Notes to the consolidated financial statements
(continued)
FOR THE YEAR ENDED 31 DECEMBER 2005
60 Annual Report 2005 Randgold Resources
20 FAIR VALUE AND RISKS OF FINANCIAL INSTRUMENTS (continued)
20.2 Foreign currency and commodity price risk
In the normal course of business, the group enters into transactions denominated in foreign currencies
(primarily Euro and Communauté Financière Africaine Franc). As a result, the group is subject to transaction
exposure from fluctuations in foreign currency exchange rates. In general, the group does not use derivatives
to manage these currency risks. Generally, the group does not hedge its exposure to gold price fluctuation
risk and sells at market spot prices. Gold sales are disclosed in US dollars and do not expose the group to
any currency fluctuation risk. However, during periods of capital expenditure or loan finance, the company
may use forward contracts or options to reduce the exposure to price movements, while maintaining
significant exposure to spot prices.
20.3 Interest rates and liquidity risk
Fluctuation in interest rates impact on the value of short term cash investments and interest payable on
financing activities (including long term loans), giving rise to interest rate risk. In the ordinary course of
business, the group receives cash from its operations and is required to fund working capital and capital
expenditure requirements. The group generally enters into variable interest bearing borrowings. This cash
is managed to ensure surplus funds are invested in a manner to achieve maximum returns while minimising
risks. The group has in the past been able to actively source financing through public offerings, shareholder
loans and third party loans. A 1% change in interest rates on the group’s borrowings will result in a
US$0.6 million impact on profit before tax. The group holds financial investments with an average maturity
of 30 days to ensure adequate liquidity.
21 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the group’s financial instruments outstanding at
31 December 2005 and 2004. The fair value of a financial instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
31 Dec 31 Dec
31 Dec 31 Dec
2005 2005
2004 2004
Carrying
Fair
Carrying
Fair
US$000
Note
amount value
amount value
Financial assets
Cash and equivalents
152 452 152 452 78 240 78 240
Receivables
47 918 47 918 23 667 23 667
Financial liabilities
Accounts payable
28 813 28 813 14 428 14 428
Short term portion of long term liabilities
22 991 22 991 1 156 1 156
Long term liabilities (excluding loans
from outside shareholders)
49 538 49 538 40 718 40 718
Liabilities on forward gold sales
17
43 090 43 090 15
668 15 668
Government of Mali loan
2
483 1 999 2
575 2 575
Carrying Forward Forward
amount sales sales
Hedging instruments
US$000 Ounces US$/oz
FINANCIAL INSTRUMENTS
Details of the group’s on balance sheet forward
gold sale contracts as at 31 December 2005
(all treated as cash flow hedges):
Maturity dates
Year ended 2006
8 939 93 498
431
Year ended 2007
12 532
116 004
438
Year ended 2008
10 618 80 498
431
Year ended 2009
11 001 75 000
430
Total
43 090
365 000
433
