative financial
instruments, and investment of excess liquidity.
The Group holds the following financial instruments:
2012 2011
$’000 $’000
Financial Assets
Cash and cash equivalents 119,918 172,269
Term deposits 55,000 16,738
Trade and other receivables 25,703 51,326
200,621 240,333
Financial Liabilities
Trade and other payables 34,982 49,424
Borrowings 22,929 44,887
Deferred consideration 49,586 65,351
107,497 159,662