REG - Fresnillo Plc - Financial Results for the Year Ended 31 Dec 2015 <Origin Href="QuoteRef">FRES.L</Origin> - Part 3
01/03/2016 07:12
- Part 3: For the preceding part double click ID:nRSA5523Qb
capital of cash for-sale equity
flow financial assets
hedges
US$ thousands
Balance at 1 January 2014 368,546 1,153,817 (526,910) 721 7,845 (363) 1,269,781 2,273,437 398,534 2,671,971
Profit for the year 108,449 108,449 8,645 117,094
Other comprehensive income, net of tax - - - (10,667) 16,670 (234) (1,555) 4,214 - 4,214
Total comprehensive income for the year - - - (10,667) 16,670 (234) 106,894 112,663 8,645 121,308
Capital contribution - - - - - - - - 46,011 46,011
Acquisition of non-controlling interest 4(b) - - - - - - (23,844) (23,844) (426,651) (450,495)
Dividends declared and paid 20 - - - - - - (86,954) (86,954) - (86,954)
Balance at 31 December 2014 368,546 1,153,817 (526,910) (9,946) 24,515 (597) 1,265,877 2,275,302 26,539 2,301,841
Profit/(loss) for the year 70,523 70,523 (1,133) 69,390
Other comprehensive income, net of tax - - - 46,160 (8,218) (134) (1,912) 35,896 - 35,896
Total comprehensive income for the year - - - 46,160 (8,218) (134) 68,611 106,419 (1,133) 105,286
Capital contribution - - - - - - - - 4,796 4,796
Dividends declared and paid 20 - - - - - - (37,582) (37,582) - (37,582)
Balance at 31 December 2015 368,546 1,153,817 (526,910) 36,214 16,297 (731) 1,296,906 2,344,139 30,202 2,374,341
1. Corporate information
Fresnillo plc. ("the Company") is a public limited company and registered in England and Wales with registered number
6344120 and is the holding company for the Fresnillo subsidiaries detailed in note 6 of the Parent Company accounts ('the
Group').
Industrias Peñoles S.A.B. de C.V. ('Peñoles') currently owns 75 percent of the shares of the Company and the ultimate
controlling party of the Company is the Baillères family, whose beneficial interest is held through Peñoles. Copies of
Peñoles' accounts can be obtained from www.penoles.com.mx. Further information on related party balances and transactions
with Peñoles' group companies is disclosed in note 28.
The consolidated financial statements of the Group for the year ended 31 December 2015 were authorised for issue by the
Board of Directors of Fresnillo plc on 29 February 2016.
The auditor's report on those financial statements will be delivered to the Registrar in due course.
The financial information contained in this document does not constitute statutory accounts as defined in section 435 of
the Companies Act 2006.
The Group's principal business is the mining and beneficiation of non-ferrous minerals, and the sale of related production.
The primary contents of this production are silver, gold, lead and zinc. Further information about the Group operating
mines and its principal activities is disclosed in note 3.
2. Significant accounting policies
(a) Basis of preparation and consolidation, and statement of compliance
Basis of preparation and statement of compliance
The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union as they apply to the financial statements of the Group for the years
ended 31 December 2015 and 2014, and in accordance with the provisions of the Companies Act 2006.
The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial
instruments, available-for-sale financial instruments and defined benefit pension scheme assets which have been measured at
fair value.
The consolidated financial statements are presented in dollars of the United States of America (US dollars or US$) and all
values are rounded to the nearest thousand ($000) except when otherwise indicated.
Basis of consolidation
The consolidated financial statements set out the Group's financial position as of 31 December 2015 and 2014, and the
results of operations and cash flows for the years then ended.
Entities that constitute the Group are those enterprises controlled by the Group regardless of the number of shares owned
by the Group. The Group controls an entity when the Group is exposed to, or has the right to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. Entities are
consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which
control is transferred out of the Group. The Group applies the acquisition method to account for business combinations in
accordance with IFRS 3.
All intra-group balances, transactions, income and expenses and profits and losses, including unrealised profits arising
from intra-group transactions, have been eliminated on consolidation. Unrealised losses are eliminated in the same way as
unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity
therein. The interest of non-controlling shareholders may be initially measured either at fair value or at the
non-controlling interest's proportionate share of the acquiree's identifiable net assets. The choice of measurement basis
is made on an acquisition by-acquisition basis. Subsequent to acquisition, non-controlling interests consist of the amount
attributed to such interests at initial recognition and the non-controlling interest's share of changes in equity since the
date of the combination. Any losses of a subsidiary are attributed to the non-controlling interests even if that results in
a deficit balance.
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions
- that is, a transaction with the owners in their capacity as owners. The difference between fair value of any
consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in
equity. Gains or losses on disposals to non-controlling interest are also recorded in equity.
(b) Changes in accounting policies and disclosures
The accounting policies applied are consistent with those applied in the preparation of the consolidated financial
statements for the year ended 31 December 2014. During 2015, there were no amendments to existing accounting policies.
New standards, interpretations and amendments (new standards) adopted by the Group
During 2015 there were no new standards adopted by the Group. New standards issued by the IASB effective as of 1 January
2015 had no impact in the financial information of the Group.
Standards, interpretations and amendments issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's
financial statements are disclosed below. The Group intends to adopt these standards that consider will be applicable to
the Group's financial statements, when they become effective.
IFRS 9 Financial Instruments: In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which
reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and
Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and
measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018,
with early application permitted. Retrospective application is required, but comparative information is not compulsory. The
Group is currently assessing the impact of IFRS 9 and plans to adopt the new standard on the required effective date.
IFRS 15 Revenue from Contracts with Customers: IFRS 15 was issued in May 2014 and establishes a five-step model to account
for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The
new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective
application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018,
when the IASB finalises their amendments to defer the effective date of IFRS 15 by one year. Early adoption is permitted.
The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.
IFRS 16 Leases
IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all
leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a
right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its
obligation to make lease payments. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17.
Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two
types of leases differently. These amendments are effective for annual periods beginning on or after 1 January 2019,
earlier application is permitted. However, as there are several interactions between IFRS 16 and IFRS 15 Revenue from
contracts with customers, early application is restricted to entities that also early apply IFRS 15. The Group is currently
assessing the impact of IFRS 16 and plans to adopt the new standard on the required effective date.
Amendments to IAS 1 Disclosure Initiative
The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1
requirements. These amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption
permitted. The Group has not early adopted this standard; however, management has reviewed the aggregation level in the
financial statements including disclosures in notes, considering the new guidance on materiality. The amendments to this
standard are not expected to have any impact in the financial information of the Group.
Amendments to IAS 7 Disclosure Initiative
The amendments to IAS 7 require disclosure of information that will allow users to understand changes in liabilities
arising from financing activities. This include changes arising from (i) cash flows, such as drawdowns and repayments of
borrowings; and (ii) non-cash changes, such as acquisitions, disposals and unrealised exchange differences. These
amendments are effective for annual periods beginning on or after 1 January 2017, with early adoption permitted. The
amendments to this standard are not expected to have any impact in the financial information of the Group.
Amendments to IAS 12 Income Taxes
The amendments to IAS 12 clarify the accounting for deferred tax where an asset is measured at fair value and that fair
value is below the asset's tax base. They also clarify certain other aspects of accounting for deferred tax assets. These
amendments are effective for annual periods beginning on or after 1 January 2017, with early adoption permitted. The
amendments to this standard are not expected to have any impact in the financial information of the Group.
The IASB have issued other amendments to standards that management considers do not have any impact on the accounting
policies, financial position or performance of the Group.
The Group has not early adopted any standard, interpretation or amendment that was issued but is not yet effective.
(c) Significant accounting judgments, estimates and assumptions
The preparation of the Group's consolidated financial statements in conformity with IFRS requires management to make
judgements, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at
the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting
period. These judgements and estimates are based on management's best knowledge of the relevant facts and circumstances,
with regard to prior experience, but actual results may differ from the amounts included in the consolidated financial
statements. Information about such judgements and estimates is contained in the accounting policies and/or the notes to the
consolidated financial statements.
Judgements
Areas of judgement, apart from those involving estimations, that have the most significant effect on the amounts recognised
in the consolidated financial statements are:
Determination of functional currencies(note 2(d)):
The determination of functional currency requires management judgement, particularly where there may be several currencies
in which transactions are undertaken and which impact the economic environment in which the entity operates.
Evaluation of projects status (note 2(e)):
The evaluation of project status impacts the accounting for costs incurred and requires management judgement. This includes
the assessment of whether there is sufficient evidence of the probability of the existence of economically recoverable
minerals to justify the commencement of capitalisation of costs; the timing of the end of the exploration phase and the
start of the development phase and the commencement of the production phase. These judgements directly impact the treatment
of costs incurred and proceeds from the sale of metals from ore produced.
Stripping costs (note 2(e)):
The Group incurs waste removal costs (stripping costs) during the development and production phases of its surface mining
operations. During the production phase, stripping costs (production stripping costs) can be incurred both in relation to
the production of inventory in that period and the creation of improved access and mining flexibility in relation to ore to
be mined in the future. The former are included as part of the costs of inventory, while the latter are capitalised as a
stripping activity asset, where certain criteria are met. Significant judgement is required to distinguish between
development stripping and production stripping and, within production stripping, to distinguish between the portion that
relates to the extraction of inventory and that which relates to the creation of a stripping activity asset.
Once the Group has identified production stripping for a surface mining operation, it identifies the separate components of
the ore bodies for that operation. An identifiable component is a specific volume of the ore body that is made more
accessible by the stripping activity. Significant judgement is required to identify and define these components, and also
to determine the expected tonnes of waste to be stripped and ore to be mined in each of these components. These assessments
are undertaken for each individual mining operation based on the information available in the mine plan. The mine plans
and, therefore, the identification of components, will vary between mines for a number of reasons. These include, but are
not limited to, the type of commodity, the geological characteristics of the ore body, the geographical location and/or
financial considerations.
Once production stripping costs have been identified, judgement is also required to identify a suitable production measure
to be used to allocate production stripping costs between inventory and any stripping activity asset(s) for each component.
The Group considers that the ratio of the expected tonnes of waste to be stripped for an expected tonnes of ore to be mined
for a specific component of the ore body is the most suitable production measure.
Furthermore, judgements and estimates are also used to apply the units of production method in determining the depreciable
lives of the stripping activity asset(s).
Qualifying assets (note 2(e)):
All interest-bearing loans are held by the parent company and were not obtained for any specific asset's acquisition,
construction, or production. Funds from these loans are transferred to subsidiaries to meet the strategic objectives of the
Group or are otherwise held centrally. Due to this financing structure, judgement is required in determining whether those
borrowings are directly attributable to the acquisition, construction or production of a qualifying asset. Therefore,
Management determines whether borrowings are directly attributable to an asset or group of assets based on whether the
investment in an operating or development stage project is classified as contributing to achieving the strategic growth of
the Group.
Contingencies (note 27)
By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The
assessment of the existence and potential quantum of contingencies inherently involves the exercise of significant
judgement and the use of estimates regarding the outcome of future events.
Estimates and assumptions
Significant areas of estimation uncertainty considered by management in preparing the consolidated financial statements
include:
Estimated recoverable ore reserves and mineral resources, note 2(e):
Ore reserves are estimates of the amount of ore that can be economically and legally extracted from the Group's mining
properties; mineral resources are an identified mineral occurrence with reasonable prospects for eventual economic
extraction. The Group estimates its ore reserves and mineral resources based on information compiled by appropriately
qualified persons relating to the geological and technical data on the size, depth, shape and grade of the ore body and
suitable production techniques and recovery rates, in conformity with the Joint Ore Reserves Committee (JORC) code 2012.
Such an analysis requires complex geological judgements to interpret the data. The estimation of recoverable ore reserves
and mineral resources is based upon factors such as estimates of commodity prices, foreign exchange rates, future capital
requirements and production costs, along with geological assumptions and judgements made in estimating the size and grade
of the ore body.
As the economic assumptions used may change and as additional geological information is produced during the operation of a
mine, estimates of ore reserves and mineral resources may change. Such changes may impact the Group's reported balance
sheet and income statement including:
· The carrying value of property, plant and equipment and mining properties may be affected due to changes in
estimated future cash flows, those cash flows consider both ore reserves and mineral resources;
· Depreciation and amortisation charges in the income statement may change where such charges are determined using the
unit-of- production method based on ore reserves;
· Capitalised stripping costs recognised in the income statement as either part of mine properties or as part of
inventory or charged to profit or loss may change due to changes in stripping ratios; determination of stripping ratios is
based on ore reserves and resources;
· Provisions for mine closure costs may change where changes to the ore reserve and resources estimates affect
expectations about when such activities will occur;
· The recognition and carrying value of deferred income tax assets may change due to changes in the judgements
regarding the existence of such assets and in estimates of the likely recovery of such assets.
Determination of useful lives of assets for depreciation and amortisation purposes, notes 2(e) and 13:
Estimates are required to be made by management as to the useful lives of assets. For depreciation calculated under the
unit-of-production method, estimated recoverable reserves are used in determining the depreciation and/or amortisation of
mine specific assets. This results in a depreciation/amortisation charge proportional to the depletion of the estimated
remaining life of mine production. Estimated useful lives of other assets is based on the expected usage of the asset. Each
item's life, which is assessed annually, has regard to both its physical life limitations and to present assessments of
economically recoverable reserves of the mine property at which the asset is used.
Silverstream, note 15:
The valuation of the Silverstream contract as a derivative financial instrument requires significant estimation by
management. The derivative has a term of over 20 years and the value of this derivative is determined using a number of
estimates, including the estimated recoverable ore reserves and mineral resources and future production profile of the
Sabinas mine, the estimated recoveries of silver from ore mined, estimates of the future price of silver and the discount
rate used to discount future cash flows. For further detail on the inputs that have a significant effect on the fair value
of this derivative, see note 31. The impact of changes in silver price assumptions, foreign exchange, inflation and the
discount rate is included in note 32.
Assessment of recoverability of assets and impairment charges, note 2 (f):
The recoverability of an asset requires the use of estimates and assumptions such as long-term commodity prices, reserves
and resources and the associate production profiles, discount rates, future capital requirements, exploration potential and
operating performance. Changes in these assumptions will affect the recoverable amount of the property, plant and
equipment.
Estimation of the mine closure costs, notes 2(l) and 22:
Significant estimates and assumptions are made in determining the provision for mine closure cost as there are numerous
factors that will affect the ultimate liability payable. These factors include estimates of the extent and costs of
rehabilitation activities, technological changes, regulatory changes, cost increases, mine life and changes in discount
rates. Those uncertainties may result in future actual expenditure differing from the amounts currently provided. The
provision at the balance sheet date represents management's best estimate of the present value of the future closure costs
required.
Income tax, notes 2(r) and 11:
Judgement is required in determining whether deferred tax assets are recognised on the balance sheet. Deferred tax assets,
including those arising from un-utilised tax losses require management to assess the likelihood that the Group will
generate taxable earnings in future periods, in order to utilise recognised deferred tax assets. Estimates of future
taxable income are based on forecast cash flows from operations and the application of existing tax laws in each
jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of
the Group to realise the net deferred tax assets recorded at the balance sheet date could be impacted.
(d) Foreign currency translation
The Group's consolidated financial statements are presented in US dollars, which is the parent company's functional
currency. The functional currency for each entity in the Group is determined by the currency of the primary economic
environment in which it operates. For all operating entities, this is US dollars.
Transactions denominated in currencies other than the functional currency of the entity are translated at the exchange rate
ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated
at the rate of exchange ruling at the balance sheet date. All differences that arise are recorded in the income statement.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange
rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are
translated into US dollars using the exchange rate at the date when the fair value is determined.
For entities with functional currencies other than US dollars, as at the reporting date, assets and liabilities are
translated into the reporting currency of the Group by applying the exchange rate at the balance sheet date and the income
statement is translated at the average exchange rate for the year. The resulting difference on exchange is included as a
cumulative translation adjustment in other comprehensive income. On disposal of an entity, the deferred cumulative amount
recognised in other comprehensive income relating to that operation is recognised in the income statement.
(e) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and impairment, if any. Cost comprises the
purchase price and any costs directly attributable to bringing the asset into working condition for its intended use. The
cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production
overheads.
The cost less the residual value of each item of property, plant and equipment is depreciated over its useful life. Each
item's estimated useful life has been assessed with regard to both its own physical life limitations and the present
assessment of economically recoverable reserves of the mine property at which the item is located. Estimates of remaining
useful lives are made on a regular basis for all mine buildings, machinery and equipment, with annual reassessments for
major items. Depreciation is charged to cost of sales on a unit-of-production (UOP) basis for mine buildings and
installations, plant and equipment used in the mine production process or on a straight line basis over the estimated
useful life of the individual asset when not related to the mine production process. Changes in estimates, which mainly
affect unit-of-production calculations, are accounted for prospectively. Depreciation commences when assets are available
for use. Land is not depreciated.
The expected useful lives are as follows:
Years
Buildings 6
Plant and equipment 4
Mining properties and development costs1 16
Other assets 3
1 Depreciation of mining properties and development cost are determined using the unit-of-production method.
An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are expected
from its use or disposal. Any gain or loss arising at de-recognition of the asset (calculated as the difference between the
net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year that the asset
is de-recognised.
Non-current assets or disposal groups are classified as held for sale when it is expected that the carrying amount of the
asset will be recovered principally through sale rather than through continuing use. Assets are not depreciated when
classified as held for sale.
Disposal of assets
Gains or losses from the disposal of assets are recognised in the income statement when all significant risks and rewards
of ownership are transferred to the customer, usually when title has been passed.
Mining properties and development costs
Payments for mining concessions are expensed during the exploration phase of a prospect and capitalised during the
development of the project when incurred.
Purchased rights to ore reserves and mineral resources are recognised as assets at their cost of acquisition or at fair
value if purchased as part of a business combination.
Mining concessions, when capitalised, are amortised on a straight line basis over the period of time in which benefits are
expected to be obtained from that specific concession.
Mine development costs are capitalised as part of property, plant and equipment. Mine development activities commence once
a feasibility study has been performed for the specific project. When an exploration prospect has entered into the advanced
exploration phase and sufficient evidence of the probability of the existence of economically recoverable minerals has been
obtained pre-operative expenses relating to mine preparation works are also capitalised as a mine development cost.
The initial cost of a mining property comprises its construction cost, any costs directly attributable to bringing the
mining property into operation, the initial estimate of the provision for mine closure cost, and, for qualifying assets,
borrowing costs. The Group cease the capitalisation of borrowing cost when the physical construction of the asset is
complete and is ready for its intended use.
Revenues from metals recovered from ore mined in the mine development phase, prior to commercial production, are credited
to mining properties and development costs. Upon commencement of production, capitalised expenditure is depreciated using
the unit-of-production method based on the estimated economically proven and probable reserves to which they relate.
Mining properties and mine development are stated at cost, less accumulated depreciation and impairment in value, if any.
Construction in progress
Assets in the course of construction are capitalised as a separate component of property, plant and equipment. On
completion, the cost of construction is transferred to the appropriate category of property, plant and equipment. The cost
of construction in progress is not depreciated.
Subsequent expenditures
All subsequent expenditure on property, plant and equipment is capitalised if it meets the recognition criteria, and the
carrying amount of those parts that are replaced, is de-recognised. All other expenditure including repairs and maintenance
expenditure is recognised in the income statement as incurred.
Stripping costs
In a surface mine operation, it is necessary to remove overburden and other waste material in order to gain access to the
ore bodies (stripping activity). During development and pre-production phases, the stripping activity costs are capitalised
as part of the initial cost of development and construction of the mine (the stripping activity asset) and charged as
depreciation or depletion to cost of sales, in the income statement, based on the mine's units of production once
commercial operations begin.
Removal of waste material normally continues throughout the life of a surface mine. At the time that saleable material
begins to be extracted from the surface mine the activity is referred to as production stripping.
Production stripping cost is capitalised only if the following criteria is met:
· It is probable that the future economic benefits (improved access to an ore body) associated with the stripping
activity will flow to the Group;
· The Group can identify the component of an ore body for which access has been improved; and
· The costs relating to the improved access to that component can be measured reliably
If not all of the criteria are met, the production stripping costs are charged to the income statement as operating costs
as they are incurred.
Stripping activity costs associated with such development activities are capitalised into existing mining development
assets, as mining properties and development cost, within property, plant and equipment, using a measure that considers the
volume of waste extracted compared with expected volume, for a given volume of ore production. This measure is known as
"component stripping ratio", which is revised annually in accordance with the mine plan. The amount capitalised is
subsequently depreciated over the expected useful life of the identified component of the ore body related to the stripping
activity asset, by using the units of production method. The identification of components and the expected useful lives of
those components are evaluated annually. Depreciation is recognised as cost of sales in the income statement.
The capitalised stripping activity asset is carried at cost less accumulated depletion/depreciation, less impairment, if
any. Cost includes the accumulation of costs directly incurred to perform the stripping activity that improves access to
the identified component of ore, plus an allocation of directly attributable overhead costs. The costs associated with
incidental operations are excluded from the cost of the stripping activity asset.
In identifying components of the ore body, the Group works closely with the mining operations personnel for each mining
operation to analyse each of the mine plans. Generally, a component will be a subset of the total ore body and a mine may
have several components that are identified based on the mine plan. The mine plans and therefore the identification of
components can vary between mines for a number of reasons including but not limited to, the type of commodity, the
geological characteristics of the ore body, the geographical location and/or financial considerations.
(f) Impairment of non-financial assets
The carrying amounts of assets are reviewed for impairment if events or changes in circumstances indicate that the carrying
value may not be recoverable. At each reporting date, an assessment is made to determine whether there are any indications
of impairment. If there are indicators of impairment, an exercise is undertaken to determine whether carrying values are in
excess of their recoverable amount. Such reviews are undertaken on an asset by asset basis, except where such assets do not
generate cash flows independent of those from other assets or groups of assets, and then the review is undertaken at the
cash generating unit level.
If the carrying amount of an asset or its cash generating unit exceeds the recoverable amount, a provision is recorded to
reflect the asset at the recoverable amount in the balance sheet. Impairment losses are recognised in the income
statement.
The recoverable amount of an asset
The recoverable amount of an asset is the greater of its value in use and fair value less costs to disposal. Fair value is
based on an estimate of the amount that the Group may obtain in an orderly sale transaction between market participants. In
assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that
does not generate cash inflows largely independently of those from other assets, or groups of assets, the recoverable
amount is determined for the cash generating unit to which the asset belongs. The Group's cash generating units are the
smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from
other assets or groups of assets.
Reversal of impairment
An assessment is made each reporting date as to whether there is any indication that previously recognised impairment
losses may no longer exist or may have decreased. If such an indication exists, the Group makes an estimate of the
recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in estimates used
to determine the asset's recoverable amount since the impairment loss was recognised. If that is the case, the carrying
amount of the asset is increased to the recoverable amount. That increased amount cannot exceed the carrying amount that
would have been determined, net of depreciation, had no impairment loss been recognised in previous years. Such impairment
loss reversal is recognised in the income statement.
(g) Financial assets and liabilities
Financial assets are recognised when the Group becomes party to contracts that give rise to them and are classified as
financial assets at fair value through profit or loss; held to maturity investments; available-for-sale financial assets;
or loans and receivables or derivatives designated as hedging instruments, as appropriate. The Group determines the
classification of its financial assets at initial recognition and re-evaluates this designation at each balance sheet date.
When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not
at fair value through profit or loss, directly attributable transaction costs.
The Group recognises financial liabilities on its balance sheet when, and only when, it becomes a party to the contractual
provisions of the instrument. Financial liabilities are classified at fair value through profit or loss, loans and
borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All
financial liabilities are initially recognised at the fair value of the consideration received, including any transaction
costs incurred.
Financial assets and liabilities at fair value through profit or loss
Financial assets and liabilities classified as held-for-trading and other assets or liabilities designated as fair value
through profit or loss at inception are included in this category. Financial assets or liabilities are classified as
held-for-trading if they are acquired or incurred for the purpose of selling or repurchasing in the short term.
Derivatives, including separated embedded derivatives are also classified as held-for-trading unless they are designated as
effective hedging instruments as defined by IAS 39. Financial assets or liabilities at fair value through profit or loss
are carried in the balance sheet at fair value with gains or losses arising from changes in fair value, presented as
finance costs or finance income in the income statement.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market, do not qualify as trading assets and have not been designated as either fair value through profit and loss
or available-for-sale.
After initial measurement, such assets are subsequently carried at amortised cost using the effective interest method less
any allowance for impairment. Gains or losses are recognised in income when the loans and receivables are derecognised or
impaired, as well as through the amortisation process.
Current trade receivables are carried at the original invoice amount less provision made for impairment of these
receivables. Non-current receivables are stated at amortised cost. Loans and receivables from contractors are carried at
amortised cost.
Loans and borrowings
After initial recognition at fair value, net of directly attributable transaction costs, interest-bearing loans are
subsequently measured at amortised cost using the effective interest rate (EIR) method. The EIR amortisation is included as
finance costs in the income statement. Gains and losses are recognised in profit or loss, in the income statement, when the
liabilities are derecognised as well as through the EIR amortisation process.
The Group adjusts the carrying amount of the financial liability to reflect actual and revised estimated cash flows. The
carrying amount is recalculated by computing the present value of estimated future cash flows at the financial instrument's
original effective interest rate or, when applicable, the revised effective interest rate. Any adjustment is recognised in
profit or loss as income or expense.
This category generally applies to interest-bearing loans and borrowings. For more information, refer to note 21.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as such or are not
classified in any of the preceding categories and are not held to maturity investments.
Available-for-sale financial assets represent equity investments that have a quoted market price in an active market;
therefore, a fair value can be reliably measured. After initial measurement, available-for-sale financial assets are
measured at fair value with mark-to-market unrealised gains or losses recognised as other comprehensive income in the
available-for-sale reserve until the financial asset is de-recognised.
Financial assets classified as available-for-sale are de-recognised when they are sold, and all the risks and rewards of
ownership have been transferred. When financial assets are sold, the accumulated fair value adjustments recognised in other
comprehensive income are included in the income statement within other operating income or expense.
De-recognition of financial assets and liabilities
A financial asset or liability is generally de-recognised when the contract that gives rise to it is settled, sold,
cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the
terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition
of the original liability and the recognition of a new liability, such that the difference in the respective carrying
amounts together with any costs or fees incurred are recognised in profit or loss.
The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or
transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed,
is recognised in the income statement.
(h) Impairment of financial assets
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of
financial assets is impaired.
Assets carried at amortised cost
If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been
incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of
estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the
financial asset's original effective interest rate (i.e., the effective interest rate computed at initial recognition). The
carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in profit
or loss.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are
individually significant, and individually or collectively for financial assets that are not individually significant. If
it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether
significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that
group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and
for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent
reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset
does not exceed its amortised cost at the reversal date.
In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the
probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect
all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through
use of an allowance account. Impaired receivables are de recognised when they are assessed as uncollectible.
Available-for-sale financial assets
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal
payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income
statement, is transferred from equity to the income statement. In assessing whether there is an impairment, the Group
considers whether a decline in fair value is either significant or prolonged, by considering the size of the decline in
this value, the historic volatility in changes in fair value and the duration of the sustained decline. Reversals in
respect of equity instruments classified as available-for-sale are not recognised in the income statement.
(i) Inventories
Finished goods and work in progress inventories are measured at the lower of cost and net realisable value. Cost is
determined using the weighted average cost method based on cost of production which excludes borrowing costs.
For this purpose, the costs of production include:
personnel expenses, which include employee profit sharing, materials and contractor expenses which are directly
attributable to the extraction and processing of ore;
the depreciation of property, plant and equipment used in the extraction and processing of ore; and
related production overheads (based on normal operating capacity).
Operating materials and spare parts are valued at the lower of cost or net realisable value. An allowance for obsolete and
slow-moving inventories is determined by reference to specific items of stock. A regular review is undertaken by management
to determine the extent of such an allowance.
Net realisable value is the estimated selling price in the ordinary course of business less any further costs expected to
be incurred to completion and disposal.
(j) Short-term investments
Where the Group invests in short-term instruments which are either not readily convertible into known amounts of cash or
are subject to risk of changes in value that are not insignificant, these instruments are classified as short-term
investments. Short-term investments are classified as loans and receivables.
(k) Cash and cash equivalents
For the purposes of the balance sheet, cash and cash equivalents comprise cash at bank, cash on hand and short-term
deposits held with banks that are readily convertible into known amounts of cash and which are subject to insignificant
risk of changes in value. Short-term deposits earn interest at the respective short-term deposit rates between one day and
four months. For the purposes of the cash flow statement, cash and cash equivalents as defined above are shown net of
outstanding bank overdrafts.
(l) Provisions
Mine closure cost
A provision for mine closure cost is made in respect of the estimated future costs of closure, restoration and for
environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual
materials and remediation of disturbed areas) based on a mine closure plan, in the accounting period when the related
environmental disturbance occurs. The provision is discounted and the unwinding of the discount is included within finance
costs. At the time of establishing the provision, a corresponding asset is capitalised where it gives rise to a future
economic benefit and is depreciated over future production from the mine to which it relates. The provision is reviewed on
an annual basis by the Group for changes in cost estimates, discount rates or life of operations. Changes to estimated
future costs are recognised in the balance sheet by adjusting the mine closure cost liability and the related asset
originally recognised. If, for mature mines, the revised mine assets net of mine closure cost provisions exceed the
recoverable value, the portion of the increase is charged directly as an expense. For closed sites, changes to estimated
costs are recognised immediately in profit or loss.
(m) Employee benefits
The Group operates the following plans:
Defined benefit pension plan
This funded plan is based on each employee's earnings and years of service. This plan was open to all employees in Mexico
until it was closed to new entrants on 1 July 2007. The plan is denominated in Mexican Pesos. For members as at 30 June
2007, benefits were frozen at that date subject to indexation with reference to the Mexican National Consumer Price Index
(NCPI).
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial
valuation method and prepared by an independent actuarial firm as at each year-end balance sheet date. The discount rate is
the yield on mxAAA (Standard & Poor's) and AAA-mex (Fitch Ibca) credit-rated bonds that have maturity dates approximating
the terms of the Group's obligations and that are denominated in the same currency in which the benefits are expected to be
paid. Actuarial gains or losses are recognised in OCI and permanently excluded from profit or loss.
Past service costs are recognised as an expense on a straight line basis over the average period until the benefits become
vested. If the benefits have already vested following the introduction of, or changes to, a pension plan, the past service
cost is recognised immediately.
The defined benefit asset or liability comprises the present value of the defined benefit obligation less the fair value of
plan assets out of which the obligations are to be settled directly. The value of any asset is restricted to the present
value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to
the plan.
Net interest cost is recognised in finance cost and return on plan assets (other than amounts reflected in net interest
cost) is recognised in OCI and permanently excluded from profit or loss.
Defined contribution pension plan
A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a
separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to
defined contribution pension plans are recognised as an employee benefit expense in profit or loss when they are due. The
contributions are based on the employee's salary.
This plan started on 1 July 2007 and it is voluntary for all employees to join this scheme.
Seniority premium for voluntary separation
This unfunded plan corresponds to an additional payment over the legal seniority premium equivalent to approximately 12
days of salary per year for those unionised workers who have more than 15 years of service. Non-unionised employees with
more than 15 years of service have the right to a payment equivalent to 12 days for each year of service. For both cases,
the payment is based on the legal current minimum salary.
The cost of providing benefits for the seniority premium for voluntary separation is determined using the projected unit
credit actuarial valuation method and prepared by an independent actuarial firm as at each year-end balance sheet date.
Actuarial gains or losses are recognised as income or expense in the period in which they occur.
Other
Benefits for death and disability are covered through insurance policies.
Termination payments for involuntary retirement (dismissals) are charged to the income statement, when incurred.
(n) Employee profit sharing
In accordance with the Mexican legislation, companies in Mexico are subject to pay for employee profit sharing ('PTU')
equivalent to ten percent of the taxable income of each fiscal year.
PTU is accounted for as employee benefits and is calculated based on the services rendered by employees during the year,
considering their most recent salaries. The liability is recognised as it accrues and is charged to the income statement.
PTU, paid in each fiscal year, is considered deductible for income tax purposes.
(o) Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at
inception date including whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or
the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the
following applies:
a) There is a change in contractual terms, other than a renewal or extension of the arrangement;
b) A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included
in the lease term;
c) There is a change in the determination of whether fulfilment is dependent on a specified asset; or
d) There is a substantial change to the asset.
Group as a lessee
Finance leases which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased
item, are capitalised at the inception of the lease at the fair value of the leased asset, or if lower, at the present
value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease
liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are
reflected in the income statement.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if
there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.
Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease
term.
Group as a lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified
as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of
the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as
revenue in the period in which they are earned.
Where a reassessment is made, lease accounting commences or ceases from the date when the change in circumstances gave rise
to the reassessment for scenarios a), c) or d) and at the date of renewal or extension period for scenario b) above.
For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2007,
- More to follow, for following part double click ID:nRSA5523QdRecent news on Fresnillo
See all newsREG - Fresnillo Plc - Report on Payments to Governments
AnnouncementREG - Fresnillo Plc - Result of AGM
AnnouncementREG - Fresnillo Plc - Annual General Meeting Statement
AnnouncementREG - Fresnillo Plc - Sale of MAG Silver shares & Juanicipio partnership
AnnouncementREG - Fresnillo Plc - Conversion rate for 2024 Final & Special Dividends
Announcement