Annual Report 2007 - Antofagasta plc

Notes to the Financial Statements continued2 Principal Accounting Policies continuedh) Property, plant and equipmentThe costs of mining properties and leases, which include the costs of acquiring and developing miningproperties and mineral rights, are capitalised as property, plant and equipment in the year in which they areincurred.The cost of plant, property and equipment comprises the purchase price and any costs directly attributable tobringing the asset to the location and condition necessary for it to be capable of operating in the mannerintended. Once a project has been established as commercially viable, related development expenditure iscapitalised. This includes costs incurred in preparing the site for mining operations, including pre-stripping costs.Capitalisation ceases when the mine is capable of commercial production, with the exception of developmentcosts which give rise to a future benefit.Interest on borrowings directly related to construction or development of projects is capitalised, until such timeas the assets are substantially ready for their intended use or sale which, in the case of mining properties, iswhen they are capable of commercial production.i) Depreciation of property, plant and equipment and amortisation of intangible assetsProperty, plant and equipment is depreciated over its useful life, or over the remaining life of the operation ifshorter, to residual value. The major categories of property, plant and equipment are depreciated as follows:(i) Land – Freehold land is not depreciated. Any leasehold land is depreciated on a straight-line basis over thelife of the lease.(ii) Mining properties – mining properties, including capitalised financing costs, are depreciated on a unit ofproduction basis, in proportion to the volume of ore extracted in the year compared with total proven andprobable reserves at the beginning of the year.(iii)(iv)(v)(vi)Buildings and infrastructure – straight-line basis over 10 to 25 years.Railway track (including trackside equipment) – straight-line basis over 20 to 25 years.Wagons and rolling stock – straight-line basis over 10 to 20 years.Machinery, equipment and other assets – straight-line basis over 5 to 10 years.(vii) Assets under construction – no depreciation until asset is available for use.(viii) Assets held under finance lease – are depreciated over the shorter of the lease term and their useful life.Residual values and useful lives are reviewed, and adjusted if appropriate, at least annually, and changes toresidual values and useful lives are accounted for prospectively.The concession right is amortised on a straight-line basis over the life of the concession.FINANCIAL STATEMENTSj) Impairment of property, plant and equipment and intangible assets (excluding goodwill)Property, plant and equipment and finite life intangible assets are reviewed for impairment if there is anyindication that the carrying amount may not be recoverable. If any such indication exists, the recoverableamount of the asset is estimated in order to determine the extent of the impairment (if any). Where the assetdoes not generate cash flows that are independent from other assets, the Group estimates the recoverableamount of the cash-generating unit to which the asset belongs. Any intangible asset with an indefinite useful lifeis tested for impairment annually and whenever there is an indication that the asset may be impaired.Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, theestimated future cash flows are discounted to their present value, using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific to the asset for which estimatesof future cash flows have not been adjusted.86Antofagasta plc Annual Report and Financial Statements 2007