81 Westgold Resources Limited Annual Report 2022 17. MINE PROPERTIES AND DEVELOPMENT (CONTINUED) Results of impairment testing Mine Properties and development Westgold is a dynamic, growth orientedWestern Australian gold miner and is unique in the Australian gold sector as an owner operator. Westgold’s operations are comprised of: – the Bryah Operations at Fortnum (FGO) – the Murchison Operations at Meekatharra (MGO) and Cue (CGO) These operations are the Cash Generating Units of the Group as they each operate independent of the other. A Cash Generating Unit (CGU) is defined as the smallest group of assets that includes the assets and generates cash flows that are largely independent of the cash inflows from other assets or group of assets. In assessing whether an impairment is required, the carrying value of the asset or CGU is compared with its recoverable amount. The recoverable amount is the higher of the CGU’s fair value less costs of disposal (FVLCD) and value in use (VIU). Given the nature of the Group’s activities, information on the fair value of an asset is usually difficult to obtain unless negotiations with potential purchasers or similar transactions are taking place. Consequently, the VIU for each CGU has been estimated based on discounted future estimated cash flows (expressed in real terms) expected to be generated from the continued use of the CGUs using market-based commodity price and exchange assumptions. Production and cost assumptions were derived from estimated quantities of recoverable minerals, production levels, operating costs and capital requirements, and its eventual disposal, based on the CGU latest life of mine (LOM) plans. These cash flows were discounted using a real post-tax discount rate that reflects the weighted average cost of capital of the Group. Estimates of quantities of recoverable minerals, production levels, operating costs and capital requirements are generated as part of the Group’s planning process, including LOM plans, one-year budgets and CGU-specific studies. This assessment is in accordance with the relevant accounting standards taking into consideration the current outlook for gold prices, increasing supply chain cost pressures including diesel fuel, consumables, labour costs and interest rates while maintaining the production, processing and recovery assumptions. The non-cash impairment charge of $175,535,410 (2021: $Nil) is a result of the cost pressures described above, the Big Bell mine carrying value being significantly greater than the initial expected project development costs, the South Emu Triton and Starlight underground mines not producing the required economic returns coupled with the cessation of open pit mining. Key Assumptions The table below summarises the key assumptions used in the 2022 year end carrying value assessments. Assumption Value Gold price ($/oz) A$2,400/oz nominal Inflation rate 2.5% per annum Discount rate 5.5% real post tax Gold prices The gold price assumption of A$2,400/oz nominal was estimated with reference to the FY23 Budget gold price which took into consideration the average hedge price for Westgold and the current spot price including ranges of external market forecasts for USD gold and FX rate based on a consensus view of market experts. Inflation rate The long-term inflation rate used to convert the nominal AUD gold price to real was 2.5% which is based on the RBA target for monetary policy in Australia to achieve an inflation rate within the range of 2% to 3% on average, over time.
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