Merafe Resources

On 6 March 2020, 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 2019.

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 No 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 audited 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,including a key audit matter relating to the impairment of the Group’s net assets, along with the audited consolidated annual financial statements are available for inspection at the Company’s registered office and also available on Merafe’s website at (https://www.meraferesources.co.za/stake-annual-results.php).

1.1 Accounting policies

The accounting policies applied in the preparation of these summarised consolidated financial statements are in terms of IFRS and are consistent with those applied in the previous audited 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 audited consolidated 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 and intangible assets;
• Inputs used in the determination of the fair value of the share-based payment transactions;
• Lease classification and depreciation of right of use 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, restoration costs and discount rate applied;
• Recognition of deferred tax asset on assessed losses;
• Fair value measurement of embedded derivative;
• Assumptions used in the assessment of expected credit losses on financial assets;
• Estimation of the tonnages extracted in determining the royalty provision; and
• Assumptions around joint control of the PSV.

These disclosures are included in the audited consolidated annual financial statements.

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 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 2019 was R8.1 million liability (2018: R48.7 million liability) and is based on level 2 hierarchy per IFRS 13. The valuation is based on observable market inputs of prices and exchange rates.

The 2018 financial year has been restated with the change in the derivative financial liability disclosure. In addition, in an effort to improve disclosure, Merafe has also disaggregated the property, plant and equipment note which was inclusive of intangible assets to separately disclose these intangible assets. Merafe has also restated its loans to subsidiaries from non-current assets to current assets.

6.1 Related party transactions and balances

During the current financial year, management performed a reassessment 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 arm’s-length basis and relate to Merafe’s attributable 20.5% interest in the Venture. There are no outstanding commitments at year end.

The Group’s effective tax rate is 27.1% (2018: 27.7%) for the year ended 31 December 2019.

Post year end, the Venture issued a notice in terms of section 189A of the LRA: Rustenburg Smelter NW Province South Africa (“Rustenburg Smelter”). This decision was a result of deteriorating operating and market conditions across the South African ferrochrome industry, including unsustainable electricity tariffs and interruptions, cross subsidies and real cost inflation.

The Board resolved to simplify the structure of the Group through a restructure in terms of which Merafe would directly hold a 100% interest in Merafe Ferrochrome and Mining Proprietary Limited. Both Merafe Chrome and Alloys Proprietary Limited and Merafe Ferrochrome and Mining Proprietary Limited are subsidiaries of the Company.

Other than the items reported above and the dividend declared, there have been no other material events subsequent to 31 December 2019.

Merafe had no contingent liabilities as at 31 December 2019.

Notice is hereby given that on 6 March 2020 the Board declared a gross cash final ordinary dividend of R100 million (4 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 3.2 cents per share and 4 cents per share for shareholders exempt from paying dividend tax.

Merafe’s income tax number is 9550 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:

Shares may not be dematerialised/rematerialised between Wednesday, 25 March 2020 and Friday, 27 March 2020, 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, 30 March 2020.

www.meraferesources.co.za