| 43. |
Financial instruments |
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Capital risk management |
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The capital structure of the Group consists of debt, which includes interest-bearing borrowings disclosed under note 33 and obligations due under finance leases disclosed under note 32, cash and cash equivalents and equity attributable to equity holders of the Company which comprises issued share capital and premium and accumulated profits disclosed in notes 25 and 27 respectively. |
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The Group’s capital management objective is to achieve an optimal weighted average cost of capital while continuing to safeguard the Group’s ability to meet its liquidity requirements (including its commitments in respect of capital expenditure), repay borrowings as they fall due and continue as a going concern. |
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The policy of the Group is to achieve sufficient gearing so as to have an optimal weighted average cost of capital while also ensuring that at all times its creditworthiness is considered to be at least investment grade. |
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The targeted level of gearing is determined after consideration of the following key factors: |
| |
| • |
current and forecast metal prices and exchange rates and their impact upon revenue and gearing under various
scenarios; |
| • |
the needs of the Group to fund current and future capital expenditure to achieve its stated production growth target;
and |
| • |
the desire of the Group to maintain its gearing within levels considered to be acceptable and consistent with an
investment grade credit standing, taking into account potential business volatility and position of the Group in the business
cycle. |
|
| |
On an annual basis the Group updates its life of mine models and long-term business plan. These outputs are then incorporated into the budget process. The targeted production profile determines the Group’s funding requirements under its base case economic assumptions. This then determines whether the Group is likely to have excess capital in terms of its policy or whether it is likely to require additional capital. If it has excess capital the Board will consider returning this to shareholders (through dividends or share buybacks); whichever may be appropriate at the time. Alternatively, if additional capital is required, the Group will look to source this from either the debt markets or from shareholders, whichever is most appropriate at the time, so as to meet its policy objectives and based on market circumstances. These decisions are evaluated by the Group’s corporate finance and treasury departments, before being approved by its Executive Committee and Board, where required. |
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The Group has entered into a number of debt facilities that dictate certain requirements in respect of capital management. These covenants are a key consideration when the capital management strategies of the Group are evaluated. |
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These covenants include: |
| |
| • |
maximum net debt/tangible net worth ratios; and |
| • |
minimum tangible net worth values. |
|
| |
The Group has complied with these requirements. The Group’s overall strategy remains unchanged from 2006. |
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Significant accounting policies |
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Details of significant accounting policies, including the recognition criteria, the basis for measurement and the basis on which
income and expenses are recognised, in respect of each category of financial asset, financial liability and equity instrument, are
disclosed under the notes in accounting policies. |
