Notes to the consolidated financial information

for the six months ended 31 December 2017

1. General information

Impala Platinum Holdings Limited (“Implats”, “the Company” or “the Group”) is one of the world’s leading producers of platinum and associated platinum group metals (PGMs). Implats is structured around five mining operations and a toll refining business in Springs in the Gauteng province. The mining operations are located on 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 Depositary Receipt programme in the United States of America.

The condensed consolidated interim financial information was approved for issue on 1 March 2018 by the board of directors.

2. Basis of preparation

The condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standard (IFRS), IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, requirements of the Companies Act, 71 of 2008, and the Listings Requirements of the JSE Limited.

The condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 30 June 2017, which have been prepared in accordance with IFRS, and the commentary included in the interim results.

The condensed consolidated interim financial statements have 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 some equity and liabilities for share-based payment arrangements which are measured using a binomial option model.

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

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

3. Accounting policies

The principal accounting policies applied are in terms of IFRS and are consistent with those of the annual consolidated financial statements for the year ended 30 June 2017.

4. Segment information

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

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

Capital expenditure comprises additions to property, plant and equipment (note 5).

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

Impala mining segment’s two largest sales customers amounted to 13% and 8% of total sales (December 2016: 10% and 8%) (June 2017: 11% and 10%).

  Six months ended
31 December 2017
(Reviewed)
  Six months ended
31 December 2016
(Reviewed)
Year ended
30 June 2017
(Audited)
 
(Rm) Revenue  Profit/ 
(loss)
after tax 
  Revenue  Profit/ 
(loss)
after tax 
Revenue  Profit/ 
(loss)
after tax 
 
Mining                          
– Impala  6 685  (1 060)    7 078  (1 126) 14 604  (9 860)   
– Zimplats  3 834  277     3 352  116  7 038  576    
– Marula  1 242  (24)    971  (232) 1 616  (709)   
Impala Refining Services  10 657  719     10 916  727  21 711  1 292    
Impala Chrome  60  (2)    289  96  432  127    
All other segments  –  (22)    –  (70) –  29    
Inter-segment revenue  (5 198) –     (4 122) –  (8 560) –    
Total segmental revenue/loss after tax  17 280  (112)    18 484  (489) 36 841  (8 545)   
Reconciliation:                         
Share of profit of equity accounted entities     188        235     496    
Unrealised profit in stock consolidation adjustment     (274)       (47)    (51)   
Additional depreciation on assets carried at consolidation     (15)       (15)    (23)   
IRS pre-production realised on Group     43        –     42    
Net realisable value adjustment made on consolidation           (12)    (17)   
Total consolidated loss after tax     (164)       (328)    (8 098)   

  Six months ended
31 December 2017
(Reviewed)
  Six months ended
31 December 2016
(Reviewed)
Year ended
30 June 2017
(Audited)
 
(Rm) Capital 
expenditure 
Total 
assets 
  Capital 
expenditure 
Total 
assets 
Capital 
expenditure 
Total 
assets 
 
Mining                          
– Impala  1 442  37 688     1 197  46 134  2 472  35 696    
– Zimplats  432  17 973     353  18 329  864  18 353    
– Marula  29  2 878     58  2 456  113  2 582    
Impala Refining Services  –  7 562     –  7 508  –  8 402    
Impala Chrome  –  153     –  288  161    
All other segments  –  34 379     (16) 30 195  (16) 32 257    
Total  1 903  100 633     1 592  104 910  3 434  97 451    
Intercompany accounts eliminated     (32 168)       (25 820)    (27 361)   
Investment in equity-accounted entities     3 797        3 343     3 316    
Mining right accounted on consolidation     790        823     811    
Unrealised profit in stock, NRV and other adjustments to inventory     (822)       (267)    (736)   
Total consolidated assets     72 230        82 989     73 481    

 

5. Property, plant and equipment

(Rm) Six months 
ended 
31 December 
2017 
(Reviewed)
  Six months 
ended 
31 December 
2016 
(Reviewed)
Year ended 
30 June 
2017 
(Audited)
 
Opening net book amount  47 798     49 722  49 722     
Additions  1 903     1 592  3 434    
Interest capitalised  –     –    
Disposals  (5)    (13) (22)   
Depreciation  (1 927)    (1 867) (3 702)   
Impairment  (30)    –  –    
Rehabilitation adjustment     (33) 16    
Exchange adjustment on translation  (700)    (967) (1 650)   
Closing net book amount  47 043     48 437  47 798    
Capital commitment                
Commitments contracted for  1 685     1 969  1 636    
Approved expenditure not yet contracted  7 946     6 465  5 364    
   9 631     8 434  7 000    
Less than one year  4 669     4 415  4 338    
Between one and five years  4 962     4 019  2 662    
   9 631     8 434  7 000    

This expenditure will be funded from internal cash flows and, if necessary, from borrowings.

6. Investment in equity-accounted entities

(Rm) Six months 
ended 
31 December 
2017 
(Reviewed)
  Six months 
ended 
31 December 
2016 
(Reviewed)
Year ended 
30 June 
2017 
(Audited)
 
Summary- Balances                 
Joint venture                
Mimosa  1 931     1 920  1 961    
Associates                
Two Rivers  1 361     1 336  1 260    
Makgomo Chrome  69     62  70    
Friedshelf  28     25  25    
Waterberg  408     –  –    
Total investment in equity accounted entities  3 797     3 343  3 316    
Summary movement                
Beginning of the period  3 316     3 342  3 342    
Addition - Waterberg  408       
Share of profit  240     215  472    
Share of other comprehensive income  (106)    (125) (219)   
Dividends received  (61)    (89) (279)   
End of the period  3 797     3 343  3 316    
Share of equity-accounted entities is made up as follows:                
Share of profit  240     215  472    
Movement in unrealised profit in stock  (52)    20  24    
Total share of profit of equity-accounted entities  188     235  496    

Waterberg

During the period Implats acquired a 15% interest in Waterberg for $30 million (R408 million). Waterberg’s asset is a large scale platinum group metal (“PGM”) resource with an attractive risk profile given its shallow nature.

Implats exercises significant influence through board representation and therefore applies the equity method to account for the investment. Implats has an option to increase its stake to 50.01% in Waterberg within 90 days of the Waterberg shareholders approving the definitive feasibility study on the project.

7. Derivative financial instrument

(Rm) Six months 
ended 
31 December 
2017 
(Reviewed)
  Six months 
ended 
31 December 
2016 
(Reviewed)
Year ended 
30 June 
2017 
(Audited)
 
Asset           
Cross Currency Interest Rate Swap (2018)   907  
    907  
Liability          
Cross Currency Interest Rate Swap (2022) 299   49  
Conversion option – US$ convertible bond (2022) 377   547  
Conversion option – ZAR convertible bond (2022)   637  
  676   1 233  

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 bonds, being: exchange rate risk on 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 from Standard Bank on the same date which Implats pays bond holders and the interest thereon. In June 2022, Implats will receive $250 million for a payment of R3 256 million.

The CCIRS is carried at its fair value of R299 (June 2017: R49) million. Hedge accounting has not been applied.

Conversion option - US$ convertible bond (2022)

The US$ bond holders have the option to convert the bonds to Implats shares at a price of $3.89. The conversion option is carried at its fair value of R377 (June 2017: R547) million.

Conversion option - ZAR convertible bond (2022)

The ZAR bond holders have the option to convert the bonds to Implats shares at a price of R50.01. At the general meeting held by shareholders on 24 July 2017, the approval to settle this option by means of Implats shares was obtained. This option meets the definition of equity and an amount of R625 million (R450 million after deferred tax) was therefore accounted within equity as from 24 July 2017.

8. Inventories

(Rm) Six months 
ended 
31 December 
2017 
(Reviewed)
  Six months 
ended 
31 December 
2016 
(Reviewed)
Year ended 
30 June 
2017 
(Audited)
 
Mining metal           
Refined metal 708   328 350  
In-process metal 4 526   2 848 2 977  
Non-mining metal          
Refined metal 1 269   1 520 993  
In-process metal 3 882   3 234 3 252  
Total metal inventories 10 385   7 930 7 572  
Stores and materials inventories 762   830 735  
  11 147   8 760 8 307  

The write-down to net realisable value comprises R82 (December 2016: R159) (June 2017: R78) million for refined mining metal and R1 124 (December 2016: R1 167) (June 2017: R948) million for in-process mining metal.

Included in refined metal is metal on lease to third parties of 40 000 (December 2016: 36 000) (June 2016: 36 000) ruthenium ounces.

Changes in engineering estimates of metal contained in-process resulted in a R431 (December 2016: R356) (June 2017: R376) million increase of in-process metal.

Non-mining metal consists of IRS inventory. No inventories are encumbered.

9. Borrowings

(Rm) Six months 
ended 
31 December 
2017 
(Reviewed)
  Six months 
ended 
31 December 
2016 
(Reviewed)
Year ended 
30 June 
2017 
(Audited)
 
Standard Bank Limited – BEE partners Marula  887     884  889     
Standard Bank Limited – Zimplats term loan  1 053     1 168  1 111    
Standard Bank Limited – Zimplats revolving credit facility  –     –  314    
Convertible bonds – ZAR (2018) 308     2 616  303    
Convertible bonds – US$ (2018) 364     2 692  380    
Convertible bonds – ZAR (2022) 2 571     –  2 516    
Convertible bonds – US$ (2022) 2 524     –  2 609    
Finance leases  1 321     1 362  1 339    
   9 028     8 722  9 461    
Current  1 418     735  1 088    
Non-current  7 610     7 987  8 373    
                 
Beginning of the period  9 461     9 279  9 279    
Proceeds  –     –  6 278    
Interest accrued  455     312  664    
Interest repayments  (334)    (241) (533)   
Capital repayments  (341)    (348) (4 593)   
Conversion option on 2022 bonds  –     –  (1 156)   
Conversion option on 2018 bonds  –     –    
Exchange adjustment  (213)    (280) (486)   
End of the period  9 028     8 722  9 461    
Committed facilities                
South African banks  4 000     4 750  4 000    
Foreign banks  421     467  445    
   4 421     5 217  4 445    

All of the facilities remain undrawn. Of these facilities, R4.0 billion expires on 30 June 2021.

10. Cost of sales

(Rm) Six months 
ended 
31 December 
2017 
(Reviewed)
  Six months 
ended 
31 December 
2016 
(Reviewed)
Year ended 
30 June 
2017 
(Audited)
 
On-mine operations  8 706     7 936  16 341     
Processing operations  2 734     2 510  5 055    
Refining and selling  741     677  1 378    
Corporate costs  347     352  736    
Share-based compensation  32     79  88    
Chrome operation – cost of sales  64     105  186    
Depreciation of operating assets  1 927     1 867  3 702    
Metals purchased  4 896     5 598  10 030    
Change in metal inventories  (2 900)    (501) (146)   
   16 547     18 623  37 370    

11. Cash generated from operations

(Rm) Six months 
ended 
31 December 
2017 
(Reviewed)
  Six months 
ended 
31 December 
2016 
(Reviewed)
Year ended 
30 June 
2017 
(Audited)
 
Profit/(loss) before tax  193     (238) (10 688)   
Adjustments for:                
Depreciation  1 927     1 867  3 702    
Finance cost  535     385  811    
Impairment  30     –  10 229    
Other  234     (17) (283)   
   2 919     1 997  3 771    
Cash movements from changes in working capital:                
Inventory  (3 464)    (1 240) (593)   
Receivables/payables  296     (218) (129)   
Cash generated from operations  (249)    539  3 049     

12. Headline earnings

Headline earnings attributable to equity holders of the Company arises from operations as follows:

(Rm) Six months 
ended 
31 December 
2017 
(Reviewed)
  Six months 
ended 
31 December 
2016 
(Reviewed)
Year ended 
30 June 
2017 
(Audited)
 
Profit/(loss) attributable to owners of the Company  (163)    (371) (8 220)   
Remeasurement adjustments:                
– Profit on disposal of property, plant and equipment  (8)    (15) (24)   
– Impairment  30     –  10 229    
– Insurance compensation  –     (175) (154)   
– Total non-controlling interest effects of adjustments  (4)    –  –    
– Total tax effects of adjustments  (5)    53  (2 814)   
Headline earnings  (150)    (508) (983)   
Weighted average number of ordinary shares in issue for basic earnings per share (million) 718.54     717.54  718.03    
Weighted average number of ordinary shares for diluted earnings per share (million) 721.30     720.69  721.78    
Headline earnings per share (cents)               
Basic  (21)    (71) (137)   
Diluted  (21)    (71) (137)   

13. Contingent liabilities and guarantees

As at the end of December 2017 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 R114 (December 2016: R122) (June 2017: R118) million. Guarantees of R1 396 (December 2016: R1 269) (June 2017: R1396) 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 277 (December 2016: R1 150) (June 2017:R1 277) million.

14. Related party transactions

  • The Group entered into PGM purchase transactions of R1 831 (December 2016: R1 782) (June 2017: R3 745) million with Two Rivers, an associate company, resulting in a payable of R1 041 (December 2016: R860) (June 2017: R1 034) million. It received refining fees to the value of R17 (December 2016: R16) (June 2017: R32) million.
  • The Group previously entered into sale and leaseback transactions with Friedshelf, an associate company. At the end of the period, R1 206 (December 2016: R1 230) (June 2017: R1 215) million was outstanding in terms of the lease liability. During the period, interest of R63 (December 2016: R63) (June 2017: R130) million was charged and a R72 (December 2016: R66) (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 R 1 561 (December 2016: R1 386) (June 2017: R3 199) million with Mimosa, a joint venture, resulting in a payable of R920 (December 2016: R725) (June 2017: R844) million. It also received refining fees and interest of R150 (December 2016: R147) (June 2017: R317) million.

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

  • Key management compensation (fixed and variable) was R31 (December 2016: R44) (June 2017: R90) million.

15. Financial instruments

(Rm) Six months 
ended 
31 December 
2017 
(Reviewed)
  Six months 
ended 
31 December 
2016 
(Reviewed)
Year ended 
30 June 
2017 
(Audited)
 
Financial assets - carrying amount          
Loans and receivables 6 408   7 763 9 943  
Financial instruments at fair value through profit and loss2   907 -  
Held-to-maturity financial assets 70   70 70  
Available-for-sale financial assets1 192   174 179  
  6 670   8 914 10 192  
Financial liabilities - carrying amount          
Financial liabilities at amortised cost 14 815   13 556 14 832  
Borrowings 9 028   8 722 9 461  
Commitments 73   70 74  
Trade payables 5 703   4 753 5 289  
Other payables 11   11 8  
Financial instruments at fair value through profit and loss2 676   1 233  
  15 491   13 556 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 – Significant inputs are based on observable market data with the rand-dollar exchange rate of R12.38/US$ being the most significant. These instruments are valued on a discounted cash flow basis.

Consolidated interim results (reviewed) for the six months ended 31 December 2017


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