| 37. | Impairment of assets | ||||||||||||||||||||||||||||||||
|
As per IAS 36: Impairment of assets, an entity shall assess at the end of each reporting period whether there is an indication that an asset may be impaired. If such an indication exists, the entity shall estimate the recoverable amount of the asset. At 31 December 2022, Merafe's share price closed at 132c (2021: 120c) per share. Based on this share price, the market capitalisation was R3.3 billion, R1.0 billion lower than the net asset value (NAV) of R4.3 billion. As per IAS 36.12(d), if the carrying amount of net assets of an entity is higher than its market capitalisation, this is an impairment indicator. The impairment indicator was prevalent at both the interim period and at year end. As the impairment indicator remained at year end, management estimated the recoverable amount of the Group's assets by calculating the value in use of the Group. This calculation was based on the future cash flows expected to be derived from the Venture. No impairment adjustment was considered necessary at year end. The following long-term average assumptions were used in the calculation of the value-in-use (VIU) model (30 years) at the reporting date:
The inputs into the VIU model include key macro-economic assumptions as detailed above as well as operational assumptions. These assumptions are necessary given the uncertainty that underlies future outcomes. In determining the final VIU amount, Merafe considered scenarios involving possible changes in the macro assumptions while keeping operational assumptions constant. The sensitivity ranges are indicated below. The directors have concluded that there is no conclusive evidence to support recognising any impairment for the year. There are no operational or market factors identified by management that point to possible impairment other than the market capitalisation of the company being lower than the asset value of the business. Key sensitivity analysis for impairment Change in weighted average cost of capital A decrease/increase of 5% in the weighted average cost of capital will increase the valuation by approximately R129m and decrease the valuation by approximately R117m respectively. This analysis assumes that all other variables remain constant. Change in exchange rate A decrease (i.e. stronger ZAR)/increase of 5% in the exchange rates will decrease the valuation by approximately R1.9bn and increase the valuation by approximately R2bn respectively. This analysis assumes that all other variables remain constant. A decrease (i.e. stronger ZAR)/increase of 10% in the exchange rates will decrease the valuation by approximately R3.8bn and increase the valuation by approximately R4.0bn respectively. This analysis assumes that all other variables remain constant. Change in ferrochrome price A decrease/increase of 5% in the ferrochrome and chrome ore prices will decrease the valuation by approximately R2.2bn and increase the valuation by approximately R2.7bn respectively. This analysis assumes all other variables remain constant. |