Notes
1. Basis of preparation
On 8 March 2019, the Board of directors (the Board) of Merafe Resources Limited (the Company) approved the audited consolidated annual financial statements of the Merafe Group (Group) and the Company for the year ended 31 December 2018.
These summarised consolidated financial statements have been prepared under the supervision of Ditabe Chocho CA(SA) (Financial Director), in accordance with the framework concepts, the measurement and recognition requirements of International Financial Reporting Standards (IFRS), the requirements of the Companies Act 71 of 2008, as amended, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Pronouncements as issued by Financial Reporting Standards Council and as a minimum contain the information required by IAS 34 Interim Financial Reporting.
The Board takes full responsibility for the preparation of the summarised consolidated financial statements, which are unaudited and unreviewed. The financial information has been extracted from the underlying audited consolidated annual financial statements.
The accounting policies applied in the preparation of the audited consolidated annual financial statements from which the summarised consolidated financial statements were derived are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous years audited consolidated annual financial statements.
The consolidated annual financial statements from which the summarised consolidated financial statements were derived have been audited by the Group's auditors, Deloitte & Touche. Their unmodified audit report and the audited consolidated annual financial statements are available on our website (https://www.meraferesources.co.za/stake-annual-results.php).
1.1 Accounting policies
The accounting policies applied in the preparation of these results are in terms of IFRS and are consistent with those applied in the previous consolidated annual financial statements, except for the adoption of various revised and/or new standards. For the impact of adoption of new standards, refer to note 1 of the accounting policies disclosures in the annual financial statements. The Group did not early adopt any new, revised or amended accounting standards or interpretations.
1.2 Critical accounting judgements and key sources of estimation uncertainty
The preparation of the summarised consolidated financial statements 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 are reviewed on an ongoing basis. Underlying assumptions are also 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 summarised consolidated financial statements are as follows:
- Measurement of depreciation and impairment, 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
- Fair value measurement of embedded derivative
These disclosures are included in the audited consolidated annual financial statements.
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 derivatives
The embedded derivative is included in trade and other payables 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 31 December 2018 was R48.7 million liability (2017: R35.2 million asset) and is based on level 2 hierarchy per IFRS 13. The valuation is based on observable market inputs of 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).
3. Prior period error
The Group has restated its previously reported financial statements as at 31 December 2017 and updated the relevant disclosures. In the prior year, the working capital loan was initially incorrectly disclosed under trade receivables and other receivables. The loan was subsequently correctly disclosed as a liability. However, the correction was erroneously disclosed as a reclassification instead of a prior period error. The impact of the restatement was an increase in current assets and an increase in current liabilities by an amount of R72.2 million.
| For the year ended | ||||
| Post restatement 2017 R'000 |
Pre restatement 2017 R'000 |
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| Trade receivables | 883 249 | 810 977 | ||
|---|---|---|---|---|
| Working capital loan liability | (72 272) | – | ||
4. Headline earnings per share (cents)
| For the year ended | ||||
| 31 December 2018 Audited R'000 |
31 December 2017 Audited R'000 |
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| Headline earnings per share (cents) | 27.2 | 36.4 | ||
|---|---|---|---|---|
| Diluted headline earnings per share (cents) | 27.2 | 36.4 | ||
| Profit, total comprehensive income for the year and headline earnings | 683 416 | 914 118 | ||
5. Capital Commitments
| For the year ended | ||||
| 31 December 2018 Audited R'000 |
31 December 2017 Audited R'000 |
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| Capital Commitments | 178 957 | 184 089 | ||
|---|---|---|---|---|
| Contracted but not provided for | 47 335 | 52 448 | ||
| Authorised but not contracted for | 131 622 | 131 641 | ||
6. Related parties
Related party transactions and balances
During the current financial year, management performed a re-assessment of its Related Party relationships in accordance with IAS 24, Related Party Disclosures. The Glencore Plc Group is a related party taking into consideration the shareholding and related significant influence coupled with the substance of the relationship. Significant transactions and balances with all entities within the Glencore Plc Group are therefore disclosed together with the comparative figures.
All related party transactions were concluded on an arms-length basis and relate to Merafe's attributable 20.5% interest in the Venture. There are no outstanding commitments at year end.
| Name of related party | Description of relationship | Transactions and balance# | |||
The Venture |
In July 2004, Glencore and Merafe Ferrochrome pooled and shared ferrochrome assets to form the Venture. |
Refer note 23.4 for the amounts that are included in the consolidated financial statements of the group. |
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Merafe Chrome and Alloys (Pty) Ltd |
Merafe Chrome is a wholly owned subsidiary of the Company. |
Dividends were paid to the Company by Merafe Chrome of R425 million (2017: R175 million). A loan account is recognised with the Company and Merafe Ferrochrome as per note 3. The balance owing to the Company is R1.75 billion (2017: R1.5 billion). The loan account is of a long-term nature, is interest free, unsecured and does not have fixed repayment terms. |
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Merafe Ferrochrome and Mining (Pty) Ltd |
Merafe Ferrochrome is a wholly-owned subsidiary of Merafe Chrome. |
The Company charges Merafe Ferrochrome a management fee as per note 15. Dividends were paid to Merafe Chrome of R425 million (2017: R175 million). At year end a loan of R459 million (2017: R226 million) is owing by Merafe Resources to Merafe Ferrochrome as per note 14. The loan account is of a short-term nature, is interest free, unsecured and does not have fixed repayment terms. |
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Merafe Kroondal Rehabilitation Trust (SE) |
The Trust, which was registered on 31 May 2006, was established to provide funds for the rehabilitation of land involved in any prospecting or mining operations of Merafe Ferrochrome of the Kroondal mine and to discharge any liability which might arise in terms of the Atmospheric Pollution Prevention Act of 1965, the Environment Conservation Act, No. 50 of 1991, the Water Act, No. 54 of 1956 and any such other legislation as may be enacted in the future. The environmental obligations and corresponding liability remains the sole responsibility of the Venture. |
There is a loan of R108k (2017: R97k) with the Company which relates to the payment of audit fees. The loan account is of a long-term nature, is interest free, unsecured and does not have fixed repayment terms. |
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Merafe Resources Limited Share Incentive Scheme |
The Trust was established for the purpose of implementing the company’s share incentive scheme in 1999. The trust operates and administers share options which the company may grant to participants. |
No transactions occurred during the year. The trust is dormant. |
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Industrial Development Corporation of South Africa Limited (IDC) |
The IDC holds 21.8% of the issued share capital of the Company Limited and has the ability to exercise significant influence over the Company as a result of its shareholding. |
The IDC received the non-executive directors’ fees for Ms M Mosweu as disclosed in note 23.2. IDC received dividends declared by the Company. At year end there are no amounts due to the IDC. |
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Glencore (Nederland) B.V. (GN) |
GN holds 28.7% of the issued share capital of the Company and has the ability to exercise significant influence over the Company as a result of its shareholding. |
No transactions occurred during the year. GN received dividends declared by the Company. |
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PSG Konsult |
PSG holds 5.8% of the issued share capital of the Company and has the ability to exercise significant influence over the Company as a result of its shareholding. |
No transactions occurred during the year. |
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Mr C Molefe, Ms M Mosweu, |
Directors of the Company. There were changes in the directorate during 2018. |
Refer to note 23.2 for transactions with directors. |
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Glencore Limited (Stamford) (GLS) |
GLS acts as the Venture’s exclusive marketing agent to sell ferrochrome on its behalf and acts as distributor in the USA and Canada. |
Sale of ferrochrome R468 million (2017: R738 million). Commission expense R12 million (2017: R21 million). Interest expense R5 million (2017: R5 million). Receivable at the end of the year R131 million (2017: R205 million) which is reduced as and when GLS receives funds from customers. |
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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. The Venture sells chrome ore to Glencore International AG on an ad hoc basis. |
Commission expense on sale of ferrochrome and chrome ore R220 million (2017: R229 million). Marketing fee expense R2 million (2017: R2 million). Interest income R0.5 million (2017: R4 million). Purchase of raw materials R227 million (2017: R227 million). Sale of chrome ore Rnil (2017: Rnil). Balance owing at the end of the year R42 million (2017: R36 million) payable on confirmation of final sales. |
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African Carbon Manufacturers (Pty) Ltd |
African Carbon Manufacturers (Pty) Ltd sells raw materials to the Venture. |
Purchase of raw materials R17 million (2017: R18 million). Balance owing at the end of the year R2 million (2017: R2 million) payable 30 days from statement date. |
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African Fine Carbon (Pty) Ltd |
African Fine Carbon (Pty) Ltd sells raw materials to the Venture. |
Purchase of raw materials R37 million (2017: R22 million). Balance owing at the end of the year R5 million (2017: R3 million) payable 30 days from statement date. |
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Chartech Technology (Pty) Ltd |
Chartech Technology (Pty) Ltd sells raw materials to the Venture. |
Purchase of raw materials R34 million (2017: R28 million). Balance owing at the end of the year R4 million (2017: R2 million) payable 30 days from statement date. |
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Glencore Property Management Company (Pty) Ltd |
Glencore Property Management Company (Pty) Ltd owns and manages employee housing at the Lion operation. |
Lion housing lease Rnil million (2017: R6 million). Balance owing at the end of the year Rnil (2017: Rnil). |
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Glencore Operations South Africa (Pty) Ltd (GOSA) |
GOSA is Merafe Ferrochrome and Mining (Pty) Ltd’s partner in the Venture. |
Employee costs R146 million (2017: R32 million). Head-office costs R19 million (2017: R23 million). Training costs R7 million (2017: R4 million). Lion housing R14 million (2017: R7 million). Balance owing at the end of the year R7 million (2017: R2 million) payable 10 days after month end. GOSA received the non-executive directors’ fees for Mr S Blankfield as disclosed in note 23.2. |
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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 of ferrochrome and chrome ore R12 million (2017: R12 million). Outstanding balance owing at the end of the year R1 million (2017: R3 million) payable 30 days after statement date. |
1. Resigned on 8 May 2018.
2. Resigned on 31 August 2018.
3. Appointed 1 August 2018.
4. Appointed 30 July 2018.
# All reference to note numbers relates to reference in the consolidated financial statements of the Group.
7. Taxation
The Groups effective tax rate is 27.7% (2017: 28.5%) for the year ended 31 December 2018.
8. Events after the reporting period
Other than the dividend declared on 11 March 2019, there have been no material events subsequent to the 31 December 2018.
9. Contingent liabilities
No contingent liabilities as at 31 December 2018.
10. Directors
Ms Matsotso Vuso was appointed as an independent non-executive director and as a chairman of the Company’s audit and risk committee effective 30 July 2018. She replaced Ms Karabo Nondumo, who resigned on 8 May 2018, in the same capacity.
Ms Kajal Bissessor resigned as Financial Director effective 31 August 2018 and Mr Ditabe Chocho was appointed effective 1 August 2018 as her replacement.
Ms Hlokammoni Grathel Motau was appointed as an independent nonexecutive director and as a member of the Company’s audit and risk committee effective 1 January 2019.
11. Declaration of an ordinary dividend for the year ended 31 December 2018
Notice is hereby given that on 11 March 2019 the Board declared a gross cash final ordinary dividend of R150 642 255 (6 cents per share) 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 ordinary dividend, to those shareholders who are not exempt from paying dividend tax, is therefore 4.8 cents per share and 6 cents per share for shareholders exempt from paying dividend tax.
Merafe's income tax number is 9 550 008 602. The number of ordinary shares issued at the date of this announcement is 2 510 704 248.
The important dates pertaining to the dividend are as follows:
| Declaration date (as envisaged in the JSE Listings Requirements): | Monday, 11 March 2019 |
| Last day for ordinary shares to trade cum ordinary dividend: | Tuesday, 26 March 2019 |
| Ordinary shares commence trading ex-ordinary dividend: | Wednesday, 27 March 2019 |
| Record date: | Friday, 29 March 2019 |
| Payment date: | Monday, 1 April 20 |
Shares may not be dematerialised/rematerialised between Wednesday, 27 March 2019 and Friday, 29 March 2019, 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, 1 April 2019.