Notes to the consolidated and separate annual financial statements | Note 37

37.1 CGU assessment

As per IAS 36, 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.

On 31 December 2024, Merafe's share price closed at 140 cents (2023: 130 cents) per share. Based on this share price, the market capitalisation of R3.5 billion was R1.8 billion lower than the net asset value (NAV) of R5.3 billion. As per IAS36.12(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:

Assumptions

The inputs into the VIU model include key macroeconomic 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. There was no CGU impairment recognised for the current reporting period.

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 R226 million and decrease the valuation by approximately R197 million 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 R2.3 billion and increase the valuation by approximately R2.3 billion 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 R4.4 billion and increase the valuation by approximately R4.5 billion respectively. This analysis assumes that all other variables remain constant.

Change in ferrochrome and chrome ore prices

A decrease/increase of 5% in the ferrochrome and chrome ore prices will decrease the valuation by approximately R2.6 billion and increase the valuation by approximately R2.6 billion respectively. This analysis assumes all other variables remain constant.

37.2 Smelter assessment

At year end, there were grounds pointing to the likely impairment of some of our smelting operations. After considering several critical factors which included the state of the ferrochrome market, the drop in ferrochrome prices and the level of our operating costs, management concluded that the Boshoek smelter should be fully impaired resulting in an impairment write off of R574 million relating thereto at year end. This brings the total impairment loss for the year to R575 million.