28. Fair value measurement
Fair value of assets and liabilities that are measured at fair value on a recurring basis
The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities that are carried at fair value in the statement of financial position:
|
|
|
December 31, 2017 |
||||||
|
|
|
|
|
Quoted prices in active markets |
|
Significant observable inputs |
|
Significant unobservable inputs |
|
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
Other non-current assets (Note 12): |
|
|
|
|
|
|
|
|
|
Biological assets |
|
27,279 |
|
— |
|
— |
|
27,279 |
|
Other non-current financial liabilities (Note 19): |
|
|
|
|
|
|
|
|
|
Derivative financial instruments - cross currency swap |
|
(33,648) |
|
— |
|
(33,648) |
|
— |
|
Derivative financial instruments - interest rate swaps |
|
(4,392) |
|
— |
|
(4,392) |
|
— |
|
|
|
December 31, 2016 |
||||||
|
|
|
|
|
Quoted prices in active markets |
|
Significant observable inputs |
|
Significant unobservable inputs |
|
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
Other non-current assets (Note 12): |
|
|
|
|
|
|
|
|
|
Biological assets |
|
17,365 |
|
— |
|
— |
|
17,365 |
|
Other non-current financial liabilities (Note 19): |
|
|
|
|
|
|
|
|
|
Derivative financial instruments - interest rate swaps |
|
(699) |
|
— |
|
(699) |
|
— |
|
Liabilities associated with assets held for sale (Note 29): |
|
|
|
|
|
|
|
|
|
Derivative financial instruments - interest rate swaps |
|
(6,630) |
|
— |
|
(6,630) |
|
— |
The cross currency swap is valued using a discounted cash flow technique. The valuation model incorporates foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies and forward interest rates. The valuation also incorporates a credit risk adjustment, calculated based on credit spreads derived from current credit default swap prices (see Note 19).
Interest rate swaps
Interest rate swaps are valued using a discounted cash flow technique. Future cash flows are estimated based on forward interest rates (from observable yield curves at the end of the reporting period) and contract interest rates, discounted at a rate that reflects the credit risk of various counterparties.
Biological assets
Biological assets comprise timber farms in South Africa, which are a source of raw materials used for the production of silicon metal. The timber farms plantations are measured at fair value less the incremental costs to be incurred until the related products are at the point of sale. The main assumptions used include the number of hectares planted and the age and average annual growth of the plantations. The changes in the fair value of this asset are recognized in the income statement in the line “net gain (loss) due to changes in the value of assets” (see Note 25.5).
The methodology for determining the fair value has been applied on a consistent basis in the current and prior year and the key assumptions are as follows:
|
· |
the arm’s length price (market price) used by the market for wood of varying ages; |
|
· |
the wood pulp industry Mean Annual Increment (MAI) index of 15 for gum and 10.5 for pine is used to determine the annual growth rate of the plantations; and |
|
· |
the density index used to convert cubic meters of wood to metric tons is 0.94 for pine and 1 for wood pulp. |
The changes fair value of biological assets classified at level 3 in the hierarchy were as follows:
|
|
|
Level 3 |
|
|
|
US$'000 |
|
January 1, 2016 |
|
13,767 |
|
Gain recognised in profit or loss (Note 25.5) |
|
1,891 |
|
Translation differences |
|
1,707 |
|
December 31, 2016 |
|
17,365 |
|
Gain recognised in profit or loss (Note 25.5) |
|
7,504 |
|
Translation differences |
|
2,410 |
|
December 31, 2017 |
|
27,279 |