Merafe Resources

Merafe prepared its interim results for the six months ended 30 June 2018 under the supervision of Kajal Bissessor CA(SA), Financial Director, in accordance with and containing the information required by IAS 34: Interim Financial Reporting, as well as the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Pronouncements as issued by Financial Reporting Standards Council, the requirements of the Companies Act of South Africa and the JSE Limited Listings Requirements.

1.1. Going concern

In determining the appropriate bases of preparation of the interim results, the directors are required to consider whether the group can continue to be in operational existence for the foreseeable future. The financial performance of the group is dependent upon the wider economic environment in which the group operates.

These interim results are prepared on a going concern basis. The Board is satisfied that the group is sufficiently liquid and solvent to be able to support the operations for the next twelve months.

1.2. Accounting policies

The accounting policies applied in the preparation of these interim results are in terms of International Financial Reporting Standards and are consistent with those applied in the annual financial statements for the year ended 31 December 2017.

No new standards or amendments to the published standards or interpretations which became effective for the year commencing on 1 January 2018 had an effect on the reported results or the group accounting policies. The group did not early adopt any new, revised or amended accounting standards or interpretations. The most prominent was IFRS: 15 Revenue from Contracts with Customers and the following assessment was performed to conclude that the standard does not have an impact on the company:

IFRS 15 contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five step analysis of transactions to determine whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations and is effective for annual periods beginning on or after 1 January 2018.

The Venture has done an assessment to determine whether the the five-step model will have an impact on the existing revenue recognition principles. The assessment involved a review of the various types of sales contracts and to identify and consider each component of the five-step model. The conclusion of the assessment is that IFRS 15 does not have a significant impact on the company.

1.3. Use of estimates and judgements

The preparation of the interim results 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 and underlying assumptions are 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 interim results are as follows:

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 derivative
The embedded derivative is included in trade and other receivables 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 30 June 2018 was R14.4m debit (Dec 2017: R35.5m credit) and is based on level 2 hierarchy per IFRS 13: Fair value measurement. The valuation is based on observable market inputs including 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). The total balance of the share-based payment liability at 30 June 2018 was R5.1m (Dec 2017: R8.8m).

5.1. Related party transactions

The Company, in the ordinary course of its business, enters into various transactions with related parties as defined in IAS 24, Related Party Disclosures.

Related party transactions were concluded on an arms-length basis and relate to Merafe’s attributable 20.5% interest in the Venture.

The group’s effective tax rate for the six months ended 30 June 2018 is 28% (June 2017: 28%).

An interim cash dividend of R200.0m (2017: R75.3m) was declared on 6 August 2018. No other material events occurred between the reporting date of 30 June 2018 and the date of issue of these condensed consolidated interim financial statements.

There were no contingent liabilities at 30 June 2018.

Ms Karabo Nondumo resigned as an independent non-executive director of Merafe on 8 May 2018. Ms Kajal Bissessor has resigned in her capacity as Financial Director effective 31 August 2018. Mr Ditabe Chocho has been appointed as the Financial Director for the group effective 1 August 2018. Ms Matsotso Vuso has been appointed as an independent non-executive director of Merafe effective 30 July 2018. There were no other changes to the Board.

These condensed consolidated interim financial statements of Merafe Resources Limited for the six months ended 30 June 2018 have not been reviewed by the independent auditor, Deloitte & Touche.

Notice is hereby given that a gross interim local ordinary cash dividend of R200.0m (7.96589 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 cash dividend, to those shareholders who are not exempt from paying dividend tax, is therefore 6.37271 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 2 510 704 248.

The important dates pertaining to the dividend are as follows:

Shares may not be dematerialised/rematerialised between Wednesday 29 August 2018 and Friday, 31 August 2018, 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, 3 September 2018.