Page 83 - Sundance Resources 2014 Annual Report

SUNDANCE RESOURCES LIMITED ANNUAL REPORT 2014 81
NOTE 11. FINANCIAL RISK MANAGMENT
Financial risk management objectives and policies
The Group’s principal financial instruments comprise cash and short-term deposits. The Group has various other financial
assets and liabilities such as trade receivables, trade payables and convertible notes, which arise directly from its operating
and financing activities. The Group’s policy is that no trading in financial instruments shall be undertaken. The main risks
arising from the Group’s financial instruments are interest rate risk, credit risk, capital risk, liquidity risk and foreign currency
risk. The Board reviews each of these risks on a regular basis.
Interest rate risk
The Group’s exposure to interest rate risk is the risk that a financial instrument’s value will fluctuate as a result of changes in
market interest rates. The Group and the Company are exposed to interest rate risk as entities in the Group deposit funds
at both short-term fixed and floating rates of interest. Neither the Group nor the Company have any interest bearing liabilities
subject to interest rate fluctuations. The Group and the Company’s exposure to interest rates on financial assets and
financial liabilities are detailed in the liquidity risk management section of this note.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral,
where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group only transacts with entities
that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies
where available and, if not available, the Group uses other publicly available financial information and its own trading
records to rate its major counterparties. The Group’s exposure and the credit ratings of its counterparties are continuously
monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.
Credit exposure is controlled by counterparty limits that are reviewed and approved by the Audit & Risk Management
Committee annually. The counterparty limits approved during the year are that an individual counterparty does not exceed:
40% where gross monetary assets are in excess of $50 million; 50% where gross monetary assets are between $10
million $50 million; and 100% where gross monetary assets are below $10 million. Concentration of credit risk related to
any counterparty did not exceed these limits during the year; the maximum counterparty risk recorded during the year
amounted to 70%.The credit risk on liquid funds and derivative financial instruments is limited because the counterparties
are banks with high credit-ratings assigned by international credit-rating agencies.
In addition, the Group is exposed to credit risk in relation to financial guarantees given to banks provided by the Group. The
Group’s maximum exposure in this respect is the maximum amount the Group could have to pay if the guarantee is called on.
Capital risk
The Group and Company endeavour to manage their capital to ensure the Group and the Company will be able to continue
as a going concern while maximising the development outcomes from its exploration expenditure.
The capital structure of the Group and the Company consists of equity attributable to equity holders of the Company,
comprising issued capital, reserves, carried forward losses and non-controlling interests. At 30 June 2014 the Group and
the Company have convertible note facilities with Hanlong, Noble and the Investor Consortium.
NOTES TO THE
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014