16.1.1 FINANCIAL ASSETS

(i) Classification

The group and company classifies its financial assets in the following measurement categories:

• those measured subsequently at fair value (either through OCI, or through profit or loss); and
• those measured at amortised cost.

The classification depends on the group’s and company’s business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the group or company has made an irrevocable election at the time of initial recognition to account for the equity investment at FVOCI.

The group and company reclassifies debt investments when, and only when, its business model for managing those assets changes.

(ii) Measurement

At initial recognition, the group and company measures a financial asset at its fair value-plus, in the case of a financial asset not at FVPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are SPPI.

Debt instruments

Subsequent measurement of debt instruments depends on the group’s and company’s business model for managing the asset and the cash flow characteristics of the asset. Currently there are two measurement categories into which the group and company classifies its debt instruments, as the group and company do not hold any debt instruments classified as FVOCI, as summarised in the table below.

Category

Financial instruments

Business model and cash flow characteristics

Movements in carrying amount

Derecognition

Impairment

Amortised cost

Trade and other receivables Loans to joint ventures and associates Other financial assets Treasury facilities with subsidiaries Related party financial assets ESD loans

Financial assets that are held for collection of contractual cash flows where those cash flows represent SPPI.

Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are recognised in profit or loss.

Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in operating expenses.

Impairment losses are presented as a separate line item in the notes to the statement of comprehensive income. The impairment losses are considered to be immaterial and therefore it has not been presented as a separate line on the face of the statement of comprehensive income.

FVPL

Debt securities Derivative financial assets

Financial assets that do not meet the criteria for amortised cost or FVOCI.

Gains and losses on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented on a net basis within operating expenses in the period in which it arises. Interest income is recognised in profit or loss.

Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in operating expenses.

Debt instruments measured at FVPL are not subject to the impairment model in terms of IFRS 9.

Equity instruments

Equity investments are subsequently measured at fair value. Management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as income from financial assets when the group’s and company’s right to receive payments is established.

Changes in the fair value of financial assets at FVPL are recognised in operating expenses in the statement of comprehensive income as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.

(iii) Impairment

The group and company assesses on a forward-looking basis the ECLs associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (ie the difference between the cash flows due to the group in accordance with the contract and the cash flows that the group and company expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

Expected credit loss allowances are measured on either of the following bases:

• 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and
• lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

For trade receivables, the group and company applies the simplified approach permitted by IFRS 9, which requires lifetime ECLs to be recognised from initial recognition of the receivables. To measure the ECLs, trade receivables are grouped based on shared credit risk characteristics (corporate entities, small medium enterprises and public sector entities) and the days past due to assess significant increase in credit risk. In addition, forward-looking macro economic conditions and factors are considered when determining the ECLs for trade receivables, namely trading conditions in the domestic and international coal markets, domestic and export coal prices as well as economic growth and inflationary outlook in the short term. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, among others, the failure of a debtor to engage in a repayment plan with the group and company, and a failure to make contractual payments for a period of greater than 120 days past due.

For other financial assets measured at amortised cost, the ECL is based on the 12-month expected credit loss allowance or a lifetime expected credit loss allowance. The 12-month expected credit loss allowance is the portion of lifetime expected credit loss allowances that result from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been a significant increase in credit risk since origination, the ECL will be based on the lifetime expected credit loss allowances.

The group and company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

The group and company considers a financial asset to be in default when contractual payments are 90 days past due. However, in certain cases, the group and company may also consider a financial asset to be in default when internal or external information indicates that the group and company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the group and company.

The financial assets measured at amortised cost are categorised as follows:

Category		Definition		Basis for recognition of expected credit loss allowance
Performing		Counterparty has a low risk of default and a strong capacity to meet contractual cash flows of capital and/or interest (where applicable)		12-month expected credit losses. Where the expected lifetime of a financial asset measured at amortised cost is less than 12 months, expected credit losses are measured at its expected lifetime.
Under-performing		There is a significant increase in credit risk of the counterparty since initial recognition. A significant increase in credit risk is presumed if principal and/or interest (where applicable) payments are 30 to 90 days past due		Lifetime expected credit losses
Non-performing		Counterparty has a high risk of default and there is a high probability that the counterparty will be unable to meet contractual cash flows of principal and/or interest (where applicable). There has been a further significant increase in credit risk since recognition. A further significant increase in credit risk is presumed if the principal and/or interest (where applicable) repayments are more than 90 days past due		Lifetime expected credit losses
Write-off		There is no reasonable expectation that the principal and/or interest (where applicable) will be recovered		Financial asset measured at amortised cost is written off

16.1.2 LOAN COMMITMENTS ISSUED BY THE GROUP AND COMPANY

Undrawn loan commitments are commitments under which, over the duration of the commitment, the group and company is required to provide a loan with pre-specified terms to the counterparty. These contracts are in the scope of the ECL requirements of IFRS 9.

When estimating 12-month or lifetime ECLs for undrawn loan commitments, the group and company estimates the expected portion of the loan commitment that will be drawn down over 12 months or its expected life, respectively. The ECL is then based on the present value of the expected shortfalls in cash flows if the loan is drawn down, based on a probability-weighting. The cash shortfalls include the realisation of any collateral. The expected cash shortfalls are discounted at an approximation to the expected effective interest rate on the loan.

In applying IFRS 9 Financial Instruments, management makes judgements and assumptions in determining the impairment losses to be recognised in relation to financial assets. The expected credit loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The group and company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the group’s and company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

16.3.1 CARRYING AMOUNTS AND FAIR VALUE AMOUNTS OF FINANCIAL INSTRUMENTS

The tables below set out the group’s and company’s classification of each category of financial assets and financial liabilities.

	Group
At 31 December 2018	Financial assets at FVOCI Rm	Financial assets at FVPL Rm	Financial assets at amortised cost Rm	Financial liabilities at FVPL Rm	Financial liabilities at amortised cost Rm			Total carrying amount Rm
Financial assets
Non-current
Financial assets, consisting of:
– Equity: unlisted
Chifeng	185							185
– Debt: unlisted
Environmental rehabilitation funds		1 432						1 432
– Loans to associates and joint ventures			250					250
– ESD loans			80					80
– Other financial assets at amortised cost			687					687
Total non-current financial assets	185	1 432	1 017					2 634
Current
Financial assets, consisting of:
– Loans to associates and joint ventures			9					9
– ESD loans			45					45
– Other financial assets at amortised cost			80					80
Trade and other receivables, consisting of:
– Trade receivables			2 971					2 971
– Other receivables			169					169
Cash and cash equivalents			2 080					2 080
Total current financial assets			5 354					5 354
Total financial assets	185	1 432	6 371					7 988
Financial liabilities
Non-current
Interest-bearing borrowings (excluding finance leases)					3 843			3 843
Non-current other payables					152			152
Financial liabilities, consisting of:
– Contingent consideration				488				488
– Deferred consideration payable					225			225
Total non-current financial liabilities				488	4 220			4 708
Current
Interest-bearing borrowings (excluding finance leases)					571			571
Trade and other payables					2 960			2 960
Financial liabilities, consisting of:
– Derivative financial liabilities				1				1
– Contingent consideration				361				361
– Deferred consideration payable					395			395
Overdraft					1 531			1 531
Total current financial liabilities				362	5 457			5 819
Total financial liabilities				850	9 677			10 527

Due to the short-term nature of the current financial assets and current financial liabilities, the carrying amount is assumed to be the same as the fair value.

The carrying amounts of non-current financial instruments measured at amortised cost approximate fair value due to the nature and terms of these instruments.

	Group
	At fair value through profit or loss
At 31 December 2017 (Re-presented)	Held- for- trading Rm	Designated Rm		Loans and receivables at amortised cost Rm	Availablefor- sale financial assets at fair value Rm	Financial liabilities at amortised cost Rm	Non- financial assets and non- financial liabilities at cost Rm		Total carrying amount Rm
Financial assets
Non-current
Financial assets, consisting of:
– Environmental rehabilitation funds		1 357		291					1 648
– Loans to joint venture				126					126
– Preference dividends receivable from associate				2					2
– KIO		34							34
– Chifeng					152				152
– Non-current receivables				389					389
Total non-current financial assets		1 391		808	152				2 351
Current
Financial assets, consisting of:
– Current portion of non-current receivable				48					48
Trade and other receivables, consisting of:
– Trade receivables				2 506					2 506
– Other receivables				103					103
– Derivative financial asset	4								4
Cash and cash equivalents				6 657					6 657
Total current financial assets	4			9 314					9 318
Non-current assets held-for-sale				53			3 857		3 910
Total financial assets	4	1 391		10 175	152		3 857		15 579
Financial liabilities
Non-current
Interest-bearing borrowings						6 477	3		6 480
Non-current other payables						89			89
Financial liabilities, consisting of:
– Contingent consideration		414							414
Total non-current financial liabilities		414				6 566	3		6 983
Current
Financial liabilities, consisting of:
– Contingent consideration		309							309
Trade and other payables, consisting of:
– Trade and other payables						2 239			2 239
– Derivative financial liability	6								6
Interest-bearing borrowings						52	16		68
Overdraft						54			54
Total current financial liabilities	6	309				2 345	16		2 676
Non-current liabilities held-for-sale						80	1 572		1 652
Total financial liabilities	6	723				8 991	1 591		11 311

Due to the short-term nature of the current financial assets and current financial liabilities, the carrying amount is assumed to be the same as the fair value.

The carrying amounts of non-current financial instruments measured at amortised cost approximate fair value due to the nature and terms of these instruments.

	Company
At 31 December 2018	Financial assets at FVPL Rm	Financial assets at amortised cost Rm	Financial liabilities at FVPL Rm	Financial liabilities at amortised cost Rm			Total carrying amount Rm
Financial assets
Non-current
Financial assets, consisting of:
– Debt: unlisted
Environmental rehabilitation funds	26						26
– ESD loans		80					80
– Interest-bearing loans to subsidiaries		3 500					3 500
Total non-current financial assets	26	3 580					3 606
Current
Financial assets, consisting of:
– ESD loans		45					45
– Interest-bearing loans to subsidiaries		586					586
– Non-interest-bearing loans to subsidiaries		341					341
– Treasury facilities with subsidiaries at amortised cost		1 611					1 611
Trade and other receivables, consisting of:
– Other receivables		19					19
– Indebtedness by subsidiaries		194					194
Cash and cash equivalents		676					676
Total current financial assets		3 472					3 472
Non-current assets held-for-sale		408					408
Total financial assets	26	7 460					7 486
Financial liabilities
Non-current
Interest-bearing borrowings (excluding finance leases)				3 233			3 233
Financial liabilities, consisting of:
– Contingent consideration			488				488
– Put option			584				584
– Deferred consideration payable				225			225
Total non-current financial liabilities			1 072	3 458			4 530
Current
Interest-bearing borrowings (excluding finance leases)				572			572
Trade and other payables				176			176
Financial liabilities, consisting of:
– Contingent consideration			361				361
– Deferred consideration payable				395			395
– Non-interest-bearing loans from subsidiary				8 197			8 197
– Treasury facilities with subsidiaries at amortised cost				1 886			1 886
Overdraft				1 046			1 046
Total current financial liabilities			361	12 272			12 633
Total financial liabilities			1 433	15 730			17 163

Due to the short-term nature of the current financial assets and current financial liabilities, the carrying amount is assumed to be the same as the fair value.

The carrying amounts of non-current financial instruments measured at amortised cost approximate fair value due to the nature and terms of these instruments.

	Company
At 31 December 2017 (Restated)	Designated at fair value through profit or loss Rm	Loans and receivables at amortised cost Rm	Financial liabilities at amortised cost Rm		Total carrying amount Rm
Financial assets
Non-current
Financial assets, consisting of:
– Environmental rehabilitation funds	26				26
– Loan to joint venture		186			186
– Preference dividends receivable from associate		2			2
– Non-current receivables		408			408
– Interest-bearing loans to subsidiaries		4 020			4 020
Total non-current financial assets	26	4 616			4 642
Current
Financial assets, consisting of:
– Interest-bearing loans to subsidiaries		25			25
Trade and other receivables, consisting of:
– Indebtedness by subsidiaries		1 438			1 438
– Other receivables		20			20
Cash and cash equivalents		5 555			5 555
Total current financial assets		7 038			7 038
Total financial assets	26	11 654			11 680
Financial liabilities
Non-current
Interest-bearing borrowings			3 994		3 994
Financial liabilities, consisting of:
– Contingent consideration	414				414
– Put option	2 377				2 377
Total non-current financial liabilities	2 791		3 994		6 785
Current
Financial liabilities, consisting of:
– Contingent consideration	309				309
Trade and other payables			9 782		9 782
Interest-bearing borrowings			57		57
Overdraft			37		37
Total current financial liabilities	309		9 876		10 185
Total financial liabilities	3 100		13 870		16 970

Due to the short-term nature of the current financial assets and current financial liabilities, the carrying amount is assumed to be the same as the fair value.

The carrying amounts of non-current financial instruments measured at amortised cost approximate fair value due to the nature and terms of these adjustments.

16.3.2 FAIR VALUES

16.3.2.1 Fair value hierarchy

Financial assets and financial liabilities at fair value have been categorised in the following hierarchy structure, based on the input

used in the valuation technique:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets 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).

Group	Fair value  Rm	Level 2  Rm	Level 3  Rm
2018
Financial assets at fair value through other comprehensive income
Equity – unlisted	185		185
– Chifeng	185		185
Financial assets at fair value through profit or loss
Debt – unlisted	1 432	1 432
– Environmental rehabilitation funds	1 432	1 432
Financial liabilities at fair value through profit or loss	(849)		(849)
Non-current contingent consideration	(488)		(488)
Current contingent consideration	(361)		(361)
Derivative financial liabilities	(1)	(1)
Net financial assets/(liabilities) held at fair value	767	1 431	(664)

Reconciliation of Level 3 hierarchy	Contingent  consideration  Rm	Chifeng1 Rm	Total  Rm
Opening balance	(723)	152	(571)
Movement during the year
Losses recognised in profit or loss	(357)		(357)
Gains recognised in other comprehensive income (pre-tax effect)2		33	33
Settlements	299		299
Exchange losses recognised in profit or loss	(68)		(68)
Closing balance	(849)	185	(664)

1	Before 1 January 2018, the Chifeng equity investment was classified as available-for-sale in accordance with IAS 39. From 1 January 2018, the Chifeng equity investment is classified at FVOCI in accordance with IFRS 9.
2	Tax on Chifeng amounts to R12 million (2017: R12 million).

Group	Fair value  Rm	Level 1  Rm	Level 2  Rm	Level 3  Rm
2017
Financial assets held-for-trading at fair value through profit or loss	4		4
Current derivative financial assets	4		4
Financial assets designated at fair value through profit or loss	1 391	1 391
Environmental rehabilitation funds	1 357	1 357
KIO	34	34
Available-for-sale financial assets	152			152
Chifeng	152			152
Financial liabilities held-for-trading at fair value through profit or loss	(6)		(6)
Current derivative financial liabilities	(6)		(6)
Financial liabilities designated at fair value through profit or loss	(723)			(723)
Non-current contingent consideration	(414)			(414)
Current contingent consideration	(309)			(309)
Net financial assets/(liabilities) held at fair value	818	1 391	(2)	(571)

Reconciliation of Level 3 hierarchy	Contingent  consideration  Rm	Chifeng  Rm	Total  Rm
Opening balance	(483)	178	(305)
Movement during the year
Losses recognised in profit or loss	(354)		(354)
Losses recognised in other comprehensive income (pre-tax effect)		(26)	(26)
Settlements	74		74
Exchange gains recognised in profit or loss	40		40
Closing balance	(723)	152	(571)

Company	Fair value  Rm	Level 2  Rm	Level 3  Rm
2018
Financial assets at fair value through profit or loss
Debt – unlisted	26	26
– Environmental rehabilitation funds	26	26
Financial liabilities at fair value through profit or loss	(1 433)		(1 433)
Non-current contingent consideration	(488)		(488)
Current contingent consideration	(361)		(361)
Put option	(584)		(584)
Net financial (liabilities)/assets held at fair value	(1 407)	26	(1 433)

Reconciliation of Level 3 hierarchy	Put option  Rm	Contingent  consideration  Rm	Total  Rm
Opening balance	(2 377)	(723)	(3 100)
Movement during the year
Losses recognised in the profit or loss	(1)	(357)	(358)
Option lapsed/settlements	1 794	299	2 093
Exchange losses recognised in profit or loss		(68)	(68)
Closing balance	(584)	(849)	(1 433)

Company	Fair value  Rm	Level 1  Rm	Level 3  Rm
2017
Financial assets designated at fair value through profit or loss	26	26
Environmental rehabilitation funds	26	26
Financial liabilities designated at fair value through profit or loss	(3 100)		(3 100)
Non-current contingent consideration	(414)		(414)
Current contingent consideration	(309)		(309)
Put option	(2 377)		(2 377)
Net financial (liabilities)/assets held at fair value	(3 074)	26	(3 100)

Reconciliation of Level 3 hierarchy	Put option  Rm	Contingent  consideration  Rm	Total   Rm
Opening balance		(483)	(483)
Movement during the year
Losses recognised in profit or loss	(11)	(354)	(365)
Options granted	(2 366)		(2 366)
Settlements		74	74
Exchange gains recognised in profit or loss		40	40
Closing balance	(2 377)	(723)	(3 100)

16.3.2.2 Transfers

The group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the transfer has occurred. There were no transfers between Level 1 and Level 2 nor between Level 2 and Level 3 of the fair value hierarchy during the periods ended 31 December 2018 and 31 December 2017, except for the environmental rehabilitation funds which were transferred from Level 1 to Level 2 as a result of not applying the look-through principle, as shown in note 16.3.2.1

16.3.2.3 Valuation process applied by the group

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.

16.3.2.4 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 reasonableness by discounting estimated future cash flows using the market rate for similar instruments at measurement date.

16.3.2.5 Environmental rehabilitation funds

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

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

(a) Chifeng

Chifeng is classified within a Level 3 of the fair value hierarchy as there is no quoted market price or observable price available for this investment. This unlisted investment is valued as the present value of the estimated future cash flows, using a DCF model. The valuation technique is consistent to that used in previous reporting periods.

The significant observable and unobservable inputs used in the fair value measurement of the investment in Chifeng are rand/ RMB exchange rate, RMB/US$ exchange rate, zinc LME price, production volumes, operational costs and the discount rate.

At 31 December 2018	Inputs		Sensitivity of inputs and fair value measurement1	Sensitivity  analysis of a  10% increase  in the inputs is  demonstrated  below2 Rm
Observable inputs
Rand/RMB exchange rate	R2.10/RMB1		Strengthening of the rand to the RMB	19
RMB/US$ exchange rate	RMB6.56 to RMB7.01/US$1		Strengthening of the RMB to the US$	110
Zinc LME price (US$ per tonne in real terms)	US$2 200.00 to US$2 474.72		Increase in price of zinc concentrate	110
Unobservable inputs
Production volumes	85 000 tonnes		Increase in production volumes	31
Operational costs (US$ million per annum in real terms)	US$60.59 to US$70.92		Decrease in operations costs	(83)
Discount rate	11.11%		Decrease in the discount rate	(16)
Observable inputs
Rand/RMB exchange rate	R1.90/RMB1		Strengthening of the rand to the RMB	15
RMB/US$ exchange rate	RMB6.52 to RMB7.28/US$1		Strengthening of the RMB to the US$	100
Zinc LME price (US$ per tonne in real terms)	US$3 000 to US$2 100		Increase in price of zinc concentrate	100
Unobservable inputs
Production volumes	85 000 tonnes		Increase in production volumes	29
Operational costs (US$ million per annum in real terms)	US$58.46 to US$70.20		Decrease in operations costs	(75)
Discount rate	11.05%		Decrease in the discount rate	(12)

1	Change in observable or unobservable input which will result in an increase in the fair value measurement.
2	A 10% decrease in the respective inputs would have an equal but opposite effect on the above, on the basis that all other variables remain constant.

Inter-relationships

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

(b) Contingent consideration

The potential undiscounted amount of the remaining deferred future payments that the group could be required to make under the ECC acquisition is between nil and US$60 million. The amount of future payments is dependent on the API4 coal price.

During 2018, there was an increase of US$25.4 million (R357 million) (2017: US$28.5 million (R354 million)) recognised in profit or loss for the contingent consideration arrangement.

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

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

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

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

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

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

	Inputs		Sensitivity of inputs and fair value measurement1	Sensitivity  analysis of a  10% increase  in the inputs is  demonstrated  below2 Rm
At 31 December 2018
Observable inputs
Rand/US$ exchange rate	R14.43/US$1		Strengthening of the rand to the US$	85
API4 export price (price per tonne)3	US$90.00 to US$98.10		Increase in API4 export price per tonne
Unobservable inputs
Discount rate	3.44%		Decrease in the discount rate	(16)
At 31 December 2017
Observable inputs
Rand/US$ exchange rate	R12.37/US$1		Strengthening of the rand to the US$	72
API4 export price (price per tonne)	US$74.41 to US$84.35		Increase in API4 export price per tonne	180
Unobservable inputs
Discount rate	3.44%		Decrease in the discount rate	(19)

1	Change in observable or unobservable input which will result in an increase in the fair value measurement.
2	A 10% decrease in the respective inputs would have an equal but opposite effect on the above, except for the API4 export price which would result in a decrease of R167 million for 2018 (2017: decrease of R245 million), on the basis that all other variables remain constant.
3	A 10% increase in the API4 export price would not have an impact on the fair value of the contingent consideration as the API4 export price is in excess of the maximum API4 coal price range.

Inter-relationships

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

(c) Put option

In terms of the Replacement BEE Transaction, Exxaro granted Eyesizwe the right to require Exxaro to buy back a certain number of Exxaro shares at a discount to the market price, subject to certain restrictions. The proceeds received by Eyesizwe upon exercise of the put option may only be used to settle the preference share liability. The put option therefore expires once the preference share liability has been fully settled. The put option can only be exercised if, the 20-day weighted average trading price of Exxaro’s shares is greater than 150% of the closing Exxaro share price on 11 December 2017 as per the agreement.

The put option is classified within a Level 3 of the fair value hierarchy as there is no quoted market price or observable price available for this instrument. This instrument’s value is based on the present value of the preference share liability redemption amount.

16.3.3 RISK MANAGEMENT

16.3.3.1 Financial risk management

The group’s corporate treasury function provides financial risk management services to the business, coordinates access to domestic and international financial markets, and monitors and manages the financial risks relating to the operations of the group through internal risk reports which analyse exposure by degree and magnitude of risks. These risks include market risk (including foreign currency risk, interest rate risk and price risk), credit risk and liquidity risk.

The group’s objectives, policies and processes for measuring and managing these risks are detailed below.

The group seeks to minimise the effects of these risks by using derivative financial instruments to hedge these risk exposures. The use of derivative financial instruments is governed by the group’s policies approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits is reviewed by the internal auditors on a continuous basis and the results are reported to the audit committee.

The group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The group enters into financial instruments to manage and reduce the possible adverse impact on earnings and cash flows of changes in interest rates, foreign currency exchange rates and commodity prices.

Capital management

In managing its capital, the group focuses on a sound net debt position, return on shareholders’ equity (or return on capital employed) and the level of dividends to shareholders. The group’s policy is to cover its annual net funding requirements through long-term loan facilities with maturities spread over time. Neither the company nor any of its subsidiaries are subject to externally imposed capital requirements.

16.3.3.2 Market risk management

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, commodity prices and equity prices, will affect the group’s income or the value of its holdings of financial instruments.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

The group’s activities expose it primarily to the financial risks of changes in the environmental rehabilitation funds quoted prices (see 16.3.3.2.1 below), foreign currency exchange rates (see 16.3.3.2.2 below) and interest rates (see 16.3.3.2.3 below). The group enters into a variety of derivative financial instruments (which close out at year end) to manage its exposure to foreign currency risks and interest rate risks, including:

• FECs and currency options to hedge the exchange rate risk arising on the export of coal and imported capital expenditure
• Forward interest rate contracts to manage interest rate risk
• Interest rate swaps to manage the risk of rising interest rates
• Currency options and currency swap agreements to manage the risk of foreign currency fluctuations.

16.3.3.2.1 Price risk management

The group’s exposure to equity price risk arises from investments held by the group and classified either as at fair value through other comprehensive income or at fair value through profit or loss. Currently, the group’s exposure to equity price risk is not considered to be significant as Chifeng is seen as a non-core investment.

The group’s exposure to price risk in relation to quoted prices of the environmental rehabilitation funds is not considered a significant risk as the funds are invested with reputable financial institutions in accordance with a strict mandate to ensure capital preservation and growth. The funds are held for strategic purposes rather than trading purposes.

16.3.3.2.2 Foreign currency risk management

The group undertakes transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise.

The currency in which transactions are entered into is mainly denominated in US dollar, euro and Australian dollar.

Exchange rate exposures are managed within approved policy parameters utilising FECs, currency options and currency swap agreements.

The group maintains a fully covered exchange rate position in respect of foreign currency borrowings and imported capital equipment resulting in these exposures being fully converted to rand. Trade-related import exposures are managed through the use of economic hedges arising from export revenue as well as through FECs. Trade-related export exposures are hedged using FECs and options with specific focus on short-term receivables.

Uncovered foreign debtors at 31 December 2018 amount to US$0.29 million (2017: nil), whereas uncovered cash and cash equivalents amount to US$37.29 million (2017: US$14.8 million).

All capital imports were fully hedged. Monetary items have been translated at the closing rate at the last day of the reporting period US$1:R14.43 (2017: US$1:R12.37).

The FECs which are used to hedge foreign currency exposure mostly have a maturity of less than one year from the reporting date. When necessary, FECs are rolled over at maturity.

The following significant exchange rates applied for both group and company during the year:

	2018					2017
	Average spot rate	Average achieved rate	Closing spot rate			Average spot rate	Average achieved rate	Closing spot rate
US$	13.24	12.93	14.43			13.30	13.49	12.37
€	15.60		16.50			15.03		13.85
AU$	9.88		10.19			10.20		9.65

16.3.3.2.3 Interest rate risk management

The group is exposed to interest rate risk as it borrows and deposits funds at floating interest rates on the money market and extended bank borrowings.

The financial institutions chosen are subject to compliance with the relevant regulatory bodies. The interest-bearing borrowings were entered into at floating interest rates in anticipation of a decrease in the interest rate cycle.

The interest rate repricing profile for interest-bearing borrowings (excluding finance leases) is summarised below:

	1 to 6 months Rm	Total borrowings Rm
At 31 December 2018
Non-current interest-bearing borrowings	3 843	3 843
Current interest-bearing borrowings	571	571
	4 414	4 414
Total borrowings (%)	100	100
At 31 December 2017 (Re-presented)
Non-current interest-bearing borrowings	6 477	6 477
Current interest-bearing borrowings	52	52
	6 529	6 529
Total borrowings (%)	100	100

Interest rate sensitivity

The following table reflects the potential impact on earnings, given an increase in interest rates of 50 basis points:

	Loss
	2018  Rm		2017  Rm
Increase of 50 basis points in interest rate	(37)		(21)

A decrease in interest rates of 50 basis points would have had the equal but opposite effect on the amounts shown above, on the basis that all other variables remain constant.

16.3.3.3 Liquidity risk management

Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation.

The ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the group’s short, medium and long-term funding and liquidity management requirements.

The group manages liquidity risk by monitoring forecast cash flows in compliance with loan covenants and ensuring that adequate unutilised borrowing facilities are maintained. The group aims to cover at least its net debt requirements through long-term borrowing facilities.

Borrowing capacity is determined by the directors, from time to time.

	Group
	2018  Rm		(Re-presented) 2017  Rm
Amount approved	52 308		50 129
Total borrowings (excluding finance leases)	(4 414)		(6 529)
Unutilised borrowing capacity	47 894		43 600

The group’s capital base, the borrowing powers of the company and the group were set at 125% of shareholders’ funds for both the 2018 and 2017 financial years.

Standard payment terms for the majority of trade payables is the end of the month following the month in which the goods are received or services are rendered.

A number of trade payables do, however, have shorter contracted payment periods.

To avoid incurring interest on late payments, financial risk management policies and procedures are entrenched to ensure the timeous matching of orders placed with goods received notes or services acceptances and invoices.

16.3.3.3.1 Maturity profile of financial instruments

The following tables detail the group and company’s contractual maturities of financial assets and financial liabilities:

			Maturity
Group	Carrying  amount  Rm	Contractual  cash flows  Rm	0 to 12 months  Rm	1 to 2 years  Rm	2 to 5 years  Rm	More than  5 years  Rm
2018
Financial assets
Loans to associates and joint ventures	259	388	37	28	28	295
ESD loans	125	125	45	31	48	1
Other financial assets at amortised cost1	416	522	110	82	248	82
Trade and other receivables	3 140	3 140	3 140
Cash and cash equivalents	2 080	2 080	2 080
Total financial assets	6 020	6 255	5 412	141	324	378
Percentage profile (%)		100	87	2	5	6
Financial liabilities
Interest-bearing borrowings	(4 414)	(5 513)	(915)	(325)	(4 273)
Non-current other payables	(152)	(152)		(86)	(66)
Contingent consideration	(849)	(849)	(361)	(488)
Deferred consideration	(620)	(620)	(395)	(225)
Trade and other payables	(2 960)	(2 960)	(2 960)
Derivative financial liabilities	(1)	(1)	(1)
Overdraft	(1 531)	(1 531)	(1 531)
Total financial liabilities	(10 527)	(11 626)	(6 163)	(1 124)	(4 339)
Percentage profile (%)		100	53	10	37
Liquidity gap identified2	(4 507)	(5 371)	(751)	(983)	(4 015)	378

1	Excludes the environmental rehabilitation funds at amortised cost.
2	The liquidity gap identified will be funded by cash generated from operations and the undrawn facilities in place.

			Maturity
Group	Carrying  amount  Rm	Contractual  cash flows  Rm	0 to 12 months  Rm	1 to 2 years  Rm	2 to 5 years  Rm	More than  5 years  Rm
2017 (Re-presented)
Financial assets
Loans to associates and joint ventures	128	128				128
Derivative financial asset	4	4	4
Deferred pricing receivable	437	577	82	82	248	165
Trade and other receivables	2 609	2 609	2 609
Cash and cash equivalents	6 657	6 657	6 657
Total financial assets	9 835	9 975	9 352	82	248	293
Percentage profile (%)		100	95	1	2	2
Financial liabilities
Interest-bearing borrowings	(6 529)	(9 160)	(408)	(901)	(7 721)	(130)
Non-current other payables	(89)	(89)		(8)	(81)
Contingent consideration	(723)	(723)	(309)	(219)	(195)
Overdraft	(54)	(54)	(54)
Trade and other payables	(2 239)	(2 239)	(2 239)
Derivative financial liability	(6)	(6)	(6)
Total financial liabilities	(9 640)	(12 271)	(3 016)	(1 128)	(7 997)	(130)
Percentage profile (%)		100	25	9	65	1
Liquidity gap identified1	195	(2 296)	6 336	(1 046)	(7 749)	163

1	The liquidity gap identified will be funded by cash generated from operations and the undrawn facilities in place.

			Maturity
Company	Carrying  amount  Rm	Contractual  cash flows  Rm	0 to 12 months  Rm	1 to 2 years  Rm	2 to 5 years  Rm	More than  5 years  Rm
2018
Financial assets
ESD loans	125	125	45	31	48	1
Trade and other receivables	213	213	213
Cash and cash equivalents	676	676	676
Non-interest-bearing loans to subsidiaries	341	341	341
Interest-bearing loans to subsidiaries	4 086	5 214	965	354	3 756	139
Treasury facilities with subsidiaries at amortised cost	1 611	1 611	1 611
Total financial assets	7 052	8 180	3 851	385	3 804	140
Percentage profile (%)		100	47	5	46	2
Financial liabilities
Interest-bearing borrowings	(3 805)	(4 676)	(916)	(326)	(3 434)
Contingent consideration	(849)	(849)	(361)	(488)
Put option	(584)	(800)			(800)
Deferred consideration	(620)	(620)	(395)	(225)
Trade and other payables	(176)	(176)	(176)
Overdraft	(1 046)	(1 046)	(1 046)
Non-interest-bearing loans from subsidiaries1	(8 197)	(8 197)	(8 197)
Treasury facilities with subsidiaries at amortised cost	(1 886)	(1 886)	(1 886)
Total financial liabilities	(17 163)	(18 250)	(12 977)	(1 039)	(4 234)
Percentage profile (%)		100	71	6	23
Liquidity gap identified2	(10 111)	(10 070)	(9 126)	(654)	(430)	140

1	The majority of the non-interest-bearing loans from subsidiaries are not expected to be repaid in the foreseeable future.
2	The liquidity gap identified will be funded by cash generated from operations and the undrawn facilities in place.

			Maturity
Company	Carrying  amount  Rm	Contractual  cash flows  Rm	0 to 12 months  Rm	1 to 2 years  Rm	2 to 5 years  Rm	More than  5 years  Rm
2017
Financial assets
Interest-bearing loans to subsidiaries	4 045	5 460	439	907	3 984	130
Loan to joint venture	188	188				188
Non-current receivable	408	408				408
Trade and other receivables	1 458	1 458	1 458
Cash and cash equivalents	5 555	5 555	5 555
Total financial assets	11 654	13 069	7 452	907	3 984	726
Percentage profile (%)		100	57	7	31	6
Financial liabilities
Put option	(2 377)	(3 560)				(3 560)
Interest-bearing borrowings	(4 051)	(5 413)	(408)	(901)	(3 974)	(130)
Contingent consideration	(723)	(723)	(309)	(219)	(195)
Overdraft	(37)	(37)	(37)
Trade and other payables	(9 782)	(9 782)	(9 782)
Total financial liabilities	(16 970)	(19 515)	(10 536)	(1 120)	(4 169)	(3 690)
Percentage profile (%)		100	54	6	21	19
Liquidity gap identified1	(5 316)	(6 446)	(3 084)	(213)	(185)	(2 964)

1	The liquidity gap identified will be funded by cash generated from operations and the undrawn facilities in place. The majority of trade and other payables represent intercompany loans which are not expected to be repaid in the foreseeable future.

16.3.3.4 Credit risk management

Credit risk relates to potential default by counterparties on cash and cash equivalents, loans, investments, trade receivables and other receivables.

The group limits its counterparty exposure arising from money market and derivative instruments by only dealing with well-established financial institutions of high credit standing. The group exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded are spread among approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the board of directors annually.

Trade receivables consist of a number of customers with whom Exxaro has long-standing relationships. A high portion of term supply arrangements exists with such clients resulting in limited credit exposure which exposure is limited by performing customer creditworthiness or country risk assessments.

The group strives to enter into sales contracts with clients which stipulate the required payment terms. It is expected of each customer that these payment terms are adhered to. Where trade receivables balances become past due, the normal recovery procedures are followed to recover the debt, where applicable new payment terms may be arranged to ensure that the debt is fully recovered.

Exxaro has concentration risk as a result of its exposure to having one major customer. This is, however, not considered significant as the customer adheres to the stipulated payment terms.

Exxaro establishes an allowance for non-recoverability or impairment that represents its estimate of expected credit losses in respect of trade receivables, other receivables, loans, cash and cash equivalents and investments. The main components of these allowances are a 12-month ECL component that results from possible default events within the 12 months after the reporting date and a lifetime ECL component that results from all possible default events over the expected life of a financial instrument.

16.3.3.4.1 Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. None of the financial assets below were held as collateral for any security provided.

Detail of the trade receivables credit risk exposure:

	Group
	2018 %		2017 %
By geographical area
RSA	66		69
Europe	21		15
Asia	11		12
USA	2		2
Australia			2
Total	100		100
By industry
Public utilities	45		50
Structural metal			3
Cement	1		6
Mining	41		10
Manufacturing	1		3
Merchants	1		26
Food and beverage	1
Steel	10		2
Total	100		100

Detailed impairment analysis of financial assets measured at amortised cost:

Group	Total Rm	Performing  Rm	Under-  performing  Rm	Non-  performing  Rm
2018
Loans to associates and joint ventures	259	259
ESD loans	125	125
Other financial assets at amortised cost	767	767
– Other financial assets at amortised cost – non-current – gross	687	687
– Other financial assets at amortised cost – current – gross	85	81		4
– Impairment allowances of current other financial assets at amortised cost	(5)	(1)		(4)
Lease receivables1	71	71
Trade receivables	2 971	2 922	41	8
– Trade receivables – gross	3 052	2 930	41	81
– Impairment allowances of trade receivables	(81)	(8)		(73)
Other receivables	169	149	20
– Other receivables – gross	223	149	20	54
– Impairment allowances of other receivables	(54)			(54)
Cash and cash equivalents	2 080	2 080
Total financial assets at amortised cost	6 442	6 373	61	8

1	Lease receivables are within the scope of the impairment requirements of IFRS 9.

Company	Total Rm	Performing  Rm	Under-  performing  Rm	Non-  performing  Rm
2018
ESD loans	125	125
Other financial assets at amortised cost
– Other financial assets at amortised cost – current – gross	4			4
– Impairment allowances of current other financial assets at amortised cost	(4)			(4)
Other receivables	19	11	8
Indebtedness to subsidiaries	194	194
Non-interest-bearing loans to subsidiaries	341	341
– Non-interest-bearing loans to subsidiaries – gross	401	341		60
– Impairment allowances of non-interest-bearing loans to subsidiaries	(60)			(60)
Interest-bearing loans to subsidiaries	4 086	4 086
Treasury facilities with subsidiaries at amortised cost	1 611	1 611
Cash and cash equivalents	676	676
Total financial assets at amortised cost	7 052	7 044	8

16.3.3.4.2 Trade and other receivables age analysis

	Current					Past due
Group	Total Rm	1 to 30 days  Rm	31 to 60 days  Rm			61 to 90 days  Rm	90 to 180 days  Rm	>180 days  Rm
2018
Trade receivables	2 971	2 863	100			6	1	1
– Trade receivables: gross	3 052	2 870	100			6	4	72
– Impairment allowances of trade receivables	(81)	(7)					(3)	(71)
Other receivables	169	69	82			3	4	11
– Other receivables: gross	223	78	86			7	41	11
– Impairment allowances of other receivables	(54)	(9)	(4)			(4)	(37)
Total carrying amount of trade and other receivables	3 140	2 932	182			9	5	12

	Current				Past due
Company	Total Rm	1 to 30 days Rm			>180 days Rm
2018
Other receivables	19	11			8
Indebtedness by subsidiaries	194	194
Total carrying amount of trade and other receivables	213	205			8

16.3.3.4.3 Credit quality of financial assets

The credit quality of cash and cash equivalents has been assessed by reference to external credit ratings available from Fitch and Standard & Poor’s.

	Group					Company
	2018 Rm		Re-presented) 2017  Rm			2018  Rm		(Re-presented) 2017   Rm
Cash and cash equivalents
Fitch ratings
F1+	88		6 487			14		5 555
Standard & Poor’s ratings
A-1+	1 457		11			662
A-1	535		159
Total cash and cash equivalents1	2 080		6 657			676		5 555

1	Excludes overdraft and cash and cash equivalents classified as held-for-sale.

Fitch ratings

F1 Highest credit quality

“+” denotes any exceptionally strong credit feature

Standard & Poor’s

A-1+ Highest certainty of payment

A-1 Very high certainty of payment

16.3.3.4.4 Collateral

No collateral was held by the group as security and other enhancements over the financial assets during the years ended 31 December 2018 and 2017.

Guarantees

The group did not obtain financial or non-financial assets by taking possession of collateral it holds as security or calling on guarantees during the financial year ended 31 December 2018 and 31 December 2017. The guarantees issued relate to operational liabilities (refer note 13.4 on contingent liabilities).

16.3.4 LOAN COMMITMENTS

The group and company have granted the following loan commitments:

	Group					Company
	2018 Rm		2017 Rm			2018 Rm		2017 Rm
Total loan commitment	1 221					721
Mafube1	500					721
AgriProtein2	721					721
Undrawn loan commitment	971
Mafube	250
AgriProtein	721					721

1	Revolving credit facility available for five years, ending 2023.
2	A US$50 million term loan facility available from 2020 to 2025.

	Group					Company
	2018  Rm		(Re-presented) 2017  Rm			2018  Rm		(Re-presented) 2017  Rm
Cash and cash equivalents
Cash and cash equivalents	2 080		6 657			676		5 555
Bank overdraft	(1 531)		(54)			(1 046)		(37)
Cash and cash equivalents classified as held-for-sale			14
Total cash and cash equivalents	549		6 617			(370)		5 518