Annual Report 2007 - Antofagasta plc

2 Principal Accounting Policies continuede) Business combinations and goodwill(i) Acquisitions – The results of businesses acquired during the year are brought into the consolidated financialstatements from the effective date of acquisition. The identifiable assets, liabilities and contingent liabilities of asubsidiary, joint venture entity or an associate which can be measured reliably are recorded at their provisionalfair values at the date of acquisition. Provisional fair values are finalised within 12 months of the acquisition date.(ii) Goodwill – Goodwill represents the difference between the cost of acquisition and the fair value of theidentifiable net assets acquired. Any goodwill on the acquisition of subsidiaries is separately disclosed, while anygoodwill on the acquisition of associates is included within investments in equity accounted entities. Internallygenerated goodwill is not recognised.Where the fair values of the identifiable net assets acquired exceed the cost of the acquisition, the surplus(which represents the discount on the acquisition) is credited to the income statement in the period ofacquisition.(iii) Disposals – The results of businesses sold during the year are included in the consolidated financialstatements for the period up to the effective date of disposal. Gains or losses on disposal are calculated asthe difference between the sales proceeds (net of expenses) and the net assets attributable to the interestwhich has been sold. Where a disposal represents a separate major line of business or geographical area ofoperations, the net results attributable to the disposed entity are shown separately in the income statement.f) Intangible assets(i) Concession right – In 2003, the Group’s wholly owned subsidiary, Aguas de Antofagasta S.A., was awardeda 30 year concession to operate the water rights and facilities in the Antofagasta Region of Chile previouslycontrolled by Empresa de Servicios Sanitarios de Antofagasta S.A. (“ESSAN”).The Group has recognised on its balance sheet the tangible assets transferred to it by way of concession wherethe economic benefits are primarily to be consumed over the life of the concession arrangement. An intangibleasset (a “concession right”) has been recognised in respect of the right to use those assets not recognised astheir lives extend substantially beyond the period of the concession. The concession right was measured as thedifference between the cost of the concession and the fair values of the assets and liabilities recognised onacquisition.(ii) Exploration licences – In 2006, the Group acquired Tethyan Copper Company Limited (“Tethyan”), acompany with copper-gold interests in Pakistan, and entered into a joint venture over Tethyan’s mineral interestswith Barrick Gold Corporation through the disposal of a 50% interest in Tethyan. An intangible asset has beenrecognised for the Group’s proportionate share of the full unencumbered value attributed to the interest in theexploration licences held by Tethyan in Pakistan.g) Exploration expenditureExploration is expensed in the year in which it is incurred. When a decision is taken that a mining projectis commercially viable (normally when the project has reached the pre-feasibility stage) all further directlyattributable pre-production expenditure is capitalised. Capitalisation of pre-production expenditure ceaseswhen commercial levels of production are achieved.FINANCIAL STATEMENTSAntofagasta plc Annual Report and Financial Statements 2007 85