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## Notes to the Consolidated Financial Statements 

For the year ended 30 June 2011 

## 2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS 

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including the expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. 

The Group makes estimates and assumptions concerning the future. The resulting accounting will, by definition, seldom equal the actual results. The estimates and assumptions that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. 

## (i) Exploration and evaluation expenditure 

In accordance with accounting policy note 1(n) management determines when an area of interest should be abandoned. When a decision is made that an area of interest is not commercially viable, all costs that have been capitalised in respect of that area of interest are written off. In determining this, assumptions, including the maintenance of title, ongoing expenditure and prospectively are made. See note 13 for disclosure of carrying values. 

## (ii) Impairment of assets 

In accordance with accounting policy note 1(g), in determining whether the recoverable amount of each cash generating unit is the higher of fair value less costs to sell or value-in-use against which asset impairment is to be considered, the Group undertakes future cash flow calculations which are based on a number of critical estimates and assumptions including, for its assets under construction, forward estimates of: 

(i) mine life including quantities of mineral reserves and resources for which there is a high degree of confidence of economic extraction with given technology; 

(ii) estimated production and sales levels; 

(iii) estimate future commodity prices; 

(iv) future costs of production; 

(v) future capital expenditure; 

(vi) future exchange rates; and/or 

(vii) discount rates applicable to the cash generating unit. 

Variations to expected future cash flows, and timing thereof, could result in significant changes to the impairment test results, which in turn could impact future financial results. 

## (iii) Share-based payment transactions 

The consolidated entity measures the cost of equity-settled transactions with employees and consultants by reference to the fair value of the equity instruments at the date at which they were granted. The fair value of options granted is determined using a Black-Scholes model, using the assumptions detailed in note 29. 

## (iv) Restoration and rehabilitation provisions 

As set out in accounting policy note 1(t), the value of the current restoration and rehabilitation provision is based on a number of assumptions including the nature of restoration activities required and the valuation at the present value of a future obligation that necessitates estimates of the cost of performing the work required, the timing of future cash flows and the appropriate discount rate. Additionally current provisions are based on the assumption that no significant changes will occur in either relevant Federal or State legislation covering restoration of mineral properties. A change in any, or a combination, of these assumptions used to determine current provisions could have a material impact to the carrying value of the provision – see note 14 for disclosure of carrying values. 

## (v) Derivative financial instruments 

The Group makes judgements on the effectiveness of all derivative financial instrument entered into, including forward metal contracts, metal options and foreign currency option contracts in accordance with accounting policy note 1(l). Management’s assessment is that, unless otherwise disclosed the derivatives have been highly effective in offsetting changes in the fair value of the future cash flows against which they have been designated and as such are compliant with the hedge effectiveness requirements of AASB 139. Further information on the Group’s use of derivative financial instruments, including carrying values, is set out in note 15. 

