Randgold Resources Annual Report 2005 49
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
controlled entities is accounted for by proportionate consolidation. Under this method the group includes its share of the
joint venture’s individual income and expenses, assets and liabilities and cash flows on a line by line basis with similar items
in the group’s financial statements. The group recognises the portion of gains or losses on the sale of assets by the group
to the joint venture that is attributable to the other venturers. The group does not recognise its share of profits or losses from
the joint venture that result from the purchase of assets by the group from the joint venture until it resells the assets to an
independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current
assets or an impairment loss, the loss is recognised immediately.
The results of joint ventures are included from the effective dates of acquisition and up to the effective dates of disposal.
Intercompany accounts and transactions are eliminated on consolidation.
SPECIAL PURPOSE ENTITIES: Special purpose entities (“SPEs”) are those undertakings that are created to satisfy specific
business needs of the group under which the group has the right to the majority of the benefits of the SPE and/or is exposed
to risk incident to the activities thereof. SPEs are consolidated in the same manner as subsidiaries when the substance of
the relationship indicates that the SPE is controlled by the group.
SEGMENT REPORTING: A business segment is a group of assets and operations engaged in performing mining or other
services that are subject to risks and returns that are different from those of other business segments. A geographic segment
is engaged in providing products or services within a particular economic environment that are subject to risks and returns
that are different from those of segments operating in other economic environments. The group has only one business
segment, that of gold mining. Segment analysis is based on individual mining operations. Corporate and exploration income
and costs not directly related to the mining operations are not allocated to segments.
FOREIGN CURRENCY TRANSLATION:
(a) Functional and presentation currency
Items included in the financial statements of each of the group’s entities are measured using the currency of the primary
economic environment in which the entity operates. The consolidated financial statements are presented in US dollars,
which is the company’s functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date
of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the income statement. Translation differences on non-monetary items, such as equities held at fair value
through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items,
such as equities which are classified as available-for-sale financial assets, are included in the fair value reserve in equity.
PROPERTY, PLANT AND EQUIPMENT:
(a) Undeveloped properties
Undeveloped properties upon which the group has not performed sufficient exploration work to determine whether
significant mineralisation exists, are carried at original acquisition cost. Where the directors consider that there is little
likelihood of the properties being exploited, or the value of the exploitable rights have diminished below cost, an
impairment is recorded.
(b) Development costs and mine plant facilities
Development costs and mine plant facilities are initially recorded at cost. Where relevant the estimated cost of
dismantling the asset and remediating the site is included in the cost of property, plant and equipment, whereafter they
are measured at cost less accumulated amortisation and impairment. Development costs and mine plant facilities
relating to existing and new mines are capitalised. Development costs consist primarily of direct expenditure incurred
to establish or expand productive capacity, and are capitalised until commercial levels of production are achieved, after
which the costs are amortised.
(c) Non-mining fixed assets
Other non-mining fixed assets are shown at cost less accumulated depreciation and impairment.
(d) Depreciation and amortisation
Long-lived assets include mining properties, such as free hold land, metallurgical plant, tailings and raw water dams,
power plant and mine infrastructure, as well as mine development costs. Depreciation and amortisation are charged
over the life of the mine based on estimated ore tonnes contained in proven and probable reserves, to reduce the cost
to estimated residual values. Proven and probable ore reserves reflect estimated quantities of economically recoverable
reserves, which can be recovered in the future from known mineral deposits. Total proven and probable reserves are
used in the depreciation calculation. The useful lives for Morila and Loulo are estimated at eight and a minimum of ten
years respectively. Short-lived assets which include motor vehicles, office equipment and computer equipment, are
depreciated over estimated useful lives of between two to five years.
(e) Mining property valuations
The carrying amount of the long-lived assets of the group are compared to the recoverable amount of the assets
whenever events or changes in circumstances indicate that the net book value may not be recoverable. The recoverable
amount is the higher of value in use and net selling price. In assessing the value in use, the expected future cash flows
from the asset is determined by applying a discount rate to the anticipated pre-tax future cash flows. The discount rate
used is derived from the group’s weighted average cost of capital. An impairment is recognised in the income statement
to the extent that the carrying amount exceeds the assets’ recoverable amount. The revised carrying amounts are
amortised in line with group accounting policies. A previously recognised impairment loss is reversed if the recoverable
amount increases as a result of a reversal of the conditions that originally resulted in the impairment. This reversal is
recognised in the income statement and is limited to the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognised in prior years. Assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units) for purposes of assessing impairment. The estimates
of future discounted cash flows are subject to risks and uncertainties including the future gold price. It is therefore
reasonably possible that changes could occur which may affect the recoverability of mining assets.
DEFERRED STRIPPING COSTS: In general, mining costs are allocated to production costs, inventories and ore stockpiles,
and are charged to mine production costs when gold is sold. However, the open pit mines have diverse grades and waste-
to-ore ratios over the mine life, and hence the costs of waste stripping in excess of the expected pit life average stripping
