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Key estimates – impairment of non-current assets
Judgement is involved in assessing whether there are indicators of impairment of property, plant and equipment
including in relation to the impact of events or changes in circumstances. For mining and oil production
assets, key judgements include external factors such as forecast commodity prices and foreign exchange rates.
Judgement is also required in relation to the estimation of reserves and resources. Further information is provided
below.
Where the recoverable amounts of the Group’s CGU’s are tested for impairment using analyses of discounted
cash flows, the resulting valuations are also sensitive to changes in estimates of long-term commodity prices,
production timing and recovery rates, exchange rates, operating costs, reserve and resource estimates, closure
costs and discount rates. Estimates in respect of the timing of project expansions and the cost to complete asset
construction are also critical to determining the recoverable amounts for cash-generating units.
Estimates of reserves and resources – Coal
The Group estimates its coal reserves and coal resources based on information compiled by Competent Persons
as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources
and Ore Reserves of December 2012 (the JORC code, which is produced by the Australasian Joint Ore Reserves
Committee).
The estimation of reserves and resources requires judgment to interpret available geological data and then to
select an appropriate mining method and establish an extraction schedule. It also requires assumptions about
future commodity prices, exchange rates, production costs, recovery rates and discount rates and, in some
instances, the renewal of mining licences. There are many uncertainties in the estimation process and assump-
tions that are valid at the time of estimation may change significantly when new information becomes available.
Reserves and resources determined in this way are used in the calculation of depreciation, amortisation and
impairment charges, the assessment of mine lives and for forecasting the timing of the payment of decommis-
sioning and restoration costs. Changes in coal resources could have an impact on the recoverability of Exploration
and evaluation costs capitalised (refer note 26).
New Acland Coal Stage 3 approvals
A subsidiary of Washington H. Soul Pattinson and Company Limited, New Hope Corporation Limited (New Hope)
has coal operations where there remains a number of uncertainties associated with the approvals timeline and
ultimate conditionality of the New Acland Stage 3 project. The lengthy duration of the approval process may
result in a delay to the commencement of stage 3 operations. The financial statements have been prepared on
the basis of a reasonable expectation the Group will be successful in securing approval for the New Acland Stage
3 expansion during the next financial year. If this was not to occur, it could impact the assessment of recoverable
amount for property, plant and equipment as well as the calculation of depreciation, amortisation and rehabilita-
tion provisions.
Oil producing assets
The Group has determined that due to the continued significant decline in global oil prices there is an indicator
that certain oil producing assets may be impaired.
The Group has classified its Cooper Basin assets as separate Cash Generating Units (CGU) on a per field basis and
has measured the recoverable amount of each CGU using the Fair value less cost of disposal method with all fair
value measurements categorised as Level 3 in the fair value hierarchy. These CGU’s are included in the Energy
segment.
The Group has estimated the future cash flows of each CGU making assumptions in respect of key variables
including: economically recoverable reserves, future production profiles, commodity prices, foreign exchange
rates, operating costs and future development costs necessary to produce the reserves. The commodity price
and foreign exchange assumptions have been based on consensus market data in the range of oil prices of USD
$41–USD $85 (2015: USD $62–USD $91) (before escalation) and AUD/USD exchange rates of 0.72–0.75 (2015:
0.75–0.93). The future cash flows have been discounted using an after tax discount rate of 10% (2015: 10%). The
recoverable amount and impairment loss calculated under the Fair value less cost of disposal method of the CGUs
determined to be impaired are: