www.assmang.co.za
Annual Report 2011 www.assmang.co.za Contents
2 Group profile 2 Forward looking statements 2 Salient features 3 Administration 4 Location of operations 5 Mineral Resources and Reserves 16 Corporate governance and responsibility 17 Five-year review 18 – 55 Annual financial statements
1 Annual Report 2011 Group profile
Assmang Limited (“Assmang”), a company incorporated in the Republic of South Africa (Company registration number 1935/007343/06) and its joint venture and subsidiary companies (“Group”).
The company mines manganese at Black Rock Mine and iron ore at Beeshoek and Khumani mines in the Northern Cape province and chrome ore at Dwarsrivier Mine in the Mpumalanga province. The company also produces manganese alloys at its works at Cato Ridge in the KwaZulu-Natal province, and chrome alloys and manganese alloys at its works at Machadodorp in the Mpumalanga province. Cato Ridge Alloys (Proprietary) Limited, a joint venture between the company and Mizushima Ferroalloys Company Limited (40%) and Sumitomo Corporation (10%), both of Japan, produces refined ferromanganese at Cato Ridge Works. Incorporated in 1935, the Group employs 5 716 (2010: 4 892) permanent employees and operates as three divisions, namely iron ore, manganese and chrome. Assmang is controlled jointly by African Rainbow Minerals Limited and Assore Limited, which each hold 50% of the issued share capital of the company. Both shareholders are listed on the JSE Limited (“JSE”). The bulk of the Group’s production is exported to the Far East, Europe and the United States of America. In addition to the export of ore, manganese ore is also transferred to the works at Cato Ridge and Machadodorp where it is used in the production of manganese alloys. Assmang’s Dwarsrivier Chrome Ore Mine near Steelpoort supplies ore to the company’s Machadodorp Works for the production of chrome alloys.
Forward looking statements
Certain statements included in this report may constitute “forward looking statements”. Inevitably such forward looking statements involve known and unknown risks and uncertainties and other factors that may cause the actual results, performance or achievements of the Group to be materially different from future results, performance or achievements expressed or implied by those forward looking statements. The business of the Group is subject to fluctuations in commodity prices, exchange rates and interest rates as well as the risks involved in mining and smelting operations. While every effort is made to anticipate and counter adverse impacts of these risks on the Group’s performance, it is not possible to guarantee the outcome of future results.
Salient features
Year ended Year ended 30 June 30 June 2011 2010 R’000 R’000 Turnover 19 074 942 12 869 713 Profit for the year 5 786 808 2 732 222 Dividends paid 2 000 000 1 000 297 Capital expenditure 4 150 047 3 336 315
Annual Report 2011 2 Administration
DIRECTORS MANAGEMENT AT THE OPERATIONS Desmond Sacco – Chairman Iron ore division A J Wilkens – Deputy Chairman W S Grobbelaar, Divisional Manager M Arnold* P Becker, Senior General Manager – Khumani G C Butler*‡ M A Oosthuizen, Senior General Manager – Beeshoek C J Cory* W Smith, Financial Manager P C Crous Manganese division A Joubert L Meyer, Divisional Manager S M Langa L S Matsimela Manganese ore P E Sacco S Letaba, Senior General Manager A D Stalker‡ M Smit, Financial Manager J C Steenkamp Manganese alloys ALTERNATE DIRECTORS Ms P Thwala, Senior General Manager A Santhilal, Financial Manager W M Gule P G W Henderson Chrome division F H Kalp J Meintjies, Divisional Manager A McAdam‡ F T Olivier Chrome ore B H van Aswegen F Uys, Senior General Manager J C Venter R Burger, Administrative Manager G R Pieterse Chrome alloys G C T Karsten A Mcleod, Senior General Manager B R Mashiane (Mrs) L R Wohlberg, Financial Manager R Avenant-Buys (Mrs) * Audit Committee AUDITORS ‡ British Ernst & Young Incorporated MANAGEMENT SERVICES African Rainbow Minerals Limited BANKERS 29 Impala Road The Standard Bank of South Africa Limited Chislehurston, 2196 ABSA Bank Limited South Africa PO Box 786136 REGISTERED OFFICE Sandton, 2146 African Rainbow Minerals Limited South Africa 24 Impala Road Telephone: +2711 779 1300 Chislehurston, 2196 Telefax: +2711 779 1318 South Africa PO Box 782058 TECHNICAL ADVISERS Sandton, 2146 African Rainbow Minerals Limited South Africa African Mining and Trust Company Limited Telephone: +2711 779 1300 Telefax: +2711 779 1318 SOLE SELLING AGENTS AND DISTRIBUTORS Ore & Metal Company Limited RESPONSIBILITY OF THE FINANCIAL STATEMENTS Assore House The financial statements are prepared under the supervision of 15 Fricker Road George Karsten, Executive Finance Illovo Boulevard, 2196 South Africa COMPANY SECRETARY Private Bag X03 African Rainbow Minerals Limited Northlands, 2116 South Africa Telephone: +2711 770 6800 Telefax: +2711 268 6440
3 Annual Report 2011 Location of operations
Cr Chrome Mine Fe Iron ore Processing plant Mn Manganese City/Town FeCr Ferrochrome Export chain FeMn Ferromanganese
Dwarsrivier
Johannesburg Machadodorp
Black Rock Nchwaning Gloria
Kathu Khumani Cato Ridge Richards Bay Beeshoek Postmasburg Durban
Saldanha Bay East London
Cape To wn Port Elizabeth
Annual Report 2011 4 Mineral Resources and Reserves
COMPETENT PERSON’S REPORT ON MINERAL MEASURED AND PROVED AND RESOURCES AND MINERAL RESERVES 2011 CHROMITE INDICATED PROBABLE This report is issued as the annual update of Mineral Resources Mineral Resources Mineral Reserves and Reserves to inform shareholders and potential investors of the mineral assets held by Assmang Limited. Mt Cr2O3% Mt Cr2O3% Salient features F2011 DWARSRIVIER 48,77 39,05 33,44 35,69 Khumani Waste stripping at King progressed in preparation for production. General statement Assmang’s method of reporting Mineral Resources and Mineral Beeshoek Production mainly for the domestic market came Reserves conforms to the South African Code for Reporting from off-grade stockpiles processed through the Mineral Resources and Mineral Reserves (“SAMREC Code”) jig plant. and the Australian Institute of Mining and Metallurgy Joint Ore Nchwaning Investigations initiated to model the full package Reserves Committee Code (“JORC Code”). of the manganese seams in 0,5 metre layers. The convention adopted in this report is that Mineral Resources Gloria Measured and Indicated Mineral Resources are reported inclusive of that portion of the total Mineral Resource increased by 79% to 92,23 million tonnes at 37,8% converted to a Mineral Reserve. Resources and reserves are Mn as a result of remodelling which incorporated quoted as at 30 June 2011. External consulting firms audit the 42 new additional surface boreholes. The Inferred resources and reserves of the Assmang operations on a three- to Resource decreased to 84 million tonnes. four-year cycle basis. Dwarsrivier Surface drilling of 52 boreholes to upgrade the Underground resources are in situ tonnages at the postulated Mineral Resource confidence in the southern mining width, after deductions for geological losses. Underground portion of the mine completed. Remodelling to Mineral Reserves reflect milled tonnages, while surface Mineral commence when all assay results are received. Reserves (dumps) are in situ tonnages without dilution. Both are quoted at the grade fed to the plant. Open-pit Mineral Resources F2011 MINERAL RESOURCES/RESERVES SUMMARY are quoted as in situ tonnages and Mineral Reserves are tonnages MEASURED AND PROVED AND falling within an economic pit-shell. MANGANESE INDICATED PROBABLE The evaluation method is generally Ordinary Kriging with Mineral Resources Mineral Reserves mining block sizes ranging from 10 x 10 metres to 100 x 100 Mt Mn % Fe % Mt Mn % Fe % metres to 250 x 250 metres in the plan view. The blocks vary in thickness from 2,5 to 10 metres. The evaluation process is fully NCHWANING computerised, generally utilising the Datamine software package. No 1 Seam 126,69 44,9 8,6 106,28 44,9 8,6 The Mineral Resources and Mineral Reserves are reported on No 2 Seam 180,80 42,4 15,5 – – – a total basis regardless of the attributable beneficial interest GLORIA that Assmang has on the individual projects or mines. When the attributable beneficial interests on a mine or project is less than No 1 Seam 92,23 37,8 4,9 68,25 37,8 4,9 100%, the actual percentage of the attributable interest is specified. No 2 Seam 29,40 29,9 10,1 – – – Maps, plans and reports supporting resources and reserves are BLACK ROCK available for inspection at Assmang’s registered office and at the No 1 Seam 43,60 40,6 18,1 – – – relevant mines. No 2 Seam 26,81 38,6 19,8 – – – In order to satisfy the requirements of the Minerals and Petroleum Resources Development Act (“the Act”), Assmang’s operations will have to obtain new mining rights for all properties required MEASURED AND PROVED AND to support the planned operations over the next 30 years. The IRON ORE INDICATED PROBABLE Act was effective from 1 May 2004 and the new rights must be obtained within five years from then. Certain operations have Mineral Resources Mineral Reserves already had their conversions approved while some are still in Mt Fe % Mt Fe % various stages of application. BEESHOEK 118,97 63,75 55,13 64,04 Refer to the directors’ report for a summary of stages of completion. KHUMANI Rounding of figures may result in computational discrepancies on Bruce 226,97 64,44 196,96 64,43 the Mineral Resource and Reserve tabulations. King 376,46 64,51 348,40 64,60
5 Annual Report 2011 Mineral Resources and Reserves (continued)
Definitions exploration, sampling and testing of material from locations such as The definitions of Mineral Resources and Reserves, quoted from outcrops, trenches, pits, workings and drill holes. The locations are the SAMREC Code, are as follows: spaced closely enough to confirm geological and grade continuity. A ‘Mineral Resource’ is a concentration or occurrence of material A ‘Mineral Reserve’ is the economically mineable material derived of economic interest in or on the earth’s crust in such form, quality from a Measured or Indicated Mineral Resource or both. It includes and quantity that there are reasonable and realistic prospects diluting and contaminating materials and allows for losses that for eventual economic extraction. The location, quantity, grade, are expected to occur when the material is mined. Appropriate continuity and other geological characteristics of a Mineral Resource assessments to a minimum of a Pre-Feasibility Study for a project are known, or estimated from specific geological evidence, sampling and a Life-of-Mine Plan for an operation must have been completed, and knowledge interpreted from an appropriately constrained and including consideration of, and modification by, realistically assumed portrayed geological model. Mineral Resources are subdivided, mining, metallurgical, economic, marketing, legal, environmental, and must be so reported, in order of increasing confidence social and governmental factors (the modifying factors). Such in respect of geoscientific evidence, into Inferred, Indicated or modifying factors must be disclosed. Measured categories. A ‘Probable Mineral Reserve’ is the economically mineable An ‘Inferred Mineral Resource’ is that part of a Mineral Resource material derived from a Measured or Indicated Mineral Resource for which volume or tonnage, grade and mineral content can be or both. It is estimated with a lower level of confidence than a estimated with only a low level of confidence. It is inferred from Proved Mineral Reserve. It includes diluting and contaminating geological evidence and sampling and assumed but not verified materials and allows for losses that are expected to occur when geologically or through analysis of grade continuity. It is based the material is mined. Appropriate assessments to a minimum of on information gathered through appropriate techniques from a Pre-Feasibility Study for a project or a Life-of-Mine Plan for an locations such as outcrops, trenches, pits, workings and drill holes operation must have been carried out, including consideration that may be limited in scope or of uncertain quality and reliability. of, and modification by, realistically assumed mining, metallurgical, An ‘Indicated Mineral Resource’ is that part of a Mineral Resource economic, marketing, legal, environmental, social and governmental for which tonnage, densities, shape, physical characteristics, grade factors. Such modifying factors must be disclosed. and mineral content can be estimated with a reasonable level of A ‘Proved Mineral Reserve’ is the economically mineable material confidence. It is based on information from exploration, sampling derived from a Measured Mineral Resource. It is estimated with and testing of material gathered from locations such as outcrops, a high level of confidence. It includes diluting and contaminating trenches, pits, workings and drill holes. The locations are too widely materials and allows for losses that are expected to occur when or inappropriately spaced to confirm geological or grade continuity the material is mined. Appropriate assessments to a minimum of but are spaced closely enough for continuity to be assumed. a Pre-Feasibility Study for a project or a Life-of-Mine Plan for an A ‘Measured Mineral Resource’ is that part of a Mineral Resource operation must have been carried out, including consideration for which tonnage, densities, shape, physical characteristics, of, and modification by, realistically assumed mining, metallurgical, grade and mineral content can be estimated with a high level of economic, marketing, legal, environmental, social and governmental confidence. It is based on detailed and reliable information from factors. Such modifying factors must be disclosed.
RELATIONSHIP BETWEEN EXPLORATION RESULTS, MINERAL RESOURCES AND MINERAL RESERVES
Annual Report 2011 6 Competence GEOLOGY – The manganese ores of the Kalahari Manganese The competent person with overall responsibility for the Field are contained within sediments of the Hotazel Formation of compilation of the Mineral Reserves and Resources Report is Paul the Griqualand West Sequence, a subdivision of the Proterozoic van der Merwe, PrSciNat, an ARM employee. He consents to the Transvaal Supergroup. At Black Rock, Belgravia and Nchwaning, the inclusion in this report of the matters based on this information Hotazel, Mapedi and Lucknow Formations have been duplicated by in the form and context in which it appears. thrusting. The thrusted ore bodies comprising Black Rock (Koppie), Belgravia 1 and Belgravia 2 are collectively known as Black Rock Paul van der Merwe graduated with a BSc (Hons) in Geology from ore bodies. The average thickness of the Hotazel Formation is Free State University. He spent four years as an exploration geologist approximately 40 metres. for FOSKOR. He then joined the Uranium Resource Evaluation Group of the then Atomic Energy Corporation of South Africa for The manganese orebodies exhibit a complex mineralogy and 12 years. While employed there he studied geostatistics and spent more than 200 mineral species have been identified to date. The some time at the University of Montreal, Canada. In 1991, he joined hydrothermal upgrading has resulted in a zoning of the orebody Anglovaal Mining (now ARM) in the Geostatistics Department and with regard to fault positions. Distal areas exhibit more original evaluated numerous mineral deposit types for this group in Africa. and low-grade kutnohorite and braunite assemblages, while In 2001, he was appointed as Mineral Resources Manager for the areas immediately adjacent to faults exhibit a very high-grade Group. He is registered with the South African Council for Natural hausmannite ore. The intermediate areas exhibit a very complex mineralogy, which includes bixbyite, braunite and jacobsite among Scientific Professions as a Professional Natural Scientist in the field a host of other manganese-bearing minerals. A similar type of of practice of Geological Science, Registration number 400498/83, zoning also exists in the vertical sense. At the top and bottom and as such is considered to be a Competent Person. contacts it is common to have high iron (Fe) and low manganese All competent persons at the operations have sufficient relevant (Mn) contents, while the reverse is true towards the centre of experience in the type of deposit and in the activity for which they the seam. This vertical zoning has given rise to a mining practice have taken responsibility. Details of the competent persons are where only the centre 3,5 metre-high portion of the seam is being available from the Company Secretary on written request. mined. At the Gloria Mine the intensity of faulting is much less, which also explains the lower grade. The following competent persons were involved in the calculation of Mineral Resources and Reserves: Two manganese seams are present. The No 1 Seam is up to 6 metres in thickness, of which 3,5 metres are mined, using a M Burger PrSciNat Iron manganese marker zone for control. There is, therefore, minimum S van Niekerk PrSciNat Iron B Ruzive PrSciNat Manganese dilution. No mining is presently undertaken on No 2 Seam at A Pretorius* PrSciNat Chrome Nchwaning or Gloria. S Kadzviti PrSciNat Iron/Chrome/Manganese Nchwaning Mineral Resources and Reserves *External consultant Mineral Resource classification at Nchwaning Mine is based on consideration of a number of parameters: kriging variance, kriging P J van der Merwe efficiency, regression slope, geological structures and quality of 24 Impala Road, Chislehurston, Sandton assay data. Each of these parameters contributes to the overall 30 September 2011 classification depending on weighting assigned to each of the parameters. Measured and Indicated Resources have been defined MANGANESE MINES for Nchwaning. Geological losses are built into the grade models. LOCALITY – The manganese mines are situated in the Northern The Nchwaning Mine was diamond drilled from surface at Cape province in South Africa, approximately 80 kilometres north- 330 metre centres and the data is now captured in a Geological west of the town of Kuruman. Located at latitude 27°07’50”S Database Management System (GDMS) developed by CAE and longitude 22°50’50”E, the site is accessed via the national Datamine SA. The core was logged and 0,5-metre-long, half-core, N14 route between Johannesburg and Kuruman, and the provincial diamond-saw cut samples were submitted to Assmang’s laboratory R31 road. at Black Rock for X-ray fluorescence (XRF) analyses. Mn and Fe values were checked by Wet Chemical analyses. Several standards HISTORY – In 1940, Assmang acquired a manganese ore outcrop were used to calibrate XRF equipment, and results are compared on a small hillock known as Black Rock. Several large properties with other laboratories on a regular basis. underlain by ore were subsequently found and acquired. Today the Black Rock area is considered to be the largest and richest At Nchwaning a total of 316 boreholes as well as a total of manganese deposit in the world. Manganese ore operations 30 587 face samples were considered in the grade estimation were extended and today include the Gloria and Nchwaning for Nchwaning 1 orebody. The available data for an area was underground mines. Manganese ore is supplied locally to Assmang- optimised over a thickness of 3,5 metres and exported into data owned smelters, but is mainly exported through Port Elizabeth to files for computerised statistical and geostatistical manipulation to determine the average grades of Mn, Fe, silica (SiO ), calcium (CaO) Japanese and German customers. 2 and magnesium (MgO). MINING AUTHORISATION – The Nchwaning mining lease (ML10/76) comprises an area of 1 986 hectares and is located on Ordinary Kriging interpolation within Datamine was used to estimate the grade of each 50 x 50 x 3,5 metre block generated the farms Nchwaning (267), Santoy (230) and Belgravia (264). The within the geological model. Gloria mining lease (ML11/83) comprises an area of 1 713 hectares and is located on portion 1 of the farm Gloria (266). The new Sub-cell splitting of the 50 x 50 metre blocks was allowed to mining right was executed on 13 July 2011. Registration of right is follow the geological boundaries accurately. The relative density of in process. Nchwaning manganese ore was taken as 4,3 t/m3.
7 Annual Report 2011 Mineral Resources and Reserves (continued)
Trackless mechanised equipment is used in the board-and-pillar NCHWANING YEAR-ON-YEAR CHANGE – Mineral Reserves mining method. Mining in the eastern extremity of Nchwaning for Nchwaning lower seam (1 Body) decreased to 106,28 from occurs at a depth of 200 metres, while the deepest (current) 107,96 million tonnes mainly due to depletion by production. excavations can be found at a depth of 519 metres below surface. The Mineral Resources for 1 Body changed from 128,63 to 126,69 million tonnes. Nchwaning 2 Body Mineral Resources Ore from Nchwaning No 2 Mine is crushed underground before remained at 180,8 million tonnes. being hoisted to a surface stockpile via a vertical shaft. Similarly, ore from the Nchwaning No 3 Mine is crushed underground before Nchwaning Mine: Upper Seam (2 Body) Manganese Resources being conveyed to a surface stockpile via a declined conveyor system. Ore is withdrawn from the surface stockpile and forwarded Mineral Resources Mt Mn % Fe % to two stages of crushing, dry screening and wet screening to yield Measured 53,37 42,0 16,3 lumpy and fine products. Indicated 127,43 42,6 15,2 At the plant the finer fractions are stockpiled, while the coarser Total Resources 2 Body 2011 180,80 42,4 15,5 fractions are extracted from the respective product boxes into road haulers, sampled, weighed and stored on stacks ahead of Total Resources 2 Body 2010 180,80 42,4 15,5 despatch. Samples from each stack are analysed for chemical Totals are rounded off. content and size distribution. This ensures good quality control and enables the ore control department to blend various stacks according to customer demand.
Nchwaning Mine: Lower Seam (1 Body) Manganese Resources and Reserves Mineral Resources Mineral Reserves Mt Mn % Fe % Mt Mn % Fe % Measured 37,61 46,3 9,0 Proved 32,34 46,3 9,0 Indicated 89,08 44,3 8,4 Probable 73,94 44,3 8,4 Total Resources 1 Body 2011 126,69 44,9 8,6 Total Reserves 1 Body 2011 106,28 44,9 8,6 Total Resources 1 Body 2010 128,63 45,3 8,7 Total Reserves 1 Body 2010 107,96 45,3 8,7 Mineral Resources are inclusive of Mineral Reserves. Totals are rounded off. Modifying factors: pillar losses, mining losses.
Annual Report 2011 8 Black Rock Mineral Resources to current mining. The boreholes were optimised over a stoping The Black Rock ore bodies occur in the Black Rock (Koppie), width of 3,5 metres and the relative density was taken as 3,8 t/m3. Belgravia 1 and Belgravia 2 areas. They are all part of a large thrust The seams were evaluated by means of statistical and geostatistical complex. Modelling of these ore bodies was undertaken using methods to determine the average grades of Mn, Fe, SiO2, CaO 151 Nchwaning boreholes that intersected the thrust complex and MgO. Ordinary Kriging interpolation within Datamine was and 174 Black Rock infill boreholes. A cut-off 38% manganese used to estimate the grade of each 50 x 50 x 3,5 metre block was used in the modelling. 1 and 2 Body seams were modelled at generated within the geological model. Sub-cell splitting of the different thicknesses. 50 x 50 metre blocks was allowed to follow the geological boundaries. Black Rock: Lower Seam (1 Body) Manganese Resources Mineral Resources Mt Mn% Fe% Gloria Mine is extracting manganese at depths that vary between 180 to 250 metres. Ore is crushed underground before being Measured 9,03 40,3 18,1 conveyed to surface stockpile via a decline shaft. Indicated 34,57 40,7 18,1 GLORIA YEAR-ON-YEAR CHANGE – Remodelling of Gloria Total Resources 1 Body 2011 43,60 40,6 18,1 ore body after drilling of 42 new boreholes resulted in significant 79% increase in Measured and Indicated Mineral Resources to Total Resources 1 Body 2010 – – – 92,23 million tonnes as the Inferred Resources were upgraded to Totals are rounded off. higher category resources. Mineral Reserves also increased from 39,71 to 68,25 million tonnes. The Mineral Resources for Gloria Black Rock: Lower Seam (2 Body) Manganese Resources 2 Body remained the same. No South African markets exist for Mineral Resources Mt Mn% Fe% Gloria 2 Body ore at this time. Measured 8,23 37,4 19,8 Gloria Mine: Upper Seam (2 Body) Manganese Resources Indicated 18,58 39,2 19,8 Mineral Resources Mt Mn % Fe % Total Resources 2 Body 2011 26,81 38,6 19,8 Measured – – – Total Resources 2 Body 2010 – – – Indicated 29,40 29,9 10,1 Totals are rounded off. Total Resources 2 Body 2011 29,40 29,9 10,1 Gloria Mineral Resources and Reserves Total Resources 2 Body 2010 29,40 29,9 10,1 Procedures for drilling and assaying at Gloria Mine are the same Inferred 2011 128,24 – – as at Nchwaning. A total of 149 boreholes and 6 480 face samples Inferred 2010 128,24 – – were considered in the evaluation of the Gloria 1 Body Mine. The underground sampling values were used in evaluating areas close Totals are rounded off.
Gloria Mine: Lower Seam (1 Body) Manganese Resources and Reserves Mineral Resources Mineral Reserves Mt Mn % Fe % Mt Mn % Fe % Measured 31,46 37,7 4,8 Proved 23,28 37,7 4,8 Indicated 60,77 37,8 4,9 Probable 44,97 37,8 4,9 Total Resources 1 Body 2011 92,23 37,8 4,9 Total Reserves 1 Body 2010 68,25 37,8 4,9 Total Resources 1 Body 2010 51,57 38,3 5,5 Total Reserves 1 Body 2009 39,71 38,3 5,5 Inferred 2011 84,00 36,8 4,8 Inferred 2010 128,24 – – Mineral Resources are inclusive of Mineral Reserves. Totals are rounded off. Modifying factors: pillar losses, mining losses.
9 Annual Report 2011 Mineral Resources and Reserves (continued)
Historical manganese production at Nchwaning and Gloria mines (saleable product) Year Nchwaning Mt Gloria Mt 2006/2007 2,49 0,43 2007/2008 2,71 0,41 2008/2009 2,63 0,51 2009/2010 1,30 0,67 2010/2011 2,35 0,70
IRON ORE MINES HISTORY – Mining of iron ore (mainly specularite) was undertaken LOCALITY – The iron ore division is made up of the Beeshoek as early as 40 000 BC on the farm Doornfontein which is due north Mine located on the farms Beeshoek 448 and Olynfontein of Beeshoek. The potential of iron ore in this region was discovered 475, and the Khumani Mine situated on the farms Bruce 544, in 1909, but, due to lack of demand and limited infrastructure, this King 561 and Mokaning 560. All properties are in the Northern commodity was given little attention. In 1929, the railway line was Cape, approximately 200 kilometres west of Kimberley. extended from Koopmansfontein (near Kimberley) to service a The Beeshoek open-pit operations are situated 7 kilometres west manganese mine at Beeshoek. In 1935, The Associated Manganese of Postmasburg and the new Khumani open pits are adjacent Mines of South Africa Limited (Assmang) was formed, and in 1964 to, and south-east of, the Sishen Mine, which is operated by the Beeshoek Iron Ore Mine was established, with a basic hand- Kumba Resources. Located at latitude 28°30’00”S/longitude sorting operation. In 1975, a full washing and screening plant was 23°01’00”E, and latitude 27°45’00”S/longitude 23°00’00”E installed and production increased to 7 million tonnes over the respectively. Khumani Mine supplies iron ore to the export years. The Khumani Iron Ore Mine was commissioned in 2007 and markets. Exports are railed to the iron ore terminal at Saldanha Bay. is ramping up to approximately 10 million tonnes per annum, with Beeshoek ore is supplied to local customers. expansion plans to 16 million tonnes per annum being investigated.
Annual Report 2011 10 MINING AUTHORISATION – The Beeshoek mining lease MINERAL RESOURCES AND RESERVES – In the iron ore (ML3/93) comprises an area of 5 686 hectares and is located on operations, the following table shows how the search ellipse (ie the farms Beeshoek (448) and Olynfontein (475). The application the ellipsoid used by the Kriging process to determine if a sample for the conversion to a new mining order right submitted during is used in the estimation of a block) is used to classify the Mineral the 2009 financial year is still pending. The application has been Resources: forwarded to the Pretoria DMR from the Kimberley regional office recommending its approval. Minimum Maximum Search ellipse number number settings The Khumani mining right comprises an area of 7 388 hectares of samples of samples XYZ (m) and is located on the farms Bruce (544), King (561) and Mokaning (560). The mining right was granted during the 2007 financial year. Measured 6 30 100 x 100 x 10 GEOLOGY – The iron ore deposits are contained within a sequence Indicated 5 30 200 x 200 x 20 of early Proterozoic sediments of the Transvaal Supergroup Inferred 4 30 400 deposited between 2 500 and 2 200 million years ago. In general, Only Measured and Indicated Resources are converted to two ore types are present, namely laminated hematite ore forming Proved and Probable Reserves respectively. Modifying factors were part of the Manganore Iron Formation and conglomerate ore applied to these resources and financially optimised. The financial belonging to the Doornfontein Conglomerate Member at the base outline is used to define the optimal pit by means of the Lersch- of the Gamagara Formation. Grossman algorithm. The resources within this mining constraint are The older laminated ore types occur in the upper portion of defined as reserves. These are categorised into different product the Manganore Iron Formation as enriched high-grade hematite types, destined for the different plant processes and scheduled bodies. The boundaries of high-grade hematite orebodies cross- for planning. cut primary sedimentary bedding, indicating that secondary The methodology followed to identify targets is initiated with hematitisation of the iron formation took place. In all of these, some geological mapping, followed by geophysics (ground magnetics and of the stratigraphic and sedimentological features of the original gravity). Percussion drilling is used to pilot holes through overlying iron formation are preserved. waste rock down to the iron ore bodies. Diamond drilling is the The conglomeratic ore is found in the Doornfontein Conglomerate next phase, which is usually on a 200 x 200 metre grid. Further Member of the Gamagara Formation and is lenticular and not infill drilling is carried out at spacing ranging from 100 x 100 persistently developed along strike. It consists of stacked, upward metres to 25 x 25 metres, depending on the complexity of the fining conglomerate-gritstone-shale sedimentary cycles. The geological structures. Numerous exploration programmes have lowest conglomerates and gritstones tend to be rich in sub- been completed in the last 40 years. A total of 2 832 holes (1 315 rounded to rounded hematite ore pebbles and granules and form holes on Khumani and 1 517 holes on Beeshoek) have been drilled. the main orebodies. The amount of iron ore pebbles decreases Core samples are logged and split by means of a diamond saw and upwards in the sequence so that upper conglomerates normally the half-core is sampled every 0,5 metres. Before submission for consist of poorly sorted, angular to rounded chert and banded iron assaying, the half-cores are crushed, split and pulverised. Samples formation pebbles. with values larger than 60% are included in the definition of the The erosion of the northern Khumani deposit is less than that in the orebodies. Any lower-grade samples inside the orebody are defined southern Beeshoek area. The result is that Khumani is characterised as internal waste and modelled separately. Each zone is modelled by larger stratiform bodies and prominent hangingwall outcrops. per section, and then wireframed to get a three-dimensional The down-dip portions are well preserved and developed, but (3D) model. in outcrop the deposits are thin and isolated. Numerous deeper Ordinary Kriging interpolation within CAE Datamine is used to extensions occur into the basins due to karst development. estimate the grade of each 10 x 10 x 10 metre block generated A prominent north-south strike of the ore is visible. The southern within the geological model. Density in the resource model is Beeshoek orebodies were exposed to more erosion and are more calculated using a fourth degree polynomial fit applied to the localised and smaller. Outcrops are limited to the higher topography estimated Fe grade. Densities range from 4,38 t/m3 (60% Fe) to on the eastern side of the properties. Down-dip to the west, the 5,01 t/m3 (68% Fe). A default density of 3,2 t/m3 is used for waste. ore is thin and deep. The strike of the orebodies is also in a north- south direction, but less continuous. At the iron ore mines all blast holes are sampled per metre, but composited per hole. All holes are analysed for density and blast Hematite is the predominant ore mineral, but limonite and holes in ore are sampled and analysed for Fe, potassium oxide speccularite also occur. (K2O), sodium oxide (Na2O), silica (SiO2), aluminium oxide (Al2O3), Mining operations are all open pit, based on the conventional drill- phosphorus (P), sulphur (S), CaO, MgO, Mn and barium oxide and-blast, truck-and-shovel operations. Run-of-mine ore is crushed (BaO). Every fifth blast hole is geologically logged per metre, which and stored as on-or off-grade on blending stockpiles. Ore from is used to update the geological model. The chemical results of these the stockpiles is either sent to the wash-and-screen plants or, if holes are used to update the ore block model. The major analytical off-grade, to the beneficiation plants. The wash-and-screen plants technique for elemental analyses is XRF spectroscopy. Volumetric consist primarily of tertiary crushing, washing, screening, conveying titration is used as verification method for the determination of total and stacking equipment. The beneficiation plants consist of tertiary iron in the ore. International standards (eg SARM11) and in-house crushers; scrubbers; coarse and fine jigs; lumpy, fines and scaw iron standards are used for calibration of the XRF spectrometer. product stockpiles; and a rapid load-out facility. No chemical is being The Khumani laboratory participates in a round-robin group that used in any of the treatment plants. includes 11 laboratories for verification of assay results.
11 Annual Report 2011 Mineral Resources and Reserves (continued)
BEESHOEK IRON ORE MINE: RESOURCES AND RESERVES Total Resources Measured Indicated Inferred Measured and Proved Probable Total Resources Resources Resources Indicated Reserves Reserves Reserves Pit/Area Mt Fe % Mt Fe % Mt Fe % Mt Fe % Mt Fe % Mt Fe % Mt Fe % BN 23,42 63,40 – – – – 23,42 63,40 13,92 63,55 – – 13,92 63,55 HF/HB 16,00 64,10 – – – – 16,00 64,10 6,87 64,27 – – 6,87 64,27 BF 8,45 63,51 0,23 63,54 0,001 65,24 8,68 63,51 1,02 61,59 – – 1,02 61,59 East Pit 8,91 64,63 0,04 64,23 – – 8,95 64,63 6,16 64,43 0,01 63,64 6,17 64,43 Village 42,71 63,72 2,98 63,57 0,002 63,71 45,69 63,71 27,15 64,24 – – 27,15 64,24 GF 3,13 63,81 0,09 61,80 – – 3,22 63,75 – – – – – – HH Ext 0,28 62,63 – – – – 0,28 62,63 – – – – – – HL 3,23 65,07 0,05 65,20 – – 3,28 65,07 – – – – – – West Pit 9,45 63,19 – – 0,050 61,88 9,45 63,19 – – – – – – Detrital – – – – 2,500 60,00 – – – – – – – – Total 2011 115,58 63,76 3,39 63,55 2,553 60,04 118,97 63,75 55,12 64,04 0,01 63,64 55,13 64,04 Total 2010 112,59 63,71 0,76 63,61 2,55 60,04 113,35 63,71 47,64 64,93 0,03 66,45 47,67 64,93 Mineral Resources are inclusive of Mineral Reserves. Totals are rounded off. Modifying factors: Economic pit design; fines generated; customer product specifications.
BEESHOEK YEAR-ON-YEAR CHANGE – Measured and Indicated Resources for Beeshoek Mine increased to 118,97 from 113,35 million tonnes, mainly due to the increase in the resources for Village where remodelling of the ore body was undertaken. The 2011 Mineral Reserves increased by 16% to 55,13 million tonnes due to increase in Village and East Pit reserves. A feasibility study for Village Pit is still in progress.
Annual Report 2011 12 KHUMANI IRON ORE MINE: RESOURCES AND RESERVES
Measured Measured Indicated Inferred and Proved Probable Total Resources Resources Resources Indicated Reserves Reserves Reserves Pit/Area Mt Fe % Mt Fe % Mt Fe % Mt Fe % Mt Fe % Mt Fe % Mt Fe % Bruce A 76,39 64,48 34,36 64,20 0,02 63,93 110,75 64,39 69,13 64,54 31,60 64,21 100,73 64,44 Bruce B 72,32 64,42 25,35 63,98 0,19 65,31 97,67 64,31 69,29 64,41 14,99 63,63 84,28 64,27 Bruce C 11,70 65,45 6,85 65,45 0,36 63,36 18,55 65,45 10,31 65,50 1,64 65,85 11,95 65,55 King-Mokaning 253,73 64,53 122,73 64,48 4,85 63,02 376,46 64,51 238,90 64,63 109,50 64,55 348,40 64,60 Detrital – – – – 4,00 60,00 – – – – – – – – Total 2011 414,14 64,53 189,29 64,40 9,42 61,80 603,43 64,49 387,63 64,60 157,73 64,41 545,36 64,54 Total 2010 477,18 64,50 136,55 64,52 26,85 63,43 613,73 64,50 463,77 64,45 79,86 64,32 543,63 64,43 Mineral Resources are inclusive of Mineral Reserves. Totals are rounded off. Modifying factors: Economic pit design; fines generated; customer product specifications.
KHUMANI YEAR-ON-YEAR CHANGE – At Khumani Mine Measured and Indicated Resources decreased from 613,73 to 603,43 million tonnes mainly due to Bruce B and C pits where reduced tonnage is attributable to mining depletion and remodelling of Bruce C. Total reserves increased marginally to 545,36 from 543,63 million tonnes in 2010.
HISTORICAL PRODUCTION AT BEESHOEK AND KHUMANI MINES (SALEABLE PRODUCT) Beeshoek Khumani Financial year Mt Mt 2006/2007 6,70 – 2007/2008 5,30 2,00 2008/2009 2,66 6,65 2009/2010 0,52 8,77 2010/2011 0,96 8,73
13 Annual Report 2011 Mineral Resources and Reserves (continued)
CHROMITE MINE dykes that on average strike north-east – east south-west. No LOCALITY – Chromite operations at Dwarsrivier Mine form part significant grade variation is evident, especially not vertically in the of the chrome division of Assmang Limited. The mine is situated ore seam. Small, insignificant regional variations do, however, exist. on the farm Dwarsrivier 372KT, approximately 30 kilometres from MINERAL RESOURCES AND RESERVES – Information was Steelpoort and 60 kilometres from Lydenburg, in Mpumalanga obtained from boreholes with a 300 to 150 metre grid spacing. province, South Africa. Located at longitude 30°05’00”E/latitude Resources were determined with a decreasing level of confidence. 24°59’00”S, Assmang purchased the farm from Gold Fields Limited, together with all surface and mineral rights in October 1998. • Measured Resource (150 metres drill grid spacing); • Indicated Resource (300 metres drill grid spacing); and HISTORY – Neighbouring properties to the north and south of • Inferred Resource (drill grid spacing greater than 300 metres). Dwarsrivier had existing chrome mining operations at the time of purchase. The feasibility study of the plant, tailings dam and designs All possible resources down to a mineable depth of 350 metres for the opencast and underground mines then commenced. After below ground level have been considered. the completion of the feasibility study, approval to proceed with the Vertical diamond drill holes are used for geological and grade final design and construction work was given in July 1999. modelling, except where information is needed to clarify large-scale Chromite was obtained from the opencast mining areas at a rate fault planes. The Mineral Resources at Dwarsrivier Mine are based of approximately 0,9 million tonnes a year and these areas were on a total of 237 diamond drill holes that have been used for grade mined out within five years. Underground mining commenced estimation and orebody modelling purposes. The drill core is NQ in 2005 at a rate of 1,2 million tonnes ROM a year. Dwarsrivier size and is geologically and geotechnically logged. The collar position Mine is specifically geared to deliver high-quality metallurgical grade of the drill holes is surveyed, but no down-hole surveys are done, chromite to the Machadodorp smelter. In addition, the plant has and the holes are assumed to have minimal deflection. been designed to produce chemical grade products. The chromitite seam is bounded above and below by pyroxenites. MINING AUTHORISATION – An old-order mining licence 21/99 As such, the ore horizon is clearly defined. The core is sampled was granted in October 1999. An application for the conversion to from the top contact downwards at 0,5 metre intervals. The core a new-order mining right submitted in October 2007 is still pending. is split and half is retained as reference material in the core sheds. The other half is crushed and split into representative samples, GEOLOGY – Dwarsrivier Mine is situated in the Eastern Limb which are crushed and pulverised for chemical analysis. The samples of the Bushveld Igneous Complex, which comprises persistent are analysed using fusion/ICP-OES for chrome oxide (Cr O ), layers of mafic and ultramafic rocks, containing the world’s largest 2 3 SiO , FeO, Al O , MgO and CaO. Three laboratories, all ISO 17025 known resources of platinum group metals, chromium and 2 2 3 accredited for this method, are used. Every tenth sample is analysed vanadium. The mafic rocks termed the Rustenburg Layered Suite, in duplicate. SARM 8 and SARM 9 standards, as well as in-house are approximately 8 kilometres thick in the Eastern Lobe, and are reference material, are included in every 20 to 30 samples in divided formally into five zones. each batch. The density for each sample is measured using a gas The rocks of the Marginal Zone at the base of the succession consist pycnometer. mainly of pyroxenites with some dunites and harzburgites. Above the Marginal Zone, the Lower Zone comprises mainly pyroxenites, Mineral Resources have been estimated using Ordinary Kriging, harzburgites and dunite, and is present only in the northern where Cr2O3, FeO, Al2O3, MnO and MgO-contents of the LG6 part of the Eastern Lobe, and only as far south as Steelpoort. seam and densities were determined, using block sizes of 50 x 50 The appearance of chromitite layers marks the start of the x 4 metres. Critical Zone, economically the most important zone. The layers During mining, a slightly diluted run-of-mine ore inclusive of the are grouped into three sets termed the Lower, Middle and Upper ‘false’ hangingwall is fed to the beneficiation plant. In the dense groups. The sixth chromitite seam in the Lower Group (LG6), is media separation part of the plant, the coarse fraction is upgraded an important source of chromite ore and is the orebody being to 40% Cr O , with a yield of 80% In the spiral section of the mined at Dwarsrivier Mine. In the Eastern Lobe, in the vicinity 2 3 plant, the finer fraction is upgraded to 44% Cr2O3, and 46% Cr2O3 of Dwarsrivier, the strike is nearly north-south, with a dip of respectively, for metallurgical grade fines and chemical grade fines. approximately 10 degrees towards the west. Average thickness A 67% yield is achieved in the spiral circuit. of the LG6 seam is about 1,86 metres in the Dwarsrivier area. Pipe-like dunite intrusions are evident in the area, as well as dolerite
Annual Report 2011 14 DWARSRIVIER CHROME MINE: CHROME RESOURCES AND RESERVES Mineral Resources Mineral Reserves Mt Mn % Fe % Mt Mn % Fe % Measured 17,25 39,20 23,07 Proved 9,57 35,75 22,00 Indicated 31,52 38,97 23,01 Probable 23,87 35,66 22,04 Total Measured and Indicated 2011 48,77 39,05 23,03 Total Reserves 2011 33,44 35,69 22,03 Total Measured and Indicated 2010 50,60 39,03 22,98 Total Reserves 2010 39,50 35,75 22,00 Inferred 48,05 39,15 23,01 Mineral Resources are inclusive of Mineral Reserves. Totals are rounded off. Modifying factors: Geological losses, mining losses and pillar losses.
YEAR-ON-YEAR CHANGE – 2011 Mineral Resources decreased by 1,83 to 48,77 million tonnes mainly due to mining depletion. Mineral Reserves reduced to 33,44 from 39, 50 million tonnes due to removal of additional structural blocks, reduction of pillar extraction factor from 77% to 75% and mining depletions during the year. HISTORICAL PRODUCTION AT DWARSRIVIER CHROME MINE Financial year Mt 2006/2007 1,01 2007/2008 1,24 2008/2009 1,03 2009/2010 0,78 2010/2011 1,25
15 Annual Report 2011 Corporate governance and responsibility
The board of Assmang is committed to maintaining the standards The main responsibilities of this committee include the of integrity, accountability and openness advocated in the King safeguarding of the Group’s assets and shareholders’ investments, Report on Corporate Governance for South Africa 2009 (King the maintenance of high standards of record keeping and systems III Report). of internal control as well as monitoring compliance with standards of corporate governance. In addition, the committee pursues BOARD OF DIRECTORS the objective of ensuring that effective policies and practices are Details of the board of directors are set out on page 3 of adopted in the preparation of financial information. Audit plans are this report. based on relative risk and the committee conducts reviews of audits, undertaken by both internal and external auditors. It examines The chairman is a non-executive director and the board meets at their respective plans and reports to ensure effectiveness. Both least four times a year on predetermined dates and none of the external and internal auditors have unrestricted access to the directors have a service contract with the company. chairman of the Audit Committee who is a non-executive director. The provision of a ‘whistle-blowing’ facility is in operation. During the year Mr R J Carpenter resigned from the board of directors and Mr A D Stalker has been appointed as Executive INTERNAL AUDIT Director. The Group’s internal audit function, which has been outsourced, Meetings operates with full authority of the directors. The engagement The board met on four occasions in the year under review and director reports directly to the chairman of the Audit Committee and has unrestricted access to the chairman of the board and other attendance at these meetings was as follows: members of the Audit Committee. The internal auditors perform Possible Attended a variety of activities that ultimately result in an examination and evaluation of the effectiveness of internal control in all operating Desmond Sacco 4 4 sectors of the Group’s businesses. Through this process, significant M Arnold 4 4 business risks are highlighted and the systems of operating and G C Butler 4 4 financial controls are monitored. Audit issues are brought to R J Carpenter 3 3 the attention of the Audit Committee and external auditors, C J Cory 4 4 and issues that require corrective action are discussed with P C Crous 4 4 senior management and acted upon under the auspices of the A Joubert 4 4 Audit Committee. S Langa 4 4 INTERNAL CONTROL L S Matsimela 4 4 Based on the information and explanations given by management, P E Sacco 4 4 and reports presented by the internal and external auditors on A D Stalker 1 1 the results of their audits, the directors are of the opinion that J C Steenkamp 4 4 the internal accounting controls are adequate to address risks as A J Wilkens 4 4 identified by management. OPERATIONS COMMITTEE Nothing has come to the attention of the directors or the internal auditors to indicate that any material breakdown in the functioning J C Steenkamp (Presiding Officer), G C Butler, P C Crous, A Joubert, of the controls, procedures and systems has occurred during the A D Stalker and B H van Aswegen. year under review. This board-appointed committee is mandated to consider and implement strategy and maintain effective management of the REMUNERATION Group’s operations. The committee meets at least quarterly at The board-appointed Operations Committee (refer above) predetermined dates, but during the year under review has met 13 ensures appropriate levels of remuneration for senior management of the Group. This committee determines policy for individual times (2010: 15 times). The members of the committee includes remuneration and benefits to maintain a compensation policy four executive directors, and committee members contribute a which is both competitive and equitable. diverse range of professional skills across a broad spectrum of the Group’s activities. Directors of the company are not remunerated for their services other than by way of directors’ fees paid in terms of the company’s During the year Mr R J Carpenter was replaced by Mr A D Stalker Articles of Association. as executive director and Operations committee member. Details of emoluments paid to directors are disclosed on page 22 AUDIT COMMITTEE of this report. C J Cory (Chairman), M Arnold and G C Butler. EMPLOYEE PARTICIPATION The Audit Committee comprises of three non-executive directors The Group has for many years entered into collective bargaining and one executive director. The committee meets at least three arrangements and recognition agreements with various employee times a year on predetermined dates to consider the interim and organisations and unions. final financial statements, recommends dividend declarations and monitors the internal and external audit functions. The committee CODE OF ETHICS operates under a board-approved charter and met three times The Group is committed to the highest standards of integrity, during the year under review. behaviour and ethics in dealing with all its stakeholders.
Annual Report 2011 16 Five-year review
FINANCIAL INFORMATION FOR THE YEAR ENDED 2011 2010 2009 2008 2007 R’000 R’000 R’000 R’000 R’000 Statements of comprehensive income Revenue 19 222 134 13 071 591 15 263 603 14 835 456 6 127 430 Profit before taxation 8 560 999 4 161 748 9 923 181 8 227 884 1 971 824 Income tax expense 2 774 191 1 429 526 3 604 023 2 691 992 639 660 Comprehensive income for the year 5 786 808 2 732 222 6 319 158 5 535 892 1 332 164 Ordinary dividends declared 2 000 000 1 000 297 4 302 732 479 008 230 634 Retained profit 3 786 808 1 731 923 2 016 426 5 056 884 1 101 530 Statements of financial position Assets Property, plant and equipment 14 659 838 11 553 410 9 181 181 7 196 332 4 905 627 Non-current financial assets 106 205 154 024 84 268 – – Current assets 9 647 584 7 864 229 7 627 762 8 561 439 2 891 045 Total assets 24 413 627 19 571 663 16 893 211 15 757 771 7 796 672 Equity and liabilities Shareholders’ equity 17 507 326 13 720 518 11 988 593 9 972 167 4 915 285 Deferred tax liabilities 3 980 043 3 146 243 2 438 340 1 488 714 1 000 149 Long-term liabilities 407 769 394 532 378 417 294 003 144 833 Current liabilities 2 518 489 2 310 370 2 087 861 4 002 887 1 736 405 24 413 627 19 571 663 16 893 211 15 757 771 7 796 672 Statistics Sales volumes: – Iron ore tonnes ‘000 10 006 9 799 7 409 6 581 6 855 – Manganese ore (excluding sales to Cato Ridge Works) tonnes ‘000 2 882 3 095 2 152 3 711 2 327 – Manganese alloys (excluding sales to Cato Ridge Alloys (Proprietary) Limited) tonnes ‘000 218 238 117 247 251 – Chrome ore (excluding sales to Machadodorp Works) tonnes ‘000 373 272 256 304 172 – Charge chrome tonnes ‘000 238 189 144 275 232 Capital expenditure R’000 4 150 047 3 336 315 2 779 776 2 899 966 2 231 254
17 Annual Report 2011 Annual financial statements
19 Approval of annual financial statements 19 Certificate by secretary 20 Independent auditors’ report 21 Directors’ report 24 Statements of financial position 25 Statements of comprehensive income 26 Statements of cash flow 27 Statements of changes in equity 28 Accounting policies 38 Notes to the financial statements
Annual Report 2011 18 Approval of annual financial statements for the year ended 30 June 2011
The annual financial statements of Assmang Limited and Group annual financial statements for the year ended 30 June 2011 as set out on pages 21 to 54 have been prepared under the supervision of Mr G C T Karsten (BCom, FCMA, MBL), have been audited in accordance with section 30(2)(a) of the Companies Act of 2008, as amended, were approved by the board of directors on 9 December 2011 and are signed on its behalf by
Desmond Sacco Chairman
AJ Wilkens Deputy Chairman Johannesburg 9 December 2011
Certificate by secretaries
We certify that the requirements as stated in section 88(2)(e) of the Companies Act have been met and that all returns and notices, as are required of a public company in terms of the aforementioned Act, have been submitted to the Companies and Intellectual Property Commission and that such returns and notices are true, correct and up to date.
African Rainbow Minerals Limited
Secretaries per: GCT Karsten Johannesburg 9 December 2011
19 Annual Report 2011 Independent auditors’ report to the members of Assmang Limited
Report on the annual financial statements We have audited the annual financial statements of the Group and Company, which comprise the directors’ report, the statements of financial position as at 30 June 2011, the statements of comprehensive income, the statements of changes in equity and statements of cash flow for the year then ended, a summary of significant accounting policies and other explanatory notes, as set out on pages 21 to 54. Directors’ responsibility for the annual financial statements The Company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group and Company as at 30 June 2011, and of their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa.
Ernst & Young Inc. Director: Crispen Maongera Registered Auditor Chartered Accountant (SA) Wanderers Office Park 52 Corlet Drive, Illovo
Johannesburg tt
Annual Report 2011 20 Directors’ report
Business of the Group The Company and Group are incorporated in the Republic of South Africa (Company registration number 1935/007343/06). The Company mines manganese at Black Rock Mine and iron ore at Beeshoek and Khumani mines in the Northern Cape province and chrome ore at Dwarsrivier Mine in the Mpumalanga province. The Company also produces manganese alloys at its works at Cato Ridge in the KwaZulu-Natal province and chrome and manganese alloys at its works in Machadodorp in the Mpumalanga province. Cato Ridge Alloys (Proprietary) Limited, a joint venture between the Company and Mizushima Ferroalloys Company Limited (40%) and Sumitomo Corporation (10%), both of Japan, produces refined ferromanganese at the Cato Ridge Works. Incorporated in 1935, the Group employs 5 716 (2010: 4 892) permanent employees and is operated as three divisions, namely iron ore, manganese and chrome. Assmang is controlled jointly by African Rainbow Minerals Limited and Assore Limited, which each hold 50% of the issued share capital and both of which are listed on the JSE Limited (“JSE”). Most of the Group’s production is exported to the Far East, Europe and the United States of America. Manganese ore is also transferred to the works at Cato Ridge where it is used in the production of manganese alloys. Assmang’s Dwarsrivier Chrome Ore Mine near Steelpoort supplies ore to the Company’s Machadodorp Works for the production of chrome alloys. Directors’ responsibility relating to the annual financial statements It is the directors’ responsibility to prepare annual financial statements that fairly present the state of affairs and the results of the Company and the Group. The independent auditors are responsible for auditing and reporting on these annual financial statements. The annual financial statements set out in this report have been prepared by management in accordance with International Financial Reporting Standards. They are based on appropriate accounting policies which have been consistently applied. The accounting policies are supported by reasonable and prudent judgements and estimates. The annual financial statements have been prepared on a going-concern basis and the directors have no reason to believe that the business will not be a going concern in the foreseeable future. In fulfilling its responsibilities, management ensures that adequate accounting records are maintained and has developed and continues to maintain systems of internal accounting controls which are designed to provide reasonable, although not absolute, assurance as to the integrity and reliability of the annual financial statements, and to adequately safeguard, verify and maintain the assets of the Group. These controls are monitored throughout the Group and nothing has come to the directors’ attention to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred to the date of this report. Ore and alloys dispatched for export and local markets were as follows:
2011 2010 Group operations for the year ended 30 June tonnes ’000 tonnes ’000 Iron ore 10 006 9 799 Manganese ore (excluding sales to Cato Ridge Works) 2 882 3 095 Chrome ore (excluding sales to Machadodorp Works) 373 272 Manganese alloys 218 238 Charge chrome 238 189
Capital expenditure:
Group expenditure on property, plant and equipment was as follows: R’000 R’000 – iron ore mines 3 225 200 2 304 067 – manganese ore mines 290 441 458 809 – chrome ore mine 76 606 64 915 – ferromanganese alloy plant 418 224 284 689 – ferrochrome alloy plant 139 576 223 835 4 150 047 3 336 315 Borrowing powers In accordance with the Company’s Articles of Association the borrowing powers of the Group at 30 June 2011 were limited to R17,51 billion (2010: R13,72 billion). Group borrowings at that date were R5 million (2010: R13 million) (refer note 19). Investments Information regarding the Company’s interests in a subsidiary and a jointly controlled entity is provided in notes 5 and 6 to the financial statements.
21 Annual Report 2011 Directors’ report continued
Directorate and Secretary The names and details of the directors of the Company and secretary at the end of the year are reflected on page 3. There are no service contracts between the Company and any of its directors. During the year Mr R J Carpenter resigned from the board of directors and Mr A D Stalker has been appointed as Executive Director. Directors’ emoluments The table below sets out directors’ emoluments paid by the Company during the year under review. No emoluments were paid to alternate directors.
2011 2010 R’000 R’000 Executive directors 180 144 G C Butler* 36 36 R J Carpenter (Resigned 28 February 2011) 18 36 P C Crous 36 36 A Joubert* (Appointed 1 August 2010) 36 – A D Stalker (Appointed 1 March 2011) 18 – J C Steenkamp* 36 36 Non-executive directors 266 302 Desmond Sacco (Chairman) 50 50 M Arnold* 36 36 C J Cory 36 36 S Langa* 36 36 L S Matsimela 36 36 P E Sacco 36 36 D V Simelane* (Resigned 31 July 2010) – 36 A J Wilkens* 36 36 Total 446 446 * Fees paid to African Rainbow Minerals Limited. Key management personnel All of the directors, including alternate directors, are employees of one of the two controlling shareholders (African Rainbow Minerals Limited and Assore Limited) and are remunerated by the controlling shareholder concerned. The controlling shareholders provide a combination of management, marketing and administration services to the Group for which they are compensated by way of fee income, details of which are disclosed in note 33 of this report. Major shareholders As at the date of this report, the shareholders of the Company were as follows:
Number Percentage African Rainbow Minerals Limited 1 774 103 50,0 Assore Limited 1 774 103 50,0 Special resolutions There were no special resolutions passed by the Company, joint venture or any of its subsidiaries during the period 1 July 2010 to the date of this report. Khumani Iron Ore Mine Expansion Project The Khumani Mine Expansion to 16 mtpa is progressing well and is expected to be completed nine months ahead of the scheduled date of July 2012 and well within budget. Capital spent on the 6 mtpa expansion is approximately R4,7 billion. The capital spent during the year ended June 2011 amounts to R2,9 billion (2010: R1,8 billion).
Annual Report 2011 22 Logistics Assmang and Transnet Limited (“Transnet”) continue with negotiations with respect to capacity allocations on lines and at ports and future export growth. The iron and manganese ore industries, together with Transnet, have embarked on a joint feasibility project to expand the current Orex line to beyond 60 mtpa. Completion of the next level feasibility study is expected to be completed during the latter part of 2011. Assmang and Transnet have an agreement to export manganese ore through the port of Port Elizabeth, which will expire on 31 March 2013. Manganese ore stockpile and export capacity is also secured at Durban and Richards Bay harbours until June 2014. Assmang is endeavouring to reduce the current amount of road transport being used for both raw materials and final product. This is dependent on operational service levels achieved by Transnet and committed rail and port capacity. Safety and health Regrettably, a fatality occurred at Machadodorp Works on 2 February 2011 when a trainee crane operator fell from an overhead crane at furnace No 2. An investigation in terms of section 31 of the Occupational Health and Safety Act by the Department of Labour is in progress. Black Rock Mine achieved one million fatality-free shifts during June 2011. Beeshoek Iron Ore Mine recorded zero lost-time injuries for 12 consecutive months. The mine also recorded 8 000 fatality-free production shifts in the Department of Minerals and Resources (Northern Cape) safety competition. As at 30 June 2011, the mine had also recorded 1,9 million fatality-free shifts when the last fatality occurred during March 2003. Khumani Iron Ore Mine achieved its first one million fatality-free shift during November 2010 and was awarded the St Barbara floating trophy for safety. The Mine has recorded 1,6 million fatality-free shifts up to 30 June 2011. Assmang has achieved a lost-time injury frequency rate of 0,47 compared to an acceptable standard of 0,50 (based on 200 000 shifts). Medical surveillance has been conducted at all operations according to the requirements of the relevant legislation. Mining rights status Khumani Iron Ore Mine: New-order mining right was granted for 30 years during 2008. Northern Cape Manganese Mines: Old-order mining right converted to new-order mining right for 30 years and signed subsequent to year-end on 13 July 2011. Beeshoek Iron Ore Mine conversion: Processed by regional office (Kimberley) and submitted to the Department of Minerals and Resources in Pretoria with a recommendation for approval for 30 years. Dwarsrivier Chrome Mine conversion: Processed by regional office (Polokwane) and submitted to the Department of Minerals and Resources in Pretoria with a recommendation for approval for 30 years. Conversion of chrome furnaces to manganese furnaces Furnace 5 at Machadodorp Works was successfully converted from a FeCr to a FeMn furnace at the beginning of the financial year. Production of FeMn from No 5 furnace exceeded all production and efficiencies targets at reduced costs. After the successful conversion of the No 5 furnace from the production of FeCr to high-carbon FeMn, a decision was made to convert further furnaces and as such Assmang announced on 30 June 2011 a plan to convert the Nos 2 and 3 furnaces to produce high-carbon FeMn. Dividends On 5 August 2010, the board of directors declared dividend number 143 of R281,83 per share amounting to R1 billion, which was paid on 19 August 2010. On 1 February 2011, the board of directors declared dividend number 144 of R281,83 per share amounting to R1 billion, which was paid on 11 February 2011. Events subsequent to year-end Dividend On 10 August 2011, the board declared dividend number 145 of R281,83 per share amounting to R1,0 billion, which was paid to shareholders on 29 August 2011. Secondary tax on companies relating to this dividend amounted to R100 million. Explosion at furnace No 6 (February 2008) Assmang and the local insurers have settled the insurance claim. The financial statements have not been adjusted, since the settlement amount is not considered material to the results of the Group or the Company.
23 Annual Report 2011 Statements of financial position as at 30 June 2011
GROUP COMPANY 2011 2010 2011 2010 Note R’000 R’000 R’000 R’000 ASSETS Non-current assets 14 766 043 11 707 434 14 982 491 11 965 648 Property, plant and equipment 1 14 657 541 11 550 751 14 621 170 11 519 444 Intangible assets 2 2 299 2 659 – – Loans and long-term receivables 3 106 203 63 811 304 673 300 683 Non-current financial assets 4 – 90 213 – 90 213 Investment in subsidiary companies 5 18 426 17 086 Interest in a joint venture 6 38 222 38 222 Current assets 9 647 584 7 864 229 9 193 859 7 393 864 Inventories 7 3 420 229 3 120 151 3 130 427 2 812 246 Trade and other receivables 8 3 070 384 2 856 213 3 001 327 2 781 913 Structured investment 9 93 893 – 93 893 – Cash and cash equivalents 10 3 063 078 1 887 865 2 968 212 1 799 705 Total assets 24 413 627 19 571 663 24 176 350 19 359 512 EQUITY AND LIABILITIES Equity Issued capital 11 1 774 1 774 1 774 1 774 Share premium 11 11 612 11 612 11 612 11 612 Retained earnings 17 493 940 13 707 132 17 342 179 13 566 095 Total equity 17 507 326 13 720 518 17 355 565 13 579 481 Non-current liabilities 4 387 812 3 540 775 4 387 491 3 538 861 Long-term borrowings – interest bearing 12 – 5 466 – 5 466 Deferred tax liability 13 3 980 043 3 146 243 3 979 722 3 144 329 Long-term provisions 14 407 769 389 066 407 769 389 066 Current liabilities 2 518 489 2 310 370 2 433 294 2 241 170 Short-term provisions 15 163 168 146 678 163 168 146 678 Trade and other payables 16 2 020 681 1 725 286 1 938 389 1 656 198 South African Revenue Services 30 329 923 431 182 327 020 431 070 Short-term borrowings – interest bearing 17 4 717 7 224 4 717 7 224 Total equity and liabilities 24 413 627 19 571 663 24 176 350 19 359 512
Annual Report 2011 24 Statements of comprehensive income for the year ended 30 June 2011
GROUP COMPANY 2011 2010 2011 2010 Note R’000 R’000 R’000 R’000 Revenue 20 19 222 134 13 071 591 18 914 386 12 771 435 Turnover 20 19 074 942 12 869 713 18 755 472 12 556 142 Cost of sales (10 017 020) (8 320 945) (9 699 651) (8 174 770) Gross profit 9 057 922 4 548 768 9 055 821 4 381 372 Other operating income 21 560 917 340 113 550 996 333 646 Other operating expenses 22 (1 174 178) (885 280) (1 203 031) (857 579) Profit from operations 23 8 444 661 4 003 601 8 403 786 3 857 439 Income from investments 24 141 796 172 497 155 706 186 987 Finance costs 25 (25 458) (14 350) (25 456) (14 350) Profit before taxation 8 560 999 4 161 748 8 534 036 4 030 076 Taxation 26 (2 774 191) (1 429 526) (2 757 952) (1 380 708) Total comprehensive income for the year, attributable to shareholders 5 786 808 2 732 222 5 776 084 2 649 368
25 Annual Report 2011 Statements of cash flow for the year ended 30 June 2011
GROUP COMPANY 2011 2010 2011 2010 Note R’000 R’000 R’000 R’000 Cash flow from operating activities Cash received from customers 19 403 941 11 475 984 19 069 310 11 195 195 Cash paid to suppliers and employees (10 426 170) (7 886 437) (10 173 031) (7 687 278) Cash generated from operations 29 8 977 771 3 589 547 8 896 279 3 507 917 Net cash inflow from operating activities (3 901 469) (1 926 443) (3 872 517) (1 901 245) Interest received 24 141 796 171 161 130 706 160 720 Interest paid 25 (1 615) (3 983) (1 613) (3 983) Dividends received 24 – – 25 000 25 000 Taxation paid 30 (2 041 650) (1 093 324) (2 026 610) (1 082 685) Dividends paid (2 000 000) (1 000 297) (2 000 000) (1 000 297) Net cash outflow from investing activities (3 894 486) (3 100 804) (3 848 652) (3 058 058) – to maintain operations (873 657) (886 887) (866 225) (885 069) – to expand operations (2 796 617) (2 031 783) (2 796 617) (2 031 783) Capitalised fees (183 309) (137 148) (183 309) (137 148) Increase in long-term receivables (42 392) (63 811) (3 990) (22 883) Proceeds on disposal of property, plant and equipment 1 489 18 825 1 489 18 825 Net cash (outflow)/inflow from financing activities (6 603) 2 887 (6 603) 2 887 (Decrease)/increase in short-term borrowings (6 603) 2 887 (6 603) 2 887 Cash and cash equivalents – net increase/(decrease) for the year 1 175 213 (1 434 813) 1 168 507 (1 448 499) – at beginning of year 1 887 865 3 322 678 1 799 705 3 248 204 – at end of year 10 3 063 078 1 887 865 2 968 212 1 799 705
Annual Report 2011 26 Statements of changes in equity for the year ended 30 June 2011
GROUP COMPANY 2011 2010 2011 2010 Note R’000 R’000 R’000 R’000 Issued capital and share premium Issued capital 11 1 774 1 774 1 774 1 774 Share premium 11 11 612 11 612 11 612 11 612 Total 13 386 13 386 13 386 13 386 Retained earnings Balance at beginning of year 13 707 132 11 975 207 13 566 095 11 917 024 Total comprehensive income for the year 5 786 808 2 732 222 5 776 084 2 649 368 Ordinary dividends paid (2 000 000) (1 000 297) (2 000 000) (1 000 297) No 141 totalling 14 100 cents per share 500 297 500 297 No 142 totalling 14 092 cents per share 500 000 500 000 No 143 totalling 28 133 cents per share (1 000 000) (1 000 000) No 144 totalling 28 133 cents per share (1 000 000) (1 000 000) Balance at end of year 17 493 940 13 707 132 17 342 179 13 566 095 Total equity 17 507 326 13 720 518 17 355 565 13 579 481
27 Annual Report 2011 Accounting policies
Basis of preparation The Group and Company financial statements have been prepared on the historical-cost basis except for the revaluation of financial assets and financial liabilities to fair value through the statement of comprehensive income. The principal accounting policies as set out below are consistent in all material aspects with those applied in the previous year except as stated under the heading “Changes in accounting policies” below. The financial statements are presented in South African Rand and all values are rounded to the nearest thousand unless otherwise indicated. Statement of compliance The annual financial statements of the Group and Company are prepared in accordance with and comply with International Financial Reporting Standards (IFRS) and interpretations of those standards, as adopted by the International Accounting Standards Board (IASB), and applicable legislation. Changes in accounting policies In addition to a set of improvements to IFRS, published by the IASB, representing mostly minor changes, the following new, revised and amended standards and interpretations were adopted by the Group in the current year, none of which had any impact on the accounting policies, financial position or performance of the Group or the Company: IFRS 2 (Amendment) – Group Cash-settled Share-based Payment Transactions IAS 32 (Amendment) – Financial instruments: Classification of Rights Issues IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments IFRS and IFRIC interpretations not yet effective The Group has not applied the following IFRS and IFRIC new, revised and amended standards and interpretations which have been issued, as they are not yet effective:
EFFECTIVE FOR FINANCIAL PERIODS STANDARD DESCRIPTION COMMENCING IMPACT IAS 24 Related-party Disclosures January 2011 The revisions to the standard clarify the definition of a related party to (Revised) simplify the identification of related-party relationships, particularly in relation to significant influence and joint control. The Group is in the process of determining the impact these revisions may have on its disclosures. IFRIC 14 IFRIC 14 (Amendment) January 2011 The amendment to the interpretation provides guidance on assessing – Prepayments of a the recoverable amount of a net pension asset, and permits an entity Minimum Funding to treat the prepayment of a minimum funding requirement as Requirement an asset. Since the Group does not have any funded defined benefit obligations, the amendment is not expected to have any impact its results or disclosures. IFRS 7 Financial Instruments: July 2011 The amendment requires additional qualitative disclosures relating to Disclosures (Amendment) transfers of financial assets that are entirely derecognised, but where the entity has continuing involvement in these assets, and to financial assets not entirely recognised. The Group does not expect this amendment to have a material effect on its results and disclosures. IAS 12 IAS 12 Income Taxes January 2012 The amendments introduce a presumption that the value of an (Amendment) – Deferred investment property is recovered entirely through its sale. This Taxes: Recovery of presumption is rebutted if the investment property is held within a Underlying Assets business model of which the objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through its sale. The Group does not expect this amendment to have a material effect on its results and disclosures.
Annual Report 2011 28 EFFECTIVE FOR FINANCIAL PERIODS STANDARD DESCRIPTION COMMENCING IMPACT IFRS 9 Financial Instruments January 2013 The IASB intends to replace IAS 39 – Financial Instruments: Recognition and Measurement, with IFRS 9, which is being prepared on a phased basis. The statement aims to simplify many of the aspects contained in IAS 39, and will be required to be applied retrospectively. The Group is in the process of determining the impact of the standard on its results and disclosures. IFRS 10 Consolidated Financial January 2013 This new standard includes a new definition of control which is used Statements to determine which entities will be consolidated. This will apply to all entities, including special purpose entities (now known as “structured entities”). The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled and therefore consolidated, and may result in a change to the entities which are within a group. The Group is in the process of determining the impact of the standard on its results and disclosures. IFRS 11 Joint Arrangements January 2013 IFRS 11 replaces IAS 31 Interest in Joint Ventures and SIC 13 Jointly controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 describes the accounting for a "joint arrangement", which is defined as a contractual arrangement over which two or more parties have joint control. Joint arrangements are classified as either joint operations or ventures. IFRS 11 provides a new definition of joint control, and substantially changes the accounting for certain joint arrangements. Jointly controlled assets and jointly controlled operations (as defined under IAS 31, which is currently applicable), are now termed as joint operations under IFRS 11, and the accounting of those arrangements will be the same under IAS 31. That is, the joint operator continues to recognise its assets, liabilities, revenues and expenses, and/or its relative share of those items if any. Where proportionate consolidation was used to account for jointly controlled entities under IAS 31, such entities will most likely be classified as joint ventures under IFRS 11. The transition to IFRS 11 could result in substantial changes to the financial statements of the joint venturer (now defined as a party that has joint control in a joint venture), due to the requirement that joint ventures will be required to be accounted for using the equity method and that proportionate consolidation will no longer be permitted. IFRS 12 Disclosures of Interests in January 2013 This new standard describes and includes all the disclosures that Other Entities are required relating to an entity's interest in subsidiaries, joint arrangements, associates and structured entities. Entities will be required to disclose the judgements made to determine whether it controls another entity. The Group is in the process of determining the impact of the standard on its results and disclosures.
29 Annual Report 2011 Accounting policies continued
EFFECTIVE FOR FINANCIAL PERIODS STANDARD DESCRIPTION COMMENCING IMPACT IFRS 13 Fair Value Measurement January 2013 This new standard provides guidance on how to measure fair value of financial and non-financial assets and liabilities when fair value measurement is required or permitted by IFRS. The Group is in the process of determining the impact of the standard on its results and disclosures.
The Group or Company does not intend early adopting any of the above amendments, standards and interpretations. Basis of consolidation The consolidated financial statements comprise the financial statements of the Company, subsidiary companies and a jointly controlled entity, which were prepared for the same reporting year as the parent Company, using consistent accounting policies. Subsidiary companies Subsidiary companies are investments in entities in which the Company has control over the financial and operating decisions of the entity. Subsidiaries are consolidated in full from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date such control ceases. Investments in subsidiaries in the Company’s financial statements are accounted for at cost less impairments. Joint ventures The Group has an interest in a joint venture which is a jointly controlled entity, whereby the ventures have a contractual arrangement that establishes joint control over its economic activities. The agreement requires unanimous agreement for financial and operating decisions among the ventures. The Group recognises its interest in the joint venture using the proportionate consolidation method. The Group combines its proportionate share of each of the assets, liabilities, income and expenses of the joint venture with similar items, line by line, in its consolidated financial statements. The financial statements of the joint venture are prepared for the same reporting period as the Group. Adjustments are made where necessary to bring the accounting policies in line with those of the Group. Adjustments are made in the Group’s consolidated financial statements to eliminate the Group’s share of intragroup balances, transactions and unrealised gains and losses on such transactions between the Group and its jointly controlled entity. Losses on transactions are recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets or an impairment loss. The joint venture is proportionately consolidated until the date on which the Group ceases to have joint control over the joint venture. Upon loss of joint control the Group measures and recognises its remaining investment at its fair value. Any difference between the carrying amount of the former joint controlled entity upon loss of joint control and the fair value of the remaining investment and proceeds from disposal are recognised in profit or loss. When the remaining investment constitutes significant influence, it is accounted for as investment in an associate. Intragroup transactions and balances Consolidation principles relating to the elimination of intercompany transactions and balances and adjustments for unrealised intercompany profits and losses are applied to all intragroup dealings, for all transactions with subsidiaries and associated companies or joint ventures. Significant accounting judgements, estimates and assumptions The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates. Information regarding significant areas of estimation uncertainty considered by management in preparing the financial statements is described below. Mine rehabilitation provision The Group entity assesses its mine rehabilitation provision annually. Significant estimates and assumptions are made in determining the provision for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases and changes in discount rates. These uncertainties may result in future actual expenditure differing from the amounts currently provided. Provision at the date of the statement of financial position represents management’s best estimate of the present value of the future rehabilitation costs required. Changes to estimated future costs are recognised in the statement of financial position by adjusting the rehabilitation asset and liability. If, for mature mines, the revised valued mine assets, net of rehabilitation provisions, exceeds the carrying value, that portion of the increase is charged directly to expense. For closed sights, changes to estimated costs are recognised immediately in the statement of comprehensive income.
Annual Report 2011 30 Ore reserve and resource estimates Ore reserves are estimates of the amount of ore that can be economically and legally extracted from the Group’s mining properties. The Group estimates its ore reserves and mineral resources based on information compiled by appropriately qualified persons relating to the geological data on the size, depth and shape of the ore body, and requires complex geological judgements to interpret the data. The estimation of recoverable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements, and production costs along with geological assumptions and judgements made in estimating the size and grade of the ore body. Changes in the reserve or resource estimates may impact upon carrying value of exploration and evaluation assets, mine properties, property, plant and equipment, provisions for rehabilitation, recognition of deferred tax assets, and depreciation and amortisation charges. Unit of production depreciation Estimated recoverable reserves are used in determining the annual depreciation and/or amortisation of mine specific assets. This results in a depreciation/amortisation charge proportional to the depletion of the anticipated remaining life of mine production. Each item’s life, which is assessed annually, has regard to both its physical life limitations and to present assessments of economically recoverable reserves of the mine property at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves and estimates of future capital expenditure. Exploration expenditure The application of the accounting policy for exploration expenditure requires judgement in determining whether it is likely that future economic benefits are likely, which may be based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If, after expenditure is capitalised, information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalised is written off in the statement of comprehensive income in the period when the new information becomes available. Impairment of assets The Group assesses each cash generating unit annually to determine whether any indications of impairment exist. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered the higher of the fair value less costs to sell and value in use. These assessments require the use of estimates and assumptions such as commodity prices, discount rates, future capital requirements, exploration potential and operating performance. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. Fair value for mineral assets is generally determined as the present value of estimated future cash flows arising from the continued use of the asset, which includes estimates such as the cost of future expansion plans and eventual disposal, using assumptions that an independent market participant may take into account. Cash flows are discounted at an appropriate discount rate to determine the net present value. For the purposes of calculating the impairment of any asset, management regards an individual mine or works site as a cash generating unit. Property, plant and equipment and depreciation Property, plant and equipment is stated at cost excluding the day-to-day maintenance costs, less accumulated depreciation and any accumulated impairment in value. Costs include the cost of replacing part of the plant and equipment when incurred, if the recognition criteria are met. The remaining useful life and residual value of assets are reviewed on an annual basis and depreciation rates are adjusted if required. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year in which the asset is derecognised. Specific asset categories are accounted for as follows: Mine development Costs to develop new ore bodies, to define further mineralisation in existing ore bodies and to expand the capacity of a mine or its current production, are capitalised. Assets representing the future economic benefits relating to environmental rehabilitation provisions for decommissioning are recognised and capitalised when the obligation arises. Development costs to maintain production are expensed as incurred. Mine development and decommissioning costs are amortised using the lesser of their estimated useful life or the units-of-production method based on proven and probable ore reserves. Proven and probable ore reserves reflect estimated quantities of economically recoverable reserves which can be recovered in future from known mineral deposits. These reserves are reassessed annually. Where the reserves are not determinable due to their scattered nature, the straight-line method of amortisation is applied based on the estimated life of the mine. The maximum period of amortisation using these methods is 25 years. Plant and machinery Mining plant and machinery is amortised over its estimated useful life using the units-of-production method based on estimated proved and probable ore reserves. Non-mining plant and machinery is depreciated over its useful life or life of mine. The maximum life of any single item of plant and machinery, used in the amortisation calculation, is 25 years. The carrying values of plant and machinery are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
31 Annual Report 2011 Accounting policies continued
An item of plant and machinery is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income of the year in which the asset is derecognised. The residual values, useful lives and methods of assets are reviewed, and adjusted if appropriate, at each financial year-end. When each major inspection is performed, its cost is recognised in the carrying amount of the plant and machinery as a replacement if the recognition criteria are satisfied. When plant and equipment comprises major components with different useful lives, these components are accounted for as separate items. Expenditure incurred to replace or modify a significant component of plant is capitalised and any remaining book value of the component replaced is written off in the statement of comprehensive income. Land and buildings Land and buildings are carried at cost. Land is not depreciated. Buildings are depreciated on a straight-line basis over their estimated useful lives to an estimated residual value. The annual depreciation rates used vary between 2 to 5%. Mineral rights Mineral rights for valid mining licences are carried at cost less depreciation and impairments in value. Mineral rights that are being depleted are amortised over their estimated useful lives using the units-of-production method based on proven and probable ore reserves. Where the reserves are not determinable, due to their scattered nature, the straight-line method is applied. The maximum rate of depletion of any mineral right is 25 years. Mineral rights that are not being depleted are not amortised. Mineral rights are written off in full when they no longer have any commercial value. Furniture, equipment, vehicles and other properties Furniture, equipment, vehicles and other properties are depreciated on the straight-line basis over their expected useful lives to estimated residual values. The residual value is the amount expected to be obtained for the asset at the end of its useful life, after deducting expected costs of disposal. The annual depreciation rates for vehicles, furniture and office equipment and other properties are:
Motor vehicles 20% Furniture and office equipment 10 to 33% Other properties 3 to 25 years
Leased assets Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Intangible assets Intangible assets represent proprietary technical information acquired from third parties. Intangible assets are reflected at cost and are amortised on a straight-line basis over the anticipated useful life of the assets up to a maximum of 20 years. Financial instruments Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable repayments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in profit and loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Derivative instruments Derivatives, including embedded derivatives, if any, are initially measured at cost and subsequently measured at fair value. Fair value adjustments are recognised in the statement of comprehensive income. Forward exchange contracts are valued at the date of the statement of financial position using the forward rate available at the date of the statement of financial position for the remaining maturity period of the forward contract. Any gain or loss from valuing the contract against the contracted rate is recognised in the statement of comprehensive income. A corresponding forward exchange asset or liability is recognised. On settlement of a forward exchange contract, any gain or loss is recognised in the statement of comprehensive income. Cash and cash equivalents • Cash and cash equivalents are measured at amortised cost. • Cash that is subject to legal or contractual restrictions in use is classified separately. Trade receivables Trade receivables, which generally have 30- to 60-day terms, are initially recognised at fair value and subsequently at amortised cost. Receivables are classified as loans and receivables for the purposes of IAS 39 disclosures. An impairment is recognised when there is evidence that an entity will not be able to collect all amounts due according to the original terms of the receivable. The impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rates. The amount of the impairment is charged to the statement of comprehensive income when it occurs.
Annual Report 2011 32 Payables Trade and other payables are not interest-bearing and are initially recorded at fair value and subsequently at amortised cost. Impairment of financial assets The Group assesses at each date of the statement of financial position whether a financial asset or Group of financial assets is impaired. If there is objective evidence that an impairment loss has been incurred on loans and receivables carried at amortised cost, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (ie the effective interest rate computed at initial recognition). The amount of the loss shall be recognised in the statement of comprehensive income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the statement of comprehensive income, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a Group of similar financial assets) is derecognised where: • the rights to receive cash flows from the asset have expired; or • the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or • the Group has transferred it rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Group has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of comprehensive income. Inventories Inventories are valued at the lower of cost and net realisable value with due allowance being made for obsolete and slow-moving items. Cost includes the costs incurred in bringing each product to its present location and condition and is determined as follows: Raw materials – weighted average cost; Consumables, stores and maintenance spares – average cost; Finished goods and work in progress – cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs on an average cost basis. Net realisable value is determined based on the estimated selling price in the ordinary course of business, less estimated costs of processing and the estimated selling expenses. Stockpile quantities are determined using assumptions such as densities and grades which are based on studies, historical data and industry norms. Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or a cash-generating unit’s fair value less estimated selling costs, and its value in use. Recoverable amount is determined for assets individually, unless the asset does not generate cash inflows that are largely independent of those from other assets or Groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in the statement of comprehensive income in those expense categories consistent with the function of the impaired asset. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount
33 Annual Report 2011 Accounting policies continued
cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of comprehensive income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Interest-bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue cost, and any discount or premium on settlement. Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised, as well as through the amortisation process. Leased assets The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: • there is a charge in contractual terms, other than a renewal or extension of the arrangement; • a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; • there is a change in the determination of whether fulfilment is dependent on a specific asset; or • there is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gives rise to the reassessment. Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease either at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income as incurred. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Provisions Provisions are recognised when the following conditions have been met: • A present legal or constructive obligation, to transfer economic benefits as a result of past events exists. • A reasonable estimate of the obligation can be made. A present obligation is considered to exist when there is no realistic alternative but to make the transfer of economic benefits. The amount recognised as a provision is the best estimate at the statement of financial position date of the expenditure required to settle the obligation. Only expenditure related to the purpose for which the provision is raised is charged against the provision. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Environmental rehabilitation obligation The estimated cost of rehabilitation, comprising liabilities for decommissioning and restoration, is based on current legal requirements and existing technology and is reassessed annually. Cost estimates are not reduced by the potential proceeds from the sale of assets. Decommissioning The present value of estimated decommissioning obligations, being the cost to dismantle all structures and rehabilitate the land on which the mine is located, is included in long-term provisions. The unwinding of the discount used in the calculation of the obligation is included in the statement of comprehensive income under finance costs. The initial related decommissioning asset is recognised in property, plant and equipment. Restoration The present value of the estimated cost of restoration, being the cost to correct damage caused by ongoing mining operations, is included in long-term provisions. This estimate is revised annually and any movement is charged against income. Expenditure on ongoing rehabilitation is charged to the statement of comprehensive income as incurred. Environmental rehabilitation trust fund The Group makes annual contributions to an environmental rehabilitation trust fund which was created to fund the estimated cost of pollution control, rehabilitation and mine closure at the end of the life of each of the Group’s mines. Annual contributions are determined on the basis of the estimated environmental obligation divided by the remaining life of a mine. Income earned on monies paid to the trust is accounted for as investment income in the trust. These contributions are made in accordance with the legal requirements, and with the approval, of the Department of Mineral Resources.
Annual Report 2011 34 Contingent liabilities A contingent liability is a possible obligation that arises from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. These include present obligations that arise from past events, but are not recognised because it is not probable that outflows of resources embodying economic benefits will be required to settle the obligations, or the amounts of the obligations cannot be measured with sufficient reliability. Revenue recognition Revenue is recognised when the risks and rewards of ownership have been transferred and when it is probable that the economic benefits associated with a transaction flow to the Group and the amount of revenue can be measured reliably. Revenue is measured at the fair value of the amount received or receivable net of VAT, cash discounts and rebates. Revenue is not discounted when extended payments are given. The following specific criteria are taken into account in recognition of revenue: Mining products Revenue from the sale of mining and related products is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Interest Interest is recognised on a time proportion basis that takes account of the effective yield on the asset and an appropriate accrual is made at each accounting reference date. Rental income Rental income on investment properties is accounted for on a straight-line basis over the term of the lease. House sales Revenue from house sales is recognised as and when risk and rewards transfer to the buyer. Dividends Revenue is recognised when the right to receive the payment is established. Cost of sales All costs directly related to the producing of products are included in cost of sales. Costs that cannot be directly linked are included separately or under other operating expenses. When inventories are sold, the carrying amount is recognised in cost of sales. Any write-down, losses or reversals of previous write-downs or losses are recognised in cost of sales. Exploration expenditure Costs related to property acquisitions and mineral and surface rights related to exploration are capitalised. All exploration expenditures are expensed until they result in projects that are evaluated as being technically and commercially feasible and a future economic benefit is highly probable. In evaluating whether expenditures meet the criteria to be capitalised, the Company utilises several different sources of information and also differentiates projects by levels of risks including: • degree of certainty over the mineralisation of the ore body; • commercial risks including but limited to country risks; and • prior exploration knowledge available about the target ore body. Exploration expenditure on greenfield sites is expensed as incurred until a bankable feasibility study has been completed, after which the expenditure is capitalised. Exploration expenditure on brownfield sites is only expensed as incurred until the Company has obtained sufficient information from all available sources by means of a pre-feasibility study that the future economic benefits are highly probable. Exploration expenditure relating to extensions of mineral deposits which are already being mined or developed, including expenditure on the definition of mineralisation of such mineral deposits, is capitalised. Activities in relation to evaluating the technical feasibility and commercial viability of Mineral Resources are treated as forming part of exploration expenditures. Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or development of a major capital projects, which require a substantial period of time to be prepared for their intended use, are capitalised. Capitalisation of borrowing costs as part of the cost of a qualifying asset commences when: • expenditures for the asset are being incurred; • borrowing costs are being incurred; and • activities that are necessary to prepare the asset for its intended use or sale are in process.
35 Annual Report 2011 Accounting policies continued
Capitalisation is suspended when the active development is interrupted and ceases when the activities necessary to prepare the asset for its use are complete. Other borrowing costs are charged to finance costs in the statement of comprehensive income as incurred. Foreign currency transactions and balances Transactions in foreign currencies are converted to South African rand at the rate of exchange ruling at the date that the transaction is initially recorded. Foreign denominated monetary assets and liabilities (including those linked to a forward exchange contract) are stated in South African rand using the exchange rate ruling at the date of the statement of financial position, with the resulting exchange differences being recognised in the statement of comprehensive income. Employee benefits Contributions in respect of current services relating to defined-contribution pension plans are expensed as incurred. The Group also has unfunded liabilities in respect of post-retirement medical healthcare benefits for certain employees. The entitlement to these benefits is dependent upon the employee remaining in service until retirement age. These benefits have been provided for but are unfunded. The actuarially determined costs of providing these benefits are expensed as incurred and a corresponding liability is raised. Actuarial gains and losses are expensed in the period in which they are determined. Taxation Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities within legislative periods. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the statement of financial position date. Deferred income tax Deferred tax is provided using the liability method on temporary differences at the date of the statement of financial position between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: • where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each statement of financial position date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the date of the statement of financial position.
Annual Report 2011 36 Income tax relating to items recognised directly in equity is recognised in equity and not in the statement of comprehensive income. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Secondary taxation on companies Secondary tax on companies (STC) is recognised on the declaration date of all dividends and is included in the taxation expense in the statement of comprehensive income in the related period. Value-added tax Revenues, expenses and assets are recognised net of the amount of value-added tax except: • where the value-added tax incurred on the purchase of goods or services is not recoverable from the taxation authority, in which case the value-added tax is recognised as part of the cost of the asset or as an expense item; and • receivables and payables that are stated with the amount of value-added tax included. The net amount of value-added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Mining royalty taxation Provision for mining royalties is made with reference to the conditions specified as contained in the Mining and Petroleum Royalty Act, for the transfer of refined and unrefined royalty mined resources, upon the date such transfer is effected. These costs are included in other expenses. Set-off If a legally enforceable right exists to set off recognised amounts of financial assets and liabilities and the Group intends to settle on a net basis or to realise the asset and settle the liability simultaneously, all related financial effects are netted. Definitions Cash and cash equivalents Cash and cash equivalents include cash on hand and call deposits as well as short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. For cash flow purposes, overdrafts are excluded from cash and cash equivalents. Cash restricted in use Cash which is subject to restrictions in its use is stated separately at the carrying value in the notes. Fair value Where an active market is available, it is used to determine fair value. Where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions, reference to the current market of another instrument which is substantially the same, discounted cash flow analysis or other valuation models.
37 Annual Report 2011 Notes to the financial statements for the year ended 30 June 2011
Mine Furniture, Leased develop- Plant and Land and Mineral equipment, assets 2011 2010 ment machinery buildings rights and vehicles capitalised Total Total R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 1. Property, plant and equipment Group Cost At beginning of year 2 049 714 10 024 216 491 801 141 509 2 539 583 52 493 15 299 316 12 022 734 Additions 415 346 2 805 109 148 433 – 781 159 – 4 150 047 3 336 315 Disposals (4 860) (172 341) (351) – (37 598) – (215 150) (59 733) Balance at end of year 2 460 200 12 656 984 639 883 141 509 3 283 144 52 493 19 234 213 15 299 316 Accumulated depreciation At beginning of year 611 165 2 105 243 97 459 44 088 849 463 41 147 3 748 565 2 844 573 Depreciation 66 177 564 178 24 726 4 649 361 259 6 181 1 027 170 936 083 Disposals (4 492) (141 902) (252) – (52 417) – (199 063) (32 091) Balance at end of year 672 850 2 527 519 121 933 48 737 1 158 305 47 328 4 576 672 3 748 565 Carrying value at 30 June 1 787 350 10 129 465 517 950 92 772 2 124 839 5 165 14 657 541 11 550 751 Company Cost At beginning of year 2 049 714 9 945 712 483 334 139 327 2 539 619 52 493 15 210 199 11 935 484 Additions 415 346 2 800 291 146 268 – 780 708 – 4 142 613 3 334 436 Disposals (4 860) (172 341) (351) – (37 597) – (215 149) (59 721) Balance at end of year 2 460 200 12 573 662 629 251 139 327 3 282 730 52 493 19 137 663 15 210 199 Accumulated depreciation At beginning of year 611 165 2 048 554 97 096 44 088 848 705 41 147 3 690 755 2 785 069 Depreciation 66 177 561 977 24 726 4 649 361 093 6 181 1 024 803 935 563 Disposals (4 492) (141 904) (252) – (52 417) – (199 065) (29 877) Balance at end of year 672 850 2 468 627 121 570 48 737 1 157 381 47 328 4 516 493 3 690 755 Carrying value at 30 June 1 787 350 10 105 035 507 681 90 590 2 125 349 5 165 14 621 170 11 519 444 A register containing details of land and buildings is available for inspection, by members or their duly authorised agents, during normal business hours at the registered address of the Company. Leased assets Equipment with a net book value of R3,9 million (2010: R11,4 million) is encumbered as security for finance lease agreements referred to in note 12. Borrowing costs No borrowing costs were capitalised during the year. Capital work-in-progress Included in mine development, furniture and equipment, and plant and machinery is capital work-in-progress costing R3 850,8 million (2010: R3 754,0 million), mainly related to the Khumani Iron Ore Mine.
Annual Report 2011 38 GROUP COMPANY 2011 2010 2011 2010 R’000 R’000 R’000 R’000 2. Intangible assets Cost Balance at beginning of year 7 607 7 607 404 404 Disposal (404) – (404) – Balance at end of year 7 203 7 607 – 404 Accumulated amortisation Balance at beginning of year 4 948 4 588 404 404 Amortisation 360 360 – – Disposal (404) – (404) – Balance at end of year 4 904 4 948 – 404 Carrying value at 30 June 2 299 2 659 – – Intangible assets consist of the cost of licensing proprietary technical information. 3. Loans and long-term receivables Khumani Housing Development Company (Proprietary) Limited (refer note 5) – – 304 673 300 683 Long-term housing receivable from Company employees 106 203 63 811 – – 106 203 63 811 304 673 300 683 The long-term housing receivable consists of loans granted to employees during the year by the Company, the repayment terms of which vary between 5 and 20 years and bear interest at the prime lending rate, less 2%. Loans are secured by means of an instalment sale agreement. 4. Non-current financial asset Balance at beginning of year 90 213 90 213 90 213 90 213 Fair value adjustment through profit and loss 3 680 – 3 680 – Transfer to current financial asset (refer note 9) (93 893) – (93 893) – Balance at end of year – 90 213 – 90 213
The investment is a structured product, invested over a fixed term, offering a remuneration incentive to attract, retain, motivate and reward middle and senior management. The investment capital growth is linked to the higher of the JSE Top 40 index growth or CPI. The investment maturity date is 1 July 2011.
39 Annual Report 2011 Notes to the financial statementscontinued for the year ended 30 June 2011
Issued Interest in Shares at capital capital cost 2010 and 2010 and 2010 and Book value of the 2011 2011 2011 Indebtedness Company’s interests Name and nature 2011 2010 2011 2010 of business R’000 % R’000 R’000 R’000 R’000 R’000 5. Investment in subsidiary companies Investments: Cato Ridge Development Company Limited – township development 1 950 100 1 520 16 906 15 566 18 426 17 086 Loans: Khumani Housing Development Company (Proprietary) Limited – township development * 100 * 304 673 300 638 304 673 300 638 * Less than a thousand rand.
The Company’s aggregate interest in the losses after taxation of subsidiaries was R1,33 million loss (2010: R1,50 million loss). The subsidiaries are incorporated and carry on operations in the Republic of South Africa. The loans to Cato Ridge Development Company Limited are interest free with no fixed repayment terms. Loans to Khumani Housing Development Company (Proprietary) Limited will be repaid over a period longer than five years.
GROUP COMPANY 2011 2010 2011 2010 R’000 R’000 R’000 R’000 6. Interest in a joint venture The Company owns a 50% interest in Cato Ridge Alloys (Proprietary) Limited (CRA): at cost 38 222 38 222 The venture is controlled jointly by the Company, Mizushima Ferroalloys Company Limited and Sumitomo Corporation and produces refined ferromanganese at the Cato Ridge Works. These financial statements include the following amounts relating to CRA, which were proportionately consolidated: Share of the joint venture’s statement of financial position: Current assets 269 592 252 002 Non-current assets 25 126 20 622 Current liabilities (71 919) (62 531) Non-current liabilities (3 946) (3 727) Equity 218 853 206 366 Share of the joint venture’s revenue and profit: Revenue 289 755 267 642 Cost of sales (218 515) (201 213) Other operating income 7 733 5 738 Other operating expense (23 435) (15 200) Profit before tax 55 538 56 966 Income tax expense (18 050) (18 450) Profit for the year from continuing operations 37 488 38 516 There were R4,53 million (2010: Rnil) of commitments for future capital expenditure at year-end and no contingent liabilities relating to the Company’s interest in the joint venture at end of year.
Annual Report 2011 40 GROUP COMPANY 2011 2010 2011 2010 R’000 R’000 R’000 R’000 7. Inventories Raw materials (cost) 378 802 383 933 378 353 383 516 Work-in-progress (cost) 126 257 315 891 126 255 99 990 Consumables stores (cost) 397 175 300 314 392 988 299 423 Finished goods (cost and net realiasable value) 2 517 995 2 120 013 2 232 831 2 029 317 3 420 229 3 120 151 3 130 427 2 812 246 Cost of inventory recognised as an expense included in cost of sales 2 096 566 2 268 030 2 140 545 2 329 069 Cost of inventory written down during the year recognised in cost of sales 181 137 – 180 464 – 8. Trade and other receivables Trade receivables 2 503 781 2 468 938 2 439 861 2 406 487 Other receivables 566 603 387 275 561 466 375 426 3 070 384 2 856 213 3 001 327 2 781 913 Outstanding on normal cycle terms 2 527 600 2 591 562 2 458 543 2 517 262 Outstanding, longer than 30 days beyond cycle terms 240 360 158 414 240 360 158 414 Outstanding, longer than 60 days outside beyond cycle terms 172 132 72 819 172 132 72 819 Outstanding, longer than 90 days outside beyond cycle terms 88 360 33 418 88 360 33 418 Outstanding, longer than +120 days outside beyond cycle terms 41 932 – 41 932 – Trade and other receivables are non-interest bearing and are generally on 30- to 60-day payment terms. Trade receivables not passed due, not impaired Outstanding on normal cycle terms 2 503 781 2 468 938 2 439 861 2 406 487 No provision is currently necessary for trade receivables as they all fall within the normal 30-day payment cycle. Other receivables mostly consist of VAT receivables at year-end as well as payments in advance and deposits. 9. Structured investments (refer note 4) 93 893 – 93 893 – The investment is a structured product, invested over a fixed term, offering a remuneration incentive to attract, retain, motivate and reward middle and senior management. The investment capital growth is linked to the higher of the JSE Top 40 index growth or CPI. The investment maturity date is 1 July 2011. 10. Cash and cash equivalents Cash at bank and on deposit 2 946 941 1 794 975 2 852 075 1 706 815 Rehabilitation Trust Fund – subject to legal use restrictions 116 137 92 890 116 137 92 890 3 063 078 1 887 865 2 968 212 1 799 705 All cash earns interest at deposit rates linked to prime. 11. Issued capital Authorised 3 636 260 ordinary shares of 50 cents each 1 818 1 818 1 818 1 818 36 740 unclassified shares of 50 cents each 32 32 32 32 Issued 3 548 206 ordinary shares of 50 cents each 1 774 1 774 1 774 1 774
Share premium 11 612 11 612 11 612 11 612
41 Annual Report 2011 Notes to the financial statementscontinued for the year ended 30 June 2011
GROUP COMPANY 2011 2010 2011 2010 R’000 R’000 R’000 R’000 12. Long-term borrowings – interest bearing Secured liabilities Finance lease liabilities over mining vehicles which commenced in January 2007, with a book value of R3,9 million (2010: R11,4 million), was repayable in varying monthly instalments over 60 months and bear interest at 1,28% below the prime overdraft rate. 4 717 12 690 4 717 12 690 Repayable within one year included in short-term borrowings (refer note 17) (4 717) (7 224) (4 717) (7 224) – 5 466 – 5 466
Total Repayable during the years ending 30 June borrowings Rate of 2011 2012 2013 2014 interest R’000 R’000 R’000 R’000 Interest payable and repayment terms (Group and Company) Finance lease liabilities 1,28% below prime overdraft rate 4 717 4 717 – – Total Repayable during the years ending 30 June borrowings Rate of 2010 2011 2012 2013 interest R’000 R’000 R’000 R’000 Finance lease liabilities 1,28% below prime overdraft rate 12 690 7 224 5 466 –
GROUP AND COMPANY 2011 2010 Minimum Present value Minimum Present value payments of payments payments of payments R’000 R’000 R’000 R’000 The finance leases are over mining vehicles. These leases do not include any terms of renewal, purchase options or escalation clauses. Future minimum lease payments under finance leases, together with the present value of the net minimum lease payments, are as follows: – within one year 5 081 4 717 8 050 7 224 – after one year but not more than five years – – 6 073 5 466 Total minimum lease payments 5 081 4 717 14 123 12 690 Amounts representing finance charges (364) – (1 433) – Present value of lease payments 4 717 4 717 12 690 12 690
Annual Report 2011 42 GROUP COMPANY 2011 2010 2011 2010 R’000 R’000 R’000 R’000 13. Deferred tax liability At end of year Raised on the following: Accelerated capital allowances 4 089 488 3 279 260 4 085 667 3 275 624 Provisions raised (112 816) (122 346) (109 316) (120 624) Other 3 371 (10 671) 3 371 (10 671) Balance at end of year 3 980 043 3 146 243 3 979 722 3 144 329 Movement for the year Balance at beginning of year 3 146 243 2 438 340 3 144 329 2 466 911 833 800 707 903 835 393 677 418 Accelerated capital allowances 810 228 675 124 810 043 674 914 Provisions raised 9 530 43 327 11 308 13 052 Other 14 042 (10 548) 14 042 (10 548) Balance at end of year 3 980 043 3 146 243 3 979 722 3 144 329 14. Long-term provisions Environmental obligations Provision for decommissioning costs Balance at beginning of year 218 568 220 962 218 568 220 962 Movement for the year 70 857 (2 394) 70 857 (2 394) Provision raised/(reversed) for the period 52 714 (5 198) 52 714 (5 198) Unwinding of discount rate 18 143 3 429 18 143 3 429 Transferred from decommissioning assets – (625) – (625) Balance at end of year 289 425 218 568 289 425 218 568 Provision for restoration costs Balance at beginning of year 84 800 93 880 84 800 93 880 Movement for the year (2 618) (9 080) (2 618) (9 080) Utilisation of provision during the year (8 318) (17 338) (8 318) (17 338) Unwinding of discount rate 5 700 8 258 5 700 8 258 Balance at end of year 82 182 84 800 82 182 84 800 Provision for post-retirement healthcare benefits Balance at beginning of year 21 197 21 298 21 197 21 298 Net benefit movements (refer note 28) 2 508 (101) 2 508 (101) Balance at end of year 23 705 21 197 23 705 21 197 Provision for deferred investment for senior employees Balance at beginning of year 64 501 29 563 64 501 29 563 Provision utilised for the year (4 135) 34 938 (4 135) 34 938 Transferred to short-term provisions (refer note 15) (47 909) – (47 909) – Balance at end of year 12 457 64 501 12 457 64 501
43 Annual Report 2011 Notes to the financial statementscontinued for the year ended 30 June 2011
GROUP COMPANY 2011 2010 2011 2010 R’000 R’000 R’000 R’000 14. Long-term provisions (continued) Summary of long-term provisions: Balance at beginning of year 389 066 365 703 389 066 365 703 Total provision raised during the year 42 769 12 301 42 769 12 301 Total unwinding of discount rate 23 843 11 687 23 843 11 687 Total transfer to short-term provision (47 909) – (47 909) – Total long-term provision at end of year 407 769 389 066 407 769 389 066 Calculation of the net present value of the provision for decommissioning and restoration cost is based on a discount rate of 8,6% (2010: 8,4%), inflation rate of 6% (2010: 6%) and life of mine from 3 and 25 years (2010: 4 and 25 years). The provisions are based on estimates of cash flows which are expected to occur at the end of the life of the mines. These assumptions include inherent uncertainties as they are derived from future estimates of commodity prices, exchange rates and inflation. 15. Short-term provisions Balance at beginning of year 146 678 194 553 146 678 194 553 Provision utilised during the year (31 395) (32 466) (31 395) (32 466) Payments made during the year (24) (15 409) (24) (15 409) Transfer from long-term provisions (refer note 14) 47 909 – 47 909 – Balance at end of year 163 168 146 678 163 168 146 678 Short-term provisions consist of leave pay and deferred bonus provisions. 16. Trade and other payables Trade payables 1 379 138 1 140 210 1 314 444 1 081 092 Capital payables 478 630 287 495 478 630 287 495 Other payables 162 913 297 581 145 315 287 611 Balance at end of year 2 020 681 1 725 286 1 938 389 1 656 198 Trade and other payables are non-interest bearing and are initially recorded at fair value. Trade payables are normal day-to- day creditors of the Group. These creditors are mostly on a 30- to 60-day payment terms. Payables relating to capital expenditure do not conform to the trade payables payment term as they include retentions. 17. Short-term borrowings – interest bearing Current portion of long-term borrowings (refer note 12) 4 717 7 224 4 717 7 224 Balance at end of year 4 717 7 224 4 717 7 224 18. Capital commitments Approved by directors – contracted for 4 703 185 5 204 372 4 703 185 5 202 762 – not contracted for 670 439 669 341 670 439 665 736 5 373 624 5 873 713 5 373 624 5 868 498 It is anticipated that this expenditure, which relates to the acquisition of property, plant and equipment, will be incurred over a two-year period and will be financed from the Group’s operating cash flows and by utilising existing borrowing facilities.
Annual Report 2011 44 GROUP COMPANY 2011 2010 2011 2010 R’000 R’000 R’000 R’000 19. Borrowing powers The borrowing powers of the Group, in terms of its Articles of Association, are as follows: Borrowing powers 17 507 326 13 720 518 Borrowings at end of year – long term – (5 466) – short term (4 717) (7 224) Unutilised borrowing powers 17 502 609 13 707 828 The borrowing powers of the Group are limited to the aggregate of the issued and paid-up share capital and the share premium of the Company and the consolidated retained earnings. 20. Revenue Revenue comprises – Turnover derived from the sale of ore and alloy products 19 074 942 12 869 713 18 755 472 12 556 142 – Interest received (note 24) 141 796 172 497 130 706 161 987 – Dividend received (note 24) – – 25 000 25 000 – Rental 5 396 3 254 3 208 2 543 – Other – 26 127 – 25 763 19 222 134 13 071 591 18 914 386 12 771 435 Turnover comprises sales of iron, manganese and chrome ores, ferrochrome and ferromanganese at invoice value, net of value-added tax, trade discounts and intragroup sales. 21. Other operating income Foreign exchange gains – realised 431 577 179 503 424 757 176 217 – unrealised 76 078 102 014 75 186 100 635 Profit on disposal of assets – 5 010 – 5 010 Sundry income 53 262 53 586 51 053 51 784 560 917 340 113 550 996 333 646 22. Other operating expenses Foreign exchange losses – realised 296 393 34 838 295 047 32 685 – unrealised 14 063 4 608 14 063 4 554 Management fees 261 771 222 472 261 771 222 472 Loss on disposal of assets 14 602 – 14 602 – Short workings 94 892 284 483 89 778 283 067 Mining royalties 271 687 29 112 271 687 29 112 Other 220 770 309 767 256 083 285 689 1 174 178 885 280 1 203 031 857 579
45 Annual Report 2011 Notes to the financial statementscontinued for the year ended 30 June 2011
GROUP COMPANY 2011 2010 2011 2010 R’000 R’000 R’000 R’000 23. Profit from operations Profit from operations is stated after taking into account the following items of expenditure: Amortisation of intangible assets 360 360 – – Auditors’ remuneration 6 512 6 796 6 172 6 796 – audit fees 6 279 6 633 5 939 6 618 – other services 233 163 233 178 Depreciation 1 027 170 936 083 1 024 803 935 563 – mine development 66 177 60 008 66 177 60 008 – plant and machinery 564 178 523 205 561 977 522 573 – land and buildings 24 726 19 505 24 726 19 460 – mineral rights 4 649 3 011 4 649 3 011 – furniture, equipment, motor vehicles and other assets 361 259 321 932 361 093 322 089 – leased assets capitalised 6 181 8 422 6 181 8 422 Directors’ emoluments for services as directors 446 446 446 446 Increase/(decrease) in provisions 35 193 (24 512) 35 193 (24 512) – long term 18 703 23 363 18 703 23 363 – short term 16 490 (47 875) 16 490 (47 875) Inventory written down 181 137 – 180 464 – Loss/(surplus) on disposal of property, plant and equipment 14 602 (5 010) 14 602 (5 010) Raw materials and consumables included in cost of sales 2 096 566 2 268 030 2 140 545 2 329 069 Research and development 66 561 7 787 66 561 7 787 Remuneration for services – advisory 5 577 3 387 5 130 3 387 – secretarial, management, administration and technical 273 949 240 020 273 949 240 020 Staff costs – salaries and wages 1 743 992 1 310 105 1 743 992 1 310 105 – healthcare 63 217 48 463 63 217 48 463 – retirement/provident fund contributions 93 681 69 579 93 681 69 579 24. Income from investments Interest received 141 796 172 497 130 706 161 987 Dividends received from joint-venture entity – – 25 000 25 000 141 796 172 497 155 706 186 987 25. Finance costs Unwinding of discount rate – asset decommissioning provision 18 143 3 429 18 143 3 429 – restoration provision 5 700 8 258 5 700 8 258 Finance charges on leases 1 615 2 663 1 613 2 663 25 458 14 350 25 456 14 350
Annual Report 2011 46 GROUP COMPANY 2011 2010 2011 2010 R’000 R’000 R’000 R’000
26. Taxation South African normal taxation – current year 1 553 992 458 959 1 538 661 443 125 State’s share of profits 185 649 160 884 185 649 160 884 Deferred taxation – temporary differences (refer note 13) 833 800 707 903 835 392 677 418 Secondary tax on companies 200 750 101 780 198 250 99 281 2 774 191 1 429 526 2 757 952 1 380 708 Reconciliation of rate of taxation % % % % Standard rate of company taxation 28,0 28,0 28,0 28,0 Adjusted for: State’s share of profits 2,1 4,0 2,0 3,8 Secondary tax on companies 2,3 2,4 2,3 2,5 Effective rate of taxation 32,4 34,4 32,3 34,3 Estimated losses available for the reduction of future taxable income arising in certain joint-venture and subsidiary companies 16 528 15 195
27. Retirement benefits information The Group has made provision for pension plans covering all employees. These comprise of a defined-contribution retirement fund, which is governed by the Pension Funds Act, 1956, and two defined-contribution provident funds administered by employee organisations within the industries in which members are employed. The contributions paid by the Group for retirement benefits are charged to the statement of comprehensive income as they are incurred. The above defined-contribution plans are determined based on accumulated contributions and returns on investments. Members contribute 7,5% and the Company contributes 12,5% of pensionable salaries to the funds which is charged to the income statement.
28. Post-retirement healthcare benefits The Group has obligations to fund a portion of certain retiring employees’ medical aid contributions based on the cost of benefits. The anticipated liabilities arising from these obligations have been actuarially determined using the projected unit credit method, and a corresponding liability has been raised (refer note 14). The following table summarises the components of the net benefit/(expense) recognised in the consolidated statement of comprehensive income:
2011 2010 2009 2008 2007 2006 R’000 R’000 R’000 R’000 R’000 R’000 Group Current service cost 548 498 737 651 438 1 034 Interest cost on benefit obligation 2 124 1 886 1 638 1 429 2 062 1 090 Benefits (769) (709) (664) (595) (560) – Net actuarial loss/(gain) 605 (1 776) 1 064 867 (6 685) – Charged/(credited) to the statement of comprehensive income 2 508 (101) 2 775 2 352 (4 745) 2 124
47 Annual Report 2011 Notes to the financial statementscontinued for the year ended 30 June 2011
28. Post-retirement healthcare benefits (continued) Sensitivity on accounting provisions for year ended 30 June 2011. Service cost Interest cost Accrued liability Change in inflation R’000 % change R’000 % change R’000 % change 1% increase 668 23,0 2 466 16,1 27 250 15,0 1% decrease 446 (17,9) 1 848 (13,0) 20 810 (12,2) The liability is assessed periodically by an independent actuarial survey based on the following principal actuarial assumptions: – A net discount rate of 1,0% (2010: 1,0%) per annum. – An increase in healthcare cost at a rate of 9,11% (2010: 7,92%) per annum. – Assumed rate of return on assets at 10,2% (2010: 9,0%) per annum. The liabilities raised in the financial statements are based on the present value of the post-retirement benefits and have been recognised in full.
GROUP COMPANY 2011 2010 2011 2010 R’000 R’000 R’000 R’000 29. Reconciliation of profit from operations to cash generated from operations Profit from operations 8 444 661 4 003 601 8 403 786 3 857 439 Adjusted for: Non-cash items: 1 065 925 808 600 1 063 417 809 752 – depreciation/amortisation and other non-cash adjustments on property, plant and equipment and intangibles 974 916 936 083 972 189 935 563 – unrealised foreign exchange (gains)/losses, net (62 015) (97 406) (61 123) (96 081) – inventory written down to net realisable value 181 137 – 180 464 – – loss/(surplus) on disposal of property, plant and equipment 14 602 (5 010) 14 602 (5 010) – net movement in long- and short-term provisions 11 373 (20 165) 11 373 (20 166) – additions to decommissioning asset (52 714) (6 757) (52 714) (6 757) – non-cash adjustment to short-term borrowings (1 374) – (1 374) – – other non-cash items – (3 155) – (2 807) Adjusted operating profit before working capital changes 9 510 586 4 807 191 9 467 203 4 662 181 (Increase)/decrease in inventories (481 215) 47 002 (498 649) 131 130 Decrease in payables 104 237 362 172 91 032 303 555 Increase in receivables (155 837) (1 626 818) (163 307) (1 588 949) Cash generated from operations 8 977 771 3 589 547 8 896 279 3 507 917 30. Taxation paid Balance due at beginning of year (431 182) (802 883) (431 070) (810 465) Amounts charged to the statement of comprehensive income (2 774 191) (1 429 526) (2 757 952) (1 380 708) Adjustment for deferred taxation 833 800 707 903 835 393 677 418 Balance due at end of year 329 923 431 182 327 020 431 070 (2 041 650) (1 093 324) (2 026 610) (1 082 685)
Annual Report 2011 48 31. Segmental information The Group’s operations are managed by commodity in the following divisions, which form the Group’s reportable segments: – Iron ore (iron ore division) – Manganese ore and alloys (manganese division) – Chrome ore and alloys (chrome division) Iron ore Manganese Chrome division division division Total R’000 R’000 R’000 R’000 Segment analysis Year to 30 June 2011 Turnover of ore and alloy products 10 342 212 6 466 071 2 266 659 19 074 942 Contribution to earnings 4 650 908 1 369 738 (233 838) 5 786 808 Contribution to headline earnings 4 653 991 1 377 174 (233 844) 5 797 321 Other information Consolidated total assets 15 051 052 7 902 456 1 460 119 24 413 627 Consolidated total liabilities 4 203 386 1 984 710 718 205 6 906 301 Capital expenditure 3 225 200 708 664 216 183 4 150 047 Depreciation 592 661 269 890 165 035 1 027 170 Year to 30 June 2010 Turnover of ore and alloy products 4 992 977 6 287 218 1 589 518 12 869 713 Contribution to earnings 1 436 649 1 480 223 (184 650) 2 732 222 Contribution to headline earnings 1 435 759 1 477 505 (184 649) 2 728 615 Other information Consolidated total assets 8 729 630 8 921 510 1 920 523 19 571 663 Consolidated total liabilities 2 532 876 2 596 170 722 099 5 851 145 Capital expenditure 2 304 067 743 498 288 750 3 336 315 Depreciation 543 938 250 074 142 071 936 083
GROUP TURNOVER BY GEOGRAPHICAL SEGMENT 2011 2010 R’000 R’000 Geographical analysis (refer note 20) The geographical locations to which product is supplied are set out below: Far East 14 261 503 8 141 711 Europe 2 093 053 2 641 269 USA 1 290 532 669 669 South Africa 1 289 119 1 110 472 Other 140 735 306 592 19 074 942 12 869 713 All the Group’s property, plant and equipment is located in South Africa.
49 Annual Report 2011 Notes to the financial statementscontinued for the year ended 30 June 2011
GROUP 2011 2010 R’000 R’000 32. Contingent liabilities The following guarantees have been issued by the Group: Eskom: Electricity supply 22 665 18 855 Department of Mineral Resources: Rehabilitation liabilities 203 110 144 746 225 775 163 601 33. Related-party transactions Related-party transactions are concluded at arm’s length and under terms and conditions that are no less favourable than those arranged with third parties. The following entities were identified as related parties to the Group: African Rainbow Minerals Limited Major shareholder Assore Limited Major shareholder Minerals USA LLC Subsidiary of Assore Limited Cato Ridge Development Company (Proprietary) Limited Wholly owned subsidiary Cato Ridge Alloys (Proprietary) Limited Jointly controlled entity Khumani Housing Development Company Wholly owned subsidiary (Proprietary) Limited Nkomati Mine 50%-held joint venture of African Rainbow Minerals Limited Two Rivers Platinum (Proprietary) Limited 55%-held subsidiary of African Rainbow Minerals Limited The following significant related-party transactions occurred during the year: African Rainbow Minerals Limited – fees for provision of services 426 798 362 057 Assore Limited – fees for provision of services 555 759 382 825 Cato Ridge Development Company (Proprietary) Limited – housing rental received 340 296 Cato Ridge Alloys (Proprietary) Limited – purchases of molten metal 385 032 327 677 – infrastructure rental received 5 962 4 920
Khumani Housing Development Company (Proprietary) Limited – housing rental received 5 396 3 254 Nkomati Mine – purchases of chrome ore – 4 547 Amounts owed to related parties on current account at end of year: – African Rainbow Minerals Limited 55 004 51 945 – Assore Limited 51 636 86 441 – Nkomati Mine – 4 414 Amounts owed by related parties at end of year: Khumani Housing Development Company (Proprietary) Limited – Refer to note 5 304 673 300 683 Cato Ridge Development Company (Proprietary) Limited – Refer to note 5 18 426 17 086
Key management personnel – Refer to directors’ report on page 22
Annual Report 2011 50 34. Financial instruments and risk management The Group is exposed to certain financial risks in the normal course of its operations. To manage these risks, a treasury risk management committee monitors transactions involving financial instruments. The Group does not acquire, hold or issue derivative instruments for trading purposes and manages the above risks in accordance with the following policies. Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk: interest rate risk, foreign currency risk, commodity price risk and other price risk, such as equity price risk Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s revenue activities. The Group’s markets are predominantly priced in US dollars which exposes the Group’s cash flows to foreign exchange currency risks. In addition, there is currency risk on long-lead items which are denominated in US dollars, euros or other currencies. The following table demonstrates the sensitivity of the Group’s profit before tax to a reasonably possible change in the US dollar exchange rate, with all other variables held constant. The Group’s exposure to foreign currency changes for all other currencies is not material.
GROUP 2011 2010 R’000 R’000 At year-end the foreign currency value of accounts receivable amounted to: Accounts receivable balance – (R’000) 1 732 757 1 907 439 Year-end exchange rate 7,76 7,67 Movement in accounts receivable balance if R/$ exchange increase by $1 223 293 248 688 Movement in accounts receivable balance if R/$ exchange decrease by $1 (223 293) (248 688) There were no forward exchange contracts as at 30 June 2011 (2010: Nil). Credit risk Credit risk arises from possible defaults by customers or bank counterparties. The Group minimises credit risk by evaluating counterparties before concluding transactions in order to ensure the creditworthiness of such counterparties. The maximum exposure is the carrying amount of receivables disclosed in note 8. Cash is only deposited with institutions that have credit ratings, with the amounts distributed appropriately among various “A rated” institutions to minimise credit risks through diversification. Liquidity risk Liquidity risk is the risk that the Group will be unable to meet a financial commitment in a location or currency as it falls due. This risk is controlled and monitored by the preparation of detailed cash flow forecast and budgets that are reviewed by management on a monthly basis. Banking facilities are established in advance with reputable banks to ensure that forecast cash flow shortfalls can be met from borrowings. The Group’s borrowing powers are described in note 19.
51 Annual Report 2011 Notes to the financial statementscontinued for the year ended 30 June 2011
34. Financial instruments and risk management (continued) The table below summarises the maturity profile of financial liabilities at 30 June based on undiscounted cash flows: Within 2 – 5 one year years Total R’000 R’000 R’000 Group 30 June 2011 Trade and other payables (refer note 16) 2 020 681 – 2 020 681 Long-term borrowings (refer note 12) – – – Short-term borrowings (refer note 17) 4 717 – 4 717 2 025 398 – 2 025 398 30 June 2010 Trade and other payables (refer note 16) 1 725 286 – 1 725 286 Long-term borrowings (refer note 12) – 5 466 5 466 Short-term borrowings (refer note 17) 7 224 – 7 224 1 732 510 5 466 1 737 976
Company 30 June 2011 Trade and other payables (refer note 16) 1 938 389 – 1 938 389 Long-term borrowings (refer note 12) – – – Short-term borrowings (refer note 17) 4 717 – 4 717 1 943 106 – 1 943 106 30 June 2010 Trade and other payables (refer note 16) 1 656 198 – 1 656 198 Long-term borrowings (refer note 12) – 5 466 5 466 Short-term borrowings (refer note 17) 7 224 – 7 224 1 663 422 – 1 668 888
Commodity price risk Commodity price risk arises from the possible adverse effect of fluctuations in commodity prices on current and future earnings. Most of these prices are in US dollars with some euro exposure and determined internationally on the open market. The Group does not actively hedge future commodity revenue of the commodities that it produces against price fluctuations for the commodities that it produces. Fair value risk Except for interest-free loans provided by the Company to its subsidiaries, the carrying amounts of trade receivables, cash and cash equivalents, and trade and other payables approximate fair value because of the short-term duration of these instruments. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in prime interest rates. GROUP 2011 2010 R’000 R’000 Cash and cash equivalent balances at year end 3 063 078 1 887 865 Effect on profit before tax if interest rate increase by 1% 30 631 18 879 Effect on profit before tax if interest rate decrease by 1% (30 631) (18 879) Effect on net cash flow if interest rate increase by 1% 22 054 13 593 Effect on net cash flow if interest rate decrease by 1% (22 054) (13 593)
Annual Report 2011 52 Carrying value at Effective year-end Maturity interest R’000 dates rate Exposures of the Group to interest rate risk at year-end were as follows: Financial assets Year ended 30 June 2011 Prime less 2% Long-term receivable 106 203 5 – 20 years overnight Cash – on deposit with financial institutions 3 063 078 Current call deposit
Year ended 30 June 2010 Prime less 2% Long-term receivable 63 811 5 – 20 years overnight Cash – on deposit with financial institutions 1 887 865 Current call deposit
Financial liabilities and leases Year ended 30 June 2011 1,28% Local long-term borrowings – finance lease agreements – – below prime Short-term borrowings – interest bearing 4 717 2012 overdraft rate
Year ended 30 June 2010 1,28% Local long-term borrowings – finance lease agreements 5 466 2012 below prime Short-term borrowings – interest bearing 7 224 2012 overdraft rate
Exposures of the Company to interest rate risk at year-end were as follows: Financial assets Varies Year ended 30 June 2011 longer than Long-term receivable 304 673 5 years Prime less 2% Overnight Cash – on deposit with financial institutions 2 968 212 Current call deposit Year ended 30 June 2010 Long-term receivable 300 683 5 – 20 years Prime less 2% Overnight Cash – on deposit with financial institutions 1 799 705 Current call deposit Financial liabilities and leases Year ended 30 June 2011 1,28% Local long-term borrowings – finance lease agreements – – below prime Short-term borrowings – interest bearing 4 717 2012 overdraft rate
Year ended 30 June 2010 1,28% Local long-term borrowings – finance lease agreements 5 466 2012 below prime Short-term borrowings – interest bearing 7 224 2012 overdraft rate
53 Annual Report 2011 Notes to the financial statementscontinued for the year ended 30 June 2011
34. Financial instruments and risk management (continued) Fair value of financial instruments The estimated fair value of the Group’s financial instruments as at 30 June 2011 was estimated to approximate the carrying amounts reflected in the statement of financial position. Treasury risk management The treasury function is outsourced to a third-party specialists who, together with the Group executives, coordinates the daily cash requirements of the Group in the South African domestic money market. A treasury committees, consisting of senior managers in the Group and representatives from the third party, meets on a regular basis to analyse currency and interest rate exposure as well as future funding requirements with the Group. The committee reviews the treasury operations dealings to ensure compliance with the Group’s policies and counterparty exposure limits. Capital management Capital includes equity attributable to the equity holders of the parent less the net unrealised gains reserve. The primary objective of the Group’s capital management is to ensure that it maintains a strong rating and healthy capital ratios in order to support its business and ensure significant funding levels for capital projects. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. No changes were made in the objectives, policies or processes relating to capital management. Financial assets and liabilities (and leases) by category Other liabilities Loans and at amortised receivables cost Total R’000 R’000 R’000 Group Year ended 30 June 2011 Long-term loans and receivables 106 203 – 106 203 Trade and other receivables 3 070 384 – 3 070 384 Cash and cash equivalents 3 063 078 – 3 063 078 Current financial asset 93 893 – 93 893 Trade and other payables – (2 020 681) (2 020 681) Short-term borrowings – (4 717) (4 717) Year ended 30 June 2010 Long-term loans and receivables 63 811 – 63 811 Trade and other receivables 2 856 213 – 2 856 213 Cash and cash equivalents 1 887 865 – 1 887 865 Non-current financial asset 90 213 – 90 213 Trade and other payables – (1 725 286) (1 725 286) Long-term borrowings – interest bearing – (5 466) (5 466) Short term borrowings – (7 244) (7 244)
Annual Report 2011 54 Other liabilities Loans and at amortised receivables cost Total R’000 R’000 R’000 Company Year ended 30 June 2011 Long-term loans and receivables 304 673 – 304 673 Trade and other receivables 3 001 327 – 3 001 327 Cash and cash equivalents 2 968 212 – 2 968 212 Current financial asset 93 893 – 93 893 Trade and other payables – (1 938 389) (1 633 716) Short-term borrowings – (4 717) (4 717) Year ended 30 June 2010 Long-term loans and receivables 300 683 – 300 683 Trade and other receivables 2 781 913 – 2 781 913 Cash and cash equivalents 1 799 705 – 1 799 705 Non-current financial asset 90 213 – 90 213 Trade and other payables – (1 656 198) (1 656 198) Long-term borrowings – (5 466) (5 466) Short-term borrowings – (7 244) (7 244)
Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. Currently the only financial asset measured at fair value is the financial asset disclosed in note 9 and falls within level 2 of the hierarchy. During the year, there were no transfers between any of the levels of fair value measurements. There are currently no financial liabilities measured at fair value.
55 Annual Report 2011 Notes
Annual Report 2011 56 www.assmang.co.za www.assmang.co.za
Annual Report 2011