Reviewed condensed consolidated annual financial statements and unreviewed production and sales volumes information for the year ended 31 December 2017

Exxaro, a public company incorporated in South Africa, is a diversified resources group with interests in the coal (controlled and non-controlled), TiO₂ and Alkali chemicals (non-controlled), ferrous (controlled and non-controlled) and energy (non-controlled) markets. These reviewed condensed consolidated annual financial statements as at and for the year ended 31 December 2017 comprise the company and its subsidiaries (together referred to as the group) and the group's interest in associates and joint ventures.

2.1 Statement of compliance

The reviewed condensed consolidated annual financial statements as at and for the year ended 31 December 2017 have been prepared in accordance with the requirements of the JSE Listings Requirements for preliminary reports and the requirements of the Companies Act of South Africa. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting.

The reviewed condensed consolidated annual financial statements as at and for the year ended 31 December 2017 have been prepared under the supervision of PA Koppeschaar CA(SA), SAICA registration number: 00038621.

The reviewed condensed consolidated annual financial statements should be read in conjunction with the group annual financial statements as at and for the year ended 31 December 2016, which have been prepared in accordance with IFRS as issued by the IASB. The reviewed condensed consolidated annual financial statements have been prepared on the historical cost basis, excluding financial instruments and biological assets, which are at fair value.

The reviewed condensed consolidated annual financial statements of Exxaro and its subsidiaries for the year ended 31 December 2017 were authorised for issue by the board of directors on 6 March 2018.

2.2 Judgements and estimates

In preparing these reviewed condensed consolidated annual financial statements, management made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made by management in applying the group's accounting policies and the key source of estimation uncertainty were similar to those applied to the group annual financial statements as at and for the year ended 31 December 2016. Refer note 6 for judgements and estimates relating to the Replacement BEE Transaction which were made during 2017.

The accounting policies adopted in the preparation of the reviewed condensed consolidated financial statements are consistent with those followed in the preparation of the group annual financial statements as at and for the year ended 31 December 2016. A number of new or amended standards became effective for the current reporting period. However, the group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards. Additional disclosures required in terms of the amendments to IAS 7 Statement of Cash Flows have been provided by the group in note 19.

New accounting standards and amendments issued to accounting standards and interpretations which are relevant to the group, but not yet effective on 31 December 2017, have not been adopted. The group continuously evaluates the impact of these standards and amendments. In summary the following are the current expectations in relation to IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases.

IFRS 9 Financial Instruments

The group has reviewed its financial assets and financial liabilities and is expecting the following impact from the adoption of IFRS 9 on 1 January 2018:

Financial assets of the group include:

• Equity instruments currently classified as available-for-sale for which a fair value through other comprehensive income (FVOCI) election is available
• Equity instruments currently measured at fair value through profit or loss (FVPL) which will continue to be measured on the same basis under IFRS 9
• Debt instruments currently measured at amortised cost which meet the conditions for classification at amortised cost under IFRS 9.

Accordingly, the group does not expect the new guidance to affect the classification and measurement of these financial assets. However, gains or losses realised on the sale of financial assets at FVOCI will no longer be transferred to profit or loss on sale, but instead reclassified within equity from FVOCI reserve to retained earnings.

The environmental rehabilitation funds which are currently classified as designated at FVPL financial assets will be classified as FVPL debt instruments.

Financial liabilities of the group include:

• Derivative financial liabilities which are currently classified as held-for-trading at FVPL
• Contingent consideration which is currently classified as designated at FVPL
• Financial liabilities at amortised cost

which will continue to be measured on the same basis under IFRS 9.

Accordingly, there will be no impact on the group's accounting for financial liabilities.

The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under IAS 39 Financial Instruments: Recognition and Measurement. It applies to financial assets classified at amortised cost, debt instruments measured at FVOCI, contract assets under IFRS 15, lease receivables, loan commitments and certain financial guarantee contracts. Based on sample assessments performed to date, the group expects a small increase in the loss allowance for trade receivables. The average probability of default and loss given default for the sample assessment ranged from 0,45% to 3,87% and 43,18% to 18,21%, respectively. The group will continue finalising the impairment methodologies based on the financial assets as at 1 January 2018.

IFRS 9 also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the group's disclosures about its financial instruments particularly in the year of the adoption of the new standard.

IFRS 15 Revenue from Contracts with Customers

A preliminary assessment was performed on significant contracts with customers, in line with the IFRS 15 five-step revenue model.

Sale of goods

Revenue for the sale of goods is recognised when the goods are delivered to the customers' premises, at which point in time the related risks and rewards of ownership transfers and revenue is recognised. Under IFRS 15 the point of revenue recognition is when a customer accepts control of the goods. The point of delivery will therefore continue to drive the revenue recognition under IFRS 15 as this point is where customers accept control of the goods.

Elements of variable consideration were identified in the pricing adjustments which are based on the quality of coal delivered. The requirements for constraining estimates of variable consideration will not have an impact on Exxaro as the adjustments are done within the reporting period. No significant reversal of revenue is expected to be recognised.

Rendering of services

Revenue arising from services is currently recognised on the accrual basis over the period the services are rendered. Under IFRS 15 the total consideration in the service contracts will be allocated to all services based on their standalone selling prices. Based on the assessment the fair value and standalone selling prices of the services are broadly similar. Therefore, the group does not expect the application of IFRS 15 to result in significant differences in the timing of revenue recognition for these services.

Currently the only material impact identified on the measurement and timing of revenue recognition, is a separate performance obligation identified on one of the contracts with customers. Up to 31 December 2017, the cost for the management of a stock pile on behalf of the customer was accounted for as a cost recovery. As the service is seen as a separate performance obligation, revenue will be recognised separate from the corresponding cost. There will be no impact on profit or loss of the group.

Exxaro is currently in the process of finalising the impact of IFRS 15 on the group.

IFRS 16 Leases

The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted provided that IFRS 15 is adopted at or before the date of initial application of IFRS 16. The group made progress on the initial assessment of the potential impact of this standard on the group's financial statements and reached a conclusion that this standard will not be early adopted with the implementation of IFRS 15. This initial assessment included the identification of material lease transactions within the group. The group must still make a decision on the transition method to be applied as well as the practical expedients to be used, if elected.

The prior year audited results as per the condensed consolidated statement of comprehensive income (and related notes) has been re-presented as a result of:

• The investment in Tronox Limited being identified as a discontinued operation (refer note 7)
• Total comprehensive income for 2016 of R5 142 million decreasing with R401 million to R4 741 million to correctly reflect the recycling of foreign translation differences to profit or loss. In the prior year such reclassification was recycled directly through equity.

Operating segments are reported on in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is responsible for allocating resources and assessing performance of the reportable operating segments. The chief operating decision-maker has been identified as the group executive committee. Segments reported are based on the group's different products and operations.

The corporate transactions during 2016 and 2017 necessitated a change in the segmental reporting structures and the manner in which operating results are reported to the chief operating decision-maker. Changes to segmental reporting which resulted in the re-presentation of the comparative year segmental information, included:

• the iron ore operating segment now included within the other operating segment which forms part of the other reportable segment
• an energy segment was added as an additional reportable segment.

The re-presentation resulted in five reportable operating segments compared to the four reportable operating segments in prior periods. In addition to this, the 2016 segmental information was re-presented for Tronox Limited which was classified as a non-current asset held-for-sale (refer note 17) and met the criteria for a discontinued operation (refer note 7).

Total operating segment revenue, which excludes VAT, represents the gross value of goods invoiced, services rendered and includes operating revenues directly and reasonably allocable to the segments. Segment net operating profit or loss equals segment revenue less segment expenses, impairment charges, plus impairment reversals. Segment operating expenses, assets and liabilities represent direct or reasonably allocatable operating expenses, assets and liabilities.

The reportable operating segments, as described below, offer different products and services, and are managed separately based on commodity, location and support function grouping. The group executive committee reviews internal management reports on these divisions at least quarterly.

Coal

The coal operations are mainly situated in the Waterberg and Mpumalanga regions and are split between coal commercial operations and coal tied operations. Coal commercial operations include a 50% (31 December 2016: 50%) investment in Mafube (a joint venture with Anglo), as well as a 10,82% (31 December 2016: 10,82%) effective equity interest in RBCT. The coal operations produce thermal coal, metallurgical coal and SSCC.

Ferrous

The ferrous segment comprises a 20,62% (31 December 2016: 20,62%) equity interest in SIOC (located in the Northern Cape province) reported within the other ferrous operating segment as well as the FerroAlloys operations (referred to as Alloys).

TiO₂ and Alkali chemicals

Exxaro holds a 23,66% (31 December 2016: 43,66%) equity interest in Tronox Limited subsequent to the sale of 22 425 000 shares Class A Trinox Limited ordinary shares on 10 October 2017. The investment in Tronox Limited has been classified as held-for-sale on 30 September 2017 (refer note 17). Exxaro holds a 26% (31 December 2016: 26%) equity interest in Tronox SA (both South African-based operations), as well as a 26% (31 December 2016: 26%) member's interest in Tronox UK.

Energy

The energy segment comprises a 50% (31 December 2016: 50%) investment in Cennergi (a South African joint venture with Tata Power) which operates two windfarms.

Other

This reportable segment comprises the 26% (31 December 2016: 26%) equity interest in Black Mountain (located in the Northern Cape province), an effective investment of 11,7% (31 December 2016: 11,7%) in Chifeng (located in the PRC), the Mayoko iron ore project (and related subsidiaries) which was classified as a discontinued operation in 2016 and sold on 23 September 2016, as well as the corporate office which renders services to operations within the group and other customers.

The following table presents a summary of the group’s segmental information:

Background

On 15 September 2017, Exxaro entered into the Transaction Agreements in order to implement the various components of the Replacement BEE Transaction. Shareholders approved the Replacement BEE Transaction on 20 November 2017 and on 11 December 2017 Exxaro implemented the Replacement BEE Transaction which comprised various indivisible transaction components, being the MS333 Unwind, the Second Repurchase and the Specific Issue.

MS333 Unwind

The MS333 Unwind served both as a mechanism for the Exiting MS333 Interests to be divested from, and to correctly balance the shareholdings in MS333 to enable Reinvesting MS333 Shareholders and the IDC to invest into the New Empowerment Structure.

Second Repurchase

The Second Repurchase was implemented to reduce the dilutionary impact of the Replacement BEE Transaction on Exxaro Independent Shareholders. Exxaro repurchased 22 686 572 ordinary shares from MS333 at a share price of R118,76 per share. The Second Repurchase was funded from Exxaro's cash reserves and the ordinary shares were immediately cancelled as issued ordinary shares.

Specific Issue

Exxaro issued 67 221 565 ordinary shares for consideration of R73,92 per share to NewBEECo resulting in NewBEECo holding 30% of Exxaro's ordinary shares after implementation of the Replacement BEE Transaction. NewBEECo acquired the Exxaro issued ordinary shares by means of third-party funding raised in terms of the preference share liability and funding from the equity contribution by Exxaro into NewBEECo.

Lock-in mechanism

The New Empowerment Structure will have a duration of 10 years, subject to the seven to 10-year lock-in release mechanism and interim liquidity mechanisms.

Interim liquidity mechanisms

NewBEECo will have the following mechanisms available, in order to create interim liquidity in the New Empowerment Structure:

• Trade sale
  After the third anniversary of the BEE Implementation Date, subject to Exxaro approval, the Reinvesting MS333 Shareholders, including the IDC, will be entitled to sell their shareholding to any party with the same HDSA status.
• Public offering
  Exxaro may at any time, and NewBEECo may after the third anniversary of the BEE Implementation Date, subject to Exxaro's approval, list NewBEECo's ordinary shares on a stock exchange which restricts trading to HDSA parties.
• Put option
  Subject to certain restrictions, Exxaro has granted NewBEECo the right to require Exxaro to buy-back, at a discount to the market price a certain number of Exxaro shares. The proceeds received by NewBEECo upon exercise of the put option may only be used to settle the preference share liability. The option therefore expires once the preference share liability has been fully settled. The put option can only be exercised if the 20-day weighted average trading price of Exxaro's shares is greater than 150% of the closing Exxaro share price on BEE Implementation Date.

These interim liquidity mechanisms are subject to:

• Exxaro remaining in compliance with the empowerment shareholding legislative and contractual requirements
• All required regulatory, contractual and shareholder consents are obtained.

Accounting implications

The accounting impact of the Replacement BEE Transaction on the Exxaro group is as follows:

• NewBEECo is consolidated as Exxaro has control over NewBEECo in terms of IFRS 10 Consolidated Financial Statements
• The shares held by NewBEECo in Exxaro are treated as treasury shares and eliminated for group reporting purposes
• The preference share liability of NewBEECo is recognised as a financial liability for the Exxaro group (refer note 18) and therefore no accounting for the put option liability required
• A share-based payment expense is recognised in profit or loss which relates to the potential benefit to be obtained by the BEE Parties. This has been valued using an option pricing model.

Significant judgements and assumptions made by management

Investment in subsidiaries

In applying IFRS 10 Consolidated Financial Statements management has applied judgement in assessing whether Exxaro has control over NewBEECo even though Exxaro only holds a 24,9% equity interest in NewBEECo. NewBEECo was created and designed for the sole purpose of providing Exxaro with BEE credentials and as a structure to hold Exxaro shares. The implementation of the Replacement BEE Transaction will protect the stability of Exxaro's operations reinforcing the sustainability of relationships with key stakeholders, equip Exxaro for growth by positioning Exxaro with market leading empowerment credentials in the South African mining sector and create long-term value for shareholders. Exxaro is able to direct the strategic direction of NewBEECo and as per the Transaction Agreements, NewBEECo's memorandum of incorporation may not be amended or replaced without Exxaro's prior written consent. All these points indicate that Exxaro has been involved from the inception of the Replacement BEE Transaction, to ensure that the design and operation of NewBEECo achieves the purpose for which it was created. NewBEECo can also not dispose of Exxaro shares without the prior consent of Exxaro. Exxaro has significant exposure to the variable returns of NewBEECo, through the creation and maintenance of the BEE credentials during the lock-in period as well as through the equity investment held by Exxaro in NewBEECo. All these factors have been considered in determining that even though Exxaro does not have majority voting rights in NewBEECo it still has control over NewBEECo and consolidates the results of NewBEECo in the consolidated results of the Exxaro group of companies.

BEE credentials valuation

In applying IFRS 2 Share-Based Payment management is required to make estimates and assumptions in determining the share-based payment expense. The share-based payment expense, amounting to R4 245 million, was calculated with reference to the requirements of IFRS 2 and the SAICA Financial Reporting Guide 2 Accounting for BEE Transactions. Since these options are not tradeable, IFRS 2 requires that the fair value of these instruments be calculated using a suitable, market-consistent valuation model. A Monte Carlo simulation model was selected in order to account for the pathdependency inherent in the transaction arising from the relationship between the share price and the strike price (the outstanding preference share liability balance at maturity after taking into account dividends used to repay the preference share liability and preference dividend). The valuation is based on 30% of Exxaro's issued ordinary share capital being held by NewBEECo at a spot Exxaro share price of R152,35 per share, being the closing share price as at 11 December 2017. Established derivative pricing theory requires the use of the underlying share value on the valuation date, and precludes the use of WATP (VWAP), for the purposes of measuring a share-based payment expense and for this reason the closing share price has been used. The model applied a term structure of dividend yields over the life of the transaction, using estimated dividend forecasts. The dividend term-structure used equates to an average continuously compounded dividend rate of 4,49% per annum. The model assumed an option life of five years, an average flat, continuous risk-free rate of 8,02% and a historical share volatility of 41,20% as inputs into the valuation model. The model further assumes funding rates of 80% of Prime Rate for the preference share liability. The outstanding preference share liability balance, as at the valuation date, of R2 491 million was used as the starting point in modelling the outstanding preference share liability balance as at the maturity date of the transaction. Exxaro's 24,9% interest in NewBEECo has been deducted from this value as an intercompany adjustment. The reinvestment cost by both BEE SPV and IDC are subtracted from the IFRS 2 share-based payment expense as this represents a cost to these shareholders for the participation in the Replacement BEE Transaction.

On 30 September 2017, Exxaro classified the Tronox Limited investment as a non-current asset held-for-sale (refer note 17). It was concluded that the related performance and cash flow information be presented as a discontinued operation as the Tronox Limited investment represents a major geographical area of operation as well as the majority of the TiO₂ and Alkali chemicals reportable operating segment.

The 2016 financial performance and cash flow information relates to the disposal of the Mayoko iron ore project and related subsidiaries as well as the impact of the Tronox Limited re-presentation.

Financial information relating to discontinued operations for the period to the date of disposal is set out below:

Total dividends paid in 2017 amounted to R2 227 million, made up of a final dividend of R1 284 million which related to the year ended 31 December 2016, paid in April 2017, as well as an interim dividend of R943 million, paid in September 2017.

A final dividend for 2017 of 400 cents per share (2016: 410 cents per share) was approved by the board of directors on 6 March 2018. The dividend is payable on 23 April 2018 to shareholders who will be on the register on 20 April 2018. This final dividend, amounting to approximately R1 435 million (2016: R1 284 million), has not been recognised as a liability in these reviewed condensed consolidated annual financial statements. It will be recognised in shareholders’ equity in the year ended 31 December 2018.

The final dividend declared will be subject to a dividend withholding tax of 20% for all shareholders who are not exempt from or do not qualify for a reduced rate of dividend withholding tax. The net local dividend payable to shareholders, subject to dividend withholding tax at a rate of 20% amounts to 320,00000 cents per share. The number of ordinary shares in issue at the date of this declaration is 358 706 754. Exxaro company’s tax reference number is 9218/098/14/4.

On 13 February 2018 Exxaro declared a special dividend amounting to 1 255 cents per share following the partial disposal of its shareholding in Tronox Limited during October 2017. The dividend amounting to R4 502 million was paid to shareholders on 5 March 2018.

Tronox Limited

In September 2017, the directors of Exxaro formally decided to dispose of the investment in Tronox Limited. As part of this decision, Tronox Limited was required to publish an automatic shelf registration statement of securities of well-known seasoned issuers which allowed for the conversion of Exxaro’s Class B Tronox Limited ordinary shares to Class A Tronox Limited ordinary shares. From this point, it was concluded that the Tronox Limited investment should be classified as a non-current asset held-for-sale as all the requirements in terms of IFRS 5 Non-Current Assets Held-for-sale and Discontinued Operations were met. As of 30 September 2017, the Tronox Limited investment, totalling 42,66% of Tronox Limited’s total outstanding voting shares, was classified as a non-current asset held-for-sale and the application of the equity method ceased.

Subsequent to the classification as a non-current asset held-for-sale, Exxaro completed an initial offering of 22 425 000 Class A Tronox Limited ordinary shares. Refer note 8.2 for further details of the initial offering.

Exxaro will continue to assess market conditions going forward for further possible sell downs of the remaining 23,66%, as at 31 December 2017, of the Class A Tronox Limited ordinary shares before 30 September 2018.

The Tronox Limited investment is presented within the total assets of the TiO2 and Alkali chemicals reportable operating segment and presented as a discontinued operation (refer note 7).

Manyeka

Exxaro concluded a sale of share agreement with Universal for ECC’s 100% shareholding in Manyeka, which includes a 51% interest in Eloff. The sale is conditional on section 11 approval required in terms of the MPRDA for transfer of the mining right as well as approval from the Competition Commission for the transaction. The investment in Manyeka has been classified as a non-current asset held-for-sale on 30 September 2017. On 31 December 2017, conditions precedent to the sale agreement with Universal had not been met. The sale of Manyeka did not meet the criteria to be classified as a discontinued operation since it did not represent a separate major line of business, nor did it represent a major geographical area of operation and is reported as part of the coal commercial operating segment.

NBC

During 2017 Exxaro took the decision to divest from the NBC operation and the divestment process commenced during August 2017.On 2 march 2018, Exxaro concluded a sale of assets agreement for the disposal of the NBC operation.The sale will only be effective once all conditions precedent to the sales agreement have been met. On 31 December 2017, the NBC operation met the criteria to be classified as a non-current asset held-for-sale in terms of IFRS 5 Non-Current Assets Held-for-sale and Discontinued Operations. The operation did not meet the criteria to be classified as a discontinued operation since it did not represent a separate major line of business, nor did it represent a major geographical area of operation and is reported as part of the coal commercial operating segment.

EMJV

As part of the ECC acquisition in 2015, Exxaro acquired non-current liabilities held-for-sale relating to the EMJV. The sale of the EMJV is conditional on section 11 approval required in terms of the MPRDA for transfer of the new-order mining right to the new owners, Scinta Energy Proprietary Limited, as well as section 43(2) approval for the transfer of environmental liabilities and responsibilities. The EMJV remains a non-current liability held-for-sale for the Exxaro group on 31 December 2017, as the required approvals are still pending. The EMJV does not meet the criteria to be classified as a discontinued operation since it does not represent a separate major line of business, nor does it represent a major geographical area of operation.

Other

The land and buildings situated at corporate centre were classified as a non-current asset held-forsale on 31 December 2015. The sale was subject to the fulfilment of suspensive conditions which were not met and the sales agreement subsequently lapsed.

A new agreement was entered into with a property consortium in June 2016. These agreements have been amended and finalised during May 2017. All conditions precedent to this agreement have been met except for the completion of the legal transfer of the property. The land and buildings situated at corporate centre remains classified as a non-current asset held-for-sale until the legal transfer of the property has been concluded.

The major classes of assets and liabilities classified as non-current assets and liabilities are as follows:

The following items of other comprehensive income that may be subsequently reclassified to profit or loss relate to non-current assets classified as held-for-sale:

The bank overdraft is repayable on demand and interest payable is based on current South African money market rates.

There were no defaults or breaches in terms of interest-bearing borrowings during the reporting periods.

Loan facility

The loan facility comprises a:

• R3 250 million bullet term loan facility with a term of five years (term loans)
• R2 000 million amortised term loan facility with a term of seven years (term loans)
• R2 750 million revolving credit facility with a term of five years (revolving credit facility).

Interest is based on JIBAR plus a margin of 3,25% (2016: 3,25%) for the bullet term loan facility (R3 250 million), JIBAR plus a margin of 3,60% (2016: 3,60%) for the amortised term loan facility (R2 000 million) and JIBAR plus a margin of 3,25% (2016: 3,25%) for the revolving credit facility (R2 750 million). The effective interest rate for the transaction costs on the term loans is 0,24% (2016: 0,32%). Interest is paid on a quarterly basis for the term loans, and on a monthly basis for the revolving credit facility.

The undrawn portion relating to the term loan facilities amounts to R1 750 million (2016: R1 750 million). The undrawn portion of the revolving credit facility amounts to R2 750 million (2016: R750 million).

Bond issue

In terms of Exxaro’s R5 000 million DMTN programme, a senior unsecured floating rate note (bond) of R1 000 million was issued in May 2014. The outstanding bond comprises a R520 million senior unsecured floating rate note due 19 May 2019.

During 2017 the R480 million senior unsecured floating rate note was settled. Interest on the R520 million bond is based on JIBAR plus a margin of 1,95% (2016: 1,95%). The effective interest rate for the transaction costs was 0,13% (2016: 0,13%) for the R480 million bond and 0,08% (2016: 0,08%) for the R520 million bond. Interest is paid on a quarterly basis for both bonds.

Preference share liability

The preference share liability relates to the consolidation of NewBEECo (refer note 6). The preference share liability represents 249 069 Class “A” variable rate cumulative redeemable preference shares issued on 11 December 2017 by NewBEECo at an issue price of R10 000 per share. The preference shares are redeemable five years after the subscription date or earlier as agreed between the parties at R10 000 per share 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 80% of Prime Rate calculated on a daily basis based on a 365-day year compounded per period and capitalised per period.

Subscription undertakings for the full value of the preference shares were secured at a total cost of R23,8 million. The preference share liability will be measured at amortised cost and the transaction costs have therefore been included on initial measurement. The amount will be amortised over the five-year period.

Finance leases

Included in interest-bearing borrowings are obligations relating to finance leases for mining equipment.

Analysis of movement in net debt:

The timing and occurrence of any possible outflows of the contingent liabilities above are uncertain.

SARS

On 18 January 2016, Exxaro received a letter of audit findings from SARS following an international income tax audit for the years of assessment 2009 to 2013. According to the letter, SARS proposed that certain international Exxaro companies would be subject to South African income tax under section 9D of the Income Tax Act. Assessments to the amount of R442 million (R199 million tax payable, R91 million interest and R152 million penalties) were issued on 30 March 2016 and Exxaro formally objected against these assessments. Resolution hearing with SARS was on 18 July 2017 but the parties could not settle the matter. Notice was given to refer the matter to the Tax Court and Exxaro currently awaits a court date.

These assessments have been considered in consultation with external tax and legal advisers and senior counsel. Exxaro believes this matter has been treated appropriately by disclosing a contingent liability for the amount under dispute.

The group entered into various sale and purchase transactions with associates and joint ventures during the ordinary course of business. These transactions were subject to terms that are no less, nor more favourable than those arranged with independent third parties.

Exxaro’s previous majority BEE shareholder, Main Street 333, settled its loan with Exxaro and the accrued interest thereon in January 2017. Refer note 6 for the details on the Replacement BEE Transaction.

Based on the results for the year ended 31 December 2017, and the latest budget for 2018, as well as the available bank facilities and cash generating capability, Exxaro satisfies the criteria of a going concern.

Details of the final dividend proposed are given in note 12.

On 2 March 2018, Exxaro entered into a sale of asset agreement regarding the disposal of the NBC operation. The sale will only be effective once all conditions precedent to the sales agreement have been met note 19.

Exxaro is exploring opportunities in the water and agriculture sector and is currently in active negotiations for a potential investment.

The directors are not aware of any other significant matter or circumstance arising after the reporting period up to the date of this report, not otherwise dealt with in this report.

These reviewed condensed consolidated annual financial statements for the year ended 31 December 2017 have been reviewed by PricewaterhouseCoopers Inc., who expressed an unmodified review conclusion. A copy of the auditor's review report is available for inspection at the company's registered office together with the financial statements identified in the auditor's report.

The Board of directors endorses the principles contained in King IV. Detailed disclosure of the company’s application of these principles are set out in the supplementary information, as well as, in the 2017 Integrated Report and will, in accordance with the JSE Listings Requirements, be available on the company’s website in April 2018. The company has undertaken a process to determine the gaps to achieve application of King IV and will disclose actions taken toward compliance in the Integrated Report for the for the year ending 31 December 2018. Please contact the group company secretary and legal, Mrs SE van Loggerenberg, for any additional information

Other than the normal LOM depletion, there were no material changes to the mineral resources and mineral reserves estimates as disclosed in the 2016 integrated report. Exxaro has updated its internal competent persons report for applicable operations to align with the third edition of the SAMREC Code which came into effect in January 2017.