ANNUAL%20REPORT%202015%20eng

Notes to Consolidated Financial Statements
6 LOSS BEFORE TAXATION (Continued)
(c)
Other items: (Continued)
Note: (Continued)
(ii)
Impairment of non-financial assets (Continued)
– Discount rate
This discount rate is derived from the Group’s weighted average cost of capital (“WACC”), with
appropriate adjustments made to reflect the risks specific to the CGU. The WACC takes into account
both debt and equity, weighted based on the Group and comparable peer companies’ average capital
structure. The cost of equity is derived from the expected return on investment by the Group’s investors
based on publicly available market data of comparable peer companies. The cost of debt is based on
the borrowing cost of interest-bearing borrowings of the Group that reflects the credit rating of the
Group.
Post-tax discount rate of 20% was applied to the future cash flows projection at the year end of 2015
(2014: 20%). The directors believe that the post-tax discount rate was match with the latest cash flow
projection modeling.
Based on above-mentioned impairment assessment, the carrying amount of the CGU has not
exceeded its recoverable amount as at 31 December 2015, and has not resulted in the identification
of an impairment loss for the year ended 31 December 2015.The Directors are of the opinion that the
impairment provision is adequate as at 31 December 2015 and no additional or reversal of impairment
provision is needed in respect of the Group’s non-financial assets in this regard. The Directors believe
that the estimates and assumptions incorporated in the impairment assessment are reasonable;
however, the estimates and assumptions are subject to significant uncertainties and judgements. It is
estimated that adverse changes in the key assumptions would lead to the recognition of an impairment
provision against the CGU as follows:
USD’000
7% decrease in long-term coal price 12,000
7% decrease in the estimated production volume 3,000
One percentage point increase in pre-tax discount rate 13,000
2% increase in the estimated operating costs 2,000
45% increase in the estimated capital expenditure 5,000
This assumes that the adverse change in the key assumption occurs in isolation of changes to other key
assumptions and that no mitigating action is taken by management.
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Annual Report 2015