ANNUAL Report June 2023 Notes to the Consolidated Financial Statements 51 Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. The following table shows the valuation techniques used in measuring fair values for financial instruments in the Statement of Financial Position: Type Valuation technique Equity securities Quoted market share price. Deferred Costs Actual costs incurred. Other financial assets & liabilities* Discounted cash flows: the valuation model considers the present value of expected payments, discounted using a risk-adjusted discount rate.** * Other financial assets include unexpired interest. Other financial liabilities include deferred interest and financial liabilities. **Refer Note 24 for the inputs used in the discounted cash flows valuation model. (d) Commodity Price Risk The Company is exposed to commodity price risk. This risk arises from its activities directed at exploration and mining development of mineral commodities. If commodity prices fall, the market for companies exploring and/or mining for these commodities is affected. The Company does not currently hedge its exposures. (e) Fair Values For financial assets and liabilities, the fair value approximates their carrying value. No financial assets and financial liabilities are readily traded on organised markets in standardised form, other than listed investments. The Company has no financial assets including derivative financial assets and liabilities where the carrying amount exceeds the net fair values at reporting date. The Company’s receivables at reporting date comprise of GST input tax credits refundable by the Australian Taxation Office and other receivables. The balance (if any) of receivables comprises prepayments (if any). The credit risk on financial assets of the Company which have been recognised on the Statement of Financial Position is generally the carrying amount. (f) Capital Risk Management The consolidated entity’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Consistently with others in the industry, the consolidated entity monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as “equity” as shown in the Statement of Financial Position plus net debt. The gearing ratio as at 30 June 2023 was 57% as opposed to 41% at 30 June 2022. The increase in the ratio is predominately due to the Company financing its capital growth initiatives for the Mt Carbine Tungsten Project via debt rather than equity. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The consolidated entity would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current parent entity’s share price at the time of the investment. The consolidated entity continues to evaluate corporate and exploration opportunities within the new economy and critical minerals sector. The consolidated entity is subject to certain financing arrangements and covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. EQ Resources Limited Annual Report 2023 93
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