Notes to the consolidated and separate annual financial statements | Note 28

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group minimises credit risk by ensuring that the exposure is spread over several counterparties.

Credit risk exposure arises from transactions in the Group's ordinary course of business and applies to all financial assets. Counterparties are assessed before, during and after the conclusion of transactions to ensure exposure to credit risk is limited to an acceptable level. There is no material concentration of credit risk in cash and cash equivalents, trade and other receivables and loans.

Cash and cash equivalents

The Group limits its exposure to credit risk by investing only in liquid securities and only with approved banks and financial institutions. The Group's cash balances are in the form of short-term deposits in both local and foreign currency.

Trade and other receivables

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group's customer base, including the default risk of the industry and country in which the customers operate, have less of an influence on credit risk. Management has considered recoverability of trade and other receivables noted in notes 1.17 and 11, and no significant ECLs are expected. Trade receivables are presented in the statement of financial position net of any provision for impairment. No trade receivables are past due.

The Group sells the majority of its ferrochrome to a broad range of international customers in terms of the Venture agreement.

The marketing agent, Glencore International AG (GIAG), accepts 60% of the risk related to non-payment of credit sales of ferrochrome and 100% of the risk of non-payment of credit sales of chrome ore. In general, GIAG acts as a sales and marketing agent, on-selling purchases from the Group to a wide variety of customers. These sales are governed by various sales, marketing and distribution agreements. As these agreements have been in place for several years and the Group has not been exposed to significant unrecoverable amounts, the Group does not believe these arrangements expose it to unacceptable credit risks.

Where concentrations of credit risk exist, management closely monitors the receivable and ensures appropriate controls are in place to ensure recovery. The Group does not have netting arrangements with any debtors.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Liquidity risk is the risk that the Group will not be able to meet its financial obligations on time. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The Venture's treasury department is responsible for managing liquidity risk, including funding, settlements, related processes and policies of the Venture. The Group manages its liquidity risk on a concentrated basis, utilising various sources of finance to maintain flexibility while ensuring access to cost-effective funds when required. The operational, tax, capital and regulatory requirements and obligations of the Group are considered in the management of liquidity risk. In addition, management utilises both short and long-term cash flow forecasts and other consolidated financial information to manage liquidity risk.

The Group uses activity-based costing to cost its products, which assists it in monitoring cash flow requirements and optimising its cash returns on investments. Typically, the Group ensures that it has sufficient cash on demand to meet expected operational expenses for 60 days, including servicing financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.

In addition, the Group maintained the following facilities at 31 December 2025:

The Company

• ABSA Bank Limited (ABSA): R1 million credit card facilities. Interest is payable at ABSA is the prime lending rate plus 6.75%. At the reporting date, the prime lending rate was 10.25%.
• ABSA: R0.3 million guarantee facility.
• ABSA: R5 million daylight facility.

Merafe Ferrochrome

• ABSA: R20 million guarantee facility.
• ABSA: R5 million daylight facility.
• ABSA facility: This is a R300 million (2024: R300 million) revolving credit facility, and the interest is calculated at three months JIBAR plus a margin of 220 basis points. As at 31 December 2025, the facility was unutilised with a zero balance. A commitment fee is payable on the unused portion of the facility, which is payable quarterly in arrears. The commitment fee is 0.4% per annum. As at 31 December 2025, the three months JIBAR was 6.6%.
• The financial covenants relating to the facility are as follows: the interest cover ratio for any measurement period should not be less than four times, and the net debt to EBITDA ratio for any measurement period should not be more than 2.5 times. There was no utilisation of the facility during the year and, therefore, no requirement to meet covenants.

The Venture

• GOSA, acting on behalf of the Venture, and Merafe Ferrochrome have a Treasury Service Agreement with Glencore Holdings South Africa Proprietary Limited (Service Provider/GHSA). Loans, overdraft funding, and issuance of guarantee instruments are among the services offered by the Service Provider to the Venture.
• Interest is charged on overnight funding: USD – Secured Overnight Financing Rate plus 1.05%; ZAR – Prime lending rate less 1.75%.
• The overdraft facilities remain undrawn as at 31 December 2025.

As indicated, GHSA also issues guarantees on behalf of the Venture. At year-end, the Venture had the following guarantees in place (Merafe's attributable portion):

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and ferrochrome prices, will affect the Group's income or the value of its holding of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimising return.

Currency risk

Foreign currency

In the ordinary course of business, the Group enters into transactions denominated in foreign currencies (primarily USD). As a result, the Group was subject to transactions and translation exposure from fluctuations in foreign currency exchange rates.

The Group's exposure to foreign currency risk is as follows:

Foreign currency sensitivity analysis

A 10% weakening of the Rand against the USD on 31 December 2025 would have increased equity and profit before tax by R147 million (2024: R163 million). A 10% strengthening of the Rand at 31 December 2025 against the USD would have an equal but opposite effect. This analysis assumes that all other variables, in particular interest rates, remain constant. This sensitivity does not represent the profit and loss impact that would be expected from a movement in foreign currency exchange rates over the course of a period.

Interest rate risk profile

At the reporting date, the interest rate profile of the Group's interest-bearing financial instruments were:

*  Cash balances in local currency earned an effective interest as follows at reporting date:

The Venture

Current account: 8.15%.

The Company and Merafe Ferrochrome

Access call deposit: 8.22%.

Current account: favourable – 2.16%; unfavourable – prime lending rate which is 10.25%.

Sensitivity analysis for interest rate risk

Cash and cash equivalents

An increase of 50 basis points in interest rates will increase equity and profit or loss by R6 million (2024: R7 million). A decrease of 50 basis points in interest rates would have an equal but opposite effect. This analysis assumes all other variables remain constant.

The following tables present the carrying values and fair values of the Group's financial instruments. Fair value is the price expected to be received to sell an asset or paid to transfer a liability in a market at the measurement date under current market conditions. Where available, market values have been used to determine fair values. When market values are unavailable, fair values are calculated by discounting expected cash flows at prevailing market interest and exchange rates. The estimated fair values have been determined using market information and appropriate valuation methodologies but are not necessarily indicative of the amounts that the Group could realise in the ordinary course of business. Amortised costs approximate fair value.

Categories of financial assets

Categories of financial liabilities