On 22 March 2022, 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 2021.

The consolidated financial statements and these summarised consolidated financial statements have been prepared under the supervision of Ditabe Chocho CA(SA) (Financial Director). The summarised financial statements are prepared in accordance with the framework concepts and the measurement and recognition of IFRS, Interpretations Committee (IFRIC), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee (APC), the Financial Pronouncements as issued by the Financial Reporting Standards Council, the JSE Limited Listing Requirements and the requirements of the Companies Act No. 71 of 2008, as amended.

The Board takes full responsibility for the preparation of the summarised consolidated financial statements, which is extracted from the audited consolidated financial statements 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, 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;
• Fair value measurement of trade receivable subject to provisional pricing;
• Assumptions used in the assessment of expected credit losses on financial assets;
• 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;
• Inventories. The Group determines whether there is obsolete inventory on an annual basis and adjustments to the net realisable value of inventory; and
• Financial risk management. The Group assesses credit risk and the on-going impact of COVID-19, despite limited impact 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 based on this assessment.

The global environment, the risk of adverse impacts on our revenue, costs and capital spend by the Group, due to COVID-19, were all taken into account in determining the accounting estimates and judgements for the year.

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 Trade receivables subject to provisional pricing terms

Trade receivables includes R25m (2020: Rnil) of receivables subject to provisional pricing terms which are accordingly accounted for at fair value through profit and loss. Level 2 hierarchy per IFRS 13. The fair value at the reporting date is based on the latest available ferrochrome prices and closing foreign exchange rate of R15.94.

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 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 28.07% (2020: 25.5%) for the year ended 31 December 2021.

During the reporting period, an impairment raised against assets to the value of R5.8m is due to specific assets having nil economic value.

During the reporting period, inventory was written down to its net realisable value due to low commodity prices at the reporting date. This resulted in a loss of R24m (2020: R14m).

During the reporting period, the Company delisted and cancelled 11 577 378 ordinary shares repurchase from the open market. The cancellation was approved by the JSE Limited effective on 18 August 2021. The cancelled shares represent 0.46% of the issued share capital of the Company immediately prior cancellation. The shares repurchase programme was suspended by the Board on 26 November 2021.

Merafe had no contingent liabilities as at 31 December 2021.

As reported above, the Board has resolved to declare a final cash dividend of 22 cents (2020: nil) cents per share for the 2021 financial year on 22 March 2022. The total gross cash dividend for the year amounted to 29 cents per share.

On 23 February 2022, the Minister of Finance reduced the corporate income tax rate from 28% to 27%. The lower tax rate will take effect for tax years ending on or after
31 March 2023. The change in the corporate income tax rate is considered a non-adjusting event after the reporting period and is only applicable to the Group for the 2023 financial year. Current and deferred tax balances are reflected at 28% at 31 December 2021, as this is the rate that was substantively enacted. Current and deferred tax balances will be reflected at 28%and 27% at 31 December 2022 respectively. The Group did not consider it practical to estimate the quantitative impact of the change in the corporate income tax rate at the date when the financial statements were authorised for issue.

On 24 February 2022, Russia launched a full-scale invasion of Ukraine. At the date when the financial statements were authorised, the conflict was still ongoing and the impact is not expected to be operationally and financially disruptive, and is a non-adjusting subsequent event. We will continue to monitor the impacts, if any, on our business.

The directors are not aware of any other material event which occurred after the reporting date and up to the date of this report is authorised that may require adjustment or disclosure in these annual financial statements.

The following non-executive changes took place since the publication of the interim results for the six months ended 30 June 2021 on SENS on Tuesday, 10 August 2021:

Notice is hereby given that a gross final cash dividend of 22 cents per share (December 2020: Rnil cents per share) has been declared payable, by the Board, 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 local ordinary dividend, to those shareholders who are not exempt from paying dividend tax, is therefore 17.60000 cents per share. Merafe’s income tax number is 9550 008 602. The number of ordinary shares issued at the date of the declaration is 2 499 126 870.

The important dates pertaining to the dividend are as follows:

Shareholders will not be permitted to dematerialise or rematerialise their share certificates between Wednesday, 6 April 2022 and Friday, 8 April 2022, both days inclusive.

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