Chapter 16:Financial instruments

16.3.1 Carrying 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.

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.

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.

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.

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 hierarchy

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 and liabilities 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).

1 Tax on Chifeng amounts to R10.58 million.

1 Tax on Chifeng amounts to R1.72 million.

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 were no transfers between Level 1 and Level 2 nor between Level 2 and Level 3 of the fair value hierarchy.

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, portfolio investments and deposit facilities

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

16.3.2.6 Cash flow hedge derivatives: 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 reasonableness by discounting the estimated future cash flows based on observable ZAR swap curves.

16.3.2.7 Cash flow hedge derivatives: FECs

Level 2 fair values for hedge accounted FECs are based on valuations provided by the financial institutions with whom the FECs have been entered into, and take into account credit risk. The valuations are assessed for reasonableness by discounting the estimated future cash flows based on the relevant observable ZAR/foreign currency forward rates.

16.3.2.8 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.

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.

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.

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 funds. 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 prudent gearing position, return on shareholders’ equity (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.

The group’s activities expose it primarily to the financial risks of changes in the environmental rehabilitation funds, portfolio investment and deposit facilities quoted prices (refer note 16.3.3.2.1), foreign currency exchange rates (refer note 16.3.3.2.2) and interest rates (refer note 16.3.3.2.3). The group enters into a variety of derivative financial instruments to manage its exposure to foreign currency risks and interest rate risks, including:

• Currency FECs, currency options and currency swap agreements to manage the exchange rate risk arising on the export of coal and import of capital expenditure
• Interest rate swaps and interest rate forwards to manage interest rate risk on the interest-bearing borrowings

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, portfolio investments and deposit facilities 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 predominantly covered exchange rate position in respect of foreign balances (if any) and imported capital equipment resulting in these exposures being minimal. 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. Any open exposure to foreign currency risk on these balances is insignificant as the turnaround time is generally less than 30 days. Foreign denominated capital purchases funded by ZAR denominated project financing arrangements are hedged using FECs.

Uncovered cash and cash equivalents as at 31 December 2025 amount to US$76.44 million (2024: US$71.22 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:

Hedge accounting: Cash flow hedges – forward exchange contracts

FECs are designated as hedging instruments in cash flow hedges of expected US dollar and Chinese CNY capital purchases. Additionally, cash held in US dollar for purposes of settling the final purchase transactions are in certain circumstances designated as part of the hedging relationship. These transactions are highly probable, and relate to the group’s commitments under construction projects subject to project financing arrangements.

There is an economic relationship between the hedged items and the hedging instruments as the terms of the FECs match the terms of the expected highly probable expected transactions (ie, notional amount and expected payment date). The group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the FECs are identical to the hedged risk components. To test the hedge effectiveness, the group uses the “dollar offset method” and compares the changes in the fair value of the hedging instruments against the changes in fair value of the hedged items attributable to the hedged risks. Hedge ineffectiveness can arise from:

• Existence of day one fair value of the hedging instrument
• A significant change in the credit risk during the period of the hedge
• Changes in the amount or timing of the payments to the contractor
• The forward element inherent in each FEC and
• Effects of foreign currency basis spread

The group is holding the following FECs and US$ bank balances associated with the hedging relationship:

Financial performance effects of hedging recognised during the year:

Financial position effect of hedging instruments and hedging items

Cost of hedging and cash flow hedge reserves composition:

Movement analysis of cash flow hedge reserves relating to foreign currency risk exposure:

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 2025 was indexed to JIBAR.

The South African Reserve Bank (SARB) indicated its intention to move away from JIBAR and to create an alternative reference rate for South Africa. On 3 December 2025, the SARB announced that JIBAR will be permanently discontinued immediately after its final publication on 31 December 2026. All JIBAR tenors will cease to be provided and will be considered non-representative as of that date.

In 2022, the SARB and the Market Practitioners Group (MPG) designated ZARONIA as the preferred successor rate to JIBAR. Since then, the MPG has worked closely with regulators, market infrastructure providers and industry associations to ensure a smooth transition to ZARONIA. To assist market participants, the MPG has produced reference materials, including recommended market conventions, fallback language and the JIBAR transition plan.

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.

Non-derivative financial liabilities

The group’s IBOR exposures to non-derivative financial liabilities as at 31 December 2025 were the secured project financing and unsecured loan facility indexed to JIBAR. Refer 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 note 16.3.3.2.2.

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 note 16.3.3.2.2.

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. Upon the transition to ZARONIA, the group will perform the necessary economic equivalent assessments and effectiveness tests as well as updating the hedge documentation for the changes.

16.3.3.2.3.1 Loan facility

The loan facility are entered into at floating interest rates.

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

Interest rate sensitivity

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

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, during operations phase, and 1-month JIBAR during the construction phase. The designated hedged items are the group of expected 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 instruments and the hedged items. 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:

Interest rate sensitivity

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

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.

Hedge accounting: Cash flow hedges – interest rate swaps

Hedge effectiveness

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

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

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
• Changes to amounts or timing of drawdowns during construction phase

The recognised ineffectiveness in 2025 amounted to R10 million (2024: R12 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 during the operations phase, and every 1-month during construction phase. The settlement dates coincide with the dates on which interest is payable on the underlying debt.

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

Hedging instruments and hedged items

Hedging reserves

Cash flow hedge reserves composition:

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

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.

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 2025 and 2024 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 certain financial assets and financial liabilities:

1 Excludes the environmental rehabilitation funds at amortised cost of R129 million.

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

1 Excludes the environmental rehabilitation funds at amortised cost of R118 million.

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

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

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 debt instruments such as 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 audit committee 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:

Detailed impairment analysis of financial assets measured at amortised cost:

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

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