INSTRUCTIONS - Realview

NOTES TO THEFINANCIAL STATEMENTSFor the year ended 30 June 2009Note 3 Critical Accounting Estimates And Judgements cont.(i) Ore reserve estimatesReserves are estimates of the amount of gold product that can be economically extracted from the consolidated entity’sproperties. In order to calculate reserves, estimates and assumptions are required about a range of geological, technicaland economic factors, including quantities, grades, production techniques, recovery rates, production costs, future capitalrequirements, short and long term commodity prices and exchange rates.Estimating the quantity and/or grade of reserves requires the size, shape and depth of ore bodies to be determined by analysinggeological data. This process may require complex and difficult geological judgements and calculations to interpret the data.The consolidated entity determines and reports ore reserves under the Australian Code for Reporting of Mineral Resourcesand Ore Reserves December 2004, known as the JORC Code. The JORC Code requires the use of reasonable investmentassumptions to calculate reserves. Due to the fact that economic assumptions used to estimate reserves change from periodto period, and geological data is generated during the course of operations, estimates of reserves may change from periodto period. Changes in reported reserves may affect the consolidated entity’s financial results and financial position in anumber of ways, including:• Asset carrying values may be impacted due to changes in estimated future cash flows.• Depreciation and amortisation charged in the income statement may change where such charges are calculated usingthe units of production basis.• Waste stripping costs deferred in the balance sheet or charged in the income statement may change due to a revisionin stripping ratios.• Decommissioning, site restoration and environmental provisions may change where changes in estimated reserves affectexpectations about the timing or cost of these activities.(ii) Units of production method of amortisationThe consolidated entity applies the units of production method for amortisation of its life of mine specific assets, whichresults in an amortisation charge proportional to the depletion of the anticipated remaining life of mine production.These calculations require the use of estimates and assumptions in relation to reserves and resources, metallurgy andthe complexity of future capital development requirements; changes to these estimates and assumptions will impactthe amortisation charge in the income statement and asset carrying values.(iii) Impairment of assetsThe recoverable amount of each Cash Generating Unit (CGU) is determined as the higher of value-in-use and fair value lesscosts to sell, in accordance with accounting policy 1(k). These calculations require the use of estimates, which have beenoutlined in accounting policy 1(k). Value-in-use is generally determined as the present value of the estimated future cashflows. Present values are determined using a risk adjusted discount rate appropriate to the risks inherent in the asset.Given the nature of the consolidated entity’s mining activities, future changes in assumptions upon which these estimatesare based may give rise to a material adjustment to the carrying value of the CGU. This could lead to the recognition ofimpairment losses in the future. The inter-relationships of the significant assumptions upon which estimated future cashflows are based, however, are such that it is impracticable to disclose the extent of the possible effects of a change in akey assumption in isolation.Future cash flow estimates are based on expected production volumes, the short and long term forecasts of the Australiandollar gold price, ore reserves, operating costs, future capital expenditure and restoration and rehabilitation costs. Managementis required to make these estimates and assumptions, which are subject to risk and uncertainty. As a result there is a possibilitythat changes in circumstances will alter these projections, which could impact on the recoverable amount of the assets. Insuch circumstances some or all of the carrying value of the assets may be impaired, giving rise to an impairment charge inthe income statement.64