Merafe Resources

On 5 March 2021, the Board approved the audited consolidated annual financial statements of the Merafe Group ("Group") and the Company for the year ended 31 December 2020.

The full set of consolidated financial statements from which these summarised consolidated financial statements have been derived, 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 is extracted from the audited information but is not itself audited. The financial information has been correctly 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. The adoption of various revised and/or new standards did not have a material impact to the Group, refer to note 2 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 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;
• 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.
• Impairment of financial assets. The Group determines whether any of the cash-generating units are impaired at each reporting date. This requires consideration of the current and future economic and trading environment and available valuation information, to ascertain if there are indications of impairment to those owned by the Group.
• Inventory. The Group determines whether there is obsolete inventory on an annual basis and adjustments to the net realisable value of inventory.
• Financial risk management. Credit risk and the impact of COVID-19 on liquidity risk, cash and cash equivalents and trade and other receivables. There has been no material increase in either liquidity risk and own credit risk.

The global environment, the risk of adverse impacts on our revenue, costs and capital spend by the Group, due to COVID-19, as well as the effects of the
ramp-up period after the lockdown on production, were all taken into account in determining the accounting estimates and judgements for the year. Not all of the estimates and judgements included in the financial statements were impacted by COVID-19.

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 2020 was R2.5 million liability (2019: R8.1 million) and is based on level 2 hierarchy per IFRS 13. The valuation is based on observable market inputs of prices and exchange rates.

The Group has corrected an error identified in the prior year financial statements. The Group has reclassified the unwinding of the discount on the rehabilitation provision out of finance income into the impairment on property, plant and equipment as well as operating and other expenses due to an error in the accounting for the change in estimate on the rehabilitation provision. As a result, there has been no change in the total loss and comprehensive loss for the prior year, in the statement of financial position, the basic loss per share nor diluted loss per share but has impacted the headline loss per share. The impact of the restatement was as an increase of the operating and other expenses by R12.6 million, a decrease of the impairment expense by R57.0 million as well as a decrease of net finance income by R44.4 million. The net realisable value adjustment of inventory has also been restated in the cash flows from operating activities with R133 million and a non-cash movement of the change in estimate of R61 million out of net cash utilised in investing activities.

7.1 Related party transactions and balances

On an annual basis management reviews its related party relationships in accordance with IAS 24: Related Party Disclosures. The Glencore plc group was identified as 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 relate to Merafe’s attributable 20.5% interest in the Venture. Income and receivable amounts are shown in brackets. There are no outstanding commitments at the reporting date.

The Group’s effective tax rate is 25.5% (2019: 27.1%) for the year ended 31 December 2020.

As reported above, the Board has resolved not to declare a final dividend (2019: R100 million, 4 cents per share) for the 2020 financial year.

At the last annual general meeting ("AGM") held on 22 May 2020, shareholders gave the Company or any of its subsidiaries a general authority in terms of section 48 of the Companies Act of South Africa and the JSE Listings Requirements, by way of a special resolution, for the acquisition of its own shares. As this general authority remains valid only until the next AGM is held on or about 18 May 2021, the shareholders will be asked at that meeting to consider a special resolution to renew this general authority until the 2022 AGM. In accordance with this general authority, from 4 January 2021, the Company started a share repurchase programme through which Merafe’s shares were to be repurchased from the open market and cancelled thereafter. A price ceiling has been set for the repurchases. As at 28 February 2021, 0.418% of the Company issued shares had been bought back. In due course, the necessary SENS announcement will be published in accordance with the JSE Listings Requirements.

There have been no other material events subsequent to 31 December 2020.

Merafe had no contingent liabilities as at 31 December 2020.

Ms Grathel Motau resigned as an independent non-executive director effective 31 October 2020.

Mr Katlego Tlale was appointed as an independent non-executive director of the Company effective 1 December 2020.

Ms Belese Majova, an independent non-executive director, and Ms Mpho Mosweu, a non-executive director, will be retiring as members of the Board at the Merafe AGM to be held on 18 May 2021, and will not be offering themselves for re-election.

Merafe's revenue and operating income is primarily generated from the Venture which is one of the global market leaders in ferrochrome production, with a total installed capacity of 2.3 million tonnes of ferrochrome per annum. Merafe shares in 20.5% of the EBITDA from the Venture. Merafe has one reportable segment being the mining and beneficiation of chrome ore into ferrochrome and, as a result, no segment report has been presented.

www.meraferesources.co.za