Annual Report and Accounts 2013
Petra Diamonds Limited 111
Overview
Performance Review
Strategic Review
Sustainability
Corporate Governance
Group Accounts
8. Impairment of operational assets and investments
continued
8.2 Impairment tests – other mining operations 30 June 2013 and 30 June 2012
continued
a) Non-impaired operations
continued
Key assumptions
Explanation
Discount rate
The discount rate used for the South African operations represents the before-tax risk-free rate per the RSA
Government bonds adjusted for market risk, volatility and risks specific to the asset.
The discount rate used for Williamson represents the before-tax risk-free rate per the Tanzanian
Government bonds adjusted for market risk, volatility and risks specific to the asset.
Inflation rate
Long-term inflation rate of 4.0% (30 June 2012: 4.0%) above a long-term US inflation rate of 2.5%
(30 June 2012: 2.5%) per annum was used for US$ diamond prices. Long-term inflation rates of 3.5%–7.5%
(30 June 2012: 3.5%–5.0%) above the prevailing US inflation rate were used for Opex and Capex valuations.
Exchange rates
Exchange rates are based on external market consensus and after considering long-term market expectations.
The US$/R exchange rate range used commenced at R9.00 (30 June 2012: R8.00), further devaluing at 3.5%
(30 June 2012: 3.5%) per annum.
Valuation basis
Discounted present value of future cashflows.
Sensitivity
Management notes that a 3.4%/7.4% movement in diamond prices or a 7.8%/21.2% movement in production
(for FY 2014, FY 2015 and FY 2016) or a 3.6%/8.0% movement in foreign exchange rates as compared to
the R9.00/US$ base foreign exchange rate for FY 2014 at Kimberley Underground and Helam would result
in a break-even impairment scenario. In addition, the impairment test for Helam and Kimberley Underground
includes initial increases in production tonnes of 36% and 37% respectively for FY 2014 compared to FY 2013
actuals. Helam and Kimberley Underground have the lowest headroom of the mines already detailed.
The diamond prices used in the impairment test have been set with reference to recent market trends and
long-term diamond price escalators reflect the Group’s assessment of market supply/demand fundamentals,
although short-term volatility remains possible within the market. Foreign exchange rates of R9.00:US$1
are considered to be conservatively forecast given current exchange rates, but the ZAR-USD exchange rate
volatility remains. The production growth included in the forecasts is considered sufficiently probable, given
the commissioning and ongoing optimisation of the Wesselton plant at Kimberley Underground,
the expected reduction in Section 54 safety stoppages and operational management strategies.
9. Net financing (expense)/income
US$ million
2013
2012
Gross interest on bank loans and overdrafts1
(17.3)
(7.7)
Interest on bank loans and overdrafts capitalised1
12.3
6.3
Net interest expense on bank loans and overdrafts1
(5.0)
(1.4)
Other debt finance costs1
(8.2)
(9.8)
Unwinding of present value adjustment for rehabilitation costs
(2.6)
(5.9)
Realised foreign exchange losses
(0.3)
(0.2)
Unrealised foreign exchange losses2
(6.7)
(38.6)
Financial expense
(22.8)
(55.9)
Realised foreign exchange gains and other
3.1
7.6
Unrealised foreign exchange gains
2.0
Interest received on loans and other receivables
9.2
9.7
Interest received on bank deposits
0.4
1.8
Financial income
14.7
19.1
(8.1)
(36.8)
1. Calculated using the effective interest method in respect of financial liabilities calculated at amortised cost. Included in the current year interest on bank loans and overdrafts
is the extinguishment of historical borrowing costs on refinancing as a result of a significant modification in the financing arrangements as detailed in note 21.
2. In prior years, foreign exchange movements on retranslation of Rand denominated loans, not classified as permanent as equity under IFRS, by companies in the Group which did not
have a Rand functional currency were recognised in the Condensed Consolidated Income Statement. Effective 1 July 2012, the Group reorganised its intra-Group funding arrangements
and restructured its treasury structure, which has removed significant foreign exchange translation exposure; as the Rand loans are now held between entities with Rand
functional currencies.
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