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NOTES TO THE REVIEWED CONDENSED GROUP ANNUAL FINANCIAL STATEMENTS

1. CORPORATE BACKGROUND

Exxaro, a public company incorporated in South Africa, is a diversified resources group with interests in the coal (controlled and non-controlled), energy (controlled and non-controlled), TiO2 (non-controlled) and ferrous (controlled and non-controlled) markets. These reviewed condensed group annual financial statements as at and for the year ended 31 December 2020 (condensed annual financial statements) comprise the company and its subsidiaries (together referred to as the group) and the group's interest in associates and joint ventures.

2. BASIS OF PREPARATION

2.1 Statement of compliance
 

The condensed annual financial statements 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 (as issued by the IASB), the SAICA Financial Reporting Guides (as issued by the Accounting Practices Committee) and Financial Pronouncements (as issued by the Financial Reporting Standards Council). As a minimum, preliminary reports must contain the information required by IAS 34 Interim Financial Reporting.

The condensed annual financial statements have been prepared under the supervision of Mr PA Koppeschaar CA(SA), SAICA registration number: 00038621.

The condensed annual financial statements should be read in conjunction with the group annual financial statements as at and for the year ended 31 December 2019, which have been prepared in accordance with IFRS. The condensed annual financial statements have been prepared on the historical cost basis, except for financial instruments, share-based payments and biological assets, which are measured at fair value.

The condensed annual financial statements of the Exxaro group were authorised for issue by the board of directors on 16 March 2021.

2.2 Judgements and estimates
 

Management made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The significant judgements 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 2019. In addition, certain new judgements, estimates and assumptions relating to the business combination have been applied as detailed in note 4.

2.3 Re-presentation of comparative information
 

The condensed group statement of comprehensive income (and related notes) for the year ended 31 December 2019 and the condensed group statement of financial position (and related notes) at 31 December 2019 have been re-presented as a result of the investment in Black Mountain no longer meeting the criteria to be classified as a non-current asset held-for-sale and a discontinued operation due to the suspension of the sales process in December 2020.

The impact of the re-presentation of 2019 was as follows:

Previously
presented
  Re-presented   Impact   
Condensed group statement of comprehensive income
Share of income of equity-accounted investments (Rm) 4 641   4 693   52   
Profit for the year from discontinued operations (Rm) 2 164   2 112   (52)  
Attributable earnings per share
Continuing operations
– Basic (cents) 3 047   3 067   20   
– Diluted (cents) 3 047   3 067   20   
Discontinued operations
– Basic (cents) 861   841   (20)  
– Diluted (cents) 861   841   (20)  
Condensed group statement of financial position
Equity-accounted investments (Rm) 16 630   17 502   872   
Non-current assets held-for-sale (Rm) 2 613   1 741   (872)  

3. ACCOUNTING POLICIES AND OTHER COMPLIANCE MATTERS

The accounting policies applied in the preparation of the condensed annual financial statements are consistent with those of the group annual financial statements as at and for the year ended 31 December 2019. 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 nor make retrospective adjustments as a result of adopting these standards. In addition the group has adopted hedge accounting as described further in note 23.2.1 following on the Cennergi business combination.

3.1 Impact of new, amended or revised standards issued but not yet effective
 

New accounting standards, amendments to accounting standards and interpretations issued which are relevant to the group, but not yet effective on 31 December 2020, have not been early adopted. The group continuously evaluates the impact of these standards and amendments and does not anticipate that there will be a material impact.

3.2 Carbon tax
 

Following on the enactment of the Carbon Tax Act No 15 of 2019, as amended, Exxaro has licensed each of its emissions generating facilities with SARS, of which two subsidiaries only received their licenses in February 2021. The group has accrued R5.4 million (2019: R3.4 million) for Carbon tax which is payable on 29 July 2021.

3.3 Impact of COVID-19 on financial reporting
 

The COVID-19 pandemic developed rapidly in 2020, not only in the world, but South Africa specifically has seen a significant number of infections being reported. Measures to prevent transmission of the virus included limiting the movement of people, restricting flights and other travel, temporarily closing businesses and schools and cancelling of public events. This had an immediate impact on the economy of South Africa. Measures taken to contain the virus affected economic activity, which in turn had implications on the financial reporting.

The following key areas of financial reporting required specific attention for the year ended 31 December 2020:

Revenue recognition

Changes to terms of customer contracts and business practices during COVID-19 were evaluated and found not to influence the recognition of revenue.

Inventory

Inventory has been evaluated and written down to the lower of cost and net realisable value. An amount of R9 million on the write-down of inventory from cost to net realisable value has been recognised for 2020.

Impairment of non-financial assets

Impairment testing was based on the latest budgets which incorporated changes in parameters and economic outlooks revised for the effects of COVID-19. As at 31 December 2020, the investment in Insect Technology was fully impaired.

Allowances for expected credit losses (ECLs)

When assessing the amount to be recognised for ECLs, management considered the impact that COVID-19 had on the risk of default as well as the expected loss rates. The trade and other receivables are categorised into the following categories corporate, public sector as well as small and medium enterprises. Where additional risk was identified the credit ratings of each counterparty were reviewed and adjusted accordingly with a corresponding adjustment to the PD and LGD rates. Although these adjustments resulted in higher ECL multipliers the ECL amount recognised for 2020 was not significant as the trade and other receivables outstanding balance was 14% lower than 2019 and certain of the long outstanding other receivable debtors settled their debt during the year.

Taxation

Exxaro benefited from the following tax relief measures announced:

  • A skills development levy holiday was granted to all businesses
  • Carbon tax payments were deferred until 31 October 2020
  • The implementation by SARS limiting the utilisation of tax losses and interest expense deductions has been postponed to 2022.

Going concern assessment

The going concern assessment was based on the latest budgets that incorporated changes in parameters and economic outlooks revised for the effects of COVID-19. Additional sensitivity analysis was performed as part of stress testing the going concern assumption. Exxaro also prudently increased its available borrowing facilities. The additional facility was available from 1 July 2020.

4. BUSINESS COMBINATION: ACQUISITION OF CONTROLLING INTEREST IN CENNERGI

4.1 Overview of Cennergi
 

Exxaro and Tata Power, through its wholly owned subsidiary Khopoli, formed a 50:50 JV to create Cennergi in March 2012. Exxaro has recognised its existing 50% interest in the JV as an equity-accounted investment.

Cennergi is a company established and registered in South Africa operating in the renewable energy sector. Its business is the investigation of feasibility, development, ownership, operation, maintenance, acquisition and management of renewable energy projects in certain permitted territories.

Cennergi owns two wind farms which were originally bid as part of Window 2 of the Department of Energy's Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) namely:

  • Amakhala Emoyeni Wind Farm situated near Cookhouse in the Eastern Cape with an installed capacity of 134 Megawatts
  • Tsitsikamma Community Wind Farm located close to Tsitsikamma in the Eastern Cape with an installed capacity of 95 Megawatts.

Each of the wind farms has been set up in separate project companies (SPVs) of which Cennergi holds the controlling interest as illustrated in the diagram below:

Cennergi forms part of the energy reportable segment.

4.2 Overview of the transaction
 

Tata Power decided to dispose of its 50% interest in Cennergi creating an opportunity for Exxaro to act on its ambitions of growing its presence in the energy sector, by acquiring the 50% interest owned by Khopoli. The acquisition contributes towards aligning the long-term environmental, sustainability, growth strategy and expansion of Exxaro into renewable energies and aligns the strategic intent of Exxaro of forming a second core business next to coal.

Therefore, with effect from 1 April 2020, Exxaro acquired Khopoli's 50% share of the issued share capital of Cennergi, resulting in Exxaro obtaining sole control over Cennergi. The transaction has been accounted for as a business combination achieved in stages (step-up acquisition) in terms of IFRS 3 Business Combinations (IFRS 3).

Given the existing relationship with Cennergi, the related cost associated with the acquisition of the remaining 50% interest was minimal, with an amount of R2.4 million being expensed through operating expenses.

The fair value of the 100% controlling interest acquired and its attribution to the net identifiable assets acquired and resultant goodwill is summarised below:

Note     Rm    
Fair value of new 50% interest acquired (the purchase consideration)  4.2.1      1 739    
Fair value of 50% interest held under joint control  4.2.2      1 502    
Fair value of the 100% controlling interest acquired  3 241    
Attributed to: 
Goodwill  4.2.3      521    
Fair value of net identifiable assets acquired  4.2.4      2 867    
Non-controlling interests  4.2.5      (147)   
The transaction resulted in the following net cash outflow from investing activities: 
– Cash paid  4.2.1      (1 739)   
– Cash and cash equivalents acquired  4.2.4      337    
Net cash outflow from acquisition of subsidiaries  (1 402)   

The accounting for the acquisition of Cennergi in terms of IFRS 3 was provisionally reported on for the six-month period ended 30 June 2020. Subsequently, the following changes to the purchase price allocation were made:

  • Recognition of non-controlling interests of R147 million for the existing in substance share options held by Cennergi's BEE minorities
  • Resultant increase in goodwill of R147 million to R521 million (previously reported: R374 million).

The reviewed condensed group interim financial statements as at and for the six-month period ending 30 June 2021 will be re-presented for these changes.

At 31 December 2020 the accounting for the acquisition of Cennergi has been concluded.

4.2.1 Purchase consideration for newly acquired 50% interest
 

The purchase consideration for the additional 50% interest acquired in Cennergi has been fully settled in cash. The purchase consideration represents the consideration transferred at its acquisition-date fair value. This is summarised into its components as follows:

  Rm  
Purchase consideration settled in cash 1 641  
Contingent consideration subsequently settled in cash1 98  
Fair value of purchase consideration 1 739  
1 As part of the purchase consideration, Exxaro was required to pay Khopoli 50% of the value that Cennergi company would recover from its proven claims in the liquidation account of one of the BEE minority shareholders. The liquidation account has been settled in December 2020 and the final consideration has been paid.
4.2.2 Fair value of pre-existing 50% interest
 

The pre-existing 50% interest in Cennergi forms part of the 100% controlling interest that Exxaro holds as of the acquisition date and is therefore fair valued immediately preceding the acquisition date. The gain resulting from remeasuring the pre-existing interest was recognised in profit or loss and is ultimately treated as a deemed disposal of the pre-existing interest.

The deemed disposal and fair value recognition is summarised as follows:

  Note   Rm   
Fair value of 50% interest held under joint control     1 502   
Carrying value of equity-accounted investment     (181)  
Gain recognised in operating expenses1 8   1 321   
Losses on recycling of share of cash flow hedge reserve through profit or loss 8   (59)  
Net impact in profit or loss     1 262   
1 Headline earnings adjustment.
4.2.3 Goodwill
 

Goodwill represents the residual value between the fair value of the 100% controlling interest acquired, the net identifiable assets recognised and non-controlling interests recognised. The value of goodwill is attributed to the value of other items at acquisition date which are not separately identifiable to achieve recognition as intangible assets.

The goodwill recognised is attributed mainly to:

  • The further operating capability of the assets and market demand for renewable energy post the existing power purchase agreements. The wind farms' lifespan is longer than the current power purchase agreements in place. Given the expected growth in demand for energy in South Africa, coupled with limited supply of energy, and in particular the worldwide drive towards energy supply to be from renewable sources, it is considered that there is a market with value post the existing power purchase agreements' contracts
  • The existing assembled workforce of Cennergi
  • A premium payable arising from the limited supply of, and high demand for, investment opportunities into renewable energy projects within the South African landscape
  • Non-controlling interests recognised.

The goodwill is not deductible for tax purposes.

An impairment assessment was performed on 31 December 2020 for the goodwill acquired. The assessment resulted in no impairment charge for the year.

4.2.4 Identifiable assets acquired and liabilities assumed
 

The fair value of the identifiable assets acquired and liabilities assumed of Cennergi as at the acquisition date are summarised as follows:

Non-current 
Rm 
  Current 
Rm 
  Total 
Rm 
 
Property, plant and equipment 5 952    5 952   
Right-of-use assets 51    51   
Intangible assets 2 685    2 685   
Deferred tax assets 66    66   
Deferred tax liabilities (983)   (983)  
Provisions (39)   (39)  
Financial liabilities: derivatives designated as hedging instruments (272)   (272)  
Net debt (4 847)   115    (4 732)  
– Cash and cash equivalents 337    337   
– Interest-bearing borrowings (4 799)   (215)   (5 014)  
– Lease liabilities (48)   (7)   (55)  
Trade and other receivables1 187    187   
Trade and other payables (25)   (25)  
Financial assets at amortised cost: interest-bearing loan receivable    
Current tax payable (12)   (12)  
Other assets    
Other liabilities (16)   (16)  
Net identifiable assets acquired and liabilities assumed 2 613    254    2 867   
1 The fair values of acquired receivables represent the gross contractual amount. The full contractual cash flows are expected to be collected.
4.2.5 Non-controlling interests
 

The arrangements in place with the minority shareholders of Tsitsikamma SPV and Amakhala SPV represent a fully vested share-based payment arrangements under IFRS 2. The arrangements are viewed as in substance share options with the minorities, as the minorities are not exposed to downside risk nor benefit, until such time that the underlying shareholder financing of the arrangements has been settled.

For the purposes of the acquisition Cennergi, as the acquiree, has outstanding share-based payment transactions that Exxaro, as the acquirer, did not replace, cancel or exchange as part of the acquisition. The share-based payment transactions have vested and therefore the share-based payment transactions of Cennergi are accounted for as part of the non-controlling interests in the Cennergi group acquisition and are measured at their market-based measure in terms of IFRS 2 Share-based Payment (IFRS 2).

4.3 Performance contribution to Exxaro’s results
 
Revenue
Rm
  Profit 
Rm 
 
Cennergi's 100% results included in Exxaro's results from 1 April 2020 – 31 December 2020 890   (14)  
Cennergi's results contribution to Exxaro's results, if included from 1 January 2020 – 31 December 20201 1 156   12   
1 The profit represents Cennergi's profit before adjustments for hedge accounting adopted at an Exxaro group level. The assimilated scenario cannot be determined from an Exxaro perspective, as Exxaro has adopted hedge accounting only from 1 April 2020.
4.4 Key judgements, assumptions and estimates applied to the business combination transaction
4.4.1 Fair values of material assets acquired
 

The following material assets were fair valued applying the following valuation techniques and key assumptions:

Plant and equipment:   Primary operating assets:
Wind turbines with substation connections to the grid
Valuation technique:   Cost approach applying a depreciated replacement cost method, which determines the replacement cost of an existing asset after deducting an allowance for wear or consumption to reflect the remaining economic life of the existing asset.
Key assumptions:   Asset lives: 26.3 to 26.4 years
Depreciation method: Straight line
Condition rating1: Very good (94% to 96%)
1 Asset condition: Asset is like new, fully operable, well maintained, and performs consistently at or above current standards. Little wear shown and no further action required.
Intangible assets:   Existing power purchase agreements with Eskom
Valuation technique:   Income approach applying a multi-period excess earnings method, which determines the present value of the after-tax cash flow attributed to the intangible asset. The technique is based on the earnings power or cash generating abilities of the entity or asset being valued. The income approach focuses on estimating a forecast cash flow stream that is reflective of the most likely future operations of the entity or asset. Such forecast cash flows are then discounted to present value based on the appropriate risk adjusted discount rate or capitalisation rate that is reflective of both the risk and long-term growth prospects of the entity or asset.
Key assumptions:   Discount rate: 11.1%
Remaining life of contracts: 16.3 to 16.4 years
4.4.2 Non-controlling interests
 

Management view the share-based payment transactions with the BEE minority shareholders of the SPVs as in substance share options that are equity-settled in terms of IFRS 2. These options were not yet exercised at the acquisition date.

Non-controlling interest:   In substance share options
Valuation technique:   A Monte-Carlo simulation technique has been applied, discounting the distribution streams using a risk-free rate of return.
Key assumptions: Risk  
Risk-free curve – ZAR swap zero curve semi-annual: Year 1 to 5: 5.31% to 6.20%
Year 6 to 16: 7.03% to 10.28%
Lock in discount percentage: 33% for community BEE parties
25% for other BEE party
Standard deviation tolerance: 7% for Amakhala SPV
10% for Tsitsikamma SPV

5. SEGMENTAL INFORMATION

Operating segments are reported 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 is the group executive committee. Segments reported are based on the group's different commodities and operations.

During the second half of 2020, the chief operating decision maker, in line with reporting trends and better disclosure, revised the allocation of corporate costs to the segments since emphasis is placed on controllable costs. Indirect corporate costs are no longer allocated between the different segments but now reported on a gross level in the other reportable segment. The comparative segmental information has been represented to reflect this change.

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

Coal

The coal reportable segment is split between commercial (Waterberg and Mpumalanga), tied and other operations. Commercial Mpumalanga operations include a 50% (2019: 50%) investment in Mafube (a joint venture with Anglo) and a 49% (2019: 49%) equity interest in Tumelo. The 10.26% (2019: 10.36%) effective equity interest in RBCT is included in the other coal operations. The coal operations produce thermal coal, metallurgical coal and SSCC.

The export revenue and related export cost items have been allocated between the coal reportable segments based on the origin of the initial coal production.

Energy

On 1 April 2020, Exxaro obtained 100% control over Cennergi (2019: 50% joint control) (refer note 4 for detail of the business combination). The energy reportable segment also includes an equity interest of 28.59% (2019: 28.59%) in LightApp, as well as an equity interest of 22% (2019: 22%) in GAM.

Ferrous

The ferrous reportable segment mainly comprises of the 20.62% (2019: 20.62%) equity interest in SIOC (located in the Northern Cape province) reported within the other ferrous reportable segment, as well as the FerroAlloys operation (referred to as Alloys). The Alloys operation manufactures ferrosilicon.

TiO2

The TiO2 reportable segment comprises a 10.26% (2019: 10.38%) equity interest in Tronox Holdings plc, which was classified as a non-current asset held-for-sale on 30 September 2017 (refer note 17), and a 26% (2019: 26%) equity interest in Tronox SA (both South African-based operations).

Other

The other reportable segment is split between the base metals and other reportable segments. The 26% (2019: 26%) equity interest in Black Mountain (located in the Northern Cape province) is included in the base metals reportable segment. The other reportable segment comprises an equity interest in Insect Technology of 25.85% (2019: 25.86%), the Ferroland agricultural operation and the corporate office which renders services to operations and other customers. The 15% (2019: 15%) equity interest in Curapipe was disposed of on 9 November 2020.

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

Coal       
   Commercial               
For the year ended 31 December 2020 (Reviewed) Waterberg 
Rm
 
   Mpumalanga 
Rm
 
   Tied 
Rm
 
   Other 
Rm
 
   Energy 
Rm
 
  
External revenue  15 449     8 037     4 355     34     889    
Segmental net operating profit/(loss) 6 668     (2 419)    145     (114)    1 619    
– Continuing operations  6 668     (2 419)    145     (114)    1 619    
– Discontinued operations 
External finance income (note 10) 33           12    
External finance costs (note 10) (48)    (171)    (52)    (402)   
Income tax (expense)/benefit  (2 020)    530     (46)    782       
– Continuing operations  (2 020)    530     (46)    782       
– Discontinued operations 
Depreciation and amortisation (note 8) (1 373)    (611)    (19)    (2)    (291)   
Impairment charges (note 9)       (1 378)                     
Gain on deemed disposal of JV (note 4)                         1 321    
Gains on disposal of joint operation and transfer of operation (note 8)       17                   
Share of income/(loss) of equity-accounted investments (note 11)       67              (5)   
– Continuing operations        67              (5)   
– Discontinued operations 
Cash generated by/(utilised in) operations  8 223     (879)    241     (1 717)    693    
Capital spend (note 13) (2 326)    (717)    (1)    (16)    (1)   
At 31 December 2020 (Reviewed)
Segmental assets and liabilities 
Deferred tax1        112     (158)    589     146    
Equity-accounted investments (note 15)       1 412           2 053     98    
External assets  30 155     6 160     1 138     2 468     8 825    
Assets  30 155     7 684     980     5 110     9 069    
Non-current assets held-for-sale (note 17)       2 008                      
Total assets  30 155     9 692     980     5 110     9 069    
External liabilities  2 129     1 288     926     1 308     5 715    
Deferred tax1  6 934     229           189     937    
Liabilities  9 063     1 517     926     1 497     6 652    
Non-current liabilities held-for-sale (note 17)       1 138                      
Total liabilities  9 063     2 655     926     1 497     6 652    
1 Offset per legal entity and tax authority.

 

Ferrous        Other         
For the year ended 31 December 2020 (Reviewed) Alloys 
Rm
 
   Other 
ferrous 
Rm
 
   TiO2
Rm
 
   Base 
metals 
Rm
 
   Other 
Rm
   Total 
Rm
 
  
External revenue  147     13     28 924    
Segmental net operating profit/(loss)          93     (1 703)    4 293    
– Continuing operations                 93     (1 703)    4 293    
– Discontinued operations             
External finance income (note 10) 159     215    
External finance costs (note 10) (1)    (373)    (1 047)   
Income tax (expense)/benefit     27     (719)   
– Continuing operations                       27     (719)   
– Discontinued operations             
Depreciation and amortisation (note 8) (6)                      (134)    (2 436)   
Impairment charges (note 9)                         (504)    (1 882)   
Gain on deemed disposal of JV (note 4)                               1 321    
Gains on disposal of joint operation and transfer of operation (note 8)                               21    
Share of income/(loss) of equity-accounted investments (note 11)       6 125     207     122     (110)    6 411    
– Continuing operations        6 125     207     122     (110)    6 411    
– Discontinued operations       
Cash generated by/(utilised in) operations  (38)    (4)                1 251     7 770    
Capital spend (note 13) (2)    (112)    (3 175)   
At 31 December 2020 (Reviewed)
Segmental assets and liabilities 
Deferred tax1  17                    369     1 076    
Equity-accounted investments (note 15)       12 820     2 628     995           20 006    
External assets  309     26                 4 694     53 775    
Assets  326     12 847     2 628     995     5 063     74 857    
Non-current assets held-for-sale (note 17)             1 741                 3 749    
Total assets  326     12 847     4 369     995     5 063     78 606    
External liabilities  29                    9 713     21 111    
Deferred tax1                          (53)    8 236    
Liabilities  29                    9 660     29 347    
Non-current liabilities held-for-sale (note 17)                               1 138    
Total liabilities  29                    9 660     30 485    
1 Offset per legal entity and tax authority.

 

Coal     
Commercial               
For the year ended 31 December 2019 (Audited ) (Re-presented)1  Waterberg 
Rm
 
   Mpumalanga 
Rm
 
   Tied 
Rm
 
   Other 
Rm
 
   Energy 
Rm
 
  
External revenue  14 012     7 240     4 038     292    
Segmental net operating profit/(loss)2  5 752     (318)    136     (558)    (58)   
– Continuing operations  5 752     (318)    136     (558)    (58)   
– Discontinued operations 
External finance income (note 10) 57     21     30    
External finance costs (note 10) (54)    (165)    (27)   
Income tax (expense)/benefit  (1 627)    120     (47)    627    
– Continuing operations  (1 627)    120     (47)    627          
– Discontinued operations 
Depreciation and amortisation (note 8) (1 383)    (382)    (23)    (3)         
Impairment charges (note 9) 23                            
Loss on loss of control of subsidiary        (35)                     
Gain on disposal of operation        76                      
Share of income/(loss) of equity-accounted investments (note 11)       127              18    
– Continuing operations        127              18    
– Discontinued operations 
Cash generated by/(utilised in) operations  6 062     (253)    201     (1 042)         
Capital spend (note 13) (2 951)    (2 776)    (90)   
At 31 December 2019 (Audited) (Re-presented)1     
Segmental assets and liabilities 
Deferred tax3              (107)    340          
Equity-accounted investments (note 15)       1 335           2 067     350    
Loans to associates  133          
External assets  28 832     10 499     1 210     3 951          
Assets  28 832     11 967     1 103     6 358     350    
Non-current assets held-for-sale (note 17)                              
Total assets  28 832     11 967     1 103     6 358     350    
External liabilities  1 951     2 336     938     2 684          
Deferred tax3  6 411     715           68          
Liabilities  8 362     3 051     938     2 752          
Non-current liabilities held-for-sale (note 17)       1 410                      
Total liabilities  8 362     4 461     938     2 752          
1 Refer note 2.3.
2 Segmental net operating profit/(loss) has been re-presented to reflect the change in the allocation of corporate costs.
3 Offset per legal entity and tax authority.

 

Ferrous        Other         
For the year ended 31 December 2019 (Audited) (Re-presented)1  Alloys 
Rm
 
   Other 
ferrous 
Rm
 
   TiO2
Rm
 
   Base 
metals 
Rm
 
   Other 
Rm
 
   Total 
Rm
 
  
External revenue  130     14     25 726    
Segmental net operating profit/(loss)2     (1)    2 400     (960)    6 399    
– Continuing operations     (1)    270           (960)    4 269    
– Discontinued operations  2 130     2 130    
External finance income (note 10) 210     318    
External finance costs (note 10) (1)    (108)    (355)   
Income tax (expense)/benefit     (65)    (44)    (1 033)   
– Continuing operations                       (44)    (968)   
– Discontinued operations  (65)    (65)   
Depreciation and amortisation (note 8) (5)                      (116)    (1 912)   
Impairment charges (note 9)                         (58)    (35)   
Loss on loss of control of subsidiary                                (35)   
Gain on disposal of operation                                76    
Share of income/(loss) of equity-accounted investments (note 11)       4 413     234     52     (152)    4 693    
– Continuing operations        4 413     234     52     (152)    4 693    
– Discontinued operations       
Cash generated by/(utilised in) operations                       304     5 273    
Capital spend (note 13) (259)    (6 076)   
At 31 December 2019 (Audited) (Re-presented)1 
Segmental assets and liabilities 
Deferred tax3  11                       223     467    
Equity-accounted investments (note 15)       9 835     2 472     872     571     17 502    
Loans to associates  133    
External assets  279     25     65           4 136     48 997    
Assets  290     9 860     2 537     872     4 930     67 099    
Non-current assets held-for-sale (note 17)             1 741                 1 741    
Total assets  290     9 860     4 278     872     4 930     68 840    
External liabilities  30                    9 460     17 405    
Deferred tax3                          (56)    7 138    
Liabilities  30                    9 404     24 543    
Non-current liabilities held-for-sale (note 17)                               1 410    
Total liabilities  30                    9 404     25 953    
1 Refer note 2.3.
2 Segmental net operating profit/(loss) has been re-presented to reflect the change in the allocation of corporate costs.
3 Offset per legal entity and tax authority.

6. DISCONTINUED OPERATIONS

The discontinued operation relates to Tronox Holdings plc, which represents a major geographical area of operation as well as the majority of the TiO2 reportable segment.

Financial information relating to the discontinued operation is set out below:

For the year ended 31 December   
2020 
Reviewed 
Rm
 
   (Re-presented)1
2019  
Audited  
Rm
  
  
Financial performance 
Losses on financial instruments revaluations recycled to profit or loss  (1)    
Net gains on translation differences recycled to profit or loss on partial disposal of investment in foreign associate  832     
Indemnification asset movement  65     
Operating profit  896     
Gain on partial disposal of associate  1 234     
Net operating profit  2 130     
Dividend income received from non-current assets held-for-sale  69     47     
Profit before tax  69     2 177     
Income tax expense  (65)    
Profit for the year from discontinued operations  69     2 112     
Other comprehensive loss, net of tax 
Items that have subsequently been reclassified to profit or loss:   (831)    
– Recycling of share of OCI of equity-accounted investments   (831)    
Total comprehensive income for the year  69     1 281     
Cash flow information 
Cash flow attributable to investing activities 
– Dividend income received from non-current assets held-for-sale  69     47     
– Proceeds from partial disposal of associate classified as non-current assets held-for-sale  2 889     
Cash flow attributable to discontinued operations  69     2 936     
1 Refer note 2.3.

7. REVENUE

Revenue is derived from contracts with customers. Revenue has been disaggregated based on timing of revenue recognition, major type of goods and services, major geographic area and major customer industries.

  Coal Ferrous    Other         
Commercial         
For the year ended 31 December 2020 (Reviewed) Water- 
berg 
Rm
 
Mpuma- 
langa 
Rm
 
Tied 
Rm
 
Other 
Rm
 
Energy 
Rm
 
Alloys 
Rm
 
Other 
Rm
 
Total 
Rm
 
  
Segmental revenue reconciliation 
Segmental revenue1  15 449  8 037  4 355  34  889  147  13  28 924    
Export sales allocated to selling entity  (2 002) (7 357) 9 359 
Total revenue  13 447  680  4 355  9 393  889  147  13  28 924    
By timing and major type of goods and services 
Sale of goods at a point in time  13 447  680  3 744  9 293  889  139  12  28 204    
Coal  13 447  680  3 744  9 293  27 164    
Ferrosilicon  139  139    
Renewable energy  889  889    
Biological goods  12  12    
Rendering of services over time  611  100  720    
Stock yard management services  154  154    
Project engineering services  457  457    
Other mine management services  34  34    
Transportation services  66  68    
Other services    
Total revenue  13 447  680  4 355  9 393  889  147  13  28 924    
By major geographic area of customer2 
Domestic  13 447  680  4 355  34  889  147  19 560    
Export  9 359  9 364    
Europe  3 904  3 907    
Asia  4 539  4 541    
Other  916  916    
Total revenue  13 447  680  4 355  9 393  889  147  13  28 924    
By major customer industries 
Public utilities  11 508  4 355  260  889  17 012    
Merchants  174  345  8 525  9 046    
Steel  1 014  79  77  1 170    
Mining  56  103  126  119  404    
Manufacturing  275  26  301    
Food and beverage  250  258    
Chemicals  145  145    
Cement  132  132    
Other  38  405  456    
Total revenue  13 447  680  4 355  9 393  889  147  13  28 924    
1 Coal segmental revenue is based on the origin of coal production.
2 Determined based on the customer supplied by Exxaro.

 

Coal     Ferrous    Other         
Commercial         
For the year ended 31 December 2019 (Audited)   Water- 
berg 
Rm
 
Mpuma- 
langa 
Rm
 
Tied 
Rm
 
Other 
Rm
 
Alloys 
Rm
 
Other 
Rm
 
Total 
Rm
 
  
Segmental revenue reconciliation 
Segmental revenue1  14 012  7 240  4 038  292  130  14  25 726    
Export sales allocated to selling entity  (1 494) (5 468) 6 962 
Total revenue  12 518  1 772  4 038  7 254  130  14  25 726    
By timing and major type of goods and services 
Sale of goods at a point in time  12 518  1 721  3 414  6 870  122  12  24 657    
Coal  12 518  1 721  3 414  6 870  24 523    
Ferrosilicon  122  122    
Biological goods  12  12    
Rendering of services over time  51  624  384  1 069    
Stock yard management services  130  130    
Project engineering services  494  494    
Other mine management services  292  292    
Transportation services  51  92  145    
Other services    
Total revenue  12 518  1 772  4 038  7 254  130  14  25 726    
By major geographic area of customer2 
Domestic  12 518  1 772  4 038  292  130  13  18 763    
Export  6 962  6 963    
Europe  3 617  3 618    
Asia  3 159  3 159    
Other  186  186    
Total revenue  12 518  1 772  4 038  7 254  130  14  25 726    
By major customer industries 
Public utilities  10 211  1 009  4 038  467  15 725    
Merchants  179  326  6 475  6 980    
Steel  1 378  68  43  1 489    
Mining  81  133  266  103  583    
Manufacturing  279  24  303    
Cement  148  148    
Food and beverage  200  201    
Chemicals  167  167    
Other  42  69  13  130    
Total revenue  12 518  1 772  4 038  7 254  130  14  25 726    
1 Coal segmental revenue is based on the origin of coal production.
2 Determined based on the customer supplied by Exxaro.

8. SIGNIFICANT ITEMS INCLUDED IN OPERATING EXPENSES

For the year ended 31 December 
2020 
Reviewed 
Rm 
   2019 
Audited 
Rm 
  
The following (expense)/income items are included, among others, in operating expenses: 
Raw materials and consumables  (3 744)    (3 760)   
Staff costs1  (5 103)    (5 248)   
Royalties  (575)    (459)   
Contract mining  (2 409)    (2 308)   
Repairs and maintenance  (2 421)    (2 251)   
Railage and transport  (3 101)    (2 353)   
Movement in provisions (note 20) 1 100     (127)   
Movement in indemnification asset  (798)    139    
Depreciation and amortisation  (2 436)    (1 912)   
– Depreciation of property, plant and equipment  (2 237)    (1 849)   
– Depreciation of right-of-use assets  (71)    (59)   
– Amortisation of intangible assets  (128)    (4)   
Gain on deemed disposal of JV2  1 321    
Losses on share of cash flow hedge reserve recycled to profit or loss on deemed disposal of JV2  (59)   
Fair value adjustments on contingent consideration3  (3)    296    
Hedge ineffectiveness on cash flow hedges (note 23.2) (57)   
Legal and professional fees  (653)    (742)   
Net gains on disposal of property, plant and equipment  (92)   
Gain on disposal of joint operation4  17    
Gain on transfer of operation5    
Loss on disposal of operation  76    
Loss on loss of control of subsidiary  (35)   
Loss on dilution of investment in associates  (20)    (42)   
Gain on disposal of associate  270    
ECLs6  144     (165)   
Write down of inventory to net realisable value  (9)    (11)   
Insurance recoveries for  32     148    
– Business interruption  14     99    
– Property, plant and equipment  18     49    
1 2019 includes an amount of R459 million relating to TVPs.
2 Relates to the step-up acquisition of Cennergi (refer note 4).
3 2020: relates to the Cennergi acquisition; 2019: relates to the ECC acquisition.
4 Relates to EMJV.
5 Relates to Arnot.
6 2020: relates mainly to the reversal of ECLs as payments were received on non-performing other receivables.
2019: relates mainly to non-performing other receivables and the loan to Tumelo.

9. IMPAIRMENT CHARGES

For the year ended 31 December 
2020 
Reviewed 
Rm 
   2019 
Audited 
Rm 
  
ECC operation 
Impairment charges  (1 378)   
– Property, plant and equipment  (1 359)   
– Right-of-use assets  (19)   
Investments in associates 
Impairment charges  (504)    (58)   
– Insect Technology  (458)   
– Curapipe  (46)   
– GAM  (58)   
Reductants operation 
Impairment reversal  23    
– Property, plant and equipment  23    
Net impairment charges  (1 882)    (35)   
Tax effect1  236    
Net effect on attributable earnings  (1 646)    (35)   
1 Tax effect relates to the ECC operation.

ECC operation

On 31 December 2020, the ECC operation, met all the criteria in terms of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (IFRS 5) to be classified as a non-current asset held-for-sale (refer note 17). An impairment assessment in terms of IAS 36 Impairment of Non-current Assets (IAS 36) was required to be performed. The recoverable amount was determined to be its fair value less costs of disposal (which represents the discounted value of the offer price negotiated with the proposed buyer to the sales transaction).

Insect Technology

During 2020, Exxaro's investment in Insect Technology was no longer considered to be a strategic fit for Exxaro. Consequently Exxaro will not participate in any further fund raising.

Insect Technology was unable to raise funding for pre-commissioning, research and development as well as operational expenses. The delays in the fund raising had an impact on working capital requirements and the company found itself in severe financial distress. Due to the uncertainty of whether Insect Technology will continue as a going concern, a decision was taken to impair the investment.

On 31 December 2020, the equity interest in Insect Technology was impaired to nil.

Curapipe

The investment in Curapipe was identified not to be a strategic fit for Exxaro and as a result, Exxaro embarked on a divestment process during 2020 for the total equity interest in Curapipe. On 30 June 2020, the investment in Curapipe was impaired to US$1. Subsequently, the investment was sold on 9 November 2020.

10. NET FINANCING COSTS

For the year ended
31 December
  2020 
Reviewed 
Rm
 
  2019 
Audited 
Rm
 
   Finance income    215    318 
   Interest income    209    292 
   Reimbursement of interest income on environmental rehabilitation funds    (5)  
   Finance lease interest income     
   Commitment fee income     
   Interest income from loan to joint venture  11 
   Finance costs    (1 047)   (355)
   Interest expense    (984)   (506)
   Net fair value loss on interest rate swaps designated as cash flow hedges: transfer from OCI    (107)  
   – Realised fair value loss    (153)  
   – Unrealised fair value gain    46   
   Unwinding of discount rate on rehabilitation costs    (305)   (414)
   Recovery of unwinding of discount rate on rehabilitation costs    38    167 
   Interest expense on lease liabilities    (54)   (36)
   Amortisation of transaction costs    (9)   (14)
   Borrowing costs capitalised1    374    448 
   Total net financing costs    (832)   (37)
   1 Borrowing costs capitalisation rate:    7.79%    9.98% 

11. SHARE OF INCOME OF EQUITY-ACCOUNTED INVESTMENTS

For the year ended
31 December
2020 
Reviewed 
Rm
 
  (Re-presented)1
2019  
Audited  
Rm
  
    Associates  6 331    4 520  
    SIOC  6 125    4 413  
    Tronox SA  207    234  
    RBCT    1  
    Black Mountain1  122    52  
    Curapipe2  (1)   (4) 
    Insect Technology  (109)   (148) 
    LightApp  (18)   (28) 
    Joint ventures  80    173  
    Mafube  67    127  
    Cennergi3  13    46  
    Share of income of equity-accounted investments  6 411     4 693  
1 The investment in Black Mountain was previously presented as a discontinued operation. Refer note 2.3.
2 The investment in Curapipe was sold on 9 November 2020.
3 Equity-accounted income up to 31 March 2020.

12. DIVIDEND DISTRIBUTIONS

 

A final cash dividend, number 36, for 2020 of 1 243 cents per share, was approved by the board of directors on 16 March 2021. The dividend is payable on 3 May 2021 to shareholders who will be on the register on 30 April 2021. This final dividend, amounting to approximately R3 119 million (to external shareholders), has not been recognised as a liability in these condensed annual financial statements. It will be recognised in shareholders' equity in the year ending 31 December 2021.

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 994.4000 cents per share.

Taking into account the proceeds of R5 763 million received from the disposal of Exxaro's shareholding in Tronox Holdings plc, the board of directors has approved to pay a special dividend of 543 cents per share. The special dividend is payable on 3 May 2021 to shareholders who will be on the register on 30 April 2021. This special dividend, amounting to approximately R1 363 million (to external shareholders), has not been recognised as a liability in these condensed annual financial statements. It will be recognised in shareholder's equity in the year ending 31 December 2021.

The special 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 434.40000 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.

 
For the year ended
31 December
2020 
Reviewed 
Rm
 
  2019 
Audited 
Rm
 
Dividends paid (3 034)   (5 812)
Final dividend (relating to prior year) (1 420)   (1 393)
Special dividend (2 251)
Interim dividend (relating to current year) (1 614)   (2 168)
cents    cents 
Dividend paid per share 1 209    2 316 
Final dividend (relating to prior year) 566    555 
Special dividend 897 
Interim dividend (relating to current year) 643    864 
 
At 31 December
2020 
Reviewed 
Rm
 
  2019 
Audited 
Rm
 
Issued share capital (number of shares) 358 706 754   358 706 754
Ordinary shares (millions)
– Weighted average number of shares 251   251
– Diluted weighted average number of shares 251   251  

13. CAPITAL SPEND AND CAPITAL COMMITMENTS

At 31 December
2020 
Reviewed 
Rm
 
  2019 
Audited 
Rm
 
  Capital spend
  To maintain operations 2 225   2 502
  To expand operations 950   3 574
   Total capital spend 3 175   6 076
   Capital commitments
   Contracted 2 339   2 225
  – Contracted for the group (owner-controlled) 1 990   1 985  
  – Share of capital commitments of equity-accounted investments 349   240  
  Authorised, but not contracted 1 484   3 119  

14. INTANGIBLE ASSETS

At 31 December
2020 
Reviewed 
Rm
 
   2019 
Audited 
Rm
 
   Goodwill 
   Net carrying amount 
   Acquisition of subsidiaries (note 4) 521    
   At end of the year  521    
   Contracts with customers 
   Gross carrying amount 
   Acquisition of subsidiaries (note 4) 2 685    
   At end of the year  2 685    
   Accumulated amortisation 
   Charges for the year  (123)   
   At end of the year  (123)   
   Patents and licences 
   Gross carrying amount 
   At beginning of the year  43     38 
   Additions    
   Reclassification to non-current assets held-for-sale  (7)   
   Exchange differences    
   At end of the year  39     43 
   Accumulated amortisation 
   At beginning of the year  (27)    (23)
    Charges for the year  (5)    (4)
    Reclassification to non-current assets held-for-sale    
    At end of the year  (27)    (27)
   Net carrying amount at end of the year  3 095     16    

15. EQUITY-ACCOUNTED INVESTMENTS

At 31 December
2020 
Reviewed 
Rm
 
  (Re-presented)1 
2019 
Audited 
Rm
 
   Associates 18 594 15 928
   SIOC 12 820 9 835
   Tronox SA 2 628    2 472
   RBCT 2 053    2 067
   Black Mountain 995 872
   Curapipe2 37
   Insect Technology3    534
   LightApp 98    111
   Joint ventures 1 412 1 574
   Mafube 1 412    1 335
   Cennergi4    239
   Total carrying value of equity-accounted investments 20 006 17 502
 
1   Refer note 2.3.
2   The investment in Curapipe was sold on 9 November 2020 for US$1 under a deferred compensation offer comprising a cash component of US$1 and a contingent consideration receivable component. The contingent consideration receivable is dependent on the occurrence of certain transactions. At 31 December 2020, the occurrence of these transactions was considered not to be probable resulting in contingent consideration receivable of nil.
3   On 31 December 2020, the investment in Insect Technology was impaired to nil. Refer note 9.
4   The additional 50% interest in Cennergi was acquired on 1 April 2020 from which date the subsidiaries have been consolidated (refer note 4 for details of the business combination).

16. OTHER ASSETS

At 31 December
2020 
Reviewed 
Rm
 
  2019 
Audited 
Rm
 
   Non-current
   Reimbursements1 373 1 648
   Indemnification asset: Total S.A.2    1 410
   Biological assets 28    24
   Lease receivables 53 61
   Deferred costs 2
   Other 74    51
   Total non-current other assets 530   3 194
   Current
   Indemnification asset: Tronox Holdings plc   65
  VAT 504   501
  Royalties 127   114
  Prepayments 144   120
  Current tax receivables 198   265
  Lease receivables 6   6
  Other 41   33
   Total current other assets 1 020   1 104
Total other assets 1 550 4 298
 
1   Amounts recoverable from Eskom in respect of the rehabilitation, environmental expenditure and retirement employee obligations of the Matla operation at the end of LoM (2019: included Matla and Arnot operations).
2   Upon the acquisition of ECC in 2015, Total S.A. indemnified Exxaro from any obligations relating to EMJV.
    The indemnification lapsed in August 2020.

17. NON-CURRENT ASSETS AND LIABILITIES HELD-FOR-SALE

ECC operation

The ECC operation was identified as non-core to the future objectives of Exxaro. As a result, Exxaro embarked on a divestment process of the total equity interest in ECC.
On 31 December 2020, the ECC operation met all the criteria to be classified as a non-current asset held-for-sale in terms of IFRS 5.

The ECC operation is reported as part of the coal Mpumalanga reportable segment and 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.

Tronox Holdings plc

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 criteria in terms of IFRS 5 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.

Subsequently, Exxaro sold 22 425 000 Class A Tronox Limited ordinary shares during October 2017. During May 2019, Tronox Holdings plc repurchased
14 000 0000 Tronox Holdings plc ordinary shares from Exxaro after Tronox Limited had redomiciled to the UK. On 31 December 2020, management concluded that the remaining investment in Tronox Holdings plc continues to meet the criteria to be classified as a non-current asset held-for-sale in terms of IFRS 5.

The Tronox Holdings plc investment is presented within the total assets of the TiO2 reportable segment and is presented as a discontinued operation (refer note 6). Subsequent to year-end, the remaining 14 729 280 shares were sold on 1 March 2021 (refer note 27).

EMJV

As part of the ECC acquisition in 2015, Exxaro acquired non-current liabilities held-for-sale relating to the EMJV. The transaction was conditional on a section 43 consent required in terms of the MPRDA for transfer of the legal environmental liabilities and rehabilitation obligations to Scinta Energy Proprietary Limited. On 31 December 2020, all conditions precedent to the transaction were met and the transaction became effective.

The major classes of assets and liabilities classified as non-current assets and liabilities held-for-sale areas follows:

At 31 December
2020 
Reviewed 
Rm
 
   (Re-presented)1
2019  
Audited  
Rm
  
Assets 
Property, plant and equipment  841 
Right-of-use assets 
Intangible assets 
Investments in associates  1 741  1 741  
– Tronox Holdings plc  1 741  1 741  
Non-current financial assets  655 
– Environmental rehabilitation funds  655 
Inventories  149 
Current financial assets  139 
– Loans to associate: Tumelo  139 
Trade and other receivables  39 
– Trade receivables  29 
– Other receivables  10 
Other current assets  153 
Current tax receivable  21 
Cash and cash equivalents 
Non-current assets held-for-sale  3 749  1 741  
Liabilities 
Non-current lease liabilities  (13)
Other non-current payables  (7)
Non-current provisions  (724) (1 393) 
Retirement employee obligations  (1) (17) 
Deferred tax liabilities  (21)    
Trade and other payables  (289)    
– Trade payables  (76)
– Other payables  (213)
Current lease liabilities  (8)    
Current provisions  (2)   
Current tax payable  (1)
Other current liabilities  (72)   
Non-current liabilities held-for-sale  (1 138)    (1 410) 
Net non-current assets held-for-sale  2 611     331  
1    Refer note 2.3.

18. INTEREST-BEARING BORROWINGS

At 31 December
2020 
Reviewed 
Rm
 
   2019 
Audited 
Rm
 
   Non-current1  7 448  6 991 
   Loan facility2  1 748  5 991 
   Project financing3  4 700 
   Bonds  1 000  1 000 
   Current1  6 163  50 
   Loan facility2  6 050  46 
   Project financing3  110 
   Bonds 
   Total interest-bearing borrowings  13 611  7 041 
   Summary of interest-bearing borrowings by period of redemption: 
   Less than six months  107  54 
   Six to 12 months  6 056  (4)
   Between one and two years  1 379  2 744 
   Between two and three years  1 082  3 605 
   Between three and four years  915  (1)
   Between four and five years  349  643 
   Over five years  3 723 
    Total interest-bearing borrowings  13 611  7 041 
    1 Reduced by the amortisation of transaction costs of: 
      – Non-current  (2)     (9)
      – Current  (6)     (9)
    2 Exxaro is in the process of refinancing its loan facility as the current facility is expected to mature in July 2021.  
    3 Interest-bearing borrowings relating to the Cennergi group. 
    Overdraft     
    Bank overdraft  17     976 
 

The bank overdraft is repayable on demand. Interest 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, except for a technical non-compliance in relation to the project financing agreements which was rectified before the end of the year as agreed with the financial institutions.

Below is a summary of the salient terms and conditions of the facilities:

Loan facility
Year   Bullet term loan   Amortised
term loan
   Revolving1
facility 
     Aggregate nominal amount (Rm) 2020   3 250   1 750 4 750
2019   3 250   1 750 2 750
   Issue date or draw down date   29 July 2016   29 July 2016 29 July 2016
   Maturity date   29 July 2021   29 July 2023 29 July 2021
   Capital payments   The total outstanding amount is payable on final maturity date   Four consecutive semi-annual instalments commencing on the date occurring 18 months prior to the final maturity date The total outstanding amount is payable on final maturity date
   Duration (months)   60   84 60
   Secured or unsecured   Unsecured   Unsecured Unsecured
   Undrawn portion (Rm) 2020   nil   nil 2 000
2019 nil 1 750 nil
   Interest    
   Interest payment basis Floating rate Floating rate Floating rate
   Interest payment period   Three months   Three months Monthly
   Interest rate   3-month JIBAR plus a margin
of 325 basis points
(3.25%)
  3-month JIBAR plus a margin
of 360 basis points
(3.60%)
1-month JIBAR plus a margin
of 325 basis points
(3.25%)
     Effective interest rates for the transaction costs 2020   0.17%   N/A N/A
2019   0.17%   N/A N/A
 
1    An additional R2 billion accordion facility was made available from 1 July 2020.

 

Project financing1
Year   Tsitsikamma SPV
loan facility
  Amakhala SPV
loan facilities:
floating rate2
   Amakhala SPV
loan facilities:
fixed rate3
   Remaining nominal amount outstanding (Rm) 2020   1 918   2 734   158  
   Debt assumed date   1 April 2020   1 April 2020   1 April 2020  
   Maturity date   31 December 2030   30 June 2031   30 June 2031  
   Capital payments   Bi-annual installments ranging incrementally over the term from 0.18% to 10.65% of the nominal amount   Bi-annual installments ranging incrementally over the term from 0.18% to 10.65% of the nominal amount   Bi-annual installments ranging incrementally over the term from 0.18% to 10.65% of the nominal amount  
   Duration (months)   129   135   135  
   Secured or unsecured4   Secured   Secured   Secured  
   Undrawn portion (Rm) 2020   122   273    
   Interest5        
Interest payment basis Floating rate Floating rate Fixed rate
   Interest payment period   Bi-annual   Bi-annual   Bi-annual  
   Interest rate 3-month JIBAR plus a margin of
264 basis points
(2.64%)
3-month JIBAR plus an all in margin ranging from 359 basis points to
681 basis points
(3.59% to 6.81%)
An all in margin ranging from 371 basis points to 681 basis points
(3.71% to 6.81%) plus:(1) 8.00% until June 2021 (2) 9.46% from July 2021 to maturity
   Effective interest rates for the transaction costs 2020   N/A   N/A   N/A  
 
1  Debt assumed from Cennergi business combination as of 1 April 2020. Refer note 4.
2  Comprising the following loan facilities at the specified all in margin:
  – Senior A and C +3.59
  – Senior IFC +3.71
  – Subordinate A and C +6.69
  – Subordinate IFC +6.81
  These margins are subject to variation.
3  Comprising the following loan facilities at the specified all in margin:
  – Senior B +3.71
  – Subordinate B +6.81
4  Security held over the assets and share capital of Tsitsikamma SPV and Amakhala SPV respectively.
5  Interest payments are hedged from a floating rate to a fixed rate. Refer note 23.2.2.

 

DMTN Programme (bonds)
Year   R357 million
senior unsecured
floating rate note
  R643 million
senior unsecured
floating rate note
 
     Aggregate nominal amount (Rm) 2020   357   643  
2019   357   643  
   Issue date or draw down date   13 June 2019   13 June 2019  
   Maturity date   13 June 2022   13 June 2024  
   Capital payments   No fixed or determined payments, the total outstanding amount is payable on final maturity date   No fixed or determined payments, the total outstanding amount is payable on final maturity date  
   Duration (months)   36   60  
   Secured or unsecured   Unsecured   Unsecured  
   Interest      
Interest payment basis Floating rate Floating rate
   Interest payment period   Three months   Three months  
   Interest rate 3-month JIBAR plus a margin of 165 basis points (1.65%) 3-month JIBAR plus a margin of 189 basis points (1.89%)
   Effective interest rates for the transaction costs 2020   N/A   N/A  
2019   N/A   N/A  

19. LEASE LIABILITIES

At 31 December 
2020 
Reviewed 
Rm
 
   2019 
Audited 
Rm
 
  
Non-current  493     461    
Current  29     27    
Total lease liabilities  522     488    
Summary of lease liabilities by period of redemption: 
Less than six months  14     15    
Six to 12 months  15     12    
Between one and two years  34     28    
Between two and three years  43     34    
Between three and four years  43     34    
Between four and five years  53     43    
Over five years  320     322    
Total lease liabilities  522     488    
Analysis of movement in lease liabilities 
At beginning of the year  488       
Recognised on initial application of IFRS 16 Leases  66    
Balance at 1 January  488     68    
New leases  24     458    
Lease terminations  (12)   
Acquisition of subsidiaries  55    
Reclassification to non-current liabilities held-for sale  (21)   
Lease remeasurement adjustments  10       
Lease modification adjustments  (3)   
Exchange difference on translation    
Capital repayments  (32)    (33)   
– Lease payments  (86)    (69)   
– Interest charges  54     36    
At end of the year  522     488    

The lease liabilities relate to the right-of-use assets. Interest is based on incremental borrowing rates ranging between 7.33% and 10.44% (2019: 7.85% and 10.44%).

20. PROVISIONS

Environmental rehabilitation             
Restoration 
Rm
 
Decommis- 
sioning 
Rm
 
Residual 
impact 
Rm
 
Other site 
closure 
costs 
Rm
 
Other1
Rm 
 
Total 
Rm
 
  
At 31 December 2020 
At beginning of the year  2 432  544  1 345  83  4 404    
Charge to operating expenses (note 8) (60) (85) (986) 14  17   (1 100)   
– Additional provisions  316  14  44  16  17   407    
– Unused amounts reversed2  (376) (99) (1 030) (2) (1 507)   
Unwinding of discount rate on rehabilitation costs (note 10) 169  44  92  305    
Provisions capitalised to property, plant and equipment  (88) (88)   
Utilised during the year  (18) (3) (16) (3)  (40)   
Reclassification to non-current liabilities held-for-sale  (467) (52) 576  (2) 55    
Acquisition of subsidiaries  29  39    
Transfer of operation  (642) (97) (705) (1 444)   
Total provisions at end of the year  1 420  295  323  79  14   2 131    
– Non-current  1 284  295  300  60  7   1 946    
– Current  136  23  19  7   185    
At 31 December 2019 
At beginning of the year  2 516  451  975  80  4 022    
Charge to operating expenses (note 8) (244) 52  301  18  127    
– Additional provisions  374  56  403  19  852    
– Unused amounts reversed  (618) (4) (102) (1) (725)   
Unwinding of discount rate on rehabilitation costs (note 10) 228  47  139  414    
Provisions capitalised to property, plant and equipment  (4) (4)   
Utilised during the year  (58) (15) (73)   
Reclassification to non-current liabilities held-for-sale  (4) (69) (73)   
Loss of control of subsidiary  (6) (2) (1) (9)   
Total provisions at end of the year  2 432  544  1 345  83  4 404    
– Non-current  2 366  544  1 334  61  4 305    
– Current  66  11  22  99    
1 Relates to a constructive obligation created with certain BEE minorities within the Cennergi group to receive distributions in proportion to their percentage interest prior to their in substance share options being exercised.
2 The residual impact includes an adjustment to the EMJV environmental rehabilitation provision, amounting to R818 million.

21. NET DEBT

At 31 December 
  2020 
Reviewed 
Rm
 
   2019 
Audited 
Rm
 
  
Net debt is presented by the following items on the statement of financial position: 
Non-current interest-bearing debt  (7 954)    (7 452)   
Interest-bearing borrowings  (7 448)    (6 991)   
Lease liabilities  (493)    (461)   
Lease liabilities classified as non-current liabilities held-for-sale  (13)   
Current interest-bearing debt  (6 200)    (77)   
Interest-bearing borrowings  (6 163)    (50)   
Lease liabilities  (29)    (27)   
Lease liabilities classified as non-current liabilities held-for-sale  (8)   
Net cash and cash equivalents  3 187     1 719    
Cash and cash equivalents  3 196     2 695    
Cash and cash equivalents classified as non-current assets held-for-sale    
Overdraft  (17)    (976)   
Total net debt  (10 967)    (5 810)   

Analysis of movement in net debt:

Liabilities arising from financing activities      
Cash and 
cash 
equivalents/ 
(overdraft)
Rm
 
   Non- 
current 
interest- 
bearing debt 
Rm
 
   Current 
interest- 
bearing debt 
Rm
 
   Total 
Rm
 
  
Net debt at 31 December 2018 (Audited) 549     (3 843)    (573)    (3 867)   
Cash flows  1 171     (3 148)    553     (1 424)   
Operating activities1  3 483     3 483    
Investing activities  2 974     2 974    
Financing activities1  (5 286)    (3 148)    553     (7 881)   
– Interest-bearing borrowings raised  4 250     (3 750)    (500)   
– Interest-bearing borrowings repaid  (1 622)    602     1 020    
– Lease liabilities paid  (33)    33    
– Dividends paid to owners of the parent1  (5 812)    (5 812)   
– Shares acquired in the market to settle share-based payments  (678)    (678)   
– Dividends paid to BEE Parties  (1 391)    (1 391)   
 
Non-cash movements  (1)    (461)    (57)    (519)   
Amortisation of transaction costs  (14)    (14)   
Preference dividend accrued  13     13    
Interest accrued       
Lease remeasurements  (7)    (7)   
New leases  (524)    (524)   
Lease liabilities cancelled  12     12    
Transfers between non-current and current liabilities  57     (57)   
Translation difference on movement in cash and cash equivalents  (1)    (1)   
Net debt at 31 December 2019 (Audited) 1 719     (7 452)    (77)    (5 810)   
1 Dividends paid to owners of the parent have been re-presented as a financing activity (previously presented as an operating activity).
Liabilities arising from financing activities      
Cash and 
cash equivalents/ 
(overdraft)
Rm
 
   Non- 
current 
interest- 
bearing debt 
Rm
 
   Current 
interest- 
bearing debt 
Rm
 
   Total 
Rm
 
Net debt at 31 December 2019 (Audited) 1 719     (7 452)    (77)    (5 810)
Cash flows  1 468     (1 750)    120     (162)
Operating activities  5 493     5 493 
Investing activities  (1 556)    (1 556)
Financing activities  (2 469)    (1 750)    120     (4 099)
– Interest-bearing borrowings raised  1 750     (1 750)   
– Interest-bearing borrowings repaid  (88)    88    
– NCI option exercised  115     115 
– Distributions to NCI option holders  (1)    (1)
– Loan from NCI  69     69 
– Lease liabilities paid  (32)    32    
– Dividends paid to owners of the parent  (3 034)    (3 034)
– Shares acquired in the market to settle share-based payments  (270)    (270)
– Dividends paid to BEE Parties  (978)    (978)
Non-cash movements  1 248     (6 243)    (4 995)
Amortisation of transaction costs  (9)    (9)
Interest accrued  114     114 
Lease remeasurements and modifications  (7)    (7)
New leases  (24)    (24)
Acquisition of subsidiaries (note 4) (4 847)    (222)    (5 069)
– Leases  (48)    (7)    (55)
– Project financing  (4 799)    (215)    (5 014)
Transfers between non-current and current liabilities  6 126     (6 126)   
Net debt at 31 December 2020 (Reviewed) 3 187     (7 954)    (6 200)    (10 967)

22. OTHER LIABILITIES

At 31 December
2020
Reviewed
Rm
  2019
Audited
Rm
Non-current
Termination benefits1 144
Income received in advance 27   23
Total non-current other liabilities 27   167
Current
Termination benefits1 205   305
Leave pay 225   203
Bonuses 271   241
VAT 31   21
Royalties 9
Carbon tax 5  
Current tax payables 34   50
Other current liabilities 90   97
Total current other liabilities 861   926
Total other liabilities 888   1 093
1 During 2019, Exxaro announced the implementation of TVPs. Under this policy, employees that qualified would receive a severance package in exchange for termination of employment.

23. FINANCIAL INSTRUMENTS

The group holds the following financial instruments:

At 31 December    
2020 
Reviewed 
Rm
 
   2019 
Audited 
Rm
 
Non-current 
Financial assets 
Financial assets at FVOCI  222     235 
Equity: unlisted – Chifeng  222     235 
Financial assets at FVPL  1 247     2 039 
Debt: unlisted – environmental rehabilitation funds  1 247     2 039 
Financial assets at amortised cost  672     400 
ESD loans1  79     124 
Other financial assets at amortised cost  593     276 
– Environmental rehabilitation funds  386    
– Deferred pricing receivable2  212     279 
– Impairment allowances  (5)    (3)
Financial liabilities 
Financial liabilities at amortised cost  (7 541)    (7 112)
Interest-bearing borrowings  (7 448)    (6 991)
Other payables  (24)    (121)
Loan from NCI3  (69)   
Derivative financial liabilities designated as hedging instruments  (713)   
Hedging derivatives – interest rate swaps4  (713)   
1 Interest-free loans advanced to successful applicants in terms of the Exxaro ESD programme.
2 Relates to a deferred pricing adjustment which arose during 2017. The amount receivable will be settled over seven years (ending 2024) and bears interest at Prime Rate less 2%
3 Loan payable to a BEE minority shareholder of Tsitsikamma SPV. The loan bears interest at a fixed rate of 16.3%, is unsecured and has no fixed terms of repayment, but is subject to cash being available and covenants approvals from the project financiers.
4 Refer note 23.2.
At 31 December  
2020 
Reviewed 
Rm 
   2019 
Audited 
Rm 
Current 
Financial assets 
Financial assets at amortised cost  6 192     6 208 
Loans to associates and joint ventures  133 
Associates  133 
– Tumelo1  182 
– Impairment allowances  (49)
ESD loans2  105     82 
– Gross  106     83 
– Impairment allowances  (1)    (1)
Other financial assets at amortised cost  64     57 
– Deferred pricing receivable3  64     57 
– Deferred consideration receivable4    
– Employee receivables    
– Impairment allowances  (5)    (6)
Trade and other receivables  2 827     3 241 
Trade receivables  2 698     2 928 
– Gross  2 793     3 023 
– Impairment allowances  (95)    (95)
Other receivables  129     313 
– Gross  153     464 
– Impairment allowances  (24)    (151)
Cash and cash equivalents  3 196     2 695 
Financial liabilities 
Financial liabilities at amortised cost  (9 120)    (3 936)
Interest-bearing borrowings  (6 163)    (50)
Deferred consideration payable (307)
Trade and other payables  (2 940)    (2 603)
– Trade payables  (1 371)    (1 164)
– Other payables  (1 569)    (1 439)
Overdraft  (17)    (976)
Financial liabilities at FVPL  (49)    (191)
Derivative financial liabilities  (49)   
Contingent consideration (191)
1 Loan granted to Tumelo. The loan is interest free, unsecured and repayable on demand, unless otherwise agreed by the parties.
2 Interest-free loans advanced to successful applicants in terms of the Exxaro ESD programme.
3 Relates to a deferred pricing adjustment which arose during 2017. The amount receivable will be settled over seven years (ending 2024) and bears interest at Prime Rate less 2%.
4 Relates to deferred consideration receivable which arose on the disposal of mineral properties.
5 Relates to deferred consideration payable in relation to the acquisition of the investment in Insect Technology.
6 Relates to the ECC contingent consideration which was fully settled in January 2020.

The group has granted the following loan commitments:


At 31 December
2020
Reviewed
Rm
  2019
Audited
Rm
 
Total loan commitment 981   1 206  
Mafube1 250   500  
Insect Technology2 731   706  
Undrawn loan commitment 981   1 206  
Mafube 250   500  
Insect Technology 731   706  
1 Revolving credit facility available for five years, ending 2023.
2 A US$50 million term loan facility available from 2020 to 2025 subject to certain conditions being met. On 31 January 2021 the term loan facility lapsed.
23.1 Fair value hierarchy
 

The table below analyses recurring fair value measurements for financial assets and financial liabilities. These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to the valuation techniques used. The different levels are defined as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date.
Level 2 – Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable.
Level 3 – Inputs that are not based on observable market data (unobservable inputs).

At 31 December 2020 (Reviewed) Fair value 
Rm 
   Level 2 
Rm 
   Level 3 
Rm 
  
Financial assets at FVOCI  222     222    
Equity – unlisted: Chifeng  222     222    
Financial assets at FVPL  1 247     1 247    
Non-current debt – unlisted: Environmental rehabilitation funds  1 247     1 247    
Derivative financial liabilities  (49)    (49)   
Current derivative financial liabilities  (49)    (49)   
Derivative financial liabilities designated as hedging instruments  (713)    (713)   
Non-current hedging derivatives: Interest rate swaps  (713)    (713)   
Net financial assets held at fair value  707     485     222    
At 31 December 2019 (Audited) Fair value 
Rm 
  Level 2 
Rm 
  Level 3 
Rm 
 
Financial assets at FVOCI  235    235   
Equity: unlisted – Chifeng  235    235   
Financial assets at FVPL  2 039    2 039   
Non-current debt – unlisted: Environmental rehabilitation funds  2 039    2 039   
Financial liabilities at FVPL  (191)   (191)  
Current contingent consideration  (191)   (191)  
Net financial assets held at fair value  2 083    2 039    44   

Reconciliation of financial assets and financial liabilities within Level 3 of the hierarchy:

Contingent 
consideration 
Rm 
Chifeng 
Rm 
   Total 
Rm 
  
At 31 December 2018 (Audited) (849)    185  (664)   
Movement during the year 
Gains recognised in OCI (pre-tax effect)1  50  50    
Gains recognised in profit or loss  296     296    
Settlements  344    
Exchange gains recognised in profit or loss  18     18    
At 31 December 2019 (Audited) (191)    235  44    
Movement during the year 
Losses recognised in OCI (pre-tax effect)1  (13) (13)   
Losses recognised in profit or loss  (3)    (3)   
Acquisition of subsidiaries2  (98)    (98)   
Settlements 296     296    
Exchange losses recognised in profit or loss  (4)    (4)   
At 31 December 2020 (Reviewed) 222  222    
1 Tax on Chifeng amounts to nil (31 December 2019: nil).
2 Relates to the acquisition of remaining 50% interest in Cennergi (refer note 4).
3 Relates to the ECC contingent consideration, amounting to R195 million, which was fully settled in January 2020 and the Cennergi contingent consideration, amounting to R101 million, which was fully settled in December 2020.

Transfers

The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfer has occurred. There were no transfers between Level 1 and Level 2 nor between Level 2 and Level 3 of the fair value hierarchy.

Valuation process applied

The fair value computations of the investments are performed by the group's corporate finance department, reporting to the finance director, on a six-monthly basis. The valuation reports are discussed with the chief operating decision maker and the audit committee in accordance with the group's reporting governance.

Current derivative financial instruments

Level 2 fair values for simple over-the-counter derivative financial instruments are based on market quotes. These quotes are assessed for reasonability by discounting estimated future cash flows using the market rate for similar instruments at measurement date.

Environmental rehabilitation funds

Level 2 fair values for debt instruments held in the environmental rehabilitation funds are based on quotes provided by the financial institutions at which the funds are invested at measurement date. These financial institutions invest in instruments which are listed.

Interest rate swaps

Level 2 fair values for interest rate swaps are based on valuations provided by the financial institutions with whom the swaps have been entered into and take into account credit risk. The valuations are assessed for reasonability by discounting the estimated future cash flows based on observable ZAR swap curves.

23.2 Hedge accounting: Cash flow hedges
23.2.1 Accounting policy: Hedge accounting
 

The group has designated as cash flow hedges, and found to be effective, its interest rate swaps that cover a portion of the interest rate cash flows on certain of the project financing interest-bearing borrowings.

At inception of the hedge relationship, the risk management objective and strategy for undertaking the hedged transactions as well as the economic relationship between the hedging instruments and hedged items (including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items) is documented.

The effectiveness of the hedging instrument offsetting changes in cash flows of the hedged item attributable to the hedged risk is assessed and documented at inception and on an ongoing basis. The hedge relationship is determined to be effective when all of the following requirements are met:

  • There is an economic relationship between the hedged item and the hedging instrument
  • The effect of credit risk does not dominate the value changes that result from that economic relationship
  • The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that is actually hedged and the quantity of the hedging instrument that is actually used to hedge that quantity of the hedged item.

If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging relationship remains the same, the hedge ratio of the hedging relationship is adjusted (ie rebalances the hedge) so that it meets the qualifying criteria again.

The full fair value of a derivative designated and found to be effective as a hedging instrument is classified as:

  • A non-current financial asset or financial liability when the remaining maturity of the hedged item is more than 12 months; or
  • A current financial asset or financial liability when the remaining maturity of the hedged item is less than 12 months.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in OCI and accumulated in the cash flow hedge reserve within equity, but limited to the cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, within other operating expenses.

Amounts previously recognised in OCI and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item, namely finance costs.

Furthermore, in cases where it is expected that some or all of the loss accumulated in the cash flow hedge reserve will not be recovered in the future, that amount is immediately reclassified to profit or loss.

Hedge accounting is discontinued only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation is accounted for prospectively. Any gain or loss recognised in OCI and accumulated in the cash flow hedge reserve at that time remains in equity and is reclassified to profit or loss when the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in the cash flow hedge reserve is reclassified immediately to profit or loss.

23.2.2 Financial risk management: Market risk management – interest rate risk management
 

The group is exposed to interest rate risk as it borrows and deposits funds at floating interest rates on the money market and extended bank borrowings. The group's main interest rate risk arises from long-term borrowings with floating rates, which expose the group to cash flow interest rate risk. The risk is managed by undertaking controlled management of the interest structures of the investments and borrowings, maintaining an appropriate mix between fixed and floating interest rate facilities in line with the interest rate expectations. The group also uses interest rate swaps and interest rate forwards to manage the interest rate risk exposure.

As part of the Cennergi business combination the group has assumed Cennergi's borrowings and interest rate swaps as financial liabilities. The contractual terms of these borrowings required interest rate swaps (hedging instruments) to be entered into to swap out the floating interest rate of the underlying project financing (hedged items) for a fixed interest rate. This was required to fix the future expected returns given the long-term nature of the project financing. The group amended its risk management strategy as follows:

  • When the contractual terms of the borrowings and covenants thereof require the use of hedging instruments to mitigate the risk of fluctuations of the underlying interest rate risk cash flow exposure and the impact on the profit or loss of specific projects being financed, the group looks to apply hedge accounting where an effective hedge relationship is expected and to the extent that such exposure poses a real risk to the achievement of the loan covenants.

Project financing

The group is exposed to the risk of variability in future interest payments on the project financing, attributable to fluctuations in 3-month JIBAR. The designated hedged item is the group of forecast floating interest rate cash flows arising from the project financing, up to the notional amount of each interest rate swap, over the term of the hedging relationship. The notional amounts per interest rate swap match up to the designated exposure being hedged.

Where all relevant criteria are met, hedge accounting is applied to remove the accounting mismatch between the hedging instrument and the hedged item. This will effectively result in recognising interest expense at a fixed interest rate for the hedged project financing.

Hedge effectiveness:

The group has assumed certain interest rate swaps from its business combination with Cennergi that have similar critical terms as the hedged item, such as reference rates, reset dates, payment dates, maturities and notional amounts. The group does not hedge 100% of its project financing, therefore the hedged item is identified as a proportion of the outstanding project financing up to the notional amount of the interest rate swaps. As all critical terms matched during the year, there is an economic relationship.

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments, to ensure that an economic relationship exists between the hedged item and hedging instrument.

Hedge ineffectiveness for interest rate swaps is assessed frequently. It may occur due to:

  • The DVA on the interest rate swaps which is not matched by the project financing
  • Differences in critical terms between the interest rate swaps and project financing.

The recognised ineffectiveness in 2020 amounted to R57 million and is mainly as a result of the DVA. Credit valuation adjustments are not considered due to the terms of the underlying loans, which allow for set-off.

The swap contracts require settlement of net interest receivable or payable every six months. The settlement dates coincide with the dates on which interest is payable on the underlying debt.

The following tables detail the financial position and performance of the interest rate swaps outstanding at the end of the reporting period and their related hedged items.

At 31 December  2020 
Reviewed 
Rm 
  
Hedging instruments: Outstanding receive floating, pay fixed contracts 
– Nominal amount  4 219    
– Carrying amount  (713)   
– Cumulative change in fair value used for calculating hedge ineffectiveness  549    
Hedged items: Cash flows on floating rate project financing linked to JIBAR 
– Nominal amount  4 219    
– Carrying amount in cash flow hedge reserve (gross) for continuing hedges  428    
– Cumulative change in value used for calculating hedge ineffectiveness 428   
For the year ended 31 December  2020 
Reviewed 
Rm
 
  
Change in fair value of outstanding hedging instruments since 1 April 2020:  478    
– Change in the value of the hedging instrument recognised in OCI  535    
– Hedge ineffectiveness recognised in operating expenses  (57)   
Amount reclassified from hedging reserve to profit or loss included in finance costs  107    

The interest rate swaps settle on a bi-annual basis. The group settles the difference between the fixed and floating interest rate (3-month JIBAR) on a net basis. The
3-month JIBAR is swapped out to a fixed rate as follows:

  • Tsitsikamma SPV floating rate facility: 9.55% up to 30 June 2030
  • Amakhala SPV floating rate facilities:
    • IFC facilities: 8.42% up to 30 June 2031
    • A and C banking facilities: 8.00% up to 30 June 2021
      • 9.46% up to 30 June 2026.

Hedging reserves

The hedging reserve relates to the fair value movements on cash flow hedges of interest rate swaps. The reserve is included within the financial instruments revaluation reserve on the statement of changes in equity, which includes the group's share of movements in its equity-accounted investees' hedging reserves.

Financial instruments revaluation reserve composition:

At 31 December  2020 
Reviewed 
Rm 
   2019 
Audited 
Rm 
  
Balance of share of movements of equity-accounted investees  (2)    23    
Cash flow hedge reserve - interest rate swaps  308    
– Gross  428    
– Deferred tax on swap  (120)   
NCI share of hedging reserve  (51)    12    
Financial instruments revaluation reserve  255     35    

Movement analysis of cash flow hedge reserve – interest rate swaps:

Gross 
Rm 
   Tax 
Rm 
   Net 
Rm 
  
Movement during the year 
Change in fair value of interest rate swaps recognised in OCI  535     (150)    385    
Reclassification from OCI to profit or loss in finance costs  (107)    30     (77)   
At 31 December 2020 (Reviewed) 428     (120)    308    

24. CONTINGENT LIABILITIES

At 31 December
2020
Reviewed
Rm
  2019
Audited
Rm
 
Pending litigation and other claims1 1 103  
Operational guarantees2 4 531   4 506  
– Financial guarantees ceded to the DMRE 4 239   3 994  
– Other financial guarantees3 292   512  
Total contingent liabilities 4 531   5 609  
1 Deltatex Holdings Limited's leave to appeal to the Constitutional Court was dismissed with costs.
2 Includes guarantees to banks and other institutions in the normal course of business from which it is anticipated that no material liabilities will arise.
3 Includes a guarantee to Khopoli, amounting to R85 million, which lapsed on 1 January 2021.
The timing and occurrence of any possible outflows of the contingent liabilities above are uncertain.

Share of equity-accounted investments' contingent liabilities:

At 31 December
2020
Reviewed
Rm
  2019
Audited
Rm
 
Share of contingent liabilities of equity-accounted investments1 1 535   1 060  
1 Mainly operational guarantees issued by financial institutions relating to environmental rehabilitation and closure costs as well as tax disputes with SARS.

25. RELATED PARTY TRANSACTIONS

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.

26. GOING CONCERN

Based on the latest results for the year ended 31 December 2020, the latest board-approved budget for 2021, as well as the available banking facilities and cash generating capability, Exxaro satisfies the criteria of a going concern.

27. EVENTS AFTER THE REPORTING PERIOD

Details of the final dividend are provided in note 12.

Subsequent to 31 December 2020, the following notable events have occurred:

Tronox SA flip-in

On 23 February 2021, Tronox Holdings plc exercised its "flip-in" call option over Exxaro's 26% shareholding in Tronox SA, for which Tronox Holdings plc delivered
7 246 035 newly-issued Tronox Holdings plc ordinary shares to Exxaro on 24 February 2021. With these additional Tronox Holdings plc ordinary shares, Exxaro owned 21 975 315 Tronox Holdings plc ordinary shares, representing approximately 14.6% of Tronox Holdings plc's total outstanding voting shares.

Tronox Holdings plc disposal

On 24 February 2021, Exxaro announced the commencement of a public offering in the United States of up to 17 million ordinary shares in Tronox Holdings plc. Furthermore, Exxaro granted the underwriters a 30-day option to purchase up to 2.55 million additional Tronox Holdings plc ordinary shares from Exxaro at the public offering price, less underwriting discounts and commissions.

On 25 February 2021, Exxaro announced the pricing of its upsized offering of 19 108 970 Tronox Holdings plc ordinary shares at a public offering price of US$18.25 per share for a total net proceeds of approximately US$332 million (approximately R4.81 billion), after deducting underwriting discounts and commissions. In addition, Exxaro granted the underwriters a 30-day option to purchase up to an additional 2 866 345 Tronox Holdings plc ordinary shares (Option shares). Settlement was expected to occur on 1 March 2021. Subsequent to the sale, Exxaro's ownership in Tronox Holdings plc would have reduced to the Option shares, which represented approximately 1.9% of Tronox Holdings plc outstanding voting shares.

On 2 March 2021, Exxaro announced that the underwriters fully exercised the Option. Following the disposal on 1 March 2021 Exxaro no longer owned any Tronox Holdings plc ordinary shares.

Exxaro has therefore concluded its stated strategy to monetise its stake in Tronox over time in the best possible manner taking into account prevailing market conditions. The funds from the disposal of the Tronox Holdings plc ordinary shares will be used to repay debt, invest in renewable energy projects and make distributions to shareholders in accordance with Exxaro's capital allocation framework.

South African corporate tax rate change

On 24 February 2021, the Minister of Finance announced a reduction in the corporate tax rate from 28% to 27%. This will be effective for years of assessment commencing on or after 1 April 2022.

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.

28. EXTERNAL AUDITOR'S REVIEW CONCLUSION

These reviewed condensed group annual financial statements for the year ended 31 December 2020, as set out on Condensed group statement of changes in equity to
notes to the reviewed condensed group annual financial statement, have been reviewed by the external auditor, PricewaterhouseCoopers Inc., who expressed an unmodified review conclusion. A copy of the auditor's review report on the condensed group annual financial statements is available for inspection at Exxaro's registered office, together with the financial statements identified in the external auditor's report.

The auditor's report does not necessarily report on all information contained in these financial results. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's engagement they should obtain a copy of the auditor's report together with the accompanying financial information from Exxaro's registered office.

29. KEY MEASURES1

At 31 December
2020   2019  
Closing share price (rand per share) 138.90   131.14  
Market capitalisation (Rbn) 49.82   47.04  
Average rand/US$ exchange rate (for the year ended) 16.45   14.44  
Closing rand/US$ spot exchange rate 14.62   14.13  
1 Non-IFRS numbers.