Notes to the consolidated financial statements
(continued)
FOR THE
YEAR ENDED 31 DECEMBER 2005
52 Annual
Report 2005 Randgold Resources
2 SIGNIFICANT
ACCOUNTING POLICIES (continued)
EXPLORATION AND EVALUATION COSTS: The group expenses all exploration and evaluation expenditures until the
directors conclude that a future economic benefit is more likely than not of being realised, ie “probable.” In evaluating if
expenditures meet this criterion to be capitalised, the directors utilise several different sources of information depending on
the level of exploration. While the criteria for concluding that an expenditure should be capitalised is always probable, the
information that the directors use to make that determination depends on the level of exploration.
(a) Exploration and evaluation expenditure on greenfields sites, being those where the group does not have any mineral
deposits which are already being mined or developed, is expensed as incurred until a final feasibility study has been
completed, after which the expenditure is capitalised within development costs if the final feasibility study demonstrates
that future economic benefits are probable.
(b) Exploration and evaluation expenditure on brownfields sites, being those adjacent to mineral deposits which are already
being mined or developed, is expensed as incurred until the directors are able to demonstrate that future economic
benefits are probable through the completion of a pre-feasibility study, after which the expenditure is capitalised as a
mine development cost. A “pre-feasibility study” consists of a comprehensive study of the viability of a mineral project
that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in
the case of an open pit, has been established, and which, if an effective method of mineral processing has been
determined, includes a financial analysis based on reasonable assumptions of technical, engineering, operating
economic factors and the evaluation of other relevant factors. The pre-feasibility study, when combined with existing
knowledge of the mineral property that is adjacent to mineral deposits that are already being mined or developed, allow
the directors to conclude that it is more likely than not that the group will obtain future economic benefit from the
expenditures.
(c) Exploration and evaluation expenditure relating to extensions of mineral deposits which are already being mined or
developed, including expenditure on the definition of mineralisation of such mineral deposits, is capitalised as a mine
development cost following the completion of an economic evaluation equivalent to a pre-feasibility study. This
economic evaluation is distinguished from a pre-feasibility study in that some of the information that would normally be
determined in a pre-feasibility study is instead obtained from the existing mine or development. This information when
combined with existing knowledge of the mineral property already being mined or developed allow the directors to
conclude that more likely than not the group will obtain future economic benefit from the expenditures. Costs relating to
property acquisitions are also capitalised. These costs are capitalised within development costs.
EARNINGS PER SHARE: Is computed by dividing net income by the weighted average number of ordinary shares in issue
during the year.
FULLY DILUTED EARNINGS PER SHARE: Is presented when the inclusion of potential ordinary shares has a dilutive effect
on earnings per share.
3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Some of the accounting policies require the application of significant judgement by management in selecting the appropriate
assumptions for calculating financial estimates. By their nature, these judgements are subject to an inherent degree of
uncertainty and are based on historical experience, terms of existing contracts, management’s view on trends in the gold
mining industry and information from outside sources.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are discussed below:
Future rehabilitation obligations
The net present value of current rehabilitation estimates have been discounted to their present value at 6% per annum, being
an estimate of the cost of borrowings. Expenditure is expected to be incurred at the end of the respective mine lives.
Gold price assumptions
The following gold price was used in the mineral reserves open pit optimisation calculation:
Long term gold price
US$425
Uncertainties relating to transactions with a contractor
As explained in note
26 to the financial statements, there are uncertainties relating to the value of the securities held in
respect of advances to a contractor and also a claim and counterclaim relating to the Loulo development. The amounts
reflected in the financial statements reflect the directors best estimate of the amount that will be recovered in respect of the
advances and the outcome of the dispute relating to the cost of the development.
Deferred stripping
As explained in notes 2 and 10, the group defers certain stripping costs based on the expected life of the mine stripping
ratio. This ratio is monitored on a regular basis and updated where appropriate, for example to reflect changes to the life of
mine plan.
In addition, the group has to apply judgement in determining whether exploration and evaluation expenditure should be
capitalised or expensed, under the policy described in note
2.
Group
Group
31 Dec
31 Dec
US$000
Note
2005
2004
4 INCOME AND MINING TAXES
Current taxation
3 127
-
Deferred taxation
12 1 208
-
4 335
-
