Company
2018	Fair value  Rm	Level 2 Rm	Level 3  Rm
Financial assets at FVPL	26	26
Debt: unlisted – environmental rehabilitation funds	26	26
Financial liabilities at FVPL	(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 profit or loss	(1)	(357)	(357)
Option lapsed/settlements	1 794	299	2 093
Exchange gains recognised in profit or loss		(68)	(68)
Closing balance	(584)	(849)	(1 433)

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 or between Level 2 and Level 3 of the fair value hierarchy during the periods ended 31 December 2019 and 31 December 2018.

16.3.2.3 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.

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

Contingent consideration

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

During 2019, there was a decrease of US$20.4 million (R296 million) (2018: an increase of US$25.4 million (R357 million)) recognised in profit or loss for the contingent consideration arrangement.

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

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

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

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

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

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 nor trade in 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 following). 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 FVOCI or at FVPL. 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 balances (if any) 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 2019 amount to nil (2018: US$0.29), whereas uncovered cash and cash equivalents amount to US$89.81 million (2018: US$37.29 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:R14.13 (2018: US$1:R14.43).

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 during the year:

	2019					2018
	Average spot rate	Average achieved rate	Closing spot rate			Average spot rate	Average achieved rate	Closing spot rate
US$	14.44	14.73	14.13			13.24	12.93	14.43
€	16.16		15.83			15.60		16.50
AU$	10.05		9.90			9.88		10.19

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 is summarised below:

	1 to 6 months Rm	Total borrowings Rm
At 31 December 2019
Non-current interest-bearing borrowings	6 991	6 991
Current interest-bearing borrowings	50	50
	7 041	7 041
Total borrowings (%)	100	100
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

Interest rate sensitivity

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

	Loss
	2019  Rm		2018  Rm
Increase of 50 basis points in interest rate	(35)		(37)

A decrease in interest rates of 50 basis points would have an 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.

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

	Group
	2019  Rm		2018  Rm
Amount approved1	43 470		52 308
Total borrowings	(7 041)		(4 414)
Unutilised borrowing capacity	36 429		47 894

1 Decrease mainly relates to the increase in NCI.

The group’s capital base, the borrowing powers of the company and group were set at 125% of shareholders’ funds attributable to owners of the parent for both the 2019 and 2018 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 contractual maturities of financial assets and financial liabilities:

	Group
			Maturity
2019	Carrying  amount  Rm	Contractual  cash flows  Rm	0 to 12  months  Rm	1 to 2 years  Rm	2 to 5 years  Rm
Financial assets
Loans to associates and joint ventures	133	133	133
ESD loans	206	206	82	65	59
Other financial assets at amortised cost	333	383	60	78	245
Trade and other receivables	3 241	3 241	3 241
Cash and cash equivalents	2 695	2 695	2 695
Total financial assets	6 608	6 658	6 211	143	304
Percentage profile (%)		100	93	2	5
Financial liabilities
Interest-bearing borrowings	(7 041)	(8 288)	(716)	(3 170)	(4 402)
Non-current other payables	(121)	(121)		(112)	(9)
Contingent consideration	(191)	(191)	(191)
Deferred consideration	(307)	(307)	(307)
Trade and other payables	(2 603)	(2 603)	(2 603)
Overdraft	(976)	(976)	(976)
Total financial liabilities	(11 239)	(12 486)	(4 793)	(3 282)	(4 411)
Percentage profile (%)		100	39	26	35
Liquidity gap identified1	(4 631)	(5 828)	1 418	(3 139)	(4 107)

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

	Group
			Maturity
2018	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
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)
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.

	Company
			Maturity
2019	Carrying  amount  Rm	Contractual  cash flows  Rm	0 to 12  months  Rm	1 to 2 years  Rm	2 to 5 years  Rm
Financial assets
ESD loans	206	206	82	65	59
Trade and other receivables	630	630	630
Cash and cash equivalents	1 649	1 649	1 649
Non-interest-bearing loans to
subsidiaries	359	359	359
Interest-bearing loans to subsidiaries	7 060	8 358	761	3 192	4 405
Treasury facilities with subsidiaries at amortised cost	4 038	4 038	4 038
Total financial assets	13 942	15 240	7 519	3 257	4 464
Percentage profile (%)		100	49	21	30
Financial liabilities
Interest-bearing borrowings	(7 041)	(8 288)	(716)	(3 170)	(4 402)
Contingent consideration	(191)	(191)	(191)
Deferred consideration	(307)	(307)	(307)
Trade and other payables	(177)	(177)	(177)
Overdraft	(976)	(976)	(976)
Non-interest-bearing loans from subsidiaries1	(8 452)	(8 452)	(8 452)
Treasury facilities with subsidiaries at amortised cost	(5 448)	(5 448)	(5 448)
Total financial liabilities	(22 592)	(23 839)	(16 267)	(3 170)	(4 402)
Percentage profile (%)		100	68	13	19
Liquidity gap identified2	(8 650)	(8 599)	(8 748)	87	62

¹ The majority of the non-interest-bearing loans from subsidiaries are not expected to be called upon in the foreseeable future.

² The liquidity gap identified will be funded by cash generated from operations and the undrawn facilities in place.

 

	Company
			Maturity
2018	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
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	47	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 called upon in the foreseeable future.

² The liquidity gap identified will be funded by cash generated from operations and the undrawn facilities in place.

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.

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 customers resulting in limited credit exposure which exposure is limited by performing customer creditworthiness or country risk assessments.

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 customers 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 customers 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 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 ECLs 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
	2019 %		2018 %
By geographical area
RSA	65		66
Europe	17		21
Asia	16		11
USA	2		2
Total	100		100
By industry
Public utilities	53		45
Structural metal	2
Cement	1		1
Mining	38		41
Manufacturing	1		1
Merchants	1		1
Food and beverage	1		1
Steel	3		10
Total	100		100

Detailed impairment analysis of financial assets measured at amortised cost:

	Group
2019	Total Rm	Performing Rm	Under-  performing  Rm	Non-  performing  Rm
Loans to associates and joint ventures	133		133
– Current – gross	182		182
– Current – impairment allowances	(49)		(49)
ESD loans	206	206
– Non-current – gross	124	124
– Current – gross	83	83
– Current – impairment allowances	(1)	(1)
Other financial assets at amortised cost	333	333
– Non-current – gross	279	279
– Non-current – impairment allowances	(3)	(3)
– Current – gross	63	58		5
– Current – impairment allowances	(6)	(1)		(5)
Lease receivables1	67	67
Trade receivables	2 928	2 850	65	13
– Gross	3 023	2 855	66	102
– Impairment allowances	(95)	(5)	(1)	(89)
Other receivables	313	240	6	67
– Gross	464	240	6	218
– Impairment allowances	(151)			(151)
Cash and cash equivalents	2 695	2 695
Total financial assets at amortised cost	6 675	6 391	204	80

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

	Company
2018	Total  Rm	Performing  Rm	Under-  performing  Rm	Non-  performing  Rm
Loans to associates and joint ventures	259	259
ESD loans	125	125
Other financial assets at amortised cost	767	767
– Non-current – gross	687	687
– Current – gross	85	81		4
– Impairment allowances	(5)	(1)		(4)
Lease receivables1	71	71
Trade receivables	2 971	2 922	41	8
– Gross	3 052	2 930	41	81
– Impairment allowances	(81)	(8)		(73)
Other receivables	169	149	20
– Gross	223	149	20	54
– Impairment allowances	(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
2019	Total  Rm	Performing  Rm	Under-  performing  Rm	Non-  performing  Rm
ESD loans	206	206
– Non-current – gross	124	124
– Current – gross	83	83
– Current – impairment allowances	(1)	(1)
Other receivables	15	15
– Gross	26	15		11
– Impairment allowances	(11)			(11)
Indebtedness to subsidiaries	615	615
Non-interest-bearing loans to subsidiaries	359	359
– Current – gross	421	360		61
– Current – impairment allowances	(62)	(1)		(61)
Interest-bearing loans to subsidiaries	7 060	7 060
Treasury facilities with subsidiaries at amortised cost	4 038	4 038
Cash and cash equivalents	1 649	1 649
Total financial assets at amortised cost	13 942	13 942

 

	Company
2018	Total  Rm	Performing  Rm	Under-  performing  Rm	Non-  performing  Rm
ESD loans Other financial assets at amortised cost	125	125
– Current – gross	4			4
– Current – impairment allowances	(4)			(4)
Other receivables	19	11	8
Indebtedness to subsidiaries	194	194
Non-interest-bearing loans to subsidiaries	341	341
– Current – gross	401	341		60
– Current – impairment allowances	(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

	Group
	Current				Past due
2019	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
Trade receivables	2 928	2 806	94		19	5	4
– Gross	3 023	2 811	95		19	9	89
– Impairment allowances	(95)	(5)	(1)			(4)	(85)
Other receivables	313	238	5		3		67
– Gross	464	239	5		3	124	93
– Impairment allowances	(151)	(1)				(124)	(26)
Total carrying amount of trade and other receivables	3 241	3 044	99		22	5	71

2018
Trade receivables	2 971	2 863	100		6	1	1
– Gross	3 052	2 870	100		6	4	72
– Impairment allowances	(81)	(7)				(3)	(71)
Other receivables	169	69	82		3	4	11
– Gross	223	78	86		7	41	11
– Impairment allowances	(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	31 to 60  days  Rm		61 to 90  days  Rm	90 to 180  days  Rm	>180 days  Rm
2019
Other receivables	15	13	2
– Gross	26	13	2			11
– Impairment allowances	(11)					(11)
Indebtedness by subsidiaries	615	615
Total carrying amount of trade and other receivables	630	628	2

 

		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
At 31 December	2019 Rm		2018 Rm		2019 Rm		2018 Rm
Cash and cash equivalents
Fitch ratings
F1+	174		88		30		14
Standard & Poor’s ratings
A-1+	2 485		1 457		1 619		662
A-1	36		535
Total cash and cash equivalents1	2 695		2 080		1 649		676

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 nor any other enhancements over the financial assets during the years ended 31 December 2019 and 2018.

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 2019 and 31 December 2018. 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
At 31 December	2019 Rm		2018 Rm			2019 Rm		2018 Rm
Total loan commitment	1 206		1 221			706		721
Mafube1	500		500
Insect Technology2	706		721			706		721
Undrawn loan commitment	1 206		971			706		721
Mafube	500		250
Insect Technology	706		721			706		721

¹ Revolving credit facility available for five years, ending 2023.

² A US$50 million term loan facility available from 2020 to 2025.