Exxaro Resources Limited Reviewed condensed group interim financial statements and unreviewed production and sales volumes information for the six-month period ended 30 June 2020 - NOTES TO THE REVIEWED CONDENSED GROUP INTERIM FINANCIAL STATEMENTS

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), energy (controlled and non-controlled), TiO₂ (non-controlled) and ferrous (controlled and non-controlled) markets. These reviewed condensed group interim financial statements as at and for the six-month period ended 30 June 2020 (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 the 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 2019, 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.

The interim financial statements were authorised for issue by the board of directors on 11 August 2020.

2.2 Judgements and estimates

Management made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The significant judgements and the key source of estimation uncertainty were similar to those applied to the group annual financial statements as at and for the year ended 31 December 2019. In addition, certain new judgements, estimates and assumptions relating to the business combination have been applied as detailed in note 4.

2.3 Re-presentation of comparative information

The condensed group statement of comprehensive income (and related notes) for the six-month period ended 30 June 2019 has been re-presented as a result of the investment in Black Mountain being classified as a discontinued operation as described further in note 6.

3. ACCOUNTING POLICIES AND OTHER COMPLIANCE MATTERS

The accounting policies applied are consistent with those of the previous financial year, except for the estimation of income tax (refer note 3.1 below) and the adoption of new and amended standards as set out below. In addition, the group has adopted hedge accounting as described further in note 22.2.1 following the Cennergi business combination.

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 2020 is 9.5%, compared to 14.0% for the six-month period ended 30 June 2019.

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

Share of income or loss of equity-accounted investments and dividend income (-10.79%)
Fair value adjustment relating to the acquisition of Cennergi (-6%).
BEE phase II implementation (ESOP and Exxaro Community NPV (-4.5%).

3.2 Carbon tax

The Carbon Tax Bill has been implemented with an effective date of 1 June 2019. Exxaro is currently in the process of registration in order to make its first payment on 31 October 2020, relating to the period 1 June 2019 to 31 December 2019. The total amount payable on 31 October 2020 for the tax year was calculated to be R4 million. An accrual of R2 million for the six-month period ended 30 June 2020 was made for carbon tax.

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

New accounting standards, amendments to accounting standards and interpretations issued, that are relevant to the group, but not yet effective on 30 June 2020 have not been adopted. The group continuously evaluates the impact of these standards and amendments.

3.4 Impact of COVID-19 on financial reporting

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

The following key areas of financial reporting that required specific attention for the six-month period ended 30 June 2020 are detailed below:

Revenue recognition

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

Inventory

Inventory has been evaluated and written down to the lower of cost and net realisable value. An amount of R105 million on the write-drawn of inventory to net realisable value has been recognised for the six-month period ended 30 June 2020.

Impairment of non-financial assets

An updated forecast was used in all impairment testing models which incorporated changes for COVID-19. As at 30 June 2020, no impairment charges were required.

Allowances for expected credit losses (ECLs)

Exxaro adjusted the weighted average credit rating of the small medium enterprises (SME) class of debtors to reflect the expected deterioration of SME debtors due to the negative impact of COVID-19. Known debtor specific factors were also considered on the impact of future cash flows from debtors. Where additional risk was identified, credit ratings were reviewed and, where applicable, adjusted to reflect the increased risk.

Taxation

Exxaro will benefit from the following tax relief measures announced:

A skills development levy holiday was granted to all businesses
Carbon tax payments were deferred until 31 October 2020
The implementation of limitation on utilisation of losses has been postponed to 2021.

Going concern assessment

An updated forecast was used to do the going concern assessment together with detailed sensitivity analysis as part of stress testing the going concern assumptions. Exxaro also prudently increased its borrowing facilities. The additional facility is available from 1 July 2020.

4. BUSINESS COMBINATION: ACQUISITION OF CONTROLLING INTEREST IN CENNERGI

4.1 Overview of Cennergi

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

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

Currently, Cennergi owns two windfarms which were originally bid as part of Window 2 of the Department of Energy’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), namely:

Amakhala Emoyeni windfarm situated near Cookhouse in the Eastern Cape with an installed capacity of 134 megawatts
Tsitsikamma Community windfarm located close to Tsitsikamma in the Eastern Cape with an installed capacity of 95 megawatts.

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

¹	BEE minority shareholders are Watt Energy Proprietary Limited (holding 16%) and Mainstreet 1066 Proprietary Limited (RF) (holding 9%).
²	BEE minority shareholders are Amakhala Emoyeni Bedford Wind Farm Community Trust (holding 2.5%) and Amakhala Emoyeni Cookhouse Wind Farm Community Trust (holding 2.5%).

Cennergi forms part of the energy reportable operating segment.

4.2 Overview of the transaction

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

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

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

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

	Note	Rm
Fair value of new 50% interest acquired (the purchase consideration)	4.2.1	1 739
Fair value of 50% interest held under joint control	4.2.2	1 502
Fair value of the 100% controlling interest acquired		3 241
Attributed to:
Goodwill	4.2.3	374
Fair value of net identifiable assets acquired	4.2.4	2 867

The transaction resulted in the following net cash out flow from investing activities:
– Cash paid	4.2.1	(1 641)
– Cash and cash equivalents acquired	4.2.4	337
Net cash outflow relating to the acquisition of Cennergi		(1 304)

The initial accounting for the acquisition has only been provisionally determined and is pending final determination of whether an obligation exists towards the Cennergi BEE minorities. This is not expected to have a material effect on the initial account currently presented.

4.2.1 Purchase consideration for newly acquired 50% interest

The purchase consideration for the additional 50% share acquired in Cennergi has been settled in cash, except for a portion that is deferred until such time that the underlying consideration is determinable and becomes due and payable. The purchase consideration represents the consideration transferred at its acquisition-date fair value. This is summarised into its components as follows:

	Note	Rm
Purchase consideration settled in cash		1 641
Contingent consideration	4.2.1.1	98
Fair value of purchase consideration		1 739

4.2.1.1 Contingent consideration

As part of the purchase consideration, Exxaro is required to pay Khopoli 50% of the value that Cennergi company would recover from its proven claims in the liquidation account of one of the BEE minority shareholders¹. The amount becomes payable within the month that Cennergi company receives proceeds from the liquidation.

Cennergi company’s proven claims relate to amounts advanced to the BEE minority shareholder including interest accrued thereon at fixed rates of interest. The claims are fully secured against the shares and loan claims in the SPV. It is therefore considered that the full liquidation claims will be recovered from the liquidation account, and depending on the value that the shares can be sold for, potentially an excess distribution of profit made on the sale of the shares. It is expected that the liquidation account will be settled and closed before the end of 2020.

An estimate of the possible range of outcomes of the settlement can be determined as follows:

	Rm
Expected minimum¹: Representing 50% of the amount collected by the liquidator from the SPV loan claims	41
Maximum¹: Representing 50% of the loan claims limiting the interest accrual under the in duplum principle	116

¹	Assumes a reduction in recovery arising from the liquidation account at 3% of the proceeds for the liquidator costs.

4.2.2 Fair value of pre-existing 50% interest

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

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

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

¹	Headline earnings adjustment

4.2.3 Goodwill

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

The goodwill recognised is attributed mainly to:

The further operating capability of the assets and market demand for renewable energy post the existing power purchase agreements contracts. The wind farms’ lifespan is longer than the current power purchase agreements in place. Given the expected growth in demand for energy in South Africa, coupled with limited supply of energy, and in particular the worldwide drive toward energy supply to be from renewable sources, it is considered that there is a market with value post the existing power purchase agreements’ contracts. The returns are also anticipated to be higher and by that point all debt financing would be paid off
The existing assembled workforce of Cennergi
A premium payable arising from the limited supply of, and high demand for, investment opportunities into renewable energy projects within the South African landscape.

The goodwill is not deductible for tax purposes.

4.2.4 Identifiable assets acquired and liabilities assumed

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

	Non-current Rm	Current Rm	Total Rm
Property, plant and equipment	5 952		5 952
Right-of-use assets	51		51
Intangible assets	2 685		2 685
Deferred tax assets	66		66
Deferred tax liabilities	(983)		(983)
Provisions	(39)		(39)
Financial liabilities: Derrivatives designated as hedging instruments	(272)		(272)
Net debt	(4 847)	115	(4 732)
– Cash and cash equivalents		337	337
– Interest-bearing borrowings	(4 799)	(215)	(5 014)
– Lease liabilities	(48)	(7)	(55)
Trade and other receivables¹		187	187
Trade and other payables		(25)	(25)
Financial assets at amortised cost: Interest-bearing loans receivable		1	1
Current tax payable		(12)	(12)
Other assets		4	4
Other liabilities		(16)	(16)
Net identifiable assets acquired and liabilities assumed	2 613	254	2 867

¹	The fair values of acquired receivables represent the gross contractual amount. The full contractual cash flows are expected to be collected.

4.3 Performance contribution to Exxaro’s results

	Revenue Rm	Profit¹ Rm
Cennergi’s results included in Exxaro’s results from 1 April 2020 – 30 June 2020	283	20
Cennergi’s results contributions to Exxaro’s results if included from 1 January 2020 – 30 June 2020¹	550	11

¹	The profit represents Cennergi’s profit before adjustments for hedge accounting adopted at an Exxaro group level. The assimilated scenario cannot be determined accurately from an Exxaro perspective, as Exxaro has adopted hedge accounting only from 1 April 2020.

4.4 Key judgements, assumptions and estimates applied to the business combination transaction:

4.4.1 Fair values of material assets acquired

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

Plant and equipment:

Primary operating assets: Wind turbines with substation connections to the grid

Valuation technique:

Cost approach applying a depreciated replacement cost method (DRC), which determines the replacement cost of an existing asset after deducting an allowance for wear or consumption to reflect the remaining economic life of the existing asset.

Key assumptions:

Asset lives: 26.3 to 26.4 years
Depreciation method: Straight line
Condition rating¹: Very good (94% to 96%)

¹	Asset condition: Asset is like new, fully operable, well maintained, and performs consistently at or above current standards. Little wear shown and no further action required.

Intangible assets:

Existing Power Purchase Agreement Contracts with Eskom

Valuation technique:

Income approach applying a multi-period excess earnings method (MEEM) which determines the present value of the after-tax cash flow attributed to the intangible asset. The technique is based on the earnings power or cashgenerating abilities of the entity or asset being valued. The income approach focuses on estimating a forecast cash flow stream that is reflective of the most likely future operations of the entity or asset. Such forecast cash flows are then discounted to present value based on the appropriate risk adjusted discount rate or capitalisation rate that is reflective of both the risk and long-term growth prospects of the entity or asset.

Key assumptions:

Discount rate: 11.1%
Remaining life of contracts: 16.3 to 16.4 years

4.4.2 Classification of share-based payment transaction

The arrangements in place with the BEE minority shareholders of the SPVs and Amakhala SPV represent share-based payment arrangements under IFRS 2 Share-based Payment. Management view the transactions as equity-settled as there is no obligation to settle in cash.

4.4.3 Non-controlling interests: Minority arrangements

Management view the arrangements with the BEE minority shareholders of the SPVs as in substance share options and are therefore not yet recognised as non-controlling interests.

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.

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

Coal

The coal reportable operating segment is split between commercial (Waterberg and Mpumalanga), tied and other operations. Commercial Mpumalanga operations include a 50% (30 June 2019: 50%; 31 December 2019: 50%) investment in Mafube (a joint venture with Anglo). The 10.36% (30 June 2019: 10.36%; 31 December 2019: 10.36%) effective equity interest in RBCT is included in the other coal operations. The 49% (30 June 2019: 49%; 31 December 2019: 49%) equity interest in Tumelo is included in the commercial Mpumalanga operations since 1 January 2019. The coal operations produce thermal coal, metallurgical coal and SSCC.

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.

Energy

The energy segment comprises Cennergi as a 100% controlled interest from 1 April 2020 (refer note 4). Before the business combination an equity-interest of 50% (30 June 2019: 50%; 31 December 2019: 50%) was included as a joint venture in this segment. The energy segment also includes an equity interest of 28.59% (30 June 2019: 28.73%; 31 December 2019: 28.59%) in LightApp, as well as an equity interest in GAM of 22% (30 June 2019: 22%; 31 December 2019: 22%).

Ferrous

The ferrous segment mainly comprises the 20.62% (30 June 2019: 20.62%; 31 December 2019: 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 10.26% (30 June 2019: 10.20%; 31 December 2019: 10.38%) equity interest in Tronox Holdings plc, which was classified as a non-current asset held-for-sale on 30 September 2017 (refer note 16), and a 26% (30 June 2019: 26%; 31 December 2019: 26%) equity interest in Tronox SA (both of the South African-based operations).

Other

The other reportable segment comprises an equity interest in Curapipe of 15% (30 June 2019: 15%; 31 December 2019: 15%), an equity interest in Insect Technology of 25.86% (30 June 2019: 25.87%; 31 December 2019: 25.86%), the Ferroland agricultural operation as well as the corporate office which renders services to operations and other customers. The 26% (30 June 2019: 26%; 31 December 2019: 26%) equity interest in Black Mountain (located in the Northern Cape province) was classified as a non-current asset held-for-sale and a discontinued operation on 30 November 2019 (refer note 16).

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

	Coal
	Commercial
6 months ended 30 June 2020 (Reviewed)	Waterberg Rm	Mpumalanga Rm	Tied Rm	Other Rm
External revenue (note 7)	7 615	4 076	2 005	34
Segmental net operating profit/(loss)	3 501	(240)	80	(738)
– Continuing operations	3 501	(240)	80	(738)
– Discontinued operations

External finance income (note 9)	23	2	3	10
External finance costs (note 9)	(27)	(90)		(23)
Income tax (expense)/benefit	(1 059)		(31)	255
– Continuing operations	(1 059)		(31)	255
– Discontinued operations
Depreciation and amortisation (note 8)	(685)	(260)	(11)	(12)
Gain on deemed disposal of joint venture
Gain on transfer of operation				14
Share of income/(loss) of equity-accounted investments (note 10)		35		10
Cash generated by/(utilised in) operations	4 283	105	168	144
Capital spend (note 12)	(796)	(392)	(1)
At 30 June 2020 (Reviewed)
Segmental assets and liabilities
Deferred tax¹		(117)	(137)	485
Equity-accounted investments		1 372		2 078
Loans to equity-accounted investments		113
External assets	28 872	9 714	1 065	2 489
Assets	28 872	11 082	928	5 052
Non-current assets held-for-sale (note 17)
Total assets per statement of financial position	28 872	11 082	928	5 052
External liabilities	1 917	2 396	872	1 225
Deferred tax¹	6 690	675		54
Current tax payables¹		8	(8)	26
Liabilities	8 607	3 079	864	1 305
Non-current liabilities held-for-sale (note 17)		612
Total liabilities per statement of financial position	8 607	3 691	864	1 305

¹	Offset per legal entity and tax authority.

	Ferrous				Other

6 months ended 30 June 2020 (Reviewed)	Alloys Rm	Other ferrous Rm	TiO₂ Rm	Energy Rm	Base metals Rm	Other Rm	Total Rm
External revenue (note 7)	60			283		5	14 078
Segmental net operating profit/(loss)	6			1 402		58	4 069
– Continuing operations	6			1 402		58	4 069
– Discontinued operations

External finance income (note 9)				5		93	136
External finance costs (note 9)				(143)		(174)	(457)
Income tax (expense)/benefit				17		237	(581)
– Continuing operations				17		237	(581)
– Discontinued operations
Depreciation and amortisation (note 8)	(3)			(97)		(63)	(1 131)
Gain on deemed disposal of joint venture				1 321			1 321
Gain on transfer of operation							14
Share of income/(loss) of equity-accounted investments (note 10)		2 259	95	4		(48)	2 355
Cash generated by/(utilised in) operations	5			189		(162)	4 732
Capital spend (note 12)						(75)	(1 264)
At 30 June 2020 (Reviewed)
Segmental assets and liabilities
Deferred tax¹	14			155		353	753
Equity-accounted investments		10 770	2 494	126		598	17 438
Loans to equity-accounted investments							113
External assets	281	25		9 373		6 522	58 341
Assets	295	10 795	2 494	9 654		7 473	76 645
Non-current assets held-for-sale (note 17)			1 741		872		2 613
Total assets per statement of financial position	295	10 795	4 235	9 654	872	7 473	79 258
External liabilities	32	6		5 550		11 622	23 620
Deferred tax¹				964		(52)	8 331
Current tax payables¹						28	54
Liabilities	32	6		6 514		11 598	32 005
Non-current liabilities held-for-sale (note 17)							612
Total liabilities per statement of financial position	32	6		6 514		11 598	32 617

¹	Offset per legal entity and tax authority.

	Coal
	Commercial
6 months ended 30 June 2019 (Reviewed)	Waterberg Rm	Mpumalanga Rm	Tied Rm	Other Rm
External revenue (note 7)	6 726	3 293	1 769	139
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)
Loss on loss of control of subsidiary		(67)
Share of income/(loss) of equity-accounted investments (note 10)		105		4
– Continuing operations		105		4
– Discontinued operations
Cash generated by/(utilised in) operations	2 961	(258)	159	425
Capital spend (note 12)	(1 230)	(1 311)
At 30 June 2019 (Reviewed)
Segmental assets and liabilities
Deferred tax¹		(5)	(78)	177
Equity-accounted investments		1 330		2 070
Loans to equity-accounted investments		199
External assets	27 285	9 036	1 141	3 625
Assets	27 285	10 560	1 063	5 872
Non-current assets held-for-sale (note 17)
Total assets per statement of financial position	27 285	10 560	1 063	5 872
External liabilities	1 958	2 484	929	2 759
Deferred tax¹	6 204	689		36
Current tax payables¹	(15)	71	3	34
Liabilities	8 147	3 244	932	2 829
Non-current liabilities held-for-sale (note 17)		1 373
Total liabilities per statement of financial position	8 147	4 617	932	2 829

¹	Offset per legal entity and tax authority.

	Ferrous				Other

6 months ended 30 June 2019 (Reviewed)	Alloys Rm	Other ferrous Rm	TiO₂ Rm	Energy Rm	Base metals Rm	Other Rm	Total Rm
External revenue (note 7)	27					7	11 961
Segmental net operating profit/(loss)	3		2 421			190	4 528
– Continuing operations	3		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						(344)	(958)
– Discontinued operations			(87)				(87)
Depreciation and amortisation (note 8)	(3)					(46)	(913)
Loss on loss of control of subsidiary							(67)
Share of income/(loss) of equity-accounted investments (note 10)		2 717	112	(27)	56	(43)	2 924
– Continuing operations		2 717	112	(27)		(43)	2 868
– Discontinued operations					56		56
Cash generated by/(utilised in) operations	43					(102)	3 228
Capital spend (note 12)						(157)	(2 698)
At 30 June 2019 (Reviewed)
Segmental assets and liabilities
Deferred tax¹	8	1				33	136
Equity-accounted investments		10 833	2 297	403	876	676	18 485
Loans to equity-accounted investments							199
External assets	239	25	94			5 382	46 827
Assets	247	10 859	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	247	10 859	4 132	403	876	6 091	67 388
External liabilities	28	5				5 900	14 063
Deferred tax¹						(35)	6 894
Current tax payables¹						67	160
Liabilities	28	5				5 932	21 117
Non-current liabilities held-for-sale (note 17)							1 373
Total liabilities per statement of financial position	28	5				5 932	22 490

¹	Offset per legal entity and tax authority.

	Coal
	Commercial
12 months ended 31 December 2019 (Audited)	Waterberg Rm	Mpumalanga Rm	Tied Rm	Other Rm
External revenue (note 7)	14 012	7 240	4 038	292
Segmental net operating profit/(loss)	5 752	(318)	136	(1 623)
– Continuing operations	5 752	(318)	136	(1 623)
– Discontinued operations

External finance income (note 9)	57	21		30
External finance costs (note 9)	(54)	(165)		(27)
Income tax (expense)/benefit	(1 627)	120	(47)	627
– Continuing operations	(1 627)	120	(47)	627
– Discontinued operations
Depreciation and amortisation (note 8)	(1 383)	(382)	(23)	(3)
Loss on loss of control of subsidiary		(35)
Gain on disposal of operation		76
Share of income/(loss) of equity-accounted investments (note 10)		127		1
– Continuing operations		127		1
– Discontinued operations
Cash generated by/(utilised in) operations	6 062	(253)	201	(1 042)
Capital spend (note 10)	(2 951)	(2 776)		(90)
At 31 December 2019 (Audited)
Segmental assets and liabilities
Deferred tax¹			(107)	340
Equity-accounted investments		1 335		2 067
Loans to associates		133
External assets	28 832	10 499	1 210	3 951
Assets	28 832	11 967	1 103	6 358
Non-current assets held-for-sale (note 17)
Total assets per statement of financial position	28 832	11 967	1 103	6 358
External liabilities	1 951	2 336	938	2 684
Deferred tax¹	6 411	715		68
Liabilities	8 362	3 051	938	2 752
Non-current liabilities held-for-sale (note 17)		1 410
Total liabilities per statement of financial position	8 362	4 461	938	2 752

¹	Offset per legal entity and tax authority.

	Ferrous				Other

12 months ended 31 December 2019 (Audited)	Alloys Rm	Other ferrous Rm	TiO² Rm	Energy Rm	Base metals Rm	Other Rm	Total Rm
External revenue (note 7)	130					14	25 726
Segmental net operating profit/(loss)	(3)	(1)	2 400	(58)		114	6 399
– Continuing operations	(3)	(1)	270	(58)		114	4 269
– Discontinued operations			2 130				2 130

External finance income (note 9)						210	318
External finance costs (note 9)	(1)					(108)	(355)
Income tax (expense)/benefit	3		(65)			(44)	(1 033)
– Continuing operations	3					(44)	(968)
– Discontinued operations			(65)				(65)
Depreciation and amortisation (note 8)	(5)					(116)	(1 912)
Loss on loss of control of subsidiary							(35)
Gain on disposal of operation							76
Share of income/(loss) of equity-accounted investments (note 10)		4 413	234	18	52	(152)	4 693
– Continuing operations		4 413	234	18		(152)	4 641
– Discontinued operations					52		52
Cash generated by/(utilised in) operations	1					304	5 273
Capital spend (note 10)						(259)	(6 076)
At 31 December 2019 (Audited)
Segmental assets and liabilities
Deferred tax¹	11					223	467
Equity-accounted investments		9 835	2 472	350		571	16 630
Loans to associates							133
External assets	279	25	65			4 136	48 997
Assets	290	9 860	2 537	350		4 930	66 227
Non-current assets held-for-sale (note 17)			1 741		872		2 613
Total assets per statement of financial position	290	9 860	4 278	350	872	4 930	68 840
External liabilities	30	6				9 460	17 405
Deferred tax¹						(56)	7 138
Liabilities	30	6				9 404	24 543
Non-current liabilities held-for-sale (note 17)							1 410
Total liabilities per statement of financial position	30	6				9 404	25 953

¹	Offset per legal entity and tax authority.

6. DISCONTINUED OPERATIONS

The discontinued operations are:

Tronox Holdings plc: representing a major geographical area of operations as well as the majority of the TiO₂ reportable segment.
Black Mountain: representing the base metals operating segment which management view as a separate major operation.

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

	6 months ended 30 June 2020 Reviewed Rm	(Re-presented) 6 months ended 30 June 2019 Reviewed Rm	12 months ended 31 December 2019 Audited Rm
Financial performance
Losses on financial instruments revaluations recycled to profit or loss		(1)	(1)
Net gains on translation differences recycled to profit or loss on partial disposal of investment in foreign associate		832	832
Indemnification asset movement		86	65
Operating profit		917	896
Gain on partial disposal of associate		1 234	1 234
Net operating profit		2 151	2 130
Dividend income received from non-current assets held-for-sale	36	28	47
Share of income of equity-accounted investment¹		56	52
Profit before tax	36	2 235	2 229
Income tax expense		(87)	(65)
Profit for the period from discontinued operations	36	2 148	2 164
Other comprehensive(loss)/income, net of tax		(831)	(830)
Items that have subsequently been reclassified to profit or loss:		(831)	(831)
– Recycling of share of other comprehensive income of equity-accounted investments		(831)	(831)
Items that will not be reclassified to profit or loss:			1
– Share of recycling of other comprehensive income of equity-accounted investments			1


Total comprehensive income for the period	36	1 317	1 334
Cash flow information
Cash flow attributable to investing activities
– Dividend income received from non-current assets held-for-sale	36	18	47
– Proceeds from partial disposal of associate classified as non-current assets held-for-sale		2 889	2 889
Cash flow attributable to discontinued operations	36	2 907	2 936

¹	Relates to Black Mountain.

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	Energy	Other
	Commercial
6 months ended 30 June 2020 (Reviewed)	Waterberg Rm	Mpumalanga Rm	Tied Rm	Other Rm	Alloys Rm	Rm	Other Rm	Total Rm
Segmental revenue reconciliation
Segmental revenue based on origin of coal production	7 615	4 076	2 005	34	60	283	5	14 078
Export sales allocated to selling entity	(1 091)	(3 757)		4 848
Total revenue from contracts with customers	6 524	319	2 005	4 882	60	283	5	14 078
By timing and major type of goods and services
Sale of goods at a point in time	6 524	319	1 732	4 800	56	283	5	13 719
Coal	6 524	319	1 732	4 800				13 375
Ferrosilicon					56			56
Renewable energy						283		283
Biological goods							5	5
Rendering of services over time			273	82	4			359
Stock yard management services			73					73
Project engineering services			200					200
Other mine management services				34				34
Transportation services				48	1			49
Other services					3			3

Total revenue from contracts with customers	6 524	319	2 005	4 882	60	283	5	14 078
By major geographic area of customer¹
Domestic	6 524	319	2 005	34	60	283	4	9 229
Export				4 848			1	4 849
Europe				1 910			1	1 911
Asia				2 249				2 249
Other				689				689

Total revenue from contracts with customers	6 524	319	2 005	4 882	60	283	5	14 078
By major customer industries
Public utilities	5 721		2 005	263		283		8 272
Merchants	92	184		4 192	2			4 470
Steel	375	17		77				469
Mining	83			127	45			255
Manufacturing	126				11			137
Food and beverage	61							61
Chemicals		116						116
Cement	50							50
Other	16	2		222	4		4	248
Total revenue from contracts with customers	6 524	319	2 005	4 881	62	283	4	14 078

¹	Determined based on the customer supplied by Exxaro.

	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	7	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	7	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	6	11 551
Coal	5 915	822	1 531	3 254			11 522
Ferrosilicon					23		23
Biological goods						6	6
Rendering of services over time			238	167	4	1	410
Stock yard management services			62				62
Project engineering services			176				176
Other mine management services				138			138
Transportation services				29	1		30
Other services					3	1	4

Total revenue from contracts with customers	5 915	822	1 769	3 421	27	7	11 961
By major geographic area of customer¹
Domestic	5 915	822	1 769	139	27	7	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	7	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				9		148
Cement	81						81
Food and beverage	90						90
Chemicals		61					61
Other	19	26		210	3	7	265
Total revenue from contracts with customers	5 915	822	1 769	3 421	27	7	11 961

¹	Determined based on the customer supplied by Exxaro.

	Coal				Ferrous	Other
	Commercial
12 months ended 31 December 2019 (Audited)	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	14 012	7 240	4 038	292	130	14	25 726
Export sales allocated to selling entity	(1 494)	(5 468)		6 962
Total revenue from contracts with customers	12 518	1 772	4 038	7 254	130	14	25 726
By timing and major type of goods and services
Sale of goods at a point in time	12 518	1 721	3 414	6 870	122	12	24 657
Coal	12 518	1 721	3 414	6 870			24 523
Ferrosilicon					122		122
Biological goods						12	12
Rendering of services over time		51	624	384	8	2	1 069
Stock yard management services			130				130
Project engineering services			494				494
Other mine management services				292			292
Transportation services		51		92	2		145
Other services					6	2	8

Total revenue from contracts with customers	12 518	1 772	4 038	7 254	130	14	25 726
By major geographic area of customer¹
Domestic	12 518	1 772	4 038	292	130	13	18 763
Export				6 962		1	6 963
Europe				3 617		1	3 618
Asia				3 159			3 159
Other				186			186

Total revenue from contracts with customers	12 518	1 772	4 038	7 254	130	14	25 726
By major customer industries
Public utilities	10 211	1 009	4 038	467			15 725
Merchants	179	326		6 475			6 980
Steel	1 378	68		43			1 489
Mining	81	133		266	103		583
Manufacturing	279				24		303
Cement	148						148
Food and beverage	200					1	201
Chemicals		167					167
Other	42	69		3	3	13	130
Total revenue from contracts with customers	12 518	1 772	4 038	7 254	130	14	25 726

¹	Determined based on the customer supplied by Exxaro.

8. SIGNIFICANT ITEMS INCLUDED IN OPERATING EXPENSES

	6 months ended 30 June 2020 Reviewed Rm	6 months ended 30 June 2019 Reviewed Rm	12 months ended 31 December 2019 Audited Rm
The following (expense)/income items are
included, among others, in operating expenses:
Raw materials and consumables	(1 844)	(1 893)	(3 760)
Staff costs¹	(2 523)	(2 266)	(5 248)
Royalties	(348)	(274)	(459)
Contract mining	(1 175)	(1 090)	(2 308)
Repairs and maintenance	(1 208)	(1 072)	(2 251)
Railage and transport	(1 528)	(1 037)	(2 353)
Movement in rehabilitation provisions	(251)	(473)	(127)
Depreciation and amortisation	(1 131)	(913)	(1 912)
– Depreciation of property, plant and equipment	(1 053)	(886)	(1 849)
– Depreciation of right-of-use assets	(35)	(25)	(59)
– Amortisation of intangible assets	(43)	(2)	(4)
Gain on deemed disposal of joint venture²	1 321
Losses on cash flow hedge reserve recycled to profit or loss on deemed disposal of JV²	(59)
Fair value adjustments on contingent consideration³		232	296
Hedge ineffectiveness on interest rate swaps (note 22.2)	(11)
Legal and professional fees	(286)	(402)	(742)
Net gains on disposal of property, plant and equipment	9	14
Loss on loss of control of subsidiary		(67)	(35)
Gain on transfer of operation⁴	14		76
Loss on dilution of investment in associates		(43)	(42)
Gain on disposal of associate		270	270
Expected credit losses⁵	77	(104)	(165)
Net impairment charges of non-current assets⁶	(46)		(35)
Write down of inventory to net realisable value	(105)	(10)	(12)
Insurance recoveries for	32	1	148
– Business interruption	14		99
– Property, plant and equipment	18	1	49

¹	December 2019 includes an amount of R459 million relating to TVPs.
²	Relates to the step-up acquisition of Cennergi (refer note 4).
³	Relates to the ECC acquisition.
⁴	2020: Relates to the transfer of the Arnot operation to Arnot Opco Proprietary Limited. 2019: Relates to the disposal of the Paardeplaats mining right which formed part of the NBC operation.
⁵	Relates mainly to the reversal of ECLs as payments were received on long outstanding debts. The ECLs recognised in 2019 were mainly for non-performing other receivables and the loan to Tumelo.
⁶	2020: Relates to the the impairment charge of the equity-accounted investment in Curapipe. 2019: Relates to the impairment charge of the equity-accounted investment in GAM (R58 million) and an impairment reversal on the reductants plant (R23 million).

9. NET FINANCING (COSTS)/INCOME

	6 months ended 30 June 2020 Reviewed Rm	6 months ended 30 June 2019 Reviewed Rm	12 months ended 31 December 2019 Audited Rm
Finance income	136	164	318
Interest income	131	132	292
Finance lease interest income	4	5	9
Commitment fee income	1	3	6
Interest income from loan to joint venture		24	11
Finance costs	(457)	(155)	(355)
Interest expense	(490)	(233)	(506)
Fair value loss on interest rate swaps designated as cash flow hedges: transfer from OCI	(26)
Unwinding of discount rate on rehabilitation costs	(160)	(206)	(414)
Recovery of unwinding of discount rate on rehabilitation costs	19	80	167
Interest expense on lease liabilities	(26)	(10)	(36)
Amortisation of transaction costs	(4)	(7)	(14)
Borrowing costs capitalised¹	230	221	448

Total net financing (costs)/income	(321)	9	(37)
¹Borrowing costs capitalisation rate (%)	8.88	10.21	9.98

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

	6 months ended 30 June 2020 Reviewed Rm	(Re-presented) 6 months ended 30 June 2019 Reviewed Rm	12 months ended 31 December 2019 Audited Rm
Unlisted investments
Associates	2 307	2 775	4 468
SIOC	2 259	2 717	4 413
Tronox SA	95	112	234
RBCT	10	4	1
Insect Technology	(48)	(43)	(148)
LightApp	(9)	(15)	(28)
Curapipe			(4)
Joint ventures	48	93	173
Mafube	35	105	127
Cennergi¹	13	(12)	46

Share of income of equity-accounted investments	2 355	2 868	4 641

¹	Equity income up to 31 March 2020.

11. DIVIDEND DISTRIBUTION

The final dividend relating to the 2019 financial year of 566 cents per share (R1 420 million to owners and R458 million to NCI) was paid in April 2020.

An interim cash dividend, number 35, for 2020 of 643 cents per share, was approved by the board of directors on 11 August 2020. The dividend is payable on 28 September 2020 to shareholders who will be on the register on 25 September 2020. This interim dividend, amounting to approximately R2 306 million (R1 613 million to owners of the parent and R693 million to NCI), has not been recognised as a liability in these interim financial statements. It will be recognised in shareholders’ equity in the year ending 31 December 2020.

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 514.40000 cents per share. The number of ordinary shares in issue at the date of this declaration is 358 706 754. Exxaro company’s tax reference number is 9218/098/14/4.

	6 months ended 30 June 2020 Reviewed	6 months ended 30 June 2019 Reviewed	12 months ended 31 December 2019 Audited
Dividend per share paid (cents)	566	555	2 316
Final dividend (relating to prior year)	566	555	555
Special dividend			897
Interim dividend (relating to current year)			864

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	251	330	251

12. CAPITAL SPEND AND CAPITAL COMMITMENTS

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Capital spend
To maintain operations	672	1 115	2 502
To expand operations	592	1 583	3 574
Total capital spend	1 264	2 698	6 076
Capital commitments
Contracted	2 589	2 328	2 225
Contracted for the group (owner controlled)	2 313	2 089	1 985
Share of capital commitments of equity-accounted investments	276	239	240
Authorised, but not contracted	1 839	1 662	3 119

13. INTANGIBLE ASSETS

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Goodwill¹
Net carrying amount
Acquisition of subsidiary	374
At end of the period	374
Contracts with customers¹
*Gross carrying amount*
Acquisition of subsidiary	2 685
At end of the period	2 685
*Accumulated amortisation*
Charges for the period	(41)
At end of the period	(41)
Patents and licences
Gross carrying amount
At beginning of the period	43	38	38
Additions		2	5
At end of the period	43	40	43
*Accumulated amortisation*
At beginning of the period	(27)	(23)	(23)
Charges for the period	(2)	(2)	(4)
At end of the period	(29)	(25)	(27)
Net carrying amount at end of the period	3 032	15	16

¹ Refer to note 4 for the goodwill and intangible assets recognised as a result of the Cennergi business combination.

14. EQUITY-ACCOUNTED INVESTMENTS

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Associates	16 066	16 934	15 056
SIOC	10 770	10 833	9 835
Tronox SA	2 494	2 297	2 472
RBCT	2 078	2 070	2 067
Black Mountain¹		876
Curapipe²		44	37
Insect Technology	598	632	534
LightApp	126	124	111
GAM³		58
Joint ventures	1 372	1 551	1 574
Mafube	1 372	1 330	1 335
Cennergi⁴		221	239

Total carrying value of equity-accounted investments	17 438	18 485	16 630

¹	The investment in Black Mountain was classified as a non-current asset held-for-sale on 30 November 2019 (refer note 16).
²	The investment in Curapipe was impaired to a carrying value of US$1 (R17.23) on 30 June 2020.
³	The investment in GAM is fully impaired.
⁴	The additional 50% shareholding in Cennergi was acquired on 1 April 2020 from which date the subsidiary has been consolidated (refer note 4 for details of the business combination).

15. OTHER ASSETS

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Non-current
Reimbursements¹	431	2 059	1 648
Indemnification asset: Total S.A.²		1 373	1 410
Indemnification asset: Tronox Holdings plc		86
Biological assets	24	29	24
Lease receivables	57	64	61
Other	57	37	51
Total non-current other assets	569	3 648	3 194
Current
Indemnification asset: Total S.A.²	612
Indemnification asset: Tronox Holdings plc			65
VAT	511	366	501
Royalties	75	46	114
Prepayments	42	39	120
Current tax receivables	196	26	265
Lease receivables	6	5	6
Other	22	61	33
Total current other assets	1 464	543	1 104
Total other assets	2 033	4 191	4 298

¹	Amounts recoverable from Eskom in respect of the rehabilitation, environmental expenditure and retirement employee obligations of the Matla operation at the end of LOM (2019: Included Matla and Arnot operation).
²	Upon the acquisition of ECC in 2015, Total S.A. indemnified Exxaro from any obligations relating to the EMJV. The indemnification will lapse in August 2020.

16. 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 0000 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).

Black Mountain

During the second half of 2019, the Exxaro board of directors approved a decision to divest from its 26% interest in Black Mountain. A non-binding offer from an interested party was received. The final terms of the transaction agreements are currently being settled. On 30 November 2019 the investment was classified as a non-current asset held-for-sale as all the criteria in terms of IFRS 5 were met and the application of the equity-method ceased.

The Black Mountain investment is presented within the total assets of the other base metals 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 ECC’s EMJV interest to Scinta became unconditional in 2013 and transferred the contractual liabilities. Section 43 consent is required in terms of the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA) for the transfer of the legal environmental liabilities and rehabilitation obligations to Scinta. The legal environmental liabilities remained classified as non-current liabilities held-for-sale for the Exxaro group as at 31 December 2019 as the required approvals were still pending. During January 2020 the required section 43 approval was obtained, transferring the legal liabilities to the EMJV and its liabilities and infrastructure to Scinta. Active engagement is continuing between the parties to finalise the transaction. 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.

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

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Assets
Investments in associates	2 613	1 741	2 613
– Tronox Holdings plc	1 741	1 741	1 741
– Black Mountain	872		872

Non-current assets held-for-sale	2 613	1 741	2 613
Liabilities	(595)	(1 356)	(1 393)
Non-current provisions¹
Retirement employee obligations¹	(17)	(17)	(17)
Non-current liabilities held-for-sale	(612)	(1 373)	(1 410)
Net non-current assets held-for-sale	2 001	368	1 203

¹ Relates to EMVJ.

17. INTEREST-BEARING BORROWINGS

At 30 June
2020
Reviewed
Rm

At 30 June
2019
Reviewed
Rm

At 31 December
2019
Audited
Rm

Non-current¹

10 327

4 424

6 991

Loan facility²

9 327

3 237

5 991

Bonds

1 000

Preference share liability

187

Current¹

3 331

Loan facility^2,3

3 329

Bonds

Preference share liability

(1)

Total interest-bearing borrowings

13 658

4 474

7 041

Summary of interest-bearing borrowings by period of redemption:

– Less than six months

3 325

– Six to 12 months

(5)

(4)

– Between one and two years

6 469

(9)

2 744

– Between two and three years

1 284

3 246

3 605

– Between three and four years

1 154

544

(1)

Between four and five years

643

Over five years

1 325

Total interest-bearing borrowings

13 658

4 474

7 041

¹	Reduced by the amortisation of transaction costs:

–	Non-current

(4)

(14)

(9)

–

Current

(9)

(11)

(9)

²	Increased as a result of loan facilities assumed from the Cennergi business combination (balances at 30 June 2020: Non-current R1 581 million; Current R3 271 million).

³	An amount of R3 177 million has been classified as current, relating to repayments ordinarily due past 12 months, as a result of a technical non-compliance of the agreements. This is in the process of being rectified.

Overdraft

Bank overdraft

1 758

976

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, except for the technical non-compliance as noted in footnote 3 above.

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

	Capital amount outstanding	Undrawn/ Unissued	Term of loan			Repayment terms		Interest terms
	30 Jun 2020 Rm	30 Jun 2020 Rm	Start	End	Term in months	Capital	Interest	Basis	Margin %	Trs costs %
Unsecured
Bonds: DMTN Programme	1 000	4 000				By final maturity date	Quarterly	3-month JIBAR
R357 million senior note	357		13 Jun 2019	13 Jun 2022	36				+1.65	n/a
R643 million senior note	643		13 Jun 2019	13 Jun 2024	60				+1.89	n/a
Loans:	7 750	nil
Bullet term loan	3 250	nil	29 Jul 2016	29 Jul 2021	60	On final maturity date	Quarterly	3-month JIBAR	+3.25	0.17
Amortised loan¹	1 750	nil	29 Jul 2016	29 Jul 2023	84	Bi-annual starting 29 Jan 2022	Quarterly	3-month JIBAR	+3.60	n/a
Revolving facility²	2 750	nil	29 Jul 2016	29 Jul 2021	60	On final maturity date	Monthly	1-month JIBAR	+3.25	n/a

Secured
Tsitsikamma SPV loan facilities³	1 935	124	1 Apr 2020⁵	31 Dec 2030	129	Bi-annual⁶	Bi-annual	3-month JIBAR⁷	+2.69%	n/a
Amakhala SPV loan facilities⁴	2 916	273
Floating rate facilities:	2 766	273	1 Apr 2020⁵	30 Jun 2031	135	Bi-annual⁶	Bi-annual	3-month JIBAR⁸	all in margin⁹
– Senior A and C	2 036								+3 .64	n/a
– Senior IFC	555								+3.71	n/a
– Subordinate A and C	115								+6.74	n/a
– Subordinate IFC	60								+6.81	n/a
Fixed rate facilities:	150		1 Apr 2020⁵	30 Jun 2031	135	Bi-annual⁶	Bi-annual	< Jun 2021: 8.00 < Maturity: 9.46	all in margin⁹
– Senior B	143								+3.91	n/a
– Subordinate B	7								+6.81	n/a

¹ 2020: Draw down on the amortised loan on 1 April 2020 (2019: The faciltiy of R1 750 million was available but not drawn).
² 2019: Draw down on the revolving facility on 14 October 2019 (R2 billion) and 31 December 2019 (R750 million).
³ Security held over the assets and share capital of Tsitsikamma SPV.
⁴ Security held over the assets and share capital of Amakhala SPV.
⁵ Debt assumed from Cennergi business combination.
⁶ Bi-annual instalments ranging incrementally over the term from 0.18% to 10.65% of the nominal amount.
⁷ The 3-month JIBAR rate is swapped to a fixed rate of 9.55% up to 30 June 2030 up to the nominal value of the swap.
⁸ The 3-month JIBAR rate is swapped to a fixed rate up to the nominal value of the swap as follows:
– IFC facilities: 8.42% up to 30 June 2031
– A and C facilities: 8.00% up to 30 June 2021; and 9.46% up to June 2026.
⁹ All in margin includes fixed liquidity costs and banking cost which resets quarterly for floating rate facilities.

18. LEASE LIABILITIES

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Non-current	515	470	461
Current	39	29	27
Total lease liabilities	554	499	488
Summary of lease liabilities by period
of redemption:
– Less than six months	17	14	15
– Six to 12 months	22	15	12
– Between one and two years	39	27	28
– Between two and three years	48	32	34
– Between three and four years	39	29	34
– Between four and five years	48	38	43
– Over five years	341	344	322
Total lease liabilities	554	499	488
Analysis of movement in lease liabilities
At beginning of the period	488	2	2
Recognised on initial application of IFRS 16 Leases		66	66
Balance at 1 January	488	68	68
New leases	24	455	458
Lease terminations		(8)	(12)
Acquisition of subsidiary	55
Lease remeasurement adjustments	1	4	7
Exchange difference on translation	1
Capital repayments	(15)	(20)	(33)
– Lease payments	(41)	(30)	(69)
– Interest charges	26	10	36

At end of the period	554	499	488

The lease liabilities relate to the right-of-use assets. Interest is based on incremental borrowing rates ranging between 7.85% and 10.43%.

19. PROVISIONS

	Environmental rehabilitation
	Restoration Rm	Decommis- sioning Rm	Residual impact Rm	Other site closure costs Rm	Total Rm
At 30 June 2020
At beginning of the period	2 432	544	1 345	83	4 404
Charge to operating expenses (note 8)	(138)	(34)	(88)	9	(251)
– Additional provision	73		23	9	105
– Unused amounts reversed	(211)	(34)	(111)		(356)
Unwinding of discount rate on rehabilitation costs (note 9)	84	23	53		160
Provisions capitalised to property, plant and equipment		(83)			(83)
Utilised during the year	(7)		(1)		(8)
Acquisition of subsidiary	6	29	4		39
Transfer of operation	(642)	(97)	(705)		(1 444)
Total provisions at end of the period	1 735	382	608	92	2 817
– Current provision	101		18	22	141
– Non-current provision	1 634	382	590	70	2 676

At 30 June 2019
At beginning of the period	2 516	451	975	80	4 022
Charge to operating expenses (note 8)	113	71	290	(1)	473
– Additional provision	189	72	347		608
– Unused amounts reversed	(76)	(1)	(57)	(1)	(135)
Unwinding of discount rate on rehabilitation costs (note 9)	113	22	64	6	205
Provisions capitalised to property, plant and equipment		20			20
Utilised during the year	(38)			(2)	(40)
Reclassification to non-current liabilities held-for-sale	(1)	(1)	(34)		(36)
Loss of control of subsidiary	(6)	(2)	(1)		(9)
Total provisions at end of the period	2 697	561	1 294	83	4 635
– Current provision	22			21	43
– Non-current provision	2 675	561	1 294	62	4 592

At 31 December 2019
At beginning of the year	2 516	451	975	80	4 022
Charge to operating expenses (note 8)	(244)	52	301	18	127
– Additional provision	374	56	403	19	852
– Unused amounts reversed	(618)	(4)	(102)	(1)	(725)
Unwinding of discount rate on rehabilitation costs (note 9)	228	47	139		414
Provisions capitalised to property, plant and equipment		(4)			(4)
Utilised during the year	(58)			(15)	(73)
Reclassification to non-current liabilities held-for-sale	(4)		(69)		(73)
Loss of control of subsidiary	(6)	(2)	(1)		(9)
Total provisions at end of the period	2 432	544	1 345	83	4 404
– Current provision	66		11	22	99
– Non-current provision	2 366	544	1 334	61	4 305

20. NET DEBT

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Net debt is presented by the following items on the statement of financial position:
Non-current interest-bearing debt	(10 842)	(4 894)	(7 452)
Interest-bearing borrowings	(10 327)	(4 424)	(6 991)
Lease liabilities	(515)	(470)	(461)
Current interest-bearing debt	(3 370)	(79)	(77)
Interest-bearing borrowings	(3 331)	(50)	(50)
Lease liabilities	(39)	(29)	(27)
Net cash and cash equivalents	3 678	4 215	1 719
Cash and cash equivalents	5 436	4 219	2 695
Overdraft	(1 758)	(4)	(976)

Total net debt	(10 534)	(758)	(5 810)

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 2018	549	(3 843)	(573)	(3 867)
Cash flows	3 665	(585)	540	3 620
Operating activities¹	2 094			2 094
Investing activities	3 692			3 692
Financing activities¹	(2 121)	(585)	540	(2 166)
– Interest-bearing borrowings raised	1 500	(1 000)	(500)
– Interest-bearing borrowings repaid	(1 435)	415	1 020
– Lease liabilities paid	(20)		20
– Dividends paid to owners of the parent¹:	(1 393)			(1 393)
Final dividend (relating to prior year)	(1 393)			(1 393)
– Shares acquired in the market to settle share-based payments	(661)			(661)
– Dividends paid to BEE Parties	(112)			(112)

Non-cash movements	1	(466)	(46)	(511)
Amortisation of transaction costs			(7)	(7)
Preference dividend accrued		11		11
Interest accrued			1	1
Lease remeasurements		(4)		(4)
New leases		(521)		(521)
Lease liabilities cancelled			8	8
Transfers between non-current and current liabilities		48	(48)
Translation difference on movement in cash and cash equivalents	1			1

Net debt at 30 June 2019	4 215	(4 894)	(79)	(758)

¹ Dividends paid to owners of parent have been re-presented as a financing activity (previously presented as an operating activity).

	Liabilities arising from financing activities
	Cash and cash equivalents/ (overdraft) Rm	Non- current interest- bearing debt Rm	Current interest- bearing debt Rm	Total Rm
Net debt at 30 June 2019	4 215	(4 894)	(79)	(758)
Cash flows	(2 494)	(2 563)	13	(5 044)
Operating activities¹	1 389			1 389
Investing activities	(718)			(718)
Financing activities¹	(3 165)	(2 563)	13	(5 715)
– Interest-bearing borrowings raised	2 750	(2 750)
– Interest-bearing borrowings repaid	(187)	187
– Lease liabilities paid	(13)		13
– Dividends paid to owners of the parent¹	(4 419)			(4 419)
Special dividend	(2 251)			(2 251)
Interim dividend (current year)	(2 168)			(2 168)
– Shares acquired in the market to settle share-based payments	(17)			(17)
– Dividends paid to BEE Parties	(1 279)			(1 279)

Non-cash movements	(2)	5	(11)	(8)
Amortisation of transaction costs			(7)	(7)
Preference dividend accrued		2		2
Interest accrued			1	1
Lease remeasurements		(3)		(3)
New leases		(3)		(3)
Lease liabilities cancelled			4	4
Transfers between non-current and current liabilities		9	(9)
Translation difference on movement in cash and cash equivalents	(2)			(2)

Net debt at 31 December 2019	1 719	(7 452)	(77)	(5 810)

¹ Dividends paid to owners of the parent have been re-presented as a financing activity (previously presented as an operating activity).

		Liabilities arising from financing activities
	Cash and cash equivalents/ (overdraft) Rm	Non- current interest- bearing debt Rm	Current interest- bearing debt Rm	Total Rm
Net debt at 31 December 2019	1 719	(7 452)	(77)	(5 810)
Cash flows	1 920	(1 750)	53	223
Operating activities	3 542			3 542
Investing activities²	(1 181)			(1 181)
Financing activities	(441)	(1 750)	53	(2 138)
– Interest-bearing borrowings raised	1 750	(1 750)
– Interest-bearing borrowings repaid	(38)		38
– Lease liabilities paid	(15)		15
– Dividends paid to owners of the company	(1 420)			(1 420)
Final dividend (relating to prior year)	(1 420)			(1 420)
– Shares acquired in the market to settle share-based payments	(260)			(260)
– Dividends paid to BEE parties	(458)			(458)

Non-cash movements	39	(1 640)	(3 346)	(4 947)
Amortisation of transaction costs			(4)	(4)
Interest accrued			114	114
Lease remeasurements		(3)		(3)
New leases		(24)		(24)
Leases assumed from business combination (note 4)		(48)	(7)	(55)
Acquisition of subsidiary (note 4)		(4 799)	(215)	(5 014)
Transfers between non-current and current liabilities		3 234	(3 234)
Translation difference on movement in cash and cash equivalents	39			39

Net debt at 30 June 2020	3 678	(10 842)	(3 370)	(10 534)

²	Includes R337 million cash acquired from the Cennergi business combination (refer note 4).

21. OTHER LIABILITIES

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Non-current
Termination benefits¹	92		144
Income received in advance	24	23	23
Total non-current other liabilities	116	23	167
Current
Termination benefits¹	181		305
Leave pay	217	190	203
Bonuses	231	182	241
VAT	34	10	21
Royalties	3	2	9
Current tax payables	54	160	50
Other current liabilities	94	181	97
Total current other liabilities	814	725	926
Total other liabilities	930	748	1 093

¹	During 2019, Exxaro announced the implementation of TVPs. Under this policy, employees that qualified would receive a severance package in exchange for termination of employment.

22. FINANCIAL INSTRUMENTS

The group holds the following financial instruments:

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Non-current
Financial assets
*Financial assets at FVOCI*	279	248	235
Equity: unlisted – Chifeng	279	248	235
*Financial assets at FVPL*	1 793	1 929	2 039
Debt: unlisted – environmental rehabilitation funds	1 793	1 929	2 039
*Financial assets at amortised cost*	740	417	400
ESD loans¹	117	112	124
Other financial assets at amortised cost	623	305	276
– Environmental rehabilitation funds	377
– Deferred pricing receivable²	250	309	279
– Impairment allowances	(4)	(4)	(3)

Financial liabilities
*Financial liabilities at amortised cost*	(10 392)	(4 618)	(7 112)
Interest-bearing borrowings	(10 327)	(4 424)	(6 991)
Other payables	(65)	(81)	(121)
Deferred consideration payable		(113)
*Derivative financial liabilities designated as hedging instruments*	(603)
Hedging derivatives – interest rate swaps³	(603)

¹ Interest-free loans advanced to successful applicants in terms of the Exxaro ESD programme.
² Relates to a deferred pricing adjustment which arose during 2017. The amount receivable will be settled over seven years (ending 2024) and bears interest at Prime Rate less 2%.
³ Refer note 22.2.

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Current
Financial assets
Financial assets at amortised cost	8 280	6 588	6 208
Loans to associates and joint ventures	113	199	133
Associates	113	132	133
– Tumelo¹	168	164	182
– Impairment allowances	(55)	(32)	(49)
Joint ventures		67
– Mafube		67

ESD loans¹	83	52	82
– Gross	84	53	83
– Impairment allowances	(1)	(1)	(1)
	76	72	57
– Loan to FM trust	1
– Deferred pricing receivable²	57	54	57
– Deferred consideration receivable³	19	17	1
– Employee receivables	6	5	5
– Impairment allowances	(6)	(4)	(6)
Trade and other receivables	2 572	2 046	3 241
Trade receivables	2 302	1 832	2 928
– Gross	2 400	1 921	3 023
– Impairment allowances	(98)	(89)	(95)
Other receivables	270	214	313
– Gross	334	328	464
– Impairment allowances	(64)	(114)	(151)

Cash and cash equivalents	5 436	4 219	2 695
Financial assets at FVPL		23
Derivative financial assets		18
Debt: unlisted – ESD funds		5

¹ Loan granted to Tumelo. The loan is interest free, unsecured and repayable on demand, unless otherwise agreed by the parties.
² Interest-free loans advanced to successful applicants in terms of the Exxaro ESD programme.
³ Relates to the deferred consideration receivable which arose on the disposal of mineral properties.

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Current
Financial liabilities
Financial liabilities at amortised cost	(8 101)	(3 275)	(3 936)
Interest-bearing borrowings	(3 331)	(50)	(50)
Deferred consideration payable¹	(137)	(347)	(307)
Trade and other payables	(2 875)	(2 874)	(2 603)
– Trade payables	(1 445)	(1 590)	(1 164)
– Other payables	(1 430)	(1 284)	(1 439)
Overdraft	(1 758)	(4)	(976)
Financial liabilities at fair value through profit or loss	(98)	(248)	(191)
Contingent consideration²	(98)	(248)	(191)

¹ Relates to deferred consideration payable in relation to the acquisition of the investment in Insect Technology.
² 2020: Contingent consideration relating to the Cennergi acquisition (refer note 4). 2019: Relates to the ECC contingent consideration which was fully settled in January 2020.

The group has granted the following loan commitments:

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Total loan commitment	1 113	1 209	1 206
Mafube¹	250	500	500
Insect Technology²	863	709	706
Undrawn loan commitment	1 113	1 159	1 206
Mafube	250	450	500
Insect Technology	863	709	706

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 2 –	Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable.
Level 3 –	Inputs that are not based on observable market data (unobservable inputs).

At 30 June 2020 (Reviewed)	Fair value Rm	Level 2 Rm	Level 3 Rm
Financial assets at FVOCI	279		279
Equity – unlisted: Chifeng	279		279
Financial assets at FVPL	1 793	1 793
Non-current debt – unlisted: environmental rehabilitation funds	1 793	1 793
Financial liabilities at FVPL	(98)		(98)
Current contingent consideration	(98)		(98)
Derivative financial liabilities designated as hedging instruments	(603)	(603)
Non-current derivatives – Interest rate swaps used for hedging	(603)	(603)

Net financial assets held at fair value	1 371	1 190	181

At 30 June 2019 (Reviewed)	Fair value Rm	Level 2 Rm	Level 3 Rm
Financial assets at FVOCI	248		248
Equity – unlisted: Chifeng	248		248
Financial assets at FVPL	1 934	1 934
Non-current debt – unlisted: environmental rehabilitation funds	1 929	1 929
Current debt – unlisted: ESD funds	5	5
Derivative financial liabilities	18	18
Financial liabilities at FVPL	(248)		(248)
Current contingent consideration	(248)		(248)

Net financial assets held at fair value	1 952	1 952

At 31 December 2019 (Audited)	Fair value Rm	Level 2 Rm	Level 3 Rm
Financial assets at FVOCI	235		235
Equity – unlisted: Chifeng	235		235
Financial assets at FVPL	2 039	2 039
Non-current debt – unlisted: environmental rehabilitation funds	2 039	2 039
Financial liabilities at FVPL	(191)		(191)
Current contingent consideration	(191)		(191)

Net financial assets held at fair value	2 083	2 039	44

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

	Contingent consideration Rm	Chifeng Rm	Total Rm
At 31 December 2018 (Audited)	(849)	185	(664)
Movement during the 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
Movement during the period
Losses recognised in other comprehensive income (pre-tax effect)¹		(13)	(13)
Losses recognised in profit or loss	63		63
Exchange losses recognised in profit or loss	(7)		(7)
At 31 December 2019 (Audited)	(191)	235	44
Movement during the period
Gains recognised in other comprehensive income (pre-tax effect)¹		44	44
Acquisition of subsidiary²	(98)		(98)
Settlements³	195		195
Exchange losses recognised in profit or loss³	(4)		(4)
At 30 June 2020 (Reviewed)	(98)	279	181

¹ Tax on Chifeng amounts to nil (30 June 2019: nil; 31 December 2019: nil).
² Relates to the acquisition of additional 50% shareholding in Cennergi (refer note 4).
³ Relates to the ECC contingent consideration which was fully settled in January 2020.

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 or between Level 2 and Level 3 of the fair value hierarchy during the periods ended 30 June 2020, 30 June 2019 and 31 December 2019.

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 Hedge accounting: Derivative interest rate swaps hedging interest rate cash flow risk on certain borrowings

22.2.1 Accounting policy: derivatives and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and subsequently remeasured to fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The group has designated its interest rate swap derivatives covering a portion of the interest rate cash flows on certain of the Cennergi debt as cash flow hedges.

At inception of the hedge relationship, the group documents the economic relationship between hedging instruments and hedged items, including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The group documents its risk management objective and strategy for undertaking its hedge transactions.

The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

Cash flow hedges that qualify for hedge accounting

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash flow hedge reserve within equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, within other gains/(losses) included in operating expenses.

Amounts accumulated in equity are reclassified to profit or loss in the periods when the underlying hedged item affects profit or loss. The gain or loss relating to the effective portion of the interest rate swaps hedging variable rate borrowings is recognised in profit or loss within finance cost at the same time as the interest expense on the hedged borrowings.

When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, or when the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to profit or loss.

Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in profit or loss and are included in other gains/(losses) in operating expenses.

22.2.2 Financial risk management: market risk – interest rate risk management

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

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

– Interest rate swaps and interest rate forwards.

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

Project lending hedging activity

Project: Wind farms project financing

The group is exposed to the risk of variability in future interest payments on variable rate ZAR-denominated funding of the wind farms, attributable to fluctuations in 3-month JIBAR. The designated hedged item is the group of forecast variable interest rate cash flows arising from ZAR-denominated exposure (linked to 3-month JIBAR), up to the notional amount of each interest rate swap, over the term of the hedging relationship. The notional amounts per interest rate swap match up to the designated exposure being hedged.

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

Hedge effectiveness:

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

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

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

– The debit value adjustment (DVA) on the interest rate swaps which is not matched by the loan

– Differences in critical terms between the interest rate swaps and loans.

The recognised ineffectiveness in 2020 amounted to R11 million and is mainly as a result of the DVA. Credit valuation adjustments are not considered due to the terms of the underlying loans, which allow for set-off.

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

22.2.3 Effects of hedge accounting on the financial position and performance

Hedging instruments:	6 months ended 30 June 2020 Reviewed Rm
Hedging instruments at 30 June 2020:
Interest rate swap liabilities:
– Carrying amount	603
– Nominal amount	4 190
Carrying amount at 30 June 2020:
– Hedged items: floating rate secured borrowings	4 701
Change in value used for calculating hedge ineffectiveness	(368)
Change in fair value of outstanding hedging instruments since 1 April 2020	(379)
– Change in the value of the hedging instrument recognised in OCI	(368)
– Hedge ineffectiveness recognised in operating expenses	(11)
Amount reclassified from hedging reserve to profit or loss included in finance costs	26

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

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

Hedging reserves

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

Financial instruments revaluation reserve composition:	6 months ended 30 June 2020 Reviewed Rm	6 months ended 30 June 2019 Reviewed Rm	12 months ended 31 December 2019 Audited Rm
Balance of share of movements of equity-accounted investees	19	58	23
*Cash flow hedge reserve – interest rate swaps*	246
– Gross	342
– Deferred tax on swap	(96)
NCI share of hedging reserve	(42)		12
Financial instruments revaluation reserve	223	58	35

Cash flow hedge reserve – interest rate swaps	Gross Rm	Tax Rm	Net Rm
Change in fair value of interest rate swaps recognised in OCI	368	(103)	265
Reclassified from OCI to profit or loss in finance costs	(26)	7	(19)
Closing balance at 30 June 2020	342	(96)	246

23. CONTINGENT LIABILITIES

	At 30 June 2020 Reviewed Rm	At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Pending litigation and other claims¹		1 024	1 103
Operational guarantees²	4 532	3 424	4 506
– Financial guarantees ceded to the DMRE	4 239	2 968	3 994
– Other financial guarantees	293	456	512

Total contingent liabilities	4 532	4 448	5 609

¹ Deltatex Holdings Limited leave to appeal to the Constitutional Court was dismissed with costs.
² Includes guarantees to banks and other institutions in the normal course of business from which it is anticipated that no material liabilities will arise.

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

Share of equity-accounted investments’ contingent liabilities

	At 30 June 2020 Reviewed Rm		At 30 June 2019 Reviewed Rm	At 31 December 2019 Audited Rm
Share of contingent liabilities of equityaccounted investments¹	1 161		957	1 060

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 2020, the latest board-approved budget for 2020, 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 interim dividend are provided in note 11.

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 interim financial statements for the six-month period ended 30 June 2020, as set out in the Financials, 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 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 2020	At 30 June 2019	At 31 December 2019
Closing share price (rand per share)	130.44	171.99	131.14
Market capitalisation (Rbn)	46.79	61.69	47.04
Average rand/US$ exchange rate (for the period ended)	16.65	14.19	14.44
Closing rand/US$ spot exchange rate	17.23	14.17	14.13

¹ Non-IFRS numbers.

NOTES TO THE REVIEWED CONDENSED GROUP INTERIM FINANCIAL STATEMENTS

1. CORPORATE BACKGROUND

2. BASIS OF PREPARATION

3. ACCOUNTING POLICIES AND OTHER COMPLIANCE MATTERS

4. BUSINESS COMBINATION: ACQUISITION OF CONTROLLING INTEREST IN CENNERGI

5. SEGMENTAL INFORMATION

6. DISCONTINUED OPERATIONS

7. REVENUE

8. SIGNIFICANT ITEMS INCLUDED IN OPERATING EXPENSES

9. NET FINANCING (COSTS)/INCOME

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

11. DIVIDEND DISTRIBUTION

12. CAPITAL SPEND AND CAPITAL COMMITMENTS

13. INTANGIBLE ASSETS

14. EQUITY-ACCOUNTED INVESTMENTS

15. OTHER ASSETS

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

17. INTEREST-BEARING BORROWINGS

18. LEASE LIABILITIES

19. PROVISIONS

20. NET DEBT

21. OTHER LIABILITIES

22. FINANCIAL INSTRUMENTS

23. CONTINGENT LIABILITIES

24. RELATED PARTY TRANSACTIONS

25. GOING CONCERN

26. EVENTS AFTER THE REPORTING PERIOD

27. EXTERNAL AUDITOR'S REVIEW CONCLUSION

28. KEY MEASURES1

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28. KEY MEASURES¹