smart platinum mining
ANNUAL INTEGRATED REPORT 2016 CONTENTS WE BELIEVE IN OUR COUNTRY, COMPANY SNAPSHOT 2016 OUR COMPANY, Focus on the Northam group 2 Focus on strategy 7 OUR PEOPLE Focus on the business 8 Focus on delivery 10 AND OUR Focus on leadership 18 PRODUCT BUSINESS PERFORMANCE
Chairman’s statement 20
Chief executive’s review 22
Chief financial officer’s review 24
F Financial capital 30
M Manufactured and intellectual capital 38
H Human capital 44
S Social capital 60
N Natural capital 68 GOVERNANCE Managing risks and opportunities 96 2016 Corporate governance report 102 REPORTING SUITE Remuneration report 107
Independent assurance report 116
2016 KPIs identified for limited assurance 120
Reporting in line with GRI 122
ANNUAL FINANCIAL STATEMENTS
Financial statements and notes 135 Annual integrated Notice of AGM and Reviewed preliminary Directors’ report 138 report 2016 abridged annual results for the year report 2016 ended 30 June 2016 Report of the audit and risk committee 153
Approval and company secretary’s confirmation 155
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smart platinum mining SCOPE
REPORTING PARAMETERS overview provides a summary of the business, its performance Northam Platinum Limited (Northam or Northam Platinum and the value it creates for stakeholders and an assessment of or the group or the company) is listed on the JSE Limited the group’s governance, economic, social and environmental (JSE) in South Africa. This integrated report, together with impacts and performance during the reporting period. the company’s notice of annual general meeting (AGM) The primary purpose of our integrated report is to explain and abridged annual financial statements, is published in how we create value over time, through a combination of compliance with the JSE’s listings requirements and the quantitative and qualitative information. We have chosen to use provisions of the South African Companies Act No 71 of 2008 the capitals concept to convey this information, as we believe (Companies Act). this provides users of the report with a good understanding Northam is committed to reporting in line with the King Report of how we create value for all stakeholders. The International on Corporate Governance in South Africa 2009 (King III). The Integrated Reporting Framework defines capitals as stocks of application of these guidelines is reviewed in the corporate value that are affected or transformed by the activities and governance section of this report on page 102. outputs of an organisation. In our report, we have focused on financial, human, social and natural capital and combined In its financial disclosure, the group reports in terms of manufactured and intellectual capital. International Financial Reporting Standards (IFRS), the Companies Act and the South African Code for Reporting of Exploration In formulating our strategy and determining our strategic priorities, Results, Mineral Resources and Mineral Reserves (SAMREC). we continue to consider those issues that are most material to the business and stakeholders, influence the sustainability Northam’s financial year runs from 1 July to 30 June. In this of our business and the social, economic and physical 2016 financial year (the 2016 reporting period), Northam environments in which we operate and which fundamentally has continued with its integrated approach to reporting, first influence the assessments and decisions of stakeholders. embarked upon in FY2012. This approach seeks to present to stakeholders a holistic overview of the group’s financial The financial statements include the group’s subsidiaries, joint and non-financial performance for the reporting period ventures and associates. The non-financial disclosure is limited and incorporates the recommendations of the International to the group’s two wholly-owned operations, the Zondereinde Integrated Reporting Council (IIRC) and the Global Reporting and Booysendal mines. Discussion on performance is confined Initiative (GRI) fourth generation (G4) guidelines. This holistic to those entities where the group is the operator. AUDITING AND ASSURANCE G4. The group reports in line with the ‘core’ format. The Northam’s internal and external auditing functions are critical reporting process has also been underpinned by the AA1000 AccountAbility Principles Standards 2008, which include areas of governance. The internal audit function is outsourced Inclusivity, Materiality and Responsiveness. The independent to KPMG Services Proprietary Limited (KPMG) for independent assurance report can be found on page 116 of this report. appraisal. KPMG’s specific tasks are to: • examine and evaluate the group’s systems of internal control Except where specifically stated otherwise, Northam reports in the mitigation of business and financial risks; and ore resources, reserves, production and grades in terms of its platinum, palladium, rhodium and gold elements/metal content. • assist members of management with discharging their This is expressed as 3PGE+Au or 4E. duties effectively. In this report, employees are those people directly employed The group’s consolidated annual financial statements have by Northam. Indirect employees are those people employed been audited by the external auditor, Ernst & Young Inc. The by contracting companies i.e. providers of specialised and/or independent auditor’s report may be found in the annual technical services to the operations. financial statements starting on page 135. Both ZAR and R signify rands, the South African currency. Certain non-financial key performance indicators in this report have also been assured by independent assurance provider Non-financial reporting indicators are defined in a glossary Ernst & Young Inc in respect of Northam’s application of GRI’s available on the Northam website at www.northam.co.za
The primary purpose of our integrated report is to explain how we create value over time
NORTHAM ANNUAL INTEGRATED REPORT 2016 1 COMPANY SNAPSHOT 2016
FOCUS ON THE NORTHAM GROUP
NORTHAM OPERATIONS ON THE BUSHVELD COMPLEX
Location of the Bushveld Complex, South Africa
The Zondereinde mine is an established, long-life operation which produces Limpopo approximately 280 000oz of refined PGMs annually.
Gauteng Mpumalanga North West 280 000oz Free State OF REFINED PGMs KwaZulu-Natal
Northern Cape
Eastern Cape
Western Cape
Operations on the Bushveld Complex
Booysendal UG2 North mine Wholly-owned came into production in July 2013 operations and has now ramped up to full Joint ventures production of some 160 000oz Other operations per annum. N Polokwane Cities/towns PP Rust
Main roads Mokopane Lebowa PRODUCTION OF Limpopo Twickenham Dwaalkop Marula Amandelbult Thabazimbi Modikwa 160 000oz Mashishing PER ANNUM Zondereinde Union Bela Bela Two Rivers Pilanesberg Northam Chrome Mototolo Der Brochen Sedibelo Groblersdal Booysendal
BRPM Implats Pandora Brits Rustenburg Eland RPM Crocodile Pretoria Witbank Eastern & River Western Plats Johannesburg 050 100 km
2 CORE ACTIVITIES existing Booysendal operation has begun, which will allow Northam is an independent, fully empowered, mid-tier, the group to begin extracting value and developing the new integrated PGM producer with two primary operating assets, Booysendal South mine. Zondereinde and Booysendal platinum group metal (PGM) Northam Chrome is a wholly-owned subsidiary of Northam. mines in the South African Bushveld Complex. The Zondereinde lease area is also the location for Northam’s metallurgical Northam Chrome produces chrome from Zondereinde mine’s operations, which include a smelter and base metals recovery UG2 tailings. plant. Northam Chrome Proprietary Limited (Northam During the year under review, Northam acquired a 20% interest Chrome) is a wholly-owned subsidiary of Northam Platinum. in SSG Holdings Proprietary Limited, a company providing ASSETS AND RESOURCES security services to both the operating mines. A further 10% interest was acquired subsequent to year end. The Zondereinde mine is an established, long-life operation which produces approximately 280 000oz of refined PGMs The company holds a 7.5% interest in another PGM mining annually. The mine is located on the northern end of the western operation in the Bushveld Complex, the Pandora joint limb of the Bushveld Complex near the town of Thabazimbi. venture (JV), in partnership with Anglo American Platinum Zondereinde has a life of mine (LoM) in excess of 20 years. Limited and Lonmin plc. The shallower mechanised Booysendal UG2 North mine Northam also owns a 50% interest in the Dwaalkop JV and is located near the town of Mashishing (formerly Lydenburg) a 51% initial participatory interest in the Kokerboom JV on the eastern limb of the Bushveld Complex. The mine came into production on 1 July 2013 and has now ramped up to exploration project in the Northern Cape. full production of some 160 000oz per annum. The 105Moz The group milled a total of 4.2Mt (Zondereinde: 2.0Mt, orebody at Booysendal lends itself to brownfields expansion Booysendal North: 2.2Mt) in the year under review to produce opportunities, which are currently being established on the 13 591kg of metal, which has been processed to realise sales property. These include a deepening project at the existing UG2 North mine and the development of the Booysendal revenue of R6.1 billion (FY2015: R6.0 billion) – an increase of Merensky North mine on the property. 1.0% year on year. The higher production volumes are largely due to Booysendal ramping up to steady-state production. In June 2015, Northam acquired the Everest platinum mine (now incorporated into Booysendal South) from Aquarius At 30 June 2016, Northam held a combined resource base of Platinum (South Africa) Proprietary Limited (AQPSA), contiguous 200.3 million ounces (Moz) – 24.5Moz in the reserve category – to the Booysendal lease area. The integration process with the with a mining life of more than 50 years.
At a glance: ZONDEREINDE BOOYSENDAL
• Northern end of the western limb of the Bushveld Complex • Eastern limb of the Bushveld Complex • Deep-level conventional mining • Booysendal UG2 North: • Includes metallurgical operations - a base metals recovery • Shallow mechanised mining plant and smelter • Room and pillar operation • Came into production on 1 July 2013 • UG2 and Merensky ore, shifting to higher ratio of UG2 • Produces approximately 160 000oz of PGMs annually • Mature operation • LoM of 25 years • Produces approximately 280 000oz of PGMs annually • Resource estimated at 7.8Moz • LoM greater than 20 years • Deepening project begun • Resource estimated at 84.1Moz • Booysendal Merensky North being established • Deepening project underway • Booysendal South integration process underway
NORTHAM ANNUAL INTEGRATED REPORT 2016 3 COMPANY SNAPSHOT 2016 continued
FOCUS ON THE NORTHAM GROUP CONTINUED
PROCESSING the expansion project is estimated at R750.0 million. (For more Northam’s activities are integrated; from the underground information on the expansion project, please go to page 30.) mining function, through to the concentrating, smelting and Base metal recovery base metal recovery processes. By-product metals, copper and nickel sulphate, are extracted at the Concentrating: Merensky and UG2 plants on-site base metals recovery plant and sold in the domestic market.
• In the crushing/screening circuit the ore is crushed to reduce Refining its size before it reports into the mill. Final precious metal concentrate is transported from the • Merensky ore feeds into a fully autogenous (FAG) mill. In the Zondereinde metallurgical complex for refining to the Heraeus UG2 plant, the ore feeds into a high pressure grinding roll facilities in Hanau, Germany and Port Elizabeth. crusher and then into a primary ball mill. • The flotation circuit includes rougher cells, scavenger cells Heraeus is a registered member of the London Platinum and cleaner columns. External sparger column cells act as a and Palladium Market (LPPM) and has London-Zurich ‘Good cleaner and this helps to produce a final UG2 concentrate Delivery’ status for metal production. The refinery in Hanau with significantly lower chrome content while maintaining is subject to strict European Union and materials handling PGM recoveries. protocols. Product transportation is also strictly defined by international aviation regulations. Smelting The existing smelter at the Zondereinde metallurgical complex PRODUCTS AND END USES has a 15MW capacity. Key processes include drying and Northam’s primary products are the three main PGMs: smelting the concentrate and converting the furnace matte. platinum, palladium and rhodium. The primary consumers of Concentrate brought in is blended and dried concentrate is platinum, palladium and rhodium are the motor-manufacturing pulverised and then stored in silos. Concentrate and flue dust is and jewellery industries. Other industrial uses range from mixed with lime and then fed through to the day bin and into chemical and electrical applications to glass manufacture. In the furnace where electrodes provide heat via resistance to the the automotive sector, PGMs are used in exhaust systems, current through the material in the bath. The lighter oxides float specifically autocatalysts, helping to reduce noxious and to the top as slag and the more dense sulphides, which contain greenhouse gases released into the atmosphere. Platinum the PGMs, sink to the hearth as furnace matte. jewellery is popular in Asia.
The board approved capital expenditure for the installation PGMs are traded on international markets where the metal prices of a new 20MW furnace as part of the smelter expansion are determined by global supply and demand, and are US dollar- and de-risking programme. In October 2015 an agreement denominated. This means that South African PGMs realise prices was reached with Heraeus Deutschland GmbH & Co KG and in US dollars, which are then converted and reported in South Heraeus South Africa Proprietory Limited (Heraeus) – Northam’s African rands. Northam has no influence on the sales price of its refining partner of some 25 years – in terms of which they will metal and is essentially a price taker. The metal is sold in sponge E contribute 20.0 million towards the new furnace construction. or ingot form to customers in the US, Europe and the Far East. Construction began in February 2016 and commissioning is expected by the end of the 2017 calendar year. The additional Northam’s in-house marketing department is responsible for capacity will add significant mining flexibility allowing for higher marketing and sales of products domestically and to major volumes of UG2 to be mined and treated. The total cost of global markets in Asia, Europe and North America.
4 Group structure as at 30 June 2016
Zondereinde mine Dwaalkop Kokerboom and metallurgical processing
100% Resource: 84.1Moz 50% Attributable resource: 8.9Moz 51% FeO Cu Au prospect
SSG Holdings Booysendal mine Pandora Proprietary Limited
100% Resource: 105.2Moz 7.5% Attributable resource: 2.1Moz 20% Security services
Northam Chrome
100% Cr2O3 concentrate
LISTING Zambezi Platinum by the Public Investment Corporation SOC Northam’s shares are listed on the JSE. Its share code is NHM Limited (PIC), a long-standing Northam shareholder. and its debt instruments are listed under the symbol NHMI. The Zambezi Platinum comprises a range of HDSA stakeholders company has been admitted to participate in the JSE’s Socially including an employee trust, two community trusts, a Responsible Investment (SRI) Index. women’s group and a core of strategic partners. Together Northam’s shareholders are predominantly South African they hold a 31.4% stake in Northam, in excess of the Mining institutional investors who hold 89.9% of the equity. The Charter requirements, with a 10-year lock-in period for the remainder is held in North America (5.6%), Europe and the participants from May 2015. United Kingdom (1.8%) and the rest of the world (2.7%). Zambezi Platinum financed the acquisition of shares in Northam through a preference share arrangement. Zambezi Platinum’s BEE STRUCTURE preference shares were listed on the JSE on 11 May 2015. Northam is a fully empowered PGM producer. Historically disadvantaged South African (HDSA) ownership levels in the Northam’s issued share capital at 30 June 2016 remained company are pegged at 31.4% following the conclusion of a unchanged at 509 781 212 shares (FY2015: 509 781 212 shares) R6.6 billion black economic empowerment (BEE) transaction, and the company’s market capitalisation was R21.9 billion. which included the successful raising of R4.6 billion. The transaction was announced in October 2014 and approved by shareholders in March 2015. In terms of the deal, Northam issued 112 195 122 new shares (equivalent to 22% of Northam’s Strategic BEE interests and free float (%) issued share capital) to a special purpose BEE vehicle known as Zambezi Platinum (RF) Limited (Zambezi or Zambezi Platinum). Free float 68.6 These shares were supplemented by 47 710 331 shares Zambezi Platinum 31.4 (equivalent to 9.4% of Northam’s issued share capital), sold to
NORTHAM ANNUAL INTEGRATED REPORT 2016 5 COMPANY SNAPSHOT 2016 continued
FOCUS ON THE NORTHAM GROUP CONTINUED
OUR MATERIAL ISSUES • Conducting active stakeholder engagement to minimise Our material issues are those issues that are most material any adverse impact on our stakeholder relations to the business and stakeholders, and which fundamentally We conduct regular engagement with all our stakeholders. influence the assessments and decisions of stakeholders. We recognise that stakeholders, be they shareholders, employees, communities or government, have certain We identify our material issues through workshops which expectations of the group, not all of which may be analyse our internal and external environments, from appropriate or possible to meet. We need to understand and information contained in the group’s risk register and manage these expectations through credible and effective from stakeholder feedback. These issues are reviewed by stakeholder engagement. See Social capital (page 60 to 67). management on an ongoing basis. We take this materiality determination process seriously, seeing it as an opportunity to • Maintaining our legislative and regulatory compliance, assess whether we are focusing our energy and resources in the focusing on the MPRDA and the Mining Charter correct areas. We recognise that we do business within the legal framework of the various South African government departments and In the Business performance section of this report, we report on aim for full compliance with the laws of the land. Given its our financial and non-financial performance under the capitals influence on our licence to operate, the most relevant aspects (pages 30 to 95). Our material issues, along with associated risks, of legislation for Northam and its operations are the Mineral have been linked to each capital. and Petroleum Resources Development Act (MPRDA) and the Our material issues for FY2016 were determined as follows: associated Mining Charter. See Human capital (page 44 to 59) and Social capital (page 60 to 67). • Managing production and performance to ensure successful execution of our business strategy • Managing the environmental impact of our operations It is the role and responsibility of executive management to and conserving natural resources set realistic strategic targets for the business. The success We make every effort to minimise our environmental impacts; of this strategy affects shareholders and stakeholders alike. we seek to comply strictly with all environmental legislation See Financial capital (page 30 to 36) and Manufactured and and where possible we conserve land. We make optimal use Intellectual capital (page 38 to 43). of and conserve our natural resources (our focus is on water and energy, areas where we are most exposed). See Natural • Continuing to improve the safety performance and the capital (page 68 to 95). health and wellness of our workforce It is our aim to further improve the safety performance and the health and wellness of both our employees and indirect employees. We will do this by continuously seeking to reduce injuries, applying appropriate technologies, through communication and training, and reinforcing operational standards and responsibility. See Human capital (page 44 to 59).
• Establishing and maintaining constructive communication channels with our employees and their representative bodies It is vital we establish and maintain constructive communication channels with our employees and their representative bodies, both for our employees’ sake and that of the sustainability of our business. We do this through sound employee relations based on direct channels of two-way communication. See Human capital (page 44 to 59).
6 FOCUS ON STRATEGY
The Northam strategy continues to serve as a blueprint for our business activities.
The strategy is both inward and outward focused, where the more recently been a core strategic focus at this operation. internal strategic initiatives are being embedded to create a The success of this shift in the mining operations has been stable platform for considered and measured external expansion mirrored in the metallurgical plants where capital expenditure at the right price and at the appropriate time. The essence of has been approved to increase UG2 throughput. Already these our strategic growth path is based on sound, cost-effective initiatives have improved Zondereinde’s position on the operational performance from shallow mechanisable operations. cost curve.
The singlemost important building block in unlocking our On budget and on schedule, the Booysendal North UG2 mine strategy has been the resolution of our empowerment status, reached steady-state production levels in the first half of this which has significantly transformed the group’s prospects. This financial year. The massive Booysendal orebody lends itself to development has been underpinned by a thorough review of organic, scaleable growth within the lease area and work is well our safety, health and people management strategies, aligning advanced in deepening the current UG2 mine, building a small- them with our broader overhauled business strategy. scale Merensky mine, and in the planning and development of the Booysendal South operations. The Zondereinde mine has been producing PGMs since the 1990s, focusing in the early years on the geologically complex, The smelter expansion at Zondereinde is in progress and due but high-grade Merensky reef. In order to further extend for completion by December 2017. An offtake arrangement this operation’s life, the husbanding of the Merensky ore, with Heraeus has secured an investment contribution of and shifting the ore mix to a UG2:MR ratio of 60:40, has E20.0 million in this R750.0 million expansion programme.
The Booysendal North UG2 mine reached steady-state production levels in the first half of FY2016
NORTHAM ANNUAL INTEGRATED REPORT 2016 7 COMPANY SNAPSHOT 2016 continued
FOCUS ON THE BUSINESS
OUR BUSINESS MODEL: HOW WE CREATE VALUE Our vision: To grow the business into a long-life, major producer of PGMs, and doing this safely and efficiently while continuously moving down the cost curve.
OUR OUR BUSINESS STRATEGY INPUTS
ASSESSING, DEVELOPING AND Our strategy is based on: F FINANCIAL ECONOMICALLY MINING PGM- GROWTH • Capital expenditure: R1.2 billion BEARING ORE BODIES • Underpinned by empowerment • Cash balance: R3.1 billion • Zondereinde – deep-level, mining transaction UG2 and Merensky ore • Acquisition of Everest M MANUFACTURED AND • Booysendal – shallow, fully INTELLECTUAL • Development of Booysendal South mechanised UG2 mining operation • Plant, machinery, equipment and • Smelter expansion infrastructure: R7.9 billion MINERALS PROCESSING • Investment into research • Merensky and UG2 concentrator DIVERSIFICATION and development in terms plants – crushing, milling, flotation • Mechanisable orebodies of time, people and effort to • Lower cost production • Metal in concentrate produced improve safety, efficiencies and • Zondereinde incorporates • Shallow workings mining methods metallurgical complex – smelter, base-metal recovery plant OPTIMISATION H HUMAN • Husbanding Merensky reef • 11 312 employees (including REFINING • LoM extension at Zondereinde to contractors) Northam’s production refined at: more than 20 years • Training and development spend: • Heraeus refinery, Hanau, Germany • Improved access to Merensky reef R21.0 million spent at • Heraeus plant, Port Elizabeth, on 18 level via decline system Zondereinde South Africa • Solving metallurgical constraints R3.2 million spent at to treat more UG2 ore Booysendal MARKETING • Ramp up to full production In-house department responsible at Booysendal N NATURAL for marketing and sales of metals in • Extension of Booysendal • Mineral reserve: 24.5Moz sponge or ingot form: deepening project • Mineral resource: 200.3Moz • Domestically • To major global markets in Asia, Europe, North America
8 OUTPUTS OUTCOMES M MANUFACTURED F FINANCIAL • 4.2Mt milled – 2.0Mt at Zondereinde; 2.2Mt at • R479.2 million to taxes and royalties Booysendal North • R39.6 million to providers of capital, excluding Zambezi • 13 591kg of metal produced from own operations preference shares • Total refined metal sales ofR6.1 billion: H HUMAN Platinum 270 194Moz • R1.8 billion to salaries, wages and other benefits Palladium 134 101Moz Rhodium 42 632Moz S SOCIAL Gold 5 466Moz • R3.5 million to corporate social responsibility Total: 452 393Moz
IMPACTS
H HUMAN N NATURAL Accommodation: • Water consumption increased by 12% to 4 786 000m³ • 398 housing units sold to employees • Electricity consumption at Zondereinde increased by 3% to • 2 440 single units created 646 785MWh • Employee accommodation and upgrades: • Electricity consumption at Booysendal increased by 15% to 132 790MWh R24.4 million spent at Zondereinde • CO emissions 844 824 tonnes R14.3 million spent at Booysendal 2
• SO2 emissions 6 987 tonnes Safety: • Zero fatalities • 1.92 LTIIR at Zondereinde • 0.44 LTIIR at Booysendal
Health: • R68.8 million contributed to health care funds • 2 153 employees received VCT • 72 new cases of NIHL
NORTHAM ANNUAL INTEGRATED REPORT 2016 9 COMPANY SNAPSHOT 2016 continued
FOCUS ON DELIVERY
R KEY Exemplary group FEATURES safety R1.2 billion FOR FY2016 performance capex invested
Normalised headline earnings PGM production up Cash balance 87.1 cents 15.7% R3.1 billion per share
Booysendal US$ basket price down South Unit costs expansion project well contained 25% approved
The shifting of the ore mix to a UG2: MR ratio of 60:40 is a core strategic focus at Zondereinde
10 FIVE-YEAR OPERATING AND FINANCIAL REVIEW Statement of comprehensive income – group (R’000)
2016 2015 2014 2013 2012 Sales revenue 6 097 070 6 035 535 5 339 397 4 420 977 3 684 000 Cost of sales 5 713 722 5 439 722 5 277 915 3 813 301 3 345 311 Operating costs 5 007 233 4 342 571 3 536 002 2 826 094 2 632 926 Concentrates purchased 350 514 602 395 918 605 657 540 624 774 Refining and other costs 133 186 199 470 267 117 161 591 100 612 Depreciation and write-offs 403 545 339 949 445 875 234 690 190 287 Change in metal inventories (180 756) (44 663) 110 316 (66 614) (203 288) Operating profit 383 348 595 813 61 482 607 676 338 689 Share of (losses)/earnings from associate (32 253) 28 769 3 464 13 783 16 602 Investment revenue 265 258 72 043 59 963 33 434 53 951 Finance charges (39 634) (145 170) (176 124) (17 946) – Net sundry income/(expenditure) 88 806 (1 319 014) 97 011 60 108 43 343 Profit/(loss) before preference share dividends 665 525 (767 559) 45 796 697 055 452 585 Amortisation of liquidity fees paid on preference shares (18 088) – – – – Preference shares (918 806) (100 767) – – – (Loss)/profit before tax (271 369) (868 326) 45 796 697 055 452 585 Taxation (236 894) 165 619 26 199 169 054 142 073 (Loss)/profit for the year (508 263) (1 033 945) 19 597 528 001 310 512 Other comprehensive income Share of other comprehensive income from associate 19 822 (4 482) (1 327) (4 145) (9 868) Total comprehensive income for the year (488 441) (1 038 427) 18 270 523 856 300 644 Headline (loss)/earnings (492 837) (794 963) 8 601 522 182 309 248 Normalised headline earnings 444 057 422 681 – – –
NORTHAM ANNUAL INTEGRATED REPORT 2016 11 COMPANY SNAPSHOT 2016 continued
FOCUS ON DELIVERY CONTINUED
Statement of financial position – group (R’000)
2016 2015 2014 2013 2012 Non-current assets 14 110 084 13 367 048 12 745 424 12 622 989 9 831 213 Property, plant and equipment including mining properties and mineral resources 13 468 087 12 701 830 11 940 390 11 931 051 9 135 822 Investment in associate 192 164 275 847 496 509 495 498 505 415 Other non-current assets 449 833 389 371 308 525 196 440 189 976 Current assets 4 867 779 5 784 288 1 995 572 1 734 675 1 232 339 Inventories 1 330 270 1 126 550 1 076 853 878 530 811 183 Trade and other receivables 375 204 498 854 244 672 547 920 303 268 Cash and cash equivalents 3 105 080 4 138 189 666 174 298 580 104 980 Receiver of revenue 57 225 20 695 7 873 9 645 12 908 Mineral resources classified as held for sale – – – – 1 180 300 Total assets 18 977 863 19 151 336 14 740 996 14 357 664 12 243 852 Shareholders’ equity 8 727 984 9 216 425 11 391 872 10 815 635 10 413 247 Non-current liabilities 9 072 179 7 310 753 2 157 462 1 997 826 648 600 Deferred tax 590 637 521 452 502 097 476 053 504 628 Domestic medium term notes 419 287 – 1 370 000 1 250 000 – Preference share liability 7 429 549 6 492 655 – – – Other non-current liabilities and provisions 632 706 296 646 285 365 271 773 143 972 Current liabilities 1 177 700 2 624 158 1 191 662 1 544 203 1 182 005 Total equity and liabilities 18 977 863 19 151 336 14 740 996 14 357 664 12 243 852
Statement of cash flows – group (R’000) 2016 2015 2014 2013 2012 Operating cash flow 839 081 340 950 885 379 542 200 437 662 Cash generated from operations 951 650 745 187 693 774 915 317 608 378 Interest received 265 258 72 043 52 583 29 290 50 723 Movement in land and township development (41 341) – – – – Change in working capital (162 131) (221 248) 270 414 (281 104) (90 367) Tax paid (175 355) (255 032) (131 392) (139 303) (131 072) Investing cash flow (1 126 793) (1 101 462) (765 945) (1 703 238) (2 010 021) Financing cash flow (745 397) 4 232 645 248 042 1 372 638 (20 514) Dividends paid – (3 908) (11 066) (21 747) (57 364) Issue of preference share liability – 4 599 426 – – – Acquisition of non-controlling interest – (50 000) (10 000) – – Proceeds from issue of shares – – 579 033 2 007 – Finance charges (39 634) (145 170) (176 124) (123 703) – Revolving credit facilities utilised – – (250 000) 250 000 – Domestic medium term notes (repaid)/issued (950 713) – 120 000 1 250 000 – Liquidity fees paid – (163 903) – – – Other financing cash flows 244 950 (3 800) (3 801) 16 081 368 850
Net cash flow (1 033 109) 3 472 133 367 476 193 600 (1 592 873) Cash and cash equivalents at beginning of year 4 138 189 666 056 298 580 104 980 1 697 853 Cash and cash equivalents at end of year 3 105 080 4 138 189 666 056 298 580 104 980
12 Operating performance 2016 2015 2014 2013 2012 ZONDEREINDE Merensky Tonnes milled 815 167 795 885 803 736 958 211 884 660 Head grade – g/tonne (3PGE + Au) 5.9 5.7 5.8 5.8 5.9 UG2 Tonnes milled 1 205 258 1 064 499 920 420 1 157 501 1 049 017 Head grade – g/tonne (3PGE + Au) 4.2 4.3 4.3 4.2 4.4 Combined – Zondereinde Tonnes milled 2 020 425 1 860 384 1 724 156 2 115 712 1 933 677 Head grade – g/tonne (3PGE + Au) 4.9 4.9 5.0 4.9 5.1 Precious metals in concentrates produced – kg 8 795 7 950 7 331 9 041 8 979 Precious metals in concentrates purchased – kg 6 076 2 338 1 975 1 633 1 877 Precious metals sold – kg 14 071 9 636 9 827 10 704 9 980 Precious metals in concentrates produced – oz 282 765 255 595 235 693 290 675 288 675 Precious metals in concentrates purchased – oz 195 348 75 168 63 488 52 502 60 347 Precious metals sold – oz 452 393 309 801 315 941 344 128 320 861
Zondereinde underground operations
NORTHAM ANNUAL INTEGRATED REPORT 2016 13 COMPANY SNAPSHOT 2016 continued
FOCUS ON DELIVERY CONTINUED
Operating performance 2016 2015 2014 2013 2012 BOOYSENDAL Merensky Tonnes milled 92 645 – – – – Head grade – g/tonne (3PGE + Au) 1.9 – – – – UG2 Tonnes milled 2 072 958 1 786 375 1 517 109 – – Head grade – g/tonne (3PGE + Au) 2.7 2.6 2.6 – – Combined Tonnes milled 2 165 603 1 786 375 1 517 109 – – Head grade – g/tonne (3PGE + Au) 2.7 2.6 2.6 – – Precious metals in concentrates produced – kg 5 017 3 809 2 882 – – Precious metals in concentrates produced – oz 161 300 122 475 92 668 – – Precious metals sold – oz* 164 579 112 829 80 476 – –
* With effect from 1 June 2015, Booysendal’s metal is sold to Zondereinde at 88% of the market value.
Group sales 2016 2015 2014 2013 2012 Group sales per metal – oz Platinum 270 194 253 784 241 831 212 373 195 735 Palladium 134 101 124 580 117 305 100 716 92 000 Rhodium 42 632 38 430 31 007 25 281 27 095 Gold 5 466 5 837 6 275 5 757 6 031 Total – 3PGE + Au 452 393 422 631 396 417 344 128 320 861 Group prices realised – US$/oz Platinum 964 1 248 1 433 1 568 1 622 Palladium 586 799 756 683 679 Rhodium 721 1 168 1 010 1 117 1 523 Gold 1 174 1 222 1 289 1 584 1 686 Basket – 3PGE + Au 831 1 108 1 198 1 276 1 345
Financial performance – group 2016 2015 2014 2013 2012 Operating margin – % 6.3 9.9 1.2 13.7 9.2 Effective tax rate – % (87.3) (19.1) 57.2 24.3 31.4 Current ratio 4.1 2.2 1.7 1.1 1.0 Acid ratio 3.0 1.8 0.6 0.2 0.1 US dollar/rand exchange rate – average 14.33 11.45 10.35 8.82 7.77 – at year end 14.71 12.16 10.61 10.01 8.16
14 Share performance 2016 2015 2014 2013 2012 Weighted average number of shares in issue – 000 349 876 391 835 390 970 382 561 382 426 Number of shares at year end – 000 509 781 509 781 397 586 382 586 382 497 Treasury shares at year end – 000 159 905 159 905 – – – Shares after adjusting for Treasury shares 349 876 349 876 – – – Operating cash flow per share – cents 239.8 87.2 226.5 137.0 114.4 (Loss)/earnings per share – cents (145.3) (264.3) 2.4 132.0 81.2 Headline (loss)/earnings per share – cents (140.9) (202.9) 2.2 136.5 80.9 Normalised earnings – cents 87.1 82.9 – – – Dividends per share – cents – – – – 5.0 Dividend cover – – – – 16.2 Net assets value per share – cents 1 712.1 1 808.0 2 865.0 2 827.0 2 722.0 Share price (cents) – high 5 080 5 200 4 790 4 098 2 398 – low 1 610 3 120 3 186 2 251 2 281 – at year end 4 300 4 026 4 550 3 200 2 325 Platinum sector index at year end 24.0 26.8 46.8 37.1 51.2 Compound return over 5 years – % 0.4 (2.3) 9.0 (13.2) (13.0) Average monthly volume of shares traded – 000 21 659 23 619 14 793 20 257 23 555 Annual liquidity (%) 51.0 72.3 45.4 63.5 73.9
Underground at Booysendal
NORTHAM ANNUAL INTEGRATED REPORT 2016 15 COMPANY SNAPSHOT 2016 continued
FOCUS ON DELIVERY CONTINUED
FIVE-YEAR SUSTAINABILITY REVIEW Zondereinde
2016 2015 2014 2013 2012 SOCIAL PERFORMANCE Safety Fatal injury incidence rate (FIIR) 0.00 0.00 0.00 0.01 0.02 Lost time injury incidence rate (LTIIR) 1.92 1.31 1.70 1.50 1.91 Reportable injury incidence rate (RIIR) 1.11 0.94 0.86 0.83 0.88 Number of fatalities 0 0 0 1 2 Health New cases of noise induced hearing loss (NIHL) 16 27 20 43 44 New cases of tuberculosis (TB) 75 111 97 70 85 Voluntary counselling and testing (VCT) encounters 1 876 1 250 1 049 1 088 1 659 Employment and human rights Average number of employees (including indirect employees) 8 392 8 548 8 788 9 148 9 163 Turnover rate (%) 6 7 4 1 7 HDSAs in management (%) 48 45 38 37 35 Women in mining (%) 8 8 7 7 7 HDSAs at board level (%) 70 50 44 56 64 ENVIRONMENTAL PERFORMANCE Rock mined (000t) 2 226 2 070 1 907 2 276 2 154 Ore milled (000t) 2 020 1 860 1 724 2 116 1 934 Water usage (000m3) Potable water from external sources 2 803 2 488 2 335 2 633 2 540 Fissure water used 1 607 1 155 1 084 1 493 1 273 Water recycled in process 27 413 25 664 25 524 25 909 24 390 % water recycled* 86 91 89 91 91 Electricity consumption (MWh) Energy from electricity purchased by shafts 498 993 489 203 470 117 485 654 467 893 Energy from electricity purchased by plant 147 792 140 882 108 600 101 732 125 548 Total electricity purchased 646 785 630 085 578 717 587 386 593 441
Greenhouse gas emissions (CO2e tonnes): Scope 1 (direct) emissions 27 830 29 743 23 451 15 509 15 401 Scope 2 (indirect) emissions 666 189 648 988 596 079 605 008 611 244 Scope 3 (indirect) emissions 798 746 580 665 815 Total emissions 694 817 679 477 620 110 621 183 627 460 Land use (hectares) Land disturbed by mining-related activities 137 137 137 137 137 Land leased for farming purposes 273 273 273 273 273 Land protected for conservation 800 800 800 800 800 Total land under management (freehold) 4 439 4 439 4 439 4 439 4 439
* The FY2016 figure reflects a more accurate methodology adopted by Northam to calculate recycled water
16 TWO-YEAR SUSTAINABILITY REVIEW Booysendal
2016 2015 SOCIAL PERFORMANCE Safety Fatal injury incidence rate (FIIR) – – Lost time injury incidence rate (LTIIR) 0.44 0.54 Reportable injury incidence rate (RIIR) 0.32 0.41 Number of fatalities – – Health New cases of noise induced hearing loss (NIHL) 31 18 New cases of tuberculosis (TB) 8 4 Voluntary counselling and testing (VCT) encounters 319 459 Employment and human rights Average number of employees (including indirect employees) 2 920 1 508 Turnover rate (%) 8 11 HDSAs in management (%) 50 68 Women in mining (%) 23 17 ENVIRONMENTAL PERFORMANCE Rock mined (000t) 2 138 1 670 Ore milled (000t) 2 166 1 786 Water usage (000m3) Potable water from external sources 376 569 Borehole water used N/A N/A Water recycled in process 2 519 1 479 % water recycled* 87 72 Electricity consumption (MWh) Energy from electricity purchased by shafts 44 052 43 362 Energy from electricity purchased by plant 88 738 72 023 Total electricity purchased 132 790 115 385
Greenhouse gas emissions (CO2e tonnes): Scope 1 (direct) emissions 7 098 6 337 Scope 2 (indirect) emissions 136 773 118 847 Scope 3 (indirect) emissions 98 N/A Total emissions 143 969 125 184 Land use (hectares) Land disturbed by mining-related activities 771 521 Land leased for farming purposes N/A N/A Land protected for conservation 960 960 Total land under management (freehold) 11 120 6 773
* The FY2016 figure reflects a more accurate methodology adopted by Northam to calculate recycled water
NORTHAM ANNUAL INTEGRATED REPORT 2016 17 COMPANY SNAPSHOT 2016 continued
FOCUS ON LEADERSHIP
1 2 3
4 5
1 PL Zim (56) 3 PA Dunne (53) (British) BCom (Hons); MCom BSc (Hons); MBA Non-executive chairman Chief executive officer Joined the board in 2007. Joined the board in 2014. Mr Zim is the chairman of Zambezi Platinum, and a director of Prior to joining Northam, Mr Dunne was employed by Impala Atisa Platinum (RF) Proprietary Limited, Sanlam Limited and Sanlam Platinum Holdings Limited (Implats) as executive director Life Insurance Limited. He is also a past president of the Chamber responsible for all mining, concentrating and smelting operations of Mines of South Africa. Previously chairman of Telkom SA SOC at Implats’ Rustenburg and Marula mines. Mr Dunne is also a Limited, he has also held senior executive positions at Anglo director of Zambezi Platinum. American South Africa Limited, M-Net Supersport and MTN Member of the health, safety and environmental committee Group Limited. He was voted African Business Leader of the Year in 2005 and is an Honorary Colonel in the South African Army. 4 AZ Khumalo (51) Member of the nomination committee. BCompt (Hons); CA (SA) Chief financial officer 2 R Havenstein (60) Joined the board in 2010. MSc (Chemical Engineering); BCom Mr Khumalo, a chartered accountant by profession, has Lead independent director extensive mining and corporate finance experience. From Joined the board in 2003. September 2008 he was the group finance executive of Coal Mr Havenstein currently serves on the board of Murray and of Africa Limited. Prior to that, from 2004 to 2008, he was Roberts Holdings Limited and Omnia Holdings Limited. He was director: finance of AQPSA. Mr Khumalo is also a director of previously chief executive officer of Anglo American Platinum Zambezi Platinum. Limited, prior to which he was an executive director of Sasol Limited responsible for Sasol Chemical Industries. 5 CK Chabedi (48) MSc (Mining Engineering); MDP Member of the audit and risk committee. Independent non-executive director Chairman of the health, safety and environmental committee; Joined the board in 2009. the investment committee; and the nomination committee. Mr Chabedi has more than 20 years’ mining experience having worked for Anglo American for 12 years in both their underground and surface mining operations. He is currently a senior lecturer in the School of Mining Engineering at the University of the Witwatersrand.
Member of the health, safety and environmental committee; the investment committee; and the social, ethics and human resources committee.
18 6 7 8
9 10
6 HH Hickey (62) 9 KB Mosehla (44) BCompt (Hons); CA (SA) BCompt; CA (SA) Independent non-executive director Non-executive director Joined the board in 2016. Joined the board in 2015. Ms Hickey currently serves as an independent director on the Mr Mosehla is the chief executive of Mosomo Investment Holdings boards of African Dawn Capital Limited, Cashbuild Limited, Omnia Proprietary Limited, a director of Zambezi Platinum, Malundi Holdings Limited and Pan African Resources Plc. She has 35 years’ Resources (RF) Proprietary Limited and Coal of Africa Limited. experience in auditing, risk management and governance and is a Member of the investment committee; and the social, ethics past chair of the South African Institute of Chartered Accountants. and human resources committee. Member of the audit and risk committee. 10 TI Mvusi (61) 7 TE Kgosi (Ms) (62) BA; ELP, MAP and PDP BCom (Hons) Independent non-executive director Independent non-executive director Joined the board in 2016. Joined the board in 2004. Mr Mvusi currently holds the position of chief executive: group Ms Kgosi is the cluster manager in Supply Chain Operations, market development at Sanlam Limited (Sanlam). He has served Eskom Group Commercial. She has extensive experience in the on the board of Sanlam since 2009, and holds a number of banking sector mainly in a treasury operations environment, Sanlam group directorships and is also the chairman of Iemas having held positions at a number of South Africa’s main Financial Services (Co-Operative) Limited. Prior to joining Sanlam, banking groups as well as Credit Suisse First Boston (NY). he was the general manager of Gensec Property Services Limited and was a marketing manager at Franklin Asset Management. Member of the audit and risk committee; and the nomination committee.
Chairperson of the social, ethics and human resources committee.
8 AR Martin (78) BCom; CA (SA) Independent non-executive director Joined the board in 2009. Mr Martin is a director of Datacentrix Holdings Limited and Trans Hex Group Limited (TransHex).
Member of the investment committee; and the nomination committee.
Chairman of the audit and risk committee.
NORTHAM ANNUAL INTEGRATED REPORT 2016 19 BUSINESS PERFORMANCE
CHAIRMAN’S STATEMENT
Lazarus Zim Chairman
I am pleased to note and report to our shareholders that management’s pursuit of growth does not come at the expense of looking after the basics at home. To illustrate, the group’s safety performance has been exemplary and efficiencies at our producing operations have continued to improve, moving the group into a much improved position on the SA PGM producer cost curve. This in itself has been a commendable achievement, from which shareholders will derive substantial benefits when the market environment starts to shift.
It gives me great pleasure to reflect on From a different viewpoint, my colleagues and I believe that the Northam’s progress in FY2016 and on the completion of our BEE transaction with Zambezi Platinum has been a major step forward for the group. Not only has Zambezi’s considerable opportunities management major holding in Northam ensured the longer-term sustainability continues to unlock. of our BEE status, but its investment also provided a cash inflow that substantially added to our financial muscle and strengthened our statement of financial position. Northam’s financial position is now sufficiently robust to facilitate the operational and expansionary developments that are already in progress.
Elsewhere in this report we provide a comprehensive account of the past year’s operations and of the expansion projects that will lift our annual production to a targeted 800 000oz. Our operations are diverse, ranging from the profitable mining of high-quality ore from the deep Zondereinde property to the current and planned mining at the comparatively shallow and mechanised Booysendal North and South operations.
This duality, I believe, provides attractive and sustainable profit flexibility throughout the platinum price cycle. And it is worth repeating that we shall continue to invest conservatively
20 throughout the cycle, all the while strengthening our market position. In this regard, we now have the benefit of the processing facilities integrated into our operational structures by the completion of the acquisition of the Everest property adjacent to Booysendal, now known as Booysendal South and the attendant acquisition of Everest’s processing plant at a price well below its replacement cost.
Strategic partners are valuable in this business. Northam’s relationship with Heraeus, which spans more than 20 years, was further cemented this year with Heraeus agreeing to contribute E20.0 million to expand the group’s smelting facilities at Zondereinde, along with an offtake agreement to secure metal supply into the future. We welcome this expression of confidence in our business, and in the prospects for this extraordinary suite of metals.
Northam’s strategic partnership strengthens our marketing capacity, reduces operational risk and provides secure toll- refining of our metals. Again, this agreement underpins Northam’s commitment to growth and expansion, an important consideration at this uncertain phase of the platinum cycle.
Our commitment to our stakeholders remains intact. As chairman of this progressive company, I am encouraged by the strides made in our social initiatives – not only in terms of compliance, but in doing what is the right thing. I am proud to be associated with this company, which, by the end of this year, will be in a position to accommodate each one of its employees individually and with dignity. We have come a long way.
Our plans for the future are comprehensively evaluated elsewhere in this report and I am confident that together we shall progress well. I would be remiss if I were not to express my sincere appreciation for the unstinting contributions to our operations by all of our people. It would be unfair to single out any particular individuals. However, I must thank Paul Dunne whose leadership continues to guide the company’s operations and planning.
Again, my thanks to all of the people who have contributed to the development of Northam into the sustainable and sound business that it is.
Lazarus Zim Chairman 23 September 2016
Efficiencies at our producing operations have continued to improve
NORTHAM ANNUAL INTEGRATED REPORT 2016 21 BUSINESS PERFORMANCE continued
CHIEF EXECUTIVE’S REVIEW
Paul Dunne Chief executive
The past year was one of consolidation for the group as we completed the restructuring and strengthening of our balance sheet and as we progressed development of the physical assets on which our corporate future is being built.
Northam is moving into a growth phase funded by significant Recent research has indicated that the 2016 calendar year cash holdings and internally generated cash flows. Successful will end with an overall platinum supply deficit of 455 000oz project execution will be critical in the coming year. based on forecast demand of 8.26Moz and supply of 7.80Moz. Newly-refined production is projected to fall in each of the four HEALTH AND SAFETY principal platinum producing regions – South Africa, Russia, Our operations completed the past financial year with no fatal Zimbabwe and North America - as mining firms curtail output accidents. The mechanised workings at Booysendal provide of unprofitable ounces and deliver just shy of 6Moz into the the differentiator in terms of a safe working environment and market. Nevertheless, Northam expects platinum demand to contributed to Booysendal achieving two million fatality free continue to grow at a rate similar to the growth in world gross shifts. Zondereinde’s performance was exemplary and was domestic product. rewarded with five million fatality-free shifts. The decline in South African primary supply is likely to be My congratulations go to all parties who worked to achieve these steady over the next 10 or so years owing to under-investment milestones. Our objective is zero harm to all of our employees, in new projects. For Northam, this creates a particularly their families and the communities in which they live. attractive investment thesis, in that we anticipate that our growth projects will start delivering production into a rising PGM MARKETS platinum market. The past year has been one of the most challenging this industry has faced. Metal prices have languished at levels not THE OPERATING ENVIRONMENT seen since 2009, with platinum plummeting to US$814/oz in Challenges in the labour relations arena are likely to persist in January this year. Some recovery has been discernible since, the near to medium term, even though labour relations at our taking the metal to $1,023/oz at the end of the financial year. two operating mines were largely stable in the wake of the three-year wage agreements secured at the end of the previous Palladium’s trading followed a somewhat similar pattern, with financial year. spot metal touching a low of US$470/oz in January and ending the year at US$589/oz.
22 I believe that these agreements illustrate that competition While our statement of financial position is particularly strong, between unions can be set aside for the overall benefit of we shall continue with our conservative approach to growth employees. Longer-term agreements provide a platform for a and acquisition. The massive orebody at Booysendal, along stable operating environment, which is a fundamental tenet of with the Everest infrastructure (now part of the Booysendal our business strategy. South complex), secures contiguous, lease-bound brownfields growth in an area where the capital footprint has largely Civil unrest in the Steelpoort valley is not a new phenomenon, already been established. but it did result in many days of production losses at Booysendal when passage for employees to get to work was too dangerous. Each one of our mines has ore reserves sufficient for at least We are optimistic that the task team set up to deal with 20 years of production. We have completed the ramp-up of community issues will generate some fresh impetus and that Booysendal UG2 North’s operations to full capacity and are these concerns will be resolved. carrying out deepening projects at both Zondereinde and Booysendal North. The Merensky mine at Booysendal North The situation at Zondereinde was potentially more serious in and development of the Booysendal South mining complex early June, when a mine employee was killed in the neighbouring have been approved and are progressing well. We are also Northam town. This was followed by the death of another extending and optimising our processing capacity. The smelter employee, raising tensions on the mine and resulting in eight expansion at Zondereinde is in progress, and due for completion days’ underground production losses. This issue is still being towards the end of calendar year 2017. An offtake agreement actively managed by mine management. with Heraeus has secured an investment contribution of E20 million in this R750 million expansion programme. My thanks, and those of the board, go to all the stakeholders who contributed to resolving the immediate situation at LOOKING AHEAD Zondereinde, in particular the SAPS and the Minister of Mineral Resources, Mr Mosebenzi Zwane. Looking ahead, Northam is confident that the fundamentals of the PGM markets will reassert, giving impetus to a stronger FINANCIAL AND OPERATING PERFORMANCE pricing environment. The perceived threats to demand are receding and South African primary supply is under pressure The introduction of Zambezi Platinum as a 31.4% shareholder from underinvestment. Northam’s investment in new production in the company along with the capital injection it brought, through the cycle is intended to deliver into a rising market. have been fully absorbed into our accounts contributing to the healthy cash position of R3.1 billion shown on our balance APPRECIATION sheet at the financial year’s end. Everyone at Northam gave unstintingly to the company’s Details of our financial results and operational delivery are development this past financial year. I am confident that they discussed further on in this report. Suffice to say that the will do the same in future. For this I extend my thanks and dollar denominated PGM prices masked the solid operating assure all of my colleagues that they will continue to enjoy performances at both operations. my full support. I recognise the contributions of all Northam’s people at all levels in the organisation and, in particular thank In line with our focus on core business activities, we disposed my board colleagues and managers for their advice and wise of the company’s 20.3% stake in the Trans Hex Group Limited, counsel. Together, we will succeed in taking Northam forward. further strengthened the statement of financial position by issuing medium term notes to the value of R425.0 million and welcomed the Industrial Development Corporation (IDC) of South Africa as a strategic funding partner. This financial strength provides the basis for funding future and existing expansion Paul Dunne projects that will eventually take our annual PGM production Chief executive profile to 800 000oz. 23 September 2016
NORTHAM ANNUAL INTEGRATED REPORT 2016 23 BUSINESS PERFORMANCE continued
CHIEF FINANCIAL OFFICER’S REVIEW
Ayanda Khumalo Chief financial officer
The group delivered solid operating results which have been underpinned by a strong financial position.
DISCUSSION OF KEY ITEMS IN THE SUMMARISED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For ease of reference see page 156 in the annual financial statements.
The 7.0% growth in metal sales to 452 393oz (FY2015: 422 653oz) STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME was largely offset by the lower metal prices received over the year, for the year ended 30 June 2016
and translated into an only marginal increase in sales revenue to Group Company 2016 2015 2016 2015 R6.1 billion (FY2015: R6.0 billion). Note R’000 R’000 R’000 R’000 Revenue 32 6 404 641 6 173 618 6 019 284 4 629 208 Sales revenue 33 6 097 070 6 035 535 5 740 467 4 230 121 The lower basket price achieved of R382 979/kg (FY2015: Cost of sales (5 713 722) (5 439 722) (5 680 282) (3 980 584) Operating costs 34 (5 007 233) (4 342 571) (3 430 234) (3 114 831) Concentrates purchased (350 514) (602 395) (2 194 494) (963 011) R407 864/kg) reflects a 25.0% decline in the US$ basket Refining and other costs (133 186) (199 470) (133 186) (83 408) Depreciation and write-offs (403 545) (339 949) (187 966) (165 091) price from US$1 108/oz to US$831/oz. The weaker ZAR, Change in metal inventories 180 756 44 663 265 598 345 757 which dropped by 25.2% year-on-year from an average of Operating profit 383 348 595 813 60 185 249 537 Share of (losses)/earnings from associate and joint venture (32 253) 28 769 – – R11.45/US$ to R14.33/US$ for the financial year under review, Investment revenue 35 265 258 72 043 109 480 220 904 Finance charges excluding preference share dividends 36 (39 634) (145 170) (33 515) (140 342) only partially offset the effect of the weaker US$ metal prices. Sundry expenditure 37 (92 122) (1 587 264) (37 089) (9 244 535) Sundry income 38 180 928 268 250 282 545 377 490 Profit/(loss) before preference share dividends 665 525 (767 559) 381 606 (8 536 946) Amortisation of liquidity fees paid on preference shares 24 (18 088) – – – From 1 June 2015, concentrate produced from Booysendal has Preference share dividends 24 (918 806) (100 767) – – (Loss)/profit before tax (271 369) (868 326) 381 606 (8 536 946) been sold to Zondereinde at 88% of the market value. On a Taxation 39 (236 894) (165 619) (108 988) (115 244) (Loss)/profit for the year (508 263) (1 033 945) 272 618 (8 652 190) group basis, revenue is generated by Zondereinde as all PGM
Other comprehensive income Items that will be subsequently reclassified to profit and loss 19 822 (4 482) – – sales between Booysendal and Zondereinde are eliminated Share of associate’s exchange differences on translating foreign
operations and foreign currency translation (3 947) (4 482) – – on consolidation. Previously, Booysendal sold its final product Reclassification of other comprehensive income from associate to profit or
loss 23 769 – – –
directly to third party customers.
Total comprehensive income for the year (488 441) (1 038 427) 272 618 (8 652 190)
(Loss)/profit attributable to: Cost of sales increased by 5.0% to R5.7 billion (FY2015: Owners of the parent (508 263) (1 035 649) 272 618 (8 652 190) Non-controlling interests – 1 704 – – R5.4 billion) given the 7.0% growth in sales volumes. Group (Loss)/profit for the year (508 263) (1 033 945) 272 618 (8 652 190) operating costs were up by 15.3% to R5.0 billion (FY2015: Total comprehensive income attributable to: Owners of the parent (488 441) (1 040 131) 272 618 (8 652 190) Non-controlling interests – 1 704 – – R4.3 billion) on the back of a 15.7% increase in metals Total comprehensive income attributable for the year (488 441) (1 038 427) 272 618 (8 652 190) produced from own operations. Depreciation and amortisation Cents Cents Loss per share 40 (145.3) (264.3) increased by 18.7% to R403.5 million (FY2015: R339.9 million), Fully diluted loss per share 40 (145.3) (264.3) Headline loss per share 40 (140.9) (202.9) attributable to the increased production, as depreciation and Fully diluted headline loss per share 40 (140.9) (202.9)
22 amortisation is calculated on a unit of production basis for
24 most assets. The value of concentrates purchased from external variances increased from R6.2 million to R26.2 million. Also parties fell by 41.8% to R350.5 million (FY2015: R602.4 million) included in sundry income is the write-back of the Trans Hex largely owing to lower deliveries from the seller. impairment of R34.1 million, previously accounted for in sundry expenditure. Operating profit was negatively impacted by the lower basket price and decreased by 35.7% to R383.3 million Sundry expenditure declined by 94.2% from R1 587.3 million (FY2015: R595.8 million). Zondereinde generated an operating to R92.1 million. In the previous year, this amount included profit of R248.1 million (FY2015: R398.4 million) and once-off lock in fees of R242.4 million paid to the BEE Booysendal generated an operating profit of R176.0 million participants, a once-off equity-settled share-based payment (FY2015: R195.2 million). charge of R874.4 million also relating to the Zambezi BEE transaction as well as corporate action costs of R172.6 million. Share of earnings from associates and joint ventures fell by 212.1% to a loss of R32.3 million (FY2015: profit of Sundry expenditure in the prior year included the write down R28.8 million). In the current year, Northam’s share in the of R261.5 million relating to the investment in non-core Pandora joint venture’s losses amounted to R12.6 million assets, while expenditure in the year under review includes (FY2015: loss of R10.7 million) and its share of losses in an impairment of R20.5 million relating to the Pandora joint Trans Hex amounted to R20.0 million (FY2015: profit of venture. Furthermore, in FY2016, care and maintenance costs R39.5 million). The Pandora joint venture also required a of R25.1 million (FY2015: R9.7 million) were incurred on the number of cash injections, with the group’s share of cash calls Everest plant and a loss of R21.0 was recorded on the sale of amounting to R10.6 million (FY2015: R9.7 million) with further the Trans Hex shares. cash calls expected in the new financial year. Management is reviewing its options with regard to Northam’s continued In terms of the BEE transaction, the Zambezi preference shares participation in the Pandora joint venture. accrue a cumulative variable dividend at the South African prime interest rate plus 3.5% per annum and are recognised With the disposal of the Trans Hex stake, a loss of R21.0 million as a finance charge in profit or loss. The non-cash finance was recognised on the sales transaction. Northam’s acquisition costs associated with the preference shares for the current year of a 20% share in SSG Holdings Proprietary Limited (SSG) for amounted to R918.8 million (FY2015: R100.8 million) and are R10.0 million, effective 29 February 2016, is recognised as an consolidated into the accounts of Northam in terms of IFRS, investment in an associate, and has been equity accounted. together with the amortisation fees paid over the 10-year SSG provides security services to both the Zondereinde and lock-in period. Booysendal mines. Northam’s share of SSG’s profits for the four months ended 30 June 2016 amounted to R0.4 million. The rise in the taxation charge compared to the previous year is largely attributable to non-mining tax of R140.8 million, Interest earned on higher cash balances, along with interest accrued mainly on interest earned from third parties. Deferred received on an insurance contingency policy contributed to an tax was raised on all temporary differences resulting in a tax increase in investment revenue of 268.2% to R265.3 million charge of R96.1 million. (FY2015: R72.0 million).
Finance charges were reduced by 72.7% to R39.6 million (FY2015: R145.2 million). The domestic medium term note (DMTN) of R1.4 billion was repaid on 3 September 2015, resulting in a reduction in the finance costs in the current year. New DMTNs were issued during May and June 2016, resulting in an interest accrual of R4.8 million on these new notes plus R23.5 million worth of interest paid on the old DMTN repaid in September 2015, compared to R132.9 million accrued for in the prior year.
A 32.6% decline to R180.9 million (FY2015: R268.3 million) was recorded in sundry income during the year. An amount of R59.6 million was received as a result of the cancellation of an insurance contingency policy and the refund of the original cash contribution plus interest. In the corresponding period, an insurance refund of R183.8 million was received relating to the No. 1 shaft incident which was then included in sundry income. Sundry income during the current year was also impacted by the volatility of the ZAR as currency translation Booysendal generated an operating profit of R176.0 million in FY2016
NORTHAM ANNUAL INTEGRATED REPORT 2016 25 BUSINESS PERFORMANCE continued
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Two-year summary of sales and revenues FY2016 FY2015 Average price Average price Units sold received Revenue Units sold received Revenue kg R/kg R’000 kg R/kg R’000 Platinum 8 404 444 005 3 731 417 7 894 457 795 3 613 649 Palladium 4 171 269 068 1 122 284 3 875 293 911 1 138 875 Rhodium 1 326 334 086 442 998 1 195 429 668 513 582 Gold 170 542 065 92 151 182 449 094 81 556 Sub-total: (3PGE+Au) 14 071 382 976 5 388 850 13 146 406 809 5 347 662 Iridium 481 233 711 112 415 397 204 174 80 975 Ruthenium 1 917 18 256 34 996 1 792 19 543 35 013 Sub-total: precious metals 16 470 5 536 261 15 743 5 463 651 5 463 650 Nickel (tonnes) 1 268 128 507 162 947 1 322 172 204 227 567 Copper (tonnes) 568 64 945 36 889 679 67 746 45 995 Chrome (tonnes) 540 624 656 354 653 141 874 745 289 791 Other by-product revenue – 4 370 – 4 716 Sales revenue – Zondereinde and Booysendal 6 095 120 6 031 719 Sales revenue – other activities 1 950 3 816 Total group sales revenue 6 097 070 6 035 535
DISCUSSIONS OF KEY ITEMS IN THE STATEMENT OF FINANCIAL POSITION For ease of reference see page 157 in the annual financial statements.
Property, plant and equipment and mining ANNUAL FINANCIAL STATEMENTS continued STATEMENT OF FINANCIAL POSITION properties and mineral reserves As at 30 June 2016 The higher value of fixed assets reflects the capital projects at Group Company 2016 2015 2016 2015 both of the group’s operating assets. These are discussed in Note R’000 R’000 R’000 R’000 ASSETS detail on page 30 of Financial capital. Non-current assets 14 110 084 13 367 048 13 299 712 12 988 803 Property, plant and equipment 5 7 853 993 7 065 352 2 790 278 2 419 013 Mining properties and mineral resources 6 5 614 094 5 636 478 101 518 109 362 Interest in associates and joint ventures 7 192 164 275 847 36 845 116 961 Other movements relate to depreciation calculated in the normal Investment in subsidiaries 8 – – 10 236 000 10 236 000 Unlisted investment 9 6 6 6 6 course of business using either the units of production method Land and township development 10 51 341 10 000 18 218 – Long term receivables 11 89 717 94 503 – – Investments held by Northam Platinum Restoration Trust Fund 12 93 647 49 092 43 204 38 868 or the straight line method to the value of R403.5 million Environmental Guarantee Investment 13 60 345 52 122 49 187 44 137 Buttonshope Conservancy Trust 14 10 445 11 037 – – (FY2015: R339.9 million). Deferred tax asset 21 144 332 172 611 – – Long term subsidiary loan 15 – – 24 456 24 456 Current assets 4 867 779 5 784 288 5 613 269 6 074 996 Short term subsidiary loan 15 – – 2 330 527 4 201 563 In assessing the useful lives of its assets, technological Inventories 16 1 330 270 1 126 550 1 308 256 1 045 353 Trade and other receivables 17 375 204 498 854 274 353 281 497 innovation, product life cycles, the physical condition of Cash and cash equivalents 18 3 105 080 4 138 189 1 654 417 534 959 Tax receivable 57 225 20 695 45 716 11 624 the assets and maintenance programmes are taken into Total assets 18 977 863 19 151 336 18 912 981 19 063 799 EQUITY AND LIABILITES consideration by management. Residual values are the Stated capital 19 13 778 114 13 778 114 13 778 114 13 778 114 Treasury shares 19 (6 556 123) (6 556 123) – – Retained earnings 631 545 1 139 808 (6 077 117) (6 349 735) expected values at the end of an asset’s useful life, a process Equity settled share based payment reserve 20 874 448 874 448 1 173 756 1 173 756 Share of other comprehensive income from associate – (19 822) – – of estimation is required to determine the residual values. Total equity 8 727 984 9 216 425 8 874 753 8 602 135 Non-current liabilities 9 072 179 7 310 753 8 981 473 8 235 923 During the year under review, there were no significant changes Deferred tax liability 21 590 637 521 452 594 935 527 234 Long term provisions 22 272 820 187 217 139 316 114 509 to the useful lives and residual values of property, plant and Long term loans 23 275 513 39 963 239 350 – Long term share based payment liability 26 84 373 69 466 52 641 58 236 Financial guarantee liability 25 – – 7 535 944 7 535 944 equipment balances. Domestic medium term debt notes 27 419 287 – 419 287 – Preference share liability 24 7 429 549 6 492 655 – – Current liabilities 1 177 700 2 624 158 1 056 755 2 225 741 Current portion of long term loans 23 13 201 3 801 9 400 – Short term share based payment liability 26 56 704 61 019 44 197 49 974 Domestic medium term debt notes 27 – 1 370 000 – 1 370 000 Tax payable 104 072 102 072 – – Trade and other payables 29 877 935 959 996 885 358 685 303 Short term provisions 30 125 788 127 270 117 800 120 464 Total equity and liabilities 18 977 863 19 151 336 18 912 981 19 063 799
23
26 Detailed impairment testing was also performed as part of the Northam Platinum Restoration Trust Fund and year-end process and it was confirmed that the carrying value Environmental Guarantee Investment of all assets is less than the recoverable value, thereby negating The R44.6 million increase in the restoration trust fund represents the need for any impairment during the year under review. the additional contribution received from AQPSA as part of the Interest in associates and joint venture acquisition of the Everest plant and mineral reserves amounting to R33.9 million as well as additional contributions made by the Interest in associates and joint ventures comprise a 7.5% group to the restoration trust fund during the year under review. interest in the Pandora joint venture, a 50% interest in the Dwaalkop platinum project and a 20.3% interest in the issued Additional contributions were also made to the environmental share capital of Trans Hex which was sold during the current guarantee investment. year. Northam also acquired a 20% investment in the share capital of SSG during the year. All other movements relate to interest earned on these investments. Land and township development Deferred tax asset The increase in land and township development reflects the increased investment following board approval in 2015 of a The deferred tax asset relates to the tax benefits that housing strategy to provide accommodation opportunities to are expected to arise in future as a result of the capital all employees at the group’s operations. See page 50 for further expenditure incurred during the development of the information on the group’s housing initiatives. Booysendal mine.
Long-term receivables This balance reflects the sales of houses to employees on an instalment sale basis, through a wholly-owned subsidiary of the group, Norplats Properties Proprietary Limited.
Below is the breakdown of investments in associates: Interest in Interest in Interest in Interest in SSG Holdings Dwaalkop Pandora joint Trans Hex Proprietary joint venture venture Group Limited Limited Total R’000 R’000 R’000 R’000 R’000 Opening balance as at 1 July 2015 136 230 70 720 68 897 – 275 847 Additional investment – 10 601 – 10 000 20 601 Share of earnings from associate and joint venture – (12 620) (20 002) 369 (32 253) Other comprehensive income – – (3 947) – (3 947) Current year amortisation – (2 600) – – (2 600) Cash distributions received – (24) – – (24) (Impairment)/reversal of impairment – (20 512) 34 122 – 13 610 Sale of investment – – (79 070) – (79 070) Closing balance as at 30 June 2016 136 230 45 565 – 10 369 192 164
NORTHAM ANNUAL INTEGRATED REPORT 2016 27 BUSINESS PERFORMANCE continued
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Buttonshope Conservancy Trust benefits, a decommissioning asset is recognised, otherwise The trust was established in 2011 as part of an initiative in the costs are charged to the statement of comprehensive collaboration with the Mpumalanga Parks and Tourism Agency to income (income statement). The estimated decommissioning retain a portion of the freehold land adjacent to the Booysendal and restoration costs are discounted at a rate that reflects the mine as an environmental conservancy. The principal objective current market assessments of the time value of money. The of the trust is to govern the conservation, rehabilitation, increase in the decommissioning provision due to the passage environmental education and awareness training and sustainable of time is recognised in profit or loss. Other changes in the development projects on the Buttonshope farm. This property is carrying value of the provision subsequent to initial recognition owned by Booysendal Platinum Proprietary Limited. are included in the determination of the carrying value of the decommissioning asset. The group contributed an amount of R10.0 million to the trust in previous years and contributed an additional R0.4 million in Management has engaged the services of a third party the current year. environmental expert to assess the potential commercial closure liability for all operations taking into account the new Inventories regulations pertaining to the financial provision for prospecting, Since 1 June 2015, all concentrate produced by Booysendal exploration, mining or production operations. has been sold to Zondereinde at a value equal to 88% of the market value. The adjusted value of 88% of market value takes Prior to the publication of the regulations in terms of the National into account the further refining costs necessary to bring the Environmental Management Act (NEMA), financial closure and inventory to a condition and location ready for sales to third rehabilitation requirements were governed by legislation in the parties. During the year, 164 579oz were sold by Booysendal to MPRDA and guideline documents dating back to the former Zondereinde for a total consideration of R1.8 billion (which was Department of Minerals and Energy, now the Department of eliminated on consolidation). Mineral Resources (DMR). Currently all environmental governance provisions are dealt with under NEMA, which has resulted in Inventories increased by 18.1% due to increased production a significant increase in the provision for rehabilitation and during the current year as Booysendal moved to steady-state decommissioning. production levels with higher quantities of inventory held at year end. Preference share liability Zambezi Platinum was created and designed for the sole Trade and other receivables purpose of providing Northam with BEE credentials and as a Trade and other receivables decreased by 24.8% mainly due to structure to hold the listed BEE preference shares. long outstanding Value Added Tax receivable refunds received during the current year. By virtue of its initial purpose, Northam determined the activities and direction of Zambezi and as per the subscription Cash and cash equivalents and relationship agreement between the two companies, The movement in cash and cash equivalents is mainly due to Zambezi’s Memorandum of Incorporation may not be the repayment of domestic medium term debt notes during the amended or replaced without Northam’s prior written consent. year. Please also refer to the consolidated statement of cash flow Northam assumes full responsibility for the administration on page 160 for all movements relating to the cash and cash of Zambezi as well as any costs incurred by Zambezi up to a equivalent balance. certain limit. Furthermore, Northam provides a guarantee for Zambezi’s obligation in respect of the preference shares. Deferred tax liability The increase in the deferred tax liability is due to the movement In terms of the transaction, an “N” share was issued to Northam, in tax values of mainly property plant and equipment. The tax which gives it the right to implement mitigating action should treatment of property, plant and equipment results in deferred Zambezi not comply with certain undertakings as per the tax liabilities. transaction’s agreements and in other limited instances aimed at maintaining the integrity of the transaction at all times. Long-term provisions In terms of the transaction, Zambezi may not dispose of the In terms of, inter alia, the MPRDA, no 28 of 2002, Northam is Northam ordinary shares without the prior consent of Northam. required to make financial provision for its decommissioning and restoration costs that will be incurred upon the cessation of Northam has significant exposure to Zambezi, through the mining activities. creation and maintenance of the BEE credentials during the 10 year lock-in period as well as through the guarantee provided Provision is made for the present value of the estimated future by Northam. The decision-making power of Zambezi’s board of decommissioning and restoration costs at the end of the directors is restricted to maintaining Northam’s BEE credentials mine’s life. When this provision gives rise to future economic and funding arrangements.
28 All of these factors have been considered in determining that performance criteria having to be met. It is important to note even though Northam does not have majority voting rights that the cash-settled share-based payments valuation is directly in Zambezi, it still has control over the entity. Thus Zambezi is linked to the share price. consolidated into Northam. This balance therefore represents the liability arising from the The preference shares are redeemable in 10 years’ time (from 30 June 2016 outstanding options and incentive shares granted May 2015) at R41 plus the cumulative preference dividends. to employees in terms of the group’s share option scheme and The preference shareholders are entitled to receive a dividend share incentive plan. The increased liability is mainly attributable equal to the issue price multiplied by the dividend rate of prime to the share price being higher at the end of the current year plus 3.5%, calculated on a daily basis, based on a 365-day year than in the prior year. compounded annually and capitalised at the end of December of every year. Domestic medium term notes During the year under review the group issued a total of The movements relate to accrued dividends on the preference R425.0 million of domestic medium term debt notes. shares for the year ended 30 June 2016. In the prior year, the DMTN was classified as current due to the Share-based payment liability maturity date being September 2015. The notes were settled The group operates the Northam share option scheme (the on maturity date. Further discussion on the DMTNs is provided scheme) as well as the Northam share incentive plan (the SIP). in the Financial capital section on page 30. The scheme has been discontinued owing to its dilutionary nature although share options issued before its discontinuance Long-term loans will be allowed to run their course. The firstE 10.0 million of Heraeus’s E20.0 contribution to the construction of a new furnace at Zondereinde was received in Where the counterparty has a right to elect for the settlement June 2016 but is recognised as a liability given that, in terms in either shares or cash, IFRS 2 regards the transaction as a of the agreement between Northam and Heraeus, Northam is compound transaction to which split accounting must be obliged to refund the amount of E10.0 if the furnace is not applied. The general guiding principle is that the transaction commissioned on time. Once the furnace is commissioned and must be analysed into a liability component (the counterparty’s the second E10.0 million is received, the E20.0 million will be right to demand settlement in cash) and an equity component deducted from the cost of the smelter as the value contributed (the counterparty’s right to demand settlement in shares). by Heraeus is effectively considered a rebate in terms of IFRS. Management has considered the requirements and has In addition, R9.4 million will be paid annually by Northam for determined that, based on historical information, very few product development on 1 July of every year, commencing on individuals, if any, have kept their Northam shares, and that 1 July 2016 for 20 years. A liability was recognised at contract the majority of the outstanding options, performance and inception. The liability was measured at the present value of the retention shares will be settled in cash and should therefore be R9.4 million payments over 20 years using the prevailing prime accounted for as a cash-settled rather than an equity-settled interest rate and has also been included in long-term loans with share-based payment. the first payment on 1 July 2016 included as a current portion Northam re-measures the fair value of the liability at the end under current liabilities. of each reporting period and at the date of settlement, with any changes in fair value being recognised in profit or loss for Trade and other payables the period. Therefore fluctuations in the share price mean that The movement relates to a number of movements with the the liability relating to the cash-settled options and shares will most significant relating to the decrease in the liability for fluctuate with movements recognised in profit and loss. purchased material from third parties.
Management engaged the services of an expert to assess the Short-term provisions share-based payment liability. A Black Scholes model was used This liability relates to leave accrued to employees and the to value the liability, which assumed an expected volatility balance depends on leave taken by employees. of 53.78% which reflects the assumption that the historical volatility over a period similar to the life of the option/incentive shares is indicative of future trends, which may not necessarily be the actual outcome. In addition, a risk-free rate of between 7.3% and 7.5% has been used in valuing the various options. Ayanda Khumalo Retention shares vest after three years from grant date with no Chief financial officer performance criteria attached and performance shares also vest after three years from grant date with measurement against 23 September 2016
NORTHAM ANNUAL INTEGRATED REPORT 2016 29 BUSINESS PERFORMANCE continued
F FINANCIAL CAPITAL
RELEVANT MATERIAL ISSUES
• Managing production and performance to ensure the successful execution of our business strategy
RELEVANT IDENTIFIED RISKS
• Exchange rate and commodity price
Financial capital is necessary to conduct our business. We allocate financial capital appropriately and responsibly to pay our people, fund our operations, sustain our business, invest in the future through capital expenditure and to fund rehabilitation and closure.
We do this through cash flow management, investment by shareholders and investors or through borrowings.
The Booysendal plant
30 F FINANCIAL CAPITAL
ACHIEVEMENTS CHALLENGES OUTLOOK
• Cash position of R3.1 billion • Difficult market conditions • Booysendal expansion projects approved • Renegotiated a five-year R1.5 billion • Weak US$ PGM prices (significant capital investment) revolving credit facility • R1.2 billion capital investment
Northam’s financial position is particularly strong. This is pleasing operational risk. The total cost of the project is anticipated to given the sustained difficult market conditions. For this reason, be R750.0 million and is expected to be commissioned by the we are intent on persisting with a conservative approach to end of the 2017 calendar year. The expansion work follows growth. The successful execution of the Booysendal South on the extension of Northam’s strategic partnership with project will be critical to achieve our strategic objectives. Heraeus in terms of which Heraeus has agreed to contribute E20.0 million to the construction of the furnace. The first In line with the group’s strategy to diversify into shallow E10.0 million was received in June 2016. The agreement also mechanisable operations the board approved the development provides for the renewal of the current refining arrangements of the initial phase of the Booysendal South project in June and guarantees a supply of refined metal to Heraeus. 2016. This project includes the development of two UG2 mining modules and a Merensky mining module which will We are confident that the fundamentals of the PGM markets contribute an additional 240 000oz per annum of PGMs to the will eventually reassert, giving impetus to a stronger pricing group’s production profile by 2021. environment. The perceived threats to demand are receding and South African primary supply is under pressure from The construction of the new 20MW furnace at the underinvestment. Northam’s investment in new production Zondereinde metallurgical complex is progressing well. through this cycle is intended to deliver into a rising market and In addition to adding smelter capacity, it will also reduce therefore create value for all stakeholders.
Below is a summary of the normalised headline earnings per share 30 June 2016 30 June 2015 R’000 R’000 Headline loss (492 837) (794 963) Add back: Net lock in fee – 242 429 IFRS 2 black economic empowerment share-based payment charge – 874 448 Amortisation of liquidity fees paid on preference shares 18 088 – Preference share dividends 918 806 100 767 Normalised headline earnings 444 057 422 681 Normalised headline earnings per issued share (cents) 87.1 82.9 Number of shares in issue including treasury shares 509 781 212 509 781 212
Normalised headline earnings have been calculated taking into account headline earnings per share adjusted for non-cash items relating to the BEE transaction. These include the preference share dividends associated with the BEE structure, represented by Zambezi Platinum (RF) Limited, which are consolidated into the group accounts as well as the amortisation of the liquidity fees paid in the prior year to the underwriters of the preference shares.
The normalised headline earnings of R444.1 million resulted in a normalised headline earnings per share of 87.1 cents (FY2015 82.9 cents) based on the total number of 509 781 212 shares issued, which include 159 905 453 treasury shares.
NORTHAM ANNUAL INTEGRATED REPORT 2016 31 BUSINESS PERFORMANCE continued
FINANCIAL CAPITAL CONTINUED
OVERVIEW • On 9 June 2016, a further R250.0 million notes were Given the current PGM price environment, the group’s focus has issued at a floating rate of the 3-month JIBAR plus 390 basis been to optimise existing operations, contain costs and create points. Interest is payable on a quarterly basis in August, a platform for further diversification into shallow mechanisable November, February and May of every year. As a result, operations. Northam has continued to invest in large capex cash flows utilised in financing activities declined from a items which are fundamental to the group’s growth strategy. In R4.2 billion inflow to an outflow of R745.4 million. June 2016, the board approved a six-year capex programme of Excluding the repayment and issue of the DMTN, the Northam R4.2 billion in real terms for the significant Booysendal South group utilised net cash to the value of R82.4 million for expansion. Capital investment in 2016 reached R1.2 billion. the year. Further detail on capital expenditure items is provided on page 38 in the Manufactured capital section. Subsequent to year-end, the group renegotiated a five-year R1.5 billion revolving credit facility (RCF) to replace the existing The healthy cash position of R3.1 billion at year end is mainly R1.0 billion facility which will mature in November 2016. The attributable to the cash injection from the BEE transaction in the new RCF commences in November 2016 and is a facility of up prior year. Further strengthening came from the focus on our to R1.0 billion for 18 months, rising thereafter to a facility of core business which led to the disposal of the group’s 20.3% R1.5 billion for the rest of the 5-year term. stake in Trans Hex Group Limited which yielded R81.8 million. The strategic participation of the IDC in contributing to the These initiatives have been undertaken to ensure sufficient funding of the group’s 800 000oz production profile resulted in cash is available should metal prices be lower for longer and the issue of medium-term notes. Improved operational results to fund various potential growth opportunities that may boosted cash flows from operating activities which rose to become available. R839.1 million (FY2015: R341.0 million). Cash flows utilised in investing activities increased marginally, by 2.3% to SEGMENTAL REPORTING R1.1 billion. These relate mainly to the capital items in Operating profit was negatively impacted by the lower support of the group’s growth targets: basket price and declined by 35.7% to R383.3 million • R291.6 million incurred on the new 20MW furnace (FY2015: R595.8 million). Zondereinde generated an operating at Zondereinde profit of R248.1 million (FY2015: R398.4 million) and • R157.1 million spent on the Merensky project at Booysendal Booysendal generated an operating profit of R176.0 million (FY2015: R195.2 million). • R132.7 million spent on the deepening project at Zondereinde • R178.0 million spent on the UG2 phase 1 and deepening Zondereinde’s total operating costs were R3.5 billion (FY2015: project at Booysendal R3.2 billion), representing an increase of 10.1% based on • R55.2 million on the acquisition of the Everest mineral resources higher total production of equivalent refined metal from own operations. This resulted in an overall 1.0% decrease in the FUNDING unit cash cost per equivalent refined 3PGE + Au/kg from R378 737/kg to R374 846/kg in the current year, In September 2015, Northam repaid R1.4 billion relating to demonstrating tight cost control. the previous DMTN. In May and June the company once again raised capital through the issue of DMTNs: The total operating costs at Booysendal increased from • On 11 May, 2016 a five-year DMTN to the value of R1.2 billion to R1.5 billion. The increase of 29.3% is R175.0 million was issued at a fixed coupon rate of 13.5%. attributable to the increase in metals in concentrate Interest will be payable on a bi-annual basis in May and produced which grew by 31.7% to 5 017kg/161 300oz November of every year. (FY2015: 3 809kg/122 462oz).
32 F
Segmental statement of profit or loss and other comprehensive income for the year ended 30 June 2016 Zambezi Zondereinde Booysendal Inter- Platinum operating operating company and the BEE segment segment eliminations transaction Other Total R’000 R’000 R’000 R’000 R’000 R’000 Sales revenue 5 966 217 1 972 883 (1 843 980) – 1 950 6 097 070 Cost of sales (5 718 092) (1 796 904) 1 843 980 – (42 706) (5 713 722) Operating profit 248 125 175 979 – – (40 756) 383 348 Share of losses from associate and joint venture – – – – (32 253) (32 253) Investment revenue 111 066 163 940 (27 223) – 17 475 265 258 Finance charges before preference shares (33 515) (24 131) 27 223 – (9 211) (39 634) Sundry income 157 437 3 233 – – 20 258 180 928 Sundry expenditure (37 088) (32 110) – – (22 924) (92 122) Profit/(loss) before preference share dividends 446 025 286 911 – – (67 411) 665 525 Amortisation of liquidity fees paid on preference shares – – – (18 088) – (18 088) Preference shares – – – (918 806) – (918 806) Profit/(loss) before tax 446 025 286 911 – (936 894) (67 411) (271 369) Taxation (162 587) (82 866) – – 8 559 (236 894) Profit/(loss) for the year 283 438 204 045 – (936 894) (58 852) (508 263)
Given the current PGM price environment, the group’s focus has been to optimise existing operations, contain costs and create a platform for further diversification into shallow mechanisable operations
NORTHAM ANNUAL INTEGRATED REPORT 2016 33 BUSINESS PERFORMANCE continued
FINANCIAL CAPITAL CONTINUED
Segmental statement of profit or loss and other comprehensive income for the year ended 30 June 2015 Zambezi Zondereinde Booysendal Inter- Platinum operating operating company and the BEE segment segment eliminations transaction Other Total R’000 R’000 R’000 R’000 R’000 R’000 Sales revenue 4 414 254 1 978 081 (360 616) – 3 816 6 035 535 Cost of sales (4 015 840) (1 782 850) 360 616 – (1 648) (5 439 722) Operating profit 398 414 195 231 – – 2 168 595 813 Share of earnings from associate and joint venture – – – – 28 769 28 769 Investment revenue 232 598 29 929 (189 100) 588 (1 972) 72 043 Finance charges before preference shares (140 342) (186 410) 189 100 – (7 518) (145 170) Sundry income 265 336 1 147 – – 1 767 268 250 Sundry expenditure (197 285) (13 498) – (1 289 518) (86 963) (1 587 264) Profit/(loss) before preference share dividends 558 721 26 399 – (1 289 930) (63 749) (767 559) Preference share dividends – – – (100 767) – (100 767) Profit/(loss) before tax 558 721 26 399 – (1 389 697) (63 749) (868 326) Taxation (153 604) 74 279 – (87 350) 1 056 (165 619) Profit/(loss) for the year 405 117 100 678 – (1 477 047) (62 693) (1 033 945)
Zondereinde’s base metal recovery plant
34 F
HOW WE DISTRIBUTE VALUE Northam creates value for stakeholders in many ways, including increasing production and sales; increasing earnings and growth; through taxes and royalties; transformation; salaries and wages; training and development; housing and accommodation; and investing in communities in the form of local economic development, preferential procurement and corporate social investment (CSI). We recognise that stakeholders, be they shareholders, employees or communities, have certain expectations of the company, not all of which may be appropriate or possible to meet. We need to understand and manage these expectations through credible and effective stakeholder engagement.
Below is a summary of value created and distributed to various stakeholders: 30 June 2016 30 June 2015 R'000 R'000 Sales revenue 6 097 070 6 035 535 Less: purchase of goods and services in order to operate and produce refined metals (4 147 472) (3 114 767) Value added by operations 1 949 598 2 920 768 Add: share of (losses)/earnings from associate (32 253) 28 769 Investment revenue 265 258 72 043 Sundry income 180 928 268 250 Sundry expenditure (92 122) (1 587 264) Total value added 2 271 409 1 702 566
Distributed and utilised as follows: Value distributed to employees Salaries and wages 1 583 260 1 441 799 Contributions to retirement benefit funds 123 964 114 565 Contributions to healthcare funds 68 831 66 074 Share based payment 56 222 74 386 1 832 277 1 696 824 Value distributed to government Mining and non-mining tax 140 825 135 762 Dividend withholding tax – 12 447 Capital gains tax – 74 592 Royalty taxes 44 283 39 986 Pay as you earn deducted from employees 294 043 277 861 479 151 540 648 Value distributed to providers of capital Dividends – 3 908 Finance charges excluding the Zambezi preference share dividends 39 634 145 170 39 634 149 078 Value distributed to the broader community Corporate social responsibility and local economic development 3 543 6 805 Value utilised by the group Depreciation and write-offs 403 545 339 949 Rehabilitation provided to meet statutory obligations 1 700 7 689 Retained income (488 441) (1 038 427) (83 196) (690 789) Total value added 2 271 409 1 702 566
NORTHAM ANNUAL INTEGRATED REPORT 2016 35 BUSINESS PERFORMANCE continued
FINANCIAL CAPITAL CONTINUED
CONSOLIDATION OF ZAMBEZI PLATINUM (RF) In terms of the preference share agreement between Zambezi LIMITED INTO THE CONSOLIDATED ACCOUNTS and its preference shareholders, the preference shareholders OF NORTHAM will be entitled to receive dividends equal to the South African In terms of the Northam BEE transaction, Northam first prime interest rate plus 3.5% compounded over the 10-year issued 112 195 122 new ordinary shares on 18 May 2015 to period. The preference shares will be compulsorily redeemable Zambezi Platinum, representing 22.0% of Northam’s issued on the day immediately preceding the 10th anniversary of share capital at a subscription price of R41 per share, for a the implementation date. The preference shares can only consideration of R4.6 billion. Secondly Zambezi, acquired be redeemable before this date upon the occurrence of an an additional 47 710 331 existing Northam ordinary shares early redemption event which is defined in the agreement. from the PIC, also at an acquisition price of R41 per share, The redemption price will be equal to the preference shares’ amounting to a consideration of R2.0 billion, representing issue price. In terms of the preference shares agreement, 9.4% of the Northam issued share capital. Zambezi therefore the preference dividends will accumulate (compounded) at holds a combined 31.4% interest in Northam’s issued the rate mentioned above for the 10-year period if not paid share capital. by Zambezi. On the redemption date, Zambezi has to settle any outstanding dividends accumulated, together with the The transaction was financed by way of 159 905 453 new redemption price. Zambezi does not have any discretion to Zambezi listed preference shares with an aggregate value avoid the payment of cumulative preference dividends or the of R6.6 billion, redeemable at the end of a 10-year period. payment of the redemption price, and is therefore obliged to Eligible Northam shareholders were able to subscribe for settle this amount by delivering cash, a variable number of the Zambezi BEE preference shares at an issue price of Northam shares or a combination of the two. The preference R41 per share. Subscription undertakings for the full value of shares as well as any accumulated and unpaid preference the preference shares were underwritten by Coronation Asset dividends meet the definition of a financial liability, and are Management Proprietary Limited and the PIC at a liquidity accounted for as such in the statement of financial position of fee of 2.5% of the value of the preference shares. These BEE Zambezi, and consolidated in the financials of Northam in terms preference shares are guaranteed by Northam and as a result of International Financial Reporting Standards. This means that of the guarantee consolidated into the Northam group results. the financial statements of the Northam group reflect the BEE equity issued shares as treasury shares and the BEE preference The redemption of the preference share liability will occur in shares are reflected as a liability. part through 90% of any dividends received from Northam. There is, however, no obligation to settle the preference share OUTLOOK liability during the 10-year lock in period should no dividends The global economic outlook remains uncertain resulting be received from Northam. After the lock-in period of 10 years in volatile metal markets and exchange rates. The group’s the preference share liability will be redeemed in a bullet financial performance will depend on achieving higher metal payment through the possible sell-off of the Northam shares sales prices and a stable operating performance. Cost saving owned by Zambezi into the market to realise the capital value. and productivity improvement initiatives are in place at both In the event that this is not sufficient to settle the liability, the Zondereinde and Booysendal. Management is confident that remaining preference share liability will be secured in terms the group’s strong financial position, prudent financial controls of a financial guarantee issued by Northam. Should a liability and the development of shallow, mechanisable operations arise under the Northam guarantee, Northam may settle this at Booysendal, where the capital footprint has largely been liability by capitalising Zambezi with cash and/or Northam established, will place the group in a position to take advantage shares before the redemption amount becomes due or making of improved market conditions in the future. payment directly to the preference shareholders. The manner of settlement is a choice and is not contractually specified.
36 F Booysendal’s capital footprint has largely been established
NORTHAM ANNUAL INTEGRATED REPORT 2016 37 BUSINESS PERFORMANCE continued
M MANUFACTURED AND INTELLECTUAL CAPITAL
RELEVANT MATERIAL ISSUES
• Managing production and performance to ensure the successful execution of our business strategy
RELEVANT IDENTIFIED RISKS
• Optimising the responsible usage of our productive natural resources (managing the complexity and availability of Merensky Reef) • Not meeting production targets • Single stream process concentrator and smelter • Safety and health
Our manufactured capital inputs include the specialised plant, machinery, equipment and infrastructure necessary for us to conduct our business.
Operating our mines requires a range of particular skills and technologies, and this intellectual capital input is only made possible by the skills and competencies inherent in our human capital. (See Human capital on page 44 for details of how we develop our employees.) Both our manufactured and intellectual capital inputs have as a focus the drive to make mining safer and to improve efficiencies.
Drilling technology at work at Zondereinde
38 M MANUFACTURED AND INTELLECTUAL CAPITAL
THE OPERATING ENVIRONMENT
Labour relations climate Depressed metal remains volatile and Regulatory uncertainty prices persist uncertain
Currency and interest Community unrest rate fluctuations
BUSINESS UNITS At Northam we consider our operations, their infrastructure and associated activities to be the major components of the group’s manufactured capital stock. Core activities are conducted at the following long-life, low cost business units: • The established, mature, deep-level, long-life Zondereinde mine • The processing and smelting facilities at the Zondereinde mine • The shallower, long-life, modern and mechanised Booysendal North mine
The group’s projects are essentially brownfield developments at the Booysendal North mine, along with the establishment of the Booysendal South mine. These are the most mature of the projects under development.
2016 KEY FEATURES OF OPERATIONS
Consistent safety performance at Zondereinde, Sustained excellent safety Group unit cash costs achieving five million performance at Booysendal reduced by more than 1% fatality free shifts
Progressing the ore mix Installation of underground Zondereinde deepening rebalance at Zondereinde to refrigeration plant on project on track UG2 60%; Merensky 40% 13 level completed
Bulk sample, trial mining and feasibility study for Another 30 000oz Growth plans to take the Merensky expansion from UG2 expansion at production profile to at Booysendal complete, Booysendal North 800 000oz by 2022 adding 25 000oz/annum
GENERAL COMMENT AND KEY FEATURES A sustained emphasis on safety has yielded good results. Both Group operations continued to perform steadily, illustrating management and employees deserve to be commended for the the success of our strategy grounded on sound operating sound achievements at both operations. performances and on containing the costs of producing each Community protests in the Booysendal area earlier in the PGM ounce, while also working through what has now been financial year inevitably impacted operations, making it difficult a sustained metal price trough. Both operations posted solid for employees to get to work. Later in the year the murder of operating profits for the year. a Zondereinde employee in the town of Northam, followed by The contribution of the Booysendal North UG2 mine came in the death of a second employee, sparked high levels of tension at steady-state levels of 160 000oz, pushing the group’s annual at the operation. The loss of production was contained to eight output to 440 000oz. This creditable performance underscores days, and with the cooperation of law enforcement authorities, the significance of a stable working environment, with minimal and interventions from the minister of Mineral Resources, operations extraneous disruptions, which was certainly the case in the first resumed safely again on 14 June. A total of 8 000oz was lost owing half of the financial year at Zondereinde, where management to the interruptions. (Please see page 54 for more detail in the signed a three-year wage deal in July 2015. Human capital section on the management of this incident.)
NORTHAM ANNUAL INTEGRATED REPORT 2016 39 BUSINESS PERFORMANCE continued
MANUFACTURED AND INTELLECTUAL CAPITAL CONTINUED
ZONDEREINDE MINE – mature, reliable, long-life operation
Resource Reserve Tonnes milled Production
84.1Moz 11.7Moz 2 020 425t 8 796 kg (282 765oz)
Capex Operating cost
R554.1 million R3 464.4 million
MINING ACTIVITIES AND PRODUCTION On both orebodies, the ore reserve position remains satisfactory, Zondereinde’s sound operational performance in the year was with availability of 20 and 24 months for the Merensky and matched by the achievement of five million fatality free shifts UG2 orebodies respectively. The development programme has for the first time. This is a commendable performance at a maintained this position for some time now. deep level mine such as Zondereinde. Unfortunately the injury The deepening project at Zondereinde is focused on opening up frequency rates regressed despite continuous campaigns focused mineable Merensky reserves to make up for the constraints posed on reducing the number and severity of injuries. Operational by mining conditions, notably the loss of Merensky resources on management remains resolved to minimise the number of the east of the mine some years ago. Mining infrastructure is injuries sustained by employees while on duty. The LTIIR was being extended down to 18 level. Development work to establish 1.92 (FY2015: 1.31) and the RIIR was 1.11 (FY2015: 0.94). the conveyor decline leg between 16 and 17 levels is in progress, Underground mining activities at Zondereinde remained and due for completion by the end of calendar year 2017. Lateral development on 16 level is advancing well and includes the focused on balancing the depletion of the remaining breakaway of two crosscuts to reef as well as a connection to the resources at the mine by changing the split of the Merensky material decline. Blasting of the material decline between 14 level and UG2 ore ratio to 40:60. This more realistic ratio reflects and 16 level has been completed and equipping has started. the abundance of conformable, planar UG2 reef at the Zondereinde operation, and the complex geological difficulties The contribution of the normal Merensky reef at the lower associated with the Merensky reef – which severely impacts levels of the mine now represents 35% of the total Merensky mining flexibility on this reef. ore mined.
Whilst the UG2 reef has a lower head grade than the Merensky The growth in metal concentrate purchases reflects the volume reef, the higher density of the orebody and better mining build-up at Booysendal. productivity renders the profitability of mining this reef on a par with that of Merensky. The transition has proceeded well Zondereinde’s capex programme continued without any with the major benefit being an extension to Zondereinde’s significant interruptions. Capital investment reached LoM to more than 20 years. This life of mine estimate includes R554.1 million in the year under review, notably on the new resources to 18 level some 2 400 metres below surface the furnace construction, the deepening project down to 18 level lowest practicable mining level at Zondereinde. and other necessary sustaining capital expenditure.
Zondereinde – sustaining capital investment
R 18 level deepening New 20MW furnace project Other sustaining capex R291.6 million R132.7 million R129.8 million
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Capital investment in 2017 is likely to increase to an estimated METALS PROCESSING AND SMELTING ACTIVITIES R682.7 million, fairly distributed between expansionary and The smelter at Zondereinde has for years treated Zondereinde’s sustaining capex, with expansionary capex relating almost output, and spare capacity has been used to toll-treat third entirely to the new furnace. party concentrate. Now, with growing output anticipated from the Booysendal complex, a new furnace is being built in order The group-wide cost containment exercise demonstrated to accommodate the anticipated higher volumes. The design of some notable successes. At Zondereinde this resulted in unit the new furnace allows it to run as a pure UG2 furnace, or as cash costs, in terms of equivalent refined metal, declining by a conventional Merensky/UG2 furnace – thereby providing the 1% to R374 846/kg. flexibility to accommodate the growth in UG2 mining. See page 31 in the Financial capital section for more information on the strategic partnership and funding for the new furnace.
The Zondereinde smelter
NORTHAM ANNUAL INTEGRATED REPORT 2016 41 BUSINESS PERFORMANCE continued
MANUFACTURED AND INTELLECTUAL CAPITAL CONTINUED
BOOYSENDAL NORTH UG2 MINE – shallow, mechanised, long-life
Resource Reserve Tonnes milled Production
6.02Moz 4.00Moz 2 072 958t 4 865 kg (156 410oz)
Total capex Operating cost
R459.3 million R1 541.0 million
The Booysendal North mine also put in an impressive Capital investment continued apace at Booysendal, amounting performance for the year, reaching the steady state production to R616.4 million. Given the platform that the Booysendal run-rate at the end of the first half of the financial year. North mine creates for brownfields expansion and to optimise operations on the vast Booysendal orebody, the bulk of this Booysendal’s exemplary safety record continues – illustrating the investment covers expansionary capital costs, and includes differentiating properties of this relatively shallow orebody and R55.2 million on the resource base at Everest, the existing the mine’s mechanised workings. In September 2015, Booysendal UG2 mine and deepening project, employee accommodation achieved two million fatality free shifts. The injury frequency rates and the feasibility study for the growth into Booysendal South. also improved year on year, with an LTIIR of 0.44 (FY2015: 0.54) and an RIIR of 0.32 (FY2015: 0.41).
Booysendal – expansionary capital investment
Resource base UG2 phase 1 mine Employee at Everest and deepening project accommodation R55.2 million R178.0 million R14.3 million
Having reached steady state at the North UG2 mine, and the increase in metals in concentrate produced, operating costs rose in line, with total operating costs at Booysendal pegged at R1 541.0 million, 29.3% higher year on year. At a unit cash cost level, this increase translates to a 1.4% reduction at R298 500/kg or R9 284/oz.
Booysendal South Management estimates that expansionary and sustaining capital expenditure will be feasibility study R527.0 million and R86.9 million respectively in FY2017. R63.5 million
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BOOYSENDAL EXPANSION PROJECTS – MODULAR, A key component of this extension is the construction of a FLEXIBLE, SCALEABLE AND ADDING OPTIONALITY 5 000 tonne surge capacity underground silo that will connect Booysendal North UG2 deepening project the deeper, new section to the existing mine. However, the silo will also decouple these two parts to ensure continuous The Booysendal North UG2 deepening project involves mining during unexpected stoppages. Construction of the silo the addition of two levels to the existing mine. This first started in May 2016 and is due for completion in July 2017. expansion runs parallel with the establishment of the Merensky North mine, and will add some 30 000oz to the UG2 mine’s existing production profile, at a capital cost of R270 million over three years.
Booysendal North Merensky mine Resource Reserve Tonnes milled
1.76Moz 1.36Moz 92 645t
Production of metals in concentrate Capex
152 kg (4 890oz) R157.1 million
The orebody at Booysendal is massive at 105.2Moz and is Capital expenditure of R300.0 million over two years was mostly well explored and known. The Booysendal North UG2 approved for the construction of a small mine, producing mine is likely to exploit a total of 7.78Moz or 7.4% of the 25 000oz. The project involves the development and equipping orebody, and management is constantly focused on being able of the primary decline cluster and the establishment of to turn to account ounces which are relatively shallow, easily mining sections. accessible, and with mechanisable potential. Essentially, the Merensky North mine provides optional, modular production Given that most of the project development is on reef, some revenue will be generated during the development phase. The growth, as a swing producer with low fixed working costs. project is due to be completed in June 2018. With this in mind, the Merensky North mine, the first of the brownfields expansion projects, was started in 2015, with a BOOYSENDAL SOUTH boxcut being established for access, and a bulk sample taken The third phase of the expansion at Booysendal envisages the for trial mining and metallurgical testwork. The group invested exploitation of the Booysendal South orebody by developing a capex of R82.5 million to establish a box cut in 2015 and to new portal system near the centre of the greater Booysendal conduct trial mining and bulk sampling. property. The Booysendal South mine incorporates the infrastructure and workings of the contiguous Everest mine, The testwork concluded that the narrower Merensky reef could which was purchased in June 2015, with the mining right also be subject to mechanised extraction and would also yield being transferred in November 2015. This acquisition of an acceptable run of mine ore grade. Everest, for R450.0 million, included a 250 000 tonne per In the short term, limited concentrator capacity will contain month concentrator plant, an integrated chrome extraction this to being a small mine, producing 25 000oz initially. With plant, power and water supply, tailings facilities, workshops sufficient concentrator capacity in future, this output could and other infrastructure. be expanded to 75 000oz, should market conditions be Given the complex topography in the region, Northam intends favourable. The Merensky ore is currently being co-processed using, for the first time in South Africa, a rope conveyor system in the UG2 concentrator at Booysendal. An advantage of the to transport the mined ore to the Everest processing site. This project is the high base-metal content of the Merensky ore, custom-built conveyor system will be commissioned during a definite sweetener in that it enhances PGMs recovery in the 2019 financial year, with the start-up of the concentrator the metallurgical processes. Furthermore, since the mining at Booysendal South. At steady-state levels, the Booysendal method, skills and equipment required are the same as those South expansion will add some 240 000oz annually, with capex used at the Booysendal North UG2 mine, the staff can be estimated at R4.2 billion in real terms over six years. transferred from the one mine to the other, thereby taking advantage of efficiencies and synergies, and leveraging off the For further detail on production statistics for Zondereinde and existing capital footprint. Booysendal see the five-year operating review on page 11.
NORTHAM ANNUAL INTEGRATED REPORT 2016 43 BUSINESS PERFORMANCE continued
H HUMAN CAPITAL
RELEVANT MATERIAL ISSUES
• Continuing to improve the safety performance and the health and wellness of our workforce • Maintaining our legislative and regulatory compliance, focusing on the MPRDA and the Mining Charter • Establishing and maintaining constructive communication channels with our employees and their representative bodies
RELEVANT IDENTIFIED RISKS
• Safety and health • Succession planning and skills shortages
People are vital to our business and a skilled, engaged and productive workforce is essential for the achievement of our strategic objectives.
Programmes are in place to train and develop the skills and capabilities of our employees and to ensure a safe and healthy workforce. We take cognisance of our need to maintain our legislative and regulatory compliance and we strive to meet or exceed Mining Charter targets.
Our employees are vital to our business
44 H HUMAN CAPITAL
EMPLOYMENT PRACTICES Northam is committed to fair and progressive employment practices where long-term employment opportunities are provided to employees to grow and develop their potential. Remuneration practices take account of the demanding skills required in the mining industry, as well as the difficulty of attracting skilled HDSAs to work in remote locations.
Northam’s employment practices and policies are governed by South African legislation and regulations such as the Mine Health and Safety Act, the Employment Equity Act No 55 of 1998, the Skills Development Act No 97 of 1998, the Skills Development Levies Act No 9 of 1999, the Basic Conditions of Employment Act No 75 of 1997, the Labour Relations Act No 66 of 1995 (Labour Relations Act), the MPRDA, collective bargaining and recognition agreements with organised labour.
Formal grievance policies and procedures are in place, providing for both individual and group grievances.
FULL-TIME NORTHAM EMPLOYEES RECEIVE THE FOLLOWING BENEFITS:
Membership of pension Death benefits Access to medical care and provident funds
Housing and living-out Maternity and Study assistance allowances paternity leave
BOOYSENDAL Total employment 2016 In FY2016, Booysendal employed 191 full-time employees and 2 729 indirect employees (FY2015: 184 full-time employees and Full-time employees 6 274 1 324 indirect employees). The operation’s total employee Indirect employees 5 038 turnover rate was 8%.
Booysendal’s employment policies and those of its contracting companies give preference to local employees ZONDEREINDE and South African citizens as part of its commitment outlined In FY2016, Zondereinde employed 6 083 full-time employees in its social and labour plan (SLP). Since inception, Booysendal and 2 309 indirect employees (FY2015: 6 426 full-time has recruited an average of 60% of its workforce from employees and 2 122 indirect employees). The operation’s total local communities. employee turnover was 378 (6%). Zondereinde aims to meet its All contracting companies on site are obliged to commit employment needs from within the local community. to the group’s local recruitment targets, and are required Zondereinde’s migrant labour contingent comprises 36% of its to submit a monthly report detailing the number of local permanent workforce (excluding indirect employees) – meaning employees, resignations and terminations. The group takes that they are sourced from South African provinces other local employment very seriously, given the depressed economic than Limpopo and the North West. The operation’s foreign conditions in the area and its potential impact on the labour workforce, drawn from beyond South Africa’s borders, group’s operations. comprises 26% of permanent employees. Number of employees and indirect employees – Number of employees and indirect employees – Booysendal Zondereinde FY2016 FY2015 FY2014 FY2013 FY2012 FY2016 FY2015 FY2014 FY2013 FY2012 2 920 1 508 1 421 1 915 2 468 8 392 8 548 8 788 9 148 9 163
Employees turnover rate (%) – Booysendal Employee turnover rate (%) – Zondereinde FY2016 FY2015 FY2014 FY2013 FY2012 FY2016 FY2015 FY2014 FY2013 FY2012 Project Project Project 6 7 4 1 7 8 11 phase phase phase
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HUMAN CAPITAL CONTINUED
EMPLOYEE REMUNERATION Northam’s chief executive and, the executive officer HR are responsible for employment equity and transformation. However Northam’s remuneration model takes account of the the implementation of these practices is a line management demanding skills required in the industry. Benchmarking function, while the SE&HR committee has an oversight role. studies have demonstrated that entry-level mineworker wages Our mine general managers have been appointed employment in general, and those of Northam employees in particular, equity managers for their respective operations. compare favourably with other sectors. Northam’s employment equity plan is compliant with the Wages and conditions of service are negotiated through requirements of the Mining Charter and the Employment engagement with employee representative bodies. Equity Act. The group submits its employment equity plans and (See Freedom of association and collective bargaining progress reports to the Department of Labour annually. on page 52 for more information.) A Future Forum was established at Booysendal in 2015. The EMPLOYMENT EQUITY AND Forum comprises representatives of management, organised TRANSFORMATION labour, the Booysendal Women in Mining committee and the health and safety committee to assist with amendments to South African employment equity legislation is aimed at the workplace skills plan and employment equity plan and the redressing the imbalances of the past. To rectify these monitoring of their implementation on a quarterly basis. imbalances, Northam focuses on the participation of black South Africans and women at its operations. The Mining % HDSAs in group management Charter required 40% of management to comprise HDSA FY2016 FY2015 FY2014 FY2013 FY2012 employees by 2014, and for 10% of those to be women. 48 51 45 37 35 Northam achieved a 48% HDSA level of management in FY2016 with 48% at Zondereinde (FY2015: 45%) and 50% at Booysendal North (FY2015: 68%). % HDSAs represented at board level FY2016 FY2015 FY2014 FY2013 FY2012 60 50 44 56 64
Northam’s remuneration model takes account of the demanding skills required in the industry
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HDSAs and women in management in FY2016 Occupational Total workforce Target Actual levels (number) (%) (%) Women in Women in HDSAs mining HDSAs mining Zondereinde Senior management 5 40 10 20 20 Middle management 62 40 10 45 13 Junior management 185 40 10 49 9 Booysendal Senior management 6 40 10 50 0 Middle management 22 40 10 50 14 Junior management 67 40 10 78 31
WOMEN IN MINING Northam’s engagement and consultation with women is undertaken by the employment equity and training committee at Zondereinde and the Future Forum (see above for more information) at Booysendal, and is informed by consultation with local branch structures of organised labour.
Barriers and challenges for women in mining identified by Northam and NUM (Zondereinde) Barriers and challenges Interventions implemented by Northam Scarcity of skills in the management category Active sourcing of women for bursaries and learnerships
A talent pipeline aimed at developing women for positions in which they are under-represented Perceptions about women in mining Changing perceptions using training programmes for a diverse workforce The suitability of protective equipment for the Sourcing suppliers able to provide suitable protective equipment needs of women for female employees Underground facilities for women in Identifying and discussing women’s requirements and the workplace establishing appropriate arrangements and facilities
In FY2016, Northam employed a total of 715 women (FY2015: 755), 46% of whom were working in the core disciplines of mining, metallurgy and engineering. Women made up 8% of the workforce at Zondereinde (FY2015: 8%) and 23% at Booysendal (FY2015: 17%).
Women in mining (%) – Zondereinde FY2016 FY2015 FY2014 FY2013 FY2012 8 8 7 7 7
Women in mining (%) – Booysendal FY2016 FY2015 FY2014 FY2013 FY2012 23 17 20 Not reported Not reported
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TRAINING AND DEVELOPMENT Zondereinde’s bursary programme offers bursaries to second- year students in the fields of mining, electrical, mechanical and Northam’s training and development programmes provide the metallurgical engineering. Successful bursars are subsequently support employees need to improve their competence and entered into a two-year graduate internship programme before knowledge in the workplace and to grow as individuals. The they are appointed to the Northam workforce. programme includes: • Legislative training (skills, health and safety) In FY2016, eight students received support to the value of R0.6 million for mining-related engineering degrees • Learnerships (FY2015: eight students supported at a cost of R0.9 million). • External specialised training The current bursary programme includes eight black females • Bursaries and study assistance in line with the group’s strategy to increase female participation • Adult education and training (AET) in professional occupations.
• Mentorship Zondereinde also offers in-service training to participating • Succession planning individuals during their vacations. • Job specific and refresher training BOOYSENDAL Northam’s training and development policy stipulates that A study of the literacy levels among indirect employees has emphasis be placed on the competence and competitiveness revealed that they have an average minimum AET level 4 or of employees as well as their personal development. The Grade 9 qualification, thereby obviating the need for AET for impact of training and development interventions is assessed employees. Northam has therefore prioritised the facilitation of in order to ensure that these interventions positively influence AET classes for local community members in order to improve workplace behaviour. their access to employment opportunities in the future. An independent service provider from the local community provides In FY2016, the group spent a total of R21.0 million on training these classes. Given that the adjustment to the SLP has not yet and development at Zondereinde (FY2015: R21.8 million) and been approved, there were no community AET classes in the year R3.2 million at Booysendal (FY2015: R3.3 million). This is under review. (In FY2015, 10 community members were enrolled equivalent to 1.2% of the total wage bill (FY2015: 1.5%). and five completed the course.)
ZONDEREINDE A total of 18 employees participated in learnerships (14 men and Literacy is important to Northam as it improves employees’ 4 women) in the fields of mining, engineering and processing. ability to communicate effectively and clearly. AET is available to all employees on a part-time basis and the company is Booysendal’s bursary programme offers bursaries to first year accredited to offer AET up to General Education and Training students in the fields of mining, electrical, mechanical and Certificate (GETC) level or National Qualifications Framework rock engineering and mine survey, areas of study that support (NQF) Level 1. In FY2016, 456 employees (FY2015: 349) the group’s SLPs. These bursaries place emphasis on assisting attended the AET programme at Zondereinde. students from Booysendal’s surrounding communities.
Northam offers electrical, plater/boilermaker, rigging, underground mining and rock-breaking learnerships to qualifying employees. In FY2016, 13 Zondereinde employees (FY2015: 13) participated in learnership programmes.
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Zondereinde – learning assistance breakdown FY2016 Expenditure (R’000) Number of people HDSAs % Women % AET 2 739 456 65 7 Learnerships 2 202 13 23 23 Bursaries 586 8 100 100 Study assistance refunds 60 7 57 43 External training and skills development 4 437 1 054 55 4.5 Internal training and skills development 10 983 2 711 56 7 Total 21 007 4 249 56 6
Booysendal – learning assistance breakdown FY2016 Expenditure (R’000) Number of people HDSAs % Women % Learnerships 1 619 18 100 22 Bursaries – 1 – – External training and skills development 1 011 96 66 23 Internal training and skills development 588 229 82 19 Total 3 218 344 90 19
Northam’s training and development programmes provide the support employees need to improve their competence and knowledge in the workplace
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NORTHAM’S ACCOMMODATION AND HOUSING STRATEGY The living conditions of employees is a key concern for Northam. The MPRDA and the Mining Charter provide the group with direction in respect of the provision of accommodation and housing for all employees.
Review of accommodation strategy PROGRESS TO DATE The group began laying the foundation for a roll out of Zondereinde enduring accommodation solutions. To this end, the board A total of 2 408 employees are provided with a living-out of directors approved a comprehensive strategy to provide allowance while another 2 834 live in residences provided further accommodation opportunities to all employees. The by Northam. The living-out allowance for each category strategy will focus the group’s efforts for the next five years. forms part of wage negotiations between Northam and organised labour. Accommodation strategy 2020 • The strategy promotes home ownership as the preferred Booysendal sustainable tenure option while acknowledging that rental, Booysendal employees and indirect employees live residence units and company accommodation will also be predominantly in the towns and villages surrounding the required. Northam cannot provide any one accommodation operation, including Mashishing (formerly Lydenburg), type in isolation, something that is further necessitated by Steelpoort, Burgersfort, Ngwaabe and Jane Furse. The the geographic diversity of our mines. majority of employees and indirect employees have elected to • The role of Northam is that of a facilitator, creating an receive living-out allowances. opportunity for employees and using its financial and Residences other resources to secure best prices and quality. It is up to Our residence improvements will be completed in FY2017. employees to choose to take up these opportunities. The residence de-intensification programme is 85% complete • Accommodation provided to staff must be secure, decent with 2 440 rooms converted to single accommodation. The and affordable. An employee must be confident that his or completion of our residence apartment upgrades remains a her tenure is legally secure, that it is affordable on his/her high priority and the density target of one person per room salary and that it is well designed and of quality construction. will be met by the end of calendar year 2016.
The strategy takes account of the economic conditions Employees in residence accommodation are provided with prevailing in the industry. Implementation is based on a meals, which are overseen by a dietician who draws up meal five-year roll-out programme. Building programmes will be plans and monitors energy, macro and micro nutrient content. demand driven within the constraints of the group’s financial An average of 7 050 meals were offered to employees every position as well as serviced land. The strategy represents a day during FY2016. commercially and financially prudent use of group resources. Home ownership Elements of the strategy Home ownership solutions as part of the new housing Elements of the strategy include: strategy will be directed at permanent staff and indirect • the continued refurbishment of existing residences at employees, taking into account that the Booysendal Zondereinde into single rooms, upgrade of the visiting operations will ramp up towards the end of the decade quarters and the improvement of social amenities around requiring additional labour. the residences During the past financial year, 30 employees have benefitted • the building at Zondereinde and Booysendal of from this initiative – 11 units at Mojuteng, 5 units at • freehold home ownership units for Northam employees Mogwase and 14 units were purchased on the open market. • freehold home ownership units for public participation Mojuteng • freehold rental units for Northam employees Northam introduced the Mojuteng home ownership scheme to • various financing options. promote home ownership among its Zondereinde employees.
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The site is situated in Northam town, approximately 22km started his career at Booysendal as an electrical foreman. The from Zondereinde. Employees are offered a home loan, a debt strategy is building momentum with the next 10 applications consolidation facility and a structured housing subsidy, which in process. helps employees to increase disposable income levels and results in higher home loan approval rates. Of the available Future plans 54 stands, a number of new units were constructed in Northam has acquired land in Northam town and Mashishing FY2016 and a total of 7 new housing units have been sold to and environmental and geotechnical studies are being employees during the financial year, increasing the total units conducted as part of the proclamation process. Bulk services sold to 398 since the start of the project. negotiations between local municipalities and Northam have started. The professional team is appointed and prototype Mogwase designs have been completed. To meet short-term demand and provide more options, 24 free-standing units were procured at Mogwase. A total Northam will commence construction of home ownership of five units were sold to employees during FY2016. and rental units towards the end of FY2016 and plan to start with the new affordable housing projects units during the Open market following financial year. In addition to the employer developments, Northam also provides qualifying employees and indirect employees the The group will continue to review the level of funds locked opportunity to procure houses on the open market, further up in company-owned housing to determine whether such promoting home ownership. Northam assists with a partial housing can be made available to staff for home ownership. interest free loan amount. End goals In November 2015, the chairperson of the SE&HR committee, The successful conclusion of the accommodation strategy, Ms TE Kgosi handed over keys to Mr Solly Magugu, the first combined with Northam’s efforts to date, mean that employee to benefit and purchase a house in Northam town. the majority of the workforce will have access to decent Mr Magugu joined Northam in 2000 as a general labourer. accommodation opportunities by the close of FY2020. The He obtained numerous certificates and completed a number provision of this tenure will promote our employees’ interest of courses in order to progress to Strata Control Officer. and workplace contribution to Northam. The strategy will Mr Pieter Pretorius also benefited from the housing strategy. ensure that the group exceeds its Mining Charter obligations, Mr Pretorius, a general engineering supervisor, recently create significant social capital and should enhance Northam’s bought a house in Mashishing through this scheme. He standing as an employer of preference.
Mr Solly Magugu receives the keys to his house in Northam town Mr Pieter Pretorius bought a house in Mashishing though the Northam housing scheme
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COMMUNICATING WITH OUR EMPLOYEES FREEDOM OF ASSOCIATION AND At Northam we encourage open communication. Employees COLLECTIVE BARGAINING are encouraged to raise issues of concern and interest via the All employees, indirect employees and suppliers have the right formal and informal structures in place, including through to freedom of association and to act out this freedom within human resources structures, line management and union the bounds of the law, collective agreements and the rights structures. Relations with employees and organised labour of others. Employees and their elected representatives must are governed by recognition agreements and conditions of shoulder the duties and responsibilities that pertain to employment in legislation. this right. As a company, Northam recognises that more can be done Wages and other conditions of service are negotiated on in the area of communicating directly with its employees. an annual basis, or less frequently, as determined by the At Zondereinde, the company has recently completed a wage agreement in place. At Northam operations, unions comprehensive communications review, and is currently registered with the Department of Labour, which represent putting in place a formalised structure and staff to support at least 15% in any particular bargaining unit, receive a re-invigorated communications drive at this operation. organisational rights including: HUMAN RESOURCES STRUCTURES • Access to the workplace, allowing qualifying unions to recruit members and host meetings on mine property outside of A senior manager, tasked with overseeing the operation’s working hours human resources function, is in place at each operation and • Access to payroll deduction facilities reports to a general manager. The general managers and chief executive are ultimately responsible for the management of • The opportunity to elect employee representatives for internal human capital while the SE&HR committee assumes board level disciplinary processes oversight of the management of human capital. • Paid leave for representatives to allow them to carry out union-related duties The SE&HR committee, which complies with the Companies Act in terms of its social and ethical obligations, is also responsible When a registered union reaches a representative threshold of for ensuring that employees are equitably and fairly rewarded 33.3% within a bargaining unit, it acquires the right to bargain in alignment with company standards and industry peers. It is for that particular unit, and to reach agreement on wages and further responsible for governance of employment contracts other conditions of service. and the remuneration packages of senior management, ratifying their appointments, setting mandates, approving short The group aims to engage in good faith to reach agreement on term incentive schemes and bonuses, and overseeing shares in matters such as wages, conditions of service and other matters line with the Northam share incentive plan (SIP). of mutual interest.
MINE-BASED HUMAN RESOURCES DEPARTMENTS ARE RESPONSIBLE FOR THE IMPLEMENTATION AND ACHIEVEMENT OF HUMAN RESOURCE PRIORITIES, INCLUDING ALL ASPECTS OF THE MINING CHARTER:
Mentorship and talent Training and development Recruitment and retention management
Employment equity Succession planning Career plans programmes
Human resource Stakeholder and Labour relations development compliance management
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ZONDEREINDE At Zondereinde, employees are divided into three bargaining units. Category 2 to 8 comprises operator level employees, Category 9 miners and artisans, and Category 10 officials. A total of 88% of the workforce in these bargaining units is covered by collective bargaining agreements.
Recognised union representation at Zondereinde FY2016 (permanent employees) Category 2 to 8 Category 9 Category 10 Total Complement 5 292 (%) 338 (%) 346 (%) 5 976 (%) NUM 4 604 87.0 149 44.1 123 35.6 4 876 81.6 Solidarity 15 0.3 58 17.2 99 28.6 172 2.9 UASA 29 0.5 87 25.7 71 20.5 187 3.1 Total 4 648 87.8 294 87.0 293 84.7 5 235 87.6
Organised labour consultation structures at Zondereinde
Employment equity and • consulted on issues relating to employment equity and human resource training committee development • reviews the group’s employment equity, recruitment, and training and development policies • ensures procedural equity and transparency Six-a-side committee • comprises management and organised labour • tasked with the smooth progress of hostel de-intensification programme Corporate social investment • oversees all mine community and rural development initiatives committee • reviews and approves all applications regarding CSI, local economic development (LED) and socio-economic development. Joint health and safety structure • Statutory component of the Mine Health and Safety Act No 29 of 1996 • organised labour participates in this process to ensure the group adheres to safe operating practices (For more information see Safety and health section on page 55.)
BOOYSENDAL At Booysendal, mining contracting company Murray and Roberts Cementation Proprietary Limited (MRC) and plant contracting company Minopex South Africa Proprietary Limited (Minopex) are currently unionised and hold regular structured meetings with recognised unions. A total of 87% of the MRC workforce and 64% of the Minopex workforce belongs to a union.
Recognised union representation at Booysendal FY2016 (permanent employees) Category 2 to 8 Category 9 Category 10 Total Complement 51 (%) 9 (%) 78 (%) 138 (%) NUM 24 47.1 – – – – 24 17.4 Total 24 47.1 – – – – 24 17.4
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WAGE AND CONDITIONS OF Apart from the unprocedural labour-related issues described SERVICE NEGOTIATIONS above, there were no strikes at Zondereinde during the year. Northam management continually seeks to build constructive BOOYSENDAL and progressive relationships, and to avoid unnecessary work In October 2015, a three-year wage agreement was concluded stoppages, which would inevitably have a negative impact between MRC and its representative unions, AMCU, NUM on the group’s performance and the welfare of employees. and Solidarity across MRC operations. This agreement was The group has an established protocol and communication consequently applied at Booysendal, with the ensuing stability strategy in place to deal with industrial action, which includes contributing to the consolidation of the ramp-up to steady maintaining open channels of communication with unions, state production. employees, shareholders and investors, labour relations experts, mediators and facilitators, security services and the media. Civil unrest took place in the form of protests by communities in the Steelpoort Valley in July, October and December 2015. The group also acts in compliance with the Labour Relations Protesters blocked roads and disrupted transport which meant Act No 66 of 1995 and may use established processes, inclusive employees were unable to travel to work safely. This resulted of legal relief when necessary, to bring any form of industrial in 21 days of underground production losses although only action to a swift resolution. The group is committed to engage five milling days were lost as processing continued from the and negotiate with any union that achieves the necessary surface stockpile. For more information, please go to the Social representation levels. capital section on page 66. There were no strikes recorded at Booysendal during the year. PERFORMANCE IN FY2016 The current leadership model is being reviewed to Labour relations remains a challenging area for the mining determine what aspects can be adjusted to accommodate industry as a whole. Management seeks to increase and the changing labour climate, with an emphasis on succession intensify the engagement process with unions and to deal and communication. swiftly with any issues arising.
ZONDEREINDE HUMAN RIGHTS AND CODE OF ETHICS In July 2015, a three-year wage settlement was reached with Northam upholds the basic labour rights of the Fundamental the representative union, the NUM, which helps provide Rights Convention of the International Labour Organization certainty and stability at this operation for a sustained period. (ILO), through the implementation of fair employment practices. Our policies and practices comply with South Africa’s labour Tragically, on 5 June 2016, Mr Mthetheleli Somaxhama, a legislation and regulations. All employees are treated fairly, Zondereinde employee was killed in an act of violence in irrespective of origin, race or gender. Northam town, approximately 20 kilometres from the mine. Following this incident, sporadic acts of intimidation and Northam’s SE&HR committee monitors support and respect violence spread to the mine. Another employee, Mr Thembinkosi for the protection of internationally-proclaimed human rights, Mhlabeni, was sadly killed in these clashes on June 6 in the ensuring that Northam is not complicit in human rights abuses. vicinity of the mine. Operations at the mine were temporarily Systems are in place to deal with issues of discrimination and suspended. Management, employee representatives, security and human rights breaches. the South African Police Service (SAPS) worked together to calm Northam’s code of ethics clearly safeguards the rights of all the situation, to ensure that operations could resume as soon as practicably possible and to allow safe passage for employees. employees to a working environment free of discrimination on the basis of race, gender, sexual orientation, religious belief, On 7 June, management urged employees to return to work as political affiliation, age or disability. calm returned to the mine. On 9 June and 14 June, the Minister of Mineral Resources, Mr Mosebenzi Zwane, visited Zondereinde All Northam employees are expected to adhere to our code to help resolve tensions. Operations finally resumed on the of ethics. Supervisors and managers are required to take all evening of 14 June, following the SAPS’s disclosure that they had reasonable steps to ensure that the people for whom they made a number of arrests in connection with the two murders. are responsible are aware of and uphold the guidelines set out in the code. These steps include consistent demonstration Subsequent to the above incidents, Northam has put into place of exemplary behaviour, activities to foster a culture in various additional security measures which include an increased which employees understand their responsibilities and feel security presence on mine and an underground hotline to comfortable to raise concerns without fear of retaliation or report any issues. In cooperation with the SAPS the group is victimisation, ensuring mandatory policies, standards and also in the process of installing CCTV cameras and constructing procedures are accessible and understood, and responding police posts at key areas in the town of Northam. promptly to legitimate concerns.
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In FY2016, whistle-blowing and ethics hotline awareness was revitalised using pamphlets distributed at both operations. SAFETY AND HEALTH The safety and health of Northam employees is of paramount importance and takes precedence over all production objectives. We are guided by extensive legislation and regulations, notably the Mine Health and Safety Act No 29 of 1996. The company seeks to comply fully with applicable safety and health legislation, and to ensure that all employees adhere to group safety standards.
Key features of Northam’s health and safety structure and systems
Responsibilities • The health, safety and environmental (HSE) committee, a subcommittee of the board, is responsible for overseeing compliance with health and safety laws and regulations that may have an impact on the group. • Operational health and safety is the responsibility of the general manager at each operation. • Day-to-day safety management is delegated to the operational managers, who are supported by the mine health and safety departments. • Operational and joint management and employee health and safety committees meet, at a minimum, on a monthly basis. Policies, procedures, reporting • The operations maintain policies and procedures, detailed records and reports on safety matters, accidents and their severity, transgressions and remediation work. This information is analysed and used to improve safety performance. • Reports on safety and health are submitted to the HSE committee, which is tasked with safety and health matters for further review and oversight. Training All employees and indirect employees receive safety induction training on an annual basis, and intermittently during the year, for example, when they return from leave. Equipment Personal protective equipment (PPE) is supplied to employees and a comprehensive code of practice guides the allocation of PPE for occupational-specific requirements.
PARTICIPATORY APPROACH Northam encourages the participation of employees and management in all safety and health matters. Employees may also participate in the union’s safety and health committees through their elected officials.
Safety structures at Zondereinde and Booysendal
Zondereinde A joint management and employee-represented health and safety committee meets on a monthly basis or more frequently if required. The committee’s main focus is on empowering employees to take responsibility for their own health and safety, and the health and safety of others, by identifying and reporting potentially hazardous situations.
The committee is responsible for: • identification of critical issues that may affect the safety and health of employees and the environment • inspections, audits and accident investigations • identification of areas for training and development • providing PPE Zondereinde and Booysendal Operational HSE committees are chaired by general managers, meet monthly, and are attended by two full-time safety and health representatives elected by employees. Safety representatives attend mine production meetings and receive safety training. 44 safety representatives were trained at Booysendal’s training centre in FY2016. Booysendal Two health and safety committees are in place, one for the plant and one for the mining operations, which meet monthly and quarterly respectively. Issues of concern are discussed and incidents and accidents are reviewed, and common risks and their remedies are discussed.
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SAFETY PERFORMANCE IN FY2016 thorough and proper workplace hazard identification and risk assessment in order to institute proper action and withdraw All safety-related incidents are considered very seriously when required. at Northam, and continuous efforts are made to reinforce operational standards and responsibility. The DMR imposed six Section 54 safety-related work stoppages at Zondereinde during the year under review, four of which Analysis of safety incidents indicates that injuries are generally related to underground. The stoppages were all section or associated with the following activities and/or materials: incident specific, relating to a range of safety issues. • Material handling To date, Zondereinde has applied the following Mining Industry • Falls of ground Occupational Safety and Health (MOSH) preventative measures: • Trucks and tramming • Hearing-protection devices • Slips and falls • Netting with bolting • Winches and rigging • Entry examinations and making safe • Moving machinery • Proximity detection system • Ventilation • Falls of ground hazard identification system (FOGHIS) - • Hydropower equivalent to the Trigger Action Response Plan (TARP) system.
Focused training and disciplinary measures manage the Lost time injury incidence rate per 200 000 hours prevalence of behaviour-based safety transgressions. Disciplinary worked – Zondereinde measures include counselling; verbal and written warnings; FY2016 FY2015 FY2014 FY2013 FY2012 suspension; and dismissal. The Du Pont safety management programme was replaced by the Chamber of Mines’ 1.92 1.31 1.70 1.50 1.91 recommended safety system in FY2016. The Chamber’s Cultural Transformation Framework has therefore been adopted and Reportable injury incidence rate per 200 000 hours implemented at both operations. worked – Zondereinde Northam defines a lost time injury (LTI) as an injury which results FY2016 FY2015 FY2014 FY2013 FY2012 in one to 13 days of lost time while a reportable injury (RI) is an 1.11 0.94 0.86 0.83 0.88 injury which results in lost time of 14 days or more. The LTI and RI incidence rates are based on 200 000 man-hours worked. Fatal injury incidence rate per 200 000 hours No fatalities were reported during the year under review worked – Zondereinde (FY2015: no fatalities). FY2016 FY2015 FY2014 FY2013 FY2012 ZONDEREINDE 0.00 0.00 0.00 0.01 0.02 Traditionally, handling of materials and falls of ground have been the main contributors to injuries at Zondereinde – with BOOYSENDAL employees involved in construction, development and stoping No fatalities have been recorded since inception of the mine activities most at risk. in 2010. In September 2015, Booysendal achieved two million fatality-free shifts. Booysendal’s LTIIR was 0.44 (FY2015 0.54). In FY2016, Zondereinde achieved 5 million fatality free shifts. A total of 159 LTIs were reported, of which 92 were reportable. The DMR imposed one Section 54 safety-related work stoppage The primary causes of LTIs in FY2016 were related to the manual at Booysendal during the year under review. handling of material and minerals and to falls of ground. In FY2016, Booysendal recorded 11 LTIs of which eight were Overall the operation’s LTIIR was 1.92 per 200,000 hours reportable. The primary causes of LTIs for FY2016 were related worked (FY2015: 1.31) and the RIIR was 1.11 (FY2015: to trucks and tramming and materials handling. Compliance 0.94). The group will continue to focus on reinforcing and with standards and procedures remains a challenge. In order to encouraging the correct behaviour of individuals. This will mitigate this, the mine employs a high visibility of safety staff be achieved by continuous, internal and external behaviour who work irregular shifts. We also conduct extensive coaching change interventions. Measures will be put in place to support, as part of our Hlokomela Tau! – Watch out for the Lion encourage and coach employees to continuously conduct (danger)! – campaign.
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The Think falls of ground initiative continued to be one HEALTH PERFORMANCE IN FY2016 of the key focus areas during FY2016 and has resulted in significant improvements in examination techniques. Visible The primary occupational health risks identified at Northam in felt engagement interventions take place every Monday FY2016 were tuberculosis (TB), noise induced hearing loss (NIHL) and Friday, involving management at all levels, to ensure and occupational lung disease. We aggressively target HIV/AIDS that employees are entering their worksites safely. and TB with emphasis on prevention, through educational Any deviations are rectified immediately and superior initiatives and community involvement, as well as a monitored performance rewarded. employee wellness programme, which includes the provision of antiretroviral treatment (ART). We also focus on drug and During FY2016, to encourage and reward superior alcohol abuse, and their effects on employee performance. performance, a competition was launched which focused on improvement in the spheres of incidents and accidents and in NORTHAM HEALTHCARE SERVICES production. Prizes included a light delivery vehicle. We provide employees and indirect employees with an integrated Lost time injury incidence rate per 200 000 hours and holistic healthcare service, for primary and occupational worked – Booysendal health, through the Platinum Health medical aid scheme. FY2016 FY2015 FY2014 FY2013 FY2012 Healthcare services are offered to all employees and indirect employees who belong to the scheme and to their families. 0.44 0.54 0.27 0.53 0.19 A network of doctors, specialists and dentists is contracted to the scheme. As well as localised health care, scheme Reportable injury incidence rate per 200 000 hours members also have access to the Netcare® and Life® worked – Booysendal networks countrywide. FY2016 FY2015 FY2014 FY2013 FY2012 Programmes designed specifically for occupational health include: 0.41 0.21 0.33 0.05 0.32 • Wellness • Medical surveillance Fatal injury incidence rate per 200 000 hours • Injury-on-duty management worked – Booysendal • Occupational and chronic disease management FY2016 FY2015 FY2014 FY2013 FY2012 • Rehabilitation and back-to-work programmes 0.00 0.00 0.00 0.00 0.00 • Emergency care
Healthcare services at Zondereinde and Booysendal
Zondereinde • Healthcare services provided on site and at a network of medical facilities where employees live • Five hospitals available to employees in the area • On-site paramedics with emergency response vehicles, social workers and physiotherapists • Comprehensive TB and HIV/AIDS management programme administered by Platinum Health at the operation Booysendal • Medical facilities located in Mashishing, Middelburg and Nelspruit • On-site emergency facility with four 24/7 paramedics available for the treatment of accidents, injuries and minor health issues • On-site professional nurse • Two on-site ambulances on permanent standby with backup facility at Dwarsrivier and Thorncliffe, approximately 15 and 12.5 kilometres respectively from Booysendal mine • Access to helicopter services
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HIV/AIDS Booysendal Northam has a comprehensive HIV/AIDS policy in place which Booysendal continued with its wellness and disease management covers employee care, education programmes, respects policy and programme implemented during FY2015. The information confidentiality and promotes non-discrimination. programme is an effective method to promote health and wellness All Northam employees have access to professional counselling amongst our employees as well as our indirect employees. and support including voluntary counselling and testing (VCT) Our programme: and ART. • promotes a healthy lifestyle The Northam HIV/AIDS programme focuses on the following: • addresses chronic or life-threatening diseases such as HIV/AIDS • Encouraging employees who are HIV-negative not to and TB participate in high-risk behaviour through the mass • covers injuries which may result in a medical disability or distribution of condoms, the treatment of sexually occupational incapacity such as STIs, cancer, heart disease, transmitted infections (STIs) and a peer education programme chronic obstructive airways diseases, diabetes, asthma • Early detection and identification of HIV to limit high-risk and hepatitis behaviour among those infected and to start them on • consists of a variety of activities including health a treatment regime that can prolong healthy living (the education, medical screening, health coaching, weight VCT programme underpins this objective and provides the management programmes, wellness newsletters and necessary counselling) fitness educational information • Encouraging infected employees to participate in the Booysendal’s HIV/AIDS peer education group is managed by wellness programme, which includes the provision of ART. a contracting company, Minopex. Booysendal is also in the Comprehensive counselling is provided to ensure that process of training peer educators for MRC employees. The employees understand and accept the long-term implications aim is to educate employees about chronic illness, the spread of participating in the ART programme. of contagious diseases and prevention measures. Employees Zondereinde are encouraged to undergo VCT and Booysendal ensures that effective intervention, assistance and referral systems are Zondereinde’s HIV/AIDS programme comprises: in place. They also manage the distribution of promotional • Health education material for HIV/AIDS prevention. • Clinical management (VCT, pre- and post-test counselling, VCT is done under the auspices of the wellness programme. adherence testing and counselling, prevention of mother-to- In FY2016, 319 employees were registered on the VCT child transmission, and HIV treatment) programme (FY2015: 459). Of these, 13 tested positive. • Laboratory investigations Employees requiring treatment are referred to the relevant • Peer educators medical practitioner.
Zondereinde’s peer educator programme includes 20 employees TUBERCULOSIS who form part of the support structure that provides TB is a serious opportunistic infection and is the leading cause counselling and training for employees infected and affected of death for people living with HIV. Northam runs a highly by HIV/AIDS. effective, directly-observed treatment regime, which is aligned In FY2016, 1 834 employees were registered on the VCT with the TB guidelines of the World Health Organization. programme (FY2015: 1 250). Of these, 302 tested positive. Zondereinde Employees registered for VCT – Zondereinde In FY2016, 75 new cases of TB (FY2015: 111) were identified at Zondereinde. A total of 46 employees remained on FY2016 FY2015 FY2014 FY2013 FY2012 TB treatment at the end of FY2016 (FY2015: 60). 1 834 1 250 1 049 1 088 1 659
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New cases of TB – Zondereinde New cases of NIHL reported to be investigated – Zondereinde FY2016 FY2015 FY2014 FY2013 FY2012 75 111 97 70 85 FY2016 FY2015 FY2014 FY2013 FY2012 69 27 20 43 44 Booysendal In FY2016, eight new cases of TB (FY2015: four) were identified Booysendal at Booysendal. Eight employees are receiving TB treatment. Booysendal has a hearing awareness campaign in place. A hearing conservation committee holds quarterly meetings. New cases of TB – Booysendal In FY2016, 31 new cases of NIHL were reported to be FY2016 FY2015 FY2014 FY2013 FY2012 investigated (FY2015: 18). Two of these were referred 8 4 6 2 3 for compensation (FY2015: five) of which one received compensation (FY2015: one). NOISE INDUCED HEARING LOSS New cases of NIHL reported to be investigated – Prolonged exposure to hazardous noise causes loss of hearing Booysendal acuity, which occurs gradually and is known as noise-induced FY2016 FY2015 FY2014 FY2013 FY2012 hearing loss (NIHL). Excessive noise exposure is one of the most pervasive health hazards in mining. 31 18 41 28 19
Northam ensures that it is legally compliant by guaranteeing OCCUPATIONAL LUNG DISEASE that the noise associated with underground equipment is Bushveld Complex rock does not contain quartz, thereby contained to below 110dBA. All Northam employees are issued eliminating the threat of silicosis and occupational lung with PPE to ensure that exposure to noise levels above 85dBA disease (OLD). In addition, the use of hydropowered mining over an extended period is limited. equipment at Zondereinde reduces employee exposure to both Training in the use of PPE and prevention of NIHL is noise and dust. Neither Zondereinde nor Booysendal reported ongoing and forms part of the mines’ hearing conservation any cases of silicosis or OLD. programme overseen by a hearing conservation committee, which meets quarterly. DRUG AND ALCOHOL TESTING Drugs and alcohol are not tolerated in the workplace. Tests Zondereinde are conducted on a daily basis, and particularly after any In FY2016, 69 incidences of NIHL were reported to be safety incident. Employees who test positive are subject to investigated for compensation (FY2015: 27), of which 16 were disciplinary procedures with assistance and rehabilitation compensable (FY2015: nine). offered to overcome dependency.
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RELEVANT MATERIAL ISSUES
• Conducting active stakeholder engagement to minimise any adverse impact on our stakeholder relations • Maintaining our legislative and regulatory compliance, focusing on the MPRDA and the Mining Charter
RELEVANT IDENTIFIED RISKS
• Industrial and/or community action
Key stakeholders in our business include the communities within which we operate, as well as shareholders, suppliers, customers and government, among others.
Open, honest and respectful engagement is essential to our earning and preserving our social licence to operate – as well as our legal right to do so. These in turn are essential to the sustainability of our business. We recognise our responsibility to share the value we create at our mining operations, thus contributing to the socio-economic upliftment of our communities. We take cognisance of our need to maintain our legislative and regulatory compliance and we strive to meet or exceed Mining Charter targets.
Adult education and training at Zondereinde
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STAKEHOLDER ENGAGEMENT is empowered to deal with concerns raised by stakeholders. Management is committed to reacting timeously to stakeholder We define our stakeholders as those individuals, groups and concerns, and engages both formally and informally. External entities directly affected, both positively and negatively, by our stakeholder concerns may be escalated to the chief financial business activities and chief executive officers. External stakeholder engagement is the responsibility of The group conducts a sustained programme of communication Northam’s chief executive and chief financial officer, while internal stakeholder engagement is undertaken by the general directed at its stakeholders, including shareholders and their managers at each operating mine, together with the executive advisors, employees, unions, communities, government and officer HR. regulators and non-governmental organisations (NGOs).
Major impacts in the area of stakeholder relations are felt at Northam is a member of the Chamber of Mines and actively operational level. For this reason, operational management participates in the Chamber’s industry initiatives.
Engaging with our stakeholders
Shareholders, providers of capital, research analysts, fund managers, media Northam provides information on operating, financial and other performance in a timely manner, using clear and plain English.
Channels of communication include: • regulatory channels such as the JSE’s Stock Exchange News Service (SENS) • website postings • electronic communiques to a database of registered stakeholders including the investment community and media • regular briefings to apprise the investment community of company developments and performance • formal one-on-one meetings with significant shareholders
Shareholders are encouraged to participate in the AGM of the company and to raise issues of concern or interest directly. The notice of meeting is a regulated issue and shareholders are notified accordingly.
Employees and unions Relations with employees and organised labour are governed by recognition agreements and conditions of employment by legislation.
Northam supports the rights of all employees to freedom of association and acts in accordance with the South African Constitution, prescribed legislation, industry compacts and recognition agreements with unions.
The company encourages open communication and employees are encouraged to raise issues of concern and interest via the formal and informal structures in place, including through the human resources department, line management and union structures.
Communities Northam engages on a formal and regular basis with local authorities, including the Moses Kotane and Thabazimbi municipalities in respect of Zondereinde, and the Greater Tubatse and Thaba Chweu municipalities in respect of Booysendal. Community forums are in place to address community concerns, such as local employment, training, and development and procurement.
Community development is undertaken according to the commitments made in our SLPs. In line with the requirements of the SLP, Northam ensures that its community development policies and practices are aligned with those of the local municipalities’ integrated development plans (IDPs) as far as is reasonably possible.
Customers Northam has long-standing relationships with its customer base. The group’s marketing department maintains regular weekly contact with its domestic and international customers, and hosts customer meetings and visits customer facilities. Customer representatives, in turn, visit Northam’s mining and metallurgical operations.
Any issues relating to customer satisfaction are taken up directly with the marketing department.
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Stakeholder engagement summary Key stakeholders Topics and concerns Communication channels Shareholders Operating and financial performance Announcements on SENS and investors Website Share price performance and dividends Interim, preliminary and annual results presentations Issues related to the sustainability of the group: One-on-one investor meetings • risk mitigation Investor site visits • legislation Roadshows • safety AGMs and special shareholder meetings • labour relations Annual integrated reports CDP climate change submissions CDP water submissions Employees Wage negotiations Group policies Job security Collective bargaining practices Training and development Team briefings Health and safety Two-way manager-employee communication Group performance Let’s Talk campaigns: • recruitment • HIV/AIDS • education • performance Customers Continued availability of supply Announcements on SENS Quality of supply Group reports Impact of any industrial action on supply Website Formal presentations Roadshows Site visits CDP climate change submissions CDP water submissions Suppliers and Sustainability of the group Announcements on SENS contracting Financial performance Group practices and policies companies Employment practices Preferential procurement policies Local procurement practices Open days Preferential procurement practices Dialogue Quality control Impact of any industrial action on suppliers
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Key stakeholders Topics and concerns Communication channels Media Operating and financial performance Announcements on SENS Corporate activity Website Environmental issues Online presentations Community-related topics Media site visits Impact of any industrial action on the group, Group reports and results employees, the industry and the South African Interviews economy Communities Local economic development Community forums and NGOs Corporate social investment Stakeholder forums Job opportunities and employment Industry partnerships Skills development Community engagement programmes Health related issues Wellness campaigns Environmental impact Dialogue Impact of any industrial action on local business Government Labour relations Formal processes and regulatory Licence to operate Participation in industry associations authorities Employment Social and labour plans Education and training Dialogue Environmental impact and rehabilitation Group reports BBE empowerment and ownership Site visits Compliance with legislation South African Revenue Services; Department of Mineral Resources
Open, honest and respectful engagement is essential to our earning our social licence to operate
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SOCIAL AND LABOUR PLANS Compliance with aspects of the Mining Charter relating to LED and related issues is the responsibility of the executive The MPRDA of 2002 requires the submission and approval of officer HR under the guidance of the SE&HR committee. SLPs as a prerequisite for the granting of mining or production The committee updates the board on a quarterly basis on rights. SLPs require the development and implementation of compliance with the Mining Charter. comprehensive human resources development programmes, a mine community development plan, housing and living Our CSI committee comprises three members of management conditions plan, employment equity plan and processes to save and one representative from each of the organised employee jobs and manage downscaling and/or closure. representative bodies. It meets on a monthly basis to identify, prioritise and allocate resources to sustainable projects. Key Northam believes that these programmes are aimed at interventions are planned with local municipalities. promoting employment and the advancement of the socio- economic welfare of all South Africans while helping ensure A community and rural development strategy is applied in economic growth. In particular, we acknowledge the important identifying and implementing community projects. The strategy role of the Mining Charter, provision for which was made includes stakeholder mapping, an analysis of expectations in section 100(2)(a) of the MPRDA, as an instrument of and immediate risks, as well as protocol for constructive transformation in the industry with the help of set targets. engagement with government and related stakeholders to ensure a co-ordinated approach to community development. By our adherence to the MPRDA and Mining Charter, we share the value we create at our mining operations with stakeholders, COMMUNITY DEVELOPMENT as we strive to meet or exceed set targets. PERFORMANCE IN FY2016 MINE COMMUNITY DEVELOPMENT In FY2016, a total of R3.5 million was spent on CSI and LED. Expenditure at Zondereinde was R2.5 million during the year. APPROACH AND STRUCTURE At Booysendal, expenditure amounted to R1.0 million. Northam recognises its responsibility to contribute to local communities and to major labour-sending areas, providing ZONDEREINDE project and infrastructural support in pursuit of sustainable Zondereinde engages with three municipalities: socio-economic upliftment. We maintain open and proactive • Thabazimbi Local Municipality in Limpopo communication channels with community structures and • Moses Kotane Local Municipality in North West Province, other stakeholders in order to deal with community concerns, a labour-sending municipality expectations and developments. The company seeks to mitigate • OR Tambo District Municipality in the Eastern Cape, any negative impacts on local communities. also a labour-sending municipality In compliance with the requirements of the MPRDA and the The identification of suitable LED projects and CSI activities in Mining Charter, Northam’s operations focus on contributing the areas surrounding the mine is guided by the Zondereinde to mine, community and rural development. The company, SLP and the operation’s CSI committee. therefore, pays significant attention to the establishment of local economic development (LED) projects identified in SLPs. A mining forum was established in order to improve communication and coordination between the mines Northam’s SLPs are aligned with the integrated development and municipal representatives on large-scale projects to plans (IDPs) of local municipalities to address community needs improve infrastructure and delivery in the area. The lack of effectively. In addition to LED, the company also supports service delivery and poor follow-up and support from local several projects that are not necessarily in the ambit of its SLPs municipalities remains a significant challenge, with the group but are considered worthy causes. sometimes having to contribute to service delivery instead of focusing on economic growth.
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Zondereinde corporate social investment and local economic development initiatives in FY2016 Project Objectives Location Spend (R’000) Agricultural project Farming Thabazimbi 1 053 Education Computer services Thabazimbi 98 Education Bursaries Johannesburg 586 Feeding project Supply lunch packs to schools Thabazimbi 92 Donation Donation to schools Thabazimbi 458 Mojuteng housing project Municipal services Northam 240
BOOYSENDAL • Greater Tubatse Local Municipality Booysendal mine is located in a remote region of the Limpopo • LED Forum province where there are limited economic opportunities. • Greater Tubatse Mining Forum Agriculture, forestry, mining and tourism are the region’s • Southern Cluster Mining Community primary activities. A further major challenge is the low level of Development Committee literacy and education in the area, which is rated among the lowest in South Africa. • Thaba Chweu Local Municipality • Executive mayor’s office Booysendal’s LED and CSI activities are coordinated by the divisional human resources manager, who is also responsible for Several forums have been set up in the area where Booysendal oversight of community engagement in the area. operates. These provide channels for Booysendal to facilitate the flow of meaningful benefits to communities, help the mine Stakeholder identification and engagement at Booysendal has to keep abreast of concerns among community members and been ongoing since the mine’s inception, but this is complicated to address any issues raised. by the scale, proximity and needs of local communities, and by historic interests in landholdings. Booysendal has sound working relationships with its stakeholders and engages with them mainly through the following structures: • Sekhukhune District Municipality (SDM) • Executive mayor’s office • Socio-Economic Development Managers’ Forum
Forums in the Booysendal area Forum Structure and composition Role Booysendal Comprises 15 families who traditionally • Promotes economic growth, employment and advance socio- Community lived within the mine footprint economic welfare of identified core communities Meets monthly with management • Expands social development opportunities for HDSAs and women representatives • Facilitates consultation within the spirit of the MPRDA and the Broad-Based Black Economic Empowerment Amendment Act No 53 of 2003 Stakeholder For all interested and affected stakeholders, Focuses on social and economic upliftment of local communities Engagement including local municipalities, DMR, provincial through positive engagement and contributions in support of government and other community forums sustainable projects and programmes Meets bi-monthly Local For communities within a 50km radius of Focuses on: Traditional the mine • local recruitment Leaders Meets quarterly • supply chain business opportunities and supporting local entrepreneurs • training opportunities including bursaries and learnerships • infrastructure development
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Booysendal corporate social investment and local economic development initiatives in FY2016 Project Objectives Location Spend (R’000) Community soccer tournament Sports awareness for local communities Thaba Chweu Municipality 27 State of the municipality address Executive mayor’s district address Sekhukhune District 54 Municipality (SDM) SDM executive mayor marathon To encourage communities to participate Greater Tubatse Municipality 20 in sport activities for health purposes Career exhibition Career guidance for local Mashishing Thaba Chweu Municipality 32 grade 9s Bring a girl child to work Career guidance for grade 9 girls from Greater Tubatse Municipality 8 Ngwaabe Secondary R577 road maintenance To repair and maintain the road Thaba Chweu Municipality 860 Lydenburg Mashishing Business To develop local business in the Lydenburg Thaba Chweu Municipality 8 Chamber (LMBC) Mashishing area Kgoshi Mampuru Tombstone unveiling Greater Tubatse Municipality 7
LOCAL COMMUNITY RELATIONSHIPS ZONDEREINDE In FY2016, 20% of permanent employees came from the Northam enjoys a reasonably healthy relationship with the Limpopo province, and 17% originated from the North communities where it operates. However, these relationships play West province. out in areas of very low economic activity, among community members often with low education and skills levels and this In order to limit the dependence of communities on the mining inevitably brings challenges to bear on those relationships. industry for jobs, Zondereinde has prioritised key economic At Zondereinde, councillors and traditional leaders collaborate areas to be developed through the contributions of small with the mine in respect of key interventions such as local businesses and local entrepreneurs. These areas include: recruitment, CSI and LED projects. Engagements with • Environment and waste management communities are on a needs basis and relationships to date can • Agriculture be reported as constructive and fruitful. • Construction As discussed on page 54, civil unrest took place in the In pursuit of developing a local supplier base, a supplier form of protests by communities in the Steelpoort Valley forum has been established at Zondereinde, with mining in July, October and December 2015. Such protests are companies and municipal officials represented on the frequently the result of heightened expectations among local steering committee. Ongoing engagements are held with communities. The protests meant Booysendal employees local community structures and with municipal council were unable to travel to work safely. Northam is currently representatives during which specific issues relating to engaged with other companies in the area and initiatives sustainable small business development and establishment led by local government leaders to deal with service delivery of local economies are considered. protests. Booysendal participates in a task team established by the DMR, which has as its aim the resolution of community grievances. BOOYSENDAL As a mechanised operation, Booysendal is not labour-intensive, LOCAL EMPLOYMENT, LED AND and it is unlikely that the mine will ever be able to meet PREFERENTIAL PROCUREMENT the employment expectations and needs of everyone in the surrounding communities. As at the end of June 2016 an Major challenges faced by mines in remote and underdeveloped average of 60% of the total workforce of Booysendal mine areas are employment opportunities and the availability of came from the local community. resources. Northam works closely with municipal officials to manage community expectations and has assisted in identifying Booysendal is committed to hiring people from our host economic targets which could be developed by way of small communities at all levels of the workforce and encourages and medium enterprises (SMEs) or small, medium and micro contracting companies to do the same in support of enterprises (SMMEs) in collaboration with local entrepreneurs. local development.
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The mine strives to provide meaningful support to small and The key economic areas to be developed in the Booysendal area medium-sized businesses in nearby communities as well as those as articulated in the Greater Tubatse and Sekhukhune District who are already providing services to the mine so that they can Municipalities IDPs are: contribute to the development of the local economic base. • Water and sanitation • Electricity Booysendal supports some 13 local SMMEs who provide a range of services including transport, change house • Roads maintenance, landscaping, and printing. • Education, especially mathematics and science • Income generation and job-creation projects, with the In collaboration with the local municipalities around primary focus on women and people with disabilities Booysendal, mine management has contributed towards the establishment of a dynamic database for appointment In compliance with the Mining Charter, Northam is committed of local suppliers and recruitment of local employees with to giving preference to local businesses in the communities the necessary skills and experience, particularly in the fields surrounding its operations. Northam’s procurement policy of engineering, trackless mining and plant operations. accordingly gives local BEE companies preferred supplier status. This database continues to provide a sound base for the Northam accords preferred-supplier status to HDSA suppliers recruitment of local labour. subject to commercial competitiveness. Northam spent R3.5 billion in FY2016 (FY2015: R3.4 billion) on procurement, of which 81.7% or R2.8 billion was allocated to BEE suppliers.
NORTHAM PLATINUM LIMITED Consolidated report on HDSA expenditure Services and contracting Capital companies Consumables Total HDSA spend as % of total discretionary spend 63.32% 89.06% 67.50% 76.14% R’000 R’000 R’000 R’000 % spend HDSA owned* 198 349 787 120 133 700 1 119 169 32.17 HDSA empowered** 380 187 612 485 537 020 1 529 692 43.97 HDSA influenced*** – – – – 0.00 HDSA spend 578 536 1 399 605 670 720 2 648 861 76.14 Exempt micro enterprise 3 022 13 4 534 7 569 0.22 Multinational enterprises 132 329 21 095 32 818 186 242 5.35 Measured HDSA spend 713 887 1 420 713 708 072 2 842 672 81.72 Without HDSA 194 798 144 090 263 622 602 510 17.32 Black influenced 4 901 6 777 21 888 33 566 0.97 Total discretionary spend 913 586 1 571 580 993 582 3 478 748 100.00 Non-discretionary spend Electricity 611 695 Water 26 609 Total spend 4 117 052
* >50% BEE equity ** >25% – <50% BEE equity *** >5% – <25% BEE equity
BEE TRUSTS Northam management is working on operationalising the two community trusts that are part of the Zambezi Platinum consortium.
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RELEVANT MATERIAL ISSUES
• Managing the environmental impact of our operations and conserving natural resources
RELEVANT IDENTIFIED RISKS
• Optimising the responsible usage of our productive natural resources (managing the complexity and availability of Merensky Reef)
The success of our business is ultimately dependent on bringing our mineral resources under management to account safely, efficiently and profitably, while serving as a responsible steward of those natural resources.
Mining activities have an impact on the natural environment: land is disturbed, water is consumed and its quality potentially affected and dust is generated in the air as well as greenhouse gas emissions as a result of the consumption of fossil-based power.
The application and management of water and power are arguably the most strategic of Northam’s natural inputs, given the nature and depth of mining operations at the metallurgical processing infrastructure at Zondereinde. Booysendal is a more modern, mechanised operation and its environmental footprint was a critical feature even in its design.
Northam minimises its impact on the environment and mitigates the environmental risks of our mining and processing activities by having in place policies and procedures. We seek to comply with all environmental legislation.
Northam serves as a responsible steward of its natural resources
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MINERAL RESOURCE AND • The removal of a reserve estimate for Dwaalkop. The Lonmin Competent person attributes this to depressed economic RESERVE STATEMENT conditions and no progress in a mining feasibility study. Resources and reserves reflected in this statement are reported on a Northam attributable basis, and include those which are REGULATORY COMPLIANCE either from properties that are wholly owned by Northam or its The mineral resource and mineral reserve statements for wholly-owned subsidiaries, or joint venture properties in which Northam have been prepared under the guidance of the Northam holds a stake. company’s lead competent persons who are duly registered with the Engineering Council of South Africa (ECSA; Private Mineral resources are reported inclusive of mineral reserves. Bag X691, Bruma, 2026, South Africa; www.ecsa.co.za) and/or with the South African Council for Natural Scientific Professions SCOPE OF REPORTING (SACNASP; Private Bag X540, Silverton, 0127, South Africa; Resources and reserves reflected in this statement include those www.sacnasp.org.za). This ensures that the mineral resource from the following properties: and mineral reserve statements comply with the provisions of the South African Code for Reporting of Mineral Resources and Zondereinde: the company’s wholly-owned PGM mine, located Mineral Reserves of 2007, revised in 2016 (SAMREC 2016). in the Thabazimbi area of the Limpopo province and within the The company’s competent persons have taken cognisance of northern portion of the western limb of the Bushveld Complex. definitions included in the code. The mineral resource and This includes both the Zondereinde and Middeldrift portions of mineral reserve quantities reported here are considered to be the property; fully compliant in all material respects to the requirements Booysendal: 100% owned by Northam’s wholly-owned of the SAMREC code, together with section 12 of the listing subsidiary, Booysendal Platinum, and situated in the southern requirements of the JSE Limited. The lead competent persons portion of the eastern limb of the Bushveld Complex; have given written confirmation of such, together with permission to publish these estimates. Dwaalkop: located in the northern portion of the eastern limb of the Bushveld Complex, in which Northam holds a 50% stake Definitions of the various mineral resource and mineral through its wholly-owned subsidiary Mvelaphanda Resources reserve categories as well as the requirements for reporting of Proprietary Limited. Dwaalkop is managed by Lonmin plc exploration results may be found at www.samcode.co.za (Lonmin); and STATUS OF MINERAL RIGHTS Pandora: located in the Brits area of North West province and Resources reflected in this statement include those of the within the southern portion of the western limb of the Bushveld Zondereinde, Booysendal North and Booysendal South mines Complex, in which Northam holds a 7.5% stake. Pandora is (Booysendal South was formerly Everest mine) which are wholly managed by Lonmin. owned by Northam or its wholly-owned subsidiaries. In addition, Northam holds a 7.5% stake in the Pandora joint venture and KEY POINTS AND SIGNIFICANT REVISIONS FROM a 50% stake in the Dwaalkop joint venture, both of which are LAST YEAR managed by Lonmin, through its subsidiaries, Eastern Platinum • The reassignment of UG2 and Merensky resources for Limited and Western Platinum Limited respectively. the Booysendal South mine and the estimation of a Merensky reserve for the Booysendal South mine. This Northam holds new order mining rights over the Zondereinde, follows the completion of a feasibility study for mining Booysendal and Everest mines. The Everest new order of both UG2 and Merensky reefs in portions of the mining right was ceded to Booysendal in October 2015 in Booysendal South area. terms of section 11 of the Mineral and Petroleum Resources • The incorporation of the UG2 resource and reserve contained Development Act, No. 28 of 2002. within the Everest mining right into the Booysendal estimate. The Pandora mine operates under a new order mining right This follows the transfer of the Everest mining right to which was converted from an old order right in 2013. Booysendal Platinum in October 2015. • An increase in the UG2 resource and reserve estimate at The Dwaalkop joint venture holds a new order prospecting right Zondereinde mine. This is due to a decrease in geological loss over the Dwaalkop prospect. This right is subject to a renewal ascribed to potholing, and follows an extensive re-assessment application. An application for a new order mining right was of historical pothole losses and exploration data. submitted in 2009 and is being processed.
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Northam further holds eight new order prospecting rights Further to this, the risk management section on pages 96 to over the Kokerboom prospect, granted in 2009. Kokerboom 101 of this report analyses potential risks which may impact the is an iron oxide copper gold and massive sulphide copper zinc company’s ability to continue its activities. exploration prospect covering some 1 000 000 hectares of the Northern Cape province. A prospecting work programme is ENVIRONMENTAL LIABILITIES currently in progress and no resource or reserve has yet been The company’s environmental obligations are managed estimated. Exploration at Kokerboom is in its early stages, in terms of approved environmental management plans. and only limited exploration costs have been incurred to date. Compliance with the plans is audited by independent external As such, Kokerboom is not material to Northam’s operations. parties on a regular basis. Details of the environmental liabilities and the funding thereof are disclosed in the 2016 Northam disposed of its 20.3% ownership of Trans Hex Group annual financial statements. Limited in May 2016. Therefore at the date of reporting, 30 June 2016, Northam had no further interests in the mineral GROUP RESOURCES AND RESERVES rights of the Trans Hex Group. The following tables summarise the mineral resources and CONTINUING OPERATIONS reserves attributable to Northam for both the current and previous year. Notes on the reporting criteria are pertinent, The company confirms that it is not aware of any legal or together with specific notes to this section. arbitration proceedings, either pending or threatened, which may have or have had a material effect on the financial position Breakdowns of the mineral resources and reserves into their of the company and its subsidiaries. respective confidence categories may be found in the sections specific to each mining concession.
Summary of mineral rights held and managed by Northam Property Type of right Status Zondereinde mine New order mining right Converted mining right Booysendal mine New order mining right Converted mining right Everest mine New order mining right Converted mining right Pandora mine New order mining right Converted mining right Dwaalkop prospect New order prospecting right Application for a new order mining right in process Kokerboom prospect New order prospecting rights Eight new order prospecting rights granted
Prospecting and mining rights are held in good order, and Northam perceives no risk to its rights to continue prospecting for and mining of minerals over any of its properties.
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Northam group resource estimate (combined measured, indicated and inferred) as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Mine Mt g/t Moz Mt g/t Moz Merensky Booysendal North 87.82 5.06 14.29 87.82 5.06 14.29 Booysendal South 187.55 3.55 21.41 199.52 3.50 22.48 Booysendal North mine 16.97 3.23 1.76 17.05 3.23 1.77 Booysendal South mine 11.98 2.77 1.07 – – – Dwaalkop1 38.05 2.98 3.64 38.05 2.98 3.64 Zondereinde 164.44 7.38 39.00 167.26 7.35 39.52 Total 506.81 4.98 81.17 509.70 4.99 81.70 UG2 Booysendal North 152.65 4.86 23.87 152.65 4.86 23.87 Booysendal South 235.67 3.20 24.26 320.41 3.27 33.65 Booysendal North mine 41.41 4.52 6.02 43.12 4.52 6.27 Booysendal South mine 126.76 3.07 12.51 – – – Dwaalkop1 37.56 4.35 5.25 37.56 4.35 5.25 Pandora1 14.14 4.65 2.11 14.14 4.65 2.11 Zondereinde 276.41 5.08 45.14 254.32 5.08 41.55 Total 884.60 4.19 119.16 822.20 4.26 112.70 Combined Booysendal North 240.47 4.94 38.16 240.47 4.94 38.16 Booysendal South 423.22 3.36 45.67 519.93 3.36 56.13 Booysendal North mine 58.38 4.15 7.78 60.16 4.16 8.04 Booysendal South mine 138.74 3.04 13.58 – – – Dwaalkop1 75.61 3.66 8.89 75.61 3.66 8.90 Pandora1 14.14 4.65 2.11 14.14 4.65 2.11 Zondereinde 440.85 5.94 84.14 421.58 5.98 81.07 Total 1 391.41 4.48 200.33 1 331.89 4.54 194.41
1 Current resources and reserves of Pandora and Dwaalkop are quoted as at 30 September 2015 while those of the previous year are at 30 September 2014.
Compliance with our environmental management plans is audited by independent external parties on a regular basis
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Northam group reserve estimate (combined proven and probable) as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Mine Mt g/t Moz Mt g/t Moz Merensky Booysendal North mine 14.51 2.92 1.36 14.57 2.92 1.37 Booysendal South mine 9.36 2.58 0.78 – – – Dwaalkop1 – – – 13.66 2.61 1.15 Zondereinde 21.01 5.51 3.72 25.45 5.35 4.38 Total 44.88 4.06 5.86 53.68 3.99 6.90 UG2 Booysendal North mine 41.53 3.00 4.00 43.14 3.00 4.16 Booysendal South mine 75.86 2.65 6.48 – – – Dwaalkop1 – – – 16.10 3.30 1.71 Pandora1 1.21 4.10 0.16 1.29 4.11 0.17 Zondereinde 58.64 4.24 7.99 47.67 4.06 6.22 Total 177.24 3.27 18.63 108.20 3.52 12.26 Combined Booysendal North mine 56.04 2.98 5.36 57.71 2.98 5.53 Booysendal South mine 85.22 2.65 7.26 – – – Dwaalkop1 – – – 29.76 2.98 2.85 Pandora1 1.21 4.10 0.16 1.29 4.11 0.17 Zondereinde 79.65 4.58 11.71 73.13 4.51 10.60 Total 222.12 3.43 24.49 161.89 3.68 19.15
1 Current resources and reserves of Pandora and Dwaalkop are quoted as at 30 September 2015 while those of the previous year are at 30 September 2014.
COMPETENT PERSONS Geology, MSc, PrSciNat. (400323/04); principal member of The resource and reserve statement for the Zondereinde and Prospect Geoservices with 26 years’ experience in mining and Middeldrift portions of Zondereinde mine were compiled by exploration geology, 21 years of which are relevant to Bushveld- Charl van Jaarsveld, BSc (Hons) Geology, PrSciNat. (400268/05); related resource and reserve estimation. chief geologist at Zondereinde mine, with 13 years’ experience The resource and reserve estimates for the Pandora joint venture relevant to Bushveld-related resource and reserve estimation. were prepared and signed off by Dennis Hoffmann (Lonmin), The Booysendal resource statement was compiled by Meshack while reserves were signed off by Andy Brown (Lonmin). Mqadi, BSc (Hons) Geology, PrSciNat. (400703/15); chief The resource and reserve estimates for the Dwaalkop joint geologist at Booysendal North mine, with eight years’ experience venture were prepared by a team from Snowden Mining relevant to precious metal-related resource estimation. Industry Consultants (Resources) and from AMC Consulting The Booysendal reserve statement was compiled by Willie Theron, Proprietary Limited (Reserves). Resources were signed off by BSc (Hons) Mining, PrCertEng, ECSA (200790030); general Dennis Hoffmann (Lonmin), while reserves were signed off by manager at Booysendal UG2 North mine with 19 years’ experience Andy Brown (Lonmin). of Bushveld-related underground mining and reserve estimation. Contact details for Northam’s lead competent persons Resource and reserve estimates for both Zondereinde and authorising publication of the resource estimates are contained Booysendal were reviewed by Damian Smith, BSc (Hons) within the notes on reporting criteria within this report.
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GEOLOGICAL SETTING – THE BUSHVELD COMPLEX PGM and associated precious and base metal mineralisation The two-billion-year-old Bushveld Complex is the largest layered is hosted in or adjacent to chromitite seams located within igneous complex in the world, and is the repository for around the upper critical zone of the RLS. There are two significant 85% of known global PGM resources. Extending over an area orebodies from which 75% of global primary PGM production of some 67 000km2 within the north-eastern portion of South is derived, these being the UG2 and Merensky reefs. The Africa, it contains the intrusive, mafic-ultramafic Rustenburg vertical separation between the UG2 and Merensky reefs is Layered Suite (RLS), which outcrops as three main acicular variable across the Bushveld Complex, ranging from 20m to limbs, namely the western, eastern and northern limbs (see 140m on the western limb and between 170m and 400m on figure below), and ranges in thickness from 7km to 12km. the eastern limb.
The magmatic layering in the RLS is laterally persistent and Historically, PGM production was concentrated on the western can be correlated throughout most of the complex. Layering is limb but, in recent years, the eastern limb has been the focus of generally shallow dipping towards the centre of the complex. new mine development. The RLS stratigraphy is sub-divided into five zones, which are, from lowest to highest, the marginal zone, the lower zone, the The two wholly-owned Northam properties, the Zondereinde critical zone (which is further subdivided into a lower and upper and Booysendal mines, contain resources of both the UG2 and unit), the main zone and the upper zone. Merensky reefs.
Bushveld location indicating current PGM mining operations
Limpopo
Mpumalanga North West Gauteng
Free State N KwaZulu-Natal Northern Cape
Eastern Cape Polokwane PP Rust Western Cape Mokopane Lebowa
Limpopo Twickenham Dwaalkop Marula Amandelbult Thabazimbi Modikwa Mashishing Zondereinde Union Bela Bela Two Rivers Pilanesberg Northam Chrome Mototolo Der Brochen Sedibelo Groblersdal Booysendal Wholly-owned operations BRPM Implats Pandora Brits Joint Ventures Rustenburg Eland RPM Crocodile Pretoria Witbank Other operations Eastern & River Johannesburg Cities/towns Western Plats
Main roads 050 100 km
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ZONDEREINDE MINE Zondereinde mine location and access routes
THABAZIMBI
Limpopo
ZONDEREINDE Amandelbult KOEDOESKOP R516
R511
R510 North West N NORTHAM 01020Km
Zondereinde mine is situated in the northern portion of the Measured resources are defined in the areas accessible western limb of the Bushveld Complex, approximately 30km from holed on-reef development within three months of south of the town of Thabazimbi in the Limpopo province of the estimation run and/or bounded by haulage borehole South Africa. The mining concession covers some 7 625ha intersections and the nearest stope exposures. Indicated underlain by both the Merensky and UG2 orebodies, which dip resources are defined in all other areas, down to a depth of at approximately 20˚ and extend from a depth of 1 100m to 2 350mbc (18 level elevation). This is the depth to which the 2 900m below surface. Zondereinde mine has a feasible mine plan, and is currently in the process of accessing via a deepening extension project. The company exploits both the Merensky and UG2 reefs of the upper critical zone of the Bushveld Complex. While there Inferred resources extend from 18 Level to the down dip is lateral continuity of both reefs across the mine property, the mine boundary. Merensky reef displays a variety of reef types. The distribution of these is determined by a combination of surface exploration HISTORY AND MINING ACTIVITIES boreholes, ongoing prospect drilling from underground Development of Zondereinde mine started in 1986, following a development and reef mapping in development and stoping. five-year exploration programme. Mining of ore, commissioning In contrast to the Merensky reef, the UG2 displays little of a PGM concentrator, smelter and base metal recovery variation in reef attributes. plant and the sale of first PGMs came in 1993. The mine originally exploited only the Merensky reef resource but the The Bushveld sequence at Zondereinde is typical of the northern commissioning of a UG2 concentrator in 2000, together with portion of the western limb. The critical zone stratigraphy the necessary underground ore handling systems, allowed is telescoped and dominated by mafic lithologies. Vertical mining and processing of UG2 from this time onwards. The separation between the UG2 and Merensky reefs is in the range mine produces approximately 2 000 000 tonnes of ore per of 20m to 40m. annum, generating in the order of 300 000oz of 3PGE+Au in final concentrate together with associated precious and base Combined geological and extraction losses were discounted metal by-products. from the resources for both reefs. These comprised pothole and structural losses as well as other pillar losses. Discount losses Underground mining focuses on the exploitation of PGM ores vary per reef type and resource category, but average at 34% by means of traditional narrow tabular reef drill and blast for Merensky reef. Discount losses for UG2 average 36% and mining methods. A standard breast mining layout is used at are largely contained in regional support pillars designed to Northam. The vertical interval (distance) between levels is 63m. counter stress concentration resulting from mining in proximity With the orebody dipping at 20°, this provides a raise length of to previously-mined Merensky reef. 180m allowing for six panels of 30m each per raise connection.
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Strike gullies are aligned at 10° above the strike direction. In all stoping cuts, the Merensky chromitite is exposed with A dip gully handles the ore transported via the strike gullies to a minimum of 10cm of the overlying mineralised Merensky three orepasses situated in the original raise, all of which are pyroxenite as hanging wall. fitted with radial-door control chutes. Ore is transported to the main shaft ore passes by battery-powered locomotives (locos) The Merensky measured resource in June 2016 was pulling spans of eight hoppers. Broken ore is transported to a essentially unchanged at 3.6Mt (800 000oz) compared to conventional shaft ore-pass system with separate rock handling 3.23Mt (800 000oz) in June 2015. facilities for Merensky reef, UG2 reef and waste. The Merensky indicated resource has declined as a result of Mining is successfully conducted using hydropowered conversion to the measured category. The Merensky inferred equipment such as rock drills and high-pressure water jets in resource is essentially unchanged. conjunction with electric scraper winches. UG2 REEF The underground workings are accessed from a twin shaft The UG2 reef at Zondereinde mine is remarkably conformable system. No 1 shaft extends to 13 level (2 039m below surface) when compared with the Merensky reef. Disruption, in the and No 2 shaft serves workings down to 8 level (1 724m below surface). The shafts are 90m apart and are interconnected at form of potholes and reef rolls, is extremely limited and an intermediate pump chamber (IPC) at 1 019m below surface, localised. The reef consists of three chromitite seams separated and also on levels 2, 4, 6, 7, 8 and 9. Workings below 13 level by narrow pyroxenite partings. The lower seam, termed the are serviced by decline access ways, designed to accommodate main member, is generally in the order of 85cm thick, and is both people and materials, and equipped with a conveyor belt overlain by two leader seams, each in the order of 15cm thick. system that transports the broken rock. Total reef thickness, inclusive of a portion of mineralised reef footwall, is in the order of 150cm to 160cm. There is no basis MERENSKY REEF for subdividing the UG2 reef into facies types. The Merensky reef is a zone of mineralisation which straddles Historically, UG2 mining has been limited to de-stressed areas the base of the Merensky cyclic unit. In the area of Zondereinde underlying previously-mined Merensky reef. Furthermore, a full mine, the Merensky reef consists of two sub-facies of the reef cut is mined, which enhances metal output, hanging wall Zwartklip facies of the RLS, namely the normal and regional stability and safe working practices. pothole sub-facies. The latter may be further subdivided into three reef types, each of which occurs at a specific stratigraphic The UG2 measured resource has increased from 5.48Mt level below that of the normal reef sub-facies. These being NP2 (887 000oz) in June 2015 to 9.60Mt (1 556 000oz) in June and P2, which constitute the main sources of ore, and FWP2 2016. This is the result of a decrease in geological loss following which, while not considered a primary mining target due to the a study into pothole occurrence concluded during the year. undulating nature of this reef type, is successfully exploited in In addition, exposed UG2 resource increased and improved the south-western quadrant of the current mining area where it mining extraction is being experienced as UG2 mining displays lesser disruption. continues to migrate to areas where there is less influence of The stoping cut on the Merensky reef is dependent upon Merensky abutments. The UG2 indicated and inferred resources the reef type mined and the geozone in which it is located. have also increased as a result of reduced pothole loss.
Zondereinde generates some 280 000oz of 3PGE+Au per annum
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ZONDEREINDE RESOURCES AND RESERVES Zondereinde Merensky resource classification 2016 Zondereinde UG2 resource classification 2016
-370 000 -365 000 -360 000 -370 000 -365 000 -360 000 -2 745 000 -2 745 000 -2 745 000 -2 745 000 -2 750 000 -2 750 000 -2 750 000 -2 750 000
Legend Legend Mine boundary -2 755 000 -2 755 000 Mine boundary -2 755 000 -2 755 000 Far northern gap Far northern gap Mined out Mined out Shaft pillar Shaft pillar Measured Measured Indicated Indicated Inferred Inferred Transition Transition Dyke Dyke -2 760 000 -2 760 000 -2 760 000 048Km Graben -2 760 000 048Km Graben N N
-370 000 -365 000 -360 000 -370 000 -365 000 -360 000
Zondereinde resource estimate as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz Merensky Measured 3.26 7.70 0.80 3.23 7.68 0.80 Indicated 14.59 7.16 3.36 17.48 7.00 3.94 Inferred 146.59 7.39 34.84 146.55 7.38 34.79 Total 164.44 7.38 39.00 167.26 7.35 39.53 UG2 Measured 9.60 5.04 1.56 5.48 5.04 0.89 Indicated 47.04 5.04 7.62 38.50 5.04 6.23 Inferred 219.77 5.09 35.96 210.34 5.09 34.43 Total 276.41 5.08 45.14 254.32 5.08 41.55 Combined Measured 12.86 5.72 2.36 8.71 6.02 1.68 Indicated 61.63 5.54 10.98 55.98 5.65 10.17 Inferred 366.36 6.01 70.80 356.89 6.03 69.22 Total 440.85 5.94 84.14 421.58 5.98 81.07
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Zondereinde reserve estimate
as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz Merensky Proven 3.97 5.78 0.73 3.97 5.66 0.72 Probable 17.04 5.45 2.99 21.48 5.29 3.65 Total 21.01 5.51 3.72 25.45 5.35 4.37 UG2 Proven 10.1 4.24 1.38 5.94 4.06 0.78 Probable 48.53 4.24 6.61 41.73 4.06 5.45 Total 58.64 4.24 7.99 47.67 4.06 6.23 Combined Proven 14.07 4.67 2.11 9.91 4.70 1.50 Probable 65.58 4.55 9.61 63.22 4.48 9.10 Total 79.65 4.58 11.72 73.13 4.51 10.60
Prill splits % Pt Pd Rh Au Cr2O3% Cu% Ni% UG2 57.7 30.9 10.3 1.0 27.6 0.021 0.123 Merensky 63.0 29.2 5.2 2.6 0.80 0.072 0.164
Zondereinde’s concentrator plant
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BOOYSENDAL MINE Booysendal location and access routes
R36
R3 7
MASHISHING Limpopo R540 Mpumalanga
R555 R579 ROOSSENEKAL BOOYSENDAL
R577 Steenkampsberg Pass
R36 N R579 01020Km
The Booysendal mining concession is located in the southern started in May 2010 and reached its steady-state production compartment of the eastern limb of the Bushveld Complex, rate of 187 000 tonnes per month in October 2015. approximately 35km west of the town of Mashishing (formerly Lydenburg), straddling the border of Limpopo and Mpumalanga A study to determine the feasibility of mining Merensky reef provinces in South Africa. over a similar footprint to the UG2 section of the Booysendal North Mine was completed in December 2015. This included The concession covers some 17 979 hectares and hosts both development of an adit and extraction of a bulk sample. the UG2 and Merensky orebodies, which outcrop over a strike Development of the Phase 1 Merensky section of the length of 14.5km and dip at approximately 10˚ to the west. Booysendal North mine commenced immediately following this. It is expected to reach planned production rate of The resource estimate is informed by exploration data, including 22 000 tonnes per month in October 2016. A Phase 2 586 boreholes, together with 2 214 UG2 channel samples from extension is planned which would grow production up to on-reef development and stoping within the UG2 section of the 75 000 tonnes per month. Booysendal North Mine, together with the Everest UG2 mine. A further 126 channel samples from on-reef development and A study to determine the feasibility of mining both UG2 and stoping within the Merensky section of the Booysendal North Merensky reef from four mining modules in the central and Mine have been analysed. A total of 90% of the exploration southern portions of Booysendal was completed in June 2016. drilling has been conducted within 2.5km down-dip of outcrop. Development of three modules has commenced and they are Drill hole spacing in this near outcrop area ranges from 150m expected to reach a steady-state production rate in June 2021. to 350m. Channel samples are located at 15m intervals within on-reef development and stoping. The resource estimate for the Booysendal concession is subdivided into four sections, these being; the combined UG2 A study to determine the feasibility of mining UG2 reef within and Merensky North mines (North mine); the remainder of the the northernmost 8km of the Booysendal strike, over a dip northern section of the concession (Booysendal North); combined extent from outcrop of approximately 2km, was completed in UG2 and Merensky South mines (South mine); and the remainder September 2009. Development of a UG2 mine (UG2 section of of the southern section (Booysendal South). Mineral reserve the Booysendal North Mine) in the northernmost 4km of strike estimates are presented for the North and South mines.
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The Bushveld sequence at Booysendal is similar to that found for the UG2 reef of North mine and 15.0% total geological loss across the southern compartment of the eastern limb. The for the UG2 reef of South mine. Furthermore, a channel cut-off critical zone stratigraphy is fully developed, and middling 4E grade of 2.5g/t was applied to estimated blocks in all three between the UG2 and Merensky reefs is in the order of 175m in sections. In addition, a 30m thick surface oxidised zone was the northern and central portions of Booysendal. The sequence discounted along the lines of outcrop of both reefs. is, however, subject to thinning in the far southern portion, which is linked to the Bushveld rocks abutting basement highs. Resource categorisation was based upon a combination of The impact of this ‘abutment’ is further manifested in localised quantitative geostatistical parameters, together with a qualitative zones of disruption to surface morphology and internal appreciation of orebody continuity informed by the resource structure of the two reefs. This has led to the characterisation database together with data from surrounding properties. of three geozones within the Booysendal concession, these being the normal, slump and abutment geozones. Despite this MINE DESIGN AND MINING ACTIVITIES progressive disruption to the south, the continuity of the reef The UG2 sections of Booysendal North and South mines are surfaces is robust across the property. underground, mechanised bord and pillar mines, accessed from surface via ramp decline systems. The North mine decline The internal structure of the UG2 reef is similar to that found system comprises three declines on the plane of reef and one on the Bushveld western limb, while the Merensky reef is typical decline situated 20m into the footwall of the reef, containing a of the northern portion of the Bushveld eastern limb. belt for ore handling. Decline systems for the South UG2 mines comprise four declines on the plane of reef. The UG2 reef consists of an upper leader chromitite and a lower main chromitite with a combined thickness of some 140cm. Mining sections extend over a dip length of 144m, equating to These seams are generally juxtaposed or merged, but can a vertical interval of 25m. Strike drives are inclined at 5° above display variable internal silicate partings. the line of strike. Strike belts within the drives transport ore to the central decline dip belt system for transport to a UG2 The Merensky reef is the upper mineralised portion of the concentrator plant on surface. Mechanised boom rigs and LHDs Merensky pyroxenite, generally extending over 110cm. The are employed in mining and development. Merensky reef is immediately overlain by a sequence of competent norites. North UG2 mine is planned, with a remaining life of 20 years, to produce 2 250 000 tonnes of ore per annum at steady state, Resources were estimated over the reef channels. For the generating in the order of 160 000oz of metals in concentrate UG2 reef, the reef channel extends from the top of the leader (3PGE+Au), together with associated precious and base metal chromitite to the base of the main chromitite seam. For the by-products. Planning to increase the production from North Merensky reef outside of the North mine area, the reef channel UG2 mine by 360 000 tonnes of ore per annum, generating an extends from the top of the Merensky pyroxenite to a sample additional 30 000oz of metals in concentrate (3PGE+Au) was grade cut off of 1g/t, with a minimum mining channel width concluded during the year, and implementation has commenced. of 80cm applied. The Merensky reef channel of the Booysendal North and South mines is 210cm in thickness, extending from The initial two modules of South mine have estimated lives of 20cm above the top of the Merensky Pyroxenite – this is the greater than 20 years at a combined steady state production envisaged mining channel. rate of 2 640 000 tonnes of ore per year, generating 215 000oz of metals in concentrate (3PGE+Au), together with associated Geological losses were discounted from the resources for both precious and base metal by-products. reefs. These, for the Booysendal North and South sections, comprised known pothole and structural losses, together with The North Merensky mine is essentially an analog of the UG2 assumed pothole losses benchmarked to mean eastern limb South mines with all development on reef. Dependent upon losses. They amounted to 23% for the Merensky reef and prevailing market conditions, the phase 1 mine is planned to 24% and 30% for the UG2 in the North and South sections produce at 250 000 tonnes of ore per annum at steady state, respectively. In the UG2 mining sections, ongoing mining and generating in the order of 25 000oz of metals in concentrate exploration drilling has improved confidence in known geological (3PGE+Au), together with associated precious and base metal losses, leading to the application of 12.5% total geological loss by-products.
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BOOYSENDAL RESOURCES AND RESERVES Booysendal Merensky resource classification 2016 Booysendal UG2 resource classification 2016
-100 000 -95 000 -90 000 -85 000 -100 000 -95 000 -90 000 -85 000
Booysendal Booysendal -2 775 000 -2 775 000 -2 775 000 -2 775 000 Merensky UG2 north Booysendal north Booysendal North North
Booysendal Merensky Booysendal
-2 780 000 south -2 780 000 -2 780 000 UG2 south -2 780 000
Booysendal Booysendal South South -2 785 000 -2 785 000 -2 785 000 -2 785 000
Legend Legend -2 790 000 -2 790 000 Merensky outcrop -2 790 000 UG2 outcrop -2 790 000 Merensky boreholes UG2 boreholes Dyke Dyke Mine boundary Mine boundary Mined out Mined out Merensky classificatio n UG2 classification class Measured Measured Indicated Indicated Inferred -2 795 000 -2 795 000 Inferred -2 795 000 -2 795 000
048Km 048Km N N
-100 000 -95 000 -90 000 -85 000 -100 000 -95 000 -90 000 -85 000
Booysendal’s concentrator plant
80 N
NORTH MINE UG2 reef The UG2 measured resource for the Booysendal North mine has decreased from 43.12Mt (6.27Moz) in June 2015 to 41.41Mt (6.02Moz) in June 2016, as a result of mining depletion.
Similarly, mining depletion has reduced the UG2 proven reserve from 43.14Mt (4.16Moz) in June 2015 to 41.53Mt (4.00Moz) in June 2016.
Merensky reef The Merensky measured resource for the Booysendal North mine has decreased from 17.05Mt (1.77Moz) in June 2015 to 16.97Mt (1.76Moz) in June 2016, as a result of mining depletion.
Similarly, mining depletion has reduced the Merensky proven reserve from 14.57Mt (1.37Moz) in June 2015 to 14.51Mt (1.36Moz) in June 2016.
Booysendal North mine resource estimate as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz Merensky Measured 16.97 3.23 1.76 17.05 3.23 1.77 Total 16.97 3.23 1.76 17.05 3.23 1.77 UG2 Measured 41.41 4.52 6.02 43.12 4.52 6.27 Total 41.41 4.52 6.02 43.12 4.52 6.27 Combined Measured 58.38 4.15 7.78 60.16 4.16 8.04 Total 58.38 4.15 7.78 60.16 4.16 8.04
Booysendal North mine reserve estimate as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz Merensky Proven 14.51 2.92 1.36 14.57 2.92 1.37 Total 14.51 2.92 1.36 14.57 2.92 1.37 UG2 Proven 41.53 3.00 4.00 43.14 3.00 4.16 Total 41.53 3.00 4.00 43.14 3.00 4.16 Combined Proven 56.04 2.98 5.36 57.71 2.98 5.53 Total 56.04 2.98 5.36 57.71 2.98 5.53
Prill splits % Pt Pd Rh Au Cr2O3% Cu% Ni% UG2 57.2 32.6 9.4 0.8 25.1 0.008 0.087 Merensky 58.0 31.0 2.4 8.7 0.2 0.097 0.208
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SOUTH MINE UG2 reef The UG2 measured resource for the Booysendal South mine, comprising four mining modules, is reported for the first time as 105.1Mt (10.24Moz).
UG2 proven reserve, reported for three of the four modules is 68.24Mt (5.84Moz). The probable reserve for the same is 7.62Mt (0.64Moz).
Merensky reef The measured resource for the single Merensky module of Booysendal South mine is reported for the first time as 11.98Mt (1.07Moz).
The corresponding proven reserve is 9.36Mt (0.78Moz).
Booysendal South mine resource estimate as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz Merensky Measured 11.98 2.77 1.07 – – – Total 11.98 2.77 1.07 – – – UG2 Measured 105.10 3.03 10.24 – – – Indicated 20.53 3.24 2.14 – – – Inferred 1.13 3.53 0.13 – – – Total 126.76 3.07 12.51 – – – Combined Measured 117.08 3.00 11.31 – – – Indicated 20.53 3.24 2.14 – – – Inferred 1.13 3.53 0.13 – – – Total 138.74 3.04 13.57 – – –
Booysendal South mine reserve estimate as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz Merensky Proven 9.36 2.58 0.78 – – – Total 9.36 2.58 0.78 – – – UG2 Proven 68.24 2.66 5.84 – – – Probable 7.62 2.61 0.64 – – – Total 75.86 2.65 6.48 – – – Combined Proven 77.60 2.65 6.61 – – – Probable 7.62 2.61 0.64 – – – Total 85.22 2.65 7.25 – – –
Prill splits % Pt Pd Rh Au Cr2O3% Cu% Ni% UG2 60.3 29.4 9.3 1.1 19.4 0.009 0.076 Merensky 57.9 30.9 2.3 8.9 0.1 0.083 0.186
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BOOYSENDAL NORTH AND SOUTH All categories of the Merensky and UG2 resources for Booysendal North are unchanged from the previous reporting period. However, Booysendal South is depleted by the resource reassigned to Booysendal South mine.
Booysendal North resource estimate as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz Merensky Measured 9.90 5.36 1.71 9.90 5.36 1.71 Indicated 25.32 5.12 4.17 25.32 5.12 4.17 Inferred 52.60 4.97 8.41 52.60 4.97 8.41 Total 87.82 5.06 14.29 87.82 5.06 14.29 UG2 Measured 7.05 4.95 1.12 7.05 4.95 1.12 Indicated 12.95 5.15 2.15 12.95 5.15 2.15 Inferred 132.65 4.83 20.60 132.65 4.83 20.61 Total 152.65 4.86 23.87 152.65 4.86 23.88 Combined Measured 16.95 5.19 2.83 16.95 5.19 2.83 Indicated 38.27 5.13 6.32 38.27 5.13 6.32 Inferred 185.25 4.87 29.01 185.25 4.87 29.02 Total 240.47 4.94 38.16 240.47 4.94 38.17
Prill splits % Pt Pd Rh Au Cr2O3% Cu% Ni% UG2 56.8 33.8 8.6 0.7 25.8 0.006 0.085 Merensky 59.7 30.5 2.2 7.6 0.17 0.134 0.292
Booysendal South resource estimate as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz Merensky Measured 15.92 2.94 1.51 27.90 2.87 2.57 Indicated 51.94 3.31 5.53 51.94 3.31 5.53 Inferred 119.69 3.74 14.37 119.68 3.74 14.38 Total 187.55 3.55 21.41 199.52 3.50 22.48 UG2 Measured – – – 68.63 3.54 7.82 Indicated 85.08 3.58 9.80 100.07 3.50 11.25 Inferred 150.59 2.99 14.46 151.71 2.99 14.59 Total 235.67 3.20 24.26 320.41 3.27 33.66 Combined Measured 15.92 2.94 1.51 96.53 3.35 10.39 Indicated 137.02 3.48 15.33 152.01 3.43 16.78 Inferred 270.28 3.32 28.83 271.39 3.32 28.96 Total 423.22 3.36 45.67 519.93 3.36 56.13
Prill splits % Pt Pd Rh Au Cr2O3% Cu% Ni% UG2 60.6 28.6 9.5 1.2 26.0 0.010 0.071 Merensky 57.8 32.2 2.5 7.5 0.56 0.120 0.268
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PANDORA RESOURCES AND RESERVES Pandora resource estimate as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz UG2 Measured 1.85 4.80 0.29 1.89 4.80 0.29 Indicated 10.55 4.61 1.56 10.55 4.61 1.56 Inferred 1.74 4.73 0.26 1.70 4.73 0.26 Total 14.14 4.65 2.11 14.14 4.65 2.11 Combined Measured 1.85 4.80 0.29 1.89 4.80 0.29 Indicated 10.55 4.61 1.56 10.55 4.61 1.56 Inferred 1.74 4.73 0.26 1.70 4.73 0.26 Total 14.14 4.65 2.11 14.14 4.65 2.11
Pandora reserve estimate* as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz UG2 Proven 0.16 3.81 0.02 0.11 3.78 0.01 Probable 1.04 4.14 0.14 1.18 4.14 0.16 Total 1.21 4.10 0.16 1.29 4.11 0.17 Combined Proven 0.16 3.81 0.02 0.11 3.78 0.01 Probable 1.04 4.14 0.14 1.18 4.14 0.16 Total 1.21 4.10 0.16 1.29 4.11 0.17
Prill splits % Pt Pd Rh Au Cr2O3% Cu% Ni% UG2 60.6 28.0 11.1 0.3 no data 0.004 0.024 Merensky – – – – – – –
* Current resources and reserves of Pandora and Dwaalkop are quoted as at 30 September 2015 while those of the previous years are at 30 September 2014.
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DWAALKOP RESOURCES AND RESERVES All categories of the Merensky and UG2 resources are unchanged from the previous reporting period. All reserves have been removed from the estimate. The Lonmin competent person attributes this to depressed economic conditions and no progress having been made in a mining viability study.
Dwaalkop resource estimate as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz Merensky Measured – – – – – – Indicated 21.83 2.89 2.03 21.83 2.89 2.03 Inferred 16.22 3.10 1.62 16.22 3.10 1.62 Total 38.05 2.98 3.64 38.05 2.98 3.65 UG2 Measured – – – – – – Indicated 20.85 4.35 2.92 20.85 4.35 2.92 Inferred 16.71 4.35 2.34 16.71 4.35 2.34 Total 37.56 4.35 5.25 37.56 4.35 5.26 Combined Measured – – – – – – Indicated 42.68 3.60 4.94 42.68 3.60 4.94 Inferred 32.93 3.73 3.95 32.93 3.73 3.95 Total 75.61 3.66 8.90 75.61 3.66 8.89
Dwaalkop reserve estimate* as at 30 June 2016 as at 30 June 2015 4E PGE 4E PGE Reef Category Mt g/t Moz Mt g/t Moz Merensky Proven – – – – – – Probable – – – 13.66 2.61 1.15 Total – – – 13.66 2.61 1.15 UG2 Proven – – – – – – Probable – – – 16.10 3.30 1.71 Total – – – 16.10 3.30 1.71 Combined Proven – – – – – – Probable – – – 29.76 2.98 2.85 Total – – – 29.76 2.98 2.85
Prill splits % Pt Pd Rh Au Cr2O3% Cu% Ni% UG2 47.1 42.8 7.9 2.2 no data 0.090 0.140 Merensky 56.8 31.9 4.2 7.2 no data 0.110 0.170
* Current resources and reserves of Pandora and Dwaalkop are quoted as at 30 September 2015 while those of the previous years are at 30 September 2014.
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KOKERBOOM EXPLORATION PROSPECT Kokerboom is an iron oxide copper gold and massive sulphide copper zinc exploration prospect covering some 1 000 000 hectares of the Northern Cape province of South Africa.
A prospecting work programme is currently in progress and no resource or reserve has yet been estimated. Exploration conducted to date includes; airborne magnetic and radiometric surveys, compilation and reviews of existing geochemical and surface mapping data, together with some limited surface mapping. Broad terrain delineation has been undertaken, but as yet, no distinct targets have defined for follow up work.
Kokerboom location plan
Sutton Limpopo Noenieput Dibeng
Gauteng Mpumalanga North West Bokhara Olifantshock Free State KwaZulu-Natal
Northern Cape
Eastern Cape Lutzputs UPINGTON Western Cape Louisvalle Augrabies Kanoneiland Namibia Onseepkans Marchand KEIMOES Goodhouse KAKAMAS Groblershoop Pella
Pofadder Aggeneys Putsonderwater Quagga Westerberg KENHARDT Niekerkshoop Boomrivier Marydale PRIESKA
Koranderkolk Legend Gamoep Cooperton Kokerboom prospects Verneukpan N 0100 200Km Vanwyksvley
We take great care to uphold Northam’s compliance with South Africa’s strict environmental legislative framework
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NOTES ON REPORTING CRITERIA • Modification of mineral resources to reserves is based on • Mineral resource tonnages and grades for Zondereinde are parameters derived from historical operating performance, reported as estimates discounted for geological and mining current conditions and future planning criteria. pillar losses. All other mineral resources are reported as • Mineral reserves for Zondereinde mine are quoted to 18 level estimates discounted for geological losses. (2 350m below surface). • Mineral resource tonnages and grades are in situ estimates • Mineral reserves for Booysendal relate to the current and inclusive of internal waste dilution but exclusive of external planned mining modules, the Booysendal North and waste dilution, unless otherwise stated. South mines. • PGM grade is expressed as corrected 4E (combined platinum, • Mineral reserves for Pandora and Dwaalkop are provided by palladium, rhodium and gold) grade; this being synonymous Lonmin and reflect Lonmin’s reserve modifying factors. with 3PGE+Au and 4E PGE. • In compliance with the SAMREC code, inferred mineral • PGM metal prill splits (platinum, palladium, rhodium and resources are not included in feasibility studies. gold) are expressed as percentages of the combined 4E value. For economic studies and the determination of pay limits, • Base metal contents (chromite, copper and nickel) are consideration was made of both short- and long-term revenue expressed as average grades in weight percentage. These drivers. The following long-term real global assumptions grades represent acid soluble proportions. Acid soluble were used: percentages of Ni and Cu are closely correlated to the metals present as sulphide minerals. • Base metals (US$ per metric tonne): • Ni 8 956 • Structural losses, due to faults, dykes and joints, include the • Cu 5 374 volumes of expected bracket pillars required to be placed on • Chromite 47 (FOT) such features. Average exchange rate: • Kriging parameters are applied to discrete mining areas in • US$: ZAR 14.16 order to estimate tonnage and metal content. • PGE prices in US$ per troy ounce: • Kriging parameters are derived from the interrogation of • Pt 1 433 extensive sampling databases. • Pd 896 • Rh 1 254 • Rounding of numbers in the tables may result in minor • Au 1 209 computational discrepancies. Where this occurs, it is • Ru 45 deemed insignificant. • Ir 537
• The most reasonable mining width is assumed, based on All references to tonnage are to the metric unit. practical mining conditions. 4E grade, together with specific gravity are calculated for these widths. All references to ounces are troy with a conversion factor of 31.103475 used to convert from metric grammes to ounces. • Total mineral resources and reserves attributable to Northam Platinum Limited are listed in the summary tables.
• Mineral resources for Pandora and Dwaalkop, reflecting Northam’s 7.5% and 50.0% respective attributable interests, are quoted as at the end of September 2015 and 2014 and are provided by Lonmin. Contact details for lead competent persons are: • Charl van Jaarsveld, chief geologist at Zondereinde mine • Measured and indicated mineral resources are reported PO Box 441, Thabazimbi 0380, South Africa separately and include those mineral resources modified to produce proven and probable mineral reserves. • Meshack Mqadi, chief geologist at Booysendal UG2 North mine Willie Theron, general manager at Booysendal UG2 North mine • While mineral resources are quoted as in situ resources, all PO Box 412694, Craighall 2024, South Africa reserves provided by Northam are quoted at run-of-mine (ROM) grades and tonnages as delivered to the concentrator • Damian Smith, principal member of Prospect Geoservices plants on site and are therefore, fully diluted. PO Box 37876, Faerie Glen 0043, South Africa
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LEGISLATION AND COMPLIANCE requirement to reduce sulphur dioxide (SO2) emissions by 2020, based on affordability and the historic dispersion of South Africa has a strict environmental legislative framework, SO2 at Zondereinde which has been significantly lower than governed by the following: the licensed limits. The Department of Environmental Affairs • Constitution of the Republic of South Africa No. 108 of 1996 and Tourism (DEAT) granted Northam an Air Emission License • Mineral and Petroleum Resources Development Act No. 28 of in February 2016. However, based on the conditions given in 2002 (MPRDA) the licence, the mine still needs to apply for exemption on the • National Environmental Management Act No. 107 of SO2 emissions requirement. 1998 (NEMA) Northam is a member of the South African Waste Information • National Environmental Management: Waste Act No. 59 System (SAWIS) developed by the DEAT, and both Zondereinde of 2008 and Booysendal are registered with SAWIS. The company • National Environmental Management: Biodiversity Act No. 10 complies with the monitoring and management processes of of 2004 hazardous waste in terms of recovery, recycling, treatment, • National Heritage Resources Act No. 25 of 1999 disposal and exportation.
• National Environmental Management: Air Quality Act No. 39 Northam did not receive any significant fines or non-monetary of 2004 sanctions for non-compliance with environmental laws and • National Water Act No. 36 of 1998 regulations. No grievances regarding environmental impacts were received during the year. We take great care to uphold Northam’s compliance with this framework. The group is committed to prudent practices and ISO14001 usage of natural resources, in accordance with NEMA, and this Northam has adopted the ISO14001 standard as the basis for is outlined in its environmental policy, which may be found at its EMSs. Zondereinde has been ISO14001-certified since 2011. www.northam.co.za/governance/policies-andprocedures Recertification was issued in 2014 until 2017. At both Zondereinde and Booysendal, a precautionary environmental approach has been taken – aligned with At the Zondereinde metallurgical complex, the ISO standard NEMA and Northam’s own environmental management was converted from ISO14001:2014 to ISO 14001:2015. The systems (EMSs). metallurgical plants will transition to ISO 14001: 2015 by 2017.
Management at both operations engage regularly with While the ISO14001 standard is taken into account in managing regulatory authorities including the DMR and the Department environmental issues at Booysendal, a formal ISO14001- of Water Affairs (DWA) and other relevant departments. compliant EMS is not yet in place at this operation. New mining projects are subject to environmental impact assessments (EIAs) which involve comprehensive public OUR ENVIRONMENTAL STRUCTURES participation and many studies to assess environmental aspects The HSE committee is responsible for overseeing environmental such as air, water, land, flora and fauna. These EIAs become matters at board level. Environmental management issues part of the mines’ approved environmental management plans are reported to the operational general managers and the or EMPs. EMPs provide guidance in monitoring, addressing chief executive on a monthly basis, and on a quarterly basis and mitigating environmental impacts. Routine audits are to the board’s HSE committee. The chief executive and undertaken to ensure compliance with the EIAs and EMPs. general managers of Zondereinde and Booysendal have final Northam has the requisite permits for Zondereinde and accountability for environmental compliance and performance. Booysendal in terms of new order mining rights and integrated water use licences. At Zondereinde and Booysendal, environmental issues are dealt with by a specific management team. At Zondereinde, In 2014, Zondereinde completed a revised EMP application in particular, the environmental management function and in line with the DMR’s requirement to consolidate its original engineering services work in tandem, given the Zondereinde document and three amendments for the UG2 stockpile, coal- operation’s reliance on technology, which is applied in many fired boilers and the slag dump. Approval was received for the instances specifically to create environmentally safe working Amendment and Consolidated EMP in December 2015. areas. The engineering department oversees this function In compliance with the amendment to the NEMA: Air Quality under the guidance of the engineering manager, supported Act, which came into effect in 2013, Northam submitted an by the environmental officer. At Booysendal the safety, health application for an Air Emission Licence for the Zondereinde and environmental manager heads this process, supported by operations as well as a request for exemption from the environmental staff.
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At Booysendal, the mine management team is responsible for required limits of the water use licence. Monitoring the effects looking after only approximately 8% of the mine’s freehold of the ECO tablets is ongoing and dosage is adjusted as and area. The balance of the land (approximately 6 200 hectares) is when required. managed by a dedicated land manager and, of this, 960ha is under the custodianship of the Buttonshope Conservancy Trust. Five audits were conducted at Booysendal during the year. These included: FY2016 ENVIRONMENTAL PERFORMANCE • An annual performance assessment of the EMP as required by the MPRDA ZONDEREINDE • A performance assessment of the EIA as required by NEMA Water and energy consumption continue to be the • An annual audit of the water use licence. most pressing environmental management concerns at Zondereinde. Efforts to reduce consumption are assessed • A compliance audit by the Department of Water and and implemented continuously. Sanitation (DWS), with no significant issues arising. • A compliance audit by the Limpopo Department of Zondereinde was granted a waste licence for the salvage Economic Development, Environment and Tourism. The aim yard. An external audit was conducted during November of the audit was to ensure that the mine complied with the 2015 and a few minor non-compliances were raised which EIA. No significant issues arose from the audit. have been addressed. All environmental incidents were recorded at Booysendal during Zondereinde recorded zero reportable environmental incidents the year, one of which was reportable. in the year under review. A new reporting structure for environmental incidents was BOOYSENDAL implemented in July 2015 which enhances the detail and accuracy During FY2016, Booysendal implemented a number of of incident reporting. projects to reduce the impact of operational activities on the environment. RESOURCE UTILISATION
In order to ensure that hydraulic and motor oil is not released As a mining company, Northam is reliant on natural resources into the surrounding area and water system, extra pumps were – water, energy and bulk materials. The conservation and installed into the storm water system to capture the oil and optimal use of these resources are of paramount importance to separate it from the system before the surface water run-off Northam as the group strives to maintain the sustainability of reaches the pollution control dams. To make this system more the business while minimising its environmental impact. efficient, a skimmer was also installed into the pump and the oil Bulk materials comprise mined and processed rock, liquid fuels, is pumped to the oil separation plant. coal, grease, steel, timber, lubricating and hydraulic oils as well Biodegradable tablets, known as ECO tablets, have been as diesel. Zondereinde and Booysendal take pride in utilising introduced into the main pollution control dam. These tablets resources efficiently and recycling materials like plastics, steel, assist in maintaining water quality of the dam within the timber and scrap.
Materials used at Zondereinde in FY2016 Unit FY2016 FY2015 FY2014 FY2013 FY2012 Rock mined 000t 2 245 2 069 1 907 2 276 2 154 Ore milled 000t 2 001 1 860 1 724 2 116 1 934 Timber use (bulk support) m³ 1 842 2 748 2 412 1 573 827 Cartridge explosives tonne 2 242 2 465 2 076 2 401 2 552 Oxygen tonne 2 143 2 227 1 722 1 561 2 018 Sulphuric acid tonne 814 876 586 520 769 Sulphur dioxide tonne 99 89 61 56 82 Grease tonne 40 40 34 47 47 Lubricating and hydraulics oils litre 81 695 128 985 130 618 130 270 135 155 Diesel litre 563 752 662 319 648 709 635 739 576 079
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Materials used at Booysendal in FY2016 Unit FY2016 FY2015 FY2014 FY2013 Rock mined 000t 2 138 1 670 1 233 755 Ore milled 000t 2 166 1 786 1 517 261 Emulsion explosives tonne 1 479 2 512 960 284 Lubricating and hydraulics oils litre 1 399 915 1 240 100 640 192 83 314 Diesel litre 2 329 655 2 080 968 1 830 066 1 745 435
Materials recycled at Zondereinde in FY2016 Unit FY2016 FY2015 FY2014 FY2013 FY2012 Plastic tonne 23 61 53 42 108 Steel tonne 2 031 1 628 2 182 1 640 2 053 Timber m3 2 753 2 540 2 015 2 380 4 601 Scrap metal m3 – – – – 1 995 Rubber tonne 300 134 197 153 134 Industrial waste tonne 1 381 1 343 1 246 1 419 1 955
Materials recycled at Booysendal in FY2016 Unit FY2016 FY2015 FY2014 FY2013 General waste to landfill m3 438 491 552 – Hazardous waste m3 364 198 204 – Timber m3 57 62 – – Scrap metal m3 297 271 – –
WATER USE A large volume of water is used for the mining and processing of minerals, therefore water allocation is of critical importance to both Zondereinde and Booysendal. Integrated water use licence requirements guide water management processes, especially in terms of water allocation. Licences are reviewed every five years from the date of issue.
Zondereinde and Booysendal use both industrial and potable water. Zondereinde’s source of potable and industrial water is from Magalies Water and Booysendal receives its water from the Lebalelo Water User Association. Northam has contracts with both companies.
Northam recognises the importance of optimising its water usage through reuse and recycling processes. The vital role water plays is highlighted in regular water awareness campaigns.
Water usage (000m3) Zondereinde Booysendal FY2016 FY2015 FY2014 FY2013 FY2012 FY2016 FY2015 FY2014 FY2013 Potable water from external sources 2 803 2 488 2 335 2 633 2 540 376 569 513 429 Fissure water used 1 607 1 155 1 084 1 492 1 273 – – – – Borehole water used – – – – – 14 87 – – Water recycled in process 27 413 25 664 25 524 25 909 24 390 2 519 1 479 – 237 % water recycled* 86 91 89 91 91 87 72 – 36
* The FY2016 figures reflect a more accurate methodology adopted by Northam to calculate recycled water.
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ZONDEREINDE include the water uses for the Merensky North mine. Approval Water is operationally critical for Zondereinde. The mine uses is awaited from the DWS. water as its primary source of energy for its underground Management is vigilant about the potential for any contamination mining operations through a shaft-based hydropower system. risk, and closely monitors conservation processes and water These technical innovations were pioneered at Northam and reduction practices, along with checking water levels in the refined over time. Hydropowered equipment has the advantage pollution control dams, which could result in discharges or run-off. of reducing temperatures in working areas. This technology, used in conjunction with the strategic application of backfill, The Groot Dwarsrivier and Der Brochen Dam are the ‘at risk’ helps to lower underground temperatures by reducing heat water bodies. Management has an emergency preparedness ingress from worked-out areas while also reducing the size of programme in place to address any run-off or spillages, the area to be cooled by 65%. which includes a stakeholder schedule along with emergency remediation measures. Three water evaporators are installed at Zondereinde endeavours to run a zero discharge operation. The the pollution control dams to mitigate the effects of excessive mine closely monitors any potential impact of its operations rainfall during the rainy season. on surface and groundwater sources. The water bodies that could be affected by surface water discharges are the Crocodile No environmental penalties or fines were incurred in FY2016. and Bierspruit Rivers. A comprehensive groundwater model, On 28 March 2016 at Booysendal, however, an accidental developed and maintained by a third party consultant, has been spillage of tailings into an emergency dump bund overflowed in place for a decade. This consultant also monitors and advises into a tributary and subsequently into the Der Brochen dam. on surface and groundwater quality control. In line with the operation’s procedures, immediate remedial There was no water discharge during the year. In terms of the action was taken and the DWS advised of the incident. The mine’s water use licence, 1 000 000m³ of water is allowed to DWS conducted a site visit on 11 April 2016, and a preliminary be discharged annually. report was submitted to the department on 14 April 2016. The DWS has not issued any directive in respect of this incident. Subsequent to the granting of Zondereinde’s integrated water licence in 2012, the mine applied for a relaxation of certain An expert third party consultancy was appointed to conduct standards and requirements. In 2013, the DWA conducted a a spill assessment on the river to determine the required compliance audit on Zondereinde’s water use licence and the mine mitigation and rehabilitation measures. The rehabilitation submitted an annual water management report to the DWA. work continues and three spill assessments have been Further information requested by the DWS has been submitted. conducted to date. The remedial work is expected to be completed by the end of October and thereafter a final report BOOYSENDAL will be submitted to the DWS. Water quality at Booysendal is monitored on a continuous basis and compared with the original base line study information. Since this incident a number of remediation procedures have been initiated to avoid similar incidents recurring, including: The Lebalelo pipeline is the main source of industrial and • Improved supervision potable water at Booysendal, while this is supplemented with • Enhanced monitoring with the installation of cameras, level on-site boreholes. The mine currently holds a 20-year licence probes with monitoring and control room alarms to extract water from boreholes should additional water be required. The Groot Dwarsrivier is the only water source that • Installation of an overflow weir between compartments could potentially be affected by the withdrawal of borehole • Construction of an emergency soil bund around the initial water. However, as a limited volume of water is currently being bund to prevent spillage into the watercourse. drawn from this source, there is no risk. Industrial water at Booysendal North is maintained within a In May 2015, an amended water use licence was submitted to closed circuit and recycled on an ongoing basis. No water is the DWS to update the current water uses at Booysendal and to allowed to be discharged into the environment.
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ENERGY CONSUMPTION The company’s use of hydropower has also reduced its reliance on Eskom as the primary energy source. Less electricity is Northam’s long-term strategy is based on energy efficiency required for production when compared to other platinum rather than energy reduction as the mines continuously strive mines which rely on compressed air to power underground to replace ore reserves and require more energy for production. equipment. The use of hydropowered equipment and backfill The energy efficiency strategy is continuously reviewed in order has led to annual power savings of 31 506MWh. to optimise its effectiveness. In FY2016, total indirect non-renewable energy consumption Northam’s electricity is supplied by Eskom, the national electricity of electricity sourced from the national grid at Zondereinde supplier. Current risks connected with electricity in South Africa increased by 3% to 646 785MWh (FY2015: 630 085MWh). are those related more to cost than supply. In recent years, Eskom’s tariffs have increased steadily, by 16% in 2012, 8% BOOYSENDAL in 2013, 9% in 2014, 12.7% in 2015 and 13% in 2016. For Booysendal currently has sufficient power to continue operating, FY2016, Northam’s electricity spend totalled R498 786 million with one incoming Eskom line and transformers capable of (83% at Zondereinde and 17% at Booysendal). sustaining 80MVA. The maximum demand at the moment is We have a good working relationship with Eskom and have an 29MVA. However, given the cost of electricity, energy efficiency electricity management programme in place to proactively assist has and will continue to be a priority at the mine. the utility. An energy management system which assists with the protection and annual testing of the medium voltage network, ZONDEREINDE and fault analysis has been fully implemented and operational At current capacity at Zondereinde, Eskom’s supply is since 2014. A monthly report on the findings is presented sufficient. However, our power requirements will not by the engineering department. This system reflects how remain static, given the deepening project, the smelting of Booysendal manages electricity in the mine, such as identifying additional material from Booysendal and our new 20MW off peak, peak and standard times. furnace due for completion by the end of 2017. For this reason, a number of energy efficiency initiatives have been A solar-aided water heating system at the mine’s change house implemented. These include: is in place to conserve energy. • an underground refrigeration plant at 13 level. With the In FY2016, total indirect non-renewable energy consumption refrigeration plant being moved underground, water is not from electricity sourced from the national grid increased by required to be pumped to surface. This immediately provides 15% to 132 790MWh (FY2015: 115.386MWh). savings as one refrigeration machine equals the consumption of two 2MW pumps. POWER FACTOR CORRECTION EQUIPMENT • fan clipping or turning down the fans that force refrigerated Power factor correction equipment is in place at Zondereinde air from surface during the times they are not required and Booysendal. This equipment reflects the exact power • as part of an ongoing initiative, 11 modular hostel blocks consumption and helps reduce the overall electricity bill. have been built with solar hot water systems. These systems Note: Power factor is the ratio of true power (kW) to total apparent power comprise nine x 400 litre geysers per block. We estimate (kVA) consumed by an electrical installation. It is a measure of how efficiently this results in a saving of some 40% or 760 838 kW on an electrical power is converted into useful work output. The ideal power factor annual basis. is unity, or one. A load with a power factor of 1.0 results in the most efficient loading of the supply. A comparatively small improvement in power factor can bring about a significant reduction in losses.
Electricity consumption (MWh) Zondereinde Booysendal FY2016 FY2015 FY2014 FY2013 FY2012 FY2016 FY2015 FY2014 FY2013 Energy from electricity purchased by shafts 498 993 489 203 470 117 485 654 461 484 44 051 43 362 35 251 6 726 Energy from electricity purchased by plants 147 792 140 882 108 600 101 732 125 548 88 738 72 023 57 715 7 533 Total energy purchased 646 785 630 085 578 717 587 386 593 441 132 790 115 385 92 766 14 259
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CLIMATE CHANGE AND EMISSIONS Northam reports on emissions of carbon dioxide (CO2) and sulfur dioxide (SO2), which are the most significant of its emissions. At Northam, delivering on our strategy requires that we consider the risks and opportunities associated with climate Booysendal does not produce any SO2 emissions. change. Climate change has been assessed as a moderate In FY2016, 6 987 tonnes of SO were emitted by the risk which is managed primarily through the group’s energy 2 Zondereinde operations attributed to direct emissions from the conservation – energy consumption and energy efficiency – smelter. Other emissions include CO (both direct and indirect), initiatives. In addition, PGMs are used in the production of 2 potential discharges to water courses and dust from tailings technologies to reduce emissions thus mitigating the climate dams. Gas cleaning equipment for SO abatement will be change risk. 2 required by 2020. Northam has considered the risks and opportunities relating Zondereinde’s energy efficiency programmes have reduced the to climate change, including the financial implications, in its mine’s GHG emissions. 7th consecutive voluntary submission to the Carbon Disclosure Project (CDP), which covers the previous financial year, and may be found at www.cdp.net/en-US/Results/Pages/Company- Responses.aspx?company=13459
Greenhouse gas emissions (CO2e tonnes) Zondereinde Booysendal FY2016 FY2015 FY2014 FY2013 FY2012 FY2016 FY2015 FY2014 Total Scope 1 emissions (direct emissions) 27 830 29 743 23 451 15 509 15 401 7 098 6 337 4 912 Total Scope 2 emissions (indirect emissions) 666 189 648 988 596 079 605 008 611 244 136 773 118 847 95 549 Total Scope 3 emissions (indirect emissions) 799 746 580 665 815 98 – – Total emissions 694 818 679 477 620 110 621 183 627 460 143 969 125 184 100 565
Zondereinde’s laboratory
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DUST MANAGEMENT 4 439 hectares. Land management and conservation policies and practices are well established at Zondereinde. Zondereinde monitors dust fall-out and has an effective stakeholder engagement programme in place to deal with any No animals or plants in the area are listed on the IUCN’s Red List incidents and complaints logged. However, since inception, of Threatened Species nor the Red Data list. Alien vegetation is Zondereinde has had no such complaints. removed when and where possible.
The tailings dam is continuously revegetated to reduce dust Final rehabilitation of Zondereinde’s tailings storage facility will entrainment, and to minimise wind and water erosion. only take place after closure. However, ongoing rehabilitation takes place for the purposes of dust management as well as Previously exposed areas at Booysendal have been paved, tarred aesthetic reasons. or grassed, and the few areas where dust could be produced, are monitored and dust suppression is conducted as needed. BOOYSENDAL Continuous dust fall-out monitoring at Booysendal is conducted Booysendal’s host area, the Dwarsrivier Valley, is situated within at potential receptor sites around the operation. Monitoring the Sekhukhuneland Centre of Plant Endemism (SCPE) and results indicate that dust fall-out within these areas is well the Roossenekal Subcentre of Endemism. The Booysendal within residential dust fall-out limits. property encompasses several landscape types, which are critically important for conservation action and are prioritised by The mine’s location in a valley surrounded by mountains means Mpumalanga’s conservation authorities. that dust dispersion into the surrounding communities is limited. No community or stakeholder complaints were received The Dwarsrivier Valley landscape includes forests, small regarding dust emissions during the year. wetlands, seepages and grasslands. Certain protected mammals and species of fish have also been recognised as LAND MANAGEMENT AND BIODIVERSITY endemic to this habitat. Research has also indicated that the threatened SCPE is not formally protected, and that more Northam acknowledges that mining processes and operations with land needs to be incorporated within reserves to protect the their potential for adverse environmental impacts require careful province’s biodiversity. land management. And it is only with careful land management that biodiversity can be maintained. Careful planning of new With the aim of preserving the biodiversity of the area, Northam mining projects, extensive engagement with stakeholders and has set aside an offset area specifically for conservation and the surrounding community, and compliance with legislation all biodiversity purposes. A creative approach was adopted to contribute towards sound land management and add value to generate long-term funding to support the protection of the the mining process. Please refer to the rehabilitation and funding environment surrounding Booysendal. A key result was the provision in the 2016 annual financial statements. Buttonshope Conservancy Trust, which funds Booysendal’s conservation, offset management and expansion. ZONDEREINDE Northam’s land ownership at Zondereinde is larger than Alien vegetation inspections are conducted on a monthly basis, the actual mining operations, with a surface freehold of and the vegetation monitored and removed as required.
Land use (hectares) Zondereinde Booysendal North Booysendal South FY2016 FY2015 FY2014 FY2016 FY2015 FY2014 FY2016 Land disturbed by mining and related activities 137 136 137 521 521 521 250 Land leased for farming purposes 273 273 273 N/A N/A N/A – Land protected for conservation 800 800 800 960 960 960 – Total land under management (freehold) 4 439 4 439 4 439 6 773 6 773 6 773 4 347
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BOOYSENDAL EXPANSION PROJECTS ENVIRONMENTAL PERMITTING • In May 2015 Booysendal submitted a Section 102 application Northam is taking particular care to minimise its environmental for the Merensky project. The Section 102 included the impact from the outset in regard to its Booysendal expansion expansion for the Merensky North mine as well as an projects – the Merensky North mine establishment and the amendment of the Booysendal EIA and EMP to accommodate South mine establishment. Northam is actively working around the expansion of the tailing storage facility. Approval has the topography of the area. been received from the DMR. An aerial ore conveyor system will link Booysendal South to • In May 2015 an amended water use licence was submitted Booysendal North, minimising the impact across the terrain it to the DWS to update the current water uses at Booysendal traverses. Only 11 tower structures supporting the conveyor North and to include the water uses for the Merensky North will actually be on the ground over a distance of 4.9 kilometres. Mine. Approval is awaited from the DWS. We are preparing for the acquisition of all the necessary • The environmental process has been started for the Booysendal environmental permitting for Booysendal South and the EIA South mine. An environmental consulting company has been amendment process for Merenksy North is in progress. appointed and the relevant specialist studies are in progress.
It is only with careful land management that biodiversity can be maintained
NORTHAM ANNUAL INTEGRATED REPORT 2016 95 GOVERNANCE
MANAGING RISK AND OPPORTUNITY
Management is responsible for identifying significant risks to and opportunities for the business and for implementing the controls and actions required to improve the management of the identified risks on a regular basis.
RISKS A further example of the dynamism and flexibility of the risk Management reports on the key risks of the business to discipline is its ability to adjust and respond swiftly to issues and the audit and risk committee and to the board in April and risks of the day. An illustration of this was the implementation November each year. This report is also considered by the board of internal fire audits at the group operations in January 2016, semi-annually. in response to the incidence of underground fires in ex-group operations. The assessments examined whether any hazards The risks are assessed and documented for the following exist in terms of fires and associated risks in the workplace and divisions of the group: focused also on the validity and operational effectiveness of • Corporate office existing systems, policies and procedures. The results of these assessments were reviewed personally by the chief executive. • Norplats Properties Proprietary Limited No other additional risk factors were identified. • Zondereinde mine (including Northam Chrome) • Booysendal mine All assurance activities in respect of the control environment are co-ordinated, through a combined assurance approach, A recent addition to the risk management function has including management and independent assurance providers, been the generation of a regulatory universe report. The for example internal and external auditors. regulatory universe report is a list of all major or material Acts and regulations that apply to Northam as a mining entity in This is an ongoing process managed and monitored by South Africa. Through this dynamic function, management Northam’s management to ensure that the assurance keeps abreast of key legislation applicable to the group and received is adequate to address the significant risks faced its operations to ensure compliance and/or the institution by the group. Formal assurance is provided by management of remedial actions. Incidents of known non-compliance or and the external and internal auditors at each half year. This is potential non-compliance are recorded and summarised in the known as combined assurance and is monitored by the audit regulatory universe report, along with the remediation applied. and risk committee.
Group inherent and residual risks
100 90 80 70 60 50 sidual risk % 40 30 20 nt risk and re 10
Inhe re 0 s e n
safety ulatio g ensky Reef
Industrial actionoduction target Electricity supply Health and Fraud and corruption ocess – concentrator Changing re Employee availability Inherent risk % am pr Complexity of Mer Residual risk score Not meeting pr ange rate and commodity pric
Exch Single stre Succession planning and skills shortage
The group risks included in this report have been prepared from the more detailed divisional risk registers maintained by management and indicates the group’s combined key risks (risks ranked as priority 1, 2 and 3) as identified by management across all divisions of Northam. Similar risks for various divisions have been combined to summarise the group overall risk rating for each key risk area.
96 LEGEND FOR THE KEY RISK REPORT The table below explains the terminology or abbreviations which are applicable to the graph and the report:
Term or abbreviation Explanation Key risks (risk with residual risk classifications below) Priority 1 Extreme residual risk requiring immediate escalation to the audit and risk committee and the board of directors. Remedial actions to be implemented by management immediately. Priority 2 High residual risk requiring immediate escalation to management and remedial actions to be implemented. Priority 3 Moderate residual risk requiring remedial actions to be implemented by management. Priority 4 Management must consider whether the benefit of further reduction outweighs the cost thereof. All risk graphs Inherent risk The risk to Northam without taking into account the controls implemented and other mitigating factors. Control effectiveness The effectiveness of the controls implemented as assessed by management of Northam. Residual risk The risk after taking into account the controls implemented by management and the effectiveness of those controls.
The key risks and any changes to the risk register since the key risks were last presented are reflected in the table below.
Change in Risk Previous rating risk rating Current rating Mitigating measures and comments 1. Priority 1 Unchanged Priority 1 Merensky reef remains difficult to mine in the short Complexity term. Management is pursuing the deepening project at and availability Zondereinde mine in order to open more face for Merensky of Merensky ore. A higher proportion of UG2 ore is now being mined Reef as it is more readily available, with the UG2 to Merensky proportion changed from 1:1 to 60:40. See Manufactured capital on page 38, Natural capital on page 68.
Construction of a new 20MW furnace commenced in February 2016 to cater for a higher volume of UG2. See Manufactured capital on page 38.
Booysendal mine provides geographic diversification and access to a less complex, shallower UG2 orebody with a higher base metal content that can be mined mechanically and with the possibility of additional Merensky ore. See Manufactured capital on page 38.
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Change in Risk Previous rating risk rating Current rating Mitigating measures and comments 2. Priority 2 Unchanged Priority 2 A three year wage deal was secured at both mines, at Industrial (or Zondereinde with the National Union of Mineworkers (NUM) community) and at Booysendal through MRC (the main contracting action company with various unions, mainly NUM and the Associated Mine and Construction Union (AMCU)). See Human capital on page 44.
In recognition of employees’ freedom of association, Northam’s policy is to grant organisational rights to any union with representation of 15% or more of a relevant category of employees. Management maintains open channels of communication with its labour force, both with employees of influence and with representative union structures. For bargaining rights, a union is required to prove 33.3% representation of its relevant constituency. In addition, management consults with any legitimate worker representatives or committees to resolve any concerns which may arise.
Zondereinde: A verification exercise to assess union representation thresholds was performed by the CCMA earlier in the year. The results indicated that the NUM remains the majority union with bargaining rights.
Stakeholder liaison with the local SAPS through security structures in the event of possible industrial action is in place.
Management engages with employees of influence and union leadership to understand issues of the day and to deal with any potential problems proactively. Structures are in place to engage with the unions in terms of housing issues, empowerment and other concerns. In addition management communicates directly with employees to keep them informed of developments. This is done via e-mail, sms and notice boards.
See Human capital on page 44 with regard to the interruption to underground mining at Zondereinde towards the end of the financial year.
Booysendal: No major difficulties were experienced on the eastern limb regarding labour. However community service delivery protests did disrupt the employees’ ability to get to work and may continue to do so. See Human capital on page 44.
98 Change in Risk Previous rating risk rating Current rating Mitigating measures and comments 3. Priority 3 Unchanged Priority 3 Production targets may be impacted by a number of factors Not meeting including work stoppages either owing to labour and/ production or community disruption or safety stoppages. Northam targets management is intent on cultivating good relationships with employees and with contracting companies to obviate labour disruption.
In order to avoid safety stoppages operational management encourages safe working practices, which inevitably contribute to efficient and effective operations, and management incentivises employees to produce efficiently. 4. Priority 2 Unchanged Priority 2 The group has developed appropriate remuneration policies Succession and practices to retain its competitive edge in the industry planning and especially for technical skills. Having identified particular areas skills shortage where transformation is required, management focuses on attracting senior level previously disadvantaged individuals to take up senior level appointments over the next two years.
A senior human resources executive has been appointed to focus on succession planning, in collaboration with heads of departments to identify appropriate candidates.
In-house training and mentoring have been improved to promote skills enhancement, with external recruitment being applied where necessary.
This risk is rapidly turning into an opportunity for Northam as more skilled and trained employees come on to the market, given the difficulties encountered in the resources sector. 5. Priority 3 Unchanged Priority 3 Continuous audits (internal and external) and review of Fraud and controls are being conducted. The whistle blowing/ethics corruption hotline has recently been the subject of a revitalisation campaign to heighten awareness at both operations. To address this risk, a security sub-department reports to the financial division. 6. Priority 3 Unchanged Priority 3 Northam has adequate funding in place to support its Exchange operations in the short to medium term. A pricing committee rate and has been established to deal with price forecasts and commodity hedging, if necessary. Given the low PGM prices over an price extended period now, management has implemented supplier cost reviews, general cost cutting exercises and deferment of cash outflows, where possible. In addition, management has appointed a consultancy firm to identify additional cost saving opportunities. Furthermore, the group’s growth strategy focuses on synergies, lower costs and shallow orebodies where it is possible to mechanise.
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MANAGING RISK AND OPPORTUNITY CONTINUED
Change in Risk Previous rating risk rating Current rating Mitigating measures and comments 7. Priority 3 Unchanged Priority 3 This construction of a new 20MW furnace which Single stream commenced in February 2016 is part of the smelter process- expansion and de-risking programme. The project, estimated concentrator at R750.0 million, is expected to be completed by the end of the 2017 calendar year. See Manufactured capital on page 38. 8. Priority 2 Unchanged Priority 2 Underground mining is inherently hazardous and requires full Health and compliance with health and safety regulations, compulsory safety safety training and the compulsory use of PPE.
The established health and safety departments have implemented health and safety codes of practice and standard operating procedures are in place. The Chamber of Mines’ safety strategy has been approved by the board.
The group’s growth strategy involves acquiring and/or developing shallow, mechanisable orebodies. Given that mechanised mines are less labour-intensive, they are also safer.
At Zondereinde, the use of hydropower largely eliminates the presence of dust thus improving health and safety conditions for employees.
HIV/AIDS and TB have been aggressively targeted with a strong focus on prevention. 9. Priority 3 Unchanged Priority 3 There is currently uncertainty regarding the applicability of Changing the Department of Trade and Industry’s (DTI’s) BBBEE codes. regulations The DTI and DMR are working on the harmonisation of codes to be applied to mining companies. A new Mining Charter is also being considered. The new Mining Charter is expected to be released during the second half of calendar year 2016. Management is focused on housing, BEE and transformation in order to comply with the key objectives of mining legislation. Management is also working on operationalising the two community trusts and the employee trust that are part of the Zambezi Platinum transaction. See Social capital on page 60. 10. Priority 3 Unchanged Priority 3 The threat of supply disruptions has abated since the Electricity electricity crisis first broke in 2008. Contingency mitigation Supply measures are now well established and Booysendal’s (Eskom) mechanised mining equipment is largely diesel powered, thereby reducing the load.
Operational management has developed constructive relationships with Eskom’s staff, and electricity management programmes are well established. Automated emergency generators are in place to allow co-generation.
The most important issue about electricity relates to cost. Eskom has embarked on an extensive expansion programme that needs funding and seems to have some spare capacity currently because of slowed economic growth. Both of these factors will undoubtedly lead to higher costs.
100 Change in Risk Previous rating risk rating Current rating Mitigating measures and comments 11. Priority 3 This risk has Priority 1 People management has gained emphasis, with supervisors Employee increased in responsible for providing greater oversight and managing availability significance teams closely. – loss of productivity Certain human resource procedures need to be boosted due to staff and integrated with IT systems. An upgrade of IT systems illness and is underway and this will assist in the measurement and absenteeism monitoring of employee movements and behaviour.
OPPORTUNITIES The company’s chief executive officer has outlined Northam’s growth strategy which is to grow down the cost curve by mining shallow mechanisable PGM orebodies. The strategy is on track and opportunities for growth are constantly assessed and reviewed. This includes both organic and external opportunities.
All growth and expansion opportunities are assessed in terms of the companies’ investment criteria and are required to at least meet the companies cost of capital. Management is focused on growing the business at a rate that is faster than the preference share coupon rate (which is prime interest rate plus 350 basis points, currently 14.0% at 30 June 2016) of Zambezi Platinum, which was introduced by the BEE transaction mentioned above.
The group’s organic growth projects, which are epitomised by the expansion projects of Booysendal South, do meet the group’s investment criteria and sufficient time has been taken by management to ensure that the risk of project failure is minimised.
At Zondereinde, the use of hydropower largely eliminates the presence of dust thus improving health and safety conditions for employees
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CORPORATE GOVERNANCE REPORT
The board and management recognise that good corporate governance is integral to the group’s sustainability. Adherence to the standards and recommendations set out in the King III report and other relevant laws and regulations is vital to achieving the group’s strategic goals.
APPLICABLE GOVERNING FRAMEWORK Northam complies with the JSE listing requirements, applicable statutes, regulatory requirements and other authoritative directives regulating its conduct. The principal applicable frameworks include:
JSE listings International IR Companies Act requirements Framework King III Mining Charter The Companies Northam is a public The International The King Report on Northam seeks to Act 71 of 2008, as company listed on Integrated Reporting Corporate Governance comply with the Broad- amended, by the the JSE and is subject Framework. for South Africa 2009 Based Socio-Economic Companies Amendment to the JSE listings and the King Code of Empowerment Charter Act 3 of 2011 (the requirements. Governance Principles for the South African Companies Act), (collectively, King III). Mining Industry (the and the Regulations Mining Charter), in promulgated thereunder terms of the Mineral (the Companies and Petroleum Regulations). Resources Development Act (MPRDA). www.acts.co.za www.jse.co.za www.theiirc.org www.iodsa.co.za www.dmr.gov.za
KING III COMPLIANCE The board is satisfied that every effort has been made in the financial year ended 30 June 2016 to comply with the principles and recommendations of King III. A summary document indicating compliance with the King III principles and recommendations is available on the Northam website at www.northam.co.za
Board of directors
Non-executive Executive Independent
PL Zim (chairman) PA Dunne – chief executive officer R Havenstein (lead independent) KB Mosehla AZ Khumalo – chief financial officer CK Chabedi HH Hickey TE Kgosi AR Martin TI Mvusi
Board committees
Health, safety and Social, ethics and human Audit and risk environmental Investment Nomination resources committee committee committee (HSE) committee committee (SE and HR) AR Martin (chairman) R Havenstein (chairman) R Havenstein (chairman) R Havenstein (chairman) TE Kgosi (chairperson) R Havenstein CK Chabedi CK Chabedi TE Kgosi CK Chabedi HH Hickey PA Dunne AR Martin AR Martin KB Mosehla TE Kgosi KB Mosehla PL Zim By invitation: By invitation: By invitation: By invitation: By invitation: • Management • Management • Management • Management • Management • Internal audit • External audit
102 BOARD OF DIRECTORS Messrs Chabedi and Zim both retire from office in terms of As at 30 June 2016, the board comprised 10 directors, the clause 33.5.1 and, being eligible and available, have offered majority of whom are independent, 20% are women and 60% themselves for re-election and appointment at the AGM on are historically disadvantaged South Africans (HDSA). 9 November 2016.
Mr Zim, non-executive chairman, represents Zambezi Platinum Mr Martin, who also retires by rotation, has not made himself on the board, and Mr Havenstein is the lead independent available for re-election as a director and as such his retirement director. Mr Mosehla, a non-executive director, also represents shall become effective following the conclusion of the AGM in Zambezi Platinum. accordance with clause 33.5.8.
The board ensures that its composition is appropriate in terms In terms of the company’s MOI directors appointed to the board of skills, knowledge, experience, independence and gender during the year shall hold office until the next AGM and shall in accordance with the provisions of its board charter and then retire and be eligible for re-election. Memorandum of Incorporation (MOI), available on the Northam Ms Hickey and Mr Mvusi were appointed as directors on website at www.northam.co.za. It also takes responsibility 1 January 2016 and, in accordance with the provisions of for corporate strategy and the management of risk and clause 33.5.4 of the MOI, retire from office and, being eligible opportunities of the group which are executed within the and available, have offered themselves for re-election and confines of its corporate governance structure. appointment at the AGM. Changes to the board At the forthcoming AGM on 9 November 2016 members will During the year under review: be requested to consider resolutions providing for the election • Mr Havenstein replaced Mr Martin as lead independent and re-appointment of Messrs Chabedi, Zim, Ms Hickey and director on 18 August 2015. Mr Mvusi as directors. • Mr Mosehla was appointed a non-executive director on As recommended by the nomination committee, Ms Hickey, 19 August 2015. subject to her appointment as a director, will replace Mr Martin • Mr Beckett retired as an independent director on as chairman of the audit and risk committee. 11 November 2015. Brief summaries of their curricula vitae appear on pages 18 and 19. • Ms Hickey and Mr Mvusi were appointed as independent directors on 1 January 2016. Attendance at board and board Retirement and re-election of directors sub-committee meetings The board and its committees meet at least once a quarter and In terms of clause 33.5.1 of the MOI, one third of the ad hoc meetings may also be called to consider specific issues. non-executive directors, being those longest in office, shall The investment committee and the nomination committee meet retire from office at each AGM. A retiring director who is as and when required. eligible and available may offer himself or herself for re-election and appointment.
Booysendal has a life of mine of 25 years
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CORPORATE GOVERNANCE REPORT CONTINUED
Audit and risk HSE Investment Nomination SE and HR Board committee committee committee committee committee Number of meetings 5 5 4 2 3 4 PL Zim (chairman) 5 – – – 3 – PA Dunne (CEO)* 5 – 2 – – – AZ Khumalo (CFO) 5 – – – – – ME Beckett** 1 3 2 – – 1 CK Chabedi 5 – 4 2 – 4 R Havenstein 5 5 4 2 3 – HH Hickey*** 3 2 – – – – TE Kgosi 5 5 – – 3 4 AR Martin 5 5 – 2 3 – BK Mosehla**** 4 – – 2 – 4 TI Mvusi*** 3 – – – – –
Key: – Not applicable * Appointed to the HSE committee on 10 December 2015 ** Retired 11 November 2015 *** Appointed 1 January 2016 **** Appointed 19 August 2015
The CEO attends the HSE committee meetings as a member. For all the other sub-committee meetings, the CEO and CFO attend by invitation.
Disclosure of personal financial interests Schalkwyk, chief commercial officer; CA Smith, executive officer HR, Disclosure of personal financial interests is a standing board and FR Rautenbach, manager – projects and strategy; and Ms PB committee agenda item and a register of all directors’ company Beale, company secretary. shareholdings, other directorships and information regarding The members meet on a monthly basis to discuss and deal any potential conflict of interest is updated by directors at with operational matters, recommend strategies and monitor each meeting. Directors recuse themselves from discussion implementation of capital programmes. on any matters in which they may have a conflict of interest. Furthermore, before dealing in the company’s shares, directors BOARD COMMITTEES are required to obtain approval from the chief executive or the chief financial officer and are to inform the company secretary. Audit and risk committee The committee’s members are four independent directors, Board charter and committees’ terms of reference Messrs Martin - chairman; Havenstein; Ms Hickey and Ms Kgosi. The board of directors’ charter articulates the objectives and Mr Beckett retired as a member on 11 November 2015 and responsibilities of the board. Each of the board committees Ms Hickey was appointed on 1 January 2016. operates in accordance with written terms of reference, which are reviewed by the executive committee and any changes The members are elected at each AGM in line with the required, are approved by the board. The board takes ultimate Companies Act and King III. To this end, shareholders will be responsibility for the group’s adherence to sound corporate required, at the forthcoming AGM to approve the necessary governance standards and sees to it that all business decisions resolutions appointing Mr Havenstein, Ms Hickey and Ms and judgements are made with reasonable care, skill and Kgosi as members. Mr Martin, chairman of the committee has diligence. The board charter and the board committees’ not made himself available for re-election as a director and terms of reference are available on the Northam website at as recommended by the nomination committee, Ms Hickey www.northam.co.za will replace Mr Martin as chairman of the committee. The board is satisfied that the members of the committee have the Executive committee requisite skills, understanding of corporate law and adequate The group’s chief executive, Mr PA Dunne is responsible for the practical experience relevant to the business of Northam. execution of the company’s strategy and reports to the board. They also understand the International Financial Reporting He chairs the executive committee that comprises six members, Standards framework in terms of which Northam must report namely Messrs AZ Khumalo, chief financial officer; LC van as a listed company.
104 The chief executive and chief financial officer are invitees to of the JSE listings requirements, the chairman of the board or, if these meetings and both external and internal auditors are the chairman is not independent, the lead independent director invited to attend. At least once a year, the external and internal is required to chair the nomination committee. audit plans are reviewed and approved for the year ahead. The internal audit plan is approved after management’s input on The main functions of the committee are to recommend areas needing special attention. The committee also approves director nominees to the board, for approval by Northam and reviews the risk management report twice yearly, based shareholders at the AGMs of the company and to ensure that on management proposals that identify the key risks and the interests of shareholders are property protected in relation appropriate measures in place to mitigate these risks. to the leadership and management of the company. The chief executive and chief financial officer are invited to attend For attendance at meetings refer to page 104. committee meetings.
The report of the audit and risk committee may be found on For attendance at meetings refer to page 104. page 153 of this annual integrated report. SE and HR committee HSE committee This committee’s members are three directors, Ms Kgosi – The committee comprises three directors, Messrs. Havenstein chairperson; Messrs. Chabedi and Mosehla. Mr Mosehla – chairman; Chabedi and Dunne - chief executive. Mr Beckett was appointed on 19 August 2015 and Mr Beckett retired retired as a member on 11 November 2015 and Mr Dunne on 11 November 2015. was appointed on 10 December 2015. The chief financial officer is invited to attend committee meetings which are held The key responsibility of the committee is to assist the board every quarter. with transformation and labour matters in terms of amongst others, the Mining Charter and as set out in the Companies The committee is charged with ensuring the group’s Act, the monitoring of the group’s performance with the performance on such sustainability issues as safety, health and social and ethics statutory requirements. The committee is the environment at the mines, especially as they affect employees also responsible for the group’s remuneration matters and the and communities in the areas in which the group operates. remuneration report may be found on page 107 of this annual This committee has oversight of policies, records and reporting integrated report. systems pertaining to typical occupational safety and other endemic health issues associated with the mining industry. The terms of reference of the committee, containing For key features on Northam’s health and safety structures detailed information regarding the committee’s responsibilities and systems, refer to page 55. and mandate, are available on the company’s website www.northam.co.za For attendance at meetings refer to page 104. The committee, together with the board, monitor the group’s Investment committee performance with the elements of the Mining Charter on a This committee’s members are Messrs Havenstein – chairman; quarterly basis. Further details may be found in the Human capital Chabedi; Martin and Mosehla. Mr Mosehla was appointed on section beginning on page 44 of this annual integrated report. 19 August 2015. The chief executive and chief financial officer The chief executive, chief financial officer and, Mr C Smith, are invited to attend committee meetings. Northam’s executive officer HR are invited to attend The committee evaluates and advises the board on all committee meetings. acquisitions and investment-related opportunities. It does not For attendance at meetings refer to page 104. have regular meetings but meets as and when required. The main functions of the committee are to consider the suitability Performance reviews of the board and and compatibility of potential investments and their returns, sub-committees weighted against the interests of stakeholders. The board and sub-committees undertake an annual series of For attendance at meetings refer to page 104. assessments in order to monitor performance and identify areas for improvement. The annual board assessment was led by the Nomination committee chairman and facilitated by the company secretary. The overall The committee comprises four directors, Mr Havenstein – lead consensus was that the board is working well, has a good mix independent director as chairman, Ms Kgosi, Messrs Martin of directors and that there is a high commitment to work in the and Zim. best interests of Northam.
Mr Havenstein replaced Mr Martin as lead independent director The sub-committees’ annual evaluations were facilitated by the and chairman of the committee on 18 August 2015. In terms company secretary and led by the chairperson of each committee.
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CORPORATE GOVERNANCE REPORT CONTINUED
In compliance with King III, the board chairman and lead Donations independent director were re-elected at the November 2015 The company has a long-standing policy where employees board meeting. may not accept gifts, hospitality or favours from suppliers or Independence test in terms of King III contracting companies of more than a nominal value. All gifts and entertainment details are recorded in a gift register for Annual independence tests for the independent directors record purposes. Messrs Chabedi, Havenstein, Ms Hickey, Ms Kgosi, Messrs. Martin and Mvusi were conducted in June 2016. The board Ethics 24-hour whistle-blowing hotline considered the minority beneficial interests held by Mr Chabedi Northam’s ethics hotline number 0800 15 25 39 became and Ms Kgosi in Zambezi Platinum, which they had acquired in effective in 2011 and is monitored by an external party (KPMG), terms of the BEE transaction in May 2015. They also considered 24 hours a day in all the official languages of South Africa. the tenure of Mr Havenstein and Ms Kgosi who have been on Anyone (whistle-blower) can anonymously report corruption, the board beyond nine years. The board is satisfied that there fraudulent activity or other problems for investigation. All are no relationships or circumstances which affect, or appear to whistle-blowers are protected against any form of victimisation affect the independence of the abovementioned directors. provided disclosures are made in accordance with the provisions Company secretary of the Protected Disclosures Act, No 26 of 2000. In compliance with the JSE listings requirements, the board Insider trading is satisfied that the company secretary is competent, suitably The company has clear rules and guidelines in place which seek qualified and experienced. Furthermore, since she is not a to ensure that employees do not contravene the JSE’s rules on director, nor is she related to or connected to any of the insider trading. Neither directors nor employees are allowed to directors, thereby negating a potential conflict of interest, and deal in Northam shares or Zambezi Platinum preference shares she maintains an arm’s length relationship with the board. if they are in possession of non-public information or during closed periods. These rules also extend to close relatives of The company secretary oversees corporate governance matters directors and employees. Directors and employees are required within the group in line with King III and the Companies Act to obtain prior approval for dealing in the company’s shares and and new directors undergo an appropriate induction process. are routinely advised of the company’s closed periods. The company secretary seeks to ensure compliance with all statutory and listing requirements relating to the group and JSE listings requirements ensures that minutes of meetings are kept for shareholder, As a listed entity Northam is required to comply with the JSE’s board and committee meetings in terms of the Companies Act. listings requirements and certification of this is submitted to the Approval framework JSE. Northam’s submissions are currently up to date. The approval framework governs the delegation of authority Reporting to stakeholders and value limits within the group and is necessary to ensure The board is aware of the requirements for the group to engage that all transactions are approved appropriately. This enables with analysts, shareholders and stakeholders alike about the management to limit the potential damage that any unauthorised group’s financial performance, operational developments and expenditure or corruption could inflict on the group. sustainability indicators. Code of ethics Along with the print and electronic publication and The group’s code of ethics is reviewed by the executive dissemination of results on a half-yearly basis, the company committee and any changes required are approved by the board. regularly hosts visits, presentations, briefings and meetings The code of ethics applies to both directors and employees of with interested stakeholders, institutions and others. Feedback the group. It governs the interaction between the group and its is a critical element of such engagement processes and is suppliers, contracting companies, and customers. It also covers communicated through the executive committee for discussion the use of group assets and confidential information. A breach at board level. of the code of ethics could result in disciplinary action and/or civil or criminal action being taken against a perpetrator. The code of ethics is available on the Northam website at www.northam.co.za
106 REMUNERATION REPORT
The board, through the SE&HR committee is ultimately At Booysendal, approximately 90% of the workforce is covered responsible for establishing a remuneration policy and for by collective bargaining agreements through the contracting its implementation, to ensure that competent individuals are companies used at the operation. Approximately 70% of appointed as senior managers, and to ensure that the group’s unionised indirect employees belong to the Amalgamated Mine leadership is adequately rewarded for delivering on the group’s and Construction Workers Union (AMCU). strategic targets. In addition, the committee is responsible for mandating management on appropriate wage increase Northam also engages with other unions representing smaller thresholds for union negotiations and advises on the scale of groups of employees. The group’s labour relations policies fees to be paid to non-executive directors, which are submitted provide for organisational rights to any union which meets a to shareholders for approval. 15% representation threshold within a bargaining unit. When a registered union reaches a representative threshold of 33.3% EMPLOYEES REPRESENTED IN TERMS OF COLLECTIVE within a bargaining unit, it acquires the right to bargain for BARGAINING ARRANGEMENTS that particular unit. Northam’s objective is to engage in good faith in order to reach agreement on matters such as wages, There are various unions representing workers at the group’s substantive conditions of service and other matters of mutual operating mines. The majority of the group’s employees, interest. See pages 108 and 109 of this report for further approximately 80% at Zondereinde, are contributing members information or go to www.northam.co.za of the National Union of Mineworkers (NUM) – primarily in the category 2 to 10 bargaining units. Their salary levels, annual In addition to their wages, employees also earn various forms of increases, allowances and benefit packages are negotiated on a bonuses to incentivise performance. collective basis.
At Booysendal, approximately 90% of the workforce is covered by collective bargaining agreements though the operation’s contracting companies
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REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTORS, MANAGEMENT AND • attracting and retaining core skills, such as artisans, engineers NON-UNION STAFF and management; and Executive directors, including corporate and operational • offering remuneration packages that are competitive, fair, management, are treated in accordance with their contracts of and reasonable in all respects and at all levels. employment and the remuneration and benefit schemes and practices applicable to their job grades. Salaries are reviewed FEATURES OF THE REMUNERATION PRACTICES annually, effective 1 July. Salary increases are determined Employment contracts are concluded on a permanent basis as individually, according to individual performance, retention and a general principle (i.e. for an indefinite period), except where market-matching criteria. fixed-term or short-term temporary contracts are required for specific projects. The notice period for the termination of All non-union staff, managers and executives have detailed employment contracts is typically one month, but for critical job profiles which stipulate the key performance areas of positions this can be extended by mutual agreement to a their positions. These serve as the basis for performance maximum of one year. management, measurement and performance-linked salary increases and bonuses. Northam’s objective is to provide a market-competitive basic salary plus compulsory medical aid and retirement fund Remuneration takes the form of: membership. Various fixed and variable allowances are paid • appropriate salary packages, including those of the executive at certain job/grade levels or to certain job categories. The job directors which incorporate basic remuneration pay grading system is based on the Paterson model. Remuneration (BRP) including death, disability, medical aid and pension experts are consulted from time to time as circumstances dictate. contribution benefits; Salary scales and employee benefits are benchmarked against • various allowances; mining industry standards and reviewed annually. The midpoints • various short-term incentive bonus schemes depending on of the group’s salary scales are compared with industry the grade of the employee; percentiles and adjusted annually, in line with the changing size, • a long-term incentive scheme launched in 2011 which structure, financial performance and general circumstances of the replaced the prior share option scheme (see page 112); and group over time. • Key person insurance cover is available for the executives and The group’s salary scales have a range of between 12.5% the general managers of the group. and 57% which allow an overlap on scales which have steps REMUNERATION POLICY of 15% between grade ranges to allow for the appropriate positioning of individuals according to qualifications, Pay levels are determined in terms of the group’s experience, performance, growth, development and market remuneration policy. Through fixed and variable imperatives. However, in a competitive market where skills are remuneration, the group aims to attract, retain, scarce, market comparisons may result in pay amounts above incentivise and reward top quality staff at all levels, the range being considered and paid. particularly where scarce or critical skills are involved. The committee approves salary increases for all categories of The group’s remuneration policy is designed to support its staff in advance each year. Any material changes to allowances, strategic goals in a way that aligns the interests of employees, benefits, bonus schemes, or any other aspect of remuneration managers, executives and directors with those of stakeholders. policy are approved by the committee prior to implementation. The remuneration policy is not intended to be a ‘one size fits all’ In the case of retrenchment, the group’s policy at all job levels statement of rules and procedures, but rather to serve as the is to pay the contractual notice period (if not worked) and basis for a flexible approach to the variable and changing needs severance pay in line with legislation (the Basic Conditions of of a dynamic and competitive mining employment environment. Employment Act), being one week’s remuneration per completed The policy is underpinned by the following key principles: year of service with the group. Severance payments upon • harmonising working conditions, salaries and wages termination of service are governed by legislation, agreements throughout the group; with unions, individual contract and/or group policy and practice. • compliance with all statutory and regulatory requirements and a commitment to applying best practice guidelines in all No provision is made for special retirement benefits for aspects of remuneration and benefits; group employees other than the standard benefits in terms
108 of two of the group’s recognised retirement funds, with the governed by legislation. The executive directors’ remuneration is exception of employees in Category 9 and above who were determined on an annual basis by the SE&HR committee. in service with the group on 31 December 1998. In respect of these employees, a contribution is made to a post-retirement ELEMENTS OF REMUNERATION FOR EXECUTIVE healthcare fund. These contributions cease when the employee DIRECTORS AND SENIOR OFFICIALS leaves the service of the group. All components of the group’s Fixed remuneration: cost to company remuneration system are subject to regular internal and external Executive directors are paid market-related salary packages on audits, as well as routine monitoring by the South African a cost to company basis which represents their guaranteed Revenue Services. The committee is satisfied that the group is pay. Increases are generally offered and determined annually compliant with all pertinent regulations. by the committee in July. Increases take account of the group’s Executive directors’ service contracts economic performance, the prevailing inflation rate and may include a merit component of no more than 2% in addition to The chief executive, Mr PA Dunne has a service contract the inflation rate. with the company which is subject to a notice period of one year. The chief financial officer, Mr AZ Khumalo has a service The chief executive’s basic remuneration increase of 8% in contract with the company which is subject to a notice period July 2015 takes account of his forfeiture of an increase in of three months. Severance pay is governed by employment July 2014, given that his contract with the company started (labour) legislation and there are no special severance package in March 2014. The chief financial officer received an 11% arrangements in terms of these contracts except that they are increase following a benchmarking exercise.
EXECUTIVE DIRECTORS – TOTAL REMUNERATION OUTCOMES AND REMUNERATION MIX FY2016 Basic Gain on Executive director remuneration Benefits Bonus shares *Total % % % % % PA Dunne 54.3 7.3 38.4 – 100.0 AZ Khumalo 31.4 4.6 25.4 38.6 100.0
* Refer to directors’ report on page 144 for directors’ remuneration in rand terms. Mr Dunne did not have any retention or performance shares vesting as his tenure at the company remains below the three-year vesting period.
At Northam, salary scales and employee benefits are reviewed annually
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REMUNERATION REPORT CONTINUED
VARIABLE REMUNERATION: SHORT-TERM Annual bonuses actually paid as a percentage of basic Employee bonuses remuneration plus benefits in FY2016 were as follows: The group has a variety of bonus schemes for employees. *2016 bonus as Bonuses are not guaranteed and are based on agreed formulae. % of basic pay Executive directors and senior management may earn a bonus Executive director plus benefits based on the extent to which they have achieved the targets PA Dunne 62.2 and objectives set for them by the committee and/or the board of directors. Bonuses are payable half-yearly. AZ Khumalo 70.7 * Refer to the directors’ report on page 144 for directors’ remuneration in Short term incentive – executive directors, senior rand terms. officials’ bonus scheme Typically, the bonus scheme is based on a weighted The board of directors, through the committee, determines combination of targets which are largely under the control of the performance targets and objectives of the chief executive management. Through the provision of bonuses, the committee and the chief financial officer, conducts their performance intends to incentivise management in areas/targets that they assessments and decides the quantum of their performance are able to influence. In this way, management is encouraged bonuses. The chief executive also has input into the evaluation to manage the group to achieve best performance for the of the chief financial officer. benefit of stakeholders. These targets are usually a weighted The chief executive and the committee determine the combination of safety performance, linear metres achieved, performance targets and objectives of senior managers, conduct square metres achieved, total tonnes milled, recoverable metals their performance assessments and determine the quantum of produced, cash or total operating costs, personal performance performance bonuses for approval by the board of directors. which includes transformation (referring to social employment quotas/criteria that must be met in terms of employment Bonuses are paid subject to the achievement of targets, and an legislation in South Africa). individual performance rating. Variability of the bonus amounts per grade is based on the relative BRPs of executive directors and senior officials.
SHORT-TERM INCENTIVES – DETAILS OF THE EXECUTIVE DIRECTORS’ AND SENIOR OFFICIALS’ BONUS SCHEME
Committee approved formula Achievement (excess or shortfall of actual over target), rated in terms of achievement factors (i.e. below 90% achievement = zero achievement factor and above 110% = 125% achievement factor) by (x) weighting of key performance area (scoring) x BRP x weighting of the two mines (on production) – this is calculated half yearly and per annum – all annualised = bonus of executive directors and senior management. Payment frequency Bonuses are paid twice annually based on the actual results achieved for each of six months ending December and June. 75% of the calculated bonus is paid for each six-month period with the final 25% being calculated on the results for the full year. Performance conditions Set during the financial year by the commitee and the board.
Corporate office bonuses are paid on a weighted basis based on the performance of the two operating mines, Zondereinde and Booysendal.
Performance criteria and weightings for FY2016 and FY2017. Minimum and maximum possible Minimum can be zero and maximum 125% of BRP. bonus opportunity Proposed changes for FY2017 Only for the Booysendal mine-weighting of targets as indicated in the table below. This change in certain targets reflects the anticipated steady-state production levels in FY2017. SE&HR committee discretion In consultation with chief executive, the committee may vary both the formula, targets and or the amounts payable.
110 EXECUTIVE DIRECTORS’ AND SENIOR OFFICIALS’ BONUS SCHEME – ELEMENTS OF BONUS – PAYABLE FOR YEAR END JUNE 2016: Zondereinde Achievement actual vs Scoring of Weighted Key performance area Unit Weighting target achievement score % % % % Safety TIIR 30 96.0 60.0 18.0 Linear metres m 10 85.0 – – Square metres m2 10 92.0 20.0 2.0 Total tonnes milled tonnes 10 93.0 30.0 3.0 Recoverable metals kg 15 96.0 60.0 9.0 Total cash cost R’000s 15 111.0 125.0 18.8 Personal performance Rating 10 – – – Net weighting – percentage of BRP for period and for mine payable 50.8
Booysendal Achievement actual vs Scoring of Weighted Key performance area Unit Weighting target achievement score % % % % Safety LTIIR 25 136.0 125.0 31.3 Capital development metres m 20 98.0 80.0 16.0 Square metres m2 10 92.0 20.0 2.0 ROM milled tonnes 10 99.0 90.0 9.0 Sweeping and vamping tonnes 5 94.0 40.0 2.0 ROM estimated recoverable metal kg 5 97.0 70.0 3.5 Total cash cost R’000s 15 99.0 90.0 13.5 Personal performance Rating 10 – – – Net weighting – percentage of BRP for period and for mine payable 77.3
Applicable formula: see table above.
CORPORATE OFFICE AND SHARED SERVICES STAFF Net weighting – percentage of BRP for period and for corporate office and shared services payable 59.0
The table below indicates the performance targets or criteria set for the FY2016 and FY2017 bonuses:
Weighting % Zondereinde Weighting % Booysendal Performance criteria Unit FY2017 FY2016 FY2017 FY2016 Safety (LTIIR/RIIR or TIIR) TIIR 30 30 20 25 Linear metres/capital development decline metres m 10 10 – 20 Square metres m2 10 10 30 10 Total tonnes milled tonnes 10 10 15 10 Sweepings and vampings tonnes – – – 5 Recoverable metals kg 15 15 15 5 Total cash cost R’000s 15 15 10 15 Personal performance rating 10 10 10 10 100 100 100 100
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REMUNERATION REPORT CONTINUED
Based on the cost to company, being the basic remuneration All officials within the D3 Patterson grading and higher, package plus pension contribution, the average group bonus including executive directors, are eligible to participate in paid under this scheme was 58.4% of group remuneration cost the scheme. In FY2016 the average group retention bonus in FY2016 (FY2015: 50.4%). paid was 11.1% (FY2015: 10.5%) of the group cost to company remuneration. In FY2016, executive directors and corporate office staff bonuses were paid for the first time (originally corporate Long-term incentives: details of share incentive offices staff were paid on the Zondereinde mine), on a plan and share option scheme for executive weighted basis relative to the performance of the two directors and senior management operating mines Zondereinde and Booysendal. The group currently operates the Northam share incentive plan (SIP or plan). The Northam share option scheme has been Short-term incentives: retention bonus scheme – discontinued owing to its dilutive nature. The share options issued including executive directors before its discontinuance will be allowed to run their course until The bonus is designed to retain skills within the company. October 2017. Details of the options issued under the scheme are Accordingly, any employee who is discharged or resigns more fully disclosed in the annual financial statements. before such bonus becomes payable forfeits the total amount accumulated. Remuneration of executive directors in terms of both basic pay and the Northam SIP payouts are disclosed on page 109 of this An amount equal to 20% of the annual BRP is accumulated remuneration report. monthly over 24 months and paid after two years’ service in terms of this scheme. On retirement or retrenchment all The SIP was introduced in 2011 in order to attract, incentivise and accumulated bonuses are payable to employees. Employees retain skilled senior managers. The target group for the SIP includes taking early retirement will receive this bonus on a proportional all senior officials and executives in job grades D1 and above. The basis in line with the same percentages as the share incentive committee approves the annual allocation of shares based on an plan rules. approved formula, as well as any changes to the SIP rules.
LONG-TERM INCENTIVE – DETAILS OF THE SHARE INCENTIVE PLAN
Instruments used • Conditional shares with a three-year vesting period • Retention shares (without performance conditions) – no more than 25% of the total award; and • Conditional shares with performance conditions – at least 75% of the total award • Forfeitable shares
Participants do not have to pay for any awards received under the SIP. Eligibility levels Executive directors and all senior officials in Patterson D grade and above Performance conditions and See table below for typical combination of performance conditions, each factor weighted performance measurement accordingly. From FY2015 onwards these include a rate of return performance target/factors with a weighting of at least 30%. Vesting period Three years for all shares Company and individual limits Total company limit of approximately 19.9 million shares and approximately 2.0 million shares per cycle for individuals. See the proposed lock-in and incentive mechanism (PLIM) on page 113 of this remuneration report. Minimum and maximum Minimum is the value of retention shares (as they have no performance conditions attached) possible share payout and maximum largely depends on operational performance of the company when targets are measured against actual performance for conditional shares. This determines the shares eventually allocated, (which are normally lower than those awarded because of the performance conditions test) as well as the share price when shares vest.
On measurement of the achievement of these targets/factors, each factor’s achievement rank depends on the extent of achievement for each factor over the three-year period, ranging from a ranking of 1 (which represents a 90 to 100% achievement of target). This could mean, for example, a 100% award of conditional shares.
This rises up to a ranking of 4, which, for example might be an achievement of over 105%, which may equate to a share number allocation of up to 135% of the original award.
112 Executive directors: November 2012 allocation, vesting November 2015 Safety Recoverable Unit cash Factor and weighting and year 30% metals 40% cost 30% Total FY2013 Score 110 96 100 FY2014 Score 87 79 93 FY2015 Score 111 88 94 Achievement per factor FY2016 135 – 100 Weighted 41% – 30% 71% Percentage shares to be paid 71% Executive directors – number of shares 98 000# 69 580*
# The initial/original number of shares awarded or granted to directors. The initial award is largely based on the share price at the time of award. * Final numbers of shares vested paid out in December 2015.
The first three-year cycle post the launch of the SIP in 2011 was • absolute total shareholder return (group) in excess of completed in November 2014. The performance conditions 14.7% (weighted average cost of capital) +1.3% and were measured with the result determining the allocations • relative total shareholder return (group) – Northam share of shares that vested and which determined the payout. price performance exceeding the platinum index return on The retention awards of FY2011 however vested in 2013. the JSE. For Zondereinde mine, corporate office and shared services (including executive directors) 70% of the awards were All with the sum of the weightings totaling 100%. allocated and paid. For Booysendal this amounted to 78%. In the next cycle paid out in December 2015, 71% of the awards An achievement of less than 90% of target results in no shares were allocated for Zondereinde, corporate office and shared being allocated at all. Every year the committee, with the services and 51% for Booysendal. assistance of management, assesses the allocation of both retention and conditional performance shares per employee. The awarding of shares is determined by means of a share option formula, approved by the SE&HR committee, which Full details of the shares granted to the executive directors was provided to Northam by external experts after a review of during the year are set out in the annual financial statements industry share schemes in 2011. The formula takes into account on page 244. factors such as the share price on award or grant date and the vesting period of the shares to be awarded. Both retention PROPOSED LOCK-IN AND INCENTIVE MECHANISM shares (without performance conditions) and performance (PLIM) shares (with performance conditions) are awarded. However The implementation of the BEE transaction has resulted in retention shares are limited to a maximum of 25% of the total a variety of benefits for the group, however, the guarantee number of awarded shares for all grades of staff including provided by Northam (guarantee) to the holders of preference executive directors. Usually the awarded shares are not the shares issued by Zambezi Platinum (preference shares) may number of shares that eventually vest, but the allocated shares result in the deterioration of shareholder value. Certain of (that is, the awarded shares after measurement against the Northam’s shareholders expressed concerns in this regard and performance conditions, three years later) are the number that recommended that the company appropriately incentivise vest and are paid out. management to mitigate this specific risk. The FY2016 three-year award performance targets/factors set in November 2015 are as follows: In this regard, the SE&HR committee considered the implementation of the PLIM which appropriately addresses the • an improvement of 10% over the previous financial year’s long term and short term incentivisation of key management safety record, with a weighting of 25%; to consistently maintain the Northam share price above the • estimated recoverable metals meeting production volumes, related preference share liability value over the term of the BEE weighted at 25%; transaction. The performance conditions attached to benefits • unit cash costs – achieving the budgeted unit costs for the under the PLIM are directly related to the terms of the BEE current year or less with a weighting of 20%; transaction and are intended to align the interest of the PLIM • a rate of return measure (each with a weighting of 15%); participants directly with those of the company’s shareholders.
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REMUNERATION REPORT CONTINUED
Reward under the PLIM is contingent on success, with failure limited to 5 million and these will be classified and treated as of the performance conditions resulting in complete loss of conditional shares under the SIP and are treated as such, save for potential benefits, if the performance condition is not met certain additional terms and conditions attached to them. The within the relevant performance measurement period. Given BEE CPS represent less than 1% of Northam’s shares currently the long term nature of the BEE transaction (10 years, subject in issue and no individual participant will be allowed to hold in to early closure in certain instances), the PLIM is designed to excess of 1.5 million BEE CPS. cater for continued incentivisation of management during the term with the majority of benefits only being realised upon the The BEE CPS primary performance criteria will be that successful conclusion of the BEE transaction in 10 years. Zambezi Platinum: • fully settles all the preference dividends accumulated in In addition to being an incentive, the PLIM has also been respect of all the outstanding preference shares and; designed to act as a retention tool for purposes of assisting the group in retaining the skills and expertise of its key • redeems all the outstanding preference shares in accordance management team throughout the duration of the PLIM. with the preference share terms (collectively, the redemption The PLIM comprises two parts: the BEE transaction incentive amount); and plan (BIP) and the cash incentive bonus in respect of the BEE • fully settles or makes adequate provision for all its tax transaction (CIBB). liabilities arising from settlement of the redemption amount,
Salient features of the BIP on the basis that no member of the group is required to settle The BIP considers the creation and award of BEE conditional a guarantee liability or give any direct or indirect financial performance shares (BEE CPS) under the group’s existing share assistance for the purposes of or in connection with the incentive plan (SIP). The number of BEE CPS to be issued is settlement of the redemption amount.
The Northam group operates an employee profit share scheme for eligible employees at the Zondereinde mine
114 Salient features of the CIBB In the event that the resolution regarding the proposed CIBB participants, for a given financial year, will receive amendments to the SIP is not passed, the SIP shall continue to an additional cash incentive bonus, in the event Zambezi operate in its current form save for adjustments to the SIP rules Platinum meets certain performance conditions by the annual unrelated to the BIP that do not require the approval measurement date (i.e. on or about the 31st trading day of shareholders. following publication of the group’s results). The salient features of the PLIM (including its two parts, the CIBB participants will receive, on an annual basis, 15% of their BIP and the CIBB) and the proposed amendments to the SIP cost to company remuneration excluding performance bonuses, are provided in annexure 5 attached to the notice of the AGM if the value of a Northam share at the measurement date is equal and abridged annual report 2016 available on the company’s to or greater than the redemption amount per preference share. website at www.northam.co.za and available at the company’s registered office. Furthermore, CIBB participants will receive, on an annual basis, an additional 15% of their cost to company remuneration EMPLOYEE PARTICIPATION SCHEMES excluding performance bonuses, if the aggregate value of the Toro Employee Empowerment Trust Northam shares held by Zambezi Platinum at the measurement The group operates an employee profit share scheme for date is sufficient to, in addition to fully settle the redemption eligible employees at the Zondereinde mine in terms of which amount, fully settle or make adequate provision for all of 4% of the Zondereinde after-tax profits are contributed to a Zambezi Platinum’s tax liabilities arising from settlement of the registered trust fund (The Toro Employee Empowerment Fund). redemption amount, on the basis that no guarantee liability will Eligible employees receive payment at the end of each five-year arise and no member of the group will be required to give any cycle, with the first payments having been made in FY2013. direct or indirect financial assistance for the purposes of or in connection with the settlement of the redemption amount BEE shareholding in Northam
CIBB participants will include certain key employees of the group, Employees and communities are participants in the BEE as approved by the committee. transaction approved in FY2015 in terms of which communities hold 5% of Northam shares and eligible group employees The fulfilment of the performance conditions will be based on (excluding management) own 3% of Northam (this is in the volume weighted average price at which Northam shares addition to the 4% share of Zondereinde after-tax profits traded for the 60 trading days preceding the measurement date through the Toro Trust). and the accrued liability under the preference shares as at the measurement date.
Certain employees may receive a CIBB on an ad-hoc, temporary basis according to the recommendations of the CEO and subject to the approval of the committee.
Amendments to the SIP Due to the implementation of the PLIM, certain amendments to the rules of the group’s SIP are proposed. These proposed Ms TE Kgosi amendments also clarify certain previously ambiguous rules of Chairperson the SIP and aim to facilitate more effective administration of the SIP on a continuing basis. 23 September 2016
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INDEPENDENT ASSURANCE REPORT
Independent limited assurance report in relation to selected sustainability disclosures and key performance indicators presented in Northam Platinum Limited’s annual integrated report for the year ended 30 June 2016
TO THE DIRECTORS OF NORTHAM PLATINUM LIMITED Report on selected key performance indicators We have carried out a limited assurance engagement in order to state whether anything has come to our attention that causes us to believe that the selected key performance indicators (KPIs) described below and Northam’s self-declared GRI “in accordance” assertion, as presented by management in the 2016 annual integrated report of Northam Platinum Limited (Northam) for the year ended 30 June 2016 (“the report”), are not prepared, in all material respects, in accordance with the Global Reporting Initiative (GRI) G4 guidelines and management’s internally developed criteria (“the criteria”) for reporting the selected KPIs, as set out below. This engagement was conducted by a multidisciplinary team including environmental and assurance specialists with relevant experience in sustainability reporting.
Subject matter The subject matter of our limited assurance engagement is: a) the selected KPIs set out in the table below, which are marked with an ‘ ’ on the relevant pages of the report. The selected sustainability disclosures and KPIs have been prepared by Northam applying the criteria, which information accompanies the performance information set out on the relevant pages of the report.
Area Key performance indicator Reporting criteria Maintain legislative and regulatory Percentage of historically disadvantaged South Africans G4-LA12 and internally compliance (HDSAs) in management developed criteria
Percentage of women in core mining jobs Creating and maintaining safe Reportable injury incident rate (RIIR) and lost-time G4-LA6 and internally workplaces injury incident rate (LTIIR) developed criteria Establishing and maintaining Percentage of employees covered by collective G4-LA4 and internally constructive communication channels bargaining agreements developed criteria with employees and representative bodies Number of strikes and lock-outs exceeding one week’s G4-MM4 and internally duration, by operation developed criteria Environmental stewardship Energy usage (direct and indirect) and GHG emissions G4-EN3, EN4, EN15 and resource conservation (Scope 1 and 2) and EN16 and internally developed criteria Percentage of water recycled at operations G4-EN10 and internally developed criteria Significant environmental incidents G4-EN24 and internally developed criteria SO2 emissions G4-EN29 and internally Monetary value of significant fines and total number developed criteria of non-monetary sanctions for non-compliance with environmental laws and regulations Ensuring stakeholders benefit from SLP expenditure G4-EC1 and internally the value generated by the company developed criteria Housing project and, in addition, whether anything has come to our attention that would cause us to believe that: b) Northam’s self-declared GRI “in accordance” assertion does not comply in all material respects with the relevant GRI G4 guideline requirements for making that assertion.
Our scope excludes all other disclosures or KPIs in the report not included in the table above.
116 Directors’ responsibilities The directors, being the responsible party, are responsible for the selection, preparation and presentation of the sustainability information subject to assurance in accordance with the GRI G4 guidelines and management’s internally developed criteria, for selection of reporting criteria that are appropriate for the purpose of reporting the sustainability information in the report, and for ensuring that those criteria are available/made available (as applicable) to the users of the report. This responsibility includes ensuring that: • stakeholders and stakeholder requirements, material issues, and commitments with respect to sustainability and carbon footprint performance are identified; • Northam’ sustainability context responds to the principles of materiality, stakeholder inclusivity and completeness; and • the sustainability information subject to assurance is prepared in accordance with the GRI G4 “core” guidelines, including appropriate disclosure(s) in the report stating whether the sustainability information has been prepared in accordance with the GRI G4 “core” reporting guidelines.
The directors are also responsible for determining Northam’s objectives in respect of reporting sustainability information and for establishing and maintaining appropriate information systems and related internal controls to enable preparation and presentation of the sustainability information subject to assurance free from material misstatement, whether due to fraud or error.
The directors are also responsible for the preparation of the information pertaining to specified greenhouse gas emissions in accordance with the Greenhouse Gas Protocol: A corporate accounting and reporting standard (GHG Protocol).
In addition, the directors’ responsibility includes the design, implementation and maintenance of internal control relevant to the preparation of the information on specified greenhouse gas emissions, and the preparation and presentation of the selected KPIs in the report, free from material misstatement whether due to fraud or error.
Inherent limitations Non-financial performance information is subject to inherent limitations given the characteristics of the subject matter and the methods used for determining, calculating, sampling and estimating such information.
GHG quantification is subject to inherent uncertainty because of incomplete scientific knowledge used to determine emissions factors and the values needed to combine emissions of different gases.
Our independence and quality control We have complied with the independence and all other ethical requirements of the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
Ernst & Young Inc. applies the International Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.
Our responsibility Our responsibility is to perform the assurance engagement and to express our limited assurance conclusion based on the work performed, stating whether anything has come to our attention that causes us to believe that the selected KPIs as presented in the report are not prepared, in all material respects, in accordance with the GRI G4 guidelines and the criteria for reporting the selected KPIs.
We conducted our limited assurance engagement in accordance with the International Standard on Assurance Engagements (ISAE) 3000 (Revised), Assurance Engagements other than the Audits or Reviews of Historical Financial Information and ISAE 3410, Assurance Engagements on Greenhouse Gas Statements, issued by the International Auditing and Assurance Standards Board. These standards require us to comply with ethical requirements and to plan and perform our engagement to obtain limited assurance about whether the selected sustainability disclosures and KPIs are free from material misstatement.
A limited assurance engagement undertaken in accordance with these standards involves assessing the suitability in the circumstances of Northam’s use of the GRI G4 guidelines and management’s internally developed reporting criteria as the basis of preparation of the sustainability information subject to assurance, assessing the risks of material misstatement of the selected sustainability disclosures and KPIs, whether due to fraud or error, responding to the assessed risks as necessary in the circumstances,
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INDEPENDENT ASSURANCE REPORT CONTINUED
and evaluating the overall presentation of the selected sustainability disclosures and KPIs. A limited assurance engagement is substantially less in scope than a reasonable assurance engagement in relation to both risk assessment procedures, including an understanding of internal control, and the procedures that will be performed in response to the assessed risks.
The procedures we performed were based on our professional judgement and included enquiries, observation of processes followed, inspection of documents, analytical procedures, evaluating the appropriateness of quantification methods and reporting policies, and agreeing or reconciling with underlying records.
Given the circumstances of the engagement, in performing the procedures listed above we: • Interviewed management and senior executives to obtain an understanding of the internal control environment, risk assessment process and information systems relevant to reporting the sustainability information subject to assurance; • Obtained an understanding of, and assessing the materiality determination process; • Tested the processes and systems used to generate, collate, aggregate, monitor and report the sustainability information subject to assurance; • Inspected supporting documentation on a sample basis; • Performed analytical procedures to evaluate the data generation and reporting processes against the reporting criteria; • Evaluated the reasonableness and appropriateness of significant estimates and judgements made by the directors in preparing the sustainability information subject to assurance; • Compared Northam’s GRI index, referenced in the report to the GRI G4 guidelines’ “in accordance” with criteria for a core report • Evaluated whether the sustainability information subject to assurance presented in the report is consistent with our overall knowledge and experience of sustainability management and performance at Northam, and that Northam’s presentation of the information is appropriate for management to assert that the information is prepared and presented in accordance with the GRI G4 guidelines
Our procedures did not include testing controls or performing procedures in relation to checking aggregation or calculation of data within IT systems, which would have been performed under a reasonable assurance engagement.
The procedures performed in a limited assurance engagement vary in nature from, and are less in extent than for, a reasonable assurance engagement. As a result, the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had we performed a reasonable assurance engagement. Accordingly, we do not express a reasonable assurance opinion about whether the sustainability information subject to assurance has been presented, in all material respects, in accordance with the criteria.
We are not responsible for reporting on any transactions or events related to the sustainability information subject to assurance beyond the period covered by our limited assurance engagement.
Limited assurance conclusion Based on the procedures we have performed and the evidence we have obtained, nothing has come to our attention that causes us to believe that: a) the selected KPIs identified above in the subject matter paragraph, as presented in the report are not prepared, in all material respects, in accordance with the criteria; and b) Northam’s self-declared GRI “in accordance” assertion does not comply in all material respects with the relevant GRI G4 guideline requirements for making that assertion.
118 Other matters Our report does not extend to any disclosures or assertions relating to future performance plans and/or strategies disclosed in the report.
The maintenance and integrity of Northam Platinum Limited’s website is the responsibility of management of Northam. Our procedures did not involve consideration of these matters and, accordingly we accept no responsibility for any changes either to the selected sustainability disclosures and KPI information as presented in the report or to our report for our independent limited assurance engagement that may have occurred since the initial date of presentation on the Northam website.
Restriction of liability Our work has been undertaken to enable us to express a limited assurance conclusion on the selected KPIs and Northam’s self- declared GRI “in accordance” assertion, to the directors of Northam in accordance with the terms of our engagement, and for no other purpose. We do not accept or assume liability to any party other than Northam Platinum Limited, for our work, for this report, or for the conclusion we have reached.
Ernst & Young Inc.
Director – Mike Herbst Registered Auditor Chartered Accountant (SA)
102 Rivonia Road Sandton 2196
30 September 2016
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2016 KPIs IDENTIFIED FOR LIMITED ASSURANCE
Relevant capital input, definition Area of materiality Key performance indicator and page reference Reporting criteria
Maintain legislative Percentage of HDSAs in H HUMAN CAPITAL – page 44 G4-LA12 and internally and regulatory management developed criteria compliance HDSAs in management: The total number of HDSA employees in management, including women (from junior management to top management), expressed as a percentage of total number of employees (including contractors)
Percentage of women in H HUMAN CAPITAL – page 44 G4-LA12 and internally core mining jobs developed criteria The total number of women in mining as a percentage relative to the total number of employees
Lost-time and reportable H HUMAN CAPITAL – page 44 injury incident rates (RIIR and LTIIR) Lost time injury or LTI: An injury that prevents an employee from performing normal duties on the next scheduled shift. This includes reportable injuries.
LTIIR: The number of LTIs multiplied by 200,000 and divided by the total number of hours worked.
Reportable injury or RI: An injury which incapacitates the injured employee for a 14-day period, or an injury which results in the loss of a limb or part thereof or in a permanent disability.
RIIR: The number of injuries multiplied by 200,000 and divided by the total number of hours worked.
Establishing and Percentage of employees H HUMAN CAPITAL – page 44 GA4 – LA4 and maintaining covered by collective internally developed constructive bargaining agreements Proportion of employees at the various criteria communication operations covered by collective bargaining channels with agreements as at the end of the reporting employees and their period, expressed as a percentage of the representative bodies entire workforce.
Number of strikes and H HUMAN CAPITAL – page 44 G4 – MM4 and lock-outs exceeding internally developed one week’s duration, criteria by operation
120 Relevant capital input, definition Area of materiality Key performance indicator wand page reference Reporting criteria
Environmental Energy usage (direct N NATURAL CAPITAL – page 68 G4-EN3, EN4, EN15, stewardship and indirect) and GHG EN16 and internally and resource emissions (scope 1 and 2) The sum of all energy inputs, self-generated and developed criteria conservation purchased. GHG emissions are the main cause of climate change and include carbon dioxide
(CO2), methane (CH4), nitrous oxide (N2O), CFCs,
HFCs and sulphur hexaflouride (SF6).
GHG emissions are broken into direct and indirect emissions: • Direct emissions Emissions from sources that are owned or controlled by Northam • Indirect emissions Emissions that result from the activities of Northam but are generated at sources owned or controlled by another organisation. In the context of this indicator, indirect emissions refer to GHG emissions from the generation of electricity, imported and consumed by Northam.
Percentage of water N NATURAL CAPITAL – page 68 G4-EN24 and internally recycled at operations developed criteria The amount of water that is used for a second or more time in an operation, process or activity.
Significant environmental N NATURAL CAPITAL – page 68 G4-EN29 and internally incidents developed criteria An incident which is a breach in legislation and causes serious medium-term environmental effects and adverse media attention.
SO2 emissions N NATURAL CAPITAL – page 68 G4-EN29 and internally developed criteria
Monetary value of N NATURAL CAPITAL – page 68 G4-EN29 and internally significant fines and developed criteria total number of non- monetary sanctions for non-compliance with environmental laws and regulations Ensuring stakeholders SLP expenditure Expenditure associated with projects G4-EC1 and internally benefit from the identified in the mines’ social and developed criteria value generated by Housing and labour plans the company accommodation
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REPORTING IN LINE WITH GRI
This report has been prepared in accordance with the GRI’s G4 guidelines which were launched in 2013. The company reports in line with the core format.
G4 places greater emphasis on the importance of materiality and improves the level of harmonisation with other reporting standards.
External assurance of sustainability reporting was provided by Ernst & Young Inc. Data indicators were selected for assurance on the basis of the company’s assessment of the issues and indicators that are most significant to the sustainability performance of the business.
Ernst & Young Inc’s sustainability assurance statement can be found on page 116 of this report.
The following table presents the GRI content index in line with the G4 guidelines, including GRI’s G4 Mining and Metals Sector Supplement (MMSS). Data which has been externally assured is indicated in the GRI content index.
Section heading and Reporting GENERAL STANDARD DISCLOSURES page number level Strategy and analysis G4-1 Provide a statement from the most senior decision-maker of the Chairman’s statement: 20 – 21 Fully organisation (such as CEO, chair, or equivalent senior position) Chief executive’s review: about the relevance of sustainability to the organisation and 22 – 23 the organisation’s strategy for addressing sustainability G4-2 Provide a description of key impacts, risks and opportunities Managing risk and Fully opportunity: 96 – 101 Organisational profile G4-3 Report the name of the organisation Scope: IFC – 1 Fully Throughout the report G4-4 Report the primary brands, products and services Focus on the Northam group: Fully 2 – 4 G4-5 Report the location of the organisation’s headquarters Administration and contact Fully information: IBC G4-6 Report the number of countries where the organisation Focus on the Northam group: Fully operates, and names of countries where either the organisation 2 – 4 has significant operations or that are specifically relevant to the sustainability topics covered in the report G4-7 Report the nature of ownership and legal form Focus on the Northam Fully group: 5 G4-8 Report the markets served (including geographic breakdown, Focus on the Northam group: Fully sectors served, and the types of customers and beneficiaries) 2 – 5 G4-9 Report the scale of the organisation, including: Our business model: 8 – 9 Fully • Total number of employees Focus on delivery: 11 – 17 • Total number of operations • Net sales (for private sector organisations) or net revenues (for public sector organisations) • Total capitalisation broken down in terms of debt and equity (for private sector organisations) • Quantity of products or services provided
122 Section heading and Reporting GENERAL STANDARD DISCLOSURES page number level G4-10 Report the composition of the workforce, including: Five-year sustainability review: Fully • Total number of employees by employment contract 16 – 17 and gender Human capital: 45 – 47 • Total number of permanent employees by employment type and gender • Total workforce by employees and supervised workers and by gender • Total workforce by region and gender • Whether a substantial portion of the organisation’s work is performed by workers who are legally recognised as self-employed, or by individuals other than employees or supervised workers, including employees and supervised employees of contractors • Any significant variations in employment numbers (such as seasonal variations in employment in the tourism or agricultural industries) G4-11 Report the percentage of total employees covered by collective Human capital: 53 Fully bargaining agreements Remuneration report: 107
G4-12 Describe the organisation’s supply chain Focus on the Northam Partially group: 4 Social capital: 62 and 67 G4-13 Report any significant changes during the reporting period Focus on the Northam Fully regarding the organisation’s size, structure, ownership, or its group: 2 – 5 supply chain, including: • Changes in the location of, or changes in, operations, including facility openings, closings, and expansions • Changes in the share capital structure and other capital formation, maintenance, and alteration operations (for private sector organisations) • Changes in the location of suppliers, the structure of the supply chain, or in relationships with suppliers, including selection and termination G4-14 Report whether and how the precautionary approach or Natural capital: 88 Partially principle is addressed by the organisation Managing risk and opportunity: 96 – 101 G4-15 List externally developed economic, environmental and social Scope: IFC – 1 Fully charters, principles, or other initiatives to which the organisation Human capital: 54 subscribes or which it endorses Social capital: 61 Natural capital: 93 Corporate governance: 102
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REPORTING IN LINE WITH GRI CONTINUED
Section heading and Reporting GENERAL STANDARD DISCLOSURES page number level G4-16 List memberships of associations (such as industry associations) Corporate governance: 102 Fully and national or international advocacy organisations in which Natural capital: 93 the organisation: The South African mining • Holds a position on the governance body industry, including Northam, • Participates in projects or committees is governed by various laws, • Provides substantive funding beyond routine codes and guidance initiatives. membership dues These include: • Views membership as strategic • MPRDA • NEMA • Employment Equity Act • National Water Act • Mining Charter • ILO • Samrec Voluntary codes Northam subscribes to include: • GRI • CDP • SRI • MOSH targets • Framework agreement on a sustainable mining industry • Framework for peace and stability in the mining industry Identified material aspects and boundaries G4-17 • List all entities included in the organisation’s consolidated Focus on the Northam group: Fully financial statements or equivalent documents 2 – 5 • Report whether any entity included in the organisation’s Approval of annual financial consolidated financial statements or equivalent documents statements and company is not covered by the report secretary’s confirmation: 145 G4-18 • Explain the process for defining the report content and the Scope: IFC – 1 Fully aspect boundaries • Explain how the organisation has implemented the reporting principles for defining report content G4-19 List all the material aspects identified in the process for defining Our material issues: 6 Fully report content G4-20 For each material aspect, report the aspect boundary within the Our material issues: 6 Partially organisation, as follows: Financial capital: 30 • Report whether the aspect is material within the organisation. Manufactured and intellectual • If the aspect is not material for all entities within the capital: 38 organisation (as described in G4-17), select one of the Human capital: 44 following two approaches and report either: Social capital: 60 • The list of entities or groups of entities included in G4-17 for Natural capital: 68 which the aspect is not material, or • The list of entities or groups of entities included in G4-17 for which the aspects is material. • Report any specific limitation regarding the aspect boundary within the organisation
124 Section heading and Reporting GENERAL STANDARD DISCLOSURES page number level G4-21 For each material aspect, report the aspect boundary outside Our material issues: 6 Partially the organisation, as follows: Financial capital: 30 • Report whether the aspect is material outside of the Manufactured and intellectual organisation capital: 38 • If the aspect is material outside of the organisation, identify Human capital: 44 the entities, groups of entities or elements for which the Social capital: 60 aspect is material Natural capital: 68 • In addition, describe the geographical location where the aspect is material for the entities identified • Report any specific limitation regarding the aspect boundary outside the organisation G4-22 Report the effect of any restatements of information provided Not applicable – in previous reports, and the reasons for such restatements G4-23 Report significant changes from previous reporting periods in Scope: IFC – 1 Fully the scope and aspect boundaries Stakeholder engagement G4-24 Provide a list of stakeholder groups engaged by the Social capital: 61 – 63 Fully organisation G4-25 Report the basis for identification and selection of stakeholders Social capital: 61 Fully with whom to engage G4-26 Report the organisation’s approach to stakeholder engagement, Social capital: 61 – 63, 65 Fully including frequency of engagement by type and by stakeholder Natural capital: 94 group, and give an indication as to whether any of the engagement was undertaken specifically as part of the report preparation process G4-27 • Report key topics and concerns raised through stakeholder Human capital: 52 – 54 Fully engagement, and how the organisation has responded to Social capital: 61 – 63 those key topics and concerns, including through its reporting • Report the stakeholder groups that raised each of the key topics and concerns Report profile G4-28 Reporting period (such as fiscal or calendar year) for information Scope: IFC – 1 Fully provided G4-29 Date of most recent previous report (if any) Scope: IFC – 1 Fully G4-30 Reporting cycle (such as annual, biennial) Scope: IFC – 1 Fully G4-31 Provide the contact point for questions regarding the report or Administration and contact Fully its contents information: IBC G4–32 ‘In accordance’ option: Reporting in line with GRI: 122 Fully • Report the ‘in accordance’ option the organisation has chosen Independent assurance report: • Report the GRI content index for the chosen option 116 – 119 • Report the reference to the external assurance report, if the report has been externally assured. GRI recommends the use of external assurance but it is not a requirement to be ‘in accordance’ with the guidelines
NORTHAM ANNUAL INTEGRATED REPORT 2016 125 GOVERNANCE continued
REPORTING IN LINE WITH GRI CONTINUED
Section heading and Reporting GENERAL STANDARD DISCLOSURES page number level G4-33 Assurance: Scope: IFC – 1 Fully • Report the organisation’s policy and current practice with Reporting in line with GRI: 122 regard to seeking external assurance for the report Independent assurance report: • If not included in the assurance report accompanying the 116 – 119 sustainability report, report the scope and basis of any external assurance provided • Report the relationship between the organisation and the assurance providers • Report whether the highest governance body or senior executives are involved in seeking assurance for the organisation’s sustainability report Governance G4-34 Report the governance structure of the organisation, including Corporate governance report: Fully committees of the highest governance body. Identify any 102 – 106 committees responsible for decision-making on economic, environmental and social impacts G4-36 Report whether the organisation has appointed an executive- Directorate: 18 – 19 Fully level position or positions with responsibility for economic, environmental and social topics, and whether post-holders report directly to the highest governance body G4-38 Report the composition of the highest governance body and its Directorate: 18 – 19 Fully committees by: • Executive or non-executive • Independence • Tenure on the governance body • Number of each individual’s other significant positions and commitments, and the nature of the commitments • Gender • Membership of under-represented social groups • Competences relating to economic, environmental and social impacts • Stakeholder representation G4-39 Report whether the chair of the highest governance body is Directorate: 18 – 19 Fully also an executive officer (and, if so, his or her function within Corporate governance report: the organisation’s management and the reasons for this 102 - 106 arrangement) G4-41 Report processes for the highest governance body to ensure Corporate governance report: Fully conflicts of interest are avoided and managed. Report whether 102 – 106 conflicts of interest are disclosed to stakeholders, including, as a minimum: • Cross-board membership • Cross-shareholding with suppliers and other stakeholders • Existence of controlling shareholder • Related party disclosures G4-47 Report the frequency of the highest governance body’s review Corporate governance report: Fully of economic, environmental and social impacts, risks, and 102 – 106 opportunities G4-48 Report the highest committee or position that formally reviews Independent assurance report: Fully and approves the organisation’s sustainability report and ensures 116 – 119 that all material aspects are covered
126 Section heading and Reporting GENERAL STANDARD DISCLOSURES page number level Remuneration and incentives G4-51 Report the remuneration policies for the highest governance Remuneration report: Fully body and senior executives for the types of remuneration below: 107 – 115 • Fixed pay and variable pay • Performance-based pay • Equity-based pay • Bonuses • Deferred or vested shares • Sign-on bonuses or recruitment • Incentive payments • Termination payments • Clawbacks • Retirement benefits, including the difference between benefit schemes and contribution rates for the highest governance body, senior executives, and all other employees Report how performance criteria in the remuneration policy relate to the highest governance body’s and senior executives’ economic, environmental and social objectives G4-52 Report the process for determining remuneration. Report Remuneration report: Fully whether remuneration consultants are involved in determining 107 – 115 remuneration and whether they are independent of management. Report any other relationships which the remuneration consultants have with the organisation Ethics and integrity G4-56 Describe the organisation’s values, principles, standards Human capital: 54 – 55 Fully and norms of behaviour such as codes of conduct and Corporate governance codes of ethics report: 106 G4-57 Report the internal and external mechanisms for seeking Human capital: 54 – 55 Fully advice on ethical and lawful behaviour, and matters related to Corporate governance report: organisational integrity, such as helplines or advice lines 106 G4-58 Report the internal and external mechanisms for reporting Human capital: 54 – 55 Fully concerns about unethical or unlawful behaviour, and matters Corporate governance related to organisational integrity, such as escalation through report: 106 line management, whistleblowing mechanisms or hotlines
NORTHAM ANNUAL INTEGRATED REPORT 2016 127 GOVERNANCE continued
REPORTING IN LINE WITH GRI CONTINUED
Section heading and Reporting External SPECIFIC STANDARD DISCLOSURES page number level assurance CATEGORY: ECONOMIC Material aspect: economic performance G4-EC1 Direct economic value generated Our business model: 8 – 9 Partially – SLP Yes and distributed Focus on delivery: 10 – 15 expenditure and housing How we distribute value – 35 project Human capital: 44 – 59 Housing project: 50 – 51 Social capital: 60 – 67 SLP expenditure: 64 – 66 G4-EC2 Financial implications and other Natural capital: 93 Partially No risks and opportunities for the organisation’s activities due to climate change G4-EC4 Financial assistance received from Not applicable – – government Material aspect: indirect economic impacts G4-EC7 Development and impact of Our business model: 8 – 9 Partially No infrastructure investments and Manufactured and Intellectual services supported capital: 38 – 43 CATEGORY: ENVIRONMENTAL Material aspect: materials G4-EN1 Materials used by weight or Natural capital: 89 – 90 Fully No volume G4-EN2 Percentage of materials used that Natural capital: 90 Fully No are recycled input materials Material aspect: energy G4-EN3 Direct energy consumption Our business model: 9 Fully Yes Five-year sustainability review: 16 – 17 Natural capital: 92 G4-EN4 Indirect energy consumption Our business model: 9 Fully Yes Five-year sustainability review: 16 – 17 Natural capital: 92 G4-EN6 Reduction of energy consumption Natural capital: 92 Partially No Material aspect: water G4-EN8 Total water withdrawal by source Five-year sustainability review: Fully No 16 – 17 Natural capital: 90 G4-EN10 Percentage and total volume of Five-year sustainability review: Fully Yes water recycled and reused 16 – 17 Natural capital: 90
128 Section heading and Reporting External SPECIFIC STANDARD DISCLOSURES page number level assurance Material aspect: biodiversity G4-EN11 Operational sites owned, leased, Natural capital: 94 Fully No managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas G4-EN12 Description of significant impacts Natural capital: 94 Fully No of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas MM1 Amount of land (owned or leased, Natural capital: 94 Fully No and managed for production activities or extractive use) disturbed or rehabilitated Material aspect: emissions G4-EN15 Direct greenhouse gas (GHG) Five-year sustainability review: Fully Yes emissions (Scope 1) 16 – 17 Natural capital 93 G4-EN16 Energy indirect greenhouse gas Five-year sustainability review: Fully Yes (GHG) emissions (Scope 2) 16 – 17 Natural capital 93 G4-EN17 Other indirect greenhouse gas Five-year sustainability review: Fully No (GHG) Emissions (Scope 3) 16 – 17 Natural capital 93 G4-EN20 Emissions of ozone Our business model: 9 Fully No depleting substances Five-year sustainability review: 16 – 17 Natural capital: 93 Material aspect: effluents and waste G4-EN22 Total water discharge by quality Natural capital: 91 Fully No and destination G4-EN24 Significant environmental incidents Natural capital: 89 Fully Yes Material aspect: compliance G4-EN29 Monetary value of significant Natural capital: 88 Fully Yes fines and total number of non- monetary sanctions for non- compliance with environmental laws and regulations Material aspect: environmental grievance mechanisms G4-EN34 Number of grievances about Natural capital: 88 Fully No environmental impacts filed addressed and resolved through formal grievance mechanisms
NORTHAM ANNUAL INTEGRATED REPORT 2016 129 GOVERNANCE continued
REPORTING IN LINE WITH GRI CONTINUED
Section heading and Reporting External SPECIFIC STANDARD DISCLOSURES page number level assurance Material aspect: employment G4-LA1 Total number and rates of new Five-year sustainability review: Partially, turnover by age No employee hires and employee 16 – 17 group or gender is not turnover by age group, gender, Human capital: 45 collated and therefore and region not available Material aspect: labour/management relations G4-LA4 Percentage of employees Human capital: 53 Fully Yes covered by collective bargaining Remuneration report: 107 agreements MM4 Number of strikes and lock-outs Human capital: 54 Fully Yes exceeding one week’s duration, by country Material aspect: occupational health and safety G4-LA5 Percentage of total workforce Human capital: 53 and 55 Partially, the figure is not No represented in formal joint reported as a percentage management-worker health and safety committees that help monitor and advise on occupational health and safety programmes G4-LA6 Type of injury and rates of injury, Our business model: 9 Partially – RIIR and LTIIR Yes occupational diseases, lost days, Five-year sustainability review: and absenteeism, and total 16 – 17 number of work related fatalities, Human capital: 56 and 59 by region and by gender Material aspect: diversity and equal opportunity G4-LA12 Composition of governance bodies Five-year sustainability review: Partially, a breakdown of No and breakdown of employees per 16 – 17 employees by age group employee category according to Human capital: 46 - 47 is not available. gender, age group, minority group A more critical measure membership, and other indicators in South Africa of diversity specifically, is the percentage of historically disadvantaged South Africans (HDSAs) in management roles and women in mining, which is reported
130 Section heading and Reporting External SPECIFIC STANDARD DISCLOSURES page number level assurance Material aspect: labour practices grievance mechanisms G4-LA16 Number of grievances about Not reported – – labour practices filed, addressed, and resolved through formal grievance mechanisms Material aspect: freedom of association and collective bargaining G4-HR4 Operations and suppliers identified Human capital: 52 Partially, no violations No in which the right to exercise reported freedom of association and collective bargaining may be violated or at significant risk, and measures taken to support these rights Material aspect: child labour G4-HR5 Operations and suppliers identified Human capital: 54 Partially, no incidents No as having significant risk for occurred. incidents of child labour, and Northam upholds the measures taken to contribute to basic labour rights of the effective abolition of child the Fundamental Rights labour Convention of the ILO and in legislation, regulations and practices of South Africa. The company does not employ child labour, nor does it employ workers younger than 18 years of age as all prospective employees are screened in terms of Northam’s employment policies and procedures
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REPORTING IN LINE WITH GRI CONTINUED
Section heading and Reporting External SPECIFIC STANDARD DISCLOSURES page number level assurance Material aspect: forced or compulsory labour G4-HR6 Operations and suppliers identified Human capital: 54 Partially, no incidents No as having significant risk for occurred. incidents of forced or compulsory Northam upholds the labour, and measures to contribute basic labour rights of to the elimination of all forms of the Fundamental Rights forced or compulsory labour Convention of the ILO and in legislation, regulations and practices of South Africa. Material aspect: anti-corruption G4-SO3 Total number and percentage Managing risk and opportunity: 99 Fully, 100% of No of operations assessed for risks Corporate governance report: 106 operations assessed related to corruption and the for risks related to significant risks identified corruption and risks were identified G4-SO5 Confirmed incidents of corruption Managing risk and opportunity: 99 Fully - whistle blowers No and actions taken Corporate governance report: 106 are protected in accordance with the provisions of the Protected Disclosures Act, No 26 of 2000 and these incidents cannot be disclosed
132 ANNUAL FINANCIAL STATEMENTS
Financial statements and notes 135
Directors’ report 138
Report of the audit and risk committee 153
Approval and company secretary’s confirmation 155
ADMINISTRATION AND CONTACT INFORMATION IBC
A deepening project is underway at Zondereinde
NORTHAM ANNUAL INTEGRATED REPORT 2016 133 Zondereinde is located on the northern end of the western limb of the Bushveld Complex
134 To thethe shareholdersshareholders of NorthamNortham Platinum Platinum Limited Limited
REPORTReport on ON the THE audit AUDIT of the OFconsolidated THE CONSOLIDATED and separate AND financial SEPARATE FINANCIALstatements for STATEMENTS the year ended 30 June 2016 for the year ended 30 June 2016
Opinion We have audited the consolidated and separate financial statements of Northam Platinum Limited and its subsidiaries (the group) set out on pages 147 to 236 which comprise the statement of financial position as at 30 June 2016, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of the group and the company as at 30 June 2016, and of its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) and the requirements of the Companies Act of South Africa.
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code), the International Federation of Accountants’ Code of Ethics for Professional Accountants (IFAC code) and other independence requirements that are relevant to our audit of the consolidated financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IRBA Code, IFAC Code and other ethical requirements applicable to performing an audit of the group.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements taken as a whole, and informing our opinion thereon, and do not represent separate opinions on each of the matters described. For each matter below, our description of how our audit addressed the matter is provided in that context.
Impairment of non-financial assets How audit addressed this key audit matter Platinum group metal prices have been under pressure during the year Our audit procedures included critically assessing management’s and the rand price for the basket of metals declined during the year. assumptions used in their life of mine plans, including challenging The platinum sector has also experienced rising costs in most aspects those assumptions by comparing them to historical data and of the business. As a result, there is continuous focus on the applicable data available in the market to consider whether the appropriateness of the assumptions used in life of mine planning. assumptions fell within an acceptable range.
The group determines the recoverable amount of non-financial assets at In challenging these assumptions, we paid particular attention to the the higher of fair value less costs of disposal and value in use. discount rate, future metal prices, future exchange rates and The recoverable amount is determined for value in use using the expected inflation by involving our internal valuation specialists to discounted cash flow model approach for the reserves included in the the extent necessary. life of mine plan, and a fair value less cost of disposal measure using comparable transaction approach and listed entity market capitalisation We assessed the historical accuracy of management’s forecasts, per platinum ounce for early stage platinum companies approach to and compared current performance to forecasts. We critically estimate the recoverable value for in situ resources not included in the evaluated future assumptions around production, resultant revenue, life of mine plan. capital expenditure and cost forecasts.
As detailed in note 2.1 and 2.4 of the note to the financial statements We also tested the mathematical accuracy of the models. the assessment of the group’s life of mine plans and any related
impairment to the carrying value of mining assets requires significant estimation by management on key assumptions, which include future We challenged management’s sensitivity assessments and metal prices, exchange rates, ore reserves and production volumes, performed our own sensitivity calculations in respect of the key production cost and capital expenditure, inflation rates and discount assumptions. rates.
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NORTHAM ANNUAL INTEGRATED REPORT 2016 135 ANNUAL FINANCIAL STATEMENTS continued
REPORT ON THE AUDIT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS CONTINUED for the year ended 30 June 2016
The assessment of the recoverable amount of the Cash Generating We also considered the disclosures made by management on the Units (“CGUs”) required significant audit effort in the current year as it key assumptions. involves the evaluation of significant judgements about the future mine planning, capital expenditure and costs of mining in each of the CGUs as well as various assumptions that impact future cash flow forecasts.
Physical quantities of inventory How audit addressed this key audit matter As discussed in note 2.12 in the notes to the financial statements the Our audit procedures included attendance at year-end physical group and company account for the four main platinum group metals, inventory counts to observe how management and the specialists being platinum, palladium, rhodium and gold (“4E”) as joint products involved quantified the material. We considered the competence of inventory. Metal inventory is held in a wide variety of forms across the the metallurgists and surveyors, the results of their reports, and mining and refining processes, and is only physically separated at the sought to understand and corroborate the reasons for significant or very end of the refining process. Therefore, physical quantities of metal unusual movements in inventory quantities. We also considered the inventory are determined by sampling and assays of the material in various conversion factors to estimate material measured to process, the historical head grade achieved per mine, various recovery contained metal in relation to historical achievements and our factors at different stages in the process, and determination of the split experience with the entity. of metals in such material.
The volume of material can vary quite significantly from time to time, and the impact of head grade changes can be material and as such the quantum of metal inventory requires a significant amount of estimation and management judgement in its determination. As a result, this was a key area of audit focus in the current year.
Other information The directors are responsible for the other information. The other information comprises the information included in the integrated report which includes the directors’ report, the chairman of the audit and risk committee’s letter and the company secretary’s certificate as required by the Companies Act of South Africa. The other information does not include the consolidated financial statements and our auditor’s report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the consolidated and separate financial statements The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated and separate financial statements, the directors are responsible for assessing the group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated and separate financial statements Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements.
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As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. AsWe part also: of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, • Identifydesign and and perform assess theaudit risks procedures of material responsive misstatement to those of the risks, consolidated and obtain and audit separate evidence financial that is statements,sufficient and whether appropriate due to to fraud provide or error,a basis fordesign our opinion.and perform The auditrisk of procedures not detecting responsive a material to misstatementthose risks, and resulting obtain fromaudit fraud evidence is higher that thanis sufficient for one and resulting appropriate from erro to provider, as fraud a basis may involvefor our opinion.collusion, The forgery, risk of intentional not detecting omissions, a material misrepresentations, misstatement resulting or the from override fraud of is internal higher thancontrol. for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, • butObtain not anfor understandingthe purpose of ofexpressing internal control an opinion relevant on theto the effectiveness audit in order of theto design group’s audit and proceduresthe company’s that internalare appropriate control. in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group’s and the company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by • theEvaluate directors. the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, • whetherConclude a onmaterial the appropriateness uncertainty exists of the related directors’ to events use ofor theconditions going concern that may basis cast of significant accounting doubt and on based the gonroup’s the audit ability evidenc to continuee obtained, as a goingwhether concern. a material If we uncertainty conclude thatexists a materialrelated touncertainty events or exists,conditions we arethat required may cast to significant draw attention doubt in on our the auditor’s group’s report ability t oto the continue related as a disclosuresgoing concern. in the If we consolidated conclude that financial a material statements uncertainty or, if suchexists, disclosures we are required are inadequate, to draw attention to modify in ourour auditor’sopinion. Ourreport conclusions to the related are based ondisclosures the audit inevidence the consolidated obtained financialup to the statementsdate of our or,auditor’s if such report. disclosures However, are inadequate,future events to or modify conditions our opinion. may cause Our conclusionsthe group to arecease based to continueon the audit as aevidence going concern. obtained up to the date of our auditor’s report. However, future events or conditions may cause the group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and • whetherEvaluate the the consolidated overall presentation, and separate structure financial and contentstatements of the represent consolidated the underlying and separate transactions financial andstatements, events in including a manner the that disclosures, achieves fairand whetherpresentatio then. consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentatio n.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to • Obtainexpress sufficient an opinion appropriate on the consolidated audit evidence financial regarding statements. the financial We are information responsible of forthe the entities direction, or business supervision activities and withiperformancen the group of the to group audit.express We an remain opinion solely on the responsible consolidated for ourfinancial audit statements.opinion. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, includingWe communicate any significant with the deficiencies directors regarding, in internal among control other that we matters, identify the during planned our scopeaudit. and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to Wecommunicate also provide with the them directors all relationships with a statement and other that mawetters have that complied may reasonably with relevant be thoughtethical requirementsto bear on our regarding independence, independence, and where and applicable, to relatedcommunicate safeguards. with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated finanFromcial the statements matters communicated of the current with period the anddirectors, are therefore we determine the key those audit matters matters. that We were describe of most these significance matters in in our the auditor’s audit of trephe ortconsolidated unless law or regulationfinancial statements precludes ofpublic the current disclosure period about and the are matter therefore or when, the key in extremelyaudit matters. rare Wecircumstances, describe these we mattersdetermine in ourthat auditor’s a matter rep shouldort unless not be law or communicatedregulation precludes in our publicreport disclosurebecause the about adverse the matter consequences or when, inof extremelydoing so would rare circumstances, reasonably be weexpected determine to outweigh that a matter the public should interest not be benefits ofcommunicated such communication. in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements ReportIn terms on of o ttherhe IRBA legal r andule published regulatory in r equirementsGovernment Gazette Number 39475 dated 04 December 2015, and subsequent guidance, we report that ErnstIn terms & Young of the IRBAInc., and rule its published predecessor in Government firm, has been Gazette the auditorNumber of 39475 Northam dated Platinum 04 December Limited 2015,for 32 andyears. subsequent guidance, we report that Ernst & Young Inc., and its predecessor firm, has been the auditor of Northam Platinum Limited for 32 years.
Ernst & Young Inc. ErnstDirector: & YoungMike Herbst Inc. CharteredDirector: Mike Accountant Herbst (SA) Chartered102 Rivonia, Accountant Sandton, (SA) Johannesburg,102 Rivonia, Sandton, South Africa 30Johannesburg, September 2016 South Africa 30 September 2016 NORTHAM ANNUAL INTEGRATED REPORT 2016 137
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ANNUAL FINANCIAL STATEMENTS continued
DIRECTORS’ REPORT
DIRECTORS’ REPORT The directors have pleasure in presenting the annual financial statements of the Northam Platinum Limited group and company for the year ended 30 June 2016.
FINANCIAL RESULTS AND DIVIDEND The company and group financial results are included in this report. These annual financial statements have been prepared using appropriate accounting policies, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) and the IFRIC Interpretations, the SAICA Financial Reporting Guidelines as issued by the Accounting Practices Committee, financial pronouncements as issued by the Financial Reporting Standards Council and the Companies Act 71 of 2008, the JSE Listing Requirements and include amounts based on judgements and estimates made by management.
The statements of financial position, statements of profit or loss and other comprehensive income, statements of cash flow and statements of changes in equity and notes to the annual financial statements reflect the financial results and position of the company and the group as at 30 June 2016.
Given the current difficult conditions in the industry and the potential cash requirements of the group’s operations including the development of Booysendal South the board has resolved not to declare a dividend for the 30 June 2016 year (2015: R Nil). This will however be assessed and considered going forward taking into account the cash flow requirements of the group.
NATURE OF BUSINESS AND OPERATIONS Northam Platinum Limited, a public company incorporated in South Africa, is a leading supplier of platinum group metals (PGMs). Northam is listed on the JSE Limited, trading under the share code NHM, ISIN code ZAE000030912 and for the DMTN programme, under the debt issuer code NHMI with the bond codes NHM002 and NHM003, ISIN code ZAG000099524 and ZAG0001290032 respectively.
Booysendal mine The Booysendal operations are located in the southern compartment of the eastern limb of the Bushveld Complex, situated approximately 35km from the town of Mashishing (formerly Lydenburg), straddling the border of Limpopo and Mpumalanga provinces in South Africa. The massive Booysendal orebody is host to both the UG2 and Merensky reefs which outcrop over a strike length of 14.5km and dip westwards at approximately 10º.
The Booysendal North UG2 mine is a shallow, mechanised room and pillar underground operation. The North shaft complex comprises four declines, three on reef and one in the reef footwall, which are accessed by a reverse decline system.
Surface metallurgical infrastructure includes a UG2 concentrator and a dense media separation plant. Concentrate is sold to Zondereinde and all material is smelted and further processed at Zondereinde.
The Booysendal UG2 North mine reached steady state output of 160 000oz/month in the first half of the financial year under review. This UG2 mine only exploits 5% of the orebody and management is currently working on brownfields expansion projects on the UG2 reef and additional, small modular mines which access the Merensky reef in order to grow production from the existing capital footprint in the Booysendal lease area.
Zondereinde mine Zondereinde mine is located on the upper end of the western limb of the South African Bushveld Complex. Operational since 1993, the mine was established and continues to operate at steady state levels and remains cash generative and profitable producing some 290 000 ounces annually.
Underground mining activities focused on Merensky and UG2 reefs. The average depth of mining is at around 1 750m, which makes Zondereinde the deepest platinum mine in the world. Hydropowered equipment is used for stoping and development. Surface infrastructure includes separate concentrators for Merensky and UG2 ore, a base metals recovery plant and a smelter, with a new 20 MW furnace currently being constructed. Marketing and sales activities are performed in-house to customers across the globe.
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MINING LICENCES
Booysendal mine Booysendal Platinum Proprietary Limited is a wholly-owned subsidiary of Northam, and holds two new order mining rights for the Booysendal mine which covers an area of approximately 17 950 hectares on the farms Booysendal 43 JT, Buttonshope 51 JT, Der Brochen 7 JT, Draaikraal 48 JT, Hebron 5 JT, Hermansdal 3 JT, Kliprivier 73 JT, Pietersburg 44 JT, Uysedoorns 47 JT, Johannesburg 45 JT, Sheeprun 50 JT, Sheeprun 179 JT, Sheeprun 47 JT, portions of Johannesburg 50 JT, Sterkfontein 52 JT, De Kafferskraal 53 JT, Hoogland 28 JT and Sterkfontein 749 JT.
Zondereinde mine Northam holds two new order mining rights in respect of the Zondereinde mine covering an area of approximately 7 625 hectares on the farms Aapieskraal 377 KQ, Amandelbult 383 KQ, Elandsfontein 386 KQ, Grootkuil 376 KQ, Kopje Alleen 422 KQ, Middeldrift 379 KQ, Vrugbaar 381 KQ, Vrugbaar 387 KQ, Witvley 423 KQ and Zondereinde 384 KQ.
ASSOCIATES AND JOINT VENTURES The group has an interest in the following entities and joint ventures:
Dwaalkop joint venture The Dwaalkop joint venture is a joint venture between Mvelaphanda Resources Proprietary Limited, a wholly owned subsidiary of Northam owning 50% and Western Platinum Proprietary Limited owning the other 50% of the joint venture which is managed by Lonmin plc.
The carrying value of the group’s investment remained unchanged at R136.2 million after an impairment charge of R164.5 million in the previous financial year. Exploration costs regarding the Dwaalkop joint venture of R0.3 million (2015: R0.2 million) was incurred, which was charged to sundry expenditure.
Pandora joint venture Anglo American Platinum Limited, Eastern Platinum Limited, and Northam Platinum Limited participate in the Pandora JV in the ratio 42.5:50:7.5 respectively. In terms of the joint venture agreement, Anglo American Platinum Limited contributed certain mineral rights to the venture, while Eastern Platinum Limited contributed certain surface infrastructure. The venture has an operating mine in the Western Limb of the Bushveld Complex.
Pandora has a September year end. The equity accounting is based on reviewed results for the 12 months ended 30 June 2016.
Operational difficulties at the Pandora mine have adversely affected performance. This resulted in a loss of which Northam’s share amounted to R12.7 million (2015: loss of R10.7 million). The carrying value of the investment at year end amounted to R45.6 million after an impairment charge of R20.5 million (2015: R40.5 million). Management is currently assessing various options to potentially exit its stake in the Pandora joint venture.
Trans Hex Group Limited Trans Hex Group Limited is a diamond producing and marketing company. The group held a 20.3% interest in Trans Hex Group Limited which was sold during the year under review. Northam incurred a loss of R2.7 million on the sale of these shares, after accounting for the group’s share of losses amounting to R23.9 million (2015 profit of R35.0 million).
SSG Holdings Proprietary Limited During the year under review, the group acquired a 20% share in SSG Holdings Proprietary Limited for R10.0 million through one of its subsidiaries, Mining Technical Services Proprietary Limited. SSG Holdings Proprietary Limited is a newly established company providing various services including security and facility services. The acquisition became with effective from 29 February 2016.
SSG Holdings Proprietary Limited provides security services to both the Zondereinde and Booysendal mining complexes.
Subsequent to year an additional 10% of the issued share capital of SSG Holdings Proprietary Limited was acquired.
NORTHAM ANNUAL INTEGRATED REPORT 2016 139
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ANNUAL FINANCIAL STATEMENTS continued
DIRECTORS’ REPORT CONTINUED
STATED CAPITAL There were no changes during the current financial year, to the authorised or issued stated capital of the company. The authorised share capital of the company as at 30 June 2016 amounted to 2 000 000 000 shares (2015: 2 000 000 000 shares) at no par value. The issued share capital of the company remained unchanged at 509 781 212 shares.
In terms of the Northam BEE transaction 112 195 122 shares were allotted and issued to Zambezi Platinum (RF) Limited. These shares are treated as treasury shares.
No shares were allotted and issued to participants of the Northam share option scheme or the Northam share incentive plan during the current year (2015: no shares).
REPURCHASE OF ISSUED SHARES At the annual general meeting (AGM) held on 11 November 2015 shareholders approved a special resolution granting a general authority for the repurchase of ordinary shares by the company (or any one of its wholly owned subsidiaries), subject to the JSE listings requirements and the provisions of the Companies Act. No shares were repurchased in the current or prior year. This general authority is valid until the company’s next AGM or for 15 months from the date of the aforementioned resolution (being 11 February 2017) whichever period is the shorter. Approval to renew this general authority will be sought at the AGM to be held on Wednesday, 9 November 2016. The text of the necessary special resolution, as well as the reasons therefor and the effects thereof, appear in the notice of AGM which forms part of the abridged annual report.
BORROWING POWERS In terms of the Memorandum of Incorporation (MOI) the directors may borrow for purposes of the company, such sums as they deem fit.
In November 2011 the company entered into a five-year revolving credit facility agreement with Nedbank Limited for an amount of R1.0 billion. An additional R400 million revolving credit facility was arranged during FY2014, which was available until March 2015. There were no drawings from this facility during the year with limited drawings in the previous year which was fully repaid by 30 June 2015.
There have been no drawings from this facility between the reporting date and the date of this report.
On 3 September 2012 the company announced that it had raised R1.25 billion through the issue of senior unsecured floating rate notes, in terms of the company’s R2.0 billion domestic medium term note (DMTN) programme dated 3 August 2012. On 11 July 2013, the company announced that a further R120.0 million had been raised in the domestic capital market through the DMTN programme. These funds were used for the development of the Booysendal mine, the deepening project at the Zondereinde mine and other operational and working capital requirements of the group.
The DMTN of R1.37 billion was fully repaid on the due date of 4 September 2015.
During the year under review Northam issued R175.0 million five-year senior unsecured fixed rate notes. The notes bear a fixed coupon of 13.50% per annum, payable semi-annually, and will be redeemed on 12 May 2021. The proceeds will further strengthen Northam’s statement of financial position and be applied to the development of the company’s project pipeline.
Furthermore, on 9 June 2016, the Industrial Development Corporation of South Africa Limited subscribed for R250.0 million three-year senior unsecured floating rate notes under the DMTN programme. The notes will attract a floating coupon rate of 3 month JIBAR plus 390 bps and will mature on 9 June 2019.
These notes were issued under the DMTN programme dated 3 August 2012, as noted above.
A wholly owned subsidiary, Norplats Properties Proprietary Limited has arranged a loan facility of R40.0 million (2015: R91.0 million) with the Nederlandse Financierings Maatschappij voor Ontwikkelingslanden NV to fund the sale of houses to employees in terms of the group’s affordable housing initiative. During the current financial year, a portion of the facility was cancelled as management are looking at alternative ways to fund the group’s housing initiative.
Details of the above mentioned outstanding borrowings including interest rates and terms and conditions are included in the notes to the annual financial statements.
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FINANCIAL ASSISTANCE Under the Companies Act, 2008 inter group loans; guarantees and other financial assistance require approval of shareholders by a special resolution.
According to section 45 of the Act, the board may not authorise a company to provide any financial assistance to a related or inter related company (which includes a loan by a holding company to a subsidiary) unless the particular provision of financial assistance is pursuant to a special resolution of the shareholders, adopted within the previous two years, which approved such assistance either for a specific recipient, or generally for a category of potential recipients, and the specific recipient falls within that category.
In addition, before authorising any such financial assistance, the board must be satisfied that: immediately after providing the financial assistance, the company would satisfy the solvency and liquidity test; and the terms upon which the financial assistance is proposed to be given are fair and reasonable to the company.
At the date of this report Northam had granted the following financial assistance to its subsidiaries: Additional amount to New loan Approved be advanced facility facility at in the to be Balance at 30 June 2016 coming year granted 30 June 2016 R’000 R’000 R’000 R’000 Booysendal Platinum Proprietary Limited 4 970 000 (1 500 000) 3 470 000 2 262 163 Booysendal Platinum Proprietary Limited loan advanced by Khumama 3 400 000 – 3 400 000 2 355 843 Platinum Proprietary Limited Norplats Properties Proprietary Limited – fixed term loan 34 300 – 34 300 24 456 Norplats Properties Proprietary Limited – general loan 44 000 10 000 54 000 37 724 Windfall 38 Properties Proprietary Limited 15 800 – 15 800 14 590 Mvelaphanda Resources Proprietary Limited 42 000 – 42 000 1 047 Mining Technical Services Proprietary Limited 20 000 – 20 000 15 002 Khumama Platinum Proprietary Limited 1 – 1 1 Total loan facilities 8 526 101 (1 490 000) 7 036 101 4 710 826
Below are the various guarantees summarised together with the additional guarantees which will be tabled at the forthcoming annual general meeting: Additional amount to be Total guaranteed in guarantee Current the coming to be guarantee year granted R’000 R’000 R’000 Northam Platinum Limited guarantee to Zambezi Platinum (RF) Limited 7 535 944 – 7 535 944 Booysendal Platinum Proprietary Limited guarantee to Northam Platinum Limited 3 000 000 500 000 3 500 000 Khumama Platinum Proprietary Limited guarantee to Northam Platinum Limited 3 000 000 500 000 3 500 000 Northam Platinum Limited subordination agreement to Mvelaphanda Resources Proprietary Limited 41 680 15 000 56 680 Total guarantee 13 577 624 1 015 000 14 592 624
Zambezi Platinum (RF) Limited The redemption of the BEE Preference Shares issued by Zambezi Platinum (RF) Limited has been secured by Northam Platinum Limited in terms of a financial guarantee, in terms of which Northam Platinum Limited will be responsible for the payment of all amounts which Zambezi Platinum (RF) Limited has contracted but failed to pay in terms of the BEE Preference Share terms.
Should a liability arise under the Northam Guarantee, Northam Platinum Limited may settle this liability by capitalising Zambezi Platinum (RF) Limited with cash and/or Northam shares before the redemption amount becomes due or making payment directly to the preference shareholders. The manner of settlement is however not contractually specified.
Included in the financial statements of Northam Platinum Limited is a guarantee of R7.5 billion which will stay unchanged during FY2017. NORTHAM ANNUAL INTEGRATED REPORT 2016 141
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ANNUAL FINANCIAL STATEMENTS continued
DIRECTORS’ REPORT CONTINUED
Booysendal Platinum Proprietary Limited Northam Platinum Limited currently has finance facilities available in the form of a revolving credit facility of R1.0 billion with Nedbank Limited, and has issued R425.0 million on the debt capital market. Booysendal and its intermediate holding company, Khumama Platinum Proprietary Limited have signed a letter of guarantee with regards to both these facilities. Management has renegotiated the Nedbank revolving credit facility which will increase the facility to R1.5 billion over a five-year period.
There is currently also an interest free loan between Northam Platinum Limited and Booysendal which is being settled as and when cash is available. The intercompany loan is planned for settlement in full by FY2020.
Khumama Platinum Proprietary Limited With the acquisition of the Booysendal mineral rights, the statutory entity Booysendal Platinum Proprietary Limited together with its holding company Khumama Platinum Proprietary Limited were also acquired. A loan was issued to Booysendal Platinum Proprietary Limited by Khumama Platinum Proprietary Limited amounting to R2.4 billion. This loan is interest free and has no fixed terms of repayment and has remained unchanged for several years.
In addition to the above, Khumama Platinum Proprietary Limited is also a party to the guarantees that have been issued in terms of the Nedbank Limited revolving credit facility as well as the DMTN facility.
Norplats Properties Proprietary Limited – fixed term loan In terms of the agreement with the Nederlandse Financierings Maatschappij voor Ontwikkelingslanden NV (FMO), Northam Platinum Limited is required to fund 30% of house sales values and debt consolidation amounts, and as such this fixed-term intercompany loan may not be repaid until such time as the loan from the FMO has been repaid in full. A fixed term loan facility of R34.3 million, of which R24.4 million has been utilised, repayable in September 2026, was granted by Northam Platinum Limited to Norplats Properties Proprietary Limited, at an interest rate of 2.0% below prime.
It is proposed that the Norplats Properties Proprietary Limited facility be renewed to ensure compliance with the terms of agreement with FMO.
Norplats Properties Proprietary Limited – general loan Norplats Properties Proprietary Limited is the company which holds and operates the Zondereinde mine’s employee home ownership project (Mojuteng project) in the town of Northam. In order for Northam Platinum Limited to comply with its homeowner strategy, it is proposed that this general loan facility be increased by R10.0 million to R54.0 million. R37.7 million was utilised as at year end.
Windfall 38 Properties Proprietary Limited Northam acquired Windfall 38 Properties Proprietary Limited in FY2010. In the same year Windfall 38 Properties Proprietary Limited purchased certain freehold property for the purposes of the Booysendal mine, at a cost of R12.9 million. The consideration was funded by a loan from Northam Platinum Limited. During the 2012 financial year further freehold was purchased at an additional cost of R2.1 million. The loan from Northam Platinum Limited therefore amounts to R14.8 million, with no further acquisitions anticipated.
The fixed-term loan agreement with Northam incurs an interest rate of 2.0% below prime. A long-term lease agreement with Booysendal Platinum Limited over the agricultural land was also entered into. All amounts received in terms of the long-term lease agreement are used as repayments on the outstanding loan balance.
Mvelaphanda Resources Proprietary Limited On 25 September 2014 Northam Platinum Limited provided a guarantee to ensure that Mvelaphanda Resources Proprietary Limited would meet its financial obligations as and when they fall due as the company’s liabilities exceeded its assets. The guarantee will remain in full force and effect as long as the liabilities (including contingent liabilities) exceed its assets, fairly valued, and will lapse forthwith upon the date that the assets, so valued, exceed its liabilities.
Mining Technical Services Proprietary Limited The facility of R20.0 million is proposed to remain in force. During the current year Mining Technical Services Proprietary Limited acquired a 20% investment in SSG Holdings Proprietary Limited to facilitate the company’s growth projects. The loan is interest free and has no fixed terms of repayment.
It is also important to note that Northam Platinum Limited has issued a letter of support (non-binding) stating that Northam Platinum Limited will not demand repayment of the intercompany loan within the next 12 months and will continue to provide the company with sufficient funds for it to meet its obligations as and when they fall due. 142
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Solvency and liquidity test Taking into account the twelve-month cash flow forecasts (including the letter of support/guarantees issued), the board has assessed that the various statutory entities will continue as going concerns for the foreseeable future.
The company therefore believes that it has satisfied the solvency and liquidity test, as contemplated in section 45 of the Companies Act and detailed in section 4 of the Act, and determined that post such assistance the company was solvent and liquid and the terms under which this assistance was provided were fair and reasonable to the company.
DEMATERIALISATION OF SHARES (SHARE TRANSACTIONS TOTALLY ELECTRONIC) STRATE Shareholders who have not already dematerialised their shares (certificated shareholders) are once again urged to do so as soon as possible (unless it is their explicit intention not to do so) in order to enable them to trade in such shares. It is most important for certificated shareholders to note that their shares may not be traded on the JSE unless the shares have been dematerialised.
DIRECTORATE The composition of the board of directors, as well as of board appointed committees, and details of the election and re-appointment of directors is reflected in this integrated report. At the date of this report the board comprised the following directors; Standing for re- Elected or re- election and elected at the last Director Position First appointed election AGM PL Zim Non-executive chairman 25 April 2007 √ – R Havenstein Lead independent director 1 July 2003 – – PA Dunne Chief executive officer 1 March 2014 N/A N/A AZ Khumalo Chief financial officer 1 July 2010 N/A N/A CK Chabedi Independent non-executive director 22 June 2009 √ – HH Hickey Independent non-executive director 1 January 2016 √ Newly appointed TE Kgosi Independent non-executive director 1 November 2004 – √ AR Martin Independent non-executive director 22 June 2009 Retiring – KB Mosehla Non-executive director 19 August 2015 – √ TI Mvusi Independent non-executive director 1 January 2016 √ Newly appointed
Ms PB Beale is the company secretary.
On 18 August 2015 Mr R Havenstein took over from Mr AR Martin as lead independent director.
Mr ME Beckett retired as a director on 11 November 2015, Mr KB Mosehla was appointed as a non-executive director on 19 August 2015 and Ms HH Hickey and Mr TI Mvusi were appointed as independent non-executive directors, effective 1 January 2016. Ms Hickey is also a member of the audit and risk committee.
In addition, in terms of Section 94 of the Companies Act, shareholders are required to appoint the company’s audit and risk committee. The members of the committee, who are available for re-election, are Mr Havenstein, Ms Kgosi and Ms Hickey, all of whom are independent non-executive directors. Accordingly, at the forthcoming AGM members will be requested to consider resolutions providing for the appointment of the aforementioned members of the audit and risk committee. Mr AR Martin will retire after the financial year end.
NORTHAM ANNUAL INTEGRATED REPORT 2016 143
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ANNUAL FINANCIAL STATEMENTS continued
DIRECTORS’ REPORT CONTINUED
DIRECTORS’ FEES In terms of the MOI the fees for services as directors are determined by the company and approved at the AGM.
It is proposed to increase certain fees of non-executive directors by an average of 6.0% per annum in line with market norms.
At the forthcoming AGM members will accordingly be requested to consider a special resolution providing for the increase in the fees for the year ending 30 June 2017 as set out below:
Approved fee at the Proposed fee 2017 previous AGM (per AGM (per annum) annum) R R Board member Board chairman* 149 100 135 500 Lead independent director 106 600 100 500 Board members 67 100 63 300 Board meeting attendance fees per meeting 43 400 40 900 Audit and risk committee member Committee chairman* 66 800 60 700 Committee members 32 300 30 400 Committee meeting attendance fees per meeting 21 000 19 800 Health, safety and environmental committee Committee chairman* 53 400 48 500 Committee members 25 300 23 800 Committee meeting attendance fees per meeting 16 900 15 900 Nomination committee Committee chairman* 53 400 48 500 Committee members* 26 200 23 800 Committee meeting attendance fees per meeting 16 900 15 900 Social, ethics and human resources committee Committee chairman 54 800 51 700 Committee members 25 300 23 800 Committee meeting attendance fees per meeting 16 900 15 900 Other board appointed committees Committee chairman 51 400 48 500 Committee members 25 300 23 800 Committee meeting attendance fees per meeting 16 900 15 900 Ad hoc fees per hour 3 360 3 170
* The SE&HR committee commissioned an independent firm to conduct a benchmarking exercise on Northam’s non-executive directors’ fees against a peer group of JSE listed mining companies. The results have indicated that the majority of the directors are paid within acceptable ranges to the median; however, some of the directors’ fees lag the market considerably. In an attempt to ensure internal parity, fees for these directors is proposed to be adjusted by 10.0%.
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DIRECTORS’ REMUNERATION The directors’ remuneration for the year ended 30 June 2016 is as follows:
Re- Gain on muneration Performance share based Fees package bonus Benefits payments Total R’000 R’000 R’000 R’000 R’000 R’000 Executive PA Dunne – 6 165 4 353 834 – 11 352 AZ Khumalo – 3 006 2 436 441 3 707 9 590 Non-executive PL Zim 412 – – – – 412 R Havenstein 717 – – – – 717 CK Chabedi 496 – – – – 496 HH Hickey 209 – – – – 209 TE Kgosi 609 – – – – 609 AR Martin 565 – – – – 565 KB Mosehla 357 – – – – 357 TI Mvusi 154 – – – – 154 ME Beckett 247 – – – – 247 3 766 9 171 6 789 1 275 3 707 24 708
The directors’ remuneration for the year ended 30 June 2015 is as follows:
Re- Gain on muneration Performance share based Fees package bonus Benefits payments Total R’000 R’000 R’000 R’000 R’000 R’000 Executive PA Dunne – 5 700 2 184 763 – 8 647 AZ Khumalo – 2 708 1 686 347 4 740 9 481 Non-executive PL Zim 318 – – – – 318 R Havenstein 744 – – – – 744 CK Chabedi 413 – – – – 413 TE Kgosi 579 – – – – 579 AR Martin 557 – – – – 557 ME Beckett 616 – – – – 616 JAK Cochrane 276 – – – – 276 3 503 8 408 3 870 1 110 4 740 21 631
NORTHAM ANNUAL INTEGRATED REPORT 2016 145
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ANNUAL FINANCIAL STATEMENTS continued
DIRECTORS’ REPORT CONTINUED
An analysis of the non-executive fees in respect of the board and board committee services for the 30 June 2016 financial year is as follows: Health, Social, safety and ethics and Audit and environ- human risk mental Investment resources Nominations Board committee committee committee committee committee Ad hoc fees Total R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 PL Zim 340 – – – – 72 – 412 R Havenstein 300 129 112 80 3 93 – 717 CK Chabedi 268 – 87 56 85 – – 496 HH Hickey 154 55 – – – – – 209 TE Kgosi 268 129 – – 113 72 27 609 AR Martin 273 160 – 56 – 76 – 565 KB Mosehla 219 – – 53 85 – – 357 TI Mvusi 154 – – – – – – 154 ME Beckett 108 72 42 – 25 – – 247 2 084 545 241 245 311 313 27 3 766
An analysis of the non-executive fees in respect of the board and board committee services for the year ended 30 June 2015 is as follows: Health, Social, safety and ethics and Audit and environ- human risk mental Investment resources Board committee committee committee committee Ad hoc fees Total R’000 R’000 R’000 R’000 R’000 R’000 PL Zim 318 – – – – – 318 R Havenstein 288 121 105 105 125 – 744 CK Chabedi 250 – 81 82 – – 413 TE Kgosi 250 121 – – 152 56 579 AR Martin 323 149 – 81 – 4 557 ME Beckett 288 121 81 – 126 – 616 JAK Cochrane 200 – – 76 – – 276 1 917 512 267 344 403 60 3 503
SERVICE CONTRACTS Mr PA Dunne, the chief executive officer, has a service contract with the company which is subject to a notice period of 1 year. Mr AZ Khumalo, the chief financial officer, has a service contract with the company which is subject to a notice period of three months.
DIRECTORS’ INTEREST According to information available to the company after reasonable enquiry, the interests of the directors and their families in the shares of the company at 30 June 2016 were as follows: Direct beneficial Indirect beneficial holding holding Total AZ Khumalo 7 500 – 7 500 KB Mosehla – 64 000 64 000 KB Mosehla* – 5 116 974 5 116 974 CK Chabedi* – 204 000 204 000 TE Kgosi* – 635 000 635 000 PL Zim* – 17 547 097 17 547 097 7 500 23 567 071 23 574 571
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As 30 June 2015 the interest of the directors and their families were as follows: Direct beneficial Indirect beneficial holding holding Total ME Beckett 30 000 – 30 000 CK Chabedi* – 204 000 204 000 TE Kgosi* – 635 000 635 000 PL Zim* – 17 547 097 17 547 097 30 000 18 386 097 18 416 097
* Pursuant to the Northam BEE transaction, Mr Chabedi, Ms Kgosi, Mr Mosehla and Mr Zim acquired beneficial interests in the ordinary share capital of Zambezi Platinum (RF) Limited. This resulted in them and their associates acquiring an effective interest in Northam shares.
At 30 June 2016, Mr Khumalo also owned 500 Zambezi Platinum (RF) Limited preference shares.
The SENS announcements for the aforementioned directors’ dealings in securities are available on the Northam website at www.northam.co.za.
There have been no changes in these holdings from 30 June 2016 to the date of this integrated report.
ANALYSIS OF SHAREHOLDERS AT 30 JUNE 2016
Number of Total of Percentage holding Shareholding range shareholders shareholding (%) 1 – 5 000 4 542 3 548 249 0.70 5 001 – 10 100 222 1 654 921 0.32 10 001 – 50 000 338 8 182 853 1.61 50 001 – 100 000 132 9 335 494 1.83 100 001 – 1 000 000 224 66 746 393 13.09 1 00 001 and more 68 420 313 302 82.45 5 526 509 781 212 100.00
Percentage holding Geographical analysis of shareholders Total shareholding (%) Australasia 147 906 0.03 Europe and United Kingdom 9 219 206 1.81 North America 28 352 569 5.56 Far East 129 056 0.03 South Africa 458 435 325 89.93 Rest of Africa 1 363 486 0.27 Other 12 133 664 2.37 509 781 212 100.00
NORTHAM ANNUAL INTEGRATED REPORT 2016 147
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ANNUAL FINANCIAL STATEMENTS continued
DIRECTORS’ REPORT CONTINUED
Percentage holding Major shareholders at 30 June 2016 Number of shares (%) Owner Zambezi Platinum (RF) Limited 159 905 453 31.37 Fund manager Coronation Asset Management 151 283 082 29.68 Public Investment Corporation 36 943 174 7.25 Sanlam Investment Management 29 874 306 5.86 Foord Asset Management 27 168 473 5.33 Clients of Allan Gray 25 542 896 5.01
Number of Percentage holding Shareholder spread at 30 June 2016 shareholders (%) Public 5 520 68.54 Zambezi Platinum (RF) Limited 1 31.37 Directors 5 0.09 5 526 100.0
NORTHAM SHARE OPTION SCHEME (THE SCHEME) The scheme was established on 4 January 1995 with the objective of attracting and retaining employees with appropriate levels of ability and expertise who make a significant contribution to the operations of the company.
The scheme was discontinued in 2011 owing to its dilutionary nature, although share options issued before its discontinuance will be allowed to run their course until 2017.
Options were offered at the volume weighted average price at which Northam shares traded on the JSE on the trading day immediately preceding the offer date. Options not exercised within seven years of the offer date shall lapse.
In March 2013 the JSE approved a change to the rules of the scheme in terms of which option holders may elect, at the time of exercising their option, to receive either the shares over which an option has been granted or a cash payment equivalent to the difference between the volume weighted average price at which Northam shares traded on the day preceding the exercise date and the exercise price.
A summary of the options held at 30 June 2016 is as follows: Price per share Total number of Earliest and latest exercise date in R options
27 November 2010 and 26 November 2015 32.38 70 000 5 November 2011 and 4 November 2016 36.95 380 000 1 July 2012 and 30 June 2017 45.59 125 000 12 October 2012 and 11 October 2017 46.57 2 050 000 Claw back rights options 40.00 102 916 Number of options held at 30 June 2015 2 727 916 Number of options forfeited during the year (337 740) Number of options exercised during the year – cash settled options (249 409) Number of options held at 30 June 2016 2 140 767
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A summary of the options held at 30 June 2015 is as follows: Price per share Total number of Earliest and latest exercise date in R options 22 October 2009 and 21 October 2014 48.00 1 165 000 27 November 2010 and 26 November 2015 32.38 160 000 5 November 2011 and 4 November 2016 36.95 517 500 1 July 2012 and 30 June 2017 45.59 125 000 12 October 2012 and 11 October 2017 46.57 2 575 000 Claw back rights options 40.00 178 085 Number of options held at 30 June 2015 4 720 585 Number of options forfeited during the year (1 236 648) Number of options exercised during the year – cash settled options (756 021) Number of options held at 30 June 2015 2 727 916
At 30 June 2016 the outstanding options were exercisable as follows: Options vested at 30 June 2016 at claw back Price per share Total number Options vested offer price of Earliest and latest exercise date in R of options at 30 June 2016 R40.00 5 November 2011 and 4 November 2016 36.95 275 390 265 000 10 390 12 October 2012 and 11 October 2017 46.57 1 865 377 1 795 000 70 377 2 140 767 2 060 000 80 767
At 30 June 2015 the outstanding options were exercisable as follows: Options vested at 30 June 2015 at claw back Price per share in Total number Options vested offer price of Earliest and latest exercise date R of options at 30 June 2015 R40.00 27 November 2010 and 26 November 2015 32.38 72 744 70 000 2 744 5 November 2011 and 4 November 2016 36.95 394 898 380 000 14 898 1 July 2012 and 30 June 2017 45.59 129 901 125 000 4 901 12 October 2012 and 11 October 2017 46.57 2 130 373 2 050 000 80 373 2 727 916 2 625 000 102 916
Full details of the cash settled options exercised during the year are set out in the annual financial statements and are summarised as follows: Number of options exercised Total gain paid including claw Exercise price to participants Grant date back shares R R’000 5 November 2009 119 508 58.52 1 380 12 October 2010 129 901 48.50 393 249 409 1 773
NORTHAM ANNUAL INTEGRATED REPORT 2016 149
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ANNUAL FINANCIAL STATEMENTS continued
DIRECTORS’ REPORT CONTINUED
NORTHAM SHARE INCENTIVE PLAN (SIP) The SIP was approved in 2011 when shareholders approved a proposal that the scheme be discontinued and replaced by the SIP, as the scheme no longer served the primary purpose of attracting and retaining employees.
The SIP is a full share-type plan which incorporates a combination of a conditional share plan (CSP) and a forfeitable share plan (FSP).
The key features that are common to both the CSP and the FSP are as follows: • All senior officials and executives, including executive directors, in job grade D1 and above are eligible; • Non-executive directors are not eligible to participate; • Employees will not be required to pay for shares granted to them; • In the event of a change of control of the company, all awards will vest; • In the event of a variation in share capital such as a capitalisation issue, subdivision of shares, consolidation of shares, liquidation etc., employees will continue to participate in the SIP. The committee may make such adjustment to awards or take such other action to place employees in no worse a position than they were prior to the happening of the relevant event, and to ensure that the fair value of awards immediately after the event is materially the same as the fair value thereof immediately before the event; • The issue of shares as consideration for an acquisition or a vendor consideration placing will not be regarded as a circumstance that requires any adjustment to awards; • Where necessary, the auditors of the company will confirm to the company and JSE that the adjustments are calculated on a non-prejudicial basis; • Any adjustments made will be reported in the company’s annual financial statements in the year during which the adjustment is made.
In order to avoid any future dilution, all shares will either be cash settled or equity settled through purchases in the open market.
Key features of the CSP and FSP are as follows:
CSP • Shares will be awarded or granted to employees once a year; • The number of conditional shares awarded, and the extent to which they will be subject to performance conditions, will primarily be based on the employee’s annual salary, grade, performance, retention requirements and market benchmarks or some combination thereof; • Both the retention shares and the performance shares will vest after three years; and • Performance conditions will be set by the SE&HR committee before an award is made, and will be based on appropriate company performance measures at the time.
FSP • Shares, which have no performance conditions attached, can only be awarded or granted in exceptional circumstances, approved by the SE&HR committee, for purposes of attracting key new employees; • The number of forfeitable shares to be made to an employee will primarily be based on the employee’s annual salary, grade, performance and retention or attraction requirements; • The forfeitable shares will be delivered to the employees, free of charge, subsequent to the award date, with them enjoying all shareholder rights from inception; • Awards will, however, be subject to restrictions that will prevent the forfeitable shares from being disposed of, ceded, transferred or otherwise encumbered before vesting; and • Vesting of the forfeitable shares will only be subject to the particular employee remaining in the employ of a group company for predetermined vesting period. No company performance conditions will apply.
In March 2013 the JSE approved a change to the rules of the SIP in terms of which, upon the vesting of any awards, participants may elect to receive either the shares that have vested or a cash amount equal to the volume weighted average price on the day preceding the settlement date.
The SE&HR committee, which is charged with overseeing the group’s remuneration policy, reviews the performance criteria annually and revises them as economic and operational circumstances dictate.
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No shares were allocated under the FSP during the year under review, whilst the details of the shares allocated under the CSP are set out below. Total number Retention Performance Grant date Details of shares shares shares Balance at 30 June 2015 5 690 000 1 345 200 4 344 800 11 November 2015 Shares awarded 3 527 900 890 300 2 637 600 Shares forfeited (587 200) (178 000) (409 200) Shares cash settled (2 141 300) (645 500) (1 495 800) Balance as at 30 June 2016 6 489 400 1 412 000 5 077 400
Total number Retention Performance Grant date Details of shares shares shares Balance at 30 June 2014 4 883 000 1 466 000 3 417 000 4 November 2014 Shares awarded 2 971 000 750 500 2 220 500 Shares forfeited (483 680) (63 900) (419 780) Shares cash settled (1 680 320) (807 400) (872 920) Balance as at 30 June 2015 5 690 000 1 345 200 4 344 800
At 30 June 2016 the following awards were outstanding: Shares to be Shares to be Total number settled in settled Grant date Details of shares FY2017 thereafter
15 November 2013 Performance shares 897 000 897 000 – 4 November 2014 Retention shares 600 200 – 600 200 4 November 2014 Performance shares 1 775 100 – 1 775 100 11 November 2015 Retention shares 811 800 – 811 800 11 November 2015 Performance shares 2 405 300 – 2 405 300 Balance as at 30 June 2016 6 489 400 897 000 5 592 400
At 30 June 2015 the following awards were outstanding: Shares to be Shares to be Total number settled in settled Grant date Details of shares FY2016 thereafter 6 November 2012 Performance shares 1 129 000 1 129 000 – 15 November 2013 Retention shares 627 000 627 000 – 15 November 2013 Performance shares 1 091 000 – 1 091 000 4 November 2014 Retention shares 718 200 – 718 200 4 November 2014 Performance shares 2 124 800 – 2 124 800 Balance as at 30 June 2016 5 690 000 1 756 000 3 934 000
Full details of the shares granted during the year are set out in the annual financial statements.
NORTHAM ANNUAL INTEGRATED REPORT 2016 151
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ANNUAL FINANCIAL STATEMENTS continued
DIRECTORS’ REPORT CONTINUED
SPECIAL RESOLUTIONS Special resolutions relating to directors’ remuneration, and financial assistance were approved at the AGM in November 2015.
GOING CONCERN The board believes that the company and group have adequate financial resources to continue operating for the foreseeable future and, accordingly, the financial statements have been prepared on a going concern basis.
EVENTS AFTER THE REPORTING DATE Subsequent to year end, the group renegotiated a five year R1.5 billion revolving credit facility with Nedbank Limited to replace the existing R1.0 billion facility which will mature in November 2016. The group further increased its investment in SSG Holdings Proprietary Limited by 10% and now holds a total share of 30%. Apart from these events there have been no other events subsequent to the period end which require additional disclosure or adjustment to the financial results.
152
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REPORT OF THE AUDIT AND RISK COMMITTEE
REPORT OF THE AUDIT AND RISK COMMITTEE The independent audit and risk committee (the committee) is pleased to present its report for the financial year ended 30 June 2016.
The committee has discharged its responsibilities mandated by the board, which also allows it to execute its statutory duties in compliance with the Companies Act 71 of 2008, as well as the King III principles applicable to audit committees. The committee’s terms of reference, which can be found on the company’s website www.northam.co.za are aligned with the above legislation, regulations and principles.
The committee comprised four independent non-executive directors during the year under review namely, Mr AR Martin (chairman), Mr R Havenstein, Mrs TE Kgosi and Ms HH Hickey who replaced Mr ME Beckett, who retired on 11 November 2015.
The committee met on five occasions during the year under review and all members were present at each of these scheduled meetings. Key members of management attend meetings of the committee by invitation. During the year, closed sessions were also held for committee members only, as well as with internal audit, external audit and management.
The committee and its chairman’s performance are assessed internally on an annual basis.
REPONSIBILITIES OF THE COMMITTEE The areas of responsibilities of the committee include the following: • The appointment and evaluation of external auditors and their terms of engagement; • The appointment and evaluation of the internal auditors and their mandate; • The approval of remuneration of external and internal auditors; • Ensuring the independence of external and internal auditors; • Ensuring that the appointment of both the external and internal auditors is made in compliance with the provisions of the Companies Act; • The approval of non-audit work which may be performed by the external auditors which includes tax compliance services, assurance related work in respect of any corporate actions and opinions not related to any prohibited services; • Approving the internal audit plan; • Approving the external audit plan without infringing on the auditors’ independence; • Reviewing interim and preliminary results of the company; • Reviewing and recommendation to the board for approval the interim report and preliminary announcement of results, the annual financial statements and the annual integrated report; • Ensuring that the risks of the company are adequately assessed and monitored by management through a risk register, and ensuring that such risks are properly mitigated; • Ensuring that internal controls of the company are implemented, effective and monitored; • Ensuring a cordial working relationship between management and internal auditors; and • To deal appropriately with any concerns or complaints raised by any of the company’s stakeholders relating to accounting policies or practices and internal audit, content or auditing of the company’s financial statements, internal financial controls or any related matter.
ANNUAL CONFIRMATIONS Appropriateness of the expertise and experience of the chief financial officer In terms of the JSE listings requirements, the audit and risk committee has satisfied itself as to the appropriateness of the expertise and experience of the chief financial officer. Independence and reappointment of external auditors The committee confirms the skills, independence, audit plan, reporting and overall performance of the external auditors are acceptable and that it recommends their re-appointment for the financial year ending 30 June 2017. Going concern statement including solvency and liquidity Based on the solvency and liquidity tests performed the committee report that it has a reasonable expectation that the company/group has adequate resources to continue in operational existence for the foreseeable future, and that the company/group is therefore a going concern. Effectiveness of internal controls Using the company’s combined assurance model and the related assurance obtained from the various assurance providers in the three lines of defence as basis, the committee recommended to the board that it issues a statement as to the adequacy of the company’s internal control environment.
NORTHAM ANNUAL INTEGRATED REPORT 2016 153
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ANNUAL FINANCIAL STATEMENTS continued
REPORT OF THE AUDIT AND RISK COMMITTEE CONTINUED
Annual financial statements and the integrated report The committee has: • Reviewed and discussed the audited annual financial statements included in the annual integrated report with the external auditors, the chief executive officer and the chief financial officer; • Reviewed the external auditor’s management letter and management’s response thereto; and • Reviewed significant adjustments resulting from external audit queries and accepted any unadjusted audit differences; and received and considered reports from the internal auditors.
The committee concurs with and accepts the external auditor’s conclusions on the annual financial statements and has recommended the approval thereof to the board. The committee recommended the annual financial statements as well as the 2016 integrated report to the board for approval. The board has subsequently approved the financial statements, which will be open for discussion at the forthcoming AGM.
AR Martin Chairman – audit and risk committee
Johannesburg 23 September 2016
154
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APPROVAL OF ANNUAL FINANCIAL STATEMENTS AND COMPANY APPROVALSECRETARY’S OF CONFIRMATION ANNUAL FINANCIAL STATEMENTS AND COMPANY SECRETARY’S CONFIRMATION APPROVAL OF ANNUAL FINANCIAL STATEMENTS AND In approving the annual financial statements, the directors hereby confirm: COMPANY• That they are responsible SECRETARY’S for the preparation, integrity CONFIRMATION and fair presentation of the annual financial statements of Northam and its subsidiaries. The auditors are responsible for auditing and reporting on whether the financial statements are fairly presented. In• approvingThe directors the annual are offinancial the opinion, statements, based theon thedirectors information hereby and confirm: explanations given by management that the system of internal control • Thatprovides they reasonable are responsible assurance for the that preparation, the financial integrity records and may fair bepresentation relied on for of the preparationannual financial of the statements annual financial of Northam statements. and its However, subsidiaries.any system of The internal auditors financial are responsible control can for only auditing provide and reasonable reporting andon whether not absolute, the financial assurance statements against arematerial fairly misstatemenpresented. t or loss. • The directorsannual financial are of the statements opinion, basedpresented on the on informationpages 147 toand 236 explanations have been preparedgiven by managementin accordance that with the International system of internal Financial control Reporting providesStandards. reasonable They conform assurance and adhere that the to financialapplicable records accounting may be standards relied on and for arethe preparationpresented after of the applying annual accountin financial gstatements. policies supported However, by anyreasonable system andof internal prudent financial judgements control and can estimates only provide made reasonable by management, and not which absolute, have assurance been consistently against material applied. misstatement or loss. • TheAdequate annual accounting financial statements records and presented an effective on pagessystem 147 of internal to 236 havecontrols been and prepared risk management in accordance have with been International maintained Financial during the Reporting entire Standards.financial year. They conform and adhere to applicable accounting standards and are presented after applying accounting policies supported by • Theyreasonable have reviewed and prudent the judgementsadditional information and estimates included made in bythe management, annual report whichand are have responsible been consistently for both the applied. accuracy and consistency with • theAdequate annual accounting financial statements. records and an effective system of internal controls and risk management have been maintained during the entire • Thefinancial going year. concern basis has been adopted in preparing the annual financial statements. The directors have no reason to believe that the • groupThey have will not reviewed be a going the additionalconcern in information the foreseeable included future in thebased annual on forecasts report and and are available responsible cash for resources. both the accuracyThese financial and con statementssistency with supportthe annual the financial viability ofstatements. the company and the group. • The annualgoing concern financial basis statements has been have adopted been auditedin preparing by the the independent annual financial auditors, statements. Ernst & YoungThe directors Inc. who have were no given reason unrestricted to believe accessthat the to allgroup financial will not records be a going and related concern data in the including foreseeable minutes future of all based meetings on forecasts of shareholders, and available the board cash of resources. directors aThesend committees financial statements of the board. Thesupport directors the viability believe of that the allcompany representations and the g maderoup. to the independent auditors during their audit are valid and appropriate. The unmodified • auditThe annual report financialof Ernst &statements Young Inc. have is presented been audited on page by thes 125 independent to 127. auditors, Ernst & Young Inc. who were given unrestricted access to • Aall corporate financial recordsgovernance and relatedreport appearsdata including on pages minutes 102 toof 106all meetings and includes of shareholders, information regardingthe board theof directors group’s complianceand committees with theof the King board. lll Code. The directors believe that all representations made to the independent auditors during their audit are valid and appropriate. The unmodified The annualaudit financialreport of statementsErnst & Young were Inc. approved is presented by the on board page ofs 125directors to 127 on. 23 September 2016 and are signed on its behalf by: • A corporate governance report appears on pages 102 to 106 and includes information regarding the group’s compliance with the King lll Code.
The annual financial statements were approved by the board of directors on 23 September 2016 and are signed on its behalf by:
P L Zim P A Dunne A R Martin Chairman Chief executive Chairman – audit and risk committee JohannesburgP L Zim P A Dunne A R Martin 23Chairman September 2016 Chief executive Chairman – audit and risk committee Johannesburg 23COMPANY September 2016 SECRETARY’S CONFIRMATION I,COMPANY PB Beale, in my capacity SECRETARY’S as company secretary of Northam, CONFIRMATION hereby certify in terms of section 88(2) of the Companies Act that all returns and noticesCOMPANY required of a public SECRETARY’S company in terms of the Act have, CONFIRMATION in respect of the year under review, been lodged with the Companies and Intellectual Property Commission and that all such returns are true, correct and up to date. I, PB Beale, in my capacity as company secretary of Northam, hereby certify in terms of section 88(2) of the Companies Act that all returns and notices required of a public company in terms of the Act have, in respect of the year under review, been lodged with the Companies and Intellectual Property Commission and that all such returns are true, correct and up to date.
PB Beale Company secretary
JohannesburgPB Beale 23Company September secretary 2016
Johannesburg 23 September 2016
NORTHAM ANNUAL INTEGRATED REPORT 2016 155 21
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ANNUAL FINANCIAL STATEMENTS continued
STATEMENT OF OF PROFIT PROFIT OR OR LOSS LOSS AND AND OTHER COMPREHENSIVE COMPREHENSIVE INCOME INCOME for the the year year ended ended 30 June 30 2016 June 2016
Group Company 2016 2015 2016 2015 Note R’000 R’000 R’000 R’000 Revenue 32 6 404 641 6 173 618 6 019 284 4 629 208 Sales revenue 33 6 097 070 6 035 535 5 740 467 4 230 121 Cost of sales (5 713 722) (5 439 722) (5 680 282) (3 980 584) Operating costs 34 (5 007 233) (4 342 571) (3 430 234) (3 114 831) Concentrates purchased (350 514) (602 395) (2 194 494) (963 011) Refining and other costs (133 186) (199 470) (133 186) (83 408) Depreciation and write-offs (403 545) (339 949) (187 966) (165 091) Change in metal inventories 180 756 44 663 265 598 345 757
Operating profit 383 348 595 813 60 185 249 537 Share of (losses)/earnings from associate and joint venture (32 253) 28 769 – – Investment revenue 35 265 258 72 043 109 480 220 904 Finance charges excluding preference share dividends 36 (39 634) (145 170) (33 515) (140 342) Sundry expenditure 37 (92 122) (1 587 264) (37 089) (9 244 535) Sundry income 38 180 928 268 250 282 545 377 490 Profit/(loss) before preference share dividends 665 525 (767 559) 381 606 (8 536 946) Amortisation of liquidity fees paid on preference shares 24 (18 088) – – – Preference share dividends 24 (918 806) (100 767) – – (Loss)/profit before tax (271 369) (868 326) 381 606 (8 536 946) Taxation 39 (236 894) (165 619) (108 988) (115 244) (Loss)/profit for the year (508 263) (1 033 945) 272 618 (8 652 190)
Other comprehensive income Items that will be subsequently reclassified to profit and loss 19 822 (4 482) – – Share of associate’s exchange differences on translating foreign operations and foreign currency translation (3 947) (4 482) – – Reclassification of other comprehensive income from associate to profit or loss 23 769 – – –
Total comprehensive income for the year (488 441) (1 038 427) 272 618 (8 652 190)
(Loss)/profit attributable to: Owners of the parent (508 263) (1 035 649) 272 618 (8 652 190) Non-controlling interests – 1 704 – – (Loss)/profit for the year (508 263) (1 033 945) 272 618 (8 652 190)
Total comprehensive income attributable to: Owners of the parent (488 441) (1 040 131) 272 618 (8 652 190) Non-controlling interests – 1 704 – – Total comprehensive income attributable for the year (488 441) (1 038 427) 272 618 (8 652 190)
Cents Cents Loss per share 40 (145.3) (264.3) Fully diluted loss per share 40 (145.3) (264.3) Headline loss per share 40 (140.9) (202.9) Fully diluted headline loss per share 40 (140.9) (202.9)
15622
STATEMENTANNUAL FINANCIAL STATEMENTS OF continued FINANCIAL POSITION AsSTATEMENT at 30 June 2016 OF FINANCIAL POSITION As at 30 June 2016
Group Company 2016 2015 2016 2015 Note R’000 R’000 R’000 R’000 ASSETS Non-current assets 14 110 084 13 367 048 13 299 712 12 988 803 Property, plant and equipment 5 7 853 993 7 065 352 2 790 278 2 419 013 Mining properties and mineral resources 6 5 614 094 5 636 478 101 518 109 362 Interest in associates and joint ventures 7 192 164 275 847 36 845 116 961 Investment in subsidiaries 8 – – 10 236 000 10 236 000 Unlisted investment 9 6 6 6 6 Land and township development 10 51 341 10 000 18 218 – Long term receivables 11 89 717 94 503 – – Investments held by Northam Platinum Restoration Trust Fund 12 93 647 49 092 43 204 38 868 Environmental Guarantee Investment 13 60 345 52 122 49 187 44 137 Buttonshope Conservancy Trust 14 10 445 11 037 – – Deferred tax asset 21 144 332 172 611 – – Long term subsidiary loan 15 – – 24 456 24 456 Current assets 4 867 779 5 784 288 5 613 269 6 074 996 Short term subsidiary loan 15 – – 2 330 527 4 201 563 Inventories 16 1 330 270 1 126 550 1 308 256 1 045 353 Trade and other receivables 17 375 204 498 854 274 353 281 497 Cash and cash equivalents 18 3 105 080 4 138 189 1 654 417 534 959 Tax receivable 57 225 20 695 45 716 11 624 Total assets 18 977 863 19 151 336 18 912 981 19 063 799 EQUITY AND LIABILITES Stated capital 19 13 778 114 13 778 114 13 778 114 13 778 114 Treasury shares 19 (6 556 123) (6 556 123) – – Retained earnings 631 545 1 139 808 (6 077 117) (6 349 735) Equity settled share based payment reserve 20 874 448 874 448 1 173 756 1 173 756 Share of other comprehensive income from associate – (19 822) – – Total equity 8 727 984 9 216 425 8 874 753 8 602 135 Non-current liabilities 9 072 179 7 310 753 8 981 473 8 235 923 Deferred tax liability 21 590 637 521 452 594 935 527 234 Long term provisions 22 272 820 187 217 139 316 114 509 Long term loans 23 275 513 39 963 239 350 – Long term share based payment liability 26 84 373 69 466 52 641 58 236 Financial guarantee liability 25 – – 7 535 944 7 535 944 Domestic medium term debt notes 27 419 287 – 419 287 – Preference share liability 24 7 429 549 6 492 655 – – Current liabilities 1 177 700 2 624 158 1 056 755 2 225 741 Current portion of long term loans 23 13 201 3 801 9 400 – Short term share based payment liability 26 56 704 61 019 44 197 49 974 Domestic medium term debt notes 27 – 1 370 000 – 1 370 000 Tax payable 104 072 102 072 – – Trade and other payables 29 877 935 959 996 885 358 685 303 Short term provisions 30 125 788 127 270 117 800 120 464 Total equity and liabilities 18 977 863 19 151 336 18 912 981 19 063 799
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NORTHAM ANNUAL INTEGRATED REPORT 2016 157 ANNUAL FINANCIAL STATEMENTS continued
ANNUAL FINANCIAL STATEMENTS continued STATEMENT OF OF CHANGES CHANGES IN IN EQUITY EQUITY for the the year year ended ended 30 June 30 2016 June 2016
Equity settled Other share-based comprehensive Non- Stated payment Retained income from controlling Total capital reserve earnings associate interests equity R’000 R’000 R’000 R’000 R’000 R’000 GROUP Balance at 1 July 2014 9 178 688 – 2 223 135 (15 340) 5 389 11 391 872 Acquisition of non-controlling interest – – (46 815) – (3 185) (50 000) Total comprehensive income for the year – – (1 033 945) (4 482) 1 704 (1 036 723) Loss for the year – – (1 033 945) – 1 704 (1 032 241) Other comprehensive income for the year – – – (4 482) – (4 482) Dividends declared # – – (2 567) – (3 908) (6 475) Issue of new shares 4 599 426 – – – – 4 599 426 Treasury shares (6 556 123) – – – – (6 556 123) Share based payment reserve – 874 448 – – – 874 448 Balance at 1 July 2015 7 221 991 874 448 1 139 808 (19 822) – 9 216 425 Total comprehensive income for the year – – (508 263) 19 822 – (488 441) Loss for the year – – (508 263) – – (508 263) Other comprehensive income for the year – – – 19 822 – 19 822
Balance at 30 June 2016 7 221 991 874 448 631 545 – – 8 727 984 Note 19 20
# Non-controlling interest’s portion of dividends declared by entities within the Northam group.
R7 221 991 Stated capital balance at 30 June 2016
R631 545 Retained earnings at 30 June 2016
R8 727 984 Total equity at 30 June 2016
ANNUAL FINANCIAL STATEMENTS continued
24
158 STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2016
Equity settled share-based Stated payment Retained Total capital reserve earnings Equity R’000 R’000 R’000 R’000 COMPANY Balance at 1 July 2014 9 178 688 – 2 302 455 11 481 143 Total comprehensive income for the year – – (8 652 190) (8 652 190) Share based payment reserve – 1 173 756 – 1 173 756 Issue of new shares 4 599 426 – – 4 599 426 Balance at 1 July 2015 13 778 114 1 173 756 (6 349 735) 8 602 135 Total comprehensive income for the year – – 272 618 272 618 Balance at 30 June 2016 13 778 114 1 173 756 (6 077 117) 8 874 753 Note 19 20
R13 778 114 Stated capital balance at 30 June 2016
R272 618 Total comprehensive income as at 30 June 2016
R8 874 753 Total equity at 30 June 2016
NORTHAM25 ANNUAL INTEGRATED REPORT 2016 159
ANNUAL FINANCIAL STATEMENTS continued
STATEMENT OF CASH FLOWS forSTATEMENT the year ended 30 JuneOF 2016 CASH FLOWS for the year ended 30 June 2016
Group Company 2016 2015 2016 2015 Note R’000 R’000 R’000 R’000 Cash flows from operating activities 839 081 340 950 346 378 (117 395) Cash generated from operations 41 952 650 745 187 386 199 283 498 Interest received 265 258 72 043 109 480 220 904 Movement in land and township development (41 341) – (18 218) – Change in working capital 42 (162 131) (221 248) (55 704) (499 955) Taxation paid 43 (175 355) (255 032) (75 379) (121 842) Cash flows utilised in investing activities (1 126 793) (1 101 462) 1 508 558 (4 448 845) Property, plant and equipment and mining properties and mineral reserves Additions to maintain operations (369 636) (322 980) (259 818) (286 245) Additions to expand operations (804 344) (779 068) (294 297) – Disposal proceeds 4 235 1 551 2 785 1 402 Movement in land and township development – (203) – – Investment in associate cash distributions received 24 12 918 – – Additional investment made in associate 7 (20 601) (9 623) (10 601) (9 623) Proceeds on sale of investment in Trans Hex Group Limited 81 815 – 81 815 – Movement in subsidiary loan – – 1 871 036 387 411 Increase in investments held by Northam Platinum Restoration Trust (10 655) (2 624) (4 336) (2 077) Fund Increase in investments held by Environmental Guarantee Investments (8 223) (1 098) (5 050) (1 856) Movement in investment held in Buttonshope Conservancy Trust 592 (335) – – Additional investment in subsidiary – – – (4 650 000) Dividends received – – 127 024 112 143 Cash flows generated from financing activities (745 397) 4 232 645 (735 478) 4 466 557 Proceeds from issue of shares – 4 600 000 – 4 600 000 Transaction costs – (574) – (574) Liquidity fees paid – (163 903) – – Acquisition of non-controlling interest – (50 000) – – Finance charges (39 634) (145 170) (33 515) (132 869) Dividends paid – (3 908) – – Movement in long term loans 244 950 (3 800) 248 750 – Domestic medium term debt notes issued 419 287 – 419 287 – Domestic medium term debt notes repaid (1 370 000) – (1 370 000) – (Decrease)/increase in cash and cash equivalents (1 033 109) 3 472 133 1 119 458 (99 683) Cash and cash equivalents at the beginning of the year 4 138 189 666 056 534 959 634 642 Cash and cash equivalent at the end of the year 18 3 105 080 4 138 189 1 654 417 534 959
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ACCOUNTING POLICIES for the year ended 30 June 2016
ACCOUNTING1. BASIS OF PREPARATION POLICIES ACCOUNTINGThe consolidated financial statements POLICIES have been prepared on the historical cost basis, except for financial instruments to the extent required or forpermitted the year under ended Reporting 30 Standards June 2016 (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and as set out in the relevant forACCOUNTING the year ended 30 June 2016 POLICIES foraccounting the year policies.ended 30 June 2016
The consolidated financial statements incorporate the following accounting policies which have been applied on a basis consistent with the previous 1.year, BASIS with the OF exception PREPARAT of theION policies adopted during the year as more fully set out below. 1. BASIS OF PREPARATION The preparationconsolidated of financial financial statements statements have in conformity been prepared with IFRS on the requires historical that cost management basis, except and for the financial board exercise instruments their tojudgement the extent in required the process or of The consolidated financial statements have been prepared on the historical cost basis, except for financial instruments to the extent required or permittedapplying the under company’s Reporting group Standards accounting (“IFRS”) policies. as issued It also by requires the International the use of Accountingcertain critical Standards economic Board and (“IASB”)other estimates. and as set The ou areast in the requiring relevant a permitted under Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and as set out in the relevant accountinghigh degree policies. of judgement or complexity, or areas where assumptions or estimates are significant to the financial statements are disclosed in notes accounting policies. to the financial statements. The consolidated financial statements incorporate the following accounting policies which have been applied on a basis consistent with the previous year,The consolidated with the exception financial of statementsthe policies incorporateadopted during the followingthe year asaccounting more fully poli setcies out which below. have been applied on a basis consistent with the previous year,1.1 NEW with theACCOUNTING exception of the P OLICIESpolicies adopted ADOPTED during the year as more fully set out below.
ThereThe preparation have been of no financial amendments, statements standards in conformity or interpretations with IFRS impactingrequires that the management group which becameand the boardeffective exercise for the their year judgement beginning in1 Julythe process2015. of The preparation of financial statements in conformity with IFRS requires that management and the board exercise their judgement in the process of applying the company’s group accounting policies. It also requires the use of certain critical economic and other estimates. The areas requiring a applying the company’s group accounting policies. It also requires the use of certain critical economic and other estimates. The areas requiring a Athigh the degree date of of authorisation judgement or of complexity, these financial or areas statements, where assumptions the following or standards estimates and are interpretations significant to the were financial in issue statements but not yet are effective. disclosed in notes high degree of judgement or complexity, or areas where assumptions or estimates are significant to the financial statements are disclosed in notes Theto the effective financial date statements. refers to periods beginning on or after, unless otherwise indicated. to the financial statements. Standard or Interpretation Impact Effective date 1.1 NEW ACCOUNTING POLICIES ADOPTED 1.1IFRS NEW 9 Financial ACCOUNTING instruments POLICIES ADOPTEDExcept for certain trade receivables, initial measurement of 1 January 2018 There have been no amendments, standards or interpretationsa financial asset impacting remains the at itsgroup fair valuewhich plus, became in the effective case for the year beginning 1 July 2015. There have been no amendments, standards or interpretationsof a financial asset impacting not at the fair group value whichthrough became profit or effective loss, for the year beginning 1 July 2015. At the date of authorisation of these financial statements,transaction the costs. following standards and interpretations were in issue but not yet effective. AtThe the effective date of dateauthorisation refers to periodsof these beginning financial statements, on or after, unlessthe following otherwise standards indicated. and interpretations were in issue but not yet effective. The effective date refers to periods beginning on or after, unless otherwise indicated. Standard or Interpretation DebtImpact instruments are subsequently measured at FVTPL, Effective date Standard or Interpretation amortisedImpact cost, or fair value through other comprehensive Effective date IFRS 9 Financial instruments incomeExcept for(FVOCI), certain ontrade the receivables,basis of their initial contractual measurement cash flows of 1 January 2018 IFRS 9 Financial instruments Except for certain trade receivables, initial measurement of 1 January 2018 anda financial the business asset remains model under at its fairwhich value the plus,debt ininstruments the case a financial asset remains at its fair value plus, in the case areof a held.financial asset not at fair value through profit or loss, of a financial asset not at fair value through profit or loss, transaction costs. transaction costs. Equity instruments are generally measured at FVTPL. However,
entitiesDebt instruments have an irrevocable are subsequently option on measured an instrument at FVTPL,-by- Debt instruments are subsequently measured at FVTPL, instrumentamortised cost, basis or to fair present value changesthrough otherin the comprehensive fair value of non - amortised cost, or fair value through other comprehensive tradingincome instruments(FVOCI), on in the other basis comprehens of their contractualive income cash (OCI) flows income (FVOCI), on the basis of their contractual cash flows withoutand the subsequentbusiness model reclassification under which to the profit debt or instrumentsloss. and the business model under which the debt instruments Measurementare held. at cost is no longer allowed. are held.
ForEquity financial instruments liabilities are designated generally measured as FVTPL at using FVTPL. the FVO,However, Equity instruments are generally measured at FVTPL. However, theentities amount have of an change irrevocable in the optionfair value on anof suchinstrument financial-by -liabilities entities have an irrevocable option on an instrument-by- instrumentthat is attributable basis to to present changes changes in credit in risk the mustfair value be presented of non- in instrument basis to present changes in the fair value of non- tradingOCI. The instruments remainder in of other the change comprehens in fair ivevalue income is presented (OCI) in trading instruments in other comprehensive income (OCI) profitwithout or subsequentloss, unless reclassificationpresentation in toOCI profit of theor loss. fair value without subsequent reclassification to profit or loss. changeMeasurement in respect at cost of the is no liability’s longer creditallowed. risk would create or Measurement at cost is no longer allowed. enlarge an accounting mismatch in profit or loss.
For financial liabilities designated as FVTPL using the FVO, For financial liabilities designated as FVTPL using the FVO, theAll other amount IAS of 39 change classification in the fair and value measurement of such financial requirements liabilities the amount of change in the fair value of such financial liabilities thatfor financial is attributable liabilities to changeshave been in carriedcredit risk forward must intobe presented IFRS 9. in that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in OCI. The remainder of the change in fair value is presented in profitThe impairment or loss, unless requirements presentation are inbased OCI ofon the an fairexpected value credit profit or loss, unless presentation in OCI of the fair value changeloss (ECL) in respect model thatof the replaces liability’s the credit IAS 39risk incurred would create loss model. or change in respect of the liability’s credit risk would create or enlargeThe ECL a nmodel accounting applies mismatch to debt instruments in profit or loss.accounted for at enlarge an accounting mismatch in profit or loss. amortised cost or at FVOCI, most loan commitments, financial
Allguarantee other IAS contracts, 39 classification contract andassets measurement under IFRS requirements15 and lease All other IAS 39 classification and measurement requirements forreceivables. financial liabilities have been carried forward into IFRS 9. for financial liabilities have been carried forward into IFRS 9.
The impairment requirements are based on an expected credit lossThe impairment(ECL) model requirements that replaces are the based IAS 39 on incurred an expected loss model. credit Theloss ECL(ECL) model model applies that replaces to debt theinstruments IAS 39 incurred accounted loss for model. at amortisedThe ECL model cost or applies at FVOCI, to debt most instruments loan commitments, accounted financial for at amortised cost or at FVOCI, most loan commitments, financial guarantee contracts, contract assets under IFRS 15 and lease receivables.guarantee contracts, contract assets under IFRS 15 and lease receivables.
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NORTHAM ANNUAL INTEGRATED REPORT 2016 161 27 27
ANNUAL FINANCIAL STATEMENTS continued
Standard or Interpretation Impact Effective date ACCOUNTING POLICIESEntities CONTINUED are generally required to recognise 12-month ECL on initial recognition (or when the commitment or guarantee was for the year ended 30 June 2016 entered into) and thereafter as long as there is no significant deterioration in credit risk. However, if there has been a significant increase in credit risk on an individual or collective basis, then entities are required to recognise lifetime ECL. Standard or Interpretation ImpactFor trade receivables, a simplified approach may be applied Effective date whereby the lifetime ECL are always recognised. Entities are generally required to recognise 12-month ECL on
initial recognition (or when the commitment or guarantee was The application of IFRS 9 may change the measurement and entered into) and thereafter as long as there is no significant presentation of many financial instruments, depending on their deterioration in credit risk. However, if there has been a contractual cash flows and the business model under which significant increase in credit risk on an individual or collective they are held. The impairment requirements will generally result basis, then entities are required to recognise lifetime ECL. in earlier recognition of credit losses. The new hedging model For trade receivables, a simplified approach may be applied may lead to more economic hedging strategies meeting the whereby the lifetime ECL are always recognised. requirements for hedge accounting.
The application of IFRS 9 may change the measurement and The impact of IFRS 9 on Northam is being assessed. presentation of many financial instruments, depending on their contractual cash flows and the business model under which IFRS 15 Revenue from Contracts with IFRSthey are 15 held.is more The prescriptive impairment than requirements the current will IFRS generally result 1 January 2018 Customers requirementsin earlier recognition for revenue of credit recognition losses. Tandhe newprovides hedging more model applicationmay lead to guidance. more economic The standard hedging requires strategies entities meeting to exercise the judgement,requirements taking for hedge into consideration accounting. all of the relevant facts and circumstances when applying each of the model’s five steps to Thecontacts impact with of customers.IFRS 9 on NorthamThe disclosure is being requirements assessed. are also more extensive. The standard will affect entities across all industries. Adoption will be a significant undertaking for most IFRS 15 Revenue from Contracts with IFRS 15 is more prescriptive than the current IFRS 1 January 2018 entities with potential changes to their current accounting, requirements for revenue recognition and provides more Customers systems and processes. Therefore, a successful application guidance. The standard requires entities to exercise implementation will require an assessment of and a plan for judgement, taking into consideration all of the relevant facts and managing the change. circumstances when applying each of the model’s five steps to
contacts with customers. The disclosure requirements are also A preliminary assessment of what the impact of the new more extensive. The standard will affect entities across all standard will be on Northam is currently being conducted. industries. Adoption will be a significant undertaking for most IFRS 16 Leases Theentities new with standard potential requires changes lessees to their to accountcurrent accounting, for all leases 1 January 2019 undersystems a single and processes. on-balance Therefore, sheet model a successful in a similar way to implementationfinance leases under will require IAS 17. an The assessment standard ofincludes and a plantwo for managingrecognition the exemptions change. for leases – lessees of “low-value” assets and short-term leases. At the commencement date of a Alease, preliminary a lessee assessment will recognise of what a liability the impact to make of leasethe new payments standardand an asset will berepresenting on Northam the is rightcurr entlyto use being the underlyingconducted. asset during the lease term. IFRS 16 Leases The new standard requires lessees to account for all leases 1 January 2019
under a single on-balance sheet model in a similar way to The entity has not yet considered the implication of adopting finance leases under IAS 17. The standard includes two IFRS 16. recognition exemptions for leases – lessees of “low-value” IAS 1 Disclosure Initiative – Amendments Theassets amendments and short-term to IAS leases. 1 clarify, At the rather commencement than significantly date of a 1 January 2016 to IAS 1 change,lease, a lesseeexisting will IAS recognise 1 requirements. a liability The to makeamendments lease payments clarify: •and anThe asset materiality representing requirements the right in to IAS use 1 the underlying asset •during That the specificlease term. line items in the statement(s) of profit or loss and OCI and the statement of financial position may be The entitydisaggregated has not yet considered the implication of adopting •IFRS That16. entities have flexibility as to the order in which they IAS 1 Disclosure Initiative – Amendments The amendmentspresent the notes to IAS to 1 financia clarify, lrather statements than significantly 1 January 2016 to IAS 1 •change, That existing the share IAS of1 requirements.OCI of associates The andamendments joint ventures clarify: • Theaccounted materiality for using requirements the equity in method IAS 1 must be presented • Thatin aggregate specific asline a items single in line the item, statement(s) and classified of profit between or loss andthose OCI items and that the will statement or will not of financialbe subsequently position may be disaggregatedreclassified to profit or loss. • That entities have flexibility as to the order in which they present the notes to financial statements • That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently
reclassified to profit or loss.
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28
Standard or Interpretation Impact Effective date Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI.
The impact of the materiality and subtotal amendments are still to be assessed. The other amendments will have no impact as these principles are applied already.
IAS 7 Disclosure Initiative – Amendments The amendment requires the entity to provide disclosures that 1 January 2017 to IAS 7 enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The group is still assessing the impact of this amendment on the group. IAS 12 Recognition of Deferred Tax Assets The amendments clarify that an entity needs to consider 1 January 2017 for Unrealised Losses – Amendments to whether tax law restricts the sources of taxable profits against IAS 12 which it may make deductions on the reversal of that deductible temporary differences. The amendments also provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amounts.
Management is currently assessing the impact of the amendment with regards to the guidance on how an entity should determine future taxable profits and the circumstances in which taxable profits may include the recovery of some assets for more than their carrying amount. IAS 27 Equity Method in Separate Financial The amendments to IAS 27 allow an entity to use the equity 1 January 2016 Statements – Amendments to IAS 27 method as described in IAS 28 to account for its investments in subsidiaries, joint ventures and associates in its separate financial statements. Therefore, an entity must account for these investments either: • At cost • In accordance with IFRS 9 (or IAS 39); or • Using the equity method The entity must apply the same accounting for each category of investment.
This approach might be applied in the future, if the entity considered that the equity accounting measure might provide useful information to the users of the financial statements.
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ANNUAL FINANCIAL STATEMENTS continued
ACCOUNTING POLICIES CONTINUED forACCOUNTING the year ended 30 June POLICIES 2016 for the year ended 30 June 2016
Improvements to International Financial Reporting Standards The IASB’s annual improvements process deals with non-urgent, but necessary, clarifications and amendments to IFRS.
Following is a summary of the amendments (other than those affecting only the standards’ Basis for Conclusions) from the 2012-2014 annual improvements cycle. The changes summarised below are effective for annual reporting periods beginning on or after 1 January 2016. Earlier application is permitted and must be disclosed.
Standard or Interpretation Impact IAS 34 Interim Financial Disclosure of information ‘elsewhere in the interim financial report’ Reporting • The amendment clarifies that the required interim disclosures must be either in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the management commentary or risk report). • The other information within the interim financial report must be available to users on the same terms and at the same time as the interim financial statements. • The amendment must be applied retrospectively. Management will consider the impact of the amendment with the next interim financial statements.
The group does not intend to early adopt any of the above amendments, standards and interpretations.
1.2 CONSOLIDATION The consolidated financial statements include the results, financial position and cash flows of Northam, its subsidiaries, joint ventures and associates. A subsidiary is an entity that is controlled due to the company being exposed or having rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
The results of any subsidiary acquired or disposed of during the year are included from the date control was obtained up to the date control ceased to exist. Where an acquisition of a subsidiary is made during the financial year, any excess or deficit of the purchase price compared to the fair value of the attributable net identifiable assets is recognised respectively as goodwill (excess) and accounted for as described in the goodwill accounting policy or in profit or loss (deficit) as a bargain purchase gain.
The financial statements of the subsidiaries are prepared for the same reporting period as Northam, using consistent accounting policies, and all intra group transactions and balances are eliminated on consolidation.
Non-controlling interests represent the portion of profit or loss and net assets not held by the group and are presented separately in profit or loss and within equity in the consolidated statement of financial position, separately from parent shareholders equity. Changes in the group’s ownership interest in a subsidiary that do not result in the group losing control of the subsidiary are equity transactions.
Investments in subsidiaries are recognised at cost less accumulated impairment losses in the accounts of the company.
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ACCOUNTING POLICIES for the year ended 30 June 2016
1.3 ASSOCIATES AND JOINT ARRANGEMENTS An associate is an entity in which the group has significant influence. The group’s investment in its associates is accounted for using the equity method of accounting.
The group also has an interest in a joint arrangement which is classified as a joint venture in terms of IFRS 11 Joint arrangements. The group’s investment in this joint venture is accounted for using the equity method of accounting.
Under the equity method, the investment in the associates and joint venture is carried in the statement of financial position at cost plus post acquisition changes in the group’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. Profit or loss in the statement of profit or loss and other comprehensive income reflects the share of the results of operations of the associates and joint venture. Where there has been a change recognised directly in other comprehensive income or equity of the associate or joint venture, the group recognises its share of any changes and recognises this, when applicable, in other comprehensive income or equity within the statement of changes in equity. Unrealised gains and losses resulting from transactions between the group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.
The share of profit of associates or joint venture is shown on the face of the statement of profit or loss and other comprehensive income in profit or loss. This is the profit attributable to equity holders of the associate or joint venture and is therefore profit after tax and non-controlling interests.
The financial statements of the associates and joint venture are prepared for the same reporting period as the parent company. Where necessary, adjustments are made to bring the accounting policies in line with those of the group.
After application of the equity method, the group determines whether it is necessary to recognise an impairment loss on the group’s investment in its associates or joint venture. The group determines at each reporting date whether there is any objective evidence that the investment in the associate or joint venture is impaired. If this is the case, the group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value and recognises the amount in profit or loss.
Upon loss of significant influence over the associate or joint control over the joint venture, the group measures and recognises any remaining investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
1.4 BUSINESS COMBINATIONS AND GOODWILL Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquirer’s identifiable net assets. Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the date of acquisition. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss. Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not amortised.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) that is expected to benefit from the combination. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount of the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.
Goodwill is tested for impairment annually or more frequently if events or circumstances suggest that it might be impaired and an impairment loss recognised is not reversed in a subsequent period.
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ANNUAL FINANCIAL STATEMENTS continued
ACCOUNTING POLICIES CONTINUED forACCOUNTING the year ended 30 June POLICIES 2016 for the year ended 30 June 2016
1.5 PROPERTY, PLANT AND EQUIPMENT
Mining assets Mining assets are recorded at cost of acquisition less accumulated depreciation and accumulated impairment losses.
Mine development costs Capitalised mine development costs include expenditure incurred to develop new orebodies, to define further mineralisation in existing orebodies and to expand the capacity of the mine. Costs include interest capitalised during the construction period until commercial production is reached where development is financed by borrowings, and the net present value of future decommissioning costs. Depreciation is first charged on new mining ventures from the date on which the mining venture reaches commercial production levels. When a mine development project moves into the production phase, the capitalisation of certain mine development costs ceases, and costs are either regarded as part of the cost of inventory or expensed, except for costs which qualify for capitalisation relating to mining asset additions, improvements or new developments, underground mine development or mineable reserve development. Mine development costs are depreciated on a straight-line over the estimated economic life of the mine or a units of production basis based on resources which are revised annually, whatever is more appropriate.
Mining plant and equipment Mining plant and equipment, including the decommissioning asset, is depreciated on either a straight-line basis over the lesser of the estimated economic life of the mine, or using the units of production basis based on resources, which are revised annually, or their expected useful lives. Where items of plant and equipment comprise separate, identifiable components that have differing useful lives, such components are depreciated according to their individual useful lives.
Research costs associated with the design of new items of plant and equipment, or improvements to existing items of plant and equipment, are expensed when incurred, unless the recognition criteria are met.
Items of property, plant and equipment that are withdrawn from use, or have no reasonable prospect of being recovered through use or sale, are regularly identified and impaired/scrapped.
Decommissioning asset The decommissioning asset is depreciated on units of production basis, based on resources which are revised annually.
The decommissioning asset is recognised and subsequent changes in the assumptions which impact the asset are reflected in the asset as set out in the decommissioning provision accounting policy. The decommissioning asset is included as part of the mining plant and equipment when considering depreciation, impairment and derecognition.
Intangible assets comprising mining properties Mining properties, comprising mineral rights are recorded at cost of acquisition. Depreciation is first charged on new mining properties from the date on which the mining in respect of the mining property reaches commercial production levels. Mining properties are depreciated on a straight-line basis over the estimated economic life of the mine, or on a units of production based on resources which are revised annually, whichever is more appropriate.
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is expensed in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense of intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.
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ACCOUNTING POLICIES for the year ended 30 June 2016
Other assets Office equipment, furniture and vehicles are depreciated using varying rates, ranging between 10% and 20% on a straight-line basis over their expected useful lives.
Land Land is recorded at cost of acquisition less accumulated impairment losses and is not depreciated.
Impairment At each reporting date, the group assesses whether there is any indication that an asset or cash-generating-unit may be impaired. Where an indicator of impairment exists or where annual impairment testing for an asset is required, the group makes a formal estimate of the asset or cash- generating-unit’s recoverable amount. Where the carrying amount of an asset or cash-generating-unit exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount and the difference is recognised in profit or loss. The recoverable amount is the higher of value in use and fair value less cost of disposal.
The value in use of mining assets is determined by applying a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset to the anticipated cash flows for the remaining useful life of the assets.
The fair value less costs of disposal of non-mining assets is determined with reference to market values by making use of a valuation model.
The revised carrying amounts are depreciated on a systematic basis over the remaining useful lives of such affected assets.
Impairment losses are recognised in profit or loss in those expense categories consistent with the function of the impaired asset.
For assets excluding goodwill, 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 group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor 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 profit or loss.
An impairment calculation used during a previous financial year can be re-used if: • the assets and liabilities making up the unit have not changed significantly; • the recoverable amount is significantly greater than the carrying amount; and • an analysis of events indicates that the chances of the difference being eliminated are remote.
Derecognition 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 profit or loss in the year the asset is derecognised.
Annual review of residual values, depreciation method and useful lives The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted prospectively, if appropriate, at each financial year end.
Subsequent expenditure Subsequent expenditure relating to an item of property, plant, equipment and mining properties is added to the carrying value of the asset when it is probable that future economic benefits will flow to the group. All other subsequent expenditure is recognised as an expense and included in profit or loss.
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ANNUAL FINANCIAL STATEMENTS continued
ACCOUNTING POLICIES CONTINUED forACCOUNTING the year ended 30 June POLICIES 2016 for the year ended 30 June 2016
Exploration expenditure The group expenses all exploration and evaluation expenditures until it is concluded that a future economic benefit is more likely than not of being realised, i.e. probable.
Exploration and evaluation expenditure on greenfields sites, being those where the group does not have any mineral deposits which are already being mined or developed, is expensed as incurred until a feasibility study has been completed, after which the expenditure is capitalised if the feasibility study demonstrates that future economic benefits are probable.
Exploration and evaluation expenditure on brownfields sites, being those adjacent to mineral deposits which are already being mined or developed, is expensed as incurred until management is able to demonstrate that future economic benefits are probable through the completion of a feasibility study, after which the expenditure is capitalised as a mine development cost.
Exploration and evaluation 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 as a mine development cost following a mine planning exercise equivalent to a feasibility study.
1.6 LAND AND TOWNSHIP DEVELOPMENT The assets are recognised on the statement of financial position in accordance with IAS 2. We are comfortable that a buyer will always be found due to the shortage of houses at mines. Because these assets are normally held for a period of longer than 12 months, they are however deemed to be non-current assets. These assets are held at the lower of cost and net realisable value.
Net realisable value tests are performed at each reporting date and represent the current sales price of the product, less estimated costs to complete production and bring the product to sale. Where the time value of money is material, these future prices and costs to complete are discounted.
Land and township development, which is an initiative in order to assist the group’s employees to acquire their own affordable housing, is initially recognised at cost, being the fair value of the consideration given and including acquisition charges. Cost is determined on the basis of land acquisition, development and housing construction cost. Land and township development is derecognised when the risks and rewards of ownership of the property transfers to the employees.
Northam’s main business is not the development of properties. In terms of South African mining legislation it is required to provide certain home ownership benefits. To that end it constructs houses which are sold to employees on favourable terms.
The houses are mainly for employees but third parties may also acquire these properties. Therefore, the main aim of the disclosure of the land and township development activities provided is qualitative by nature, i.e. social and community advancement and employee benefits. The main business of the group is mining platinum group metals.
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ACCOUNTING POLICIES for the year ended 30 June 2016
1.7 FINANCIAL INSTRUMENTS Financial instruments recognised on the statement of financial position include investments, cash and cash equivalents, long term receivables, trade accounts receivable, trade accounts payable, borrowings and derivative instruments. These are recognised when the group becomes party to the contractual agreements. All financial instruments are initially recorded at fair value and in the case of financial instruments not at fair value through profit or loss, directly attributable transaction costs. Transaction costs are amortised based on the straight line method.
Investments Investments acquired for the purpose of selling in the near term are classified as held for trading and are part of the fair value through profit or loss category of financial assets. Other investments are classified as available for sale or held-to-maturity, depending on the nature of the investment.
After initial recognition, investments, which are classified as available for sale, are re-measured at fair value with unrealised gains or losses recognised as other comprehensive income until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired when it is recognised in profit or loss.
Gains or losses on investments held for trading are recognised in profit or loss.
After initial recognition, investments at amortised cost are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process. Interest income on these investments is recognised in profit or loss.
Derivative instruments In the ordinary course of its operations, the group is exposed to fluctuations in metal prices, exchange rates and changes in interest rates. The group does not speculate, acquire, hold or issue derivative instruments for trading purposes, and does not apply hedge accounting.
Derivatives are initially and subsequently measured at fair value and associated transaction costs are charged to profit or loss when incurred.
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and include trade and other receivables, long term receivables and cash and cash equivalents. After initial recognition receivables are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in profit or loss when the receivables are derecognised or impaired, as well as through the amortisation process.
Cash and cash equivalents Cash and cash equivalents comprise demand and time deposits with banking institutions and money market instruments readily convertible to known amounts of cash subject to insignificant risk of changes in value. Current account balances are only netted off when set-off would apply or when the balances are with the same banking institution. Cash and cash equivalents are subsequently carried at amortised cost.
Negotiable instruments are recorded initially at the fair value of the consideration given. Subsequent measurement is at amortised cost which is incorporated in the determination of investment income.
Trade and other payables Trade and other payables are stated at the recognised obligation less payments made and adjustments made to reflect the fair value of the expected outflow of economic resources and are subsequently carried at amortised cost.
Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.
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ANNUAL FINANCIAL STATEMENTS continued
ACCOUNTING POLICIES CONTINUED forACCOUNTING the year ended 30 June POLICIES 2016 for the year ended 30 June 2016
Borrowings After initial recognition, loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on issue.
Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.
Accrued dividends on preference shares are recognised as finances charges.
Impairment of financial instruments The group assesses at each reporting date whether a financial asset or group of financial assets is impaired.
Assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, 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 expected credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in estimated future cash flows. The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in profit or loss.
In relation to loans and receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the group will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.
Derecognition of financial instruments 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 when: • the rights to receive cash flows from the asset have expired; • the group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass through” arrangement; and either: (a) the group has transferred substantially all the risks and rewards of the asset or (b) the group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. 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 profit or loss.
Financial guarantee contracts Financial guarantee contracts issued by the company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation. Amortisation is based on the total value of underlying liability still outstanding, as this better reflects the pattern of how the company provides the guarantee.
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ACCOUNTING POLICIES for the year ended 30 June 2016
1.8 INVENTORIES
Consumable stores Consumable stores consist of consumable and maintenance stores and are valued at the lower of cost or net realisable value. Cost is determined on the weighted average cost basis. Consumable stores are under continual review and are written down in regard to age, condition and utility.
Metal on hand Stocks of the three major platinum group elements and gold (3PGEs + Au), either in refined or in process form, are valued at the lower of cost of production (including the value of any purchased concentrate) or net realisable value. Production costs include an appropriate portion of overhead expenses. Cost is determined on the three month weighted average basis.
The average cost of normal production includes total costs incurred on mining and refining, including depreciation, less net revenue from the sale of by-products, allocated to main products based on units produced under normal production.
Costs incurred in the production process, are appropriately accumulated as stockpiles, metal in process and product inventories. Platinum, palladium, rhodium and gold (3PGE + Au) are treated as main products and other platinum group and base metals produced as by-products.
Stockpiles are measured by estimating the stockpiled tonnes, the number of contained 3PGE + Au ounces based on assay data, and the estimated recovery percentage based on the expected processing method, but only if the stockpiles are considered material. Stockpile tonnages are verified by periodic surveys.
In process and final inventories are carried at the lowest of average cost of normal production and net realisable value.
Net realisable value tests are performed, on a monthly basis and represent the expected sales price of the product based on prevailing spot metal prices at the reporting date, less estimated costs to complete production and bring the product to sale.
Other metals are accounted for as by-products and are not capitalised as inventory.
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ANNUAL FINANCIAL STATEMENTS continued
ACCOUNTING POLICIES CONTINUED forACCOUNTING the year ended 30 June POLICIES 2016 for the year ended 30 June 2016
1.9 PROVISIONS
Decommissioning provision Provision is made for the present value of the estimated future decommissioning costs at the end of the mine’s life. A decommissioning asset is recognised as part of the underlying property, plant and equipment.
With regards to the provision, the estimates are discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability.
The increase in the decommissioning provision due to the passage of time is recognised as a finance cost in profit or loss. Other changes in the carrying value of the provision subsequent to initial recognition are adjusted in the determination of the carrying value of the decommissioning asset as opposed to being recognised in profit or loss. If the adjustment result in an addition to the decommissioning asset consideration is given as to whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the asset is tested for impairment by estimating its recoverable amount in accordance with accounting policies.
Environmental restoration provision Provision is made for the estimated cost to be incurred on long term environmental obligations, comprising expenditure on pollution control and closure over the estimated life of the mine.
The estimates are discounted at a pre-tax discount rate that reflects current market assessments of the time value of money. The increase in the restoration provision due to the passage of time is recognised as a finance cost in profit or loss. In assessing the future liability, no account is taken of the potential proceeds from the sale of assets and metals from the plant clean-up.
The future liability is reviewed regularly and adjusted as appropriate for new facts and changes in legislation. The cost of ongoing programmes to prevent and control pollution and rehabilitate the environment is recognised as an expense when incurred.
Environmental rehabilitation fund The group may contribute to a dedicated trust fund, the Northam Platinum Restoration Trust Fund (“the Fund”), to fund the expenditure on future decommissioning and restoration. Income earned by the fund is credited to the group’s profit or loss in the period to which it relates.
The group controls the trust and therefore consolidates it.
The assets of the Fund are separately administered and the group’s right of access to these funds is restricted.
Other provisions Provisions are recognised where the group has a present legal or constructive obligation as a result of a past event, a reliable estimate of the obligation can be made and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
1.10 FOREIGN CURRENCIES The functional and presentation currency of the group is the South African rand. Transactions in foreign currencies are translated into South African rand at the rates of exchange ruling at the transaction date. Monetary assets or liabilities denominated in foreign currencies are translated at rates prevailing at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Profits and losses arising on the translation of foreign currencies, whether realised or unrealised, are credited to or charged to profit or loss.
172 38
ACCOUNTING POLICIES for the year ended 30 June 2016
1.11 REVENUE RECOGNITION Revenue is recognised to the extent it is probable that the economic benefits associated with the transaction will flow to the group and the amount of revenue can be measured reliably. Revenue is measured at the fair value of the amounts received or receivable net of value added tax, cash discounts and rebates.
Metal sales Revenue from the sale of metal is accounted for when the risks and rewards of ownership have passed and is recorded at the invoiced amounts with an adjustment for provisional pricing at each reporting date relating to metals where final assays are not yet available. Adjustments, in respect of final assayed quantities and/ or prices, arising between the date of recognition of the revenue and the date of settlement are recognised in the period in which the adjustment arises.
Income from the sale of township land Income from the sale of township land which is sold under suspensive sale agreements is recognised when the substantial risks and rewards of ownership have been assigned to the purchaser.
Interest revenue Interest revenue is recognised as it accrues, using the effective interest rate method.
Dividends Dividend revenue is recognised when the right to receive payment has been established.
Sundry income Sundry income is recognised when the right to receive payment has been established.
1.12 BORROWING COSTS Borrowing costs that are directly attributable to the acquisition, construction or development of qualifying assets that require a substantial period of time to prepare for their intended use are capitalised. 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 recognised as an expense when incurred.
In determining the amount of borrowing cost eligible for capitalisation during a period, any investment income earned on such funds is deducted from the borrowing costs incurred.
NORTHAM ANNUAL INTEGRATED REPORT 2016 173 39
ANNUAL FINANCIAL STATEMENTS continued
ACCOUNTING POLICIES CONTINUED forACCOUNTING the year ended 30 June POLICIES 2016 for the year ended 30 June 2016
1.13 EMPLOYEE BENEFITS
Short term employee benefits Remuneration to employees in respect of services rendered during a reporting period is recognised as an expense in that reporting period. Accruals are made for accumulated leave and are measured at the amount that the group expects to pay when the leave is used.
Equity compensation plans Share option scheme Options granted to employees in terms of the rules of the Northam share option scheme (the scheme) are valued at the grant date using the Binomial Model. The value so determined is recognised as an expense within operating costs, together with a corresponding increase in the equity compensation reserve, evenly over the period between the grant date and the date on which the relevant employees become fully entitled to the award (vesting date).
The cumulative expense recognised for these options at each reporting date until the vesting date reflects the best estimate of the value attributable to the number of options that will ultimately vest. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share and diluted headline earnings per share.
Where employees exercise options in terms of the rules of the Scheme, shares are issued to them as beneficial owners. In exchange, employees pay in cash a consideration equal to the price specified in the option allocated to them. The nominal value of the shares is credited to share capital and the difference between the nominal value and the price of the cash consideration credited to share premium.
Options granted to an employee are forfeited in the event of the employee resigning or being dismissed. The accumulated credit to the equity compensation reserve in respect of options that have lapsed or been forfeited after their vesting date is transferred to retained earnings.
Share incentive plan Awards granted to employees in terms of the rules of the Northam share incentive plan (the plan) are measured at fair value based on market prices at the date of grant (measurement date).
The shares awarded in terms of the rules of the plan comprise: retention shares, which vest after three years with no performance criteria, and performance shares, which also vest after three years. The final number of performance shares that the relevant employee will receive will be subject to certain performance criteria being met. Retention shares awarded prior to November 2014 vest after two years with no performance criteria.
The group initially measures the cost of cash-settled transactions with employees using a market value model to determine the fair value of the liability incurred. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. For cash-settled share- based payment transactions, the liability needs to be re-measured at the end of each reporting period up to the date of settlement, with any changes in fair value recognised in profit or loss. This requires a reassessment of the estimates used at the end of each reporting period. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in the financial statements.
Equity settled instruments in respect to the BEE transaction Equity settled share-based payment expense relates to the BEE transaction and vested on the grant date. The value of the expense was determined by way of a Black-Scholes option model.
174 40
ACCOUNTING POLICIES for the year ended 30 June 2016
Retirement benefits Eligible employees are members of various defined contribution schemes. Employer contributions are recognised as an expense during the period in which the employees’ services are rendered.
Medical benefits Employer contributions in respect of current medical benefits are recognised as an expense during the period in which the employees’ services are rendered.
Post-retirement medical costs Eligible employees are members of a defined contribution scheme established to assist those employees to meet post-retirement medical costs.
Employer contributions are recognised as an expense during the period in which the employees’ services are rendered. These contributions cease when the employees’ service terminate.
Toro employee empowerment trust The Toro employee empowerment trust (“the Trust”) was established for the benefit of eligible employees. Northam contributes 4% of its after tax profits to the Trust where after eligible employees will receive payment at the end of each five-year cycle. The amount of this cash to be distributed is based on the valuation of the fund and Northam does not guarantee any values over and above what is included in the Trust and managed accordingly by the investment manager.
Since the cash distribution is payable to employees after the end of the period in which the related services are rendered and it is not a post- employment benefit or a termination benefit, the Trust is accounted for as an “Other Long Term Employee Benefit” in terms of IAS 19. The benefits payable to employees are therefore measured using the Projected Unit Credit Method.
Independent actuarial valuations are conducted annually. Re-measurements, comprising actuarial gains and losses arising as a result of experience adjustments and/or the effects of changes in actuarial assumptions, the effect of changes to the asset ceiling and the return on plan assets (excluding interest) are recognised immediately in profit and loss when they occur. Any increase in the present value of plan liabilities expected to arise from employee service during the period is charged to operating profit. Net interest is determined by applying the discount rate at the beginning of the year to the net defined liability or asset.
Past-service cost is recognised immediately in profit or loss in the period to the extent that benefits are already vested and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.
The defined benefit asset or liability comprises the present value of the defined benefit obligation less the fair value of plan assets out of which the obligations are to be settled. Plan assets are assets that are held by the Trust and are not available to the creditors of the group.
NORTHAM ANNUAL INTEGRATED REPORT 2016 175 41
ANNUAL FINANCIAL STATEMENTS continued
ACCOUNTING POLICIES CONTINUED forACCOUNTING the year ended 30 June POLICIES 2016 for the year ended 30 June 2016
1.14 LEASES
Group as lessee A finance lease transfers substantially all the risks and rewards of ownership of an asset to the group.
Assets subject to finance leases are capitalised as property, plant and equipment at the lower of the fair value of the leased asset at inception of the lease or the present value of the minimum lease payments with the related lease obligation recognised at the same amount. Capitalised leased assets are depreciated over the estimated useful lives. However, if there is no reasonable certainty that the group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
Finance lease payments are allocated between finance costs and the capital repayment so as to achieve a constant rate of interest on the remaining balance of the liability.
Leases in respect of which the lessor retains substantially all the risks and rewards of ownership of an asset are classified as operating leases. Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the period of the lease.
Group as lessor Leases in respect of which the group does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Operating lease payments received such as those relating to mining properties are recognised as revenue in profit or loss on a straight-line basis over the period of the lease.
1.15 TAXATION
Current tax The charge for current tax is based on the results for the year, as adjusted for by items that are exempt or disallowed, and is calculated using the enacted tax rates, at the reporting date.
Where items are credited or charged directly to equity or other comprehensive income the tax effect is also recognised within equity or other comprehensive income.
Deferred tax Deferred tax is provided at enacted or substantially enacted tax rates.
Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except: • Where the “initial recognition exception” applies; and • In respect of “outside” temporary differences relating to subsidiaries, associates and joint arrangements.
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 future taxable profits will be available, against which the deductible temporary differences, carry forward of unused tax credits and unused tax losses can be utilised in the foreseeable future except: • Where the “initial recognition exception” applies; and • In respect of “outside” temporary differences relating to subsidiaries, associates and joint arrangements.
176 42
ACCOUNTING POLICIES for the year ended 30 June 2016
The carrying amount of deferred income tax assets is reviewed at each reporting 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 income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting 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 income tax assets and liabilities are measured at the tax rate that are expected to apply in 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 reporting date.
Deferred income tax relating to items recognised directly in equity or other comprehensive income is recognised in equity or other comprehensive income and not in profit or loss.
Deferred income tax assets and liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and when they relate to income taxes levied by the same taxation authority and taxable entity.
Dividends withholding tax The group withholds dividends tax on behalf of its shareholders at a rate of 15% on dividends declared. Amounts withheld are not recognised as part of the group’s tax charge but rather as part of the dividend paid recognised directly in equity.
1.16 DIVIDENDS DECLARED Dividends declared are charged to equity in the period in which the dividend is declared.
NORTHAM ANNUAL INTEGRATED REPORT 2016 177
43
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
2. KEY ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS The preparation of the company and group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date.
However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of assets or liabilities affected in future.
These estimates and assumptions are continually evaluated and are based on historical experience and expectations of future events that are believed to be reasonable under the circumstances.
2.1 Impairment of assets The group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s (CGU) fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
Due to the vertically integrated operations of the group and the fact that there is no active market for the group’s intermediate products, the group’s operations as a whole constitute the smallest CGU.
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. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 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 by an appropriate discount rate to determine the net present value.
The group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.
Impairment testing requires management to make significant judgements concerning the existence of impairment indicators, identification of cash- generating units, remaining useful lives of assets and estimates of projected cash flows and fair value less costs of disposal. Management’s analysis of cash-generating units involves an assessment of a group of assets’ ability to independently generate cash inflows and involves analysing the extent to which different products make use of the same assets. Management’s judgement is also required when assessing whether a previously recognised impairment loss should be reversed.
The determined value in use of the cash-generating unit is most sensitive to the platinum price, the US dollar exchange rate and the discount rate. Other judgements made by management include, total capital expenditure, operating costs, production levels and inflation factors.
178 44
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
The following key assumptions were made by management, which are based on management interpretation of market forecast and the future.
Group Company 2016 2015 2016 2015
Long term real platinum price US$ per ounce 1 433 1 663 1 433 1 663 Long term real palladium price US$ per ounce 896 897 896 897 Long term real rhodium price US$ per ounce 1 254 1 573 1 254 1 573 Long term real gold price US$ per ounce 1 209 1 325 1 209 1 325 Long term real exchange rate US$ R14.16 R11.64 R14.16 R11.64 Long term real discount rate 10.50% 15.10% 10.50% 15.10%
Management also estimated the recoverable amount of mineral assets that the group is not currently developing. For those assets, the recoverable amount is calculated on a fair value less cost of disposal basis taking into account earlier binding sales agreements between market participants as well as the market capitalisation of platinum exploration companies relative to their resources base.
2.2 Mine rehabilitation provision The group’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. Management estimates, with the assistance of independent experts, the expected total spend for the rehabilitation, management and remediation of negative environmental impacts at closure at the end of the lives of the mines and processing operations.
The estimation of future costs of environmental obligations relating to decommissioning and rehabilitation is particularly complex and requires management to make estimates, assumptions and judgements relating to the future. These estimates are dependent on a number of factors including assumptions around environmental legislation, life-of-mine estimates and discount rates.
The group makes full provision for the future cost of rehabilitating mine sites and related production facilities on a discounted basis at the time of developing the mines and installing and using those facilities. The rehabilitation provision represents the present value of rehabilitation costs relating to mine sites.
Assumptions based on the current economic environment have been made, which management believes are a reasonable basis upon which to estimate the future liability. However, actual rehabilitation costs will ultimately depend upon future market prices for the necessary rehabilitation works required that will reflect market conditions at the relevant time. Furthermore, the timing of rehabilitation is likely to depend on when the mines cease to produce at economically viable rates. This, in turn, will depend upon future platinum group metal prices, which are inherently uncertain.
The net present value of current decommissioning and restoration costs are based on the following assumptions:
Group Company 2016 2015 2016 2015
Long term South African inflation rate 8.71% 6.00% 8.71% 6.00% Long term real discount rate 10.62% 8.00% 10.62% 8.00%
The ultimate rehabilitation costs are uncertain, and cost estimates can vary in response to many factors, including estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rates and changes in discount rates. These uncertainties may result in future actual expenditure differing from the amounts currently provided. Therefore, significant estimates and assumptions are made in determining the provision for mine rehabilitation. As a result, there could be significant adjustments to the provisions established which would affect future financial results.
Refer to note 22 relating to the provision for the rehabilitation and decommission liability of the group.
NORTHAM ANNUAL INTEGRATED REPORT 2016 179
45
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
2.3 Useful lives and residual values of property, plant and equipment Residual values, useful lives and methods of depreciation are reviewed at each reporting period and adjusted prospectively, if appropriate.
The group’s assets, excluding mining development and infrastructure assets, are depreciated over their expected useful lives which are reviewed annually to ensure that the useful lives continue to be appropriate. In assessing useful lives, technological innovation, product life cycles, physical condition of the assets and maintenance programmes are taken into consideration.
Mining development and infrastructure assets are depreciated on a unit-of-production basis. The calculation of the unit-of-production depreciation is based on forecasted production which is calculated using numerous assumptions. Any changes in these assumptions may have an impact on the calculation.
Refer to note 5 relating to property, plant and equipment and note 6 for mining properties and mineral resources.
2.4 Ore reserve and mineral resource estimates (life of mine) The estimation of reserves impacts the depreciation of property, plant and equipment, the recoverable amount of property, plant and equipment and the timing of rehabilitation expenditure.
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 require 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 resources estimates may impact upon the carrying value of exploration and evaluation assets, mine properties, property, plant and equipment, provision for rehabilitation, recognition of deferred tax assets (if any), and depreciation and amortisation charges. The group estimates and reports ore reserves in line with the principles contained in the South African Code for Reporting of Mineral Resources and Mineral Reserves of 2007, revised in 2016 (SAMREC 2016).
The above impacts both the provision for rehabilitation and decommission as detailed in note 22 as well as the depreciation calculation for property, plant and equipment items (note 5) as well as mining properties and mineral resources included in note 6.
2.5 Production start date for mine developments The group assesses the stage of a mine under construction to determine when the mine moves into the production phase. This being when the mine is substantially complete and ready for its intended use. The criteria used to assess the start date are determined based on the unique nature of that mine’s construction project, such as the complexity of the project and its location. The group considers various relevant criteria to assess when the production phase is considered to have commenced. At this point, all related amounts are reclassified from “pre-production development expenditure” to “property, plant and equipment”. Some of the criteria used to identify the production start date include, but are not limited to:
– Level of capital expenditure incurred compared to the original construction cost estimate – Ability to produce metal in saleable form (within specification) – Ability to sustain ongoing production of metal
When a mine development project moves into the production phase, the capitalisation of certain mine development costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalisation relating to mining asset additions or improvements, underground mine development or mineable reserve development. It is also at this point that depreciation commences.
2.6 Capitalisation of borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale (a qualifying asset) are capitalised as part of the cost of the respective asset. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Northam obtained various forms of borrowings to fund the development of new mines. Only borrowing costs relating to qualifying assets are capitalised as borrowing costs.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Refer to financing charges excluding preference share dividends included in note 36. No finance costs were capitalised in the current or previous year.
180
46
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
2.7 Transaction with Northam’s precious metal refiner Northam agreed terms to extend its co-operation agreement with Heraeus Deutschland GmbH &Co. KG (Heraeus) and Heraeus South Africa Proprietary Limited (HSA).
In terms of the agreement Heraeus will contribute €20.0 million to expand the capacity of Northam’s existing smelter, through the construction of a 20MW second furnace at the Zondereinde metallurgical complex. The total cost of the expansion is estimated at R750.0 million.
The agreement also provides for the renewal of the current offtake and toll refining agreements with Heraeus.
Heraeus’ capital contribution will be fixed according to a progress schedule, and paid in two tranches of €10.0 million each, the first of which was received during June 2016. The furnace is planned for commissioning by the end of the 2017 calendar year. In return, Northam has renewed its toll refining agreement with Heraeus and HSA for a period of 20 years on competitive terms. Northam also undertakes to sell up to 40% of its production to Heraeus or HSA at market prices.
The first €10.0 million received from Heraeus was recognised as a liability, as Northam is obligated to refund the amount to Heraeus if, but only if Northam does not commission the furnace on time. Once the furnace is commissioned and the second €10.0 million is received, the €20.0 million will be deducted from the cost of the smelter as the value contributed by Heraeus is effectively considered a “rebate” in terms of IAS 16.16(a). The €10.0 million was revalued to the closing Euro exchange rate at year end.
R9.4 million will be paid annually by Northam for product development on 1 July of every year, commencing on 1 July 2016 for 20 years.
With regards to the R9.4 million annual payments from Northam to HSA, Northam has an obligation to pay this amount to HSA for 20 years. A liability was recognised at contract inception, being 16 April 2016. The liability was measured at the present value of the R9.4 million payments over 20 years using the prevailing prime interest rate. The contra side of the entry was included as an addition cost to the furnace. The reason for this is that the contract will be entered into for the construction of the smelter and thus the liability is viewed as a cost incurred in the construction of the smelter. By adding the amount to the cost of the smelter, depreciation will be higher each year, thereby increasing the cost of goods produced.
Refer to note 5 Property, plant and equipment as well as note 23 which details the amounts payable to Heraeus and HSA.
2.8 Zambezi Platinum (RF) Limited Zambezi Platinum (RF) Limited (Zambezi) was created and designed for the sole purpose of providing Northam with BEE credentials and as a structure to hold the listed BEE preference shares. If Northam does not comply with the HDSA requirements in the Mining Charter they will not be able to retain their mining rights. Northam is able to direct the strategic direction of Zambezi and as per the subscription and relationship agreement between the two companies, Zambezi’s memorandum of incorporation may not be amended or replaced without Northam’s prior written consent. Northam assumes full responsibility for the administration of Zambezi as well as any costs incurred by Zambezi up to a certain limit. Furthermore, Northam provides a guarantee for Zambezi’s obligation in respect of the preference shares. All these points indicate that Northam has been involved from the inception of the transaction, to ensure that the design and operation of Zambezi achieves the purpose for which it was created. In terms of the transaction, an “N” share was issued to Northam, which gave them the right to implement mitigating action should Zambezi not comply with certain undertakings as per the transaction’s agreements and in other limited instances aimed at maintaining the integrity of the transaction at all times. Zambezi can also not dispose of the Northam ordinary shares without the prior consent of Northam. Northam has significant exposure to the variable returns of Zambezi, through the creation and maintenance of the BEE credentials during the 10-year lock-in period as well as through the guarantee provided by Northam. The decision making power of Zambezi’s board of directors is restricted to maintaining Northam’s BEE credentials and funding arrangements.
All of these factors have been considered in determining that even though Northam Platinum Limited does not have majority of the voting rights in Zambezi Platinum (RF) Limited it still has control over the entity.
Refer to note 24 detailing the preference share liability consolidated into the Northam group.
NORTHAM ANNUAL INTEGRATED REPORT 2016 181
47
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
2.9 Toro Employee Empowerment Trust The company entered into an agreement with the representative unions at the Northam’s Zondereinde mine in terms of which the company has undertaken to contribute 4% of Northam company’s after tax profits to the Toro Employee Empowerment Trust, providing Northam’s Zondereinde mine unskilled and semi-skilled employees an opportunity to participate in the profits of the company. In the event of the company making a loss, no contributions are made to the trust. Eligible employees will receive payment at the end of each five-year cycle, starting from September 2013. The amount of the cash to be distributed is based on the valuation of the fund and Northam Platinum Limited does not guarantee any values over and above what is included in the Trust and managed accordingly by the investment manager.
The Toro Trust is accounted for as an “other long term employee benefits” in terms of IAS 19.
In applying the projected unit credit method, the following estimates were used:
Group Company 2016 2015 2016 2015
Discount rate 7.8% 7.60% 7.8% 7.60% Interest rate 8.2% 7.90% 8.2% 7.90%
The rate used to discount pre-retirement benefit obligations should be determined by reference to market yields at the reporting date on high quality corporate bonds. In countries where there is no deep market in such bonds, the market yields on government bonds should be used. There is however no deep market in corporate bonds in South Africa and as such reference to the nominal bond curve, as compiled by the JSE has been used, for the duration of the liabilities of 2 years. This converts into an effective yield of 7.80% as at 30 June 2016. In terms of the accounting standards historical yields are less important and we consequently consider it appropriate to use the discount rate 7.80% per annum.
Refer to note 31 detailing the movements included in the Toro Trust in the current year.
2.10 Taxes Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
Estimation is required to determine whether deferred tax assets are recognised in the statement of financial position. Deferred tax assets, including those arising from unutilised tax losses, require the group to assess the likelihood that the group will generate sufficient taxable earnings in future periods, in order to utilise recognised deferred tax assets.
Judgements are also required in respect of the application of existing tax laws in each jurisdiction. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These estimates of future taxable income are based on forecast cash flows from operations (which are impacted by production and sales volumes, commodity prices, reserves, operating costs, closure and rehabilitation costs, capital expenditure, dividends and other capital management transactions). To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the group to realise the net deferred tax assets recorded at the reporting date could be impacted.
In addition, future changes in tax laws in the jurisdictions in which the group operates could limit the ability of the group to obtain tax deductions in future periods.
Refer to note 21 and note 39 detailing the breakdown of both normal and deferred taxes for the current year.
2.11 Contingencies A contingency is a possible obligation depending on whether some uncertain future event occurs, or a present obligation but payment is not probable or the amount cannot be measured reliably.
By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential quantum of contingencies inherently involves the exercise of significant judgement and the use of estimates regarding the outcome of future events.
182
48
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
2.12 Inventories Work in progress metal inventory is valued at the lower of net realisable value and the average cost of production or purchase less net revenue from sales of other metals in the ratio of the contribution of these metals to gross sales revenue. Production costs are allocated to platinum, palladium, rhodium and gold (joint products) by dividing the mine output into total mine production costs, determined on a 3-month rolling average basis. The quantity of ounces of joint products in work in progress is calculated based on the following factors. The theoretical inventory at that point in time which is calculated by adding the inputs to the previous physical inventory and then deducting the outputs for the inventory period. The inputs and outputs include estimates due to the delay in finalising analytical values. The estimates are subsequently trued up to the final metal accounting quantities when available. The theoretical inventory is then converted to a refined equivalent inventory by applying appropriate recoveries depending on where the material is within the production pipeline. The recoveries are based on actual results as determined by the inventory count and are in line with industry standards.
The nature of the production process inherently limits the ability to precisely measure recoverability levels. As a result, the metallurgical balancing process is constantly monitored and the variables used in the process are refined based on actual results over time.
Net realisable value tests are performed at each reporting date and represent the current sales price of the product, less estimated costs to complete production and bring the product to sale. Where the time value of money is material, these future prices and costs to complete are discounted.
Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of contained PGM ounces is based on assay data, and the estimated recovery percentage is based on the expected processing method.
Stockpile tonnages are verified by periodic surveys.
Refer to note 16 detailing the breakdown of inventories at year end.
2.13 Exploration and evaluation expenditure The application of the group’s accounting policy for exploration and evaluation expenditure requires judgement to determine whether future economic benefits are likely, from either future exploitation or sale, or whether activities have not reached a stage that permits a reasonable assessment of the existence of reserves.
In addition to applying judgement to determine whether economic benefits are likely to arise from the group’s exploration assets or whether activities have not reached a stage that permits a reasonable assessment of the existence of reserves, the group has to apply a number of estimates and assumptions.
If, after expenditure is capitalised, information becomes available suggesting that the recovery of expenditure is unlikely, the relevant capitalised amount is written off in profit or loss in a period when the new information becomes available.
2.14 Fair value measurement The group measures financial instruments at fair value at initial recognition, and subsequently as described in the accounting policies. Also, from time to time, the fair values of non-financial assets and liabilities are required to be determined, e.g., when the entity acquires a business, or where an entity measures the recoverable amount of an asset or cash generating unit at fair value less costs of disposal.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable information.
NORTHAM ANNUAL INTEGRATED REPORT 2016 183 49
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTE the yearS ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
2.15 Guarantee to Zambezi Platinum (RF) Limited A financial guarantee contract was issued by Northam Platinum Limited to Zambezi Platinum (RF) Limited to guarantee the preference shares that were issued by Zambezi Platinum (RF) Limited as part of the BEE transaction.
The redemption of the BEE preference shares is planned to occur through cash accumulation from dividends received from Northam Platinum Limited, and after the lock-in the possible sell-off of Northam Platinum Limited shares into the market to realise the capital value, to redeem the preference shares. In the event that this is not sufficient to settle the liability, it will be secured by the company in terms of a financial guarantee (“Northam Guarantee”), in terms of which Northam Platinum Limited will be responsible for the payment of all amounts which Zambezi Platinum (RF) Limited has contracted but failed to pay. Northam may settle the debt by ways of a cash payment or the issue of a determinable number of Northam Platinum Limited shares or a cash and Northam Platinum Limited share combination.
In the Northam Platinum Limited separate financial statements, the financial guarantee was recognised as a financial guarantee liability. Measuring the guarantee contract liability required the use of estimates, these assumptions include: Group Company 2016 2015 2016 2015 Dividend yield rate – – 0.30% 0.30% Volatility – – 30.00% 30.00% Risk free rate – – 8.42% 8.42%
The financial guarantee liability is amortised based on the total value of preference shares still outstanding, as this better reflects the pattern of how Northam Platinum Limited provides the guarantee, as is therefore unchanged from the prior year.
Refer to note 25 included in the annual financial statements.
2.16 Black economic empowerment (BEE) transaction cost The group executed the BEE transaction during the prior year. Various costs were incurred by the group to facilitate the transaction. The services provided by the advisors included finding appropriate shareholders, raising debt and ensuring that all legal requirements were complied with. These costs were expensed, as there was no reasonable basis on which these costs could be allocated directly to the issuance of the debt (preference shares) or equity (ordinary shares). Also, in undertaking the transaction, the group obtained BEE credentials, which does not qualify for capitalisation.
Refer to note 37 sundry expenditure, detailing the transaction costs relating to the BEE transaction in the prior year.
2.17 Liquidity fees incurred with the BEE transaction Subscription undertakings for the full value of the preference shares were secured at a 2.5% liquidity fee in the prior year. The liquidity fee was classified as a transaction cost in terms of IAS 39 at a group level. In terms of IAS 39.43 transaction costs will be included in the initial measurement of the financial liability, except when it is classified as a financial liability held at fair value through profit or loss. The BEE preference share liability is measured at amortised cost and therefore the transaction cost is included on initial measurement.
Included in the Northam Platinum Limited company accounts these costs were expensed as transaction costs. The liquidity fee payable of R163.9 million was of a capital nature and therefore not tax deductible, resulting in a permanent difference in the prior year.
Refer to note 27 which discloses the preference share liability including the liquidity fees incurred with the BEE transaction.
2.18 Determining the recoverability of investment in associate In applying IAS 36 to the group’s investment in Trans Hex Group Limited, the group determined the recoverable amount as the higher of the value in use and fair value less costs of disposal. The fair value was calculated with reference to the ruling market price at year end multiplied by the number of shares as required by IFRS 13. No liquidity adjustment was made. The impairment loss was based on value in use which incorporated net cash flows to be received upon disposal of the investment at a future date.
During the current year the investment was sold.
Refer to note 7, interest in associates and joint ventures for the various impairments and reversal of impairments accounted for during the current and prior year.
184
50
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
2.19 Pandora joint venture The group’s interest in the “joint venture” is classified as an investment in an associate due to the existence of significant influence as opposed to joint control. The entity is called the Pandora joint venture because there are three parties that have an interest in the entity and the two main parties hold 92.50% interest. Joint control only exists for the two majority parties and the minority interest holder only have significant influence due to board representation. Thus the investment has been accounted for as an investment in associate.
Refer to note 7 which discloses the investment in the Pandora joint venture.
2.20 Operating segments Two reportable segments have been identified, being the Zondereinde mine and Booysendal mine. Both of these mines engage in business activities from where they earn revenue and incur expenses, the operating results of these two segments are also regularly reviewed by the chief operating decision maker at Northam Platinum Limited and their performance assessed separately. Furthermore, discrete financial information is available for both segments.
The Zondereinde mine includes the results of Northam Chrome Proprietary Limited (formerly known as Northam Chrome Producers Proprietary Limited). This operating segment does not meet the quantitative thresholds to be separately reported and the nature of the products and type of customers is similar to that of Zondereinde.
Zambezi Platinum (RF) Limited has been included in the annual financial statements, in order to reconcile the amounts to the reported statement of financial position and statement of profit or loss and comprehensive income. Zambezi Platinum (RF) Limited is not a separate operating segment as it does not engage in business activities from which it earns revenue and incurs expenses and in addition to this their operating results are not regularly reviewed by the chief operating decision maker in assessing the performance of the company.
Refer to note 2 for the segmental disclosure.
2.21 Equity settled share based payment Northam Platinum Limited will effectively be paying for BEE credentials by distributing Northam Platinum Limited ordinary shares to the various participant Special Purpose Vehicles. This constitutes a share based payment as defined which is classified as an equity-settled share-based payment to be delivered after the 10-year lock-in period. There are no vesting conditions attached to the BEE equity that are held by the BEE participants. The valuation of the share-based expense therefore takes into account the restrictions on the participants’ ability to dispose of the shares as well as the fact that they will only receive 10% of actual dividends declared during the 10-year lock-in period. The fair value at grant date is therefore not the same as the listed share price. IFRS 2 requires equity-settled transactions to be accounted for at the fair value at grant date, defined as the date at which the entity and other party agree to a share-based payment arrangement, being the date when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement. This results in the full share-based payment in respect of the BEE transaction being incurred on day one of the BEE transaction in the prior year.
Refer to note 20 for the equity settled share based payment accounted for in the prior year as part of the BEE transaction.
NORTHAM ANNUAL INTEGRATED REPORT 2016 185
51
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
3. SEGMENTAL ANALYSIS The group has two business segments, the Zondereinde mine and the Booysendal mine. The group’s executive committee looks at the performance of the Zondereinde and Booysendal mines when allocating resources and assessing the segmental performance. The Zondereinde segment includes the results of Northam Chrome Proprietary Limited (formerly known as Northam Chrome Producers Proprietary Limited).
Segmental statement of profit or loss and other comprehensive income
Zambezi Zondereinde Booysendal Platinum operating operating Intercompany and the BEE segment segment eliminations transaction Other Total 30 June 2016 R’000 R’000 R’000 R’000 R’000 R’000 Sales revenue 5 966 217 1 972 883 (1 843 980) – 1 950 6 097 070 Cost of sales (5 718 092) (1 796 904) 1 843 980 – (42 706) (5 713 722) Operating costs (3 464 378) (1 541 040) – – (1 815) (5 007 233) On mine operations (2 691 280) (1 166 353) – – – (3 857 633) Concentrator operations (285 170) (283 461) – – – (568 631) Smelting and base metal removal plant costs (273 612) – – – – (273 612) Chrome processing (18 175) (11 921) – – – (30 096) Selling and administration (106 622) (47 762) – – – (154 384) Royalty charges (34 419) (9 864) – – – (44 283) Share based payment expenses (35 628) (28 547) – – – (64 175) Toro employee profit share scheme (10 904) – – – – (10 904) Rehabilitation (8 568) 6 868 – – – (1 700) Other – – – – (1 815) (1 815) Concentrates purchased (2 194 494) – 1 843 980 – – (350 514) Refining including sampling and handling charges (133 186) – – – – (133 186) Depreciation and write offs (191 797) (213 481) – – 1 733 (403 545) Change in metal inventory 265 763 (42 383) – – (42 624) 180 756 Operating profit 248 125 175 979 – – (40 756) 383 348 Share of (losses)/earnings from associate and joint venture – – – – (32 253) (32 253) Investment revenue 111 066 163 940 (27 223) – 17 475 265 258 Finance charges before preference shares (33 515) (24 131) 27 223 – (9 211) (39 634) Sundry income 157 437 3 233 – – 20 258 180 928 Sundry expenditure (37 088) (32 110) – – (22 924) (92 122) Profit/(loss) before preference share (67 411) 665 525 446 025 286 911 – – dividends Amortisation of liquidity fees paid on preference shares – – – (18 088) – (18 088) Preference shares – – – (918 806) – (918 806) Profit/(loss) before tax 446 025 286 911 – (936 894) (67 411) (271 369) Taxation (162 587) (82 866) – – 8 559 (236 894) Profit/(loss) for the year 283 438 204 045 – (936 894) (58 852) (508 263)
186 52
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Segmental statement of profit or loss and other comprehensive income
Zambezi Zondereinde Booysendal Platinum operating operating Intercompany and the BEE segment segment eliminations transaction Other Total 30 June 2015 R’000 R’000 R’000 R’000 R’000 R’000 Sales revenue 4 414 254 1 978 081 (360 616) – 3 816 6 035 535 Cost of sales (4 015 840) (1 782 850) 360 616 – (1 648) (5 439 722) Operating costs (3 147 023) (1 192 167) – – (3 381) (4 342 571) On mine operations (2 548 692) (872 982) – – – (3 421 674) Concentrator operations (264 326) (245 973) – – – (510 299) Smelting and base metal removal plant costs (172 485) – – – – (172 485) Chrome processing (34 686) (11 329) – – – (46 015) Selling and administration (70 970) (34 011) – – – (104 981) Royalty charges (29 912) (10 074) – – – (39 986) Share based payment expenses (22 994) (13 042) – – – (36 036) Toro employee profit share scheme (25) – – – – (25) Rehabilitation (2 933) (4 756) – – – (7 689) Other – – – – (3 381) (3 381) Concentrates purchased (963 011) – 360 616 – – (602 395) Refining including sampling and handling charges (83 408) (116 062) – – – (199 470) Depreciation and write offs (167 988) (173 694) – – 1 733 (339 949) Change in metal inventory 345 590 (300 927) – – – 44 663 Operating profit 398 414 195 231 – – 2 168 595 813 Share of (losses)/earnings from associate and joint venture – – – – 28 769 28 769 Investment revenue 232 598 29 929 (189 100) 588 (1 972) 72 043 Finance charges before preference shares (140 342) (186 410) 189 100 – (7 518) (145 170) Sundry income 265 336 1 147 – – 1 767 268 250 Sundry expenditure (197 285) (13 498) – (1 289 518) (86 963) (1 587 264) Profit/(loss) before preference share 558 721 26 399 – (1 288 930) (63 749) (767 559) dividends Preference share dividends – – – (100 767) – (100 767) Profit/(loss) before tax 558 721 26 399 – (1 389 697) (63 749) (868 326) Taxation (153 604) 74 279 – (87 350) 1 056 (165 619) Profit/(loss) for the year 405 117 100 678 – (1 477 047) (62 693) (1 033 945)
NORTHAM ANNUAL INTEGRATED REPORT 2016 187
53
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Segmental statement of financial position
Zambezi Zondereinde Booysendal Platinum operating operating Intercompany and the BEE segment segment eliminations transaction Other Total 30 June 2016 R’000 R’000 R’000 R’000 R’000 R’000 ASSETS Non-current assets 13 298 934 11 614 864 (22 573 282) 6 875 935 4 893 633 14 110 084 Property, plant and equipment 2 813 957 5 089 844 (51 096) – 1 288 7 853 993 Mining properties and mineral resources 101 518 6 451 464 (954 583) – 15 695 5 614 094 Interest in associates and joint ventures 36 844 – – – 155 320 192 164 Investment in subsidiaries 10 236 000 – (14 836 000) – 4 600 000 – Investment in Northam Platinum Limited – – (6 875 935) 6 875 935 – – Unlisted investment 6 – – – – 6 Land and township development 18 218 11 955 – – 21 168 51 341 Long term receivables – – – – 89 717 89 717 Investments held by Northam Platinum Restoration Trust Fund 43 204 50 443 – – – 93 647 Environmental Guarantee Investment 49 187 11 158 – – – 60 345 Buttonshope Conservancy Trust – – – – 10 445 10 445 Deferred tax asset – – 144 332 – – 144 332 Current assets 5 665 592 1 856 514 (5 117 587) 424 2 462 836 4 867 779 Short term subsidiary loan 2 354 985 363 618 (5 074 446) – 2 355 843 – Inventories 1 309 127 63 767 (42 624) – – 1 330 270 Trade and other receivables 295 867 68 587 (517) – 11 267 375 204 Cash and cash equivalents 1 657 140 1 360 542 – 424 86 974 3 105 080 Tax receivable 48 473 – – – 8 752 57 225 Total assets 18 964 526 13 471 378 (27 690 869) 6 876 359 7 356 469 18 977 863 EQUITY AND LIABILITES Stated capital 13 778 114 4 600 000 (11 706 125) – 7 106 125 13 778 114 Treasury shares – – (6 556 123) – – (6 556 123) Retained earnings (6 030 982) (257 188) 7 743 692 (770 976) (53 001) 631 545 Non distributable reserves – 2 501 755 (2 501 755) – – – Equity settled share based payment reserve 1 173 756 – (299 308) – – 874 448 Total equity 8 920 888 6 844 567 (13 319 619) (770 976) 7 053 124 8 727 984 Non-current liabilities 8 983 689 1 695 422 (9 320 307) 7 647 335 66 040 9 072 179 Deferred tax liability 597 149 1 530 187 (1 613 759) 71 638 5 422 590 637 Long term provisions 139 316 133 504 – – – 272 820 Long term loan 239 351 – (24 456) – 60 618 275 513 Long term share based payment liability 52 642 31 731 – – – 84 373 Financial guarantee liability 7 535 944 – (7 535 944) – – – Domestic medium term debt notes 419 287 – – – – 419 287 Preference share liability – – (146 148) 7 575 697 – 7 429 549 Current liabilities 1 059 949 4 931 389 (5 050 943) – 237 305 1 177 700 Current portion of long term loans 9 400 – – – 3 801 13 201 Short term share based payment liability 44 197 12 507 – – – 56 704 Tax payable – 1 418 – – 102 654 104 072 Subsidiary loans 363 618 4 618 007 (5 049 990) – 68 365 – Trade and other payables 524 934 291 469 (953) – 62 485 877 935 Short term provisions 117 800 7 988 – – – 125 788 Total equity and liabilities 18 964 526 13 471 378 (27 690 869) 6 875 359 7 356 469 18 977 863
188
54
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Zambezi Zondereinde Booysendal Platinum operating operating Intercompany and the BEE segment segment eliminations transaction Other Total 30 June 2015 R’000 R’000 R’000 R’000 R’000 R’000 ASSETS Non-current assets 12 991 278 11 156 650 (22 108 795) 6 437 794 4 890 121 13 367 048 Property, plant and equipment 2 445 944 4 672 337 (52 929) – – 7 065 352 Mining properties and mineral resources 109 362 6 466 104 (954 683) – 15 695 5 636 478 Interest in associates and joint ventures 116 961 – – – 158 886 275 847 Investment in subsidiaries 10 236 000 – (14 836 000) – 4 600 000 – Investment in Northam Platinum Limited – – (6 437 794) 6 437 794 – – Unlisted investment 6 – – – – 6 Land and township development – – – – 10 000 10 000 Long term receivables – – – – 94 503 94 503 Investments held by Northam Platinum Restoration Trust Fund 38 868 10 224 – – – 49 092 Environmental Guarantee Investment 44 137 7 985 – – – 52 122 Buttonshope Conservancy Trust – – – – 11 037 11 037 Deferred tax asset – – 172 611 – – 172 611 Current assets 6 115 420 3 798 624 (6 580 906) 425 2 450 725 5 784 288 Short term subsidiary loan 4 226 019 – (6 580 906) – 2 354 887 – Inventories 1 046 119 80 431 – – – 1 126 550 Trade and other receivables 281 958 211 547 – – 5 349 498 854 Cash and cash equivalents 548 522 3 506 646 – 425 82 596 4 138 189 Tax receivable 12 802 – – – 7 893 20 695 Total assets 19 106 698 14 955 274 (28 689 701) 6 438 219 7 340 846 19 151 336 EQUITY AND LIABILITES Stated capital 13 778 114 4 600 000 (11 706 125) – 7 106 125 13 778 114 Treasury shares – – (6 556 123) – – (6 556 123) Retained earnings (6 314 422) (461 134) 8 158 145 (218 673) (24 108) 1 139 808 Non distributable reserves – 2 501 755 (2 501 755) – – – Equity settled share based payment reserve 1 173 756 – (299 308) – – 874 448 Share of other comprehensive income from associate – – – – (19 822) (19 822) Total equity 8 637 448 6 640 621 (12 905 166) (218 673) 7 062 195 9 216 425 Non-current liabilities 8 236 555 1 576 084 (9 228 424) 6 656 891 69 647 7 310 753 Deferred tax liability 527 866 1 492 146 (1 503 788) – 5 228 521 452 Long term provisions 114 509 72 708 – – – 187 217 Long term loan – – (24 456) – 64 419 39 963 Long term share based payment liability 58 236 11 230 – – – 69 466 Financial guarantee liability 7 535 944 – (7 535 944) – – – Preference share liability – – (164 236) 6 656 891 – 6 492 655 Current liabilities 2 232 695 6 738 569 (6 556 111) 1 209 004 2 624 158 Current portion of long term loans – – – – 3 801 3 801 Short term share based payment liability 49 974 11 045 – – – 61 019 Domestic medium term debt notes 1 370 000 – – – – 1 370 000 Tax payable – 169 – – 101 902 102 072 Subsidiary loans – 6 515 177 (6 556 451) – 41 274 – Trade and other payables 691 859 205 770 340 1 62 027 959 996 Short term provisions 120 862 6 408 – – – 127 270 Total equity and liabilities 19 106 698 14 955 274 (28 689 701) 6 438 219 7 340 846 19 151 336
NORTHAM ANNUAL INTEGRATED REPORT 2016 189
55
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
4. ACQUISITION OF NON CONTROLLING INTEREST On 1 August 2014, Northam Platinum Limited acquired the last remaining 20% of the voting shares in Northam Chrome Proprietary Limited (previously known as Northam Chrome Producers Proprietary Limited) from the minority shareholders for a consideration of R50.0 million. Northam Chrome Proprietary Limited is now wholly owned by Northam Platinum Limited.
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Non-controlling interest acquired – 3 185 – – Adjustment to retained earnings – 46 815 – – Purchase consideration transferred – 50 000 – –
5. PROPERTY, PLANT AND EQUIPMENT
Mining plant Mine Decommissioning Motor and equipment development asset vehicles Total R’000 R’000 R’000 R’000 R’000 Group 30 June 2016 Cost opening balance as at 1 July 2015 4 946 844 4 115 766 132 512 17 456 9 212 578 Present value of decommissioning asset capitalised – – 35 984 – 35 984 Transfer from mining properties and mineral resources 54 202 – – (1 561) 52 641 Additions to maintain operations 333 652 – – – 333 652 Additions to expand operations 420 307 328 882 – – 749 189 Disposals and write offs (7 742) – – (594) (8 336) Cost closing balance as at 30 June 2016 5 747 263 4 444 648 168 496 15 301 10 375 708
Opening accumulated depreciation balance as at 1 July 2015 (1 762 166) (354 575) (24 795) (5 690) (2 147 226) Transfer from mining properties and mineral resources (1 312) – – (1 541) (2 853) Depreciation (239 528) (130 094) (4 008) (2 164) (375 794) Accumulated depreciation on disposals 3 966 – – 192 4 158 Accumulated depreciation closing balance as at 30 June 2016 (1 999 040) (484 669) (28 803) (9 203) (2 521 715)
Carrying value of property, plant and equipment at 3 748 223 3 959 979 139 693 6 098 7 853 993 30 June 2016
56 190 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Mining plant Mine Decommissioning Motor and equipment development asset vehicles Total R’000 R’000 R’000 R’000 R’000 Group 30 June 2015 Cost opening balance as at 1 July 2014 3 920 378 4 115 766 95 544 18 318 8 150 006 Present value of decommissioning asset capitalised – – 36 968 – 36 968 Additions to maintain operations 281 805 – – 4 207 286 012 Additions to expand operations 776 140 – – 2 928 779 068 Disposals and write offs (31 479) – – (7 997) (39 476) Cost closing balance as at 30 June 2015 4 946 844 4 115 766 132 512 17 456 9 212 578
Opening accumulated depreciation balance as at 1 July 2014 (1 645 129) (185 712) (22 080) (10 023) (1 862 944) Depreciation (148 516) (168 863) (2 715) (3 005) (323 099) Accumulated depreciation on disposals 31 479 – – 7 338 38 817 Accumulated depreciation closing balance as at 30 June 2015 (1 762 166) (354 575) (24 795) (5 690) (2 147 226)
Carrying value of property, plant and equipment at 3 184 678 3 761 191 107 717 11 766 7 065 352 30 June 2015
A register containing the information required by Regulation 25(3) of the Companies Regulations 2011 is available for inspection at the registered office of the company.
Mining plant and equipment and mine Decommissioning Motor development asset vehicles Total R’000 R’000 R’000 R’000 Company 30 June 2016 Cost opening balance as at 1 July 2015 4 154 469 67 485 7 937 4 229 891 Present value of decommissioning asset capitalised - 3 024 – 3 024 Transfer from mining properties and mineral resources 7 423 – – 7 423 Additions to maintain operations 256 794 – – 256 794 Additions to expand operations 294 297 – – 294 297 Disposals and write offs (33 190) – (1 898) (35 088) Cost closing balance as at 30 June 2016 4 679 793 70 509 6 039 4 756 341
Opening accumulated depreciation balance as at 1 July 2015 (1 786 243) (21 502) (3 133) (1 810 878) Transfer from mining properties and mineral resources (2 852) – – (2 852) Depreciation (182 570) (1 436) (687) (184 693) Accumulated depreciation on disposals 31 839 – 521 32 360 Accumulated depreciation closing balance as at 30 June 2016 (1 939 826) (22 938) (3 299) (1 966 063)
Carrying value of property, plant and equipment at 30 June 2016 2 739 967 47 571 2 740 2 790 278
NORTHAM ANNUAL INTEGRATED REPORT 2016 191
57
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Mining plant and equipment and mine Decommissioning Motor development asset vehicles Total R’000 R’000 R’000 R’000 Company 30 June 2015 Cost opening balance as at 1 July 2014 3 905 157 52 742 7 103 3 965 002 Present value of decommissioning asset capitalised – 14 743 – 14 743 Additions to maintain operations 267 295 – 4 207 271 502 Disposals and write offs (17 983) – (3 373) (21 356) Cost closing balance as at 30 June 2015 4 154 469 67 485 7 937 4 229 891
Opening accumulated depreciation balance as at 1 July 2014 (1 644 577) (20 434) (4 320) (1 669 331) Depreciation (159 462) (1 068) (832) (161 362) Accumulated depreciation on disposals 17 796 – 2 019 19 815 Accumulated depreciation closing balance as at 30 June 2015 (1 786 243) (21 502) (3 133) (1 810 878)
Carrying value of property, plant and equipment at 30 June 2015 2 368 226 45 983 4 804 2 419 013
A register containing the information required by Regulation 25(3) of the Companies Regulations 2011 is available for inspection at the registered office of the company.
6. MINING PROPERTIES AND MINERAL RESOURCES
Mining Mineral properties resources Total R’000 R’000 R’000 Group 30 June 2016 Cost opening balance as at 1 July 2015 282 374 5 571 003 5 853 377 Additions – 55 155 55 155 Transfer to property, plant and equipment (2 789) (49 852) (52 641) Cost closing balance as at 30 June 2016 279 585 5 576 306 5 855 891
Opening accumulated depreciation balance as at 1 July 2015 (156 952) (59 947) (216 899) Transfer to property, plant and equipment 2 646 207 2 853 Depreciation (3 375) (24 376) (27 751) Accumulated depreciation closing balance as at 30 June 2016 (157 681) (84 116) (241 797)
Carrying value of mining properties and mineral resources as at 30 June 2016 121 904 5 492 190 5 614 094
192
58
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Mining Mineral properties resources Total R’000 R’000 R’000 Group 30 June 2015 Cost opening balance as at 1 July 2014 282 374 5 571 003 5 853 377 Cost closing balance as at 30 June 2015 282 374 5 571 003 5 853 377
Opening accumulated depreciation balance as at 1 July 2014 (153 223) (46 826) (200 049) Depreciation (3 729) (13 121) (16 850) Accumulated depreciation closing balance as at 30 June 2015 (156 952) (59 947) (216 899)
Carrying value of mining properties and mineral resources as at 30 June 2015 125 422 5 511 056 5 636 478
A register containing the information required by Regulation 25(3) of the Companies Regulations 2011 is available for inspection at the registered office of the company.
Mining Mineral properties resources Total R’000 R’000 R’000 Company 30 June 2016 Cost opening balance as at 1 July 2015 266 314 – 266 314 Transfer to property, plant and equipment (7 423) – (7 423) Cost closing balance as at 30 June 2016 258 891 – 258 891
Opening accumulated depreciation balance as at 1 July 2015 (156 952) – (156 952) Transfer to mining properties and mineral resources 2 852 – 2 852 Depreciation (3 273) – (3 273) Accumulated depreciation closing balance as at 30 June 2016 (157 373) – (157 373)
Carrying value of mining properties and mineral resources as at 30 June 2016 101 518 - 101 518
Mining Mineral properties resources Total R’000 R’000 R’000 Company 30 June 2015 Cost opening balance as at 1 July 2014 266 314 – 266 314 Cost closing balance as at 30 June 2015 266 314 – 266 314
Opening accumulated depreciation balance as at 1 July 2014 (153 223) – (153 223) Depreciation (3 729) – (3 729) Accumulated depreciation closing balance as at 30 June 2015 (156 952) – (156 952)
Carrying value of mining properties and mineral resources as at 30 June 2015 109 362 – 109 362
A register containing the information required by Regulation 25(3) of the Companies Regulations 2011 is available for inspection at the registered office of the company.
NORTHAM ANNUAL INTEGRATED REPORT 2016 193
59
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
7. INTEREST IN ASSOCIATES AND JOINT VENTURES Interest in associates and joint ventures comprises of a 7.5% interest in the Pandora joint venture (associate), a 50% interest in the Dwaalkop platinum project (joint venture), a 51% interest in the Kokerboom (joint venture) exploration project and a 0% interest (2015: 20.3% interest) in the issued share capital of Trans Hex Group Limited (associate) until 9 May 2016 when it was disposed of.
During the year under review the 20.3% interest in the issued share capital of Trans Hex Group Limited was sold. All other percentage holdings remained unchanged from the prior year.
In addition to the above, effective 29 February 2016, a 20% investment in SSG Holdings Proprietary Limited was acquired for R10.0 million. Subsequent to year end an additional 10% investment in SSG Holdings Proprietary Limited was acquired.
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Dwaalkop joint venture 136 230 136 230 – – Pandora joint venture 45 565 70 720 36 845 49 356 Trans Hex Group Limited – 68 897 – 67 605 SSG Holdings Proprietary Limited 10 369 – – – 192 164 275 847 36 845 116 961
194 60
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Below is a reconciliation of Northam Platinum Limited’s interest in associates and joint venture: Interest Interest in in SSG Interest in Interest in Trans Hex Holdings Pandora Dwaalkop Group Proprietary joint venture joint venture Limited Limited Total 7.5% 50.0% 20.3% 20.0% R’000 R’000 R’000 R’000 R’000 Group 30 June 2016 Opening balance as at 1 July 2015 70 720 136 230 68 897 – 275 847 Additional investment 10 601 – – 10 000 20 601 (Loss)/profit for the year (12 620) – (20 002) 369 (32 253) Other comprehensive income – – (3 947) – (3 947) Current year amortisation (2 600) – – – (2 600) Cash distributions received (24) – – – (24) Reversal of prior year impairment – – 34 122 – 34 122 Impairment (20 512) – – – (20 512) Sale of investment in Trans Hex Group Limited – – (79 070) – (79 070) 45 565 136 230 – 10 369 192 164
Interest Interest in in SSG Interest in Interest in Trans Hex Holdings Pandora Dwaalkop Group Proprietary joint venture joint venture Limited Limited Total 7.5% 50.0% 20.3% 20.0% R’000 R’000 R’000 R’000 R’000 Group 30 June 2015 Opening balance as at 1 July 2014 114 927 300 679 80 903 – 496 509 Additional investment 9 657 – – – 9 657 (Loss)/profit for the year (10 747) – 39 516 – 28 769 Other comprehensive income – – (4 482) – (4 482) Current year amortisation (2 600) – – – (2 600) Cash distributions received (34) – (12 918) – (12 952) Impairment (40 483) (164 449) (34 122) – (239 054) 70 720 136 230 68 897 – 275 847
Interest Interest in in SSG Interest in Interest in Trans Hex Holdings Pandora Dwaalkop Group Proprietary joint venture joint venture Limited Limited Total 7.5% 50.0% 20.3% 20.0% R’000 R’000 R’000 R’000 R’000 Company 30 June 2016 Opening balance as at 1 July 2015 49 356 – 67 605 – 116 961 Additional investment 10 601 – – – 10 601 Current year amortisation (2 600) – – – (2 600) Impairment (20 512) – – – (20 512) Sale of investment in Trans Hex Group Limited – – (67 605) – (67 605) 36 845 – – – 36 845
NORTHAM ANNUAL INTEGRATED REPORT 2016 195
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ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30 THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Interest Interest in in SSG Interest in Interest in Trans Hex Holdings Pandora Dwaalkop Group Proprietary joint venture joint venture Limited Limited Total 7.5% 50.0% 20.3% 20.0% R’000 R’000 R’000 R’000 R’000 Company 30 June 2015 Opening balance as at 1 July 2014 42 333 – 67 605 – 109 938 Additional investment 9 623 – – – 9 623 Current year amortisation (2 600) – – – (2 600) 49 356 – 67 605 – 116 961
Below is a summary of the statement of profit or loss and other comprehensive income of the various associates and joint ventures:
Statement of profit or loss and other comprehensive income
Interest Interest in in SSG Interest in Interest in Trans Hex Holdings Pandora Dwaalkop Group Proprietary joint venture joint venture Limited* Limited Total 7.5% 50.0% 20.3% 20.0% R’000 R’000 R’000 R’000 R’000 30 June 2016 Sales 33 209 – 110 499 22 013 165 721 Cost of sales and operating expenditure (39 888) – (111 269) (2 515) (153 672) Operating (loss)/profit (6 679) – (770) 19 498 12 049 Investment income 75 – 3 900 – 3 975 Sundry (expenditure)/income (5 940) – 2 399 – (3 541) Other operating costs – – (35 303) (18 877) (54 180) Finance charges (76) – (804) (190) (1 070) Profit from discontinued operations – – 4 980 – 4 980 (Loss)/profit before tax (12 620) – (25 598) 431 (37 787) Taxation – – 5 596 (62) 5 534 (Loss)/profit for the year (12 620) – (20 002) 369 (32 253) Other comprehensive income – – (3 947) – (3 947) Total comprehensive income for the year (12 620) – (23 949) 369 (36 200)
* The period relates to 1 July 2015 to 9 May 2016.
196
62
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Interest Interest in in SSG Interest in Interest in Trans Hex Holdings Pandora Dwaalkop Group Proprietary joint venture joint venture Limited Limited Total 7.5% 50.0% 20.3% 20.0% R’000 R’000 R’000 R’000 R’000 30 June 2015 Sales 38 013 – 182 767 – 220 780 Cost of sales and operating expenditure (48 766) – (154 365) – (203 131) Operating (loss)/profit (10 753) – 28 402 – 17 649 Investment income 73 – 34 516 – 34 589 Sundry (expenditure)/income – – (6 141) – (6 141) Other operating costs – – (19 922) – (19 922) Finance charges (67) – (887) – (954) Profit from discontinued operations – – 4 366 – 4 366 (Loss)/profit before tax (10 747) – 40 334 – 29 587 Taxation – – (818) – (818) (Loss)/profit for the year (10 747) – 39 516 – 28 769 Other comprehensive income – – (4 482) – (4 482) Total comprehensive income for the year (10 747) – 35 034 – 24 287
The interest in Pandora joint venture is accounted for as an associate and the interest in Dwaalkop joint venture is accounted for as a joint venture. The interest in Trans Hex Group Limited was accounted for as an investment in associate prior to being sold.
These associates and joint ventures are not material for group purposes as they are not considered core to the business and thus the above amounts have been stated at their percentage interest.
NORTHAM ANNUAL INTEGRATED REPORT 2016 197
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ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 30 June 2016 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Below is a summary of the statement of financial position of the various associates and joint ventures:
Statement of financial position
Interest Interest in in SSG Interest in Interest in Trans Hex Holdings Pandora Dwaalkop Group Proprietary joint venture joint venture Limited Limited Total 7.5% 50.0% 20.3% 20.0% R’000 R’000 R’000 R’000 R’000 30 June 2016 Non-current assets 57 892 – – 6 170 64 062 Property, plant and equipment 57 892 – – 3 583 61 475 Goodwill – – – 1 000 1 000 Deferred tax asset – – – 1 587 1 587 Current assets 24 401 10 427 34 828 Inventory – – – 1 161 1 161 Trade and other receivables 8 418 – – 8 948 17 366 Cash and cash equivalents 1 642 – – 318 1 960 Profit share loans due from participants 14 341 – – – 14 341 Total assets 82 293 – – 16 597 98 890 Total shareholders’ interest 76 453 – – (349) 76 104 Non-current liabilities 1 072 – – 3 329 4 401 Provision for environmental and rehabilitation obligations 1 072 – – – 1 072 Long term liabilities – – – 3 329 3 329 Current liabilities 4 768 – – 13 617 18 385 Royalties payable 6 – – – 6 Trade and other payables 4 762 – – 10 619 15 381 Borrowings – – – 2 998 2 998 Total equity and liabilities 82 293 – – 16 597 98 890
198
64
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Statement of financial position
Interest Interest in in SSG Interest in Interest in Trans Hex Holdings Pandora Dwaalkop Group Proprietary joint venture joint venture Limited Limited Total 7.5% 50.0% 20.3% 20.0% R’000 R’000 R’000 R’000 R’000 30 June 2015 Non-current assets 61 496 – 96 109 – 157 605 Property, plant and equipment 61 496 – 30 344 – 91 840 Financial assets – – 65 627 – 65 627 Deferred tax asset – – 138 – 138 Current assets 20 169 – 105 604 – 125 773 Inventory – – 26 866 – 26 866 Trade and other receivables 7 274 – 4 878 – 12 152 Prepayments 59 – – – 59 Cash and cash equivalents 1 466 – 73 860 – 75 326 Profit share loans due from participants 11 370 – – – 11 370 Total assets 81 665 – 201 713 – 283 378 Participants interest 75 553 – 24 633 – 100 186 Total shareholders’ interest – – 131 374 – 131 374 Non-current liabilities 985 – 23 273 – 24 258 Provision for environmental and rehabilitation obligations 985 – – – 985 Deferred tax – – 925 – 925 Other provisions – – 22 348 – 22 348 Current liabilities 5 127 – 22 433 – 27 560 Royalties payable 6 – – – 6 Trade and other payables 5 121 – 22 062 – 27 183 Tax payable – – 371 – 371 Total equity and liabilities 81 665 – 201 713 – 283 378
NORTHAM ANNUAL INTEGRATED REPORT 2016 199
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ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
8. INVESTMENT IN SUBSIDIARIES Below is a list of the various subsidiaries included in the Northam Platinum Limited group of companies:
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Khumama Platinum Proprietary Limited – – 10 166 000 10 166 000 Mining Technical Services Proprietary Limited – – * * Mvelaphanda Resources Proprietary Limited – – – – Norplats Properties Proprietary Limited – – * * Northam Chrome Proprietary Limited – – 70 000 70 000 Windfall 38 Properties Proprietary Limited – – * * Zambezi Platinum (RF) Limited – – * * – – 10 236 000 10 236 000
* Represents an investment of less than R1 000.
All companies, except for the investment in Zambezi Platinum (RF) Limited, are wholly owned and incorporated in the Republic of South Africa.
505 (2015: 505) ordinary shares are held in Khumama Platinum Proprietary Limited representing a 100% equity interest. 120 (2015: 120) ordinary shares are held in Mining Technical Services Proprietary Limited representing a 100% equity interest. Northam Platinum Limited holds 217 881 101 ordinary shares representing a 100% equity interest in Mvelaphanda Resources Proprietary Limited. The investment was fully impaired during the previous financial year. 100 (2015: 100) ordinary shares are held in Norplats Properties Proprietary Limited, Northam Chrome Proprietary Limited and Windfall 38 Properties Proprietary Limited representing a 100% equity interest.
Northam Platinum Limited holds a single N share in Zambezi Platinum (RF) Limited as a protective right. Zambezi Platinum (RF) Limited was created and designed for the sole purpose of providing Northam Platinum Limited with BEE credentials and as a structure to hold the listed BEE preference shares. If Northam does not comply with the HDSA requirements in the Mining Charter they will not be able to retain their mining rights. Northam is able to direct the strategic direction of Zambezi and as per the subscription and relationship agreement between the two companies, Zambezi’s memorandum of incorporation may not be amended or replaced without Northam’s prior written consent.
Northam assumes full responsibility for the administration of Zambezi as well as any costs incurred by Zambezi up to a certain limit. Furthermore, Northam provides a guarantee for Zambezi’s obligation in respect of the preference shares. All these points indicate that Northam has been involved from the inception of the transaction, to ensure that the design and operation of Zambezi achieves the purpose for which it was created. In terms of the transaction, an “N” share was issued to Northam, which gave them the right to implement mitigating action should Zambezi not comply with certain undertakings as per the transaction’s agreements and in other limited instances aimed at maintaining the integrity of the transaction at all times. Zambezi can also not dispose of the Northam ordinary shares without the prior consent of Northam. Northam has significant exposure to the variable returns of Zambezi, through the creation and maintenance of the BEE credentials during the 10-year lock-in period as well as through the guarantee provided by Northam. The decision making power of Zambezi’s board of directors is restricted to maintaining Northam’s BEE credentials and funding arrangements.
All of these factors have been considered in determining that even though Northam do not have majority of the voting rights in Zambezi, they still have control over the entity.
Details of the subsidiaries are included in the related party note, which forms part of these notes.
200 66
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
9. UNLISTED INVESTMENT
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Investment in Rand Mutual Assurance Company Limited 6 6 6 6 6 6 6 6
The unlisted investment represents an equity investment in a mining industry service organisation, Rand Mutual Assurance Company Limited. This investment was acquired a number of years ago to assist with the administration of occupational injuries and diseases. The shares are disclosed at cost as the fair value is not available as the shares are not traded in an active market. Management is not planning to dispose of these shares.
10. LAND AND TOWNSHIP DEVELOPMENT
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Balance at the beginning of the year 10 000 10 204 – – Construction in progress and refurbishments relating to Norplats Properties 12 984 – – – Proprietary Limited Acquisitions Portion 22 of the Farm Leeukopje 1 908 – 1 908 – Portion 4 & 9 of the Farm Koedoesdoorns 5 608 – 5 608 – Phelobontle Mogwase 11 169 – 11 169 – Lydenburg extension 78 – Booysendal Platinum Proprietary Limited 5 980 – – – Lydenburg extension 79 – Booysendal Platinum Proprietary Limited 5 974 – – – Norplats Properties Proprietary Limited – 884 – – Disposals Phelobontle, Mogwase units (467) – (467) – Norplats Properties Proprietary Limited units (1 815) (1 088) – – Balance at end of year 51 341 10 000 18 218 –
These properties have been acquired in order to assist the group’s employees to acquire affordable housing.
Below is a reconciliation of the number of houses available for sale relating to Norplats Properties Proprietary Limited:
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Number of properties developed available for sale 415 415 – – Houses sold to date (398) (391) – – Properties surrendered/repurchased 37 27 – – Closing number of properties available 54 51 – –
NORTHAM ANNUAL INTEGRATED REPORT 2016 201 67
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
11. LONG TERM RECEIVABLES
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Long term receivables 95 334 99 692 – – Current portion of long term receivables included in trade and other receivables (5 617) (5 189) – – 89 717 94 503 – –
Long term receivables comprise balances due by employees in respect of Northam’s employee home ownership scheme under suspensive sale agreements. The loans to the employees bear interest at prime, and repayable over 15 years. In terms of the agreements, employees enjoy the full benefits of home ownership, and at such time as the loan is paid off, the title to the houses will be transferred to the employees. As at 30 June 2016 there were no receivables (2015: R Nil) which were impaired and fully provided for. The group has pledged the instalment sales agreements as security for the loan secured from Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N V (FMO).
12. INVESTMENTS HELD BY NORTHAM PLATINUM RESTORATION TRUST FUND The group contributes to a dedicated environmental restoration trust fund to provide for the estimated decommissioning and environmental restoration cost at the end of the mine’s life.
The balance of the fund comprises: Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Balance at the beginning of the year 49 092 46 468 38 868 36 790 Contributions received with the acquisition of the Everest mineral reserves 33 900 – – – Contributions received from Northam Platinum Limited 1 532 – 1 532 – Contributions received from Booysendal Platinum Proprietary Limited 3 018 – – – Other 18 – 10 – Income earned during the year 6 087 2 624 2 794 2 078 Balance at the end of the year 93 647 49 092 43 204 38 868
The assets, which mainly consist of cash, of the Fund are separately administered and the group’s right of access to these funds is restricted. This investment is managed by STANLIB Collective Investments (RF) Limited, and is made up of a fixed number of units which trades at specific values.
The Northam Platinum Restoration Trust Fund was established in 1996 to assist the group in making financial provision for the environmental rehabilitation of the mine, in terms of the Minerals and Petroleum Resources Development Act no 28 of 2002, upon cessation of its mining operations.
During the year the Northam Platinum Restoration Trust Fund, amended the trust deed. In future contributions relating to rehabilitation is no longer limited to contributions to the Northam Platinum Restoration Trust Fund. The group may make use of any approved financial vehicles in terms of regulations and legislation.
202 68
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
13. ENVIRONMENTAL GUARANTEE INVESTMENT The investment held with regards to the environmental guarantee investment was issued in terms of the insurance guarantee of R157.9 million (2015: R157.9 million) relating to the group and R67.0 million (2015: R67.0 million) for the company. The investment as noted below has been provided as security for the insurance guarantees issued.
The balance of the fund comprises:
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Balance at the beginning of the year 52 122 51 024 44 137 42 281 Contributions made during the year 6 000 – 3 000 – Income earned during the year (net of fees) 2 223 1 098 2 050 1 856 Balance at the end of the year 60 345 52 122 49 187 44 137
The assets, which mainly consist of cash, of the Fund are separately administered and the group’s right of access to these funds is restricted.
This investment is managed by Guardrisk Insurance Company Limited.
NORTHAM ANNUAL INTEGRATED REPORT 2016 203 69
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
14. BUTTONSHOPE CONSERVANCY TRUST The balance of the trust comprises:
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Balance at the beginning of the year 11 037 10 702 – - Contributions received from Booysendal Platinum Proprietary Limited 400 – Interest and fair value adjustments earned during the year 755 574 – – Funds utilised to acquire a property (1 289) – – – Settlement of outstanding loan balances (403) – – – Less expenditure incurred during the year (55) (239) – – Balance at the end of the year 10 445 11 037 – –
The trust was established as a conservancy trust by Northam Platinum Limited, with the principal objective of engaging in the conservation, rehabilitation and/or protection of the natural environment, including flora, fauna and the biosphere as well as promoting the establishment of, and education and training programmes relating to, environmental awareness, greening, clean-up and/or sustainable development projects in respect of Portion 1 of the Farm Buttonshope 51, Registration Division JT, Mpumalanga Province, and which may involve the participation by local communities. The aforementioned property is owned by Booysendal Platinum Proprietary Limited, an indirect subsidiary of Northam Platinum Limited. An initial contribution of R10.0 million was required by Booysendal Platinum Proprietary Limited in terms of the trust agreement.
Funds of R2.2 million (2015: R3.0 million) are invested with Standard Bank Limited in a call account and R8.2 million (2015: R8.0 million) is held in an Extra Income Fund with Stanlib Collective Investments Limited.
This investment is managed by STANLIB Collective Investments (RF) Limited, and is made up of a fixed number of units which trades at specific values. The assets, which mainly consist of cash, of the trust are separately administered and the group’s right of access to these funds is restricted.
Ongoing contribution is made if the financial statements of Booysendal Platinum Proprietary Limited for any financial year reflects a profit, and the ratio which such profit bears to the revenue for the relevant financial year is more than 20% (twenty percent) (before taking into account any payment which Booysendal is obliged to make in terms of this clause 2.2 of the contribution agreement), then Booysendal shall pay to the Trust, not less than 7 (seven) business days after the audited annual financial statement of Booysendal for the relevant year have been approved by the board and signed by an authorised director of Booysendal, the rand equivalent of US$1.00 (one US dollar) for each ounce of Refined Platinum (in whatever form) sold by Booysendal during the financial year, which platinum has been derived, or deemed to have been derived from material mined at the Booysendal Mine, all as determined from the financial statements for that relevant year.
During the current year the trustees decided that the funding model should be changed and that Booysendal Platinum Proprietary Limited should donate a fixed amount of R400 000 per annum regardless of the operational performance with a fixed increase of R25 000 per annum.
In addition to the above, The Buttonshope Conservancy Trust acquired Portion 1 of Sheeprun 50 during the current year a property measuring 256.9596 hectares under Title deed T4813/2016.
204 70
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
15. SUBSIDIARY LOANS
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Long term subsidiary loans receivable Norplats Properties Proprietary Limited – – 24 456 24 456 – – 24 456 24 456
The loan between Northam Platinum Limited and Norplats Properties Proprietary Limited accrue interest at 2.0% below the South African prime interest rate and may only be repaid once the loan from the Nederlandse Financierings Maatschappij voor Ontwikkelingslanden NV has been repaid by Norplats Properties Proprietary Limited, which is no later than 30 September 2026.
During the year the outstanding interest was repaid in full.
Short term subsidiary loans receivable Booysendal Platinum Proprietary Limited – – 2 262 163 4 159 333 Buttonshope Conservancy Trust – – – 403 Mvelaphanda Resources Proprietary Limited – – 1 047 957 Norplats Properties Proprietary Limited – – 37 724 26 007 Windfall 38 Properties Proprietary Limited – – 14 590 14 862 Khumama Platinum Proprietary Limited – – 1 – Mining Technical Services Proprietary Limited – – 15 002 1 – – 2 330 527 4 201 563
The loan between Northam Platinum Limited and Booysendal Platinum Proprietary Limited bears interest at JIBAR plus 3.75% from 1 January 2015 on the portion of the loan that relates to third party funding. The third party funding was however repaid in full during the current financial year and the outstanding loan balance does not accrue interest. Regular repayments are however made on the outstanding loan balance. The remaining balance of the loan is repayable on demand and therefore stated as current.
The loan between Northam Platinum Limited and Windfall 38 Properties Proprietary Limited bears interest at 2.0% below the South African prime interest rate, repayable on demand and therefore stated as current. During the year the accrued interest for the year was repaid in full.
All other loans are interest free, unsecured and repayable on demand.
Details of the subsidiaries are set out in the related party note, which forms part of these notes.
NORTHAM ANNUAL INTEGRATED REPORT 2016 205 71
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
16. INVENTORIES
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Metals on hand and in transit at net realisable value Platinum 858 412 673 216 875 758 632 029 Palladium 226 298 220 905 230 792 208 780 Rhodium 122 846 142 401 125 825 136 488 Gold 25 808 16 252 26 470 15 950 Total metal inventories 1 233 364 1 052 774 1 258 845 993 247 Chrome finished product at cost 387 222 – – Consumable stores at cost 96 519 73 554 49 411 52 106 Total inventories at the lower of cost and net realisable value 1 330 270 1 126 550 1 308 256 1 045 353
The cost of sales figure disclosed in the statement of profit or loss and other comprehensive income approximates the cost of inventory expensed.
Included in cost of sales are metals on hand that were written down by R360.8 million (2015: R273.0 million) to net realisable value. Inventory to the value of R927.7 million (2015: R648.6 million) is disclosed at net realisable value.
17. TRADE AND OTHER RECEIVABLES
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Trade receivables 159 603 160 064 137 434 143 068 Accrued interest 24 700 22 056 8 025 3 543 Prepayments 7 306 3 827 6 618 3 516 Deposits 250 359 142 142 South African Revenue Service – Value added tax 114 364 244 497 87 656 70 343 South African Revenue Service – Mineral royalties 16 096 14 240 16 096 14 240 Current portion of long term receivables 5 617 5 189 – – Loan to SSG Holdings Proprietary Limited 5 000 – – – Other 42 268 48 622 18 382 46 645 375 204 498 854 274 353 281 497
Trade receivables are unsecured, non-interest bearing and are generally on either 30 or 60-day payment terms. Platinum group metal debtors have payment terms of between 2 to 5 days.
At 30 June 2016 R Nil was impaired, however as at 30 June 2015 a single receivable balance of R22.4 million was impaired which was previously included in other receivables. The table below summarises the maturity profile of the company and group’s trade and other receivables:
Neither past due nor impaired 264 234 296 622 189 080 227 200 30 to 60 days 44 704 57 641 44 318 42 332 60 to 90 days 5 903 16 945 5 903 8 089 More than 90 days* 60 363 127 646 35 052 3 876 375 204 498 854 274 353 281 497
* Management considers these amount to be fully recoverable.
206 72
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
18. CASH AND CASH EQUIVALENTS
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Cash at bank and on hand 543 197 3 779 542 018 1 716 Restricted cash 109 521 104 936 23 000 23 000 Short term deposits 2 452 362 4 029 474 1 089 399 510 243 3 105 080 4 138 189 1 654 417 534 959
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying period depending on the immediate cash requirements of the group and earn interest at the respective short term deposit rates.
At 30 June 2016 the group had R1.0 billion (2015: R1.0 billion) of undrawn committed borrowing facilities.
Included in restricted cash is R8.5 million (2015: R8.5 million) that has been pledged to the Nederlandse Financierings Maatschappij voor Ontwikkelingslanden NV by Norplats Properties Proprietary Limited as a debt service reserve account, as security for servicing of the loan from Nederlandse Financierings Maatschappij voor Ontwikkeingslanden NV. In accordance with the agreement, Norplats Properties Proprietary Limited shall maintain at all times a balance in the account equal to not less than the sum of all payments of principal and interest on the loan which will be due and payable during the next relevant period. Norplats Properties Proprietary Limited may withdraw amounts from the account only for the purpose of paying any principal and interest under the agreement. Norplats Properties Proprietary Limited shall not withdraw funds from the account for any other purpose without the written consent of Nederlandse Financierings Maatschappij voor Ontwikkelingslanden NV.
Restricted cash includes a guarantee of R23.0 million relating to an electricity supply agreement between Northam Platinum Limited and Eskom Holdings SOC Limited.
Also included in restricted cash is money ring fenced for the benefit of the Employee Trust, the Northam Zondereinde Community Trust and the Northam Booysendal Community Trust, which may only be spent in terms of the various Trust deeds.
For the purposes of the statement of cash flows, cash and cash equivalents comprise on the above balances as the group has no bank overdrafts.
NORTHAM ANNUAL INTEGRATED REPORT 2016 207 73
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
19. STATED CAPITAL
Group Company 2016 2015 2016 2015 Number of Number of Number of Number of shares shares shares shares Authorised share capital 2 000 000 000 share capital at no par value
Issued share capital Opening balance as at 1 July 2014 397 586 090 397 586 090 397 586 090 397 586 090 Share issued as part of the black economic empowerment transaction 112 195 122 112 195 122 112 195 122 112 195 122 At 30 June 2015 and 30 June 2016 509 781 212 509 781 212 509 781 212 509 781 212 Treasury shares (159 905 453) (159 905 453) – – 349 875 759 349 875 759 509 781 212 509 781 212
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Issued share capital Opening balance as at 1 July 2014 9 178 688 9 178 688 9 178 688 9 178 688 Share issued as part of the black economic empowerment transaction 4 599 426 4 599 426 4 599 426 4 599 426 At 30 June 2015 and 30 June 2016 13 778 114 13 778 114 13 778 114 13 778 114 Treasury shares (6 556 123) (6 556 123) – – 7 221 991 7 221 991 13 778 114 13 778 114
Details of share capital and shares held by the directors are contained in the director’s report.
Treasury shares relates to the shares owned by Zambezi Platinum (RF) Limited. Zambezi Platinum (RF) Limited is a special purpose black economic empowerment vehicle established in October 2014 as a result of a R6.6 billion BEE transaction with Northam Platinum Limited. The transaction included the successful raising of R4.6 billion and was approved by Northam Platinum Limited shareholders on 19 March 2015.
In terms of the transaction, Northam Platinum Limited issued 112 195 122 new shares, (equivalent to 22% of the issued share capital). These shares were supplemented by 47 710 331 shares (equivalent to 9.4% of the issued share capital), sold to Zambezi Platinum (RF) Limited by the Public Investment Corporation SOC Limited (PIC), a long-standing Northam Platinum Limited shareholder.
Zambezi Platinum (RF) Limited comprises a range of historically disadvantaged South African stakeholders including an employee trust, two community trusts, a women’s group and a core of strategic partners. Together they hold a 31.4% stake in Northam Platinum Limited.
208 74
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
20. EQUITY SETTLED SHARE BASED PAYMENT RESERVE
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Opening balance at the beginning of the year 874 448 – 1 173 756 – Creation of an equity compensation reserves as a result of the black economic empowerment transaction – 874 448 – 1 173 756 874 448 874 448 1 173 756 1 173 756
The issue of preference shares by Zambezi Platinum (RF) Limited resulted in a need to account for a share based payment charge and related reserve in terms of IFRS 2 Share based payments. The actual share based payment charge and related reserve were calculated according to market information available as at 30 June 2015.
A Black-Scholes option model was used to determine the share based payment expense.
These BEE shares issued to the Northam Employees’ Trust vested immediately on grant date. The input relating to the calculation of the share based payment expense included a risk free rate of 8.17%, volatility of 30% and a dividend yield rate of 0.3% over the 10-year lock in period.
NORTHAM ANNUAL INTEGRATED REPORT 2016 209 75
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
21. DEFERRED TAX ASSET AND LIABILITY The principal components of the deferred tax asset and liability are as follows:` Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Deferred tax liabilities Property, plant and equipment (685 832) (612 073) (683 621) (622 282) Metal inventory (2 049) (4 755) (13 984) (4 755) Restoration trust fund (12 097) (10 883) (12 097) (10 883) Section 24C allowances in respect of long term receivables (6 391) (6 791) – – (706 369) (634 502) (709 702) (637 920) Deferred tax assets Employee benefits relating to leave pay and bonus provisions 52 343 49 128 52 343 48 324 Decommissioning and environmental restoration provisions 35 309 32 063 35 309 32 063 Share based payment liability 27 115 30 299 27 115 30 299 Calculated tax loss 965 1 560 – – 115 732 113 050 114 767 110 686
Net deferred tax liability (590 637) (521 452) (594 935) (527 234)
The charge in the deferred tax balance is reconciled as follows:
Deferred tax liability at the beginning of the year (521 452) (502 097) (527 234) (506 818) Charge for the year (69 185) (19 355) (67 701) (20 416) Temporary differences in respect of property, plant and equipment (73 759) (26 889) (61 339) (25 470) Depreciation component included in metals on hand and in transit 2 706 7 907 (9 229) 7 907 Temporary differences in respect of restoration trust fund (1 214) (582) (1 214) (582) Section 24C allowance in respect of long term receivables 400 2 186 – – Calculated tax loss (595) (64) – – Temporary difference in respect of employee benefits 3 215 5 687 4 019 5 288 Temporary difference in respect of decommissioning and environmental restoration provisions 3 246 4 908 3 246 4 949 Temporary difference in respect of share based payment liabilities (3 184) (12 508) (3 184) (12 508)
Net deferred tax liability (590 637) (521 452) (594 935) (527 234)
The group offsets deferred tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
210 76
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Booysendal Platinum Proprietary Limited deferred tax asset
A deferred tax asset has been raised for items included in Booysendal Platinum Proprietary Limited, as taxable profits will be generated in the foreseeable future against which the deferred tax asset can be utilised.
The principal components of the deferred tax asset and liability are as follows: Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Deferred tax liabilities Metal inventory (337) (947) Restoration trust fund (14 124) (2 863) (14 461) (3 810) Deferred tax assets Property, plant and equipment (Unredeemed capex) 102 023 144 666 Employee benefits relating to leave pay and bonus provisions 7 225 5 160 Decommissioning and environmental restoration provisions 37 158 20 358 Share based payment liability 12 387 6 237 158 793 176 421
Net deferred tax asset 144 332 172 611
The charge in the deferred tax balance is reconciled as follows:
Deferred tax asset at the beginning of the year 172 611 96 074 Charge for the year (28 279) 76 537 Temporary differences in respect of property, plant and equipment (42 643) 88 133 Depreciation component included in metals on hand and in transit 610 20 118 Temporary differences in respect of restoration trust fund (11 261) (153) Calculated tax loss – (50 823) Temporary difference in respect of employee benefits 2 065 7 674 Temporary difference in respect of decommissioning and environmental restoration
provisions 16 800 7 555 Temporary difference in respect of share based payment liabilities 6 150 4 033
Net deferred tax asset 144 332 172 611
NORTHAM ANNUAL INTEGRATED REPORT 2016 211
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ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
22. LONG TERM PROVISIONS
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Rehabilitation provision 258 808 187 217 126 101 114 509 Long term portion of leave pay provisions (refer to note 30) 14 012 – 13 215 – 272 820 187 217 139 316 114 509
Below is a breakdown of the rehabilitation provisions:
Provision for decommissioning costs Balance at the beginning of the year 149 968 113 000 95 145 80 402 Additional provision acquired with the acquisition of the Everest mineral reserves which was fully funded 22 327 – – – Change in estimate and capitalisation of decommissioning costs 35 984 36 968 3 024 14 743 208 279 149 968 98 169 95 145
Provision for restoration costs Balance at the beginning of the year 37 249 29 709 19 364 16 432 Additional provision acquired with the acquisition of the Everest mineral reserves which was fully funded 11 580 – – – Change in estimate and unwinding of discount 1 700 7 540 8 568 2 932 50 529 37 249 27 932 19 364
Total rehabilitation provision 258 808 187 217 126 101 114 509
In terms of, inter alia, the Mineral and Petroleum Resources Development Act no 28, of 2002, the company is required to make financial provision for its decommissioning and restoration costs that will be incurred upon the cessation of mining activities. The future value of the environmental obligation could either be paid over to Northam Platinum Restoration Trust fund (note 12) over the remaining life of the Zondereinde mine and over the remaining life of the Booysendal mine which is currently estimated at over 25 years (2015: 26 years). The group may also make use of any approved financial vehicles in terms regulations and legislation. Financial provision is not however required to be made for the decommissioning of certain structures, such as housing, which may have alternative use.
The present value of the environmental restoration obligation is determined by applying a pre-tax discount rate of 10.62% (2015: 8.0%) and a long term inflation rate of 8.71% (2015: 6.0%) over the remaining life of the mines. The decommissioning and restoration costs are reviewed on an annual basis, and at the reporting date the net unfunded future obligations were as follows:
Undiscounted decommissioning obligations 166 574 215 070 91 619 125 938 Undiscounted restoration obligations 81 184 54 706 49 102 25 631 Total rehabilitation obligations 247 758 269 776 140 721 151 569 Less funds held by Northam Platinum Restoration Trust Fund (93 647) (49 092) (43 204) (38 868) Environmental insurance guarantee (157 900) (157 900) (67 000) (67 000) Total (overfunded)/unfunded current rehabilitation obligation (3 789) 62 784 30 517 45 701
The group has procured the issue of an insurance guarantee for R157.9 million (2015: R157.9 million) in respect of the unfunded decommissioning and restoration costs, of which R67.0 million (2015: R67.0 million) relates to the company.
The future value of the environmental rehabilitation obligation can either be paid over to the Northam Platinum Restoration Trust Fund over the remaining life of the mines, or through other financial provision insurance/financial products as approved by the Department of Mineral Resources in terms of legislation.
212 78
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
23. LONG TERM LOANS
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Nederlandse Financierings Maatschappij voor Ontwikkelingslanden NV 39 964 43 764 – – Heraeus Deutschland GmbH & Co. KG and Heraeus South Africa Proprietary Limited 248 750 – 248 750 – Total long term loans 288 714 43 764 248 750 – Current portion of Nederlandse Financierings Maatschappij voor Ontwikkelingslanden NV (3 801) (3 801) – – Current portion of Heraeus South Africa Proprietary Limited (9 400) – (9 400) – 275 513 39 963 239 350 –
The loan from Nederlandse Financierings Maatschappij voor Ontwikkelingslanden NV, which is repayable in equal bi-annual instalments over 15 years, bears interest at 3.5% above JIBAR, with the last payment due 30 September 2026. The group has pledged the instalment sales agreement as security for the loan as referred to in the long term receivable note.
Heraeus Deutschland GmbH & Co. KG contributed €10.0 million to the new 20MW furnace. The contribution received was recognised as a liability, as the company is obligated to refund the amount to Heraeus Deutschland GmbH & Co. KG if, and only if the company does not commission the furnace on time. Once the furnace is commissioned and the second €10.0 million is received, the €20.0 million will be deducted from the cost of the smelter as the value contributed is effectively considered a rebate in terms of IAS 16.16(a). The contribution of R163.3 million is included in the table above.
In terms of an agreement entered into by the company and Heraeus South Africa Proprietary Limited an annual payment of R9.4 million will be made for development and research costs for a period of 20 years. A liability was recognised at contract inception, being 16 April 2016. The liability was measured at the present value of the R9.4 million payments over 20 years using the prevailing prime interest rate. The contra side of the entry was included as an addition cost to the furnace. The reason for this is that the contract was entered into for the construction of the smelter and thus the liability is considered as a cost incurred in the construction of the furnace. The present value of these annual payments amounted to R85.5 million and is included in the table above.
NORTHAM ANNUAL INTEGRATED REPORT 2016 213 79
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
24. PREFERENCE SHARE LIABILITY
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Opening balance 6 656 891 – – – Proceeds from the issue of redeemable shares – 6 556 124 – – Accrued preference share dividends 918 806 100 767 – – 7 575 697 6 656 891 – – Liquidity fees paid (164 236) (164 236) – – Amortisation of liquidity fee over the 10 year lock in period 18 088 – – – 7 429 549 6 492 655 – –
On 18 May 2015, 159 905 453 cumulative redeemable preference shares were issued by Zambezi Platinum (RF) Limited at an issue price of R41. The preference shares are redeemable in 10 years’ time at R41 plus the cumulative preference dividends. The preference shareholders are entitled to receive a dividend equal to the issue price multiplied by the dividend rate of prime plus 3.5% calculated on a daily basis based on a 365-day year compounded annually and capitalised at the end of December of every year.
The preference rights, limitations and other terms associated with the Zambezi Platinum (RF) Limited preference shares are set out in the Zambezi Platinum (RF) Limited Memorandum of Incorporation.
The redeemable preference shares do not carry the right to vote.
Subscription undertakings for the full value of the preference shares were secured at a 2.5% liquidity fee. The liquidity fee is classified as a transaction cost in terms of IAS 39. In terms of IAS 39.43 transaction costs will be included in the initial measurement of the financial liability, except when it is classified as a financial liability held at fair value through profit or loss. The BEE preference share liability will be measured at amortised cost and therefore the transaction cost should be included on initial measurement.
The liquidity fee payable was of a capital nature and therefore not deductible for tax resulting in a permanent difference. This amount will be amortised over the 10-year lock-in period.
25. FINANCIAL GUARANTEE LIABILITY
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Zambezi Platinum (RF) Limited financial guarantee liability – – 7 535 944 7 535 944 – – 7 535 944 7 535 944
The redemption of the Zambezi Platinum (RF) Limited Preference Shares is secured by Northam Platinum Limited in terms of a financial guarantee, in terms of which Northam Platinum Limited will be responsible for the payment of all amounts which Zambezi Platinum (RF) Limited has contracted but failed to pay in terms of the Zambezi Preference Share terms by means of a cash payment or the issue of a determinable number of Northam Platinum Limited shares to the Zambezi preference shareholders, or a cash and Northam Platinum Limited share combination.
The inputs included to value to guarantee at the issue date of 18 May 2015 included the Northam Platinum Limited spot price, risk free rates, dividend yield, and volatility.
214 80
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
26. SHARE BASED PAYMENT LIABILITY
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Total share based payment liability 141 077 130 485 96 838 108 210 Short term portion of share based payment liability (56 704) (61 019) (44 197) (49 974) Long term share based payment liability 84 373 69 466 52 641 58 236
The movement in the share based payment liability is made up as follows:
Opening balance 130 485 168 835 108 210 152 881 Share based payment expense during the year 64 175 36 037 35 629 22 994 Options/incentive shares cash settled during the year (53 583) (74 387) (47 001) (67 665) Total share based payment liability 141 077 130 485 96 838 108 210
The short term portion is based on the options/shares which will expire in the next 12 months.
The group operates the Northam share option scheme (the scheme) as well as the Northam share incentive plan (the SIP). The scheme has been discontinued owing to its dilutionary nature although share options issued before its discontinuance will be allowed to run their course.
In March 2013, the Johannesburg Securities Exchange Limited approved a change to the rules of the scheme in terms of which option holders may elect to receive either the shares over which an option has been granted or a cash payment equivalent to the difference between the volume weighted average price at which the Northam Platinum Limited shares trade on the day preceding the exercise date and the exercise price. Options which are cash settled are regarded as having been exercised. All options exercised during the year were cash settled.
Where the counterparty has a right to elect for the settlement in either shares or cash, IFRS 2 regards the transaction as a compound transaction to which split accounting must be applied. The general principle is the transaction must be analysed into a liability component (the counterparty’s right to demand settlement in cash) and an equity component (the counterparty’s right to demand settlement in shares).
Management considered the requirements and determined that based on historical information very few individuals, if any, have kept their Northam shares, and that the majority of the outstanding options, performance and retention shares will be settled in cash and should therefore be accounted for as a cash-settled rather than an equity-settled share based payment.
NORTHAM ANNUAL INTEGRATED REPORT 2016 215 81
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 30 June 2016 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Below is an analysis of share options held as at 30 June 2016:
Grant date 22 Oct 2007 27 Nov 2008 5 Nov 2009 1 July 2010 12 Oct 2010 15 Nov 2013 Expiry date 21 Oct 2014 26 Nov 2015 4 Nov 2016 30 June 2017 11 Oct 2017 Claw back Exercise price in ZAR 48.00 32.38 36.95 45.59 46.57 40.00 Total Opening balance 1 July 2014 1 165 000 160 000 517 500 125 000 2 575 000 178 085 4 720 585 Options forfeited during the year (1 165 000) – – – (25 000) (46 648) (1 236 648) Options exercised during the year – (90 000) (137 500) – (500 000) (28 521) (756 021) July – – – – – – – August – – – – – – – September – – – – – – – October – – – – – – – November – – – – – – – December – – – – – – – January – – – – – – – February – (45 000) (90 000) – (180 000) (12 351) (327 351) March – – (22 500) – (275 000) (11 662) (309 162) April – (45 000) – – (45 000) (3 528) (93 528) May – – (25 000) – – (980) (25 980) June – – – – – – –
Balance at 30 June 2015 - 70 000 380 000 125 000 2 050 000 102 916 2 727 916
Opening balance 1 July 2015 – 70 000 380 000 125 000 2 050 000 102 916 2 727 916 Options forfeited during the year – (70 000) – (255 000) (12 740) (337 740) Options exercised during the year – – (115 000) (125 000) – (9 409) (249 409) July – – – – – – – August – – (22 500) – – (882) (23 382) September – – – – – – – October – – – – – – – November – – – – – – – December – – – – – – – January – – – – – – – February – – – – – – – March – – – – – – – April – – (47 500) (125 000) – (6 763) (179 263) May – – (45 000) – – (1 764) (46 764) June – – – – – – –
Balance as at 30 June 2016 – – 265 000 – 1 795 000 80 767 2 140 767
On 6 December 2013, qualifying shareholders were granted the right to subscribe for 3.92086 claw-back shares for every 100 existing shares held on the record date. The claw-back shares were issued at a discount of 2% to the 30-day VWAP and a premium of 5% to the 60-day VWAP, both calculated as at 18 September 2013 which amounted to R40.00.
Therefore, all outstanding share options held as at the record date were awarded claw back rights options at an exercise price of R40.00 which will expire on the same date as the original option expiry date.
216
82
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
The following table lists the inputs to the model used for the share option scheme for the year ended 30 June 2016:
Grant date 5 Nov 2009 12 Oct 2010 Dividend yield (%) – – Expected volatility (%) 53.16 54.39 Risk free interest rate (%) 7.28 7.53 Expected life of share options (years) 0.35 0.30 Spot price (ZAR) 43.00 43.00 Model used Market value Market value
The following table lists the inputs to the model used for the share option scheme for the year ended 30 June 2015:
Grant date 27 Nov 2008 5 Nov 2009 1 July 2010 12 Oct 2010 Dividend yield (%) – – – – Expected volatility (%) 31.71 31.71 31.71 31.71 Risk free interest rate (%) 6.13 6.68 6.96 7.06 Expected life of share options (years) 0.41 1.35 2.00 2.30 Spot price (ZAR) 40.26 40.26 40.26 40.26 Model used Market value Market value Market value Market value
NORTHAM ANNUAL INTEGRATED REPORT 2016 217
83
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 30 June 2016 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Below is an analysis of share incentives held as at 30 June 2016: 22 Nov 2011 6 Nov 2012 15 Nov 2013 4 Nov 2014 11 Nov 2015 Share award Share award Share award Share award Share award Total Retention shares Balance 1 July 2014 58 000 711 000 697 000 – – 1 466 000 Shares awarded during the year – – – 750 500 – 750 500 Shares forfeited – (18 000) (40 000) (5 900) – (63 900) Shares cash settled during the year (58 000) (693 000) (30 000) (26 400) – (807 400) Balance at 30 June 2015 – – 627 000 718 200 – 1 345 200
Balance 1 July 2015 – – 627 000 718 200 – 1 345 200 Shares awarded during the year – – – – 890 300 890 300 Shares forfeited – – (68 000) (54 100) (55 900) (178 000) Shares cash settled during the year – – (559 000) (63 900) (22 600) (645 500) Balance at 30 June 2016 – – – 600 200 811 800 1 412 000
22 Nov 2011 6 Nov 2012 15 Nov 2013 4 Nov 2014 11 Nov 2015 Share award Share award Share award Share award Share award Total Performance shares Balance 1 July 2014 968 000 1 237 000 1 212 000 – – 3 417 000 Shares awarded during the year – – – 2 220 500 – 2 220 500 Shares forfeited/adjusted for performance conditions met during the year (287 280) (46 000) (69 000) (17 500) – (419 780) Shares cash settled during the year (680 720) (62 000) (52 000) (78 200) – (872 920) Balance at 30 June 2015 – 1 129 000 1 091 000 2 124 800 – 4 344 800
Balance 1 July 2015 – 1 129 000 1 091 000 2 124 800 – 4 344 800 Shares awarded during the year – – – – 2 637 600 2 637 600 Shares forfeited/adjusted for performance conditions met during the year – (17 000) (66 000) (160 700) (165 500) (409 200) Shares cash settled during the year – (1 112 000) (128 000) (189 000) (66 800) (1 495 800) Balance at 30 June 2016 – – 897 000 1 775 100 2 405 300 5 077 400
The shares awarded in terms of the rules of the share incentive plan (SIP) comprise: retention shares, which vest after three years from grant date with no performance criteria, and performance shares, which vest after three years from grant date. The final number of performance shares that an employee will receive will be subject to certain performance criteria being met. In November 2014 the JSE and shareholders approved a change to the rules of the SIP in terms of which, from then onwards retention shares also vest after three years.
In March 2013 the JSE approved a change to the rules of the SIP in terms of which, upon the vesting of any awards, participants may elect to receive either the shares that have vested or an amount equal to the volume weighted average price at which Northam shares traded on the day preceding the settlement date.
All awards that had not yet vested but were cash-settled during the year relate to employees who retired.
218
84
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
The following table lists the inputs to the model used for the share incentive plan for the year ended 30 June 2016:
6 Nov 2012 4 Nov 2014 4 Nov 2014 11 Nov 2015 11 Nov 2015 Performance Retention Performance Retention Performance shares shares shares shares shares Dividend yield (%) – – – – – Forfeiture rate (%) 0.9 0.9 0.9 0.9 0.9 Expected life of share awards (years) 0.38 1.35 1.35 2.37 2.37 Spot price (ZAR) 43.00 43.00 43.00 43.00 43.00 Model used Market value Market value Market value Market value Market value
The following table lists the inputs to the model used for the share incentive plan for the year ended 30 June 2015:
6 Nov 2012 15 Nov 2013 15 Nov 2013 4 Nov 2014 4 Nov 2014 Performance Retention Performance Retention Performance shares shares shares shares shares Dividend yield (%) – – – – – Forfeiture rate (%) 0.9 0.9 0.9 0.9 0.9 Expected life of share awards (years) 1.35 0.38 1.38 2.35 2.35 Spot price (ZAR) 40.26 40.26 40.26 40.26 40.26 Model used Market value Market value Market value Market value Market value
The expected life is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options/incentive shares is indicative of future trends, which may not necessarily be the actual outcome.
NORTHAM ANNUAL INTEGRATED REPORT 2016 219
85
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
27. DOMESTIC MEDIUM TERM DEBT NOTES
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Opening balance 1 370 000 1 370 000 1 370 000 1 370 000 Domestic medium term notes repaid (1 370 000) – (1 370 000) – Domestic medium term notes issued 175 000 – 175 000 – Domestic medium term notes issued 250 000 – 250 000 – 425 000 1 370 000 425 000 1 370 000 Transaction costs relating to the R175.0 million issue (1 256) – (1 256) – Amortisation of transaction costs over 60 months 41 – 41 – Transaction costs relating to the R250.0 million issue (4 627) – (4 627) – Amortisation of transaction costs over 36 months 129 – 129 – 419 287 1 370 000 419 287 1 370 000
The group raised term debt through the issue of R1.25 billion 3-year senior unsecured floating rate notes (notes) under its R2 billion domestic medium term note programme dated 3 August 2012. The notes attract a coupon of 350 basis points above three month JIBAR and interest payments are due quarterly. The notes matured on 4 September 2015.
On 11 July 2013, the company raised an additional amount of R120 million in the domestic capital market through a tap issue which matured on 4 September 2015. The interest rate for the tap issue notes was placed at a lower rate of JIBAR plus 330 basis points, which was accounted for in the issue price.
The issues were guaranteed by Northam’s wholly owned subsidiaries, Booysendal Platinum Proprietary Limited and Khumama Platinum Proprietary Limited, who are the statutory entities in which the Booysendal mine is housed.
Due to the maturity date being 4 September 2015, the domestic medium term note was classified as current in the prior year and was repaid in full during the current year.
On 11 May 2016 five year notes to the value of R175.0 million were issued under the above mentioned notes programme (dated 3 August 2012) at a fixed coupon rate of 13.5%. Interest will be payable on a bi-annual basis in May and November of every year.
In addition, on 9 June 2016 a further R250.0 million notes were issued at a floating rate of the 3 month JIBAR plus 390 basis points. Interest is payable on a quarterly basis in August, November, February and May of every year for a three-year period.
The transaction costs and fees are classified as a transaction cost in terms of IAS 39. In terms of IAS 39.43 transaction costs will be included in the initial measurement of the financial liability and amortised over the period of the financial liability.
220 86
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
28. REVOLVING CREDIT FACILITY
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Revolving credit facility – – – –
Northam Platinum Limited entered into a facility agreement with Nedbank Limited in August 2011 regarding a R1.0 billion 5-year senior unsecured revolving credit facility (the facility). The facility is available to be utilised by way of periodic drawdown requests until the earlier of 1 month prior to final maturity and cancellation of the agreement. Interest is calculated at JIBAR plus 2.80% for each applicable interest period. The facility was not drawn at year-end (2015: R Nil).
The facility will come to an end November 2016 and subsequent to year end a new facility was negotiated with Nedbank Limited with relatively similar terms.
29. TRADE AND OTHER PAYABLES
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Trade payables 362 996 206 830 155 558 149 687 Accrued interest on the domestic medium term notes (note 27) 4 782 9 762 4 782 9 762 Accrued interest on the Nederlandse Financierings Maatschappij voor Ontwikkelingslanden loan 1 136 1 209 – – Accruals 302 171 563 785 237 196 385 772 South African Revenue Service – Value added tax 13 278 15 186 – – South African Revenue Service – Mineral royalties 51 – – – Amounts payable to Booysendal Platinum Proprietary Limited – – 363 618 – Employee related accruals 142 289 140 306 111 168 123 121 Other 51 232 22 918 13 036 16 961 877 935 959 996 885 358 685 303
Trade payables are unsecured, non-interest bearing and normally settled on 30 day terms. Amounts payable to Booysendal Platinum Proprietary Limited are mainly attributable to the purchase of concentrate.
NORTHAM ANNUAL INTEGRATED REPORT 2016 221 87
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
30. SHORT TERM PROVISIONS Short term provisions consist of the provision for leave pay. Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Balance at the beginning of the year 127 270 118 955 120 464 111 995 Additional amounts raised 284 088 261 209 274 664 255 057 Provision for leave pay utilised (271 558) (252 894) (264 113) (246 588) Total leave pay provision at the end of the year 139 800 127 270 131 015 120 464 Long term portion allocated to long term provisions (note 22) (14 012) – (13 215) – Short term portion 125 788 127 270 117 800 120 464
Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the financial reporting date based on the basic cost of employment and available leave entitlement at that date.
222 88
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
31. OTHER LONG TERM EMPLOYEE BENEFITS The company entered into an agreement with the representative unions at the Zondereinde mine in terms of which the Northam company has undertaken to contribute 4% of its after tax profits to the Toro Employee Empowerment Trust, providing Zondereinde mine’s unskilled and semi- skilled employees an opportunity to participate in the profits of the Northam company. Eligible employees will receive payment at the end of each five-year cycle, starting from September 2013.
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Assets at fair market value as at 1 July 2015 97 635 92 234 97 635 92 234 Interest income 7 784 7 420 7 784 7 420 Employer contributions (note 34) 10 914 (28) 10 914 (28) Benefits paid (989) (586) (989) (586) Actuarial (loss)/gain (2 565) (3 405) (2 565) (3 405) Administration costs (352) – (352) – Assets at fair market value as at 30 June 2016 112 427 97 635 112 427 97 635
Unrecognised due to asset ceiling limit* 82 811 81 056 82 811 81 056
Other long term employee benefit as at 30 June 2016 29 616 16 579 29 616 16 579
Below is a breakdown of other long term employee benefits: Other long term employee benefit as at 1 July 2015 16 579 11 054 16 579 11 054 Service costs 10 320 14 252 10 320 14 252 Interest cost 1 980 1 976 1 980 1 976 Actuarial loss/(gain) 2 078 (10 177) 2 078 (10 177) Benefits (989) (586) (989) (586) Administration costs (352) – (352) – Other long term employee benefit as at 30 June 2016 29 616 16 579 29 616 16 579
Asset/(liability) recognised on the statement of financial position – – – –
* The “asset ceiling limit” ensures the asset to be recognised on the company’s statement of financial position is subject to the present value of any economic benefits available to the company in the form of refunds or reductions in future contributions.
The company is not entitled to any refund from the fund and hence the economic benefits available to the company are R Nil.
In terms of IAS 1 additional disclosure in company has been made to more accurately reflect the essence of the transaction. This had no impact on the company’s financial position or results.
NORTHAM ANNUAL INTEGRATED REPORT 2016 223 89
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
32. REVENUE Total revenue comprises Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Sales revenue (note 33) 6 097 070 6 035 535 5 740 467 4 230 121 Investment revenue (note 35) 265 258 72 043 109 480 220 904 Sundry revenue – dividends received (note 38) – – 127 024 112 143 Sundry revenue – treatment charges (note 38) 42 313 66 040 42 313 66 040 6 404 641 6 173 618 6 019 284 4 629 208
Sales revenue comprises of the turnover of platinum group metals and related precious and base metals, net of value added tax, trade discounts and intra group sales.
33. SALES REVENUE Sales revenue comprises revenue from the following metals: Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Platinum 3 731 417 3 613 649 3 731 417 2 621 288 Palladium 1 122 284 1 138 875 1 122 284 852 309 Rhodium 442 998 513 582 442 998 356 804 Gold 92 151 81 556 92 151 74 793 Chrome 354 653 289 791 – – Housing revenue 1 950 3 816 – – Other 351 617 394 266 351 617 324 927 6 097 070 6 035 535 5 740 467 4 230 121
Revenue per metal and per segment Zondereinde Booysendal Intercompany segment* segment elimination Other Total 2016 2016 2016 2016 2016 R’000 R’000 R’000 R’000 R’000 Platinum 3 731 417 1 250 361 (1 250 361) – 3 731 417 Palladium 1 122 284 355 758 (355 758) – 1 122 284 Rhodium 442 998 146 098 (146 098) – 442 998 Gold 92 151 16 976 (16 976) – 92 151 Chrome 225 750 128 903 – – 354 653 Housing revenue – – – 1 950 1 950 Other 351 617 74 787 (74 787) – 351 617 5 966 217 1 972 883 (1 843 980) 1 950 6 097 070
* The Zondereinde segment includes the operations of Northam Chrome Proprietary Limited (formerly known as Northam Chrome Producers Proprietary Limited).
22490
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Zondereinde Booysendal Intercompany segment segment elimination Other Total 2015 2015 2015 2015 2015 R’000 R’000 R’000 R’000 R’000 Platinum 2 621 288 1 230 953 (238 592) – 3 613 649 Palladium 852 309 353 819 (67 253) – 1 138 875 Rhodium 356 804 190 895 (34 117) – 513 582 Gold 74 793 7 924 (1 161) – 81 556 Chrome 184 133 105 659 – – 289 792 Housing revenue – – – 3 816 3 816 Other 324 927 88 831 (19 493) – 394 265 4 414 254 1 978 081 (360 616) 3 816 6 035 535
Below is a summary of the revenue per region and per segment: Zondereinde Booysendal segment segment Other Total 2016 2016 2016 2016 R’000 R’000 R’000 R’000 Europe 1 842 113 – – 1 842 113 Japan 1 163 385 – – 1 163 385 North America 1 361 323 – – 1 361 323 Australia 6 139 – – 6 139 South Africa 1 593 257 128 903 1 950 1 724 110 5 966 217 128 903 1 950 6 097 070
Zondereinde Booysendal segment segment Other Total 2015 2015 2015 2015 R’000 R’000 R’000 R’000 Europe 1 270 346 455 607 – 1 725 953 Japan 754 109 298 645 – 1 052 754 North America 981 886 370 734 – 1 352 620 Australia 4 616 383 – 4 999 South Africa 1 403 297 492 096 3 816 1 899 209 4 414 254 1 617 465 3 816 6 035 535
The following customers each account for more than 10% of the total sales revenue of the group: 2016 2015 R’000 R’000 Customer 1 1 170 826 1 313 631 Customer 2 1 153 243 1 030 323 Customer 3 826 262 612 354 Customer 4 793 239 786 498 Customer 5 725 989 763 003 4 669 559 4 505 809
NORTHAM ANNUAL INTEGRATED REPORT 2016 225
91
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
34. OPERATING COSTS
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Labour 1 776 055 1 622 438 1 614 436 1 487 601 Stores 941 567 984 392 836 821 833 180 Utilities 638 304 544 217 512 683 447 313 Sundries and contractors 1 649 607 1 183 835 457 726 343 805 Rehabilitation costs 1 700 7 689 8 568 2 932 5 007 233 4 342 571 3 430 234 3 114 831
Below are the operating costs per segment. The operating segment for Zondereinde includes the results of Northam Chrome Proprietary Limited, a wholly owned subsidiary of the company:
Zondereinde Booysendal segment segment Other Total 2016 2016 2016 2016 R’000 R’000 R’000 R’000 Labour 1 618 267 157 788 – 1 776 055 Stores 836 821 104 746 – 941 567 Utilities 515 223 123 081 – 638 304 Sundries and contractors 485 498 1 162 294 1 815 1 649 607 Rehabilitation costs 8 568 (6 868) – 1 700 3 464 377 1 541 041 1 815 5 007 233
Zondereinde Booysendal segment segment Other Total 2015 2015 2015 2015 R’000 R’000 R’000 R’000 Labour 1 499 013 123 425 – 1 622 438 Stores 833 180 151 212 – 984 392 Utilities 449 478 94 739 – 544 217 Sundries and contractors 362 419 818 035 3 381 1 183 835 Rehabilitation costs 2 933 4 756 – 7 689 3 147 023 1 192 167 3 381 4 342 571
226 92
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
LABOUR COSTS INCLUDED IN OPERATING COSTS
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 The aggregate earnings and benefits of employees, including directors, amounted to: Salaries, wages and other benefits 1 504 405 1 405 790 1 381 047 1 292 544 Contributions to retirement benefit funds 123 964 114 565 115 853 107 479 Contributions to health care funds 68 831 66 074 67 227 64 612 Share based payment expense (Note 26) 64 175 36 037 35 629 22 994 Employee empowerment scheme (Note 31) 10 914 (28) 10 914 (28) 1 772 289 1 622 438 1 610 670 1 487 601 Fees paid to non-executive directors 3 766 3 503 3 766 3 503 1 776 055 1 625 941 1 614 436 1 491 104
93 NORTHAM ANNUAL INTEGRATED REPORT 2016 227 ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
35. INVESTMENT REVENUE Investment revenue consists of the following: Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Interest received on cash and cash equivalents 193 663 55 595 29 801 26 892 Dividend income received from short term investments 2 649 – 1 018 – Interest received from subsidiaries – – 27 223 189 100 Interest received on instalment sales agreements 10 201 9 848 – – Interest received relating to the Northam Platinum Restoration Trust Fund 6 087 2 624 2 794 2 078 Interest received relating to the Buttonshope Conservancy Trust 755 574 – – Other financial instrument 51 903 3 402 48 644 2 834 265 258 72 043 109 480 220 904
36. FINANCE CHARGES EXCLUDING PREFERENCE SHARE DIVIDENDS Finance costs consist of the following: Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Finance costs relating to the domestic medium term debt notes (28 283) (132 869) (28 283) (132 869) Finance costs and commitment fees (5 014) (7 473) (5 014) (7 473) Interest on the loan from the Nederlandse Financierings Maatschappij voor Ontwikkelingslanden NV (4 447) (4 658) – – Amortisation of the transaction costs relating to the domestic medium term debt notes (170) – (170) – Other financial instruments (1 720) (170) (48) – (39 634) (145 170) (33 515) (140 342)
Included in finance costs in the prior year were the accrued dividends of R100.8 million relating to the Zambezi Platinum (RF) Limited preference shares consolidated into the Northam group.
The accrued dividends are now being disclosed separately to enable shareholders to distinguish better between actual finance costs incurred by Northam and the accrued dividends relating to Zambezi Platinum (RF) Limited that are included in the group results on consolidation. In addition, a new sub-total, “profit/(loss) before preference share dividends” has been added to the face of the statement of comprehensive income.
The restatement has no impact on the financial performance or position of Northam Platinum Limited as reported for the year ended 30 June 2015.
This was accounted for as a reclassification in terms of IAS 1 Presentation of Financial Statements.
228 94
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
37. SUNDRY EXPENDITURE
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Loss on sale of property, plant and equipment – (139) – (139) Amortisation of participation interest in the Pandora joint venture (2 600) (2 600) (2 600) (2 600) Black Economic Empowerment lock in fee paid to the Zambezi Platinum (RF) Limited – (242 429) – (174 198) shareholders Impairment of investments in associates (20 512) (239 054) (20 512) (161 620) Impairment of accounts receivables – (22 434) – (22 434) IFRS 2 share based payment expense relating to the Black Economic Empowerment transaction – (874 448) – (1 173 756) Guarantee charge on Black Economic Empowerment transaction – – – (7 535 944) Corporate action costs (7 756) (172 640) (7 756) (162 491) Booysendal land management (3 324) (2 647) – – Booysendal South rent paid to the community (3 000) – – – Booysendal South care and maintenance (25 084) (9 659) – – Loss on sale of investment in Trans Hex Group Limited (21 024) – – – Other expenditure (8 822) (21 214) (6 221) (11 353) (92 122) (1 587 264) (37 089) (9 244 535)
38. SUNDRY INCOME
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Dividends received – – 127 024 112 143 Treatment charges in respect of concentrate purchased 42 313 66 040 42 313 66 040 Rent received 5 981 5 847 5 950 5 803 Sale of scrap 4 677 2 028 3 041 1 935 Insurance claim/refund 59 595 183 774 59 030 183 774 Currency translation gain 26 163 6 151 26 163 6 151 Profit on sale of property, plant and equipment 57 1 031 57 – Profit on sale of Trans Hex Group Limited shares – – 14 210 – Write back of impairment of Trans Hex Group Limited shares 34 122 – – – Other 8 020 3 379 4 757 1 644 180 928 268 250 282 545 377 490
NORTHAM ANNUAL INTEGRATED REPORT 2016 229 95
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
39. TAXATION
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Current income tax Current income tax charge 148 505 210 884 49 035 92 682 Adjustment in respect of current income tax of previous years (7 680) (530) (7 748) 2 146 Dividend withholding tax – 12 447 – – 140 825 222 801 41 287 94 828
Deferred tax Relating to origination and reversal of temporary differences 96 069 (57 182) 67 701 20 416 96 069 (57 182) 67 701 20 416
Income tax expense reported in profit or loss 236 894 165 619 108 988 115 244
Taxation comprises: Mining tax – 51 350 – 51 350 Non mining tax 148 313 84 918 48 843 41 308 Tax on share of earnings from associate – 24 – 24 Adjustment in respect of prior years (7 680) (530) (7 748) 2 146 Temporary differences 96 069 (57 182) 67 701 20 416 Dividend withholding tax – 12 447 – – Capital gains tax 192 74 592 192 – 236 894 165 619 108 988 115 244
A reconciliation of the standard rate of South African tax compared with that charged % % % % in the statement of profit or loss and other comprehensive income is set out below: South African normal tax 28.0 28.0 28.0 28.0 Dividend income received – – 9.3 0.4 Adjustments in respect of prior years (2.8) – (2.1) – Tax on capital contributions from third party (5.8) – (4.2) – Impairment of investment in joint venture (2.1) – (1.5) (0.5) Expenditure incurred with is not deductible (7.1) – (0.2) (0.2) Corporate action costs (0.8) (5.6) (0.6) (0.5) IFRS 2 share based payment expense relating to the BEE transaction – (28.2) – (3.9) Guarantee charge – – – (24.7) Amortisation of liquidity fees paid on preference shares (1.9) – – – Preference share dividends disallowable (94.8) (3.3) – – Dividend withholding tax – (1.4) – – Capital gains tax – (8.6) (0.1) – Effective tax rate (87.3) (19.1) 28.6 (1.4)
The current rate of mining tax applicable to the company is 28% (2015: 28%). Non mining income is subject to a rate of 28% (2015: 28%). Deferred tax is provided at the statutory rate of 28% for all temporary differences. Dividend withholding tax is levied at 15% for local shareholders, who are not companies.
Capital gains tax at an effective rate of 22.4% (2015: 18.7%) is payable on any gains realised on the disposal of investments or mining properties.
230 96
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
40. LOSS AND DIVIDEND PER SHARE Basic loss per share amounts are calculated by dividing the loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Headline loss per share is based on the headline loss and is reconciled to loss attributable to shareholders as follows: Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Loss attributable to shareholders (508 263) (1 035 649) Profit on the sale of property, plant and equipment (57) (892) Taxation impact 16 250 Impairment of associate’s assets 11 185 17 493 Taxation impact (3 132) (4 898) Negative goodwill on assets acquired by associate’s associate – (26 804) Taxation impact – – Profit on sale of associate’s investment – (7 105) Taxation impact – – Foreign currency differences on repayment of long term receivables from associates foreign operations reclassified to profit or loss – (922) Taxation impact – 258 Impairment of property, plant and equipment – 2 525 Taxation impact – (707) Loss on sale of investment in associate 21 024 – Taxation impact – – (Reversal of impairment)/impairment of investments and receivable balance (13 610) 261 488 Taxation impact – – Headline loss (492 837) (794 963)
Fully diluted earnings per share amounts are calculated by dividing the loss attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares
Fully diluted earnings per share are based on the headline loss and the average number of potential diluted shares in issue.
Dividends per share (cents) – –
Average number of ordinary shares in issue during the year 349 875 759 391 834 708 Average number of potentially diluted ordinary shares in issue 349 875 759 391 834 708 Number of shares in issue 509 781 212 509 781 212 Treasury shares in issue 159 905 453 159 905 453 Shares in issue adjusted for treasury shares 349 875 759 349 875 759
Loss per share in cents (145.3) (264.3) Fully diluted loss per share in cents (145.3) (264.3) Headline loss per share in cents (140.9) (202.9) Fully diluted headline loss per share in cents (140.9) (202.9)
NORTHAM ANNUAL INTEGRATED REPORT 2016 231 97
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
41. CASH GENERATED FROM OPERATIONS
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 (Loss)/profit before taxation (271 369) (868 326) 381 606 (8 536 946) Adjusted for non-cash items Profit on disposal of property, plant and equipment (57) (892) (57) 139 Depreciation and write offs 403 545 339 949 187 966 165 091 Increase in long term provisions 51 703 44 508 24 807 17 675 Movement in financial guarantee – – – 7 535 944 Movement in long term receivables 4 786 (456) – – Movement in short term provisions (1 482) 8 315 (2 664) 8 469 Equity settled share based payment expense – 874 448 – 1 173 756 Share of losses/(earnings) from associates 32 253 (28 769) – – Amortisation of participation interest in the Pandora joint venture 2 600 2 600 2 600 2 600 Loss/(profit) on sale of investment in associates 21 024 – (14 210) – Finance charges on preference shares 918 806 100 767 – – Liquidity fees on the preference shares 18 088 – – – (Reversal of impairment)/impairment of investment in associate (13 610) 239 054 20 512 161 619 Other 1 395 – – – Movement in cash settled share based payment 10 592 (38 350) (11 372) (44 671) Interest paid 39 634 145 170 33 515 132 869 Interest received (265 258) (72 831) (109 480) (220 904) Dividends received – – (127 024) (112 143) 952 650 745 187 386 199 283 498
42. CHANGE IN WORKING CAPITAL
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Inventories (203 720) (49 697) (262 903) (344 370) Trade and other receivables 123 650 (254 182) 7 144 (89 311) Trade and other payables (82 061) 82 631 200 055 (66 274) (162 131) (221 248) (55 704) (499 955)
43. TAXATION PAID
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Balance owing at the beginning of the year 81 377 113 608 (11 624) 15 390 Profit or loss charge 140 825 222 801 41 287 94 828 Balance owing at the end of the year (46 847) (81 377) 45 716 11 624 175 355 255 032 75 379 121 842
232
98
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
44. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The group’s principal financial liabilities comprise loans and borrowings including preference shares, trade and other payables, and a financial guarantee contract (in the case of company only). The main purpose of these financial liabilities is to finance the group’s operations and to provide guarantees to support its operations. The group has various financial assets such as trade receivables, investments, long term receivables and cash and cash equivalents, which arise directly from its operations.
The group may enter into derivative transactions, being forward currency contracts or metal hedging contracts. The purpose is to manage the currency risks arising from the group’s operations and its sources of finance. The main risks arising from the group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk, commodity price risk and credit risk. The board of directors reviews and agrees policies for managing each of these risks which are summarised below:
Market risk Market risk is the risk that fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise the following types of risk: interest rate risk, foreign currency risk, commodity price risk and other price risk, such as equity 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 rate. The group has transactional currency exposures. Such exposure arises from sales in currencies other than the unit’s functional currency. The majority of the group’s sales are denominated in currencies other than functional currency of the operating unit making the sale, whilst 96% of costs are denominated in the unit’s functional currency, the South African rand.
The following table demonstrates the sensitivity to a possible change in exchange rates with all other variables held constant, of the group’s profit before tax due to changes in the fair value of monetary assets and liabilities.
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Weakening by 10% of US$ 63 213 6 585 63 213 5 192 Strengthening by 10% of US$ (63 213) (6 585) (63 213) (5 192)
Weakening by 10% of € (18 352) (1 393) (18 352) (1 393) Strengthening by 10% of € 18 352 1 393 18 352 1 393
At year end the foreign currency value of items under their respective statement of financial position classifications were as follows: Accounts receivable: US$ 6 351 5 415 6 351 5 415 Cash and cash equivalents: US$ 36 636 – 36 636 – Accounts payable: € (1 241) (1 023) (1 241) (1 023) Long term loans: € (10 000) – (10 000) –
Exchange rates at year end ZAR/US$ 14.71 12.16 14.71 12.16 ZAR/€ 16.33 13.62 16.33 13.62
NORTHAM ANNUAL INTEGRATED REPORT 2016 233 99
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Commodity price risk The group is subject to commodity price risks as a result of the prices at which it sells its products being determined by reference to international commodity exchanges.
The following is an indication of the effect that changes in the nickel and cobalt prices would have on the profit before tax, based on the outstanding accounts receivable balance at year end:
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Increase of 10% 3 201 16 006 3 201 16 006 Decrease of 10% (3 201) (16 006) (3 201) (16 006)
The group did not enter into any hedging contracts during the year.
Credit risk Credit risk is the risk that a counterparty will not meet its obligation under a financial instrument or customer contract, leading to a financial loss. The group is exposed to credit risk from its operating activities with banks and financial institutions. The group trades only with recognised, creditworthy third parties. It is the group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the group’s exposure to bad debts is not significant.
With respect to credit risk arising from other financial assets of the group, which comprise cash and cash equivalents, available for sale investments and loans, the group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount 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 the changes in market interest rate. The group’s exposure to risk of changes in market interest rates relates primarily to the group’s cash balances with floating interest rates and the long term loan.
As part of the process of managing the group’s interest rate risk, all borrowing and the refinancing of existing borrowings are positioned according to expected movements in interest rates.
The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the group’s profit before tax (through the impact on floating rate borrowings and cash and cash equivalents). There is no impact on the group’s equity.
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Cash and cash equivalents Increase of 1% 31 051 41 382 16 544 5 350 Decrease of 1% (31 051) (41 382) (16 544) (5 350)
Floating rate borrowings Increase of 1% (78 888) (79 064) (4 193) (13 700) Decrease of 1% 78 888 79 064 4 193 13 700
234
100
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Fair value The fair value of financial instruments is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.
Management is of the opinion that the book value of financial instruments approximates fair value. The fair value is based on the net present value of the expected resources attributable to the realisation of the asset or the extinguishing of the liability.
Liquidity risk The group’s treasury operations are managed by a reputable treasury management institution.
They assist the group in monitoring its risk to a shortage of funds by only depositing its surplus cash funds with major banks of high credit standing. They consider and monitor the maturity and returns of all financial investments. Management performs regular projected cash flow forecasts for the group.
The group has the following secured loans at the financial reporting date:
A loan secured from Nederlandse Financierings Maatschappij voor Ontwikkelingslanden NV (FMO) to Norplats Properties Proprietary Limited, a wholly owned subsidiary of the group. The loan is repayable in equal bi-annual instalments over 15 years and accrues interest at 3.5% above JIBAR, with the last payment due 30 September 2026. The group has pledged the instalment sales agreement as security for the loan.
Funding in the debt capital market through the issue of R1.25 billion three-year senior unsecured floating rate notes (the notes) under its R2.0 billion domestic medium term note programme dated 3 August 2012. The notes attracted a coupon of 350 basis points above three month JIBAR and interest payments were due quarterly. The notes matured on 4 September 2015. On 11 July 2013, the company raised an additional amount of R120.0 million in the domestic capital market through a tap issue which also matured on 4 September 2015 and was repaid in full.
Under the domestic medium term note programme (dated 3 August 2012), additional notes were issued on 11 May 2016 to the value of R175.0 million at a fixed coupon rate of 13.5% for a five-year period. Interest is payable on a bi-annual basis in May and November of every year. In addition, on 9 June 2016, a further R250.0 million notes were issued at a floating rate of the 3 month JIBAR plus 390 basis points. Interest is payable on a quarterly basis in August, November, February and May of every year for a three-year period.
The group had entered into a facility agreement with Nedbank Limited in August 2011 regarding a R1.0 billion five-year senior unsecured revolving credit facility (the facility). The facility is available to be utilised by way of periodic drawdown requests until the earlier of 1 month prior to final maturity and cancellation of the agreement. Interest is calculated at JIBAR plus 2.80% for each applicable interest period. At year end no amount of the Nedbank facility was utilised. Subsequent to year end the facility was renegotiated.
Zambezi Platinum (RF) Limited issued 159 905 453 preference shares at R41 per share on 18 May 2015 in terms of the BEE transaction. These preference shares are repayable in 10 years’ time, and accrue cumulative variable dividends at 3.5% over the prime overdraft rate in South Africa.
NORTHAM ANNUAL INTEGRATED REPORT 2016 235
101
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 30 June 2016 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
The maturity profile of the group’s financial liabilities is set out below:
Payable on More than 6 More than a demand 1 – 6 months months year Total 30 June 2016 30 June 2016 30 June 2016 30 June 2016 30 June 2016 Group R’000 R’000 R’000 R’000 R’000 Trade payables 362 996 – – – 362 996 Accrued interest on the domestic medium term notes – 4 782 – 4 782 Accrued interest on the Nederlandse Financiering’s Maatschappij voor Ontwikkelingslanden loan – 1 136 – – 1 136 Accruals – 302 171 – – 302 171 Other – – – 51 232 51 232 Long term loans – 13 584 4 064 235 464 253 112 Domestic medium term debt notes – 25 825 25 825 575 550 627 200 Preference share liability* – – – 24 575 615 24 575 615 362 996 347 498 29 889 25 437 861 26 178 244
* The undiscounted cash flows relating to the preference share liability is also the maximum exposure to credit risk regarding the guarantee issued by Northam company.
Payable on More than 6 More than a demand 1 – 6 months months year Total 30 June 2015 30 June 2015 30 June 2015 30 June 2015 30 June 2015 Group R’000 R’000 R’000 R’000 R’000 Trade payables 206 830 – – – 206 830 Accrued interest on the domestic medium term notes – 9 762 – – 9 762 Accrued interest on the Nederlandse Financiering’s Maatschappij voor Ontwikkelingslanden loan – 1 209 – – 1 209 Accruals – 563 785 – – 563 785 Other – – – 22 918 22 918 Long term loans – – 70 922 – 70 922 Domestic medium term debt notes – 1 392 552 – – 1 392 552 Preference share liability* – – – 21 800 977 21 800 977 206 830 1 967 308 70 922 21 823 895 24 068 955
* The undiscounted cash flow relating to the preference share liability is also the maximum exposure to credit risk regarding the guarantee issued by Northam company.
236
102
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Payable on More than 6 More than a demand 1 – 6 months months year Total 30 June 2016 30 June 2016 30 June 2016 30 June 2016 30 June 2016 Company R’000 R’000 R’000 R’000 R’000 Trade payables 155 558 – – 155 558 Accrued interest on the domestic medium term notes – 4 782 – – 4 782 Accruals – 237 196 – – 237 196 Amounts payable to Booysendal Platinum Proprietary Limited – 363 618 – – 363 618 Other – – – 13 036 13 036 Long term loans – 9 400 – 178 600 188 000 Domestic medium term debt notes – 25 825 25 825 575 550 627 200 155 558 640 821 25 825 767 186 1 589 390
Payable on More than 6 More than a demand 1 – 6 months months year Total 30 June 2015 30 June 2015 30 June 2015 30 June 2015 30 June 2015 Company R’000 R’000 R’000 R’000 R’000 Trade payables 149 687 – – – 149 687 Accrued interest on the domestic medium term notes – 9 762 – – 9 762 Accruals – 385 772 – – 385 772 Other – – – 16 961 16 961 Domestic medium term debt notes – 1 392 552 – – 1 392 552 149 687 1 788 086 – 16 961 1 954 734
NORTHAM ANNUAL INTEGRATED REPORT 2016 237
103
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO TO THE THE ANNUAL ANNUAL FINANCIAL FINANCIAL STATEMENTS STATEMENTS CONTINUED forfor the the year year ended ended 30 June 30 2016 June 2016
Capital management The primary objective of the group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.
The group manages its capital structure (which consists of equity) and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
No changes were made in the objectives, policies or processes during the years ended 30 June 2016 and 30 June 2015.
Categories of financial instruments The various categories of financial instruments are set out below: Financial Available for liabilities at Non- sale Loans and amortised financial investment receivables cost instruments Total 30 June 2016 30 June 2016 30 June 2016 30 June 2016 30 June 2016 Group R’000 R’000 R’000 R’000 R’000 Unlisted investment 6 – – – 6 Long term receivables – 89 717 – – 89 717 Investment in the Northam Platinum Restoration Trust Fund – 93 647 – – 93 647 Environmental Conservancy Trust – 60 345 – – 60 345 Buttonshope Conservancy Trust – 10 445 – – 10 445 Trade and other receivables – 237 188 – 138 016 375 204 Cash and cash equivalents – 3 105 080 – – 3 105 080 Preference share liability – (7 429 549) – (7 429 549) Long term loans – – (275 513) – (275 513) Domestic medium term debt notes – – (419 287) – (419 287) Current portion of long term loans – – (13 201) – (13 201) Trade and other payables – – (864 606) (13 329) (877 935)
238 104
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Financial Available for liabilities at Non- sale Loans and amortised financial investment receivables cost instruments Total 30 June 2015 30 June 2015 30 June 2015 30 June 2015 30 June 2015 Group R’000 R’000 R’000 R’000 R’000 Unlisted investment 6 – – – 6 Long term receivables – 94 503 – – 94 503 Investment in the Northam Platinum Restoration Trust Fund – 49 092 – – 49 092 Environmental Conservancy Trust – 52 122 – – 52 122 Buttonshope Conservancy Trust – 11 037 – – 11 037 Trade and other receivables – 250 411 – 248 443 498 854 Cash and cash equivalents – 4 138 189 – – 4 138 189 Preference share liability – – (6 492 655) – (6 492 655) Long term loans – – (39 963) – (39 963) Domestic medium term debt notes – – (1 370 000) – (1 370 000) Current portion of long term loans – – (3 801) – (3 801) Trade and other payables – – (944 810) (15 186) (959 996)
Financial Available for liabilities at Non- sale Loans and amortised financial investment receivables cost instruments Total 30 June 2016 30 June 2016 30 June 2016 30 June 2016 30 June 2016 Company R’000 R’000 R’000 R’000 R’000 Unlisted investment 6 – – – 6 Investment in the Northam Platinum Restoration Trust Fund – 43 204 – – 43 294 Environmental Conservancy Trust – 49 187 – – 49 187 Subsidiary loans receivable – 2 354 983 – – 2 354 983 Trade and other receivables – 163 841 – 110 512 274 353 Cash and cash equivalents – 1 654 417 – – 1 654 417 Long term loans – – (239 350) – (239 350) Financial guarantee liability – – (7 535 944) – (7 535 944) Domestic medium term debt notes – – (419 287) – (419 287) Current portion of long term loans – – (9 400) – (9 400) Trade and other payables – – (885 358) – (885 358)
NORTHAM ANNUAL INTEGRATED REPORT 2016 239
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ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Financial Available for liabilities at Non- sale Loans and amortised financial investment receivables cost instruments Total 30 June 2015 30 June 2015 30 June 2015 30 June 2015 30 June 2015 Company R’000 R’000 R’000 R’000 R’000 Unlisted investment 6 – – – 6 Investment in the Northam Platinum Restoration Trust Fund – 38 868 – – 38 868 Environmental Conservancy Trust – 44 137 – – 44 137 Subsidiary loans receivable – 4 226 019 – – 4 226 019 Trade and other receivables – 207 638 – 73 859 281 497 Cash and cash equivalents – 534 959 – – 534 959 Financial guarantee liability – – (7 535 944) – (7 535 944) Domestic medium term debt notes – – (1 370 000) – (1 370 000) Trade and other payables – – (685 303) – (685 303)
240
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NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
45. RELATED PARTIES Related party relationships exist between the company and subsidiaries within the Northam Platinum Limited group of companies. Below is summary of the various subsidiaries and trusts included in the group:
Effective Share capital Indebtedness Indebtedness holding and premium Investment 2016 2015 R’000 R’000 R’000 R’000 Mining Technical Services Proprietary Limited 100.0 *** * 15 002 1 Khumama Platinum Proprietary Limited 100.0 7 106 126 10 166 000 1 - Booysendal Platinum Proprietary Limited 100.0 4 600 000 ** 2 262 163 4 159 333 Mvelaphanda Resources Proprietary Limited 100.0 4 358 – 1 047 957 Northam Chrome Proprietary Limited (previously Northam Chrome Producers Proprietary Limited) 100.0 1 70 000 – – Windfall 38 Properties Proprietary Limited 100.0 *** * 14 590 14 862 Norplats Properties Proprietary Limited 100.0 *** * 62 180 50 463 Zambezi Platinum (RF) Limited – – – – – Northam Zondereinde Community Trust – – – – – Northam Booysendal Community Trust – – – – – Northam Employee Trust – – – – – Buttonshope Conservancy Trust 100.0 – – – 403 Northam Restoration Trust Fund 100.0 – – – – 10 236 000 2 354 983 4 226 019
*** Issued capital is less than R1 000 ** Indirectly held subsidiary through Khumama Platinum Proprietary Limited * Investment less than R1 000
120 (2015: 120) ordinary shares are held in Mining Technical Services Proprietary Limited representing a 100% equity interest. 505 (2015: 505) ordinary shares are held in Khumama Platinum Proprietary Limited representing a 100% equity interest. Northam Platinum Limited holds 217 881 101 ordinary shares representing a 100% equity interest in Mvelaphanda Resources Proprietary Limited. The investment was fully impaired during the previous financial year. 100 (2015: 100) ordinary shares are held in Norplats Properties Proprietary Limited, Northam Chrome Proprietary Limited and Windfall 38 Properties Proprietary Limited representing a 100% equity interest.
All companies are incorporated in the Republic of South Africa and all companies are wholly-owned.
In May 2015, the company acquired an additional 100 shares in Khumama Platinum Proprietary Limited (Khumama) for a consideration of R4.6 billion. This brings the company’s total shareholding to 505 shares. Khumama is still a wholly owned subsidiary of the company.
The loan between Northam Platinum Limited and Norplats Properties Proprietary Limited amounting to R24.4 million (2015: R24.4 million) accrues interest at 2.0% below the South African prime interest rate and may only be repaid once the loan from the Nederlandse Financierings Maatschappij voor Ontwikkelingslanden NV has been repaid by Norplats Properties Proprietary Limited, which is no later than 30 September 2026.
The loan between Northam Platinum Limited and Booysendal Platinum Proprietary Limited bears interest at JIBAR plus 3.75% from 1 January 2015 on the portion of the loan that relates to third party funding. The third party funding was however repaid in full during the current financial year and the outstanding loan balance does not accrue interest. Regular repayments are however made on the outstanding loan balance. The remaining balance of the loan is repayable on demand and therefore stated as current.
The loan between Northam Platinum Limited and Windfall 38 Properties Proprietary Limited bears interest at 2.0% below the South African prime interest rate, repayable on demand and therefore stated as current. During the year the accrued interest for the year was repaid in full.
All other loans are interest free, unsecured and repayable on demand.
NORTHAM ANNUAL INTEGRATED REPORT 2016 241 107
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Guarantees, subordination agreements and letters of support Northam Platinum Limited currently has finance facilities available in the form of a revolving credit facility of R1.0 billion with Nedbank Limited, and has issued R425.0 million on the debt capital market. Booysendal (as well as the intermediate holding company, Khumama Platinum Proprietary Limited) has signed a letter of guarantee with regards to both these facilities. Management has renegoted the Nedbank revolving credit facility which will increase the facility to R1.5 billion over a five-year period.
In addition to the above Khumama Platinum Proprietary Limited is also a party to the guarantees that have been issued in terms of the Nedbank Limited revolving credit facility as well as the DMTN facility.
On 25 September 2014 Northam Platinum Limited provided a guarantee to ensure that Mvelaphanda Resources Proprietary Limited would meet its financial obligations as and when they fall due as the company’s liabilities exceeded its assets. The guarantee will remain in full force and effect as long as the liabilities (including contingent liabilities) exceed its assets, fairly valued, and will lapse forthwith upon the date that the assets, so valued, exceed its labilities.
It is also important to note that Northam Platinum Limited has issued a letter of support (non-binding) stating that Northam Platinum Limited will not demand repayment of the intercompany loan within the next 12 months and will continue to provide the company with sufficient funds for it to meet its obligations as and when they fall due.
Zambezi Platinum (RF) Limited is consolidated in the Northam group Zambezi was created and designed for the sole purpose of providing Northam with BEE credentials and as a structure to hold the listed BEE preference shares. If Northam does not comply with the HDSA requirements in the Mining Charter it will not be able to retain its mining rights. Northam is able to direct the strategic direction of Zambezi and as per the subscription and relationship agreement between the two companies, Zambezi’s memorandum of incorporation may not be amended or replaced without Northam’s prior written consent.
Northam assumes full responsibility for the administration of Zambezi as well as any costs incurred by Zambezi up to a certain limit. Furthermore, Northam provides a guarantee for Zambezi’s obligation in respect of the preference shares. All these points indicate that Northam has been involved from the inception of the transaction, to ensure that the design and operation of Zambezi achieves the purpose for which it was created. In terms of the transaction, an “N” share was issued to Northam, which gave them the right to implement mitigating action should Zambezi not comply with certain undertakings as per the transaction’s agreements and in other limited instances aimed at maintaining the integrity of the transaction at all times. Zambezi can also not dispose of the Northam ordinary shares without the prior consent of Northam. Northam has significant exposure to the variable returns of Zambezi, through the creation and maintenance of the BEE credentials during the 10-year lock-in period as well as through the guarantee provided by Northam. The decision making power of Zambezi’s board of directors is restricted to maintaining Northam’s BEE credentials and funding arrangements.
All of these factors have been considered in determining that even though Northam does not have majority of the voting rights in Zambezi, it still has control over the entity.
BEE Community and ESOP Trust The manner in which the Northam Zondereinde Community Trust, the Northam Booysendal Community Trust and the Northam Employees’ Trust was set up and the contracts governing the relationships between Northam and these Trusts, shows that their relevant activities had already been determined when these trusts were created and will continue to be carried out until such time as the 10-year lock-in period is over or the BEE credentials are no longer required by Northam. There is no scope for any other commercial activity outside of the maintenance of the BEE credentials, the allocation of returns on the Northam share to the beneficiaries of these trusts and the facilitation and maintenance of the external BEE Preference Share funding.
These trusts are therefore under the control of Northam and are therefore consolidated into the group.
242
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NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Key management remuneration The table below summarises the executive directors’ remuneration:
Gain on Remuneration Performance share based Fees package bonus Benefits payments Total R’000 R’000 R’000 R’000 R’000 R’000 Executive PA Dunne – 6 165 4 353 834 – 11 352 AZ Khumalo – 3 006 2 436 441 3 707 9 590 Non-executive PL Zim 412 – – – – 412 R Havenstein 717 – – – – 717 CK Chabedi 496 – – – – 496 HH Hickey 209 – – – – 209 TE Kgosi 609 – – – – 609 AR Martin 565 – – – – 565 KB Mosehla 357 – – – – 357 TI Mvusi 154 – – – – 154 ME Beckett 247 – – – – 247 3 766 9 171 6 789 1 275 3 707 24 708
The directors’ remuneration for the year ended 30 June 2015 was as follows: Gain on Remuneration Performance share based Fees package bonus Benefits payments Total R’000 R’000 R’000 R’000 R’000 R’000 Executive PA Dunne – 5 700 2 184 763 – 8 647 AZ Khumalo – 2 708 1 686 347 4 740 9 481 Non-executive PL Zim 318 – – – – 318 R Havenstein 744 – – – – 744 CK Chabedi 413 – – – – 413 TE Kgosi 579 – – – – 579 AR Martin 557 – – – – 557 ME Beckett 616 – – – – 616 JAK Cochrane 276 – – – – 276 3 503 8 408 3 870 1 110 4 740 21 631
No individuals other than directors are considered to be prescribed officers.
NORTHAM ANNUAL INTEGRATED REPORT 2016 243 109
ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
Details of share options granted to directors A summary of the options held by executive directors at 30 June 2016 is as follows:
Total number of Earliest and latest exercise date Price per share in R options PA Dunne – –
AZ Khumalo 12 October 2012 and 11 October 2017 46.57 125 000 Claw back rights options 40.00 4 901 Number of options held at 30 June 2016 129 901
A summary of the options held by executive directors at 30 June 2015 is as follows:
Total number of Earliest and latest exercise date Price per share in R options PA Dunne – –
AZ Khumalo 1 July 2012 and 30 June 2017 45.59 125 000 12 October 2012 and 11 October 2017 46.57 125 000 Claw back rights options 40.00 9 802 Number of options held at 30 June 2016 259 802
Details of share incentives granted to directors Below is an analysis of share incentives held as at 30 June 2016:
22 Nov 2011 6 Nov 2012 15 Nov 2013 4 Nov 2014 11 Nov 2015 Share award Share award Share award Share award Share award Total Retention shares and performance shares PA Dunne Balance at 1 July 2014 – – – – – – Retention shares awarded during the year – – – 37 900 – 37 900 Performance shares awarded during the year – – – 112 400 – 112 400 Shares cash settled during the year – – – – – – Balance at 30 June 2015 – – – 150 300 – 150 300
Balance at 1 July 2015 – – – 150 300 – 150 300 Retention shares awarded during the year – – – – 48 700 48 700 Performance shares awarded during the year – – – – 144 500 144 500 Shares cash settled during the year – – – – – – Balance at 30 June 2016 – 150 300 193 200 343 500
244
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NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
22 Nov 2011 6 Nov 2012 15 Nov 2013 4 Nov 2014 11 Nov 2015 Share award Share award Share award Share award Share award Total Retention shares and performance shares AZ Khumalo Balance at 1 July 2014 93 000 154 000 122 000 – – 369 000 Retention shares awarded during the year – – – 37 900 – 37 900 Performance shares awarded during the year – – – 112 400 – 112 400 Shares forfeited/adjusted for performance conditions met during the year (17 700) – – (17 700) Shares cash settled during the year (75 300) (56 000) – – – (131 300) Balance at 30 June 2015 – 98 000 122 000 150 300 – 370 300
Balance at 1 July 2015 – 98 000 122 000 150 300 – 370 300 Retention shares awarded during the year – – – – 48 700 48 700 Performance shares awarded during the year – – – – 144 500 144 500 Shares forfeited/adjusted for performance conditions met during the year – (28 420) – – – (28 420) Shares cash settled during the year – (69 580) (44 000) – – (113 580) Balance at 30 June 2016 – – 78 000 150 300 193 200 421 500
46. COMMITMENTS
Group Company 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Capital expenditure – Booysendal mine Authorised but not contracted 404 054 367 584 – – Contracted 209 849 74 506 – – Capital expenditure – Zondereinde mine Authorised but not contracted 189 785 795 628 189 785 795 628 Contracted 660 939 42 376 660 939 42 376 Information Technology – outsource service provider Due within one year 20 903 26 675 15 458 20 986 Due within two to five years 2 441 18 403 2 016 13 785 Operating lease rentals – office equipment Due within one year 1 359 2 136 1 183 1 442 Due within two to five years 314 1 684 315 1 483 Operating lease rentals – premises Due within one year 5 307 5 599 2 352 2 797 Due within two to five years 21 186 27 324 9 269 12 545 The lease rental for the corporate office contains an option to renew the lease for an additional five years Employee housing development contracted for 207 4 800 – – Bank guarantee issued 50 717 73 266 50 717 73 266
These commitments will be funded from a combination of internal retentions and debt.
NORTHAM ANNUAL INTEGRATED REPORT 2016 245
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ANNUAL FINANCIAL STATEMENTS continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED forNOTES the year ended TO 30THE June 2016ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2016
47. EVENTS AFTER THE REPORTING PERIOD Subsequent to year end, the group renegotiated a five year R1.5 billion revolving credit facility with Nedbank Limited to replace the existing R1.0 billion facility which will mature in November 2016. The group further increased its investment in SSG Holdings Proprietary Limited by 10% and now holds a total share of 30%. Apart from these events there have been no other events subsequent to the period end which require additional disclosure or adjustment to the financial results.
246 112
ADMINISTRATION AND CONTACT INFORMATION
NORTHAM PLATINUM LIMITED COMPANY SECRETARY TRANSFER SECRETARIES (Registration number 1977/003282/06) PB Beale Computershare Investor Services Share code: NHM ISIN: ZAE000030912 Building 4, 1st Floor Proprietary Limited Debt issuer code: NHMI Maxwell Office Park 70 Marshall Street 2001 Bond code: NHM002 Magwa Crescent West Johannesburg Bond ISIN: ZAG000129024 Waterfall City South Africa Bond code: NHM003 Jukskei View 2090 PO Box 61051 Bond ISIN: ZAG000129032 South Africa Marshalltown 2107 REGISTERED OFFICE Email: [email protected] South Africa Building 4, 1st Floor BANKERS Telephone: +27 11 370 5000 Maxwell Office Park Facsimile: +27 11 688 5238 Standard Bank of South Africa Limited Magwa Crescent West Email: [email protected] Waterfall City 30 Baker Street Jukskei View 2090 Rosebank SPONSOR AND DEBT SPONSOR South Africa Johannesburg 2196 One Capital South Africa PO Box 412694 17 Fricker Road Craighall 2024 PO Box 61029 Illovo 2196 South Africa Marshalltown 2107 Johannesburg South Africa South Africa Telephone: +27 11 759 6000 Facsimile: +27 11 325 4795 AUDITORS PO Box 784573 Sandton 2146 Ernst & Young Inc South Africa WEBSITE 102 Rivonia Road www.northam.co.za Sandton 2146 INVESTOR RELATIONS Johannesburg Russell and Associates South Africa PO Box 1457 Private Bag X14 Parklands 2121 Sandton 2146 South Africa South Africa Telephone: +27 11 880 3924
NORTHAM ANNUAL INTEGRATED REPORT 2016 smart platinum mining
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