ASIC notes the decision by ASX-listed Hillgrove Resources Limited (Hillgrove) to record an impairment charge of $67.1 million for its Kanmantoo copper mine and write down $19.2 million of deferred tax assets in its results for the half-year ended 30 June 2016.

ASIC made inquiries of Hillgrove in relation to its impairment testing of mine assets and the recoverability of deferred tax assets for the year ended 31 December 2015. Our impairment inquiries concerned the lack of observable inputs used to estimate fair value, failing to include the costs of disposal, and not using current balance date forecasts for the copper price.

In its financial report for the half-year ended 30 June 2016, Hillgrove has adopted value in use for impairment testing of mine assets, which does not include cash flow forecasts after the first 5 years that were previously included in the fair value model, and used current balance date forecasts for the copper price. These changes, along with the continued drop in the copper price forecasts have led to the additional impairment charge.

As outlined in ASIC media release 16-174MR ASIC calls on directors to apply realism and clarity to financial reports, impairment testing and asset values remain a focus area of our financial reporting surveillances.

ASIC reminds companies and those involved in preparing and approving financial reports that commodity price forecasts should be up to date if used as key inputs for impairment testing and that estimates of the fair value of mining assets be supportable with reference to sufficient market-based evidence.