BROADENING OUR HORIZONS - Arrium

OneSteel Annual Report 2011742. Significant accountingestimates and judgements(continued)Deferred tax assets, including those arisingfrom unrecouped tax losses, capital lossesand temporary differences, are recognisedonly where it is considered more likely thannot that they will be recovered, which isdependent on the generation of sufficientfuture taxable profits.Significant accounting estimatesand assumptionsImpairment of goodwill and intangibleswith indefinite useful livesThe Group determines whether goodwilland intangibles with indefinite usefullives are impaired on at least an annualbasis. This requires an estimation of therecoverable amount of the cash generatingunits to which the goodwill and intangibleswith indefinite useful lives are allocatedusing a value in use discounted cash flowmethodology. The assumptions used inthis estimation of recoverable amountand the carrying amount of goodwill andintangibles with indefinite useful lives aredetailed in Note 14.Provision for restoration and rehabilitationRestoration and rehabilitation costs area normal consequence of the Group’soperations. The provisions includefuture cost estimates associated withdismantling, closure and decontaminationof various sites. The calculation of theprovisions requires assumptions such asapplication of environmental legislation,site closure dates, available technologiesand consultant cost estimates. The ultimatecost of restoration and rehabilitation isuncertain and costs can vary in response tomany factors including changes to relevantlegal requirements, the emergence ofnew restoration techniques or experienceat other sites. These uncertainties mayresult in future actual expenditure differingfrom the amounts currently provided.The provision recognised for each site isperiodically reviewed and updated basedon the facts and circumstances availableat the site. Changes to the estimatedfuture costs for sites are recognised inthe Balance Sheet by adjusting boththe expense or asset (if applicable) andprovision. The assumptions used in theestimation of restoration and rehabilitationprovisions are detailed in Note 18.Share-based payment transactionsThe Group measures the cost of equitysettledtransactions with employees byreference to the fair value of the equityinstruments at the date of grant. The fairvalue is determined by an external valuerusing a Monte-Carlo Simulation optionpricing model, using the assumptionsdetailed in Note 29. The accountingestimates and assumptions relating toequity-settled share-based payment wouldhave no impact on the carrying amountsof assets and liabilities within the nextannual reporting period but may impactexpenses and equity.Defined benefit plansVarious actuarial assumptions are requiredwhen determining the Group’s pensionschemes and other post-retirement benefitobligations. These assumptions and therelated carrying amounts are disclosed inNote 19.Estimation of useful lives of assetsThe estimation of the useful lives of assetshas been based on historical experienceas well as manufacturer’s warranties. Inaddition, the condition of the assets isassessed at least annually and consideredagainst the remaining useful life.Adjustments to useful lives are made whenconsidered necessary.Ore reserve and resource estimatesOre reserves are estimates of the amountof ore that can be economically and legallyextracted from the Company’s miningproperties. The Company estimates its orereserves based on information compiledby appropriately qualified personsrelating to the geological judgementsto interpret the data. The estimation ofrecoverable reserves is based upon factorssuch as estimates of foreign exchangerates, commodity prices, future capitalrequirements, and production costsalong with geological assumptions andjudgements made in estimating the sizeand grade of the ore body. Changes in thereserve or resource estimates may impactupon the carrying value of explorationand evaluation assets, mine properties,property, plant and equipment, provisionfor rehabilitation, and depreciation andamortisation charges.Australian Government’s proposed carbonpricing mechanismThe Australian Government announcedthe “Securing a Clean Energy Future — theAustralian Government’s Climate ChangePlan” on 10 July 2011, including details ofadditional assistance to the Steel Industry.Whilst the announcement provides furtherdetails of the framework for a carbon pricingmechanism, uncertainties continue withregard to the impact of any carbon pricingmechanism on the Group as key parts of thelegislative scheme have yet to be drafted,and the draft legislation already releasedmust be voted on and passed by both housesof Parliament.The Group has not incorporated thepotential impact of any carbon pricemechanism in its impairment testing asat 30 June 2011 because management isof the view that due to the uncertainty itcannot reliably quantify the impact of theproposed carbon pricing mechanism on therecoverability of the carrying amount ofassets as at 30 June 2011.Mineral Resource Rent TaxOn 2 July 2010, the Federal Governmentannounced that it would replace theproposed Resources Super Profits Tax(RSPT) with a Mineral Resource Rent Tax(MRRT). The MRRT applies to only ironore and coal extraction activities from 1July 2012. The MRRT applies equally toOneSteel’s hematite ore export sales andthe magnetite ore used in the Steelworks.The details of the proposed tax, includingtreatment of vertically integratedoperations, are subject to an ongoingconsultation process with governmentand may change prior to becoming finallegislation. As a result, management is ofthe view that it cannot reliably quantifythe impact of the proposed MRRT on therecoverability of the carrying amount ofassets at 30 June 2011.