Impairment of US$10.4 million reduces pre-tax profit by 13%

Jersey-based gold mining company Randgold Resources concludes that impairment of US$10.4 million that reduces pre-tax profit by 13% arises from credit rating downgrade of investments.

Randgold Resources discloses that a downgrade of investments below AAA rating is an indication of impairment. This results in recognition of an impairment of US$10.4 million that reduces pre-tax profit by 13%.

The securities were acquired last year at a cost of US$48.9 million and consisted of AAA rated collateralised debt obligations and collateralised loan notes. The credit rating has been downgraded to A-2 this year although the company states that it continues to receive interest payments. Whilst the company treats this downgrade as an indication of impairment, it is not in strict accordance with IAS 39 "Financial instruments: recognition and measurement". This states that, of itself, a credit downgrade is not evidence of impairment although it may be when considered with other available information.

As the trading market for its holding of auction rate securities has become illiquid, the company states that it has applied a mark to model valuation technique that has established a fair value of US$38.6 million leading to recognition of the impairment.

The company adds that, as the assets have been illiquid for more than twelve months and uncertainty remains about any improvement in the market, they have been reclassified as non-current assets from their previous current asset classification.