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       
Current tax payable     (12) (12)   
Other assets       
Other liabilities     (16) (16)   
Net identifiable assets acquired and liabilities assumed  2 613  254  2 867    
1 The fair values of acquired receivables represent the gross contractual amount. The full contractual cash flows are expected to be collected.

4.3 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  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) 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           14 078    
Segmental net operating profit/(loss)       1 402     58        4 069    
– Continuing operations        1 402     58        4 069    
– Discontinued operations                               
External finance income (note 9)             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     (48)       2 355    
Cash generated by/(utilised in) operations        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     5 550     11 622        23 620    
Deferred tax1           964     (52)       8 331    
Current tax payables1                 28        54    
Liabilities  32     6 514     11 598        32 005    
Non-current liabilities held-for-sale (note 17)                         612    
Total liabilities per statement of financial position  32     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       
– Continuing operations     105       
– 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  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                    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                 (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           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           5 900        14 063    
Deferred tax1                 (35)       6 894    
Current tax payables1                 67        160    
Liabilities  28           5 932        21 117    
Non-current liabilities held-for-sale (note 17)                         1 373    
Total liabilities per statement of financial position  28           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       
– Continuing operations     127       
– 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     (65)       (44)       (1 033)   
– Continuing operations              (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              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           9 460        17 405    
Deferred tax1                 (56)       7 138    
Liabilities  30           9 404        24 543    
Non-current liabilities held-for-sale (note 17)                         1 410    
Total liabilities per statement of financial position  30           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:                   
– Share of recycling of other comprehensive income of equity-accounted investments                   
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     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     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     13 719    
Coal  6 524  319  1 732  4 800                    13 375    
Ferrosilicon                 56              56    
Renewable energy                       283        283    
Biological goods                               
Rendering of services over time        273  82                 359    
Stock yard management services        73                       73    
Project engineering services        200                       200    
Other mine management services           34                    34    
Transportation services           48                 49    
Other services                               
Total revenue from contracts with customers  6 524  319  2 005  4 882     60     283     14 078    
By major geographic area of customer1                                     
Domestic  6 524  319  2 005  34     60     283     9 229    
Export           4 848                 4 849    
Europe           1 910                 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     14 078    
By major customer industries                                     
Public utilities  5 721     2 005  263           283        8 272    
Merchants  92  184     4 192                 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     222              248    
Total revenue from contracts with customers  6 524  319  2 005  4 881     62     283     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     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 services           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 customer1                               
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    
Food and beverage  90                       90    
Chemicals     61                    61    
Other  19  26     210        265    
Total revenue from contracts with customers  5 915  822  1 769  3 421     27     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     
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   1 000 1 000  
Preference share liability     187    
Current1 3 331   50 50  
Loan facility2,3 3 329   47 46  
Bonds 2   4
4  
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   55 54  
– Six to 12 months 6   (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 95   643 643  
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   4 976  

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                                         +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       
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       
Exchange difference on translation             
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)       (251)   
– Additional provision  73     23        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  29           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        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     (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 liabilities 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)      

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) (11) (8)      
Amortisation of transaction costs         (7) (7)      
Preference dividend accrued              
Interest accrued              
Lease remeasurements       (3)   (3)      
New leases       (3)   (3)      
Lease liabilities cancelled              
Transfers between non-current and current liabilities       (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                
– Deferred pricing receivable2     57    54  57       
– Deferred consideration receivable3     19    17       
– Employee receivables            
– 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                

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    
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)   (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.