Notes

1. Basis of preparation

Merafe prepared its interim results for the six months ended 30 June 2018 under the supervision of Kajal Bissessor CA(SA), Financial Director, in accordance with and containing the information required by IAS 34: Interim Financial Reporting, as well as the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Pronouncements as issued by Financial Reporting Standards Council, the requirements of the Companies Act of South Africa and the JSE Limited Listings Requirements.

1.1. Going concern

In determining the appropriate bases of preparation of the interim results, the directors are required to consider whether the group can continue to be in operational existence for the foreseeable future. The financial performance of the group is dependent upon the wider economic environment in which the group operates.

These interim results are prepared on a going concern basis. The Board is satisfied that the group is sufficiently liquid and solvent to be able to support the operations for the next twelve months.

1.2. Accounting policies

The accounting policies applied in the preparation of these interim results are in terms of International Financial Reporting Standards and are consistent with those applied in the annual financial statements for the year ended 31 December 2017.

No new standards or amendments to the published standards or interpretations which became effective for the year commencing on 1 January 2018 had an effect on the reported results or the group accounting policies. The group did not early adopt any new, revised or amended accounting standards or interpretations. The most prominent was IFRS: 15 Revenue from Contracts with Customers and the following assessment was performed to conclude that the standard does not have an impact on the company:

IFRS 15 contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five step analysis of transactions to determine whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations and is effective for annual periods beginning on or after 1 January 2018.

The Venture has done an assessment to determine whether the the five-step model will have an impact on the existing revenue recognition principles. The assessment involved a review of the various types of sales contracts and to identify and consider each component of the five-step model. The conclusion of the assessment is that IFRS 15 does not have a significant impact on the company.

1.3. Use of estimates and judgements

The preparation of the interim results requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised.

In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the interim results are as follows:

  • Measurement of depreciation, useful lives and residual values of property, plant and equipment;
  • Inputs used in the determination of the fair value of the share-based payment transactions;
  • Lease classification between operating and finance lease and depreciation of finance lease assets;
  • Assumptions used in calculation of the life of the mines/smelters, estimation of the closure and restoration costs and inputs used in the calculation of the present value of the provision for closure and restoration costs;
  • Recognition of deferred tax asset and projection of future taxable income to recover the deferred tax asset;
  • Consolidation: control assessment; and
  • Fair value measurement of embedded derivative.

2. Determination of fair values

A number of the accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the methods as indicated below.

2.1. Embedded derivative
The embedded derivative is included in trade and other receivables at fair value. The fair value of the embedded derivative is based on the latest available ferrochrome prices and closing foreign exchange rate. The embedded derivative at 30 June 2018 was R14.4m debit (Dec 2017: R35.5m credit) and is based on level 2 hierarchy per IFRS 13: Fair value measurement. The valuation is based on observable market inputs including prices and exchange rates.

2.2. Share based payment transactions
The fair value of employee share options and share grants is measured using the Black-Scholes Merton model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on Government bonds). The total balance of the share-based payment liability at 30 June 2018 was R5.1m (Dec 2017: R8.8m).

3. Earnings per share

   Six months ended    
   30 June 2018 Unaudited
R'000
   30 June 2017
Reviewed
R'000
  
Headline earnings per share (cents) 16.9   19.4   
Diluted headline earnings per share (cents) 16.9   19.4  
Profit, total comprehensive income for the period and headline earnings 425 106   486 491  

4. Capital commitments

   Six months ended    
   30 June 2018 Unaudited
R'000
   30 June 2017
Reviewed
R'000
  
Capital commitments 348 822   314 558   
Contracted for but not provided for 138 725   112 938  
Authorised but not contracted for 210 097   201 620  

5. Related parties

5.1. Related party transactions

The Company, in the ordinary course of its business, enters into various transactions with related parties as defined in IAS 24, Related Party Disclosures.

Related party transactions were concluded on an arms-length basis and relate to Merafe’s attributable 20.5% interest in the Venture.

  Name of related party   Description of relationship   Transactions and balance  
 

Glencore Limited (Stamford) (GLS)

 

Glencore Limited acts as the Venture’s exclusive marketing agent to sell ferrochrome on its behalf and act as distributor in the USA and Canada.

 

Sale of ferrochrome including
derivative (R237m)
(2017: (R379m))
Commission expense
R5m (2017: R13m)
Interest expense R3m (2017: R2m).

Receivable at the end of the period (R208m) (Dec 2017: (R205m)) which is reduced as and when GLS receives funds from customers.

 
 

Glencore International AG

 

Glencore International AG acts as the Venture’s exclusive marketing agent to sell ferrochrome and chrome ore on its behalf.

The Venture purchases various raw materials from Glencore International AG on an ongoing basis.

 

Commission expense on the sale of
ferrochrome and chrome ore R104m
(2017: R102m)
Marketing expense R1m
(2017: R1m)
Interest income (R1m) (2017: (R2m))
Purchase of raw material R180m
(2017: R80m).

Balance owing at the end of the period R60m (Dec 2017: R36m) payable on confirmation of final sales.

 
 

African Carbon Manufacturers (Pty) Ltd

 

African Carbon Manufacturers (Pty) Ltd sells raw materials to the Venture

 

Purchase of raw materials R10m (2017: R11m)

Balance owing at the end of the period R1m (Dec 2017: R2m) payable 30 days from statement date.

 
 

African Fine Carbon (Pty) Ltd

 

African Fine Carbon (Pty) Ltd sells raw materials to the Venture.

 

Purchase of raw materials R16m (2017: R12m)

Balance owing at the end of the period R4m (Dec 2017: R3m) payable 30 days from statement date.

 
 

Chartech Technology (Pty) Ltd

 

Chartech Technology (Pty) Ltd sells raw materials to the Venture.

 

Purchase of raw materials R16m (2017: R16m).

Balance owing at the end of the period R3m (Dec 2017: R2m) payable 30 days from statement date.

 
 

Glencore Property Management Company (Pty) Ltd

 

Glencore Property Management Company (Pty) Ltd owns and manages employee housing at the Lion operation.

 

Lion housing expense Rnil (2017: R2m)

Balance owing at the end of the period Rnil (Dec 2017: Rnil).

 
 

Glencore Operations South Africa (Pty) Ltd

 

Glencore Operations South Africa (Pty) Ltd is Merafe Ferrochrome and Mining (Pty) Ltd’s partner in the Venture.

 

Raw material expense R4m (2017: Rnil)
Employee costs R56m (2017: R49m)
Head-office costs R9m (2017: R9m)
Lion housing expense R7m (2017: R4m)
Training and Human Resource
Development expenses R3m (2017: R3m)
Shared service center expenses R4m
(2017: R4m).

Balance owing at the end of the period R24m (Dec 2017: R2m) payable 10 days after month end.

 
 

Access World (South Africa) (Pty) Ltd

 

Access World (South Africa) (Pty) Ltd is a warehousing company that provides storage facilities of ferrochrome and chrome ore to the Venture.

 

Storage expenses R6m (2017: R5m).

Balance owing at the end of the period R1m (Dec 2017: R3m) payable 30 days after statement date.

 

6. Taxation

The group’s effective tax rate for the six months ended 30 June 2018 is 28% (June 2017: 28%).

7. Events after reporting period

An interim cash dividend of R200.0m (2017: R75.3m) was declared on 6 August 2018. No other material events occurred between the reporting date of 30 June 2018 and the date of issue of these condensed consolidated interim financial statements.

8. Contingent liabilities

There were no contingent liabilities at 30 June 2018.

9. Directors

Ms Karabo Nondumo resigned as an independent non-executive director of Merafe on 8 May 2018. Ms Kajal Bissessor has resigned in her capacity as Financial Director effective 31 August 2018. Mr Ditabe Chocho has been appointed as the Financial Director for the group effective 1 August 2018. Ms Matsotso Vuso has been appointed as an independent non-executive director of Merafe effective 30 July 2018. There were no other changes to the Board.

10. Review by independent auditors

These condensed consolidated interim financial statements of Merafe Resources Limited for the six months ended 30 June 2018 have not been reviewed by the independent auditor, Deloitte & Touche.

11. Declaration of an ordinary cash dividend for the interim period ended 30 June 2018

Notice is hereby given that a gross interim local ordinary cash dividend of R200.0m (7.96589 cents per share) has been declared payable, by the Board, to holders of ordinary shares. The dividend will be paid out of income reserves.

The ordinary dividend will be subject to a local dividend tax rate of 20%. The net local ordinary cash dividend, to those shareholders who are not exempt from paying dividend tax, is therefore 6.37271 cents per share. Merafe’s income tax number is 9550 008 602. The number of ordinary shares issued at the date of the declaration is 2 510 704 248.

The important dates pertaining to the dividend are as follows:

  Declaration date:   Monday, 6 August 2018  
  Last day for ordinary shares to trade cum ordinary dividend:   Tuesday, 28 August 2018  
  Ordinary shares commence trading ex-ordinary dividend:   Wednesday, 29 August 2018  
  Record date:   Friday, 31 August 2018  
  Payment date:   Monday, 3 September 2018  

Shares may not be dematerialised/rematerialised between Wednesday 29 August 2018 and Friday, 31 August 2018, both days inclusive. Where applicable, in terms of instructions received by the Company from certificated shareholders, the payment of the dividend will be made electronically to shareholders’ bank accounts on payment date. In the absence of specific mandates, cheques will be posted to shareholders. Shareholders who have dematerialised their shares will have their accounts with their CSDP or broker credited on Monday, 3 September 2018.