NOTES TO THE REVIEWED CONDENSED GROUP INTERIM 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), TiO2 (non-controlled), ferrous (controlled and  non-controlled) and energy (non-controlled) markets. These reviewed condensed group interim financial statements as at and for the six-month period ended 30 June 2019 (interim 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 interim financial statements have been prepared in accordance with IFRS (as issued by the IASB), IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides (as issued by the Accounting Practices Committee), Financial Reporting Pronouncements (as issued by the Financial Reporting Standards Council), the requirements of the Companies Act of South Africa and the JSE Listings Requirements.

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

The interim financial statements should be read in conjunction with the group annual financial statements as at and for the year ended 31 December 2018, which have been prepared in accordance with IFRS. The interim 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. This is the first set of interim financial statements where IFRS 16 Leases (IFRS 16) has been applied. Changes to significant accounting policies are described in note 4.

The interim financial statements of the Exxaro group were authorised for issue by the board of directors on 20 August 2019.

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 2018, except for new judgements and assumptions related to the adoption of IFRS 16 as described in note 4.3.

3. ACCOUNTING POLICIES

The accounting policies applied in the preparation of the interim financial statements are consistent with those of the group annual financial statements as at and for the year ended 31 December 2018, except for the estimation of income tax and the adoption of new or amended standards as set out below.

3.1 Income tax
 

Income tax expense is recognised based on management’s estimate of the weighted average effective annual tax rate expected for the full financial year. As such, the effective tax rate used in the interim financial statements may differ from management’s estimate of the effective tax rate for the group annual financial statements. The estimated weighted average effective annual tax rate used for the six-month period ended 30 June 2019 is 14.9%, compared to 20.1% for the six-month period  ended 30 June 2018.

The main reconciling items between the standard tax rate of 28% and the effective tax rate result from:

  • Share of income or loss of equity-accounted investments and dividend income (-10.9%)
  • Capital gains (-6.8%)

Partly offset by:

  • Prior year adjustments (+2.4%)
3.2 Carbon tax
 

The Carbon Tax Bill has been implemented with an effective date of 1 June 2019. The registration forms and payment procedures have not been finalised nor issued yet. The first payment of the carbon tax levy is due 30 June 2020, relating to the period 1 June 2019 to 31 December 2019.

3.3 New or amended standards adopted by the group
 

A number of new or amended standards became effective for the current reporting period.

The group has adopted IFRS 16 for the first time for the six-month period commencing on 1 January 2019. The adoption of IFRS 16 has resulted in the group changing its accounting policies. The impact of the adoption and the new accounting policies are disclosed in note 4.

3.4 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 30 June 2019, have not been adopted. The group continuously evaluates the impact of these standards and amendments.

4. CHANGES IN ACCOUNTING POLICIES

This note explains the impact of the adoption of IFRS 16 on the interim financial statements and also discloses the new leases accounting policies that have been applied from 1 January 2019.

Overview of changes resulting from the adoption of IFRS 16

IFRS 16 replaces IAS 17 Leases (IAS 17), IFRIC 4 Determining whether an Arrangement contains a Lease (IFRIC 4), SIC 15 Operating Leases-Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard establishes a new definition and criteria to identify whether a contract is, or contains, a lease as well as principles for the recognition, measurement, presentation and disclosure of leases. For lessee accounting, a single accounting model is introduced that requires lessees to recognise assets and liabilities for all leases. The standard, however, allows an optional exemption to recognise leases with a lease term of less than 12 months (short-term leases) or leases of low value assets in profit or loss on a straight-line basis. For lessor accounting, IFRS 16's approach is substantially unchanged from IAS 17. Lessor's continue to classify leases as either operating leases or finance leases. Subleases are classified with reference to the underlying right-of-use asset of the head lease.

Refer note 4.1 for details of the group's transition to IFRS 16.
Refer note 4.2 for the new accounting policy applied from 1 January 2019.
Refer note 4.3 for the judgements and assumptions made by management in applying the related accounting policies.
Refer note 8, 13 and 19 for the related disclosures of leases.

Leasing activities (as a lessee)

The group leases various land, buildings and equipment as the need arises. Lease contracts are typically made for fixed periods between 18 months to 15  years but may have extension options. Lease contracts are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease contracts do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Extension and termination options are included in a number of leases across the group. These options are used to maximise operational flexibility in terms of managing lease contracts. The majority of extension and termination options held are exercisable only by the group and not by the respective lessor.

4.1 Transition
4.1.1 Transition method, exemptions and practical expedients applied
 

As lessor

The group had no adjustments to its lessor accounting.

As lessee

IFRS 16 has been adopted using the cumulative effect method. In terms of this method, comparative information has not been restated. Instead, the cumulative effect of initially applying IFRS 16 has been recognised as an adjustment to the opening balance of retained earnings on date of initial application (being 1 January 2019).

In applying IFRS 16 for the first time, the group has elected the following practical expedients:

(a) In applying the definition of a lease:

  • The group has elected not to re-assess whether a contract is, or contains, a lease at the date of initial application. Instead, the group has applied this standard, at date of initial application, to all contracts previously identified as leases in terms of IAS 17 and IFRIC 4. Therefore the definition of a lease in terms of IFRS 16 will only be applied to contracts entered into or changed on or after 1 January 2019.

(b) In determining the transition adjustments of leases previously classified as operating leases:

  • Leases of low value assets were excluded as the group has elected the exemption to not apply
    lease accounting to these leases from 1 January 2019
  • Leases with a lease term of less than 12 months on initial application were excluded and accounted for as short-term leases from 1 January 2019 (recognised through profit or loss on a straight-line basis)
  • Initial direct costs of leases were excluded from the measurement of the right-of-use assets recognised on 1 January 2019; and
  • Hindsight was applied to determine the lease term for contracts containing options to extend or terminate the lease.
4.1.2 Impact on retained earnings at 1 January 2019
 

The impact on retained earnings at 1 January 2019 is summarised as follows:

     Note        Rm       
Closing balance at 31 December 2018 (IAS 17)          32 797       
Adjustments from the adoption of IFRS 16, net of tax           (13)      
Adjustment from Exxaro's adoption of IFRS 16, net of tax           (2)     
Portion of gross carrying amount of right-of-use assets recognised relating to the present value of lease payments incurred before 1 January 20191  4.1.4, 4.1.5             
Accumulated depreciation on right-of-use assets recognised from commencement date of leases to 1 January 2019  4.1.5        (11)      
Share of equity-accounted investments’ adjustment from the adoption of IFRS 16           (11)      
Opening balance at 1 January 2019 (after IFRS 16 restatement)          32 784       
1 Calculated as the difference between the gross carrying amount of the right-of-use assets recognised of R74 million (refer note 4.1.5) and the lease liabilities recognised of R65 million (refer note 4.1.4), that relate to leases previously classified as operating leases.
4.1.3 Impact on the statement of financial position at 1 January 2019
 

The table below shows the reclassifications and adjustments recognised on initial application of IFRS 16 for each individual line item as per the statement of financial position.

         At 31 December 
2018 
         At 1 January 
2019 
  
Statement of financial position (extract) Note     Previously 
presented 
Rm 
   IFRS 16 
Rm 
   Restated 
Rm 
  
ASSETS
                       
Non-current assets        52 226     52     52 278    
Property, plant and equipment  4.1.5     28 825     (14)    28 811    
Right-of-use assets  4.1.5           77     77    
Equity-accounted investments1        17 046     (11)    17 035    
Financial assets        2 634           2 634    
Lease receivables        66           66    
Deferred tax        523           523    
Other assets        3 132           3 132    
Current assets        7 641           7 641    
Inventories        1 604           1 604    
Financial assets        134           134    
Trade and other receivables        3 140           3 140    
Lease receivables                   
Cash and cash equivalents        2 080           2 080    
Other assets        678           678    
Non-current assets held-for-sale        5 183           5 183    
Total assets        65 050     52     65 102    
1 Relates to the group's share of equity-accounted investments’ adjustment from the adoption of IFRS 16.
         At 31 December 
2018 
         At 1 January 
2019 
  
Statement of financial position (extract) Note     Previously 
presented 
Rm 
   IFRS 16 
Rm 
   Restated 
Rm 
  
EQUITY AND LIABILITIES                         
Capital and other components of equity                         
Share capital        1 021           1 021    
Other components of equity        8 028           8 028    
Retained earnings        32 797     (13)    32 784    
Equity attributable to owners of the parent        41 846     (13)    41 833    
Non-controlling interests        (701)          (701)   
Total equity        41 145     (13)    41 132    
Non-current liabilities        15 745     38     15 783    
Interest-bearing borrowings        3 843           3 843    
Lease liabilities  4.1.4           38     38    
Other payables        152           152    
Provisions        3 952           3 952    
Retirement employee obligations        193           193    
Financial liabilities        713           713    
Deferred tax        6 874           6 874    
Other liabilities        18           18    
Current liabilities        6 823     27     6 850    
Interest-bearing borrowings        571           571    
Lease liabilities  4.1.4        27     29    
Trade and other payables        2 960           2 960    
Provisions        70           70    
Financial liabilities        757           757    
Overdraft        1 531           1 531    
Other liabilities        932           932    
Non-current liabilities held-for-sale        1 337           1 337    
Total liabilities        23 905     65     23 970    
Total equity and liabilities        65 050     52     65 102    
4.1.4 Lease liabilities recognised on initial application
 

Lease liabilities were recognised for leases, previously classified as operating leases under IAS 17, that had commenced prior to 1 January 2019, excluding leases of low-value assets and short-term leases. These liabilities were measured as the present value of the remaining lease payments discounted using the incremental borrowing rate at 1 January 2019 which ranged between 7.85% and 10.42%.

The table below shows the reconciliation between operating lease commitments (disclosed under IAS 17) at 31 December 2018 and lease liabilities recognised on 1 January 2019:


      Rm    
Operating lease commitments at 31 December 2018 (adjusted)1     1 004    
Less: lease commitments relating to leases commencing on or after 1 January 2019     (864)   
Less: lease commitments that relate to short-term leases     (13)   
Less: lease commitments that relate to leases of low-value assets     (52)   
Lease commitments (remaining lease payments) to which initial application of IFRS 16 has been applied     75    
Less: discounting impact using the lessee's incremental borrowing rate at 1 January 2019     (10)   
Lease liabilities recognised at 1 January 2019     65    
— Non-current     38    
— Current     27    
1 Operating lease commitments at 31 December 2018, previously disclosed as R876 million, have been adjusted to an amount of R1 004 million, to include an additional R128 million worth of lease commitments (in terms of IAS 17 and IFRIC 4) that was erroneously excluded. This misstatement was considered not material.

For leases previously classified as finance leases, the group recognised the carrying amount of the lease liability immediately before transition as the carrying amount of the lease liability at date of initial application. Therefore no adjustment was required for finance lease liabilities at 1 January 2019. The measurement principles of IFRS 16 have been applied since 1 January 2019.

4.1.5 Right-of-use-assets recognised on initial application
 

Right-of-use assets were recognised for leases, previously classified as operating leases under IAS 17, that had commenced prior to 1 January 2019, excluding leases of low-value assets and short-term leases. These assets were measured as if IFRS 16 had been applied since the commencement date of the leases, but discounted using the incremental borrowing rate at date of initial application. In other words, the gross carrying amount of the right-of-use assets were determined taking into account the present value of all remaining lease payments at the commencement date of the leases, but discounted at the incremental borrowing rate of 1 January 2019. The accumulated depreciation was measured from the commencement date of the leases until 1 January 2019.

The right-of-use assets recognised at 1 January 2019 were considered for impairment in terms of IAS 36 Impairment of Assets, however, as the recoverable amounts were in excess of the carrying amounts, no impairment adjustments were required.

For assets acquired in terms of finance leases, as previously classified under IAS 17, the group recognised the carrying amount of these assets immediately before transition as the carrying amount of the right-of-use assets at 1 January 2019. Therefore no adjustment was required except that the carrying amount of these assets has been reclassified from property, plant and equipment to right-of-use assets. The measurement principles of IFRS 16 have been applied since 1 January 2019.

The table below shows the right-of-use assets, by class of asset, at 1 January 2019, reconciled to the reclassifications and adjustments made on initial application of IFRS 16:

Gross carrying
amount
Rm
  Accumulated
depreciation
Rm
  Net carrying
amount
Rm1
 
Land and buildings 1       1  
Residential land and buildings 3       3  
Buildings and infrastructure 32   (4)   28  
Machinery, plant and equipment 54   (9)   45  
Total right-of-use assets 90   (13)   77  
Relating to leases previously classified as operating leases recognised retrospectively on 1 January 2019 74   (11)   63  
Relating to leases previously classified as finance leases reclassified from property, plant and equipment1 16   (2)   14  
1 Included in machinery, plant and equipment.
4.2 Accounting policies applied from 1 January 2019
 

The group has elected as an accounting policy choice not to apply IFRS 16 to leases of intangible assets.

At inception of a contract, the group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the group assesses whether:

  • The contract involves the use of an identified asset, this may be specified explicitly or implicitly, and must be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified
  • The group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
  • The group has the right to direct the use of the asset. The group has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where all the decisions about how and for what purpose the asset is used are predetermined, the group has the right to direct the use of the asset if either:
    • The group has the right to operate the asset; or
    • The group designed the asset in a way that predetermines how and for what purpose it will be used.

The group has applied this definition to contracts entered into or changed on or after 1 January 2019.

At inception, or on reassessment, of a contract that contains a lease component, the group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative standalone prices.

As a lessee

(a) Recognition

Leases are recognised as a lease liability and corresponding right-of-use asset at the commencement date of the leases. Each lease payment is allocated between the settlement of the lease liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis, except, when there is a purchase option which is expected to be exercised, in which case it is depreciated over the asset's useful life.

Non-lease components, contained in a lease, are recognised as an expense in profit or loss when incurred.

(b) Measurement

(i) Initial measurement

Right-of-use assets   Lease liabilities

Measured at cost which is:

  • The amount of the initial measurement of the lease liability plus
  • Any lease payments made at or before the commencement date
  • Less any lease incentives received plus
  • Any initial direct costs; and
  • Estimated restoration costs.

Useful lives: Land and buildings – 15 years
Residential land and buildings – 10 years
Buildings and infrastructure – three to 10 years
Machinery, plant and equipment – two to five years

 

Measured at the present value of the following lease payments:

  • Fixed payments (including in-substance fixed payments), less any lease incentives receivable
  • Variable lease payments that are based on an index or a rate
  • Amounts expected to be payable by the group, as a lessee, under residual value guarantees
  • The exercise price of a purchase option if the group, as a lessee, is reasonably certain to exercise that option; and
  • Payments of penalties for terminating the lease, if the lease term reflects the group, as a lessee, exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, an incremental borrowing rate is applied.

(ii) Subsequent measurement

Right-of-use assets   Lease liabilities
     

After commencement date of the lease, the group measures the right-of-use asset applying the cost model where a right-of-use asset falls within the scope of IAS 16 Property, Plant and Equipment.

Measured at:

  • Cost less
  • Any accumulated depreciation and any accumulated impairment losses; and
  • Adjusted for any remeasurements or modifications of the lease liability.

Useful lives:

Land and buildings – 15 years
Residential land and buildings – 10 years
Buildings and infrastructure – three to 10 years
Machinery, plant and equipment – two to five years

 

After commencement date of the lease, the group measures the lease liability by:

  • After commencement date of the lease, the group measures the lease liability by:
  • Reducing the carrying amount to reflect the lease payments made, and
  • Remeasuring the carrying amount to reflect any reassessment or lease modification or to reflect revised in-substance fixed lease payments.

Incremental borrowing rates:

Lease term greater than 12 months but less than 
18 months – 7.85%

Lease term greater than 18 months – 10.42%

(c) Short-term leases and leases of low-value assets

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis, over the lease term, as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Leases of low-value assets comprise IT equipment, furniture, fittings and appliances as well as tools and other small equipment used at the plants.

As a lessor

When the group acts as a lessor, it determines at lease inception whether a lease is a finance lease or an operating lease.

To classify a lease, the group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease. If not, then it is an operating lease. As part of this assessment, the group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

When the group is an intermediate lessor, it accounts for its interests in the head lease and the sublease separately. It assesses the lease classification of a sublease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the group applies the exemption described above, then it classifies the sublease as an operating lease.

If an arrangement contains lease and non-lease components, the group applies IFRS 15 to allocate the consideration in the contract.

The group recognises lease payments received under operating leases as income on a straight-line basis over the lease term in profit or loss.

4.3 Judgements and assumptions made by management in applying the related accounting policies
 

(a) Useful lives of right-of-use assets

In determining the useful lives of right-of-use assets, management considers all available information about the lease term as well as the asset's useful life itself. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment.

(b) Incremental borrowing rates

In determining the incremental borrowing rates, management considers the term of the lease, the nature of the asset being leased and the funding strategy and principles applied by the group's treasury department.

(c) Extensions and termination options

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

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 first half of 2019, the chief operating decision maker revised the segment in which the remaining NBC assets and liabilities are reported on. These assets and liabilities are reported as part of the coal other operation instead of the coal commercial Mpumalanga operation. The comparative segmental information has been represented to reflect this change.

During the second half of 2018, the chief operating decision maker revised the manner in which the coal operations were reported on. The coal operations were disaggregated based on the nature of the operations (commercial, tied and other) as well as geographical location, between the Waterberg and Mpumalanga regions.

The key changes to the coal reportable operating segment were:

  • The commercial coal operations were split by region into Waterberg and Mpumalanga
  • The tied coal operation includes the Matla mine
  • The coal other operations have been added which include the remaining coal operations not reported on under the commercial or tied coal operations as well as Arnot and Tshikondeni (tied mines in closure).

The export revenue and related export cost items have been allocated between the coal operating segments based on the origin of the initial coal production. The comparative segmental information for 30 June 2018 has been represented to reflect these changes.

The reportable operating 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 operating segment is split between commercial (Waterberg and Mpumalanga), tied and other operations. Commercial Mpumalanga operations include a 50% (30 June 2018: 50%; 31 December 2018: 50%) investment in Mafube (a joint venture with Anglo). The 10.36% (30 June 2018: 10.82%; 31 December 2018: 10.82%) effective equity interest in RBCT is included in the other operations. Tumelo continues to be reported as part of the commercial Mpumalanga operations although it is no longer accounted for as a subsidiary, but an associate since 1 January 2019. The coal operations produce thermal coal, metallurgical coal and SSCC.

Ferrous

The ferrous segment mainly comprises the 20.62% (30 June 2018: 20.62%; 31 December 2018: 20.62%) equity interest in SIOC (located in the Northern Cape province) reported within the other ferrous operating segment as well as the FerroAlloys operation (referred to as Alloys). The Alloys operation manufactures ferrosilicon.

TiO2

The TiO2 segment comprises a 10.2% (30 June 2018: 23.36%; 31 December 2018: 23.35%) 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% (30 June 2018: 26%; 31 December 2018: 26%) equity interest in Tronox SA (both South African-based operations). The member’s interest in Tronox UK was redeemed on 15 February 2019.

Energy

The energy segment comprises a 50% (30 June 2018: 50%; 31 December 2018: 50%) equity interest in Cennergi (a South African joint venture with Tata Power), which operates two windfarms, and an equity interest of 28.73% (30 June 2018: nil; 31 December 2018: 28.98%) in LightApp, as well as an equity interest of 22% in GAM which was acquired in 2019 (Refer note 14).

Other

The other reportable segment comprises the 26% (30 June 2018: 26%; 31 December 2018: 26%) equity interest in Black Mountain (located in the Northern Cape province), an effective investment of 11.7% (30June 2018: 11.7%; 31 December 2018: 11.7%) in Chifeng (located in the PRC), an equity interest in Curapipe of 15% (30 June 2018: 10.53%; 31 December 2018: 13.7%), an equity interest in Insect Technology of 25.87% (30 June 2018: 26.48%; 31 December 2018: 26.37%), the Ferroland agricultural operation as well as the corporate office which renders services to operations and other customers.

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

        Coal       Ferrous      
        Commercial                   Other      
        Waterberg 
Rm
 
Mpumalanga 
Rm
 
Tied 
Rm
 
Other 
Rm
 
    Alloys 
Rm
 
ferrous 
Rm
 
   
6 months ended 30 June 2019 (Reviewed)                                      
External revenue (note 7)      6 726  3 293  1 769  139     27         
Segmental net operating profit/(loss)      2 910  (491) 67  (572)           
— Continuing operations         2 910  (491) 67  (572)           
— Discontinued operations                            
External finance income (note 9)    32  10     35             
External finance costs (note 9)      (26) (80) (1) (20)              
Income tax (expense)/benefit       (873) 86  (29) 202               
— Continuing operations         (873) 86  (29) 202               
— Discontinued operations                              
Depreciation and amortisation (note 8)      (676) (176) (11) (1)    (3)        
Loss on loss of control of subsidiary          (67)                    
Cash generated by/(utilised in) operations       2 961  (258) 159  425     43         
Share of income/(loss) of equity-accounted investments (note 10)         105           2 717      
Capital spend (note 12)      (1 230) (1 311)                    
At 30 June 2019 (Reviewed)                               
Segmental assets and liabilities                                
Deferred tax1          (5) (78) 177         
Investments in associates (note 14)               2 070        10 833      
Investments in joint ventures (note 15)         1 330                     
Loans to associates          132                     
Loans to joint ventures        67                   
External assets       27 285  9 036  1 141  3 625       239  3 625      
Assets       27 285  10 560  1 063  5 872     247  10 859      
Non-current assets held-for-sale (note 17)                               
Total assets per statement of financial position       27 285  10 560  1 063  5 872     247  10 859      
External liabilities       1 958  2 484  929  2 759     28      
Deferred tax1       6 204  689     36               
Current tax payables1       (15) 71  34               
Liabilities       8 147  3 244  932  2 829     28      
Non-current liabilities held-for-sale (note 17)         1 373                     
Total liabilities per statement of financial position       8 147  4 617  932  2 829     28      
1 Offset per legal entity and tax authority.

        Other     
        TiO2 
Rm
 
Energy
Rm
 
Base 
metals
Rm
Other 
Rm
 
Total 
Rm
 
6 months ended 30 June 2019 (Reviewed)                         
External revenue (note 7)               11 961 
Segmental net operating profit/(loss)      2 421        190  4 528 
– Continuing operations         270        190  2 377 
– Discontinued operations     2 151           2 151 
External finance income (note 9)             87  164 
External finance costs (note 9)               (28) (155)
Income tax (expense)/benefit       (87)       (344) (1 045)
– Continuing operations         (87)       (344) (958)
– Discontinued operations                   (87)
Depreciation and amortisation (note 8)               (46) (913)
Loss on loss of control of subsidiary                   (67)
Cash generated by/(utilised in) operations                (102) 3 228 
Share of income/(loss) of equity-accounted investments (note 10)      112  (27) 56  (43) 2 924 
Capital spend (note 12)               (157) (2 698)
At 30 June 2019 (Reviewed)                    
Segmental assets and liabilities                     
Deferred tax1                33  136 
Investments in associates (note 14)      2 297  182  876  676  16 934 
Investments in joint ventures (note 15)         221        1 551 
Loans to associates                   132 
Loans to joint ventures                 67 
External assets       94        5 382  46 827 
Assets       2 391  403  876  6 091  65 647 
Non-current assets held-for-sale (note 17)      1 741           1 741 
Total assets per statement of financial position       4 132  403  876  6 091  67 388 
External liabilities                5 900  14 063 
Deferred tax1                (35) 6 894 
Current tax payables1                67  160 
Liabilities                5 932  21 117 
Non-current liabilities held-for-sale (note 17)                  1 373 
Total liabilities per statement of financial position                5 932  22 490 
1 Offset per legal entity and tax authority.

      Coal    
      Commercial          
      Waterberg 
Rm
 
Mpumalanga 
Rm
 
Tied 
Rm
 
Other 
Rm
 
  
6 months ended 30 June 2018 (Reviewed) (Re-presented)                  
External revenue (note 7)    6 548 3 865 1 639 188  
Segmental net operating profit/(loss)    3 063 637 186 (499)  
– Continuing operations     3 063 637 186 (499)  
External finance income (note 9)    24 18   2  
External finance costs (note 9)    (23) (85)   (17)  
Income tax (expense)/benefit     (857) (71) (49) 238  
Depreciation and amortisation (note 8)    (565) (139) (6)    
Cash generated by/(utilised in) operations    3 609 814 127 (584)  
Share of income/(loss) of equity-accounted investments (note 10)      (30)   (18)  
Capital spend (note 12)    (1 429) (553)      
At 30 June 2018 (Reviewed) (Re-presented)             
Segment assets and liabilities              
Deferred tax1       78 (43) 131  
Investments in associates (note 14)          2 176  
Investments in joint ventures (note 15)      1 066      
Loans to joint ventures       151      
External assets     24 226 6 070 993 4 050  
Assets     24 226 7 365 950 6 357  
Non-current assets held-for-sale (note 17)      344      
Total assets as per statement of financial position     24 226 7 709 950 6 357  
External liabilities     1 997 1 975 677 2 670  
Deferred tax1     5 791 860   26  
Current tax payables1     63 (7)   9  
Liabilities     7 851 2 828 677 2 705  
Non-current liabilities held-for-sale (note 17)      1 685      
Total liabilities as per statement of financial position     7 851 4 513 677 2 705  
1 Offset per legal entity and tax authority.

  Ferrous    Other      
    Alloys 
Rm
 
Other 
ferrous 
Rm
 
  TiO2
Rm
Energy
Rm
Base
metals
Rm
Other
Rm
Total
Rm
 
6 months ended 30 June 2018 (Reviewed) (Re-presented)                    
External revenue (note 7)   12           8 12 260  
Segmental net operating profit/(loss)   8 (1)         (268) 3 126  
– Continuing operations    8 (1)         (268) 3 126  
External finance income (note 9)               124 168  
External finance costs (note 9               (220) (345)  
Income tax (expense)/benefit    (2)           (68) (809)  
Depreciation and amortisation (note 8)               (34) (744)  
Cash generated by/(utilised in) operations   122 (1)         (146) 3 941  
Share of income/(loss) of equity-accounted investments (note 10)     793   224 20 57   1 046  
Capital spend (note 12)               (55) (2 037)  
At 30 June 2018 (Reviewed) (Re-presented)                    
Segment assets and liabilities                     
Deferred tax1    12           388 566  
Investments in associates (note 14)     8 952   3 701   806 701 16 336  
Investments in joint ventures (note 15)           416     1 482  
Loans to joint ventures            108     259  
External assets    188 25         2 829 38 381  
Assets    200 8 977   3 701 524 806 3 918 57 024  
Non-current assets held-for-sale (note 17)         3 396       3 740  
Total assets as per statement of financial position    200 8 977   7 097 524 806 3 918 60 764  
External liabilities    27 5         6 343 13 694  
Deferred tax1      1         (37) 6 641  
Current tax payable1                3 68  
Liabilities    27 6         6 309 20 403  
Non-current liabilities held-for-sale (note 17)                 1 685  
Total liabilities as per statement of financial position    27 6         6 309 22 088  

  Coal  
  Commercial          
    Waterberg
Rm
Mpumalanga
Rm
  Tied
Rm
  Other
Rm
 
12 months ended 31 December 2018 (Audited)(Re-presented)                        
External revenue (note 7 )    13 289  7 984     3 665     364    
Segmental net operating profit/(loss)    5 738  1 429     250     (966)   
Continuing operations     5 738  1 429     250     (966)   
External finance income (note 9)    48  33           19    
External finance costs (note 9)     (47) (164)          (47)   
Income tax (expense)/benefit     (1 572) (302)    (48)    378    
Depreciation and amortisation (note 8)    (1 204) (299)    (13)         
Gain on disposal of subsidiaries        69                
Gain on disposal of operation        102                
Cash generated by/(utilised in) operations     6 955  1 490     99     (1 366)   
Share of income/(loss) of equity-accounted investments (note 10)       114           (36)   
Capital spend (note 12)    (3 890) (1 832)               
At 31 December 2018 (Audited) (Re-presented)                        
Segmental assets and liabilities                         
Deferred tax1        35     (53)    135    
Investments in associates (note 14)                   2 157    
Investments in joint ventures (note 15)       1 237                
Loans to joint ventures        259                
External assets     26 514  7 709     1 062     4 542    
Assets     26 514  9 240     1 009     6 834    
Non-current assets held-for-sale (note 17)                        
Total assets per statement of financial position     26 514  9 240     1 009     6 834    
External liabilities     2 463  2 525     757     2 454    
Deferred tax1     6 009  866           39    
Current tax payables1     104     (32)    98    
Liabilities     8 576  3 397     725     2 591    
Non-current liabilities held-for-sale (note 17)       1 337                
Total liabilities per statement of financial position     8 576  4 734     725     2 591    
1 Offset per legal entity and tax authority.
  Ferrous           Other        
  Alloys
Rm
  Other
ferrous
Rm
  TiO2
Rm
  Energy
Rm
  Base
metals
Rm
  Other
Rm
  Total
Rm
   
12 months ended 31 December 2018 (Audited)(Re-presented)                              
External revenue (note 7) 169                   20   25 491    
Segmental net operating profit/(loss) 17   (3)               (762)   5 703    
– Continuing operations 17   (3)               (762)   5 703    
External finance income (note 9)                     183   283    
External finance costs (note 9)                     (347)   (605)    
Income tax (expense)/benefit (4)                   (105)   (1 653)    
Depreciation and amortisation (note 8)                     (66)   (1 582)    
Gain on disposal of subsidiaries                         69    
Gain on disposal of operation                         102    
Cash generated by/(utilised in) operations 60   (2)               (212)   7 024    
Share of income/(loss) of equity-accounted investments (note 10)     2 592   492   61   70   (34)   3 259    
Capital spend (note 12)                     (68)   (5 790)    
At 31 December 2018 (Audited) (Re-presented)                              
Segmental assets and liabilities                              
Deferred tax1 8   1               397   523    
Investments in associates (note 14)     9 511   2 185   141   818   665   15 477    
Investments in joint ventures (note 15)             332           1 569    
Loans to joint ventures                         259    
External assets 265   25               1 922   42 039    
Assets 273   9 537   2 185   473   818   2 984   59 867    
Non-current assets
held-for-sale (note 17)
        5 183               5 183    
Total assets per statement of financial position 273   9 537   7 368   473   818   2 984   65 050    
External liabilities 23   5               7 258   15 485    
Deferred tax1                     (40)   6 874    
Current tax payables1                     33   209    
Liabilities 23   5               7 251   22 568    
Non-current liabilities 
held-for-sale (note 17)
                        1 337    
Total liabilities per statement of financial position 23   5               7 251   23 905    

6. DISCONTINUED OPERATION

On 30 September 2017, Exxaro classified the Tronox Limited investment as a non-current asset held-for-sale (refer note 17). During March 2019, Tronox Limited redomiciled from Australia to the UK by “top-hatting” Tronox Limited with a new holding company incorporated under the laws of England and Wales called Tronox Holdings plc. Each Tronox Limited shareholder received one share in the newly incorporated company in exchange for each share held in the Australian-incorporated Tronox Limited, which shares are listed on the New York Stock Exchange. On 9 May 2019, Tronox Holdings plc repurchased 14 000 000 shares from Exxaro. The remaining investment in Tronox Holdings plc is still classified as a non-current asset held-for-sale.

It was concluded that the related performance and cash flow information be presented as a discontinued operation as the Tronox Holdings plc investment represents a major geographical area of operation as well as the majority of the TiO2 reportable operating segment.

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

     6 months 
ended 
30 June 
2019 
Reviewed 
Rm
 
   6 months 
ended 
30 June 
2018 
Reviewed 
Rm
 
12 months 
ended 
31 December 
2018 
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 movement1  86             
Operating profit  917             
Gain on partial disposal of associate2  1 234             
Net operating profit  2 151             
Dividend income received from non-current assets held-for-sale  28     31  69    
Profit before tax  2 179     31  69    
Income tax expense  (87)            
Profit for the period from discontinued operations  2 092     31  69    
Other comprehensive income, net of tax                
Items that have subsequently been reclassified to profit or loss:  (831)            
Share of recycling of other comprehensive income of equity-accounted investments  (831)            
Total comprehensive income for the period  1 261     31  69    
Cash flow information                
Cash flow attributable to investing activities                
Dividend income received from non-current assets held-for-sale  18     31  69    
Proceeds from partial disposal of associate classified as non-current assets held-for-sale  2 889             
Cash flow attributable to discontinued operations  2 907     31  69    
1 The indemnification asset movement arose on the repurchase of the Tronox Holdings plc ordinary shares as Tronox Holdings plc has indemnified Exxaro from any tax obligation which may arise on the disposal of any of the Tronox Holdings plc ordinary shares held by Exxaro since the redomicile.
2 Comprises proceeds of R2 889 million and carrying value of R1 655 million.

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                         
6 months ended 30 June 2019 (Reviewed) Waterberg 
Rm
 
Mpumalanga 
Rm
 
Tied 
Rm
 
Other 
Rm
 
   Alloys 
Rm
 
   Other 
Rm
 
Total 
Rm
 
  
Segmental revenue reconciliation                               
Segmental revenue based on origin of coal production  6 726  3 293  1 769  139     27     11 961    
Export sales allocated to selling entity  (811) (2 471)    3 282                   
Total revenue from contracts with customers  5 915  822  1 769  3 421     27     11 961    
By timing and major type of goods and services                               
Sale of goods at a point in time  5 915  822  1 531  3 254     23     11 551    
Coal  5 915  822  1 531  3 254              11 522    
Ferrosilicon                 23        23    
Biological goods                         
Rendering of services over time        238  167        410    
Stock yard management services        62                 62    
Project engineering services        176                 176    
Other mine management services           138              138    
Transportation services1           29           30    
Other services                      
Total revenue from contracts with customers  5 915  822  1 769  3 421     27     11 961    
By major geographic area of customer2                               
Domestic  5 915  822  1 769  139     27     8 679    
Export           3 282              3 282    
Europe           1 848              1 848    
Asia           1 371              1 371    
Other           63              63    
Total revenue from contracts with customers  5 915  822  1 769  3 421     27     11 961    
By major customer industries                               
Public utilities  4 832  420  1 769  186              7 207    
Merchants  96  181     2 814              3 091    
Steel  632  46     16              694    
Mining  26  88     195     15        324    
Manufacturing  139                    148    
Cement  81                       81    
Other  109  87     210        416    
Total revenue from contracts with customers  5 915  822  1 769  3 421     27     11 961    
1 Relates mainly to the rendering of export freight services over time, on certain transactions in terms of incoterm CFR.
2 Determined based on the customer supplied by Exxaro.
   Coal     Ferrous     Other      
   Commercial                        
6 months ended 30 June 2018 (Reviewed) (Re-presented)1,2  Waterberg 
Rm
 
Mpumalanga 
Rm
 
Tied 
Rm
 
Other 
Rm
 
   Alloys 
Rm
 
   Other 
Rm
 
Total 
Rm
 
 
Segmental revenue reconciliation                              
Segmental revenue based on origin of coal production  6 548  3 865  1 639  188     12     12 260   
Export sales allocated to selling entity  (914) (2 912)    3 826                  
Total revenue from contracts with customers  5 634  953  1 639  4 014     12     12 260   
By timing and major type of goods and services                              
Sale of goods at a point in time  5 634  953  1 477  3 827     12     11 910   
Coal2  5 634  953  1 477  3 827              11 891   
Ferrosilicon                 12        12   
Biological goods                        
Rendering of services over time        162  187           350   
Stock yard management services        101                 101   
Project engineering services2        61                 61   
Other mine management services           187              187   
Other services                        
Total revenue from contracts with customers  5 634  953  1 639  4 014     12     12 260   
By major geographic area of customer3                              
Domestic  5 634  953  1 639  188     12     8 434   
Export           3 826              3 826   
Europe           2 384              2 384   
Asia           1 043              1 043   
Other           399              399   
Total revenue from contracts with customers  5 634  953  1 639  4 014     12     12 260   
By major customer industries                     
Public utilities  4 518  210  1 639  401              6 768   
Merchants  57  388     2 444              2 889   
Steel  727  73     23              823   
Mining  36  48     516     12        612   
Manufacturing  163  53     94              310   
Cement  71  100                    171   
Other  62  81     536           687   
Total revenue from contracts with customers  5 634  953  1 639  4 014     12     12 260   
1 Represented in alignment with the change in segmental reporting.
2 Represented for the separation of project engineering services from coal revenue. Project engineering services are recognised as the services are rendered over time.
3 Determined based on the customer supplied by Exxaro.
   Coal     Ferrous     Other       
   Commercial                         
12 months ended 31 December 2018 (Audited) (Re-presented)1  Waterberg 
Rm
 
Mpumalanga 
Rm
 
Tied 
Rm
 
Other 
Rm
 
   Alloys 
Rm
 
   Other 
Rm
 
Total 
Rm
 
  
Segmental revenue reconciliation                               
Segmental revenue based on origin of coal production  13 289  7 984  3 665  364     169     20  25 491    
Export sales allocated to selling entity  (1 796) (6 254)    8 050                   
Total revenue from contracts with customers  11 493  1 730  3 665  8 414     169     20  25 491    
By timing and major type of goods and services                               
Sale of goods at a point in time  11 493  1 730  3 145  8 050     163     16  24 597    
Coal1  11 493  1 730  3 145  8 050              24 418    
Ferrosilicon                 163        163    
Biological goods                       16  16    
Rendering of services over time        520  364        894    
Stock yard management services        224                 224    
Project engineering services1        296                 296    
Other mine management services           364              364    
Other services                    10    
Total revenue from contracts with customers  11 493  1 730  3 665  8 414     169     20  25 491    
By major geographic area of customer2                               
Domestic  11 493  1 730  3 665  364     169     15  17 436    
Export           8 050           8 055    
Europe           4 920           4 922    
Asia           2 455           2 458    
Other           675              675    
Total revenue from contracts with customers  11 493  1 730  3 665  8 414     169     20  25 491    
By major customer industries                               
Public utilities  9 101  301  3 665  701              13 768    
Merchants  141  835     6 458              7 434    
Steel  1 557  165     36              1 758    
Mining  88  43     747     144        1 022    
Manufacturing  291  33     101     22        447    
Cement  156  202                    358    
Other  159  151     371        20  704    
Total revenue from contracts with customers  11 493  1 730  3 665  8 414     169     20  25 491    
1 Represented for the separation of project engineering services from coal revenue. Project engineering services are recognised as the services are rendered over time.
2 Determined based on the customer supplied by Exxaro.

8. SIGNIFICANT ITEMS INCLUDED IN OPERATING EXPENSES

   6 months
ended
30 June
2019
Reviewed
Rm
 
   6 months 
ended 
30 June 
2018 
Reviewed 
Rm
 
12 months 
ended 
31 December 
2018 
Audited 
Rm
 
  
Raw materials and consumables  (1 893)    (1 340) (3 175)   
Staff costs  (2 266)    (2 308) (4 622)   
Royalties  (274)    (172) (427)   
Contract mining  (1 090)    (841) (1 818)   
Repairs and maintenance  (1 072)    (942) (2 213)   
Railage and transport  (1 037)    (794) (1 787)   
Movement in provisions  (481)    143  175    
Depreciation and amortisation  (913)    (744) (1 582)   
— Depreciation of property, plant and equipment  (886)    (742) (1 579)   
— Depreciation of right-of-use assets  (25)            
— Amortisation of intangible assets  (2)    (2) (3)   
Fair value adjustments on contingent  consideration1  232     (188) (357)   
Legal and professional fees  (402)    (273) (776)   
Net gains on disposal of property, plant and  equipment  14     118  122    
Loss on loss of control of subsidiary2  (67)            
Loss on dilution of investments in associates  (43)            
Gain on disposal of associate3  270             
Expected credit losses4  (104)    (9) (64)   
Expenses relating to short-term leases  (80)            
Expenses relating to leases of low value assets  (5)            
Gain on termination of lease             
Operating lease income  14     20  37    
Operating lease rental expense        (117) (232)   
1 Relates to the ECC acquisition.
2 On 1 January 2019 Exxaro lost control over the management function of Tumelo. This resulted in Tumelo being accounted for as an associate at an initial carrying value of nil.
3 Relates to the redemption of membership interest in Tronox UK.
4 Mainly relates to ECLs recognised for non-performing other receivables and the loan to Tumelo.

9. NET FINANCING INCOME/(COSTS)

    6 months 
ended 
30 June 
2019 
Reviewed 
Rm
 
6 months 
ended 
30 June 
2018 
Reviewed 
Rm
 
12 months 
ended 
31 December 
2018 
Audited 
Rm
 
   
Finance income  164  168  283     
Interest income  132  161  256     
Finance lease interest income  10     
Commitment fee income     
Interest income from loan to joint venture  24  16     
Finance costs  (155) (345) (605)    
Interest expense  (233) (272) (514)    
Unwinding of discount rate on rehabilitation costs  (206) (198) (408)    
Recovery of unwinding of discount rate on rehabilitation costs  80  72  158     
Interest expense on lease liabilities  (10)    (1)    
Amortisation of transaction costs  (7) (4) (27)    
Borrowing costs capitalised1  221  57  187     
         
Total net financing income/(costs) (177) (322)    
1 Borrowing costs capitalisation rate:  10.21%  10.08%  10.13%    

10. SHARE OF INCOME/(LOSS) OF EQUITY-ACCOUNTED INVESTMENTS

    6 months 
ended 
30 June 
2019 
Reviewed 
Rm
 
6 months 
ended 
30 June 
2018 
Reviewed 
Rm
 
12 months 
ended 
31 December 
2018 
Audited 
Rm
 
   
Unlisted investments              
Associates  2 831  1 056  3 079    
SIOC  2 717  793  2 592    
Tronox SA  112  166  382    
Tronox UK1     58  110    
RBCT  (18) (36)   
Black Mountain  56  57  70    
Insect Technology  (43)    (31)   
LightApp  (15)    (5)   
Curapipe        (3)   
Joint ventures  93  (10) 180    
Mafube  105  (30) 114    
Cennergi  (12) 20  66    
Share of income of equity-accounted investments    2 924    1 046    3 259    
1 Application of the equity method ceased on 30 November 2018 when the investment was classified as a non-current asset held-for-sale.

11. DIVIDEND DISTRIBUTION

Total dividends paid in 2018 amounted to R5 483 million. This amount was made up of:

  • A special dividend of 1 255 cents per share (R3 149 million to external shareholders) paid in March 2018, following the partial disposal of the shareholding in Tronox Limited
  • A final dividend relating to the 2017 financial year of 400 cents per share (R1 004 million to external shareholders) paid in April 2018
  • An interim dividend of 530 cents per share (R1 330 million to external shareholders) paid in September 2018.

An interim cash dividend, number 33, for 2019 of 864 cents per share, was approved by the board of directors on 20 August 2019. The dividend is payable on 14 October 2019 to shareholders who will be on the register on 11 October 2019. This interim dividend, amounting to approximately R2 168 million to external shareholders, has not been recognised as a liability in these interim financial statements. It will be recognised in shareholders’ equity for the year ending 31 December 2019.

The interim 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 691.2 cents per share.

Following the partial disposal of Exxaro’s shareholding in Tronox Holdings plc, and the redemption of the membership interest in Tronox UK, a special dividend of 897 cents per share was approved by the board of directors on 20 August 2019. The dividend is payable on 14 October 2019 to shareholders who will be on the register on 11 October 2019. This special dividend, amounting to approximately R2 251 million to external shareholders, has not been recognised as a liability in these interim financial statements. It will be recognised in shareholders’ equity for the year ending 31 December 2019.

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 717.6 cents per share.

The number of ordinary shares in issue at the date of these declarations was 358 706 754. Exxaro company’s tax reference number is 9218/098/14/4.

  At 30 June
2019
Reviewed
  At 30 June
2018
Reviewed
At 31 December
2018
Audited
 
Issued share capital (number of shares) 358 706 754   358 706 754 358 706 754  
Ordinary shares (million)          
— Weighted average number of shares 251   251 251  
— Diluted weighted average number of shares 330   322 326  

12. CAPITAL SPEND AND CAPITAL COMMITMENTS

  At 30 June
2019
Reviewed
Rm
  At 30 June
2018
Reviewed
Rm
At 31 December
2018
Audited
Rm
 
Capital spend          
To maintain operations 1 115   1 177 2 847  
To expand operations 1 583   860 2 943  
Total capital spend 2 698   2 037 5 790  
Capital commitments          
Contracted 2 328   5 211 4 508  
Contracted for the group (owner-controlled) 2 089   3 760 3 533  
Share of capital commitments of equity-accounted investments 239   1 451 975  
Authorised, but not contracted 1 662   3 387 2 914  

13. RIGHT-OF-USE ASSETS

At 30 June 2019  Land and 
buildings 
Rm
 
Residential 
land and 
buildings 
Rm
 
Buildings 
and 
infrastructure 
Rm
 
Machinery, 
plant and 
equipment 
Rm
 
Total 
Rm
 
  
Gross carrying amount                   
Transfer from property, plant and equipment1           16  16    
Recognised on initial application of IFRS 16  32  38  74    
Balance at 1 January 2019  32  54  90    
Additions        457     457    
Remeasurement adjustments2             
Lease cancellations           (11) (11)   
Transfer to property, plant and                   
equipment3           (16) (16)   
At end of the period  493  27  524    
Accumulated depreciation                   
Transfer from property, plant and equipment1           (2) (2)   
Recognised on initial application of IFRS 16        (4) (7) (11)   
Balance at 1 January 2019        (4) (9) (13)   
Charges for the period     (1) (16) (8) (25)   
Lease cancellations             
Transfer to property, plant and equipment2             
At end of the period     (1) (20) (12) (33)   
Net carrying amount at end of the period  473  15  491    
1 Assets acquired in terms of finance leases transferred from property, plant and equipment on adoption of IFRS 16.
2 Relates to remeasurements arising from changes in CPI.
3 Transfer to property, plant and equipment as there was a transfer in legal ownership of the underlying asset.

14. INVESTMENTS IN ASSOCIATES

  At 30 June
2019
Reviewed
Rm
  At 30 June
2018
Reviewed
Rm
  At 31 December
2018
Audited
Rm
 
Unlisted investments            
SIOC 10 833   8 952   9 511  
Tronox SA 2 297   1 966   2 185  
Tronox UK1     1 735      
RBCT 2 070   2 176   2 157  
Black Mountain 876   806   818  
Curapipe 44   27   22  
Insect Technology 632   674   643  
LightApp 124       141  
GAM2 58          
Total carrying value of investments in associates 16 934   16 336   15 477  
1 The investment in Tronox UK was classified as a non-current asset held-for-sale on 30 November 2018 and was redeemed on 15 February 2019.
2 A 22% equity interest in GAM was acquired in exchange for settlement of the Lebonix debt.

15. INVESTMENTS IN JOINT VENTURES

  At 30 June
2019
Reviewed
Rm
  At 30 June
2018
Reviewed
Rm
  At 31 December
2018
Audited
Rm
 
Unlisted investments            
Mafube 1 330   1 066   1 237  
Cennergi 221   416   332  
Total carrying value of investments in joint ventures 1 551   1 482   1 569  

16. OTHER ASSETS

  At 30 June
2019
Reviewed
Rm
  At 30 June
2018
Reviewed
Rm
  At 31 December
2018
Audited
Rm
 
Non-current            
Reimbursements1 2 059   1 669   1 723  
Indemnification asset – Total S.A.2 1 373   1 302   1 337  
Indemnification asset – Tronox Holdings plc3 86          
Biological assets 29   34   30  
Intangible assets 15   15   15  
Other non-current assets 37   13   27  
Total non-current other assets 3 599   3 033   3 132  
Current            
VAT 366   337   480  
Royalties 46   39   46  
Prepayments 39   33   110  
Current tax receivables 26   29   23  
Other current assets 61   31   19  
Total current other assets 538   469   678  
Total other assets 4 137   3 502   3 810  
1 Amounts recoverable from Eskom in respect of the rehabilitation, environmental expenditure and retirement employee obligations of the Matla and Arnot mines at the end of life of these mines.
2 Upon the acquisition of ECC in 2015, Total S.A. indemnified Exxaro from any obligations relating to the EMJV.
3 Indemnification asset which arose on the repurchase of the Tronox Holdings plc ordinary shares as Tronox Holdings plc has indemnified Exxaro from any tax obligation which may arise on the disposal of any of the Tronox Holdings plc ordinary shares held by Exxaro subsequent to the redomicile.

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

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 requirements in terms of IFRS 5 Non-current assets held-for-sale and Discontinued Operations (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 14 000 000 Tronox Holdings plc ordinary shares from Exxaro after Tronox Limited had redomiciled to the UK. On 30 June 2019, 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. Exxaro continues to assess market conditions for further possible sell downs of the remaining 14 729 280 Tronox Holdings plc ordinary shares.

The Tronox Holdings plc investment is presented within the total assets of the TiO2 reportable operating segment and is presented as a discontinued operation (refer note 6).

EMJV

As part of the ECC acquisition in 2015, Exxaro acquired non-current liabilities held-for-sale relating to the EMJV. The sale of the EMJV business is conditional on section 43 consent required in terms of the MPRDA for transfer of the environmental liabilities and rehabilitation obligations of the EMJV to Scinta Energy Proprietary Limited. These liabilities remain classified as non-current liabilities held-for-sale for the Exxaro group on 30 June 2019, as the required approvals are still pending. The EMJV does not meet the criteria to be classified as a discontinued operation since it does not represent a separate major line of business, nor does it represent a major geographical area of operation.

  At 30 June 
2019 
Reviewed 
Rm 
  At 30 June 
2018 
Reviewed 
Rm 
  At 31 December 
2018 
Audited 
Rm 
 
Assets            
Property, plant and equipment        153          
Investments in associates  1 741     3 396     5 183    
Deferred tax        11          
Inventories        105          
Trade receivables        30          
Current tax receivable        28          
Cash and cash equivalents        10          
Other current assets                
Non-current assets held-for-sale  1 741     3 740     5 183    
Liabilities                   
Non-current provisions  (1 356)    (1 558)    (1 320)   
Retirement employee obligations  (17)    (22)    (17)   
Trade and other payables        (69)         
Shareholder loans        (18)         
Other current liabilities        (18)         
Non-current liabilities held-for-sale  (1 373)    (1 685)    (1 337)   
Net non-current assets held-for-sale  368     2 055     3 846   

18. INTEREST-BEARING BORROWINGS

  At 30 June 
2019 
Reviewed 
Rm 
  At 30 June 
2018 
Reviewed 
Rm 
  At 31  December 
2018 
Audited 
Rm 
 
Non-current1  4 424     4 479     3 843    
Loan facility  3 237     3 478     3 233    
Bonds2  1 000                
Preference share liability3  187     1 001     610    
Current4  50     571     571    
Loan facility  47     51     47    
Bonds     525     525    
Preference share liability  (1)    (5)    (1)   
Total interest-bearing borrowings  4 474     5 050     4 414    
Summary of interest-bearing borrowings by period of redemption:                   
— Less than six months  55     58     576    
— Six to 12 months  (5)    513     (5)   
— Between one and two years  (9)    (13)    (10)   
— Between two and three years  3 246     (13)    3 242    
— Between three and four years  544     3 305     611    
— Between four and five years  643     1 139          
— Over five years        61          
Total interest-bearing borrowing  4 474     5 050     4 414    
1 Includes transaction costs of:  14     38     20    
2 New bonds issued during May 2019.                   
3 Capital redemption on preference share liability of:  415     1 489     1 889    
4 The current portion represents:  50     571     571    
— Capital repayments        520     520    
— Interest capitalised  61     65     61    
— Reduced by the amortisation of transaction costs  (11)     (14)     (10)    
Overdraft                   
Bank overdraft     49     1 531    

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

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

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

      Loan facility      
      Bullet term
loan
Amortised
loan
  Revolving
facility
  Preference
share liability
 
Aggregate 30 June 2019   3 250 1 750   2 750   2 491  
nominal amount (Rm) 30 June 2018   3 250 2 000   2 750   2 491  
  31 December 2018   3 250 1 750   2 750   2 491  
Issue date or draw date     29 July 2016 29 July 2016   29 July 2016   11 December 2017  
Maturity date     29 July 2021 29 July 2023   29 July 2021   9 December 2022  
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
  The total
outstanding
amount is
payable on
final maturity
date
 
Duration (months)     60 84   60   60  
Secured or unsecured     Unsecured Unsecured   Unsecured   Secured  
Undrawn 30 June 2019   nil 1 750   2 750   nil  
portion (Rm) 30 June 2018   nil 1 750   2 750   nil  
  31 December 2018   nil 1 750   2 750   nil  
Interest                  
Interest-payment basis     Floating rate Floating rate   Floating rate   Floating rate  
Interest-payment period     Three months Three months   Monthly   Dependent on
Eyesizwe
receiving
a dividend
from Exxaro
 
Interest rate     JIBAR plus a
margin of
325 basis
points (3.25%)
JIBAR plus a
margin of
360 basis
points (3.60%)
  JIBAR plus a
margin of
325 basis
points (3.25%)
  80% of
Prime Rate
 
Effective 30 June 2019   0.17% N/A   N/A   0.20%  
interest rates 30 June 2018   0.17% 1.17%   N/A   0.20%  
for transaction costs 31 December 2018   0.17% 1.17%   N/A   0.20%  
Rate of interest 30 June 2019   10.40% nil   10.16%   8.20%  
per period 30 June 2018   10.27% 10.62%   nil   8.00%  
  31 December 2018   10.26% 10.60%   nil   8.20%  
      DMTN Programme (bonds)  
      R357 million senior
unsecured floating rate note
R643 million senior
unsecured floating rate note
 
Aggregate nominal amount (Rm) 30 June 2019   357 643  
Issue date or draw date     13 June 2019 13 June 2019  
Maturity date     13 June 2022 13 June 2024  
Capital payments     No fixed or determinable payments, the total outstanding amount is payable on final maturity date No fixed or determinable 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     JIBAR plus a margin of 165 basis points (1.65%) JIBAR plus a margin of 189 basis points (1.89%)  
Rate of interest per period 30 June 2019   8.71% 8.95%  

19. LEASE LIABILITIES

  At 30 June 
2019 
Reviewed 
Rm 
  At 30 June 
2018 
Reviewed 
Rm 
  At 31 December 
2018 
Audited 
Rm 
 
Non-current  470             
Current  29     10       
Total lease liabilities  499     11       
Summary of lease liabilities by period of redemption:                   
— Less than six months  14     10       
— Six to 12 months  15                
— Between one and two years  27             
— Between two and three years  32                
— Between three and four years  29                
— Between four and five years  38                
— Over five years  344                
Total lease liabilities  499     11       
Analysis of movement in lease liabilities:                   
At beginning of the period – IAS 17                
Recognised on initial application of IFRS 16  65                
Adjusted balance at 1 January 2019  67                
New leases  456                
Lease cancellations  (8)               
Lease remeasurement adjustments                
Capital repayments  (20)               
— Lease payments  (30)               
— Interest charges  10                
At end of the period 499           

The lease liabilities relate to the right-of-use assets disclosed under note 13. Interest is based on incremental borrowing rates ranging between 7.85% and 10.42%.

20. NET DEBT

  At 30 June 
2019 
Reviewed 
Rm 
  (Re-presented)
At 30 June 
2018 
Reviewed 
Rm 
  At 31 December 
2018 
Audited 
Rm 
 
Net debt is presented by the following items on the statement of financial position:            
Non-current interest-bearing debt  (4 894)    (4 480)    (3 843)   
Interest-bearing borrowings  (4 424)    (4 479)    (3 843)   
Lease liabilities  (470)    (1)         
Current interest-bearing debt  (79)    (581)    (573)   
Interest-bearing borrowings  (50)    (571)    (571)   
Lease liabilities  (29)    (10)    (2)   
Net cash and cash equivalents  4 215     2 557     549    
Cash and cash equivalents  4 219     2 596     2 080    
Cash and cash equivalents classified as non-current assets held-for-sale        10          
Overdraft  (4)    (49)    (1 531)   
Total net debt (758)   (2 504)   (3 867)  

Analysis of movement in net (debt)/cash:

        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 cash at 31 December 2017 (Re-presented)    6 617  (6 480)    (68)    69       
Cash flows     (4 100) 1 489        (2 604)      
Operating activities     (1 225)             (1 225)      
Investing activities     (810)             (810)      
Financing activities     (2 065) 1 489        (569)      
Interest-bearing borrowings repaid     (1 496) 1 489                
Shares acquired in the market to settle share-based payments     (422)             (422)      
Dividends paid to BEE Parties     (147)             (147)      
Non-cash movements   40  511    (520)   31     
Amortisation of transaction costs              (7)    (7)      
Preference dividend accrued        (4)          (4)      
Interest accrued                      
Transfers between non-current and current liabilities        515     (515)            
Translation difference on movement in cash and cash equivalents     40              40       
Net debt at 30 June 2018 (Re-presented)    2 557  (4 480)    581     2 504       
Net debt at 30 June 2018 (Re-presented)    2 557  (4 480)    (581)    (2 504)      
Cash flows     (2 010) 650        (1 359)      
Operating activities     1 171              1 171       
Investing activities     (2 385)             (2 385)      
Financing activities     (796) 650        (145)      
Interest-bearing borrowings raised     14        (14)            
Interest-bearing borrowings repaid     (665) 650     15             
Shares acquired in the market to settle share-based payments     (45)             (45)      
Dividends paid to BEE Parties     (100)             (100)      
Non-cash movements     (13)       (4)      
Amortisation of transaction costs              (20)    (20)      
Preference dividend accrued                      
Interest accrued                      
Lease liabilities cancelled                   
Transfers between non-current and current liabilities        (21)    21             
Translation difference on movement in cash and cash equivalents                      
Net debt at 31 December 2018     549  (3 843)    (573)    (3 867)      
Net debt at 31 December 2018     549  (3 843)    (573)    (3 867)      
Cash flows     3 665  (585)    540     3 620       
Operating activities     701              701       
Investing activities     3 692              3 692       
Financing activities     (728) (585)    540     (773)      
 Interest-bearing borrowings raised     1 500  (1 000)    (500)            
 Interest-bearing borrowings repaid     (1 435) 415     1 020             
Lease liabilities paid     (20)       20             
Shares acquired in the market to settle share-based payments     (661)             (661)      
Dividends paid to BEE Parties     (112)             (112)      
Non-cash movements     (466)    (46)    (511)      
Amortisation of transaction costs              (7)    (7)      
Preference dividend accrued        11           11       
Interest accrued                      
Lease remeasurements              (4)    (4)      
New leases              (521)    (521)      
Lease liability cancelled                      
Transfers between non-current and current liabilities              48     (48)      
Translation difference on movement in cash and cash equivalents                      
Net debt at 30 June 2019   4 215  (4 894)   (79)   (758)    

21. OTHER LIABILITIES

  At 30 June
2019
Reviewed
Rm
  At 30 June
2018
Reviewed
Rm
  At 31 December
2018
Audited
Rm
 
Non-current            
Income received in advance 23   9   18  
Total non-current other liabilities 23   9   18  
Current            
Leave pay 190   168   171  
VAT 10   118   86  
Royalties 2   29   50  
Bonuses 182   201   305  
Current tax payables 160   68   209  
Other current liabilities 181   114   111  
Total current other liabilities 725   698   932  
Total other liabilities 748   707   950  

22. FINANCIAL INSTRUMENTS

 

The group holds the following financial instruments:

      At 30 June 
2019 
Reviewed 
Rm 
    At 30 June 
2018 
Reviewed 
Rm 
At 31 December
2018
Audited
Rm
     
Non-current                    
Financial assets                    
Financial assets at fair value through other comprehensive income         248         221   185          
Equity: unlisted — Chifeng        248        221  185          
Financial assets at fair value through profit or loss         1 929         1 426   1 432          
Equity: listed — KIO1                 26             
Debt: unlisted — environmental rehabilitation funds         1 929         1 400   1 432          
Financial assets at amortised cost        417        954  1 017          
Loans to associates and joint ventures                 258  250          
Joint ventures                 258  250          
— Cennergi2                 108             
— Mafube3                 150  250          
ESD loans4     112       80       
Other financial assets at amortised cost        305        696  687          
— Environmental rehabilitation funds                 320  351          
— Deferred pricing receivable5        309        363  336          
— Deferred consideration receivable6                 15             
— Impairment allowances        (4)       (2)            
Financial liabilities                               
Financial liabilities at amortised cost        (4 618)       (4 730) (4 220)         
Interest-bearing borrowings        (4 424)       (4 479) (3 843)         
Other payables        (81)       (92) (152)         
Deferred consideration payable7        (113)       (159) (225)         
Financial liabilities at fair value through profit or loss                  (337)  (488)         
Contingent consideration                 (337) (488)         
Current                               
Financial assets                               
Financial assets at amortised cost         6 588         5 365   5 354          
Loans to associates and joint ventures        199                
Associates        132                      
— Tumelo8        164                      
— Impairment allowances        (32)                     
Joint ventures        67                
— Mafube3        67                
ESD loans4        52           45          
— Gross        53           45          
— Impairment allowances        (1)                     
Other financial assets at amortised cost        72        81  80          
— Deferred pricing receivable5        54        51  52          
— Deferred consideration receivable6        17        29  29          
— Commitment fee receivable                            
— Employee receivables                      
— Impairment allowances        (4)       (6) (5)         
Trade and other receivables        2 046        2 687  3 140          
Trade receivables        1 832        2 405  2 971          
— Gross        1 921        2 481  3 052          
— Impairment allowances        (89)       (76) (81)         
Other receivables        214        282  169          
— Gross        328        282  223          
— Impairment allowances        (114)          (54)         
Cash and cash equivalents        4 219        2 596  2 080          
Financial assets at fair value through profit or loss         23                      
Derivative financial assets        18                      
Debt: unlisted — ESD funds                            
Financial liabilities                               
Financial liabilities at amortised cost        (3 275)       (3 460) (5 457)         
Interest-bearing borrowings        (50)       (571) (571)         
Deferred consideration payable7        (347)       (285) (395)         
Trade and other payables        (2 874)       (2 555) (2 960)         
— Trade payables        (1 590)       (1 226) (1 456)         
— Other payables        (1 284)       (1 329) (1 504)         
Overdraft        (4)       (49) (1 531)         
Financial liabilities at fair value through profit or loss          (248)         (351)   (362)         
Derivative financial liabilities                 (41) (1)         
Contingent consideration        (248)       (310) (361)         
1 During 2018, the KIO shares were sold.
2 Loan granted to Cennergi in 2016 and settled in 2018. The loan was interest free, unsecured and repayable on termination date in 2026, unless otherwise agreed by the parties.
3 Loan granted to Mafube in 2018. The loan bears interest at JIBAR plus a margin of 4%, is unsecured and repayable within five years (ending 2023), unless otherwise agreed by the parties.
4 Interest-free loans advanced to successful applicants in terms of the Exxaro ESD programme.
5 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%.
6 Relates to deferred consideration receivable which arose on the disposal of a mining right.
7 Deferred consideration payable in relation to the acquisition of the investment in Insect Technology and LightApp.
8 Loan granted to Tumelo. The loan is interest free, unsecured and repayable on demand, unless otherwise agreed by the parties.

The group has granted the following loan commitments:

  At 30 June
2019
Reviewed
Rm
  At 30 June
2018
Reviewed
Rm
At 31 December
2018
Audited
Rm
 
Total loan commitment 1 209   1 186 1 221  
Mafube1 500   500 500  
Insect Technology2 709   686 721  
Undrawn loan commitment 1 159   1 036 971  
Mafube 450   350 250  
Insect Technology 709   686 721  
1 Revolving credit facility available for five years, ending 2023.
2 A US$50 million term loan facility available from 2020 to 2025.
22.1 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 the group can access at the measurement date.
Level 1 — inputs other than quoted prices included in Level 1 that are either directly or indirectly observable.
Level 1 — inputs that are not based on observable market data (unobservable inputs).
At 30 June 2019 (Reviewed) Fair value 
Rm 
Level 1
Rm
Level 2
Rm
Level 3 
Rm 
 
Financial assets at fair value through other comprehensive income 248      248   
Equity — unlisted: Chifeng 248      248   
Financial assets at fair value through profit or loss 1 934    1 934    
Non-current debt — unlisted: environmental rehabilitation funds 1 929    1 929    
Current debt — unlisted: ESD funds   5    
Derivative financial assets 18    18    
Financial liabilities at fair value through profit or loss (248)     (248)  
Current contingent consideration (248)     (248)  
Net financial assets held at fair value 1 952    1 952    
At 30 June 2018 (Reviewed) Fair value 
Rm 
Level 1 
Rm 
Level 2 
Rm 
Level 3 
Rm 
 
Financial assets at fair value through other comprehensive income  221        221    
Equity — unlisted: Chifeng  221        221    
Financial assets at fair value through profit or loss  1 426  26  1 400       
Equity — listed: KIO  26  26          
Non-current debt — unlisted: environmental rehabilitation funds  1 400     1 400       
Financial liabilities at fair value through profit or loss  (647)       (647)   
Non-current contingent consideration  (337)       (337)   
Current contingent consideration  (310)       (310)   
Derivative financial liabilities  (41)    (41)      
Net financial assets/(liabilities) held at fair value  959  26  1 359  (426)   
At 31 December 2018 (Audited) Fair value 
Rm 
Level 1 
Rm 
Level 2 
Rm 
Level 3 
Rm 
 
Financial assets at fair value through other comprehensive income  185        185    
Equity — unlisted: Chifeng  185        185    
Financial assets at fair value through profit or loss  1 432     1 432       
Non-current debt — unlisted: environmental rehabilitation funds  1 432     1 432       
Financial liabilities at fair value through profit or loss  (849)       (849)   
Non-current contingent consideration  (488)       (488)   
Current contingent consideration  (361)       (361)   
Derivative financial liabilities  (1)    (1)      
Net financial assets/(liabilities) held at fair value  767     1 431  (664)  

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

  Contingent 
consideration 
Rm 
Chifeng 
Rm 
Total 
Rm 
 
At 31 December 2017 (Audited) (723) 152  (571)   
Movement during the period             
Gains recognised in other comprehensive income (pre-tax effect)1     69  69    
Losses recognised in profit or loss  (188)    (188)   
Settlements  299     299    
Exchange losses recognised in profit or loss  (35)    (35)   
At 30 June 2018 (Reviewed) (647) 221  (426)   
Movement during the period             
Losses recognised in other comprehensive income (pre-tax effect)1     (36) (36)   
Losses recognised in profit or loss  (169)    (169)   
Exchange losses recognised in profit or loss  (33)    (33)   
At 31 December 2018 (Audited) (849) 185  (664)   
Movement during the period             
Gains recognised in other comprehensive income (pre-tax effect)1     63  63    
Gains recognised in profit or loss  232     232    
Settlements  344     344    
Exchange gains recognised in profit or loss  25     25    
At 30 June 2019 (Reviewed) (248) 248      
1 Tax on Chifeng amounts to nil (30 June 2018: R12 million; 31 December 2018: R12 million).

Transfers

The group recognises transfers between levels of the fair value hierarchy as 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 during the periods ended 30 June 2019, 30 June 2018 and 31 December 2018.

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 and ESD funds

Level 2 fair values for debt instruments held in the environmental rehabilitation funds and ESD 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.

22.2 Valuation techniques used in the determination of fair values within Level 3 of the hierarchy, as well as significant inputs used in the valuation models
 

Contingent consideration

The potential undiscounted amount of the remaining future payments that the group could be required to make under the ECC acquisition is between nil and US$35 million. The amount of future payments is dependent on the API4 coal price.

At 30 June 2019, there was a decrease of US$16.4 million (R232 million) (30 June 2018: an increase of US$13.7 million (R188 million); 31 December 2018: an increase of US$25.4 million (R357 million)) recognised in profit or loss for the contingent consideration arrangement.

  API4 coal price range
(US$/tonne)
  Future payment  
Reference year Minimum Maximum   US$ million  
2015 60 80   10  
2016 60 80   25  
2017 60 80   25  
2018 60 90   25  
2019 60 90   35  

The amount to be paid in each of the five years is determined as follows:

  • If the average API4 price in the reference year is below the minimum API4 price of the agreed range, then no payment will be made
  • If the average API4 price falls within the range, then the amount to be paid is determined based on a formula contained in the agreement
  • If the average API4 price is above the maximum API4 price of the range, then Exxaro is liable for the full amount due for that reference year.

An additional payment to Total S.A. amounting to R344 million was required for the 2018 reference year, R299 million was required for the 2017 reference year and R74 million was required for the 2016 reference year as the API4 price was within the agreed range. No additional payment to Total S.A. was required for the 2015 reference year as the API4 price was below the range.

The contingent consideration is classified within Level 3 of the fair value hierarchy as there is no quoted market price or observable price available for this financial instrument. This financial instrument is valued as the present value of the estimated future cash flows, using a discounted cash flow model.

The significant observable and unobservable inputs used in the fair value measurement of this financial instrument are rand/US$ exchange rate, API4 export price and the discount rate.

  Inputs Sensitivity of  
inputs and  
fair value  
measurement1
Sensitivity  
analysis of a  
10% increase  
in the  
inputs is  
demonstrated  
below2
Rm  
 
At 30 June 2019 (Reviewed)        
Observable inputs        
Rand/US$ exchange rate R14.17 Strengthening of the rand to the US$ 25    
API4 export price (per tonne) US$75.50 Increase in API4 export price per tonne 121    
Unobservable inputs        
Discount rate 3.44% Decrease in the discount rate (8)  
At 30 June 2018 (Reviewed)        
Observable inputs        
Rand/US$ exchange rate R13.72 Strengthening of the rand to the US$ 65    
API4 export price (per tonne) US$82.50 to US$88.06 Increase in API4 export price per tonne 134    
Unobservable inputs        
Discount rate 3.44% Decrease in the discount rate (31)  
At 31 December 2018 (Audited)        
Observable inputs        
Rand/US$ exchange rate R14.43 Strengthening of the rand to the US$ 85    
API4 export price (per tonne)3 US$90.00 to US$98.10 Increase in API4 export price per tonne    
Unobservable inputs        
Discount rate 3.44% Decrease in the discount rate (16)  
1 Change in observable or unobservable input which will result in an increase in the fair value measurement.
2 A 10% decrease in the respective inputs would have an equal but opposite effect on the above, except for the API4 export price which resulted in a decrease of R221 million for 30 June 2018 and R167 million for 31 December 2018, on the basis that all other variables remain constant.
3 A 10% increase in the API4 export price would not have an impact on the fair value of the contingent consideration as the API4 export price is in excess of the maximum API4 coal price range.

Inter-relationships

Any inter-relationships between unobservable inputs are not considered to have a significant impact within the range of reasonably possible alternative assumptions for all reporting periods.

23. CONTINGENT LIABILITIES

  At 30 June
2019
Reviewed
Rm
  At 30 June
2018
Reviewed
Rm
At 31 December
2018
Audited
Rm
 
Pending litigation and other claims1 1 024   1 030 1 155  
Operational guarantees2 3 424   3 168 3 062  
— Financial guarantees ceded to the DMR 2 968   2 918 2 971  
— Other financial guarantees 456   250 91  
Total contingent liabilities 4 448   4 198 4 217  
1 Consists of legal cases as well as tax disputes with Exxaro as defendant.
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.

SARS

On 18 January 2016, Exxaro received a letter of audit findings from SARS following an international income tax audit for the years of assessment 2009 to 2013. According to the letter, SARS proposed that certain international Exxaro companies would be subject to South African income tax under section 9D of the Income Tax Act. Assessments to the amount of R442 million (R199 million tax payable, R91 million interest and R152 million penalties) were issued on 30 March 2016 and Exxaro formally objected against these assessments. These assessments were subsequently reduced by SARS to R246 million (including interest and penalties). A resolution hearing with SARS was held on 18 July 2017 but the parties could not settle the matter. Notice was given to refer the matter to the Tax Court and a court date of 4 March 2019 was allocated to Exxaro. The court hearing could however not proceed which resulted in settlement discussions being held between both parties. A settlement basis of 50:50 with no penalties or interest was agreed upon by both parties. SARS is in the process of obtaining approval from the National Appeal Committee to enter into a settlement agreement with Exxaro. Exxaro is currently awaiting this decision.

The total cost to Exxaro has been agreed to be as follows:

  • 2009 to 2013 years of assessment: R43 million
  • 50% reduction in assessed losses: R17 million.

Exxaro has however already paid R67 million due to the pay now, argue later principle.

Share of equity-accounted investments' contingent liabilities

  At 30 June
2019
Reviewed
Rm
  At 30 June
2018
Reviewed
Rm
At 31 December
2018
Audited
Rm
 
Share of contingent liabilities of equityaccounted investments1 957   909 726  
1 Mainly operational guarantees issued by financial institutions relating to environmental rehabilitation and closure costs.

24. 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.

25. GOING CONCERN

Based on the latest results for the six-month period ended 30 June 2019, the latest board approved budget for 2019, as well as the available banking facilities and cash generating capability, Exxaro satisfies the criteria of a going concern.

26. EVENTS AFTER THE REPORTING PERIOD

Details of the final dividend are provided in note 11.

Subsequent to 30 June 2019, the Competition Commission approval for the transfer of the Arnot operation to the Arnot OpCo Proprietary Limited consortium has been granted.

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.

27. EXTERNAL AUDITOR'S REVIEW CONCLUSION

These reviewed condensed group interim financial statements for the six-month period ended 30 June 2019, as set out on Condensed group statement of comprehensive income to Notes to the reviewed condensed group annual financial statements, have been reviewed by the company’s external auditors, PricewaterhouseCoopers Inc., who expressed an unmodified review conclusion. A copy of the auditor’s review report on the condensed group interim financial statements is available for inspection at Exxaro’s registered office, together with the financial statements identified in the external auditor’s report.

28. KEY MEASURES1

  At 30 June
2019
  At 30 June
2018
At 31 December
2018
 
Closing share price (rand per share) 171.99   125.70 137.87  
Market capitalisation (Rbn) 61.69   45.09 49.45  
verage rand/US$ exchange rate (for the period ended) 14.19   12.30 13.24  
Closing rand/US$ spot exchange rate 14.17   13.72 14.43  
1 Non-IFRS numbers.