CHAPTER 16:Financial instruments

• 16.3FINANCIAL INSTRUMENTS

• 16.3.1Carrying amounts and fair value amounts of financial instruments

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

	Group
At 31 December 2022	Financial assets at FVOCI Rm	Financial assets at FVPL Rm	Financial assets at amortised cost Rm	Financial liabilities at FVPL Rm	Derivative financial assests/ (liabilities) designated as hedging instruments Rm	Financial liabilities at armotised cost Rm		Total carrying amount Rm
Financial assets
Non-current
Financial assets, consisting of:	474	2 607	447		11			3 539
– Equity: unlisted – Chifeng	474							474
– Debt: unlisted – environmental rehabilitation funds		2 187						2 187
– Debt: unlisted – portfolio investments		420						420
– Cash flow hedge derivatives: interest rate swaps					11			11
– ESD loans			102					102
– Vendor finance loan			173					173
– Other financial assets at amortised cost			172					172
Total non-current financial assets	474	2 607	447		11			3 539
Current
Financial assets, consisting of:		57	319					376
– ESD loans			76					76
– Vendor finance loan			121					121
– Derivative financial assets		57						57
– Other financial assets at amortised cost			122					122
Trade and other receivables, consisting of:			4 199					4 199
– Trade receivables			4 124					4 124
– Other receivables			75					75
Cash and cash equivalents			14 812					14 812
Total current financial assets		57	19 330					19 387
Total financial assets	474	2 664	19 777		11			22 926
Financial liabilities
Non-current
Interest-bearing borrowings						(8 378)		(8 378)
Other payables						(25)		(25)
Financial liabilities, consisting of:					(112)			(112)
– Cash flow hedge derivatives: interest rate swaps					(112)			(112)
Total non-current financial liabilities					(112)	(8 403)		(8 515)
Current
Interest-bearing borrowings						(715)		(715)
Trade and other payables						(3 340)		(3 340)
Financial liabilities, consisting of:				(5)				(5)
– Derivative financial liabilities				(5)				(5)
Total current financial liabilities				(5)		(4 055)		(4 060)
Total financial liabilities				(5)	(112)	(12 458)		(12 575)

 

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 31 December 2021	Financial assets at FVOCI Rm	Financial assets at FVPL Rm	Financial assets at amortised cost Rm	Derivative financial liabilities/ designated as hedging instruments Rm	Financial liabilities at armotised cost Rm		Total carrying amount Rm
Financial assets
Non-current
Financial assets, consisting of:	446	2 173	618				3 237
– Equity: unlisted – Chifeng	446						446
– Debt: unlisted – environmental rehabilitation funds		2 173					2 173
– ESD loans			91				91
– Vendor finance loan			293				293
– Other financial assets at amortised cost			234				234
Total non-current financial assets	446	2 173	618				3 237
Current
Financial assets, consisting of:		4	307				311
– ESD loans			90				90
– Vendor finance loan			7				7
– Derivative financial assets		4					4
– Other financial assets at amortised cost			210				210
Trade and other receivables, consisting of:			2 701				2 701
– Trade receivables			2 626				2 626
– Other receivables			75				75
Cash and cash equivalents			7 042				7 042
Total current financial assets		4	10 050				10 054
Total financial assets	446	2 177	10 668				13 291
Financial liabilities
Non-current
Interest-bearing borrowings					(9 255)		(9 255)
Other payables					(53)		(53)
Financial liabilities, consisting of:				(406)			(406)
– Cash flow hedge derivatives: interest rate swaps				(406)			(406)
Total non-current financial liabilities				(406)	(9 308)		(9 714)
Current
Interest-bearing borrowings					(1 000)		(1 000)
Trade and other payables					(2 230)		(2 230)
Overdraft					(1)		(1)
Total current financial liabilities					(3 231)		(3 231)
Total financial liabilities				(406)	(12 539)		(12 945)

 

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 2022	Financial assets at FVPL Rm	Financial assets at amortised cost Rm	Financial liabilities at armotised cost Rm		Total carrying amount Rm
Financial assets
Non-current
Financial assets, consisting of:	35	4 395			4 430
– Debt: unlisted – environmental rehabilitation funds	35				35
– ESD loans		102			102
– Vendor finance loan		173			173
– Interest-bearing loans to subsidiaries		4 120			4 120
Total non-current financial assets	35	4 395			4 430
Current
Financial assets, consisting of:		1 997			1 997
– ESD loans		76			76
– Vendor finance loan		121			121
– Other financial assets at amortised cost		54			54
– Interest-bearing loans to subsidiaries		511			511
– Non-interest-bearing loans to subsidiaries		676			676
– Treasury facilities with subsidiaries		559			559
Trade and other receivables, consisting of:		283			283
– Other receivables		7			7
– Indebtedness by subsidiaries		276			276
Cash and cash equivalents		13 366			13 366
Total current financial assets		15 646			15 646
Total financial assets	35	20 041			20 076
Financial liabilities
Non-current
Interest-bearing borrowings			(4 034)		(4 034)
Total non-current financial liabilities			(4 034)		(4 034)
Current
Interest-bearing borrowings			(505)		(505)
Trade and other payables			(196)		(196)
Financial liabilities, consisting of:			(12 059)		(12 059)
– Non-interest-bearing loans from subsidiary			(85)		(85)
– Treasury facilities with subsidiaries			(11 974)		(11 974)
Total current financial liabilities			(12 760)		(12 760)
Total financial liabilities			(16 794)		(16 794)

 

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 31 December 2021	Financial assets at FVPL Rm	Financial assets at amortised cost	Financial liabilities at amortised cost Rm		Total carrying amount Rm
Financial assets
Non-current
Financial assets, consisting of:	34	5 225			5 259
– Debt: unlisted – environmental rehabilitation funds	34				34
– ESD loans		91			91
– Vendor finance loan		293			293
– Interest-bearing loans to subsidiaries		4 841			4 841
Total non-current financial assets	34	5 225			5 259
Current
Financial assets, consisting of:		6 260			6 260
– ESD loans		90			90
– Vendor finance loan		7			7
– Other financial assets at amortised cost		145			145
– Interest-bearing loans to subsidiaries		858			858
– Non-interest-bearing loans to subsidiaries		357			357
– Treasury facilities with subsidiaries at amortised cost		4 803			4 803
Trade and other receivables, consisting of:		325			325
– Other receivables		1			1
– Indebtedness by subsidiaries		324			324
Cash and cash equivalents		4 868			4 868
Total current financial assets		11 453			11 453
Total financial assets	34	16 678			16 712
Financial liabilities
Non-current
Interest-bearing borrowings			(4 704)		(4 704)
Total non-current financial liabilities			(4 704)		(4 704)
Current
Interest-bearing borrowings			(851)		(851)
Trade and other payables			(159)		(159)
Financial liabilities, consisting of:			(9 746)		(9 746)
– Non-interest-bearing loans from subsidiary			(76)		(76)
– Treasury facilities with subsidiaries at amortised cost			(9 670)		(9 670)
Overdraft			(1)		(1)
Total current financial liabilities			(10 757)		(10 757)
Total financial liabilities			(15 461)		(15 461)

 

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.

16.3.2 Fair values

16.3.2.1 Fair value hierachy

Financial assets and financial liabilities at fair value have been categorised in the following hierarchy structure, based on the inputs used in the valuation technique:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets that can be accessed 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
2022	Fair value Rm		Level 2 Rm	Level 3 Rm
Financial assets at FVOCI	474			474
Equity: unlisted - Chifeng	474			474
Financial assets at FVPL	2 607		2 607
Non-current debt: unlisted – environmental rehabilitation funds	2 187		2 187
Non-current debt: unlisted - portfolio investments	420		420
Derivative financial assets designated as hedging instruments	11		11
Non-current cash flow hedge derivatives: interest rate swaps	11		11
Derivative financial assets	57		57
Current derivative financial assets	57		57
Derivative financial liabilities	(5)		(5)
Current derivative financial liabilities	(5)		(5)
Derivative financial liabilities designated as hedging instruments	(112)		(112)
Non-current cash flow hedge derivatives: interest rate swaps	(112)		(112)
Net financial assets held at fair value	3 032		2 558	474

 

Reconciliation of Level 3 hierarchy	Chifeng Rm	Total Rm
At 31 December 2021	446	446
Movement during the year
Gains recognised in OCI (pre-tax effect)1	28	28
At 31 December 2022	474	474

1	Tax on Chifeng amounts to R17.61 million.

	Group
2021	Fair value Rm		Level 2 Rm	Level 3 Rm
Financial assets at FVOCI	446			446
Equity: unlisted - Chifeng	446			446
Financial assets at FVPL	2 173		2 173
Non-current debt: unlisted - environmental rehabilitation funds	2 173		2 173
Derivative financial assets	4		4
Current derivative financial assets	4		4
Derivative financial liabilities designated as hedging instruments	(406)		(406)
Non-current cash flow hedge derivatives: interest rate swaps	(406)		(406)
Net financial assets held at fair value	2 217		1 771	446

 

Reconciliation of Level 3 hierarchy	Chifeng Rm	Total Rm
At 31 December 2020	222	222
Movement during the year
Gains recognised in OCI (pre-tax effect)1	49	49
Disposal2	(217)	(217)
Acquisition2	392	392
At 31 December 2021	446	446

1

Tax on Chifeng amounts to nil.

2

During the year, the four Chifeng refinery companies embarked on a process to consolidate the separate companies into one consolidated entity. The investments in the separate companies for certain phases were derecognised and the investment in the consolidated entity, which includes all phases of the Chifeng refinery, was recognised on the consolidation date. Exxaro holds an 8.81% shareholding in Chifeng.

	Company
2022	Fair value Rm		Level 2 Rm
Financial assets at FVPL	35		35
Non-current debt: unlisted – environmental rehabilitation funds	35		35
Net financial assets held at fair value	35		35

	Company
2021	Fair value Rm		Level 2 Rm
Financial assets at FVPL	34		34
Non-current debt: unlisted – environmental rehabilitation funds	34		34
Net financial assets held at fair value	34		34

 

16.3.2.2 Transfers

Transfers between levels of the fair value hierarchy are recognised as at the end of the reporting period during which the transfer has occurred. There  ere 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 2022 and 31 December 2021.

16.3.2.3 Valuation process applied

The fair value computations of investments are performed by the 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 Exxaro'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 and portfolio investments

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

16.3.2.6 Interest rate swaps

Level 2 fair values for interest rate swaps are based on valuations provided by the financial institutions with whom the interest rate swaps have been entered into and take into account credit risk. The valuations are assessed for reasonability by discounting the estimated future cash flows based on observable ZAR swap curves.

16.3.2.7 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

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 2022	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	R2.46/RMB1	Weakening of the rand to the RMB	47
RMB/US$ exchange rate	RMB6.21 to RMB6.78/US$1	Weakening of the RMB to the US$	115
Zinc LME price	US$2 325.32 to US$3 285.23	Increase in price of zinc concentrate	115
(US$ per tonne in real terms)
Unobservable inputs
Production volumes	447 719.5 tonnes	Increase in production volumes	28
Operational costs	US$69.60 to US$76.69	Decrease in operations costs	(87)
(US$ million per annum in real terms)
Discount rate3	10.54%	Decrease in the discount rate	(25)

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.
3	The discount rate was revised for changes in the economy.

 

At 31 December 2021	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	R2.50/RMB1	Weakening of the rand to the RMB	41
RMB/US$ exchange rate	RMB6.30 to RMB6.98/US$1	Weakening of the RMB to the US$	87
Zinc LME price	US$2 400.00 to US$2 717.14	Increase in price of zinc concentrate	87
(US$ per tonne in real terms)
Unobservable inputs
Production volumes	447 719.5 tonnes	Increase in production volumes	41
Operational costs	US$59.67 to US$65.22	Decrease in operations costs	(53)
(US$ million per annum in real terms)
Discount rate	12.76%	Decrease in the discount rate	(34)

1	Change in observable or unobservable input which will result in an increase in the fair value measurement.
2	A 0% 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.

16.3.3 Risk management

16.3.3.1 Financial risk management

The group's corporate treasury function predominantly 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, commodity price 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.

Financial instruments, including derivative financial instruments, are not entered into nor traded for speculative purposes rather, financial instruments are entered into to manage and reduce the possible adverse impact on earnings and cash flows of changes in interest rates and foreign currency exchange rates.

Capital management

In managing its capital, the group focuses on a sound net debt position, return on shareholders' equity (or ROCE) 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 and equity prices, will affect profit 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.

16.3.3.2.1 Price risk management

The group's exposure to equity price risk arises from investments held by 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 and portfolio investments 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

Certain transactions are 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 currency options with specific focus on short-term receivables.

Uncovered cash and cash equivalents amount to US$32.89 million (2021: US$49.85 million).

Monetary items have been translated at the closing rate at the last day of the reporting period.

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:

	2022				2021
	Average spot rate	Average achieved rate	Closing spot rate		Average spot rate	Average achieved rate	Closing spot rate
US$	16.37	16.63	16.98		14.78	14.88	15.94
€	17.19		18.10		17.47		18.04
AU$	11.34		11.49		11.11		11.55

 

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 group's main interest rate risk arises from long-term borrowings with floating 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 interest rate swaps and interest rate forwards to manage the interest rate risk exposure.

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 rate risk cash flow exposure and the impact on 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 covenants.

The financial institutions chosen are subject to compliance with the relevant regulatory bodies.

Interest rate benchmark reform

A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as 'IBOR reform'). The group has exposures to IBORs on its financial instruments that will be replaced or reformed as part of these market-wide initiatives. The group's main IBOR exposure at 31 December 2022 was indexed to JIBAR. The South African Reserve Bank has indicated their intention to move away from JIBAR and to create an alternative reference rate for South Africa. This reform is at various stages globally, and a suitable alternate for South Africa is only expected to be announced in a few years' time. Accordingly, there is uncertainty surrounding the timing and manner in which the transition would occur and how this would affect various financial instruments held by the group.

The group's corporate treasury function monitors and manages the group's transition to alternative rates. The group's corporate treasury function evaluates the extent to which contracts reference IBOR cash flows, whether such contracts will need to be amended as a result of IBOR reform and how to manage communication about IBOR reform with counterparties. The group's corporate treasury function reports to the board of directors and collaborates with other business functions as needed. It provides periodic reports to management of interest rate risk and risks arising from IBOR reform.

Non-derivative financial liabilities

The group's IBOR exposures to non-derivative financial liabilities as at 31 December 2022 were the secured project financing and unsecured loan facility indexed to JIBAR as well as the unsecured bond indexed to JIBAR. Refer to note 12.1.3.

Derivatives

The group holds interest rate swaps for risk management purposes that are designated in cash flow hedging relationships. The interest rate swaps have floating legs that are indexed to JIBAR. Refer to note 16.3.3.2.3.2.

Hedge accounting

The group's hedged items and hedging instruments as at the reporting date are indexed to JIBAR. These benchmark rates are quoted each day and the IBOR cash flows are exchanged with counterparties as usual. Refer to note 16.3.3.2.3.2.

There is uncertainty about when and how replacement may occur with respect to the relevant hedged items and hedging instruments. As a result, the group continues to apply the amendments to IFRS 9 issued in September 2019 (Phase 1) to those hedging relationships.

16.3.3.2.3.1 Loan facility and bonds

The loan facility and bonds were entered into at floating interest rates.

The interest rate repricing profile for the loan facility and bonds is summarised below for group and company:

	1 to 6 months Rm	Total borrowings Rm
At 31 December 2022
Non-current interest-bearing borrowings: loan facility and bond	(4 034)	(4 034)
Current interest-bearing borrowings: loan facility and bond	(505)	(505)
Total interest-bearing borrowings: loan facility and bond	(4 539)	(4 539)
Total borrowings (%)	100	100
At 31 December 2021
Non-current interest-bearing borrowings: loan facility and bond	(4 704)	(4 704)
Current interest-bearing borrowings: loan facility and bond	(851)	(851)
Total interest-bearing borrowings: loan facility and bond	(5 555)	(5 555)
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:

	2022 Rm	2021 Rm
Impact on earnings: loss	(22)	(28)

 

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.

16.3.3.2.3.2 Project financing

The group is exposed to the risk of variability in future interest payments on the project financing, attributable to fluctuations in 3-month JIBAR. The designated hedged item is the group of forecast floating interest rate cash flows arising from the project financing, 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 project financing.

The exposure profile is summarised as follows:

	Group
	Percentage exposure
At 31 December	2022 %	2021 %	2022 Rm	2021 Rm
Project financing nominal amount	100	100	(4 554)	(4 700)
– Linked to fixed rate	3	3	(141)	(145)
– Linked to floating rate	97	97	(4 413)	(4 555)
Project financing nominal amount linked to floating rate	97	97	(4 413)	(4 555)
Interest rate swap notional amount (swap floating rate to fixed rate)	(81)	(81)	3 691	3 808
Effective floating rate exposure on project financing1	16	16	(722)	(747)

1	Represents 40% exposure on the Tsitsikamma SPV project financing.

 

Interest rate sensitivity

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

	2022 Rm	2021 Rm
Increase in finance costs	4	4
Increase in equity	54	73

 

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

Hedge accounting: Cash flow hedges

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

• The DVA on the interest rate swaps which is not matched by the project financing
• Differences in critical terms between the interest rate swaps and project financing.

The recognised ineffectiveness in 2022 amounted to R13 million (2021: R10 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 interest rate swaps 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 project financing.

The following tables detail the financial position and performance of the interest rate swap contracts outstanding at the end of the reporting period and their related hedged items.

Financial performance effects of hedging recognised during the year:

		Group
	Line item in	2022	2021
For the year ended 31 December	which recognised	Rm	Rm
Fair value losses resulting from hedge ineffectiveness	Operating expenses	(13)	(10)
Fair value losses on settlement of underlying swap (reclassified)	Finance costs	(97)	(146)

 

Hedging instruments

	Group
At 31 December	2022 Rm	2021 Rm
Hedged items: Cash flows on floating rate project financing linked to JIBAR
Nominal amount	3 691	3 808
Carrying amount in cash flow hedge reserve	88	(165)
Cumulative gain/(loss) in fair value used for calculating hedge ineffectiveness	88	(165)
Hedging instruments: Outstanding receive floating, pay fixed contracts
Nominal amount	3 691	3 808
Carrying amount	(101)	(406)
– Non-current financial asset	11
– Non-current financial liability	(112)	(406)
Cumulative loss in fair value used for calculating hedge ineffectiveness	(130)	(354)

 

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. The swaps cover 60% of the remaining loan notional value. Amakhala SPV floating rate facilities: IFC facilities: 8.42% up to 30 June 2031. The swaps cover 100% of the remaining loans notional values A and C banking facilities: 8.00% up to 30 June 2021. The swaps cover 100% of the remaining loans notional values.
	9.46% up to 30 June 2026. The swaps cover 100% of the remaining loans notional values.

The interest rate swaps 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.

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 group 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:

	Group
At 31 December	2022 Rm	2021 Rm
Cash flow hedge reserve - interest rate swaps	64	(119)
– Gross	88	(165)
– Deferred tax thereon	(24)	46
Balance of share of movements of equity-accounted investees	5
Balance of NCI share of financial instruments revaluation reserve	(50)	2
Financial instruments revaluation reserve	19	(117)

 

Movement analysis of cash flow hedge reserve - interest rate swaps:

	Gross Rm	Tax Rm	Net Rm
At 31 December 2020	(428)	120	(308)
Movement during the year
Change in fair value of interest rate swaps recognised in OCI	117	(33)	84
Reclassified from OCI to profit or loss in finance costs	146	(41)	105
At 31 December 2021	(165)	46	(119)
Movement during the year
Change in fair value of interest rate swaps recognised in OCI	156	(43)	113
Reclassified from OCI to profit or loss in finance costs	97	(27)	70
At 31 December 2022	88	(24)	64

 

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 board of directors, from time to time.

	Group
	2022 Rm	2021 Rm
Amount approved	58 524	49 438
Total borrowings	(9 093)	(10 255)
Unutilised borrowing capacity	49 431	39 183

 

The group's capital base and the borrowing powers of the company and the group were set at 125% of shareholders' funds (equity attributable to owners of the parent) for both the 2022 and 2021 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

Contractual cash flows for financial instruments which are subject to floating interest rates are based on the closing floating interest rate at reporting date.

The following tables detail the contractual maturities of financial assets and financial liabilities:

	Group
			Maturity
At 31 December 2022	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	178	178	76	54	48
Vendor finance loan	294	350	138	62	150
Other financial assets at amortised cost1	195	208	131	77
Derivative financial assets	57	57	57
Cash flow hedge derivatives: interest rate swaps	11	(36)	(6)	(6)	(15)	(9)
Lease receivables	46	63	14	14	35
Trade and other receivables	4 199	4 199	4 199
Cash and cash equivalents	14 812	14 812	14 812
Total financial assets	19 792	19 831	19 421	201	218	(9)
Percentage profile (%)		100	98	1	1
Financial liabilities
Interest-bearing borrowings	(9 093)	(12 853)	(1 589)	(2 141)	(5 789)	(3 334)
– Loan facility	(3 893)	(4 824)	(827)	(732)	(3 265)
– Project financing	(4 554)	(7 298)	(700)	(740)	(2 524)	(3 334)
– Bonds	(646)	(731)	(62)	(669)
Lease liabilities	(478)	(733)	(88)	(93)	(300)	(252)
Non-current other payables	(25)	(28)		(4)	(24)
Trade and other payables	(3 340)	(3 340)	(3 340)
Derivative financial liabilities	(5)	(5)	(5)
Cash flow hedge derivatives: interest rate swaps	(112)	(233)	(66)	(62)	(91)	(14)
Total financial liabilities	(13 053)	(17 192)	(5 088)	(2 300)	(6 204)	(3 600)
Percentage profile (%)		100	30	13	36	21
Liquidity gap identified2	6 739	2 639	14 333	(2 099)	(5 986)	(3 609)

1	Excludes the environmental rehabilitation funds at amortised cost of R99 million.
2	The liquidity gap identified will be funded by cash generated from operations and the undrawn facilities in place.

 

	Group
			Maturity
At 31 December 2021	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	181	181	90	52	39
Vendor finance loan	300	453	27	15	77	334
Other financial assets at amortised cost1	350	369	220	72	77
Derivative financial assets	4	4	4
Lease receivables	52	77	14	13	44	6
Trade and other receivables	2 701	2 701	2 701
Cash and cash equivalents	7 042	7 042	7 042
Total financial assets	10 630	10 827	10 098	152	237	340
Percentage profile (%)		100	94	1	2	3
Financial liabilities
Interest-bearing borrowings	(10 255)	(13 526)	(1 655)	(1 261)	(6 678)	(3 932)
– Loan facility	(4 552)	(5 492)	(753)	(680)	(4 059)
– Project financing	(4 700)	(6 930)	(497)	(544)	(1 957)	(3 932)
– Bonds	(1 003)	(1 104)	(405)	(37)	(662)
Lease liabilities	(504)	(801)	(84)	(89)	(280)	(348)
Non-current other payables	(53)	(53)		(53)
Trade and other payables	(2 230)	(2 230)	(2 230)
Cash flow hedge derivatives: interest rate swaps	(406)	(468)	(173)	(114)	(179)	(2)
Overdraft	(1)	(1)	(1)
Total financial liabilities	(13 449)	(17 079)	(4 143)	(1 517)	(7 137)	(4 282)
Percentage profile (%)		100	24	9	42	25
Liquidity gap identified2	(2 819)	(6 252)	5 955	(1 365)	(6 900)	(3 942)

1	Excludes the environmental rehabilitation funds at amortised cost of R94 million.
2	The liquidity gap identified will be funded by cash generated from operations and the undrawn facilities in place.

 

	Company
			Maturity
At 31 December 2022	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	178	178	76	54	48
Vendor finance loan	294	350	138	62	150
Trade and other receivables	283	283	283
Cash and cash equivalents	13 366	13 366	13 366
Non-interest-bearing loans to subsidiaries	676	676	676
Interest-bearing loans to subsidiaries	4 631	5 715	898	1 410	3 273	134
Treasury facilities with subsidiaries	559	559	559
Total financial assets	19 987	21 127	15 996	1 526	3 471	134
Percentage profile (%)		100	76	7	16	1
Financial liabilities
Interest-bearing borrowings	(4 539)	(5 555)	(889)	(1 401)	(3 265)
– Loan facility	(3 893)	(4 824)	(827)	(732)	(3 265)
– Bonds	(646)	(731)	(62)	(669)
Lease liabilities	(413)	(574)	(78)	(85)	(279)	(132)
Trade and other payables	(196)	(196)	(196)
Non-interest-bearing loans from subsidiaries1	(85)	(85)	(85)
Treasury facilities with subsidiaries	(11 974)	(11 974)	(11 974)
Total financial liabilities	(17 207)	(18 384)	(13 222)	(1 486)	(3 544)	(132)
Percentage profile (%)		100	72	8	19	1
Liquidity gap identified	2 780	2 743	2 774	40	(73)	2

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

 

	Company
			Maturity
At 31 December 2021	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	181	181	90	52	39
Vendor finance loan	300	453	27	15	77	334
Trade and other receivables	325	325	325
Cash and cash equivalents	4 868	4 868	4 868
Non-interest-bearing loans to subsidiaries	357	357	357
Interest-bearing loans to subsidiaries	5 699	6 822	1 170	726	4 738	188
Treasury facilities with subsidiaries	4 803	4 803	4 803
Total financial assets	16 533	17 809	11 640	793	4 854	522
Percentage profile (%)		100	66	4	27	3
Financial liabilities
Interest-bearing borrowings	(5 555)	(6 596)	(1 158)	(717)	(4 721)
– Loan facility	(4 552)	(5 492)	(753)	(680)	(4 059)
– Bonds	(1 003)	(1 104)	(405)	(37)	(662)
Lease liabilities	(438)	(640)	(73)	(79)	(258)	(230)
Trade and other payables	(159)	(159)	(159)
Overdraft	(1)	(1)	(1)
Non-interest-bearing loans from subsidiaries1	(76)	(76)	(76)
Treasury facilities with subsidiaries	(9 670)	(9 670)	(9 670)
Total financial liabilities	(15 899)	(17 142)	(11 137)	(796)	(4 979)	(230)
Percentage profile (%)		100	65	5	29	1
Liquidity gap identified	634	667	503	(3)	(125)	292

1	The majority of the non-interest-bearing loans from subsidiaries are not expected to be called upon 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's exposure and 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 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 were held as collateral for any security provided.

Detail of the trade receivables credit risk exposure:

	Group
At 31 December	2022 %	2021 %
By geographical area
RSA	65	88
Europe	18	8
Asia	17
USA		4
Total	100	100
By industry
Public utilities	47	67
Mining	8	5
Manufacturing	1	2
Merchants	37	15
Food and beverage	1	1
Steel	2	9
Cement	4	1
Total	100	100

 

Detailed impairment analysis of financial assets measured at amortised cost:

	Group
At 31 December 2022	Total  Rm		Performing  Rm	Under-  performing  Rm	Non-  performing  Rm
ESD loans	178		178
– Non-current – gross	108		103		5
– Non-current – impairment allowances	(6)		(1)		(5)
– Current – gross	166		78		88
– Current – impairment allowances	(90)		(2)		(88)
Vendor finance loan	294		294
– Non-current – gross	173		173
– Current – gross	123		123
– Current – impairment allowance	(2)		(2)
Other financial assets at amortised cost	294		294
– Non-current – gross	175		175
– Non-current – impairment allowances	(3)		(3)
– Current – gross	130		126		4
– Current – impairment allowances	(8)		(4)		(4)
Lease receivables1	46		46
– Non-current – gross	39		39
– Non-current – impairment allowances	(1)		(1)
– Current – gross	8		8
Trade receivables	4 124		4 056	29	39
– Gross	4 150		4 082	29	39
– Impairment allowances	(26)		(26)
Other receivables	75		67		8
– Gross	122		67		55
– Impairment allowances	(47)				(47)
Cash and cash equivalents	14 812		14 812
Total financial assets at amortised cost	19 823		19 747	29	47

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

	Group
At 31 December 2022	Total  Rm		Performing  Rm	Under-  performing  Rm	Non-  performing  Rm
ESD loans	181		181
– Non-current – gross	99		91		8
– Non-current – impairment allowances	(8)				(8)
– Current – gross	114		92		22
– Current – impairment allowances	(24)		(2)		(22)
Vendor finance loan	300		300
– Non-current – gross	300		300
– Current – gross	(7)		(7)
– Current – impairment allowance	7		7
Other financial assets at amortised cost	444		444
– Non-current – gross	239		239
– Non-current – impairment allowances	(5)		(5)
– Current – gross	221		217		4
– Current – impairment allowances	(11)		(7)		(4)
Lease receivables1	52		52
– Non-current – gross	47		47
– Non-current – impairment allowances	(2)		(2)
– Current – gross	7		7
Trade receivables	2 626		2 606	2	18
– Gross	2 647		2 627	2	18
– Impairment allowances	(21)		(21)
Other receivables	75		75
– Gross	101		75		26
– Impairment allowances	(26)				(26)
Cash and cash equivalents	7 042		7 042
Total financial assets at amortised cost	10 720		10 700	2	18

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

	Company
At 31 December 2022	Total Rm		Performing Rm	Non- performing Rm
ESD loans	178		178
– Non-current – gross	108		103	5
– Non-current – impairment allowances	(6)		(1)	(5)
– Current – gross	166		78	88
– Current – impairment allowances	(90)		(2)	(88)
Vendor finance loan	294		294
– Non-current – gross	173		173
– Current – gross	123		123
– Current – impairment allowance	(2)		(2)
Other financial assets at amortised cost	54		54
– Current – gross	60		56	4
– Current – impairment allowances	(6)		(2)	(4)
Other receivables	7		7
– Gross	8		7	1
– Impairment allowances	(1)			(1)
Indebtedness by subsidiaries	276		276
– Gross	277		277
– Impairment allowances	(1)		(1)
Non-interest-bearing loans to subsidiaries	676		676
– Current – gross	741		692	49
– Current – impairment allowances	(65)		(16)	(49)
Interest-bearing loans to subsidiaries	4 631		4 631
– Non-current– gross	4 120		4 120
– Current – gross	511		511
Treasury facilities with subsidiaries	559		559
– Gross	561		561
– Impairment allowances	(2)		(2)
Cash and cash equivalents	13 366		13 366
Total financial assets at amortised cost	20 041		20 041

	Company
At 31 December 2021	Total Rm		Performing Rm	Non– performing Rm
ESD loans	181		181
– Non-current – gross	99		91	8
– Non–current – impairment allowances	(8)			(8)
– Current – gross	114		92	22
– Current – impairment allowances	(24)		(2)	(22)
Vendor finance loan	300		300
– Non–current – gross	300		300
– Non–current – impairment allowance	(7)		(7)
– Current – gross	7		7
Other financial assets at amortised cost	145		145
– Current – gross	154		150	4
– Current – impairment allowances	(9)		(5)	(4)
Other receivables	1		1
– Gross	2		1	1
– Impairment allowances	(1)			(1)
Indebtedness by subsidiaries	324		324
– Gross	326		326
– Impairment allowances	(2)		(2)
Non–interest–bearing loans to subsidiaries	357		357
– Current – gross	417		368	49
– Current – impairment allowances	(60)		(11)	(49)
Interest-bearing loans to subsidiaries	5 699		5 699
– Non-current – gross	4 841		4 841
– Current – gross	858		858
Treasury facilities with subsidiaries	4 803		4 803
– Gross	4 836		4 836
– Impairment allowances	(33)		(33)
Cash and cash equivalents	4 868		4 868
Total financial assets at amortised cost	16 678		16 678

 

16.3.3.4.2 Trade and other receivables age analysis

	Group
	Current				Past due
At 31 December 2022	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	4 124	3 889	196		8	31
– Gross	4 150	3 913	197		8	32
– Impairment allowances	(26)	(24)	(1)			(1)
Other receivables	75	46	23			6
– Gross	122	48	24		2	45	3
– Impairment allowances	(47)	(2)	(1)		(2)	(39)	(3)
Total carrying amount of trade and other receivables	4 199	3 935	219		8	37

	Group
			Current			Past due
At 31 December 2021	Total Rm		1 to 30 days Rm	31 to 60 days Rm		61 to 90 days Rm	90 to 180 days Rm
Trade receivables	2 626		2 488	119		2	17
– Gross	2 647		2 508	120		2	17
– Impairment allowances	(21)		(20)	(1)
Other receivables	75		42			33
– Gross	101		43	3		37	18
– Impairment allowances	(26)		(1)	(3)		(4)	(18)
Total carrying amount of trade and other receivables	2 701		2 530	119		35	17

	Company
			Current		Past due
At 31 December 2022	Total Rm		1 to 30 days Rm		90 to 180 days Rm
Trade receivables	7		7
– Gross	8		7		1
– Impairment allowances	(1)				(1)
Other receivables	276		276
– Gross	277		277
– Impairment allowances	(1)		(1)
Total carrying amount of trade and other receivables	283		283

	Company
			Current		Past due
At 31 December 2022	Total Rm		1 to 30 days Rm		90 to 180 days Rm
Other receivables	1		1
– Gross	2		1		1
– Impairment allowances	(1)				(1)
Indebtedness by subsidiaries	324		324
– Gross	326		326
– Impairment allowances	(2)		(2)
Total carrying amount of trade and other receivables	325		325

 

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, Standard & Poor's and Global credit rating.

	Group			Company
At 31 December	2022 Rm	2021 Rm		2022 Rm	2021 Rm
Cash and cash equivalents
Fitch ratings
F1+	1 825	302		1 699	9
Standard & Poor's ratings
A-1+	10 949	6 014		9 653	4 765
A-1	24	632
A-2		23			23
Global credit rating
AA(za)	1 007	71		1 007	71
AA+(za)	1 007			1 007
Total cash and cash equivalents1	14 812	7 042		13 366	4 868

1	Excludes overdraft.

 

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
A-2	Satisfactory capacity to meet its financial commitments
BB-	Speculative in nature with some exposure to risk

 

Global credit ratings

AA(za) Very strong financial security characteristics relative to other issuers in the same country
AA+(za) Very strong financial security characteristics relative to other issuers in the same country

16.3.3.4.4 Collateral

No collateral was held by the group as security, nor any other enhancements over the financial assets during the years ended 31 December 2022 and 31 December 2021.

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 2022 and 31 December 2021. The guarantees issued relate to operational liabilities (refer to note 13.4.1 on contingent liabilities).

16.3.4 Loan commitments

Loan commitments have been granted to the following parties:

	Group			Company
At 31 December	2022 Rm	2021 Rm		2022 Rm	2021 Rm
Total loan commitment1	96	250		96
Mafube2		250
ESD applicants3	96			96

1	The loan commitments were undrawn for the reporting periods.
2	Revolving credit facility which was available for five years, ending 2023, was cancelled early during June 2022.
3	Loans approved and awarded to successful ESD applicants.