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Notes to the financial statements

23. Financial liabilities

The carrying amounts and fair values of financial liabilities are as follows:

  2009   2008
US$ million Estimated
fair value
Carrying value   Estimated
fair value
Carrying value
At fair value through profit and loss          
Trade and other payables(1) 315 315   687 687
Other financial liabilities (derivatives)(2) 659 659   1,497 1,497
Designated into fair value hedge          
Borrowings 7,793 7,168   2,850 2,850
Financial liabilities at amortised cost          
Trade and other payables(1) 4,297 4,297   4,391 4,391
Borrowings(3) 8,744 7,147   10,658 11,145
Total financial liabilities 21,808 19,586   20,083 20,570
(1)
Trade and other payables exclude tax and social security and current and non-current deferred income and include other non-current payables.
(2)
Derivative instruments are analysed between those which are 'Held for trading' and those designated into hedge relationships in note 24.
(3)
Fair value of the convertible bond represents the quoted price of the debt at 31 December 2009 and therefore includes the portion accounted for in equity.

The fair value of financial liabilities is determined by reference to its quoted market price, otherwise the carrying value approximates fair value.

An analysis of financial liabilities carried at fair value is set out below:

  2009
US$ million Level 1(1) Level 2(2) Level 3(3) Total
At fair value through profit and loss        
Trade and other payables - 315 - 315
Other financial liabilities (derivatives) 3 543 113 659
  3 858 113 974
(1)
Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes exchange-traded derivatives.
(2)
Valued using techniques based significantly on observable market data. Instruments in this category are valued using valuation techniques where all of the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data.
(3)
Instruments in this category have been valued using a valuation technique where at least one input (which could have a significant effect on the instrument's valuation) is not based on observable market data. Where inputs can be observed from market data without undue cost and effort, the observed input is used. Otherwise, management determines a reasonable estimate for the input. Financial instruments included within level 3 primarily consist of embedded derivatives where valuation depends upon unobservable inputs.

The movements in the fair value of the level 3 financial liabilities are shown in the following table:

US$ million 2009
At 1 January 269
Net gain recorded in financing remeasurements (21)
Net loss recorded in underlying earnings 6
Reduction in assumed life of financial liability(1) (181)
Reclassification from Other financial assets (derivatives) 35
Currency movements 5
At 31 December 113
(1)
Relates to reduction of embedded derivative liability in Minera Loma de Níquel and is recorded in operating special items.

For the level 3 financial liabilities, changing certain inputs to reasonably possible alternative assumptions may change the fair value significantly. Where significant, the effect of a change in these assumptions to a reasonably possible alternative assumption is outlined in the table below. These sensitivities have been calculated by amending the fair value of the level 3 financial liabilities as at 31 December 2009 for a change in each individual assumption, as outlined below, whilst keeping all other assumptions consistent with those used to calculate the fair value recognised in the financial statements.

  2009
US$ million Change in assumption Increase/(decrease) in fair value of liabilities
Other financial liabilities (derivatives) Increase of 5% in dividend forecast 9
  Decrease of 5% in dividend forecast (9)
  Shift of TJLP curve(1) (5)-5
(1)
Brazilian domestic long term interest rate curve. Range provided due to the different base assumptions used by the relevant banks.

Financial liability risk exposures are set out in note 24.

An analysis of borrowings is set out below:

  2009   2008
US$ million Due within
one year(1)
Due after
one year
Total   Due within
one year(1)
Due after
one year
Total
Secured(2)              
Bank loans and overdrafts 416 413 829   346 678 1,024
Obligations under finance leases(3) 8 11 19   12 56 68
  424 424 848   358 734 1,092
Unsecured              
Bank loans and overdrafts 351 3,982 4,333   5,114 3,335 8,449
Bonds issued under EMTN programme(4) 572 4,410 4,982   154 2,679 2,833
US bond - 1,935 1,935   - - -
Convertible bond(5) - 1,369 1,369   - - -
Commercial paper 67 - 67   1,116 - 1,116
Obligations under finance leases(3) - - -   4 13 17
Other loans 85 696 781   38 450 488
  1,075 12,392 13,467   6,426 6,477 12,903
Total 1,499 12,816 14,315   6,784 7,211 13,995
(1)
Bank loans and overdrafts due within one year include short term borrowings under long term committed facilities of $48 million (2008: $2.8 billion).
(2)
Assets with a book value of $1,197 million (2008: $954 million) have been pledged as security, of which $753 million (2008: $663 million) are tangible assets, $242 million (2008: $160 million) are financial assets and $202 million (2008: $131 million) are inventories. Related to these assets are borrowings of $814 million (2008: $881 million) in respect of project financing arrangements.
(3)
The minimum lease payments under finance leases fall due as follows:
US$ million 2009 2008
Within one year 9 24
Greater than one year, less than five years 9 43
Greater than five years 2 86
  20 153
Future finance charges on finance leases (1) (68)
Present value of finance lease liabilities 19 85
(4)
In the year ended 31 December 2009 the Group issued $2,215 million of bonds under the EMTN programme (2008: $2,404 million). All notes are guaranteed by Anglo American plc.
(5)
Represents the fair value of the debt component of the convertible bond at the date of issue of $1,330 million (net of fees) adjusted for unwinding of discount of $39 million. The fair value of the equity conversion feature was $355 million and is presented in equity (refer to the Consolidated statement of changes in equity).

During 2009 the Group has raised $2 billion through the issuance of senior notes, $1.7 billion through the issuance of senior convertible notes and $2.2 billion through the issuance of bonds under the EMTN programme. The senior note offering comprised $1,250 million 9.375% senior notes due in 2014 and $750 million 9.375% senior notes due in 2019. The senior convertible notes were issued with a coupon of 4%, a conversion price of £18.6370 and unless redeemed, converted or cancelled, will mature in 2014. The Group will have the option to call the senior convertible note after three years from the issuance date subject to certain conditions. The issues under the EMTN programme in 2009 comprised a €750 million ($1.1 billion) 4.25% bond due in 2013 and a €750 million ($1.1 billion) 4.375% bond due in 2016. The proceeds from the sale of AngloGold Ashanti (refer to note 7), senior notes, senior convertible notes and bonds issued under the EMTN programme have been used to prepay the $3 billion revolving bank facility which was due to mature in December 2009, fund capital expenditure and repay other short term debt owing on Group facilities.

On 8 November 2009 the waivers in respect of various breaches under the Amapá long term project financing agreements (facilities of $538 million) expired. Subsequent to 31 December 2009, new retrospective waivers were obtained from lenders, $181 million has been repaid and a process has commenced to restructure the remaining debt.

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Annual Report 2009