Notes to the consolidated financial information

for the year ended 30 June 2018

1. General information

Impala Platinum Holdings Limited (Implats, Group or Company) is one of the world’s foremost producer of platinum and associated Platinum Group Metals (PGMs). Implats is currently structured around five main operations with a total of 20 underground shafts. The operations are located within the Bushveld Complex in South Africa and the Great Dyke in Zimbabwe, the two most significant PGM-bearing ore bodies in the world.

The Company has its listing on the securities exchange operated by JSE Limited in South Africa, the Frankfurt Stock Exchange (2022 US$ convertible bonds) and a level 1 American Depository Receipt programme in the United States of America.

The summarised consolidated financial information was approved for issue on 13 September 2018 by the board of directors.

2. Audit opinion

This summarised report is extracted from audited information, but is not itself audited. The annual financial statements were audited by PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The audited annual financial statements and the auditor’s report thereon are available for inspection at the Company’s registered office and on the Company’s website.

The directors take full responsibility for the preparation of the summarised consolidated financial statements and that the financial information has been correctly extracted from the underlying annual financial statements.

3. Basis of preparation

The summarised consolidated financial statements for the year ended 30 June 2018 have been prepared in accordance with the JSE Limited Listings Requirements (Listings Requirements) and the requirements of the Companies Act, Act 71 of 2008 applicable to summarised financial statements. The Listings Requirements require financial statements to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, and contain the information required by IAS 34 Interim Financial Reporting.

The summarised consolidated financial information should be read in conjunction with the consolidated financial statements for the year ended 30 June 2018, which have been prepared in accordance with IFRS.

The summarised consolidated financial information has been prepared under the historical cost convention except for certain financial assets, financial liabilities and derivative financial instruments which are measured at fair value and liabilities for cash-settled share-based payment arrangements which are measured using a binomial option model.

The summarised consolidated financial information is presented in South African rand, which is the Company’s functional currency.

4. Accounting policies

The principal accounting policies applied in the preparation of the consolidated financial statements, from which the summarised consolidated financial statements were derived, are in terms of IFRS and are consistent with those of the previous annual financial statements. The following new standards and amendments to standards have become effective or have been early adopted by the Group as from 1 July 2017 without any significant impact:

  • IAS 19 – Employee benefits
  • Improvements to IFRS Standards 2015-2017 Cycle
  • IAS 28 – Investments in Associates and Joint Ventures

5. Segment information

The Group distinguishes its segments between the different mining operations, refining services, chrome processing and an ‘all other segment’.

Management has determined the operating segments based on the business activities and management structure within the Group.

Capital expenditure comprises additions to property, plant and equipment (note 6).

The reportable segments’ measure of profit or loss is profit after tax. This is reconciled to the entities consolidated profit after tax.

Impala mining segment’s two largest sales customers amounted to 11% and 8% of total sales (June 2017: 12% and 10%).

    2018   2017
    Revenue
Rm
Profit/(loss)
after tax
Rm
  Revenue
Rm
Profit/(loss)
after tax
Rm
Mining            
– Impala   13 255 (12 332)   14 604 (9 860)
– Zimplats   7 485 40   7 038 576
– Marula   2 357 (30)   1 616 (732)
Impala Refining Services   22 044 1 210   21 711 1 292
Impala Chrome   226 47   432 127
All other segments   (117)   29
Inter-segment revenue   (9 513)   (8 560)
Total segmental revenue/loss after tax   35 854 (11 182)   36 841 (8 568)
Reconciliation:            
Share of profit of equity-accounted entities     383     496
Unrealised profit in stock consolidation adjustment     (211)     (51)
IRS pre-production realised on Group     217     42
Net realisable value adjustment made on consolidation         (17)
Total consolidated loss after tax     (10 793)     (8 098)
    2018   2017
    Capital
expenditure
Rm
Total
assets
Rm
  Capital
expenditure
Rm
Total assets
Rm
Mining            
– Impala   2 766 29 936   2 472 35 696
– Zimplats   1 739 20 612   864 18 353
– Marula   101 3 796   113 3 393
Impala Refining Services   8 334   8 402
Impala Chrome   150   1 161
All other segments   34 778   (16) 32 257
Total   4 606 97 606   3 434 98 262
Inter-company accounts eliminated     (34 869)     (26 279)
Investments in equity-accounted entities     4 317     3 316
Unrealised profit in stock, NRV and other adjustments to inventory     (886)     (736)
Impala segment bank overdraft taken to cash         (1 091)
Other         9
Total consolidated assets     66 168     73 481

6. Property, plant and equipment

    2018
Rm
  2017
Rm
Opening net book amount   47 798   49 722
Capital expenditure   4 606   3 434
Interest capitalised   61  
Disposals   (26)   (22)
Depreciation (note 10)   (3 838)   (3 702)
Impairment   (13 244)  
Rehabilitation adjustment   (34)   16
Exchange adjustment on translation   722   (1 650)
Closing net book amount   36 045   47 798
Capital commitment        
Commitments contracted for   1 703   1 636
Approved expenditure not yet contracted   8 071   5 364
    9 774   7 000
Less than one year   4 017   4 338
Between one and five years   5 757   2 662
    9 774   7 000

This expenditure will be funded internally and, if necessary, from borrowings.

7. Investment in equity-accounted investments

    2018
Rm
  2017
Rm
Summary balances        
Joint ventures        
Mimosa   2 268   1 961
Associates        
Two Rivers   1 528   1 260
Makgomo Chrome   78   70
Friedshelf   33   25
Waterberg   410  
Total investment in equity-accounted entities   4 317   3 316
Summary movement        
Beginning of the period   3 316   3 342
Acquisition of interest in associate – Waterberg   425  
Share of profit   473   472
Gain – Two Rivers change of interest   248  
Share of other comprehensive income/(loss)   108   (219)
Dividends received   (253)   (279)
End of the period   4 317   3 316
Share of equity-accounted entities is made up as follows:        
Share of profit   473   472
Movement in unrealised profit in stock   (90)   24
Total share of profit of equity-accounted entities   383   496

8. Inventories

    2018
Rm
  2017
Rm
Mining metal        
Refined metal   1 381   350
In-process metal   4 585   2 977
    5 966   3 327
Non-mining metal        
Refined metal   776   993
In-process metal   4 120   3 252
    4 896   4 245
Stores and materials inventories   883   735
Total carrying amount   11 745   8 307

The write-down to net realisable value comprises R250 million (2017: R78 million) for refined mining metal and R1 268 million (2017: R948 million) for in-process mining metal.

Included in refined metal is ruthenium on lease to third parties of 45 000 (2017: 36 000) ounces.

Changes in engineering estimates of metal contained in-process resulted in an increase of in-process metal of R435 (2017: R376) million.

Non-mining metal consists of inventory held by Impala Refining Services. No inventories are encumbered.

9. Borrowings

  Notes    2018 
Rm 
  2017 
Rm 
Standard Bank Limited – BEE partners Marula     887   889
Standard Bank Limited – Zimplats term loan     1 167   1 111
Standard Bank Limited – Zimplats revolving credit facility       314
Convertible bonds – ZAR (2018) 9.1     303
Convertible bonds – US$ (2018) 9.2     380
Convertible bonds – ZAR (2022) 9.3   2 631   2 516
Convertible bonds – US$ (2022) 9.4   2 858   2 609
Revolving credit facility 9.5   1 510  
Finance leases     1 299   1 339
      10 352   9 461
Current     2 427   1 088
Non-current     7 925   8 373
Beginning of the year     9 461   9 279
Proceeds     1 500   6 278
Interest accrued     928   664
Interest repayments     (689)   (533)
Capital repayments     (999)   (4 593)
Conversion option on 2022 Bonds       (1 156)
Loss on settlement of 2018 Bonds       8
Exchange adjustment     151   (486)
End of the year     10 352   9 461
9.1 Convertible bonds – ZAR (2018)
  The remaining balance of the ZAR denominated bonds was repaid on 21 February 2018. The effective interest rate was 8.5% (2017: 8.5%).
9.2 Convertible bonds – US$ (2018)
  The remaining balance of the US$ denominated bonds was repaid on 21 February 2018. The effective interest rate was 3.1% (2017: 3.1%).
9.3 Convertible bonds – ZAR (2022) (note 10.3)
  The ZAR denominated bonds have a par value of R3 250 million and carry a coupon of 6.375% (R207.2 million) per annum. The coupon is payable semi-annually for a period of five years ending 7 June 2022. The bond holder has the option to convert the bonds to Implats’ shares at a price of R50.01. The value of this conversion option derivative was R676 million on issue. At the general meeting held by shareholders, shareholders’ approval to settle this option by means of Implats’ shares was obtained, which has resulted in the bond being accounted for as a compound instrument and resulted in the derivative being transferred into equity. Implats has the option to call the bonds at par plus accrued interest at any time if the aggregate value of the underlying shares per bond for a specified period of time is 130% or more of the principal amount of that bond. The effective interest rate of the bond is 12.8%.
9.4 Convertible bonds – US$ (2022) (note 10.2)
  The US$ denominated bonds have a par value of US$250 million and carry a coupon of 3.25% (US$8.1 million) per annum. The coupon is payable semi-annually for a period of five years ending 7 June 2022. The bond holder has the option to convert the bonds to Implats’ shares at a price of US$3.89. The value of this conversion option derivative was R559 million at initial recognition. Implats has the option to call the bonds at par plus accrued interest at any time if the aggregate value of the underlying shares per bond for a specified period of time is 130% or more of the principal amount of that bond. The effective interest rate is 8.38%. (Refer note 10 for additional information regarding the conversion option and the CCIRS entered into to hedge foreign exchange risk on this bond.)
9.5 Revolving credit facility
  During the current year, Implats drew down R1 500 million on the Standard bank facility. The facility bears interest at 10.2%. The facility expires end of 2021.

10. Derivative financial instrument

  Notes    2018 
Rm 
  2017 
Rm 
Cross-Currency Interest Rate Swap (CCIRS) (2022) 10.1     49
Conversion option – US$ convertible bond (2022) 10.2   50   547
Conversion option – ZAR convertible bond (2022) 10.3     637
      50   1 233
10.1 Cross-Currency Interest Rate Swap (CCIRS) (2022)
  Implats entered into a CCIRS amounting to US$250 million to hedge the foreign exchange risk on the US$ convertible bond, being: exchange rate risk on the dollar interest payments and the risk of a future cash settlement of the bonds at a rand-dollar exchange rate weaker than R13.025/US$. US$250 million was swapped for R3 256 million on which Implats pays a fixed interest rate to Standard Bank of 9.8%. Implats receives the 3.25% coupon on the US$250 million on the same date which Implats pays-on externally to the bond holders and the interest thereon. In June 2022, Implats will receive US$250 million for a payment of R3 256 million.

The CCIRS is carried at its fair value of R21 million asset (2017: R49 million liability). No hedge accounting has been applied.
10.2 Conversion option – US$ convertible bond (2022) (note 9.4)
  The US$ bond holders have the option to convert the bonds to Implats shares at a price of US$3.89. The conversion option was valued at its fair value of R50 (June 2017: R547) million at year end, resulting in a R497 million profit for the period in other income.
10.3 Conversion option – ZAR convertible bond (2022) (note 9.3)
  The ZAR bond holders have the option to convert the bonds to Implats shares at a price of R50.01. The conversion option was accounted for in equity, upon receipt of shareholders approval to settle this option by means of Implats shares, at a fair value of R625 million, resulting in a R12 million profit for the period in other income.

11. Cost of sales

    2018
Rm
  2017
Rm
On-mine operations   16 392   16 341
Processing operations   5 340   5 055
Refining and selling   1 522   1 378
Corporate costs   710   736
Share-based compensation   82   88
Chrome operation – cost of sales   146   186
Depreciation of operating assets   3 838   3 702
Metals purchased   9 651   10 030
Change in metal inventories   (3 404)   (146)
    34 277   37 370

12. Impairment

    2018
Rm
  2017
Rm
Impairment of non-financial assets was made up of the following:        
Prepaid royalty     10 149
Property, plant and equipment   13 244  
Exploration and evaluation assets   385  
Investment property     80
    13 629   10 229

Refer to commentary on page 3 to 16 as well as the annual financial statements notes 3 and 4 for more detail regarding the impairments.

13. Cash generated from operations

    2018
Rm
  2017
Rm
Profit/(loss) before tax   (13 042)   (10 688)
Adjustments for:        
Depreciation   3 838   3 702
Finance cost   1 051   811
Impairment   13 629   10 229
Other   (51)   (283)
    5 425   3 771
Cash movements from changes in working capital:        
Inventory   (4 247)   (593)
Receivables/payables   1 186   (129)
Cash generated from operations   2 364   3 049

14. Headline earnings

    2018
Rm
  2017
Rm
Headline earnings attributable to equity holders of the Company arise from operations as follows:        
Loss attributable to owners of the Company   (10 679)   (8 220)
Remeasurement adjustments:        
   Profit on disposal of property, plant and equipment     (24)
   Impairment   13 629   10 229
   Gain – Two Rivers change in interest   (248)  
   Insurance compensation relating to scrapping of property, plant and equipment     (154)
   Total non-controlling interest effects of adjustments   (159)  
   Total tax effects of adjustments   (3 771)   (2 814)
Headline loss   (1 228)   (983)
Weighted average number of ordinary shares in issue for basic earnings per share (millions)   718.55   718.04
Weighted average number of ordinary shares for diluted earnings per share (millions)   722.11   721.79
Headline loss per share (cents)        
Basic   (171)   (137)
Diluted   (171)   (137)

15. Contingent liabilities and guarantees

As at the end of June 2018 the Group had contingent liabilities in respect of guarantees and other matters arising in the ordinary course of business from which it is anticipated that no material liabilities will arise. The Group has issued guarantees of R109 (2017: R118) million. Guarantees of R1 477 (2017: R1 396) million have been issued by third parties and financial institutions on behalf of the Group consisting mainly of guarantees to the Department of Mineral Resources for R1 355 (2017: R1 277) million.

16. Related party transactions

The Group entered into PGM purchase transactions of R3 749 (June 2017: R3 745) million with Two Rivers Platinum, an associate company, resulting in a payable of R1 145 (June 2017: R1 034) million at year end. It received refining fees to the value of R33 (June 2017: R32) million.

The Group previously entered into sale and leaseback transactions with Friedshelf, an associate company. At the end of the period, an amount of R1 192 (June 2017: R1 215) million was outstanding in terms of the lease liability. During the period, interest of R125 (June 2017: R130) million was charged and a R148 (June 2017: R147) million repayment was made. The finance leases have an effective interest rate of 10.2%.

The Group entered into PGM purchase transactions of R3 372 (June 2017: R3 199) million with Mimosa, a joint venture, resulting in a payable of R965 (June 2017: R844) million at year end. It received refining fees to the value of R285 (June 2017: R317) million.

These transactions are entered into on an arm’s-length basis at prevailing market rates.

Fixed and variable key management compensation was R67 (June 2017: R60) million.

17. Financial Instruments

    2018
Rm
  2017
Rm
Financial assets – carrying amount        
Loans and receivables   6 295   9 943
Financial instruments at fair value through profit and loss2   21  
Held-to-maturity financial assets   73   70
Available-for-sale financial assets1   198   179
Total financial assets   6 587   10 192
Financial liabilities – carrying amount        
Financial liabilities at amortised cost   16 967   14 832
Borrowings   10 352   9 461
Other financial liabilities   69   74
Trade payables   6 535   5 289
Other payables   11   8
Financial instruments at fair value through profit and loss2   50   1 233
Total financial liabilities   17 017   16 065

The carrying amount of financial assets and liabilities approximate their fair values.

1 Level 1 of the fair value hierarchy – Quoted prices in active markets for the same instrument.
2 Level 2 of the fair value hierarchy – Valuation techniques for which significant inputs are based on observable market data.