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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Mc Mining Limited | LSE:MCM | London | Ordinary Share | AU000000MCM9 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 7.75 | 7.50 | 8.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Bitmns Coal Undergrnd Mining | 46.06M | -4.32M | -0.0106 | -15.09 | 65.26M |
From Apr 2019 to Apr 2024
TIDMMCM
RNS Number : 0987O
MC Mining Limited
30 September 2019
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
(Expressed in United States Dollars unless otherwise stated)
MC MINING LIMITED
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS INDEX
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Directors' Report 2
Auditor's Independence Declaration 21
Directors' Declaration 22
Consolidated Statement of Profit or Loss
and Other Comprehensive Income 23
Consolidated Statement of Financial Position 24
Consolidated Statement of Changes in Equity 25
Consolidated Statement of Cash Flows 26
Notes to the Consolidated Financial Statements 27
Independent Auditor's Report 87
MC MINING LIMITED
DIRECTORS' REPORT
The directors of MC Mining Limited submit herewith the annual report of the Company and the entities controlled by the Company (its subsidiaries), collectively referred to as the "Group", for the financial year ended 30 June 2019. All balances are denominated in United States dollars unless otherwise stated.
In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:
Information about the directors and key management personnel
The names and particulars of the directors of the Company during or since the end of the financial year are set out below. Unless otherwise stated, the directors held office during the whole of the financial year:
Bernard Robert Independent Non-Executive Mr Pryor is a Chartered
Pryor Chairman Engineer and currently the
chief executive officer
of Alufer Mining Limited
and was previously the CEO
of African Minerals Limited
and prior to that the Chief
Executive of Q Resources
Plc. He is also a director
of Petra Diamonds Limited.
Between 2006 and 2010 he
held senior executive positions
within Anglo American Plc
as Head of Business Development,
and CEO of Anglo Ferrous
Brazil Inc.
David Hugh Brown Executive Director Mr Brown is a Chartered
and Chief Executive Accountant (CA (SA)) and
Officer completed his articles with
Ernst & Young, graduating
from the University of Cape
Town. Mr Brown joined MC
Mining following a tenure
of almost 14 years at Impala
Platinum Holdings Limited
(Implats). He joined the
Impala Group in 1999 and
served as CFO of Implats
before being appointed chief
executive officer in 2006.
He is currently an independent
Non-executive Director of
Vodacom Group Limited and
Northam Platinum Limited.
In the past he has served
as a non-executive director
of Simmer & Jack Limited,
as well as Edcon Holdings
Limited and chairman of
ASX listed Zimplats Holdings
Limited.
Brenda Berlin Executive Director Ms Berlin was appointed
and Chief Financial as CFO and Executive Director
Officer of MC Mining on 24 April
2018 from Implats where
she held the position of
Group CFO. Brenda joined
Implats in 2004 and held
a number of senior appointments
including head of group
corporate finance activities
until her appointment as
CFO in 2011. She is a CA
(SA) and obtained degrees
from the University of the
Witwatersrand and completed
her articles at PwC South
Africa. Prior to working
at Implats, Brenda worked
for Johnnic Holdings Limited
in the corporate finance
department and following
its unbundling, remained
with JCI Limited (JCI) assuming
responsibility for business
development. After leaving
JCI Brenda commenced working
for Southern Mining Corporation
Limited.
An Chee Sin Non-executive Director Mr Chee Sin is an Accredited
Tax Practitioner with the
Singapore Institute of Accredited
Tax Professionals and is
also a Chartered Accountant
with the Institute of Singapore
Chartered Accountants. He
has more than 17 years of
extensive experience in
international and local
corporate taxation and co-founded
Pinnacle Tax Services Pte
Ltd (Pinnacle Tax) in 2004.
Prior to joining Pinnacle
Tax he held the position
of Director of Corporate
Tax with KPMG and has coordinated
various advisory projects,
including cross-border fund
structures, corporate restructurings,
treasury and mergers and
acquisitions.
Andrew David Independent Non-Executive Mr Mifflin obtained his
Mifflin Director BSc. (Hons) Mining Engineering
from Staffordshire University
and has a Master's Degree
in Business Administration.
Andrew has over 30 years'
experience specifically
in the coal mining arena.
His experience spans across
various organisations such
as British Coal Corporation,
Xstrata and more recently
GVK Resources. He has gained
in depth knowledge in coal
operations, both thermal
and hard coking coal as
well as in project development.
Brian He Zhen Non-executive Director Mr Zhen holds a bachelor's
degree in business administration
from Sichuan University
and is currently Marketing
and Public Relations Executive
for Pan African Mining Pvt.
Ltd. Between 2012 and 2015,
Brian worked as Managing
Director of Real Gain Investment
Pvt. Ltd and was responsible
for infrastructure and construction
market development, as well
as overseas market investments.
He has previously served
as Construction Manager
for CRI - Eagle Investments
(Pty) Ltd and Eagle Canyon
Investments (Pty) Ltd.
Khomotso Brian Independent Non-Executive Mr Mosehla is a CA (SA)
Mosehla Director and completed his articles
with KPMG. Khomotso worked
at African Merchant Bank
Limited for five years where
he gained a broad range
of experience, including
management buy-out, leveraged
buy-out and capital restructuring/raising
transactions. In 2003, he
established Mvelaphanda
Corporate Finance for the
development of Mvelaphanda's
mining and non-mining interests.
Mr Mosehla served as a director
on the boards of several
companies, including Mvelaphanda
Resources Limited, and he
is currently the CEO of
Mosomo Investment Holdings
Proprietary Limited. Mr
Mosehla is currently a Non-executive
Director of Northam Platinum
Limited as well as Zambezi
Platinum Limited.
Peter George Independent Non-Executive Mr Cordin has a Bachelor
Cordin Director of Engineering from the
University of Western Australia
and is experienced in the
evaluation, development
and operation of resource
projects within Australia
and overseas. He is a Non-executive
Director of Vital Metals
Limited and Aurora Minerals
Limited.
Sebastiano Randazzo Independent Non-Executive Sam Randazzo began his career
Director with Arthur Young (predecessor
firm to Ernst & Young) before
working as a consultant
across a variety of projects
in the USA, Australia, Canada,
Africa and South America
and is a member of Chartered
Accountants Australia and
New Zealand. He has over
25 years' experience in
the international mining
industry with extensive
public company management
expertise from roles as
chairman, director, chief
executive officer, chief
financial officer, company
secretary and executive
director positions of ASX,
TSX and AIM listed mineral
resource companies. Mr Randazzo
has completed numerous feasibility
studies, mergers and acquisitions
and capital-raisings and
has operational management
experience in Australia,
South America, USA, Canada
and the UK.
Shangren Ding Non-executive Director Mr Ding is an experienced
professional engineer and
has worked for a number
of mining and energy companies
as well as acting as a consultant
to government geological
bureaus. Shangren has over
30 years' experience predominantly
in the coal mining sector
and has gained extensive
operational coal mining
knowledge through chief
operating roles at a number
of mines in the Heilongjiang
province in the People's
Republic of China. Since
2014, Mr Ding has worked
in a number of senior roles
for Beijing Haohua Energy
Resource Co., Ltd.
Thabo Felix Independent Non-Executive Mr Mosololi is a CA (SA)
Mosololi Director and brings considerable
expertise as a director
of various companies as
well as from his time as
Finance Director and Operations
Director with Tsogo Sun.
Thabo has 20 years of experience
within the South African
corporate environment. Mr
Mosololi is currently a
director of Pan African
Resources PLC.
Sebastiano Randazzo was appointed to the Board of Directors
on 29 March 2019. All other directors held office during and
since the end of the previous financial year.
Directorships of other listed companies
Directorships of other listed companies held by the directors in the three years immediately before the end of the financial year are as follows:
Director Company Period of directorship
-------------------- --------------------------------- -----------------------
Bernard Pryor Petra Diamonds Limited January 2019 -
Present
David Brown Vodacom Group Limited 2012 - Present
Northam Platinum Limited 2017 - Present
Brenda Berlin Impala Platinum Holdings Limited 2011-2017
Zimplats Holdings Limited 2011-2017
An Chee Sin None
Andrew Mifflin None
Brian He Zhen None
Khomotso Mosehla Northam Platinum Limited 2015 - Present
Zambezi Platinum Limited 2015 - Present
Peter Cordin Vital Metals Limited 2009 - Present
Aurora Minerals Limited 2014 - Present
Sebastiano Randazzo Bardoc Gold Limited October 2018 -
March 2019
Shangren Ding None
Thabo Mosololi Evraz Highveld Steel & Vanadium 2013 - 2015
Limited
Pan African Resources PLC 2014 - Present
Directors' shareholdings
The following table sets out each director's relevant interest in shares or options in shares or debentures of the Company as at the date of this report.
Director Ordinary shares Performance rights Unlisted options
--------------- ---------------- ------------------- -----------------
B Pryor 7,500 - -
D Brown (1) 41,250 2,093,646 -
B Berlin (2) - 635,347 -
A Chee Sin - - -
A Mifflin (3) - - -
H Zhen - - -
K Mosehla - - -
P Cordin 68,553 - -
S Ding - - -
T Mosololi 500 - -
117,803 2,728,993 -
--------------- ---------------- ------------------- -----------------
1. Mr Brown was issued with the following performance rights:
485,702 unlisted conditional performance rights were granted on 30 November 2015, which expired in November 2018. 562,747 performance rights were granted on 30 November 2016. 625,612 performance rights were granted on 24 November 2017.878,287 performance rights were granted on 23 November 2018. The performance rights were granted for no consideration. No exercise price is payable upon exercise of the performance rights.
2. 635,347 performance rights were granted on 23 November 2018. The performance rights were granted for no consideration. No exercise price is payable upon exercise of the performance rights.
Remuneration of directors and key management personnel
Information about the remuneration of directors is set out in the remuneration report of this directors' report, on pages 15 to 16. Shareholder nominee non-executive directors are not remunerated. During the reporting period, no senior management satisfy the criteria of 'key management personnel'.
Share options granted to directors and senior management
During and since the end of the financial year, share options and performance rights were granted to Directors and key management personnel of the Company and of its controlled entities as part of their remuneration. Details of options and performance rights granted to Directors and senior management are set out on page 18.
Company secretary
Mr Tony Bevan, a qualified Chartered Accountant with over 25 years' experience, is the Company Secretary and works with Endeavour Corporate Pty Ltd, the company engaged to provide contract secretarial, accounting and administration services to MC Mining.
Principal activities
The Company is a limited company incorporated in Australia. Its common shares are listed on the ASX, the AIM and the JSE in South Africa. The principal activities of the Company and its subsidiaries are the acquisition, exploration, development and operation of metallurgical and thermal coal projects in South Africa.
The Group's principal assets and projects include:
-- The Uitkomst Colliery, an operating metallurgical and thermal coal mine with a circa 15 year life of mine (LOM);
-- Makhado hard coking and thermal coal project;
-- The Vele Colliery, a semi-soft coking and thermal coal mine, which remains on care and maintenance; and
-- Three exploration and development stage coking and thermal coal projects, namely Chapudi, Generaal and Mopane in the Soutpansberg Coalfield.
During the prior year, the Mooiplaats Colliery, which was on care and maintenance, was sold in November 2017.
Review of operations - Operational salient features
-- No fatalities (FY2018: nil) and four LTI's (FY2018: 1);
-- The Uitkomst Colliery produced 485,113 tonnes (t) (FY2018: 607,960 t) of raw coal comprising 472,647t (FY2018: 505,130t) of run of mine (ROM) coal and 12,466t (FY2018: 102,830t) bought-in during the period;
-- The Colliery sold 309,401t (FY2018: 475,089t) of coal - 295,051t (FY2018: 329,060t) from ROM coal, 0t (FY2018: 53,699t) from blending slurry, 6,035t (FY2018: 92,330t) from purchased coal and 8,315t (FY2018: nil)of high ash, coarse discard coal - generating sales revenue of $26,403 thousand (FY2018: $32,693 thousand);
-- Uitkomst transitioned to an owner operated colliery with the acquisition of the underground mining contractor, Khethekile Mining (Pty) Ltd's ("Khethekile"), operations and transfer of approximately 340 staff to the Colliery;
-- Commencement and completion of plant modifications at Uitkomst to facilitate the production of the additional high ash, coarse discard product;
-- Thermal coal prices experienced significant fluctuations during FY2019 and year-on-year prices were 7% lower compared to FY2018, primarily due to reduced demand in the northern hemisphere leading to substantial decreases in prices during the second half of the period;
-- Received approval for the amendment to the Environmental Authorisation ("EA") for the Makhado Project allowing for the transport of coal by road rather than rail, which was appealed as expected thereby automatically suspending the amendment but subsequently uplifted;
-- Coal Purchase Agreement with Huadong Coal Trading Center Co, Ltd ("HDCTC"), a Chinese state-owned enterprise, for the off-take of up to 450,000t per annum of hard coking coal ("HCC") to be produced from the Lukin and Salaita properties of the Makhado Project;
-- Completion of the front-end engineering and design ("FEED") process for Phase 1 of the Makhado Project;
-- Acquisition of the Lukin and Salaita properties, the remaining two key surface rights required for the Makhado Project;
-- MC Mining board conditionally approved the phased development of the Makhado Project with construction of Phase 1 anticipated to commence in H2 CY2019 and expected to yield 0.54 million tonnes per annum ("Mtpa") of HCC and 0.57Mtpa of export quality thermal coal;
-- Conclusion of a HCC off-take agreement (the "Agreement") with ArcelorMittal South Africa Limited ("AMSA") for the annual purchase of 350,000t to 450,000t of HCC that will be produced at Phase 1 of the Makhado coking coal project;
-- Thermal coal off-take agreement signed with one of the world's largest producers and marketers of bulk commodities for the purchase of the Makhado Phase 1 by-product;
-- The Vele Colliery remained on care and maintenance but the Vele processing plant is expected to be refurbished and recommissioned as part of Phase 1 of the Makhado Project; and
-- The South African Department of Mineral Resources ("DMR") granted a mining right for MC Mining's 74% owned Chapudi coking and thermal coal project ("Chapudi Project"), one of the three projects comprising the Company's longer-term Greater Soutpansberg Project ("GSP") situated in the Soutpansberg Coalfield of the Limpopo Province. This mining right was appealed and the mining rights for the Mopane and Generaal projects have not been granted or denied.
Corporate salient features
-- Completion of the regulatory matters relating to the disposal of the Mooiplaats thermal coal colliery ("Mooiplaats Colliery");
-- $1,065 thousand (ZAR15,000 thousand) ABSA Bank Limited ("ABSA") revolving asset finance facility ("ABSA Facility") for the acquisition of additional mining equipment at the Uitkomst Colliery;
-- Extension for a further six months of the $8,521 thousand (ZAR120,000 thousand) facility from the Industrial Development Corporation of South Africa Limited to MC Mining's subsidiary, Baobab Mining and Exploration Proprietary Limited ("Baobab"), for the development of Makhado;
-- $1,420 thousand (ZAR20,000 thousand) ABSA primary lending facility ("ABSA Facility") secured by Uitkomst;
-- Co-operation agreement signed with Haohua Energy International (Hong Kong) ("HEI"), aligning substantial shareholders' threshold to appoint directors to the MC Mining board and further reinforcing cooperation on matters technical and marketing;
-- Negotiated the settlement of the full outstanding Mooiplaats Colliery sale proceeds;
-- Dismissal of appeals against the Makhado Project EA amendments, facilitating the transport of coal by road rather than rail and reaffirming the project's permitted status; and
-- The Company continued the search for a second cash generator and assessed several potential targets during the period but these did not meet MC Mining's investment criteria.
Subsequent events
IDC Debt Funding Secured
The IDC approved a term loan facility (the "Term Loan") to fund the construction of Phase 1 of the Makhado Project.
The salient features of the Term Loan are, subject to documentation:
-- the IDC will advance $17,397 thousand (ZAR245,000 thousand) to MC Mining;
-- draw-down can take place any time before 30 June 2021 and the Loan will endure for a period of seven years following draw-down;
-- coupon of the South African Prime interest rate (currently 10%) plus a margin that reflects the significant progress made on Makhado as well as the increased confidence that the IDC has in the execution of the project; and
-- capital repayments will only commence 24 months after the first draw-down and will be repaid in 20 equal quarterly instalments.
The Loan is subject to various conditions precedent including:
-- MC Mining issuing additional equity to shareholders for a minimum of $14,202 thousand (ZAR200,000 thousand); and
-- settlement of the existing 2017 loan facility between the IDC, MC Mining and Baobab, which at 30 June 2019 amounted to $13,116 thousand (ZAR184,700 thousand), and termination of all agreements in this regard.
Sale of land in Harrisia Investments Holdings Proprietary Limited ("Harrisia")
Subsequent to year-end, the Company finalised the sale of land and buildings held by its subsidiary Harrisia. These land and buildings were classified as assets held for sale at 30 June 2019.
Financial review
-- Operating cash flows of $2,469 thousand generated by the Uitkomst Colliery; -- Payment of a $1,065 thousand (ZAR15,000 thousand) dividend by Uitkomst;
-- During the period an agreement was entered into with Mooiplaats Coal Holdings ("MCH") and an additional party, Last Mile Fund Proprietary Limited ("LMF"), for full and final settlement of $4,096 thousand (ZAR57,676 thousand) for the balance outstanding on the sale of Mooiplaats. $3,287 thousand (ZAR46,290 thousand) was received from LMF and $809 thousand (ZAR11,386 thousand) was received from MCH;
-- $1,420 thousand (ZAR20,000 thousand) available under the ABSA Facility;
-- $8,521 thousand (ZAR120,000 thousand) of the $17,042 million (ZAR240,000 thousand) three year Industrial Development Corporation of South Africa Limited (IDC) loan was available at year-end;
-- The R/$ exchange rate continues to be volatile and gains/losses from these elements are unpredictable;
-- Contributing to the loss were non-cash charges of $25,198 thousand (FY2018: $92,533 thousand) which includes the following:
o Net impairment expense of $21,916 thousand (FY2018: impairment of the Vele assets of $87,475 thousand)
o depreciation and amortisation of $2,186 thousand (FY2018: $1,504 thousand)
o share based payment expense of $852 thousand (FY2018: $1,343 thousand)
o unrealised foreign exchange gain of $ 244 thousand (FY2018: loss $2,211 thousand)
-- Total unrestricted cash balances at year-end of $8,811 thousand (FY2018: $10,931 thousand).
Future developments
MC Mining aims to become the preeminent hard coking coal producer in South Africa and will continue to build on the progress made during FY2019. The main focus for FY2020 will be to secure sufficient funding for the construction of Makhado Phase 1, and once funding is received to begin construction.
The Makhado Project is fully permitted and has 344.8 million mineable tonnes of coal in situ. The Company completed a Competent Persons Report (CPR) during the prior reporting period. The phased development of the Makhado Project was approved by the Company's directors during FY2019 and Phase 1 incorporates the development of the west pit and modifications to the existing Vele Colliery processing plant. The development of the project in phases reduces execution risk, capital expenditure and shorten the mine's construction period and ensures the scalability of the project. Phase 1 will produce approximately 3Mtoa of ROM coal that will be screened and scalped at Makhado. The resultant 2.0Mtpa of scalped ROM coal will be transported to the Vele Colliery for final processing and will yield approximately 0.54Mtpa of hard coking coal (HCC) and 0.57Mtpa of an export quality thermal coal as a by-product. Phase 2 is expected to commence in circa CY2022, funding and market dependent, and includes the construction of the east pit as well as the Makhado processing plant and related infrastructure. This phase will result in 4.0Mtpa of ROM coal producing 1.7Mtpa of saleable HCC and thermal coal.
The revised, phased project delivers similar returns to the original Makhado Project with significantly reduced execution risk as a result of the construction period reducing from 26 to nine months with first sales of Phase 1 coal in month ten. During the period, the Company acquired the final two farms of the Makhado mining area. Subsequent to the reporting period, debt funding was approved by the Industrial Development Corporation to fund the construction of Phase 1. Off-take agreements have been signed with AMSA for 350,000-450,000 tonnes per annum ("tpa") of Phase 1 HCC and one of the world's largest commodity traders signed an off-take agreement for the Phase 1 thermal coal by-product. The South African government's dismissal of the appeal against the Makhado EA amendment during the year reinforces the robustness of the project's permitting processes while the off-take agreements reaffirmed the world-class quality of Makhado's coal and satisfied a key requirement for funders.
The exploration and development of MC Mining's three Soutpansberg coalfield projects namely the Chapudi, Mopane and Generaal project areas, is the catalyst for the long-term growth of the Company. The DMR granted a MR for the Chapudi Project in FY2019 but this was subsequently appealed. The MR applications for the Mopane and Generaal Projects are being processed and the Company is hopeful that these licences will be granted during FY2020.
Environmental regulations
The Group's operations are not subject to any significant environmental regulations under either Commonwealth or State legislation and there has consequently been no breach. The Group is subject to numerous environmental regulations in South Africa, including:
-- The environmental provisions in the Mineral and Petroleum Resources Development Act (No 28 of 2002);
-- National Environmental Management Act (No. 107 of 1998); -- National Water Act (No. 45 of 1965); -- Environment Conservation Act (No. 73 of 1989); and -- National Environmental Management Air Quality Act (No. 39 of 2004).
The Board believes that there are adequate systems in place for the management of its environmental impacts but from time to time statutory non-compliances may occur. The Board takes these seriously and continues to monitor compliance.
Corporate Governance
The Group recognises the need for the highest standards of corporate behaviour and accountability. The Directors have accordingly followed the recommendations set by the ASX Corporate Governance Council. For further information on corporate governance policies adopted by MC Mining Limited, refer to the website : http://www.mcmining.co.za/corporate-governance/board-committees-and-charters and the annual report.
Dividends
No dividend has been paid or proposed for the financial year ended 30 June 2019 (FY2018: nil).
Shares under option or issued on exercise of options or performance rights
There are no unissued shares under option as at the date of this report. 1,250,000 share options expired during the period
Details of unissued performance rights granted as at the date of this report are:
Number of shares Class of shares Exercise Expiry date
under performance price
rights
-------------------- ------------------- ---------------- --------- ------------
Performance rights 1,082,875 Ordinary Nil 29 November
2019
Performance rights 1,722,383 Ordinary Nil 23 November
2020
Performance rights 3,465,558 Ordinary Nil 21 November
2021
Total performance
rights 6,270,816
-------------------- ------------------- ---------------- --------- ------------
No shares or interests were issued during or since the end of the financial year as a result of the exercising of options.
Indemnification of officers and auditors
During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company, the Company Secretary, and all executive officers of the Company and of any related body corporate against a liability incurred by such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001.
The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred by such an officer or auditor.
Directors' meetings
The following table sets out the number of directors' meetings (including meetings of committees of directors) held during the financial year and the number of meetings attended by each director (while they were a director or committee member). During the financial year, a total of four scheduled board meetings were held as well as four Nomination and Remuneration Committee and Safety and Health Committee meetings while six Audit and Risk Committee meetings were held.
Board Meetings Audit and Nomination Safety, Health
Risk Committee and Remuneration and Environment
Meetings Committee Committee
Meetings Meetings
Director Held Attended Held Attended Held Attended Held Attended
------------- ------ --------- ------ ---------- ------- ----------- ------- ----------
B Pryor (1) 4 4 4 4 4 4 1 1
D Brown 4 4 - - 4 4 4 4
B Berlin 4 4 - - - - - -
A Chee Sin 4 4 - - - - - -
A Mifflin 4 4 - - - - 4 4
H Zhen 4 4 - - - - - -
K Mosehla 4 4 5 5 - - - -
P Cordin 4 4 - - - - 4 4
S Randazzo
(2) 1 1 1 1 - - - -
S Ding 4 4 - - - - - -
T Mosololi 4 4 5 5 4 4 - -
1. Resigned from the Audit & Risk Committee on the appointment of Mr Randazzo and was appointed as a member of the Safety, Health and Environment Committee during the period
2. Appointed in March 2019 and is a member of the Audit & Risk Committee
Proceedings on behalf of the Company
No persons applied for leave to bring or intervene in proceedings on behalf of the Company during or since the end of the financial year.
Non-audit services
Non-audit services were provided during the current financial year for services rendered relating to additional review procedures. Details of amounts paid or payable to the auditor for services provided during the year by the auditor are outlined in note 10 to the consolidated financial statements.
Auditor's independence declaration
The auditor's independence declaration is included on page 21 of these consolidated financial statements.
Remuneration report (audited)
This remuneration report, which forms part of the Directors report, sets out information about the remuneration of MC Mining Limited's Directors and its senior management for the financial year ended 30 June 2019. The prescribed details for each person covered by this report are detailed below under the following headings:
-- Director details; -- Remuneration policy; -- Relationship between the remuneration policy and company performance; -- Remuneration of Directors and senior management; and -- Key terms of employment contracts.
The Board is responsible for establishing remuneration packages applicable to the Board members of the Company. The policy adopted by the Board is to ensure that remuneration properly reflects an individual's duties and responsibilities and that remuneration is competitive in attracting, retaining and motivating people of the highest calibre.
Directors' remuneration packages are also assessed in the light of the condition of markets within which the Company operates, the Company's financial condition and the individual's contribution to the achievement of corporate objectives. Executive Directors are remunerated by way of a salary commensurate with their required level of service.
Total remuneration for all Non-Executive Directors, excluding share-based payments, as approved by shareholders at the November 2010 General Meeting, is not to exceed A$1,000,000 per annum ($702,200).
The Board has a Nomination and Remuneration Committee which was made up as follows: Mr Pryor (Chairman), Mr Mosololi and Mr Brown. The Company does not have any scheme relating to retirement benefits for Executive or Non-Executive Directors.
Director and key management personnel details
The following persons acted as directors of the Company during or since the end of the financial year:
-- B Pryor Independent Chairman -- D Brown Chief Executive Officer and Executive Director -- B Berlin Chief Financial Officer and Executive Director -- A Chee Sin Non-Executive Director -- A Mifflin Independent Non-Executive Director -- H Zhen Non-Executive Director -- K Mosehla Independent Non-Executive Director -- P Cordin Independent Non-Executive Director -- S Randazzo(1) Non-Executive Director -- S Ding Non-Executive Director -- T Mosololi Independent Non-Executive Director 1. Appointed as Director on 29 March 2019
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. Apart from the Executive Directors, no employees satisfy the definition of 'key management' to be separately disclosed in this remuneration report.
Remuneration policy
The remuneration policy of MC Mining has been designed to align key management personnel objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the Group's financial results. The Board of MC Mining believes the remuneration policy to be appropriate and effective in its ability to attract and retain management personnel to run and manage the Group, as well as create goal congruence between Directors, management and shareholders.
The Board's policy for determining the nature and amount of remuneration for management personnel of the Group is as follows:
-- The remuneration structure is developed by the Nomination and Remuneration Committee and approved by the Board after professional advice is periodically sought from independent external consultants.
-- Management personnel receive a base salary (based on factors such as length of service and experience), performance rights and performance incentives.
-- Incentives paid in the form of cash and performance rights are intended to align the interests of the Directors, management and the Company with those of the shareholders.
The Nomination and Remuneration Committee reviews senior management personnel packages annually by reference to the Group's performance, executive performance and comparable information from industry sectors.
The performance of senior management personnel is measured against criteria agreed annually with each executive and bonuses and incentives are linked to predetermined performance criteria. The performance criteria vary and are determined in line with each individual's performance contract. The Board may, however, exercise its discretion in relation to approving incentives, bonuses, options or performance rights, and can recommend changes to the Nomination and Remuneration Committee's recommendations. Any changes must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance results leading to long-term growth in shareholder wealth.
All remuneration paid to management personnel is valued at the cost to the Company and expensed.
The Board's policy is to remunerate Non-executive Directors at market rates for time, commitment and responsibilities. Shareholder nominee Non-executive Directors are not remunerated. The Nomination and Remuneration Committee determines payments to the Non-executive Directors and reviews their remuneration annually, based on market practice, duties and accountability. The maximum aggregate amount of fees, excluding share-based payments that can be paid to Non-executive Directors is A$1,000,000 ($702,200).
To assist Directors with independent judgement, it is the Board's policy that if a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of their office as a director then, provided the director first obtains approval from the Chairman for incurring such expense, the Company will pay the reasonable expenses associated with obtaining such advice.
Options granted under the Employee Share Option Plan do not carry dividend or voting rights. Options are valued using a binomial option pricing model and the Black-Scholes option pricing model was used to validate the price calculated.
The Company has a shareholder approved performance rights plan (the Plan) to assist in the reward, retention and motivation of eligible employees and to align the interest of eligible employee with the shareholders of the Company. Prior to a performance right being exercised, the performance grants do not carry any dividend or voting rights. Performance rights are granted for no consideration and no exercise price is payable upon exercise of the performance rights.
All the performance rights proposed to be granted are subject to the following vesting conditions:
-- Vesting of the performance rights will be subject to a hurdle rate based on the compound annual growth rate in total shareholder return (TSR) across the three years commencing on the grant date of the performance rights (Performance Period).
-- The hurdle is a measure of the increase in the Company's share price and is a target for the TSR.
-- The base price for the TSR calculation will be the volume weighted average price (VWAP) of shares over the five days prior to the grant date.
-- The end price for the TSR calculation will be the VWAP over the last five days of the Performance Period.
Performance-based remuneration
The key performance indicators (KPIs) are set annually, which includes consultation with management personnel to ensure buy-in. The measures are specifically tailored to the area each individual is involved in and has a level of control over. The KPIs target areas the Board believes hold greater potential to position the Group for future expansion and profit, covering financial and non-financial as well as short and long-term goals.
Performance in relation to the KPIs is assessed annually, with bonuses being awarded depending on the number and deemed difficulty of the KPIs achieved.
Hedging of Management Remuneration
No member of executive management entered into an arrangement during or since the end of the financial year to limit the risk relating to any element of that person's remuneration.
Relationship between remuneration policy and Company performance
The tables below set out summary information about the Group's earnings and movements in shareholder wealth for the five years to June 2019.
Year ended Year ended Year ended Year ended Year ended
30 June 30 June 30 June 30 June 30 June
2019 2018 2017 2016 2015
$'000 $'000 $'000 $'000 $'000
----------- ----------- ----------- ----------- -----------
Revenue 26,403 32,693 - - -
Net loss before tax from
continuing operations 33,522* 97,043* 17,662 23,903 6,711
Net loss after tax from
continuing operations 33,726 103,763 17,367 22,472 6,711
Share price at start of A$0.36 A$0.05 A$0.06 A$0.09 A$0.07
year (1)
Share price at end of year A$0.67 A$0.36 A$0.05 A$0.06 A$0.09
Basic and diluted loss per
share ($ cents) from continuing
operations 23.72* 73.54* 17.26 1.19 0.47
---------------------------------- ----------- ----------- ----------- ----------- -----------
* includes the $23,268 thousand impairment of the Makhado Project consolidated exploration asset (FY2018: includes the $87,475 thousand impairment of the Vele Colliery assets)
(1) The share price at the start of the 2018 year is prior to the share consolidation that took place in December 2017.
Remuneration of directors and key management personnel
Details of the nature and amount of each major element of the remuneration of each director are:
Short term employee benefits Post-employment Share-based Total Share
benefits payments based % of
Total
-------------------------------- ---------------- ------------ ------------ ---------- -----------
2019 Salary Bonus Non Super-annuation Termination Options /
and fees -monetary benefits Shares
benefits
---------- -------- ---------- ---------------- ------------ ------------ ---------- -----------
$ $ $ $ $ $ $ %
---------- -------- ---------- ---------------- ------------ ------------ ---------- -----------
Non-Executive Directors
B Pryor 71,186 - - - - - 71,186 -
A Chee - - - - - - - -
Sin
A Mifflin 44,951 - - - - - 44,951 -
H Zhen - - - - - - - -
K Mosehla 45,290 - - - - - 45,290 -
P Cordin 41,051 - - 3,900 - - 44,951 -
S
Randazzo(1) 12,989 - - - - - 12,989 -
S Ding - - - - - - - -
T Mosololi 45,290 - - - - - 45,290 -
Executive Directors
D Brown 440,851 209,474 - - - 279,279(2) 929,604 30
B Berlin 377,336 58,751 - - - 48,635(2) 484,722 10
1,078,944 268,225 - 3,900 - 327,914 1,678,983 20
---------- -------- ---------- ---------------- ------------ ------------ ---------- -----------
1. Mr S Randazzo was appointed on 29 March 2019
2. This is a non-cash cost expensed as employee costs
Short term employee benefits Post-employment Share-based Total Share
benefits payments based % of
Total
--------------------------------- ---------------- ------------ ------------ ---------- -----------
2018 Salary and Bonus Non Super-annuation Termination Options /
fees -monetary benefits Shares
benefits
----------- -------- ---------- ---------------- ------------ ------------ ---------- -----------
$ $ $ $ $ $ $ %
----------- -------- ---------- ---------------- ------------ ------------ ---------- -----------
Non-Executive Directors
B Pryor 69,566 - - - - - 69,566 -
A Chee - - - - - - - -
Sin(3)
A Mifflin 46,278 - - - - - 46,278 -
H Zhen(3) - - - - - - - -
K Mosehla 47,076 - - - - - 47,076 -
P Cordin 42,263 - - 4,015 - - 46,278 -
R - - - - -
Torlage(4) - - -
S Ding - - - - - - - -
T Mosololi 47,076 - - - - - 47,076 -
Executive Directors
D Brown 479,667 210,446 - - - 272,924 963,037 28
B Berlin(5) 131,270 - - - - - 131,270 -
D
Schutte(6) 125,344 109,120 - - 178,470 - 412,934 -
988,540 319,566 - 4,015 178,470 272,924 1,763,515 15
----------- -------- ---------- ---------------- ------------ ------------ ---------- -----------
3. Mr Chee Sin and Mr Zhen were appointed on 24 April 2018
4. Mr Torlage resigned on 26 April 2018
5. Ms Berlin was appointed on 24 April 2018.
6. Mr Schutte resigned on 30 November 2017
No director appointed during the period received a payment as part of his consideration for agreeing to hold the position.
In September 2018, performance bonuses of $0.3 million were paid out in relation to certain performance targets met for the 2018 financial year. The performance targets were based on a combination of individual performance and corporate key performance indicators including; safety, operational targets and the achievement of a turnaround strategy.
Share-based payments granted as compensation for the current financial year
During the financial year, certain share-based payment arrangements expired as follows:
Exercise Grant
Grant Expiry price date Vesting
Option series Number date date value date
--------------- -------- ----------- ----------- --------- --------- --------
ESOP unlisted
options 250,000 27/11/2015 27/11/2018 GBP1.10 AUD0.024 (1)
1. A total of 250,000 options (post the 20:1 share consolidation) were granted to non-executive Directors Mr Pryor, Mr Mifflin, Mr Mosehla, Mr Cordin and Mr Mosololi vesting immediately on grant date.
The following grants of share-based payment compensation to executive management personnel relate to the current financial year:
During the financial year
--------------------------------------------------------------------
% of
Name compensation
for the year
% of grant % of grant consisting of
Option series Number granted Number vested vested forfeited options
---------- ------------------ --------------- -------------- ----------------- ---------------- ----------------
D Brown Performance grant 878,287 - - n/a 30
B Berlin Performance grant 635,347 - - n/a 10
During the year, none of the executive management personnel exercised options or performance rights granted to them as part of their compensation.
Key terms of employment contracts
The Company has entered into formal contractual employment agreements with the Chief Executive Officer and the Chief Financial Officer who are both Executive Directors of the Company. There are no formal contractual employment agreements with any other member of the Board. The employment conditions of the Chief Executive Officer and Chief Financial Officer are:
Current
1. Mr Brown's appointment as CEO commenced on 1 February 2014 with an annual remuneration of ZAR6,251 thousand and a six-month notice period. During the year, Mr Brown received 878,287 performance rights. The performance rights factor in a hurdle rate based on the compound annual growth rate of total shareholder return across the period from the grant date.
2. Ms Berlin was appointed on 24 April 2018 as CFO Financial Director with an annual remuneration of ZAR5,350 thousand and a six-month notice period. During the year Ms Berlin received 635,347 performance rights. The performance rights factor in a hurdle rate based on the compound annual growth rate of total shareholder return across the period from the grant date.
Loans from Key Management Personnel
No loans were provided to or received from Key Management Personnel during the year ended 30 June 2019.
Other Transactions
No other transactions were entered into with any member of Key Management Personnel other than those detailed in this Remuneration Report.
Director equity holdings
Option holdings
The movement during the reporting period in the number of options over ordinary shares at GBP1.10, vesting immediately held directly, indirectly or beneficially by each director including their personally-related entities, is as follows:
Held at Granted Exercised Expired/Other Held at
1 July as remuneration changes 30 June
2018 2019
--------------------- -------- ----------------- ---------- -------------- ---------
Non-Executive
Directors
B Pryor 50,000 - - (50,000) -
A Chee Sin - - - - -
A Mifflin 50,000 - - (50,000) -
H Zhen - - - - -
K Mosehla 50,000 - - (50,000) -
P Cordin 50,000 - - (50,000) -
S Randazzo - - - - -
S Ding - - - - -
T Mosololi 50,000 - - (50,000) -
Executive Directors -
D Brown - - - - -
B Berlin - - - - -
The movement during the reporting period in the number of performance grants over ordinary shares exercisable in three years' time subject to performance criteria, held directly, indirectly or beneficially by each director including their personally-related entities, is as follows:
Held at Granted Exercised Expired/Other Held at
1 July as remuneration changes 30 June
2018 2019
--------------------- ---------- ----------------- ---------- -------------- ----------
Non-Executive
Directors
B Pryor - - - - -
A Chee Sin - - - - -
A Mifflin - - - - -
H Zhen - - - - -
K Mosehla - - - - -
P Cordin - - - - -
S Randazzo - - - - -
S Ding - - - - -
T Mosololi - - - - -
Executive Directors
D Brown 1,674,061 878,287 - (485,702) 2,066,646
B Berlin - 635,347 - - 635,347
The movement during the reporting period in the number of ordinary shares held, directly, indirectly or beneficially by each director including their personally-related entities, is as follows:
Held at Granted Exercised Expired/Other Held at
1 July as remuneration changes(1) 30 June
2018 2019
--------------------- -------- ----------------- ---------- -------------- ---------
Non-Executive
Directors
B Pryor 7,500 - - - 7,500
A Chee Sin - - - - -
A Mifflin - - - - -
H Zhen - - - - -
K Mosehla - - - - -
P Cordin 68,553 - - - 68,553
S Randazzo - - - - -
S Ding - - - - -
T Mosololi 500 - - - 500
Executive Directors
D Brown 41,250 - - - 41,250
B Berlin - - - - -
--------------------- -------- ----------------- ---------- -------------- ---------
This marks the end of the remuneration report.
This directors' report is signed in accordance with a resolution of directors made pursuant to s298(2) of the Corporations Act 2001.
On behalf of the Directors
Bernard Robert Pryor David Hugh Brown Chairman Chief Executive Officer 30 September 2019 30 September 2019
Auditor's Independence Declaration
As lead auditor for the audit of MC Mining Limited for the year ended 30 June 2019, I declare that to the best of my knowledge and belief, there have been:
1. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
2. no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of MC Mining Limited and the entities it controlled during the period.
Douglas Craig Perth Partner 30 September 2019 PricewaterhouseCoopers
MC MINING LIMITED
DIRECTORS' DECLARATION
The directors declare that:
a) in the directors' opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;
b) in the directors' opinion, the attached consolidated financial statements are in compliance with International Financial Reporting Standards, as stated in Note 1.1 to the consolidated financial statements;
c) in the directors' opinion, the attached consolidated financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Consolidated Entity; and
d) the directors have been given the declarations required by s.295A of the Corporations Act 2001.
Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.
On behalf of the Directors
Bernard Pryor David Brown
Chairman Chief Executive Officer
30 September 2019 30 September 2019
MC MINING LIMITED
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
for the year ended 30 June 2019
Year ended Year ended
30 June 30 June
2019 2018
Note $'000 $'000
--------------------------------------------- ----- ----------- -----------
Continuing operations
Revenue 5 26,403 32,693
Cost of sales 6 (25,389) (27,340)
----------- -----------
Gross profit 1,014 5,353
Other operating income 7 1,606 1,410
Other operating gains /(losses) 8 969 (1,192)
Net impairment expense 9 (21,916) (87,475)
Administrative expenses 10 (10,556) (12,704)
Operating loss (28,883) (94,608)
Interest income 1,048 1,201
Finance costs 11 (5,687) (3,636)
Loss before tax (33,522) (97,043)
Income tax charge 12 (204) (6,720)
----------- -----------
Net loss for the year from continuing
operations (33,726) (103,763)
Discontinued operations
Profit for the year from operations
classified as held for sale 13 - 2,185
LOSS FOR THE YEAR (33,726) (101,578)
----------- -----------
Other comprehensive loss, net of
income tax
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translating
foreign operations (5,708) (2,393)
----------- -----------
Total comprehensive loss for the
year (39,434) (103,971)
----------- -----------
Loss for the year attributable to:
Owners of the Company (33,421) (101,413)
Non-controlling interests (305) (165)
----------- -----------
(33,726) (101,578)
----------- -----------
Total comprehensive loss attributable
to:
Owners of the Company (39,129) (103,806)
Non-controlling interests (305) (165)
----------- -----------
(39,434) (103,971)
----------- -----------
Loss per share 14
From continuing operations and discontinued
operations
Basic and diluted (cents per share) (23.72) (71.99)
From continuing operations
Basic and diluted (cents per share) (23.72) (73.54)
The accompanying notes are an integral part of
these consolidated financial statements.
MC MINING LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2019
30 June 2019 30 June
2018
Note $'000 $'000
-------------------------------------- ------ ------------- ----------
ASSETS
Non-current assets
Exploration and evaluation assets 15 94,871 116,889
Development assets 16 26,919 28,033
Property, plant and equipment 17 32,713 29,452
Other receivables 18 219 226
Other financial assets 19 5,006 4,324
Restricted cash 22 68 84
Loan receivable 13 - 3,946
Total non-current assets 159,796 182,954
------------- ----------
Current assets
Inventories 20 1,042 730
Trade and other receivables 21 2,996 5,496
Tax receivable 201 36
Loan receivable 13 - 3,290
Other financial assets 19 23 4
Cash and cash equivalents 22 8,811 10,931
------------- ----------
Total current assets 13,073 20,487
Assets classified as held for 939 -
sale
------------- ----------
Total assets 173,808 203,441
------------- ----------
LIABILITIES
Non-current liabilities
Deferred consideration 23 2,665 -
Borrowings 24 898 10,191
Provisions 25 6,564 5,458
Deferred tax liability 26 5,750 5,991
Other liabilities 27 - 181
Finance lease liabilities 689 -
Total non-current liabilities 16,566 21,821
------------- ----------
Current liabilities
Deferred consideration 23 1,406 2,017
Borrowings 24 13,401 -
Trade and other payables 28 8,850 6,845
Provisions 25 536 569
Other liabilities 27 176 1,024
Current tax liabilities 420 431
Finance lease liabilities 312 -
------------- ----------
Total current liabilities 25,101 10,886
------------- ----------
Total liabilities 41,667 32,707
------------- ----------
NET ASSETS 132,141 170,734
------------- ----------
EQUITY
Issued capital 29 1,040,950 1,040,950
Accumulated deficit 30 (884,297) (851,535)
Reserves 31 (24,601) (19,075)
------------- ----------
Equity attributable to owners
of the Company 132,052 170,340
Non-controlling interests 33 89 394
------------- ----------
TOTAL EQUITY 132,141 170,734
------------- ----------
The accompanying notes are an integral part of these consolidated
financial statements.
MC MINING LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2019
Issued Accumulated Share Capital Warrants Foreign Attributable Non-controlling Total
capital deficit based profits reserve currency to owners interests equity
payment reserve translation of the
reserve reserve parent
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
--------------------- ---------- ------------ -------- -------- --------- ------------ ------------- ---------------- ----------
Balance at 1 July
2018 1,040,950 (851,535) 2,052 91 1,134 (22,352) 170,340 394 170,734
Total comprehensive
loss for
the year - (33,421) - - - (5,708) (39,129) (305) (39,434)
---------- ------------ -------- -------- --------- ------------ ------------- ---------------- ----------
Loss for the year - (33,421) - - - - (33,421) (305) (33,726)
Other comprehensive
loss,
net of tax - - - - - (5,708) (5,708) - (5,708)
---------- ------------ -------- -------- --------- ------------ ------------- ---------------- ----------
Dividends - (11) - - - - (11) - (11)
Performance grants
issued
to employees - - 852 - - - 852 - 852
Share options
expired - 670 (670) - - - - - -
Balance at 30 June
2019 1,040,950 (884,297) 2,234 91 1,134 (28,060) 132,052 89 132,141
---------- ------------ -------- -------- --------- ------------ ------------- ---------------- ----------
Balance at 1 July
2017 1,040,950 (750,100) 713 91 1,134 (20,473) 272,315 559 272,874
Total comprehensive
loss for
the year - (101,413) - - - (1,879) (103,292) (165) (103,457)
---------- ------------ -------- -------- --------- ------------ ------------- ---------------- ----------
Loss for the year - (101,413) - - - - (101,413) (165) (101,578)
Other comprehensive
loss,
net of tax - - - - - (2,393) (2,393) - (2,393)
Sale of Mooiplaats
Colliery - - - - - 514 514 - 514
---------- ------------ -------- -------- --------- ------------ ------------- ---------------- ----------
Dividends - (22) - - - - (22) - (22)
Performance grants
issued
to employees - - 616 - - - 616 - 616
Share options
cancelled/forfeited - - (161) - - - (161) - (161)
IFRS 2 Black
economic
empowerment
charge - - 884 - - - 884 - 884
Balance at 30 June
2018 1,040,950 (851,535) 2,052 91 1,134 (22,352) 170,340 394 170,734
---------- ------------ -------- -------- --------- ------------ ------------- ---------------- ----------
The accompanying notes are an integral part of these consolidated
financial statements.
MC MINING LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2019
Year ended Year ended
30 June 30 June
2019 2018
Note $'000 $'000
-------------------------------------------- ----- ------------ -----------
Cash flows from operating activities
Receipts from customers 32,068 36,923
Payments to suppliers and employees (37,345) (34,921)
------------ -----------
Cash generated from/(used in)
operations 36 (5,277) 2,002
Interest received 403 603
Interest paid (48) (11)
Dividend paid (33) -
Tax paid (457) (1,234)
------------ -----------
Net cash generated from/(used
in) operating activities (5,412) 1,360
------------ -----------
Cash flows from investing activities
Purchase of property, plant and
equipment 17 (562) (2,887)
Proceeds from the sale of property,
plant and equipment 3,499 96
Investment in development assets 16 (5) (4)
Investment in exploration assets 15 (3,350) (3,801)
Khethekile acquisition - consideration
paid 34 (521) -
Khethekile acquisition - deferred
consideration payment 23 (239) -
Net proceeds from the sale of
Mooiplaats Colliery 13 6,457 2,315
(Increase)/decrease in other
financial assets 19 (649) 4,921
Increase in restricted cash (16) (32)
Net cash generated from investing
activities 4,614 608
------------ -----------
Cash flows from financing activities
Borrowings repayments 24 (692) -
Finance lease repayments (378) -
Net cash generated by financing (1,070) -
activities
------------ -----------
Net increase/(decrease) in cash
and cash equivalents (1,868) 1,968
Net foreign exchange differences (252) (683)
Cash and cash equivalents at
beginning of the year 10,931 9,646
------------ -----------
Cash and cash equivalents at
the end of the year 22 8,811 10,931
------------ -----------
The accompanying notes are an integral part of these consolidated
financial statements.
MC MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 June 2019
1. GENERAL INFORMATION
MC Mining Limited ("MCM" or the "Company") is a limited company incorporated in Australia. Its common shares are listed on the Australian Securities Exchange ('ASX'), the Alternative Investment Market of the London Stock Exchange ('AIM') and the Johannesburg Securities Exchange ('JSE') in South Africa. The addresses of its registered office and principal places of business is Suite 8, 7 The Esplanade, Mt Pleasant, Perth, Western Australia 6000.
The principal activities of the Company and its subsidiaries ('the Group' or 'the Consolidated Entity') are the acquisition, exploration, development and operation of metallurgical and thermal coal projects in South Africa.
The Group's principal assets and projects include:
-- The operating mine, Uitkomst Colliery;
-- The Makhado hard coking and thermal coal project that has been granted a mining right ("MR"), an integrated water use licence ("IWUL") and an environmental authorisation;
-- The Vele Colliery, a semi soft coking and thermal coal mine, currently under care and maintenance and has been granted the final IWUL relating to the new perennial stream diversion application; and
-- Three exploration and development stage coking and thermal coal projects, namely Chapudi, Generaal and Mopane.
Going Concern
The Consolidated Entity has incurred a net loss after tax for the year ended 30 June 2019 of $33,726 thousand (30 June 2018: $103,763 thousand). The current period loss includes a non-cash net impairment of $21,916 thousand mainly related to the impairment of Australian dollar payments made by the Group in 2007 for the acquisition of two new order prospecting rights, which have been incorporated into the Makhado new order mining right. The prior period loss included a non-cash impairment expense of $87.5 million relating to the Vele Colliery. During the twelve month period ended 30 June 2019 net cash outflows from operating activities were $5,412 thousand (30 June 2018 net inflow: $1,360 thousand). As at 30 June 2019 the Consolidated Entity had a net current liabilities position (before assets held for sale) of $12,028 thousand (30 June 2018: net current asset position of $9,601 thousand).
The current liability position as at 30 June 2019 is primarily a result of borrowings of $12,782 thousand payable to the Industrial Development Corporation of South Africa ("IDC") during May 2020.
The directors have prepared a cash flow forecast for the 18 month period ended 31 December 2020, taking into account available facilities and expected cash flows to be generated by Uitkomst, which indicates that the Consolidated Entity will have sufficient cash flow to fund their operations for at least the twelve-month period from the date of signing this report.
These cash flow forecasts include an assumed drawdown of the new IDC term loan facility of $17,397 thousand (ZAR245,000 thousand) that was conditionally approved subsequent to year end and a repayment in full of the currently utilised IDC facility. Further, it is assumed that additional funding of $35,000 thousand will be raised through a combination of debt, equity and other funding and that development of Phase 1 of the Makhado project will subsequently commence within the 12 months following the signing of these financial statements. The Consolidated Entity's ability to continue as a going concern for the 12 months following the signing of these financial statements is therefore dependant on the raising of the above-mentioned additional funding of $35,000 thousand. The Consolidated Entity's ability to continue as a going concern beyond the 12 months following the signing of these financial statements is dependent on the successful development of Phase 1 of the Makhado project and its subsequent ramp-up to planned levels of production. These conditions give rise to a material uncertainty that may cast significant doubt on the Consolidated Entity's ability to continue as a going concern, and therefore, that it may be unable to realize its assets and discharge it liabilities in the normal course of business.
These consolidated financial statements do not give effect to adjustments that would be necessary to the carrying value and classification of assets and liabilities, should the Consolidated Entity be unable to continue as a going concern. Such adjustments could be material.
The Group has a history of successful capital raisings to meet the Consolidated Entity's funding requirements. The directors believe that at the date of signing the financial statements there are reasonable grounds to believe that they will be successful in achieving the matters set out above and that the Consolidated Entity will have sufficient funds to meet their obligations as and when they fall due, and are of the opinion that the use of the going concern basis remains appropriate.
1. GENERAL INFORMATION (CONTINUED)
Basis of presentation
1.1. Statement of compliance
These consolidated financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the consolidated financial statements and notes of the Company and the Group comply with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board.
The consolidated financial statements were authorised for issue by the Directors on 30 September 2019.
1.2. Basis of Preparation
The consolidated financial statements have been prepared on the basis of historical cost, except for other financial assets and financial instruments that are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for assets.
All amounts are presented in United States dollars, and rounded to nearest thousand unless otherwise noted.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of AASB 2, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 102 or value in use in AASB 136.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
-- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
-- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
-- Level 3 inputs are unobservable inputs for the asset or liability. 2. ACCOUNTING POLICIES 2.1. Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved when the Company:
-- has power over the investee; -- is exposed, or has rights, to variable returns from its involvement with the investee; and -- has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company's voting rights in an investee are sufficient to give it power, including:
2. ACCOUNTING POLICIES (CONTINUED)
-- the size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
-- potential voting rights held by the Company, other vote holders or other parties; -- rights arising from other contractual arrangements; and
-- any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
A list of controlled entities is contained in note 39 to the consolidated financial statements.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.
All inter-group transactions, balances, income and expenses are eliminated in full on consolidation.
Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.
When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between
(i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and
(ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-
controlling interests.
2.2. Business combinations
Business combinations occur where an acquirer obtains control over one or more businesses and results in the consolidation of its assets and liabilities.
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:
-- deferred tax assets or liabilities are recognised and measured in accordance with AASB 112 'Income Taxes';
-- assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with AASB 119 'Employee Benefits';
-- liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with AASB 2 'Share-based Payment' at the acquisition date; and
-- assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 'Non-current Assets Held for Sale and Discontinued Operations' are measured in accordance with that Standard.
2. ACCOUNTING POLICIES (CONTINUED)
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.
Non-controlling interests that represent ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. Non-controlling interests are measured at fair value or, when applicable, on the basis specified in another Standard.
Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as a financial asset or liability is remeasured at subsequent reporting dates in accordance with AASB 9 'Financial Instruments', or AASB 137 'Provisions, Contingent Liabilities and Contingent Assets', as appropriate, with the corresponding gain or loss being recognised in profit or loss.
Where a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.
2.3. Functional and presentation currency
The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group entity are expressed in United Sates dollars ('$'), which is the presentation currency for the consolidated financial statements.
Transactions in foreign currencies are initially recorded in the functional currency at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the spot rate of exchange ruling at the reporting date. All differences are taken to the consolidated statement of profit or loss and other comprehensive income.
Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the date of the initial transaction.
Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for:
-- exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
-- exchange differences on transactions entered into in order to hedge certain foreign currency risks; and
2. ACCOUNTING POLICIES (CONTINUED)
-- exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment in the foreign operation.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated into United States dollars using the spot rate of exchange ruling at the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate).
On the disposal of a foreign operation (i.e. a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss.
Goodwill and fair value adjustments on identifiable assets and liabilities arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange ruling at the reporting date. Exchange differences arising are recognised in equity.
2.4. Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
When the criteria above are met and the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as assets held for sale and liabilities associated with assets held for sale in the consolidated statement of financial position. The income and expenses from these operations are not included in the various line items in the consolidated statement of profit or loss and other comprehensive income but the net results from these operations classified as held for sale are disclosed as a separate line within the statement of profit or loss.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.
2.5. Exploration and evaluation expenditure
(i) Pre-licence costs
Pre-licence costs relate to costs incurred before the Group has obtained legal rights to explore in a specific area. Such costs may include the acquisition of exploration data and the associated costs of analysing that data. These costs are expensed in the period in which they are incurred.
(ii) Exploration and evaluation expenditure
Exploration and evaluation activity involves the search for mineral resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource.
Exploration and evaluation activity includes:
i. Researching and analysing historical exploration data ii. Gathering exploration data through geophysical studies iii. Exploratory drilling and sampling iv. Determining and examining the volume and grade of the resource v. Surveying transportation and infrastructure requirements vi. Conducting market and finance studies 2. ACCOUNTING POLICIES (CONTINUED)
Licence costs paid in connection with a right to explore in an existing exploration area are capitalised and amortised over the term of the permit.
Once the legal right to explore has been acquired, exploration and evaluation expenditure is charged to profit or loss as incurred, unless the Group conclude that a future economic benefit is more likely than not to be realised.
Capitalised expenditure includes costs directly related to exploration and evaluation activities in the relevant area of interest, including materials and fuel used, surveying costs, drilling costs and payments made to contractors. General and administrative costs are allocated to an exploration or evaluation area of interest and capitalised as an asset only to the extent that those costs can be related directly to operational activities in the relevant area of interest.
Exploration and evaluation assets acquired in a business combination are initially recognised at fair value, including resources and exploration potential that are valued beyond proven and probable reserves. Similarly, the costs associated with acquiring an exploration and evaluation asset (that does not represent a business) are also capitalised. They are subsequently measured at cost less accumulated impairment.
All capitalised exploration and evaluation expenditure is written off where the above conditions are no longer satisfied, and assessed for impairment if facts and circumstances indicate that an impairment may exist. See note 2.12.
Exploration and evaluation expenditure that has been capitalised is reclassified to development assets when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Prior to such reclassification, exploration and evaluation expenditure capitalised is tested for impairment.
2.6. Development assets
Development expenditure incurred by or on behalf of the Group is accumulated separately for each area of interest in which economically recoverable resources have been identified. Such expenditure comprises costs directly attributable to the construction of a mine and the related infrastructure.
No depreciation is recognised in respect of development assets.
Development assets are assessed for impairment if facts and circumstances indicate that an impairment may exist. See note 2.12.
A development asset is reclassified as a 'mining property' at the end of the commissioning phase, when the mine is capable of operating in the manner intended by management. Immediately prior to such reclassification, development assets are tested for impairment.
2.7. Property, plant and equipment - Mining property
Mining property includes expenditure that has been incurred through the exploration and development phases, and, in addition, further development expenditure that is incurred in respect of a mining property after the commencement of production, provided that, in all instances, it is probable that additional future economic benefits associated with the expenditure will flow to the Group. Otherwise such expenditure is classified as cost of sales.
Mining property includes plant and equipment associated with the mining property.
When a mine construction project moves into the production phase, the capitalisation of certain mine construction costs ceases, and costs are either regarded as part of the cost of inventory or expensed, except for costs which qualify for capitalisation relating to mining asset additions, improvements or new developments, underground mine development or mineable reserve development.
Depreciation on plant and equipment included within mining property is computed on a straight-line basis over five years.
Depreciation on other components of mining property, is charged using the units-of-production method, with separate calculations being made for each area of interest. The units-of-production basis results in a depreciation charge proportional to the depletion of proved and probable reserves.
Mining property is assessed for impairment if facts and circumstances indicate that an impairment may exist. See note 2.12.
2. ACCOUNTING POLICIES (CONTINUED) 2.8. Deferred stripping costs
Stripping costs comprise the removal of overburden and other waste products from a mine. Stripping costs incurred in the development of a mine before production commences are capitalised as part of the cost of constructing the mine (initially within development assets) and are subsequently depreciated over the life of the operation.
Stripping costs incurred during the production stage of a mine are deferred when all of the following criteria are met: (a) it is probable that future economic benefits will flow to the entity; (b) the entity can identify the component of the ore body to which the access has been improved; and (c) the cost incurred can be measured reliably. The amount deferred is based on the waste-to-ore ratio ('stripping ratio'), which is calculated by dividing the tonnage of waste mined by the quantity of ore mined. Stripping costs incurred in a period are deferred to the extent that the current period ratio exceeds the expected life-of mine-ratio. Deferred stripping costs are amortised on a systematic basis over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping activity, or over the expected remaining life of the ore body if the stripping activity provides improved access to the whole of the remaining ore body. The units-of-production method is applied for amortisation of deferred stripping costs.
Where a mine operates more than one open pit that is regarded as a separate operation for the purpose of mine planning, stripping costs are accounted for separately by reference to the ore from each separate pit. If, however, the pits are highly integrated for the purpose of the mine planning, the second and subsequent pits are regarded as extensions of the first pit in accounting for stripping costs. In such cases, the initial stripping (i.e. overburden and other waste removal) of the second and subsequent pits is considered to be production phase stripping relating to the combined operation.
Deferred stripping costs are included in the cost base of assets when determining a cash-generating unit for impairment assessment purposes.
2.9. Property, plant and equipment - Mining Rights
Mining rights are classified as property plant and equipment on commencement of commercial production.
Depreciation is charged using the units-of-production method. The units-of-production basis results in a depreciation charge proportional to the depletion of proved and probable reserves.
Mining rights are assessed for impairment if facts and circumstances indicate that an impairment may exist.
2.10. Property, plant and equipment (excluding development assets, mining property and mining rights)
Freehold land is stated at cost and is not depreciated.
Items of property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Where items of property, plant and equipment contain components that have different useful lives to the main item of plant and equipment, these are capitalised separately to the plant and equipment to which the component can be logically assigned.
The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the rehabilitation obligation, and, for qualifying assets (where relevant), borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. The capitalised value of a finance lease is also included in property, plant and equipment.
Depreciation is recognised so as to write off the cost of assets (other than freehold land) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and the useful lives.
2. ACCOUNTING POLICIES (CONTINUED)
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
The annual depreciation rates applicable to each category of property, plant and equipment are as follows:
Furniture, fittings and office equipment 13% - 50% Buildings 20% Plant and equipment 20% Motor vehicles 20% - 33% Leasehold improvements 25% Computer equipment 33% Leased assets Lease period
2.11. Intangible assets, excluding goodwill
An intangible asset is recognised at cost if it is probable that future economic benefits will flow to the Group and the cost can be reliably measured. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses, if any.
Intangible assets are amortised on a straight-line basis over their estimated useful lives. The amortisation method used and the estimated remaining useful lives are reviewed at least annually.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated statement of profit or loss and other comprehensive income when the asset is derecognised.
Intangible assets are assessed for impairment if facts and circumstances indicate that an impairment may exist. See note 2.12.
2.12. Impairment of tangible and intangible assets other than goodwill
The carrying amounts of the Group's tangible and intangible assets are reviewed at each reporting date to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs of disposal and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
2. ACCOUNTING POLICIES (CONTINUED)
2.13. Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group's general policy on borrowing costs (see 2.23 below). Contingent rentals are recognised as expenses in the periods in which they are incurred.
Operating lease payments are recognised as an expense on the straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
2.14. Inventories
Inventories are stated at the lower of cost and net realisable value. Costs of inventories include expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.
Cost is determined by using the weighted-average method and comprises direct purchase costs and an appropriate portion of fixed and variable overhead costs, including depreciation and amortisation, incurred in converting materials into finished goods, based on the normal production capacity.
Any provision for obsolescence is determined by reference to specific items of stock. A regular review is undertaken to determine the extent of any provision for obsolescence.
Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.
2.15. Trade receivables
Trade receivables are classified as financial assets at amortised cost. They have been classified in this manner because their contractual terms give rise, on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding, and the group's business model is to collect the contractual cash flows on trade receivables. Trade receivables are recognised when the group becomes a party to the contractual provisions of the receivables. They are initially measured at fair value and subsequently measured at amortised cost.
The group recognises a loss allowance for expected credit losses on trade receivables. The amount of expected credit losses is updated at each reporting date.
The group makes use of a simplified approach as a practical expedient to the determination of expected credit losses on trade receivables. The group applies the AASB 9 simplified approach to measure expected credit losses, which uses a lifetime expected credit loss allowance, for trade receivables. Trade receivables that are more than 30 days past-due are assessed to have an increase in credit risk. The simplified approach is based on historic credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current and forecast direction of conditions at the reporting date, including the time value of money, where appropriate.
An impairment gain or loss is recognised in profit or loss with a corresponding adjustment to the carrying amount of trade receivables through use of a loss allowance account. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, among others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for a period of greater than 90 days past due date. Impairment losses is included in operating expenses in profit or loss.
2. ACCOUNTING POLICIES (CONTINUED)
2.16. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term deposits. Cash and cash equivalents are accounted for at amortised cost.
Restricted cash comprise cash balances which are encumbered and the Group does therefore not have unrestricted access to these funds.
2.17. Financial instruments
Financial instruments held by the Group are classified in accordance with the provisions of AASB 9 Financial Instruments. For details on reclassifications and re-measurements in terms of AASB 9 compared to AASB 139, please refer to note 2.26.
Broadly, the classification possibilities, which are adopted by the Group, as applicable, are as follows:
Financial assets
-- Amortised cost
-- Fair Value Through Profit or Loss
Financial liabilities
-- Amortised cost
When a financial liability is contingent consideration in a business combination, the Group classifies it as a financial liability at fair value through profit or loss.
Financial assets at amortised cost
The following financial assets are classified as financial assets at amortised cost:
-- Trade and other receivables
-- Cash and cash equivalents
-- Loan receivable
-- Other financial assets
Classification
Assets are classified in this category because the contractual terms give rise, on specific dates, to cash flows that are solely payments of principal and interest on the principal outstanding, and it is the Group's business model to collect the contractual cash flows on these assets.
Measurement
Financial assets at amortised cost are recognised when the Group becomes a party to the contractual provisions of the asset. These financial assets are recognised initially at the amount of consideration that is unconditional, unless they contain significant financing components, when they are recognised at fair value. These financial assets are subsequently measured at amortised cost. The amortised cost is the amount recognised on the receivable, minus principal repayments, plus cumulative amortisation (interest) using the effective interest rate method, of any difference between the initial amount and the maturity amount, adjusted for any loss allowance.
Interest income is calculated using the effective interest rate method, and is included in profit or loss in interest income.
2. ACCOUNTING POLICIES (CONTINUED)
The application of the effective interest method to calculate interest income on a receivable is dependent on the credit risk of the receivable as follows:
-- The effective interest rate is applied to the gross carrying amount of the financial asset, provided it is not credit impaired. The gross carrying amount is the amortised cost before adjusting for a loss allowance.
-- If a financial asset was not purchased or originally credit-impaired, but it has subsequently become credit-impaired, then the effective interest rate is applied to the amortised cost of the financial asset in the determination of interest. If, in subsequent periods, the financial asset is no longer credit impaired, then the interest calculation reverts to applying the effective interest rate to the gross carrying amount.
When a financial asset is denominated in a foreign currency, the carrying amount of the financial asset is determined in the foreign currency. The carrying amount is then translated to using the spot rate at the end of each reporting period. Any resulting foreign exchange gains or losses are recognised in profit or loss in other operating gains/(losses).
Impairment
The Group assesses on a forward-looking basis the Expected Credit Losses ("ECLs") associated with its financial assets carried at amortised cost. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (ie the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group and Company expects to receive).
Expected credit loss allowances are measured on either of the following bases:
-- 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and
-- lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.
The Group considers a financial asset to be in default when contractual payment term has lapsed. However, in certain cases, the Croup and Company may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.
Financial assets at Fair Value Through Profit or Loss
The following financial assets are classified at Fair Value Through Profit or Loss:
-- Other Financial Assets
Classification
Investments held by the Group as equity securities in investment funds are classified as Fair Value Through Profit or Loss. Assets are classified in this category because the Group does not hold these investments solely to collect payments of principal and interest on the principal outstanding, and the Group manages these investments based on their fair value.
Measurement
Financial assets at Fair Value Through Profit or Los are recognised when the Group becomes a party to the contractual provisions of the investment. These financial assets are recognised initially at fair value. These financial assets are subsequently re-measured at fair value with all gains or losses recognised directly in profit or loss.
2. ACCOUNTING POLICIES (CONTINUED)
Financial liabilities at amortised cost
Classification
The following financial liabilities are classified as financial liabilities at amortised cost:
-- Borrowings
-- Finance lease liabilities
-- Trade and other payables
Measurement
Liabilities at amortised cost are recognised when the Group becomes a party to the contractual provisions of the liability. The liabilities are initially measured, at initial recognition, at fair value plus transaction costs, if any. They are subsequently measured at amortised cost.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating an interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.
Interest expense, calculated on the effective interest method, is included in profit or loss in finance costs.
When financial liabilities are denominated in a foreign currency, the carrying amount of the payables are determined in the foreign currency. The carrying amount is then translated to using the spot rate at the end of each reporting period. Any resulting foreign exchange gains or losses are recognised in profit or loss in the other operating gains/(losses).
Modification of financial liabilities
A substantial modification of the terms of an existing debt instrument or part of it is accounted for as an extinguishment of the original debt instrument and the recognition of a new debt instrument.
Derecognition
Financial assets are derecognised when the rights to receive cash flows from the assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when the obligations specified in the contracts are discharged, cancelled or expire. On derecognition of a financial asset/liability, any difference between the carrying amount extinguished and the consideration paid is recognised in profit or loss.
2.18. Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
2. ACCOUNTING POLICIES (CONTINUED)
2.19. Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that the Group will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognised for future operating losses.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). The increase in provisions due to the passage of time is included in the finance cost line item in the consolidated statement of profit or loss and other comprehensive income.
Financial Guarantee Contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.
The entity recognizes a provision for financial guarantees when it is probable that an outflow of resources embodying economic benefits and will be required to settle the obligation and a reliable estimate of the obligation can be made.
Determining whether an outflow of resources is probable in relation to financial guarantees requires judgement. Indications that an outflow of resources may be probable are:
- Financial difficulty of the debtor
- Defaults or delinquencies in interest and capital repayment of the debtor
- Breaches of the terms of the debt instrument that result in it being payable earlier than the agreed term and the ability of the debtor to settle its obligation on the amended terms.
- A decline in prevailing economic circumstances (e.g. high interest rates, inflation and unemployment) that impact on the ability of entities to repay their obligations.
Rehabilitation provision
A provision for rehabilitation is recognised when there is a present obligation as a result of exploration, development or production activities undertaken, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the provision can be measured reliably.
The nature of these restoration activities includes: dismantling and removing structures; rehabilitating mines and tailings dams; dismantling operating facilities; closing plant and waste sites; and restoring, reclaiming and revegetating affected areas.
The provision for future rehabilitation costs is the best estimate of the present value of the expenditure required to settle the rehabilitation obligation at the reporting date, based on current legal and other requirements and technology. Future rehabilitation costs are reviewed annually and any changes in the estimate are reflected in the present value of the rehabilitation provision at each reporting date.
The initial estimate of the rehabilitation provision relating to exploration, development and production facilities is capitalised into the cost of the related asset and depreciated or amortised on the same basis as the related asset. Changes in the estimate of the provision are treated in the same manner, except that the unwinding of the effect of discounting on the provision is recognised as a finance cost rather than being capitalised into the cost of the related asset.
2. ACCOUNTING POLICIES (CONTINUED)
2.20. Share-based payments transactions of the Group
Equity-settled
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 32.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on the straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.
Accounting for BEE transactions
Where equity instruments are issued to a black economic empowerment ('BEE') party at less than fair value, these are accounted for as share-based payments. Any difference between the fair value of the equity instrument issued and the consideration received is accounted for as an expense in the consolidated statement of profit or loss and other comprehensive income.
A restriction on the BEE party to transfer the equity instrument subsequent to its vesting is not treated as a vesting condition, but is factored into the fair value determination of the instrument.
2.21. Taxation, including sales tax
The income tax expense or income for the period represents the sum of the tax currently payable or recoverable and deferred tax.
Current taxation
The tax currently payable or recoverable is based on taxable profit or loss for the year. Taxable profit or loss differs from profit or loss as reported in the consolidated statement of profit or loss and other comprehensive loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the reporting date in countries where the Group operates and generates taxable income.
Deferred taxation
Deferred taxation is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit or loss. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if a taxable temporary difference arises from the initial recognition of goodwill or any temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax balances are calculated using the tax rates that are expected to apply to the reporting period or periods when the temporary difference reverse, based on tax rates and tax laws enacted or substantively enacted at the end of the reporting period.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
2. ACCOUNTING POLICIES (CONTINUED)
Deferred tax liabilities are recognised for temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively.
Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
Sales tax
Revenues, expenses and assets are recognised net of the amount of the applicable sales tax, except:
-- where the amount of sales tax incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or
-- for receivables and payables which are recognised inclusive of sales tax.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables.
Cash flows are included in the cash flow statement on a gross basis. The sales tax component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within operating cash flows.
2.22. Revenue recognition
Revenue is recognised at fair value of the consideration received net of the amount of applicable sales tax.
Sale of coal - AASB 118: Revenue
Revenue from the sale of coal prior to the adoption of AASB 15 was recognised when all the following conditions are satisfied:
-- the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
-- the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
-- the amount of revenue can be measured reliably;
-- it is probable that the economic benefits associated with the transaction will flow to the Group; and
-- the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Specifically, revenue from the sale of coal was recognised when goods were delivered and legal title passed .
Sale of coal - AASB 15: Revenue from contracts with customers
Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over coal sold to a customer, which is generally indicated as follows:
-- The entity has a present right to payment for the coal sold -- The customer has legal title to the coal sold -- The entity has transferred physical possession of the coal sold -- The customer has the significant risks and rewards of ownership of the coal sold -- The customer has accepted the coal sold 2. ACCOUNTING POLICIES (CONTINUED)
Transport of coal (where applicable) is also recognised as revenue at this point. No discounts are provided for coal sales.
Interest income
Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate. Interest income is recognised in investment income on the consolidated statement of profit or loss and other comprehensive income.
2.23. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
2.24. Employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave when it is probable that settlement will be required and they are capable of being measured reliably.
2.25. Segment information
Reportable segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Company's executive committee.
Management has determined the reportable segments of the Group based on the reports reviewed by the Company's executive committee that are used to make strategic decisions. The Group has three reportable segments: Exploration, Development and Mining (see note 4).
2.26. Adoption of new and revised Accounting Standards and Interpretations
In the current year the Group has adopted all of the new and revised standards and interpretation issued by the Australian Accounting Standards Board (AASB) that are relevant to its operations and effective for the current annual reported period. New and revised standards, amendments thereof, and interpretations effective for the current reporting period that are relevant to the Group include:
-- AASB 9 Financial Instruments which addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.
-- AASB 15 Revenue from Contracts with Customers which is based on the principle that revenue is recognised when control of a good or service transfers to a customer.
AASB 9 - Financial instruments
The group has adopted AASB 9, 'Financial instruments', on 1 July 2018. AASB 9 replaces AASB 139 Financial Instruments and introduces new requirements for:
-- The classification and measurement of financial assets and financial liabilities
-- Impairment for financial assets; and
-- General hedge accounting (which is not currently applicable to the Group).
The classification categories previously defined under AASB 139 were replaced in AASB 9 with the categories 'amortised cost', 'fair value through profit or loss' and 'fair value through OCI'.
Financial assets previously held as 'loans and receivables' were transferred to financial assets 'at amortised cost', effective from 1 July 2018. The transfer in financial asset categories did not have a material impact on the measurement of the financial assets.
2. ACCOUNTING POLICIES (CONTINUED)
On transition, the new expected credit loss impairment model on financial assets did not result in a material change to impairment provisions and therefore opening retained earnings was not adjusted.
The Company has applied AASB 9 retrospectively but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the Company's previous accounting policy.
The reclassification of financial assets and liabilities are summarised in the table below:
Classification in Classification in terms
Financial instrument terms of AASB 139 of AASB 9
Trade and other
receivables Loans and receivables Amortised cost
---------------------- --------------------------
Cash and cash equivalents Loans and receivables Amortised cost
---------------------- --------------------------
Loan receivable Loans and receivables Amortised cost
---------------------- --------------------------
Other financial Fair Value Through Fair Value Through Profit
assets Profit or Loss or Loss
---------------------- --------------------------
Borrowings Amortised cost Amortised cost
---------------------- --------------------------
Finance lease liabilities Amortised cost Amortised cost
---------------------- --------------------------
Trade and other
payables Amortised cost Amortised cost
---------------------- --------------------------
AASB 15 - Revenue from contracts with customers
The Group has adopted AASB 15 on 1 July 2018, which replaces "AASB 118 Revenue". The new standard is a single, comprehensive revenue recognition model for all contracts with customers to achieve greater consistency in the recognition and presentation of revenue.
The Group used the following practical expedient as permitted by AASB 15:
-- for completed contracts that began and ended in the same annual reporting period, no restatement has been done.
Previously, under AASB 118, all revenue was recognised at a point in time, at the date that risks and rewards transferred.
Under AASB 15, revenue is recognised at the point in time when control passes, which was determined to be in line with previous recognition under AASB 1188 for the Group, and therefore had no impact on opening balances upon adoption.
2. ACCOUNTING POLICIES (CONTINUED)
At the date of the authorisation of this financial report, the following Standards and Interpretations were in issue but not yet effective. The Group has assessed those that are relevant to its operations as follows:
Mandatory application
Title of Nature of date/ Date of adoption
standard change Impact by Group
AASB 16 AASB 16 was The standard will affect Mandatory for financial
Leases issued in primarily the accounting years commencing
February 2016. for the Group's operating on or after 1 January
It will result leases. 2019. The Group does
in almost As at the reporting date, not intend to adopt
all leases the present value of the the standard before
being recognized Group's future operating its effective date.
on the balance lease commitments amounted
sheet, as to of $580 thousand. Some
the distinction of these operating leases
between operating are covered by the exception
and finance for short-term and low-value
leases is leases. The impact of
removed for adopting AASB 16 on 1
lessees. Under July 2019 will therefore
the new standard, not be material to the
an asset (the Group.
right to use
the leased
item) and
a financial
liability
to pay rentals
are recognized.
The exceptions
are short-term
and low-value
leases.
------------------- ------------------------------ ------------------------
3. CRITICAL ACCOUNTING ESTIMATES AND KEY JUDGEMENTS
Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The primary areas in which estimates and judgements are applied are discussed below.
3.1 Asset carrying values and impairment charges
The Group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using fair value less cost to sell calculations, which incorporate various key assumptions. Key assumptions include future coal prices, future operating costs, discount rates, foreign exchange rates and coal reserves.
Exploration and evaluation assets
Determining the recoverability of exploration and evaluation expenditure capitalised requires estimates and assumptions as to future events and circumstances, in particular, whether successful development and commercial exploitation, or alternatively sale, of the respective areas of interest will be achieved. The Group applies the principles of AASB 6 and recognises exploration and evaluation assets when the rights of tenure of the area of interest are current, and the exploration and evaluation expenditures incurred are expected to be recouped through successful development and exploitation of the area. If, after having capitalised the expenditure under the Group's accounting policy, a judgment is made that recovery of the carrying amount is unlikely, an impairment loss is recorded in profit or loss.
Development expenditure
Development activities commence after the commercial viability and technical feasibility of the project is established. Judgment is applied by management in determining when a project is commercially viable and technically feasible. Any judgments may change as new information becomes available. If, after having commenced the development activity, a judgment is made that a development asset is impaired, the appropriate amount will be written off to the consolidated statement of comprehensive income.
3. CRITICAL ACCOUNTING ESTIMATES AND KEY JUDGEMENTS (CONTINUED)
The Company considers the following items as pre-requisites prior to concluding on commercial viability:
-- All requisite regulatory approvals from government departments in South Africa have been received and are not subject to realistic legal challenges;
-- The Company has the necessary funding to engage in the construction and development of the project as well as general working capital until the project is cash generative;
-- A JORC compliant resource proving the quantity and quality of the project as well as a detailed Mine Plan reflecting that the colliery can be developed and will deliver the required return hurdle rates;
-- The Company has secured off-take and/or logistics agreements for a significant portion of the product produced by the mine and the pricing has been agreed; and
The Company has the appropriate skills and resources to develop and operate the project.
Impairment assessment
Long-term mining assets forming part of board-approved projects are valued based on estimates of future discounted cash flows (DCFs) of the latest board-approved business forecasts regarding production volumes, costs of production, capital expenditure, coal prices and market forecasts for foreign exchange rates. The discount rate is a risk adjusted discount rate, taking into account specific risks relating to the Cash Generating Unit (CGU) where cash flows have not been adjusted for the risk. This methodology is typically applied to CGUs classified as Development Assets (e.g. Vele Colliery) and as Property, Plant and Equipment (e.g. Uitkomst Colliery).
Coal resources outside approved mine plans are valued based on an in situ resource multiple based value. Comparable market transactions are used as a source of evidence. This methodology is typically applied to CGUs classified as Exploration and Evaluation assets (e.g. Greater Soutpansberg Project, Makhado Project, Uitkomst North adit). For Exploration and Evaluation projects that are at an advanced stage of evaluation and conditionally approved by the Board (e.g. Makhado Project), DCFs are also used and validated by in situ resource multiple based values.
The key financial assumptions used in the current year's impairment calculations are:
Hard coking coal (HCC) price (real US$ $138 (i)
per ton)
Thermal coal price (real US$ per ton) $74 (ii)
-----------------
Rand/US dollar exchange rate 14.50 (iii)
-----------------
Real discount rates 8% - 11% (iv)
-----------------
In situ resource multiple valuation range ZAR1- ZAR5 (v)
(SA Rand per ton)
-----------------
(i) Estimated with reference to the short-term future quotes for hard coking coal free-on-board Australia. Management's models considered a HCC price range of between $124 per ton and $160 per ton, with a base case of $138 per ton.
(ii) Estimated with reference to the forward curve for API4 thermal coal free-on-board Richards Bay. Management's models considered a Thermal coal price range of between $66 per ton and $81 per ton, with a base case of $74 per ton.
(iii) Estimated with reference to the prevailing exchange rates. Management's models considered a Rand vs US Dollar exchange rate range of between R13.80 and R15.24 with a base case of R14.50.
(iv) Post-tax discount rates that reflect management's assessments of market conditions and risks specific to the various projects. Management's models considered between 8% and 10% for established and producing projects and between 9% and 12% for developing and future projects, with a base case of 8% for established and producing projects and between 9% and 11% for developing and future projects.
(v) Based on recent thermal and premium coal transactions in South Africa a weighted range of between R1 and R5 per mineable ton in situ was determined reasonable for the Group's impairment assessment purposes. The carrying values of the Group's exploration and evaluation projects were comfortably supported within this range after adjusting for project risk factors.
3. CRITICAL ACCOUNTING ESTIMATES AND KEY JUDGEMENTS (CONTINUED)
Sensitivity analysis for DCF calculations
Sensitivity Change Effect on estimated recoverable
amount
US$ million
Uitkomst Vele Colliery Makhado Project
Collierty
------------- ----------------- -------------------- ----------------------
Long-term HCC
and +10% 10 24 47
thermal coal
prices -10% -10 -19 -34 (i)
------------- ----------------- -------------------- ----------------------
Long-term
exchange
rate +5% 3 14 38
-5% -3 -12 -34 (ii)
------------- ----------------- -------------------- ----------------------
Discount rate +1% -2 -7 -7 (iii)
-1% 2 8 8
------------- ----------------- -------------------- ----------------------
(i) Keeping all other inputs constant, this sensitivity scenario would result in an impairment charge for Uitkomst Colliery of $5.5 million, no further impairment at Vele Colliery and an additional impairment charge for the Makhado Project of $34 million (i.e. remaining carrying value).
(ii) Keeping all other inputs constant, this sensitivity scenario would not result in any impairment charge for Uitkomst Colliery, no further impairment charge for Vele Colliery and an additional impairment charge for the Makhado Project of $34 million (i.e. remaining carrying value).
(iii) Keeping all other inputs constant, this sensitivity scenario would not result in any impairment charge for Uitkomst Colliery, no further impairment charge for Vele Colliery and an additional impairment charge for the Makhado Project of $7 million.
3.2 Coal reserves
Economically recoverable coal reserves relate to the estimated quantity of coal in an area of interest that can be expected to be profitably extracted, processed and sold.
The Group determines and reports coal reserves under the Australasian Code of Reporting of Mineral Resources and Ore Reserves (the 'JORC Code'). This includes estimates and assumptions in relation to geological, technical and economic factors, including: quantities, grades, production techniques, recovery rates, production costs, transport costs, exchange rates and expected coal demand and prices.
Because the economic assumptions used to estimate reserves change from period to period, and because additional geological data is generated during the course of operations and mining operations conducted, estimates of reserves may change from period to period. Changes in reported reserves may affect the Group's financial results and financial position in a number of ways, including the following:
-- asset carrying values may be affected due to changes in estimated future cash flows; and
-- depreciation and amortisation charges may change where such charges are determined by the units of production basis, or where the useful economic lives of assets change.
3. CRITICAL ACCOUNTING ESTIMATES AND KEY JUDGEMENTS (CONTINUED)
3.3 Rehabilitation and restoration provisions
Certain estimates and assumptions are required to be made in determining the cost of rehabilitation and restoration of the areas disturbed during mining activities and the cost of dismantling of mining infrastructure. The amount the Group is expected to incur to settle its future obligations includes estimates regarding:
-- the future expected costs of rehabilitation, restoration and dismantling;
-- the expected timing of the cash flows and the expected life of mine (which is based on coal reserves noted above);
-- the application of relevant environmental legislation; and -- the appropriate rate at which to discount the liability.
Changes in the estimates and assumptions used could have a material impact on the carrying value of the rehabilitation provision and related asset. The provision is reviewed at each reporting date and updated based on the best available estimates and assumptions at that time. The carrying amount of the rehabilitation provision is set out in note 25.
3.4 Non-current assets held for sale and discontinued operations
A non-current asset, or disposal group, is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than continued use. In accordance with AASB 5 'Non-current Assets Held for Sale and Discontinued Operations', assets which meet the definition of held for sale are valued at the lower of carrying value and fair value less costs to sell.
Judgement is required by management in determining whether an asset meets the AASB 5 criteria of held for sale, including whether the asset is being actively marketed, is available for sale in its current condition and whether a sale is highly probable within 12 months of classification as held for sale. When calculating fair value less costs to sell, estimates of future disposal proceeds are also required. Refer to note 23 for further details.
4. SEGMENT INFORMATION
The Group has three reportable segments: Exploration, Development and Mining.
The Exploration segment is involved in the search for resources suitable for commercial exploitation, and the determination of the technical feasibility and commercial viability of resources. As of 30 June 2019, projects within this reportable segment include four exploration stage coking and thermal coal complexes, namely Chapudi (which comprises the Chapudi project, the Chapudi West project and the Wildebeesthoek project), Generaal (which comprises the Generaal project and the Mount Stuart project), Mopane (which comprises the Voorburg project and the Jutland project) and Makhado (comprising the Makhado project and the Makhado Extension project).
The Development segment is engaged in establishing access to and commissioning facilities to extract, treat and transport production from the mineral reserve, and other preparations for commercial production. As of 30 June 2019, the only project included within this reportable segment is the Vele Colliery, in the early operational and development stage.
The Mining segment is involved in day to day activities of obtaining a saleable product from the mineral reserve on a commercial scale and consists of Uitkomst Colliery and the Klipspruit project.
The accounting policies of the reportable segments are the same as those described in Note 2, Accounting policies.
The Group evaluates performance on the basis of segment profitability, which represents net operating (loss) / profit earned by each reportable segment.
Each reportable segment is managed separately because, amongst other things, each reportable segment has substantially different risks.
The Group accounts for intersegment sales and transfers as if the sales or transfers were to third parties, i.e. at current market prices.
The Group's reportable segments focus on the stage of project development and the product offerings of coal mines in production.
4. SEGMENT INFORMATION (CONTINUED)
In order to reconcile the segment results with the consolidated statement of profit or loss and other comprehensive income, the discontinuing operations should be deducted from the segment total and the corporate results (as per the reconciliation later in the note should be included).
For the year ended 30 June 2019
Exploration Development Mining Total
Revenue - - 26,403 26,403
Cost of sales - - (25,389) (25,389)
----------------------- ----------------------- -------------------- --------------------
Gross profit - - 1,014 1,014
Other income 42 9 175 226
Other operating (losses)/gains (362) - - (362)
Administrative expenses (1,610) (1,025) (327) (2,962)
Impairment (expense)/reversal (23,268) 1,525 (132) (21,875)
----------------------- ----------------------- -------------------- --------------------
Operating (loss)/profit (25,198) 509 730 (23,959)
Interest income 14 - 177 191
Finance costs (4,913) (364) (399) (5,676)
----------------------- ----------------------- -------------------- --------------------
(Loss)/profit before
tax (30,097) 145 508 (29,444)
Income tax charge - - 67 67
----------------------- ----------------------- -------------------- --------------------
Segment net (loss)/profit
after tax (30,097) 145 575 (29,377)
----------------------- ----------------------- -------------------- --------------------
Segment assets 99,931 27,029 31,601 158,561
Items included in
the Group's measure
of segment assets
* Addition to non-current assets 5,819 5 1,981 7,805
Segment liabilities (21,190) (5,552) (12,271) (39,013)
4. SEGMENT INFORMATION (CONTINUED)
For the year ended 30 June 2018
Exploration Development Mining Total
Revenue - - 32,693 32,693
Cost of sales - - (27,340) (27,340)
----------------------- ----------------------- -------------------- --------------------
Gross profit - - 5,353 5,353
Other income 11 102 988 1,101
Other operating (losses)/gains - - 25 25
Impairment expense - (87,475) - (87,475)
Administrative expenses (1,129) (985) (1,275) (3,389)
----------------------- ----------------------- -------------------- --------------------
Operating (loss)/profit (1,118) (88,358) 5,091 (84,385)
Interest income 21 - 173 194
Finance costs (2,578) (464) (75) (3,117)
----------------------- ----------------------- -------------------- --------------------
(Loss)/profit before
tax (3,675) (88,822) 5,189 (87,308)
Income tax charge (461) (5,816) (1,744) (8,021)
----------------------- ----------------------- -------------------- --------------------
Segment net (loss)/profit
after tax (4,136) (94,638) 3,445 (95,329)
----------------------- ----------------------- -------------------- --------------------
Segment assets 122,175 28,180 30,821 181,176
Items included in
the Group's measure
of segment assets
* Addition to non-current assets 3,801 4 1,881 5,686
Segment liabilities (14,166) (4,464) (9,272) (27,902)
4. SEGMENT INFORMATION (CONTINUED)
Reconciliations of the total segment amounts to respective items included in the consolidated financial statements are as follows:
Year ended Year ended
30 June 30 June
2019 2018
$'000 $'000
----------- --- -----------
Total loss for reportable segments (29,377) (95,329)
Reconciling items:
Other operating income 1,380 309
Other operating gains/(losses) 1,331 (1,216)
Administrative expenses (7,593) (9,315)
Impairment (41) -
Interest income 856 1,006
Finance costs (11) (519)
Income tax (charge)/credit (271) 1,301
----------- -----------
Net loss for the year from continuing
operations (33,726) (103,763)
Profit for the year from operations
classified as held for sale - 2,185
----------- -----------
Loss for the year (33,726) (101,578)
----------- -----------
Total segment assets 158,561 181,176
Reconciling items:
Unallocated property, plant and equipment 2,178 2,688
Other financial assets 4,403 3,574
Other receivables - 7,645
Unallocated current assets 8,666 8,358
Total assets 173,808 203,441
----------- -----------
Total segment liabilities (39,013) (27,902)
Reconciling items:
Deferred consideration (1,108) (2,016)
Unallocated liabilities (1,546) (2,789)
Total liabilities (41,667) 32,707
----------- -----------
The Group operates in two principal geographical areas - Australia (country of domicile) and South Africa (country of operations).
The Group's revenue from external customers by location of operations and information about its non-current assets by location of assets are detailed below.
4. SEGMENT INFORMATION (CONTINUED)
Year ended Year ended
30 June 30 June
2019 2018
$'000 $'000
----------- --- -----------
Revenue by location of operations
South Africa 26,403 32,693
Australia - -
----------- -----------
Total revenue 26,403 32,693
----------- -----------
Non-current assets by location of operations
South Africa 184,034 182,954
Australia - -
----------- -----------
Total non-current assets 184,034 182,954
----------- -----------
5. REVENUE
Revenue consists of the sale of coal by the Uitkomst Colliery. All coal sales during the period were made to customers in South Africa, mainly in the steel industry. Prior year sales included $3,426 thousand to foreign customers.
Adoption of AASB 15 Revenue from Contracts with Customers
(This standard replaces AASB 118, Revenue).
In accordance with the transition provisions in AASB 15, the new rules were applied to open, unfulfilled customer contracts on 1 July 2018 and, as the effect of the adoption was immaterial, no adjustment to opening retained earnings has been effected. The Group's accounting policy has been revised to align with AASB 15, but had no material impact on revenue recognition. Additional disclosures have been introduced, particularly on geography.
The Group derives revenue from contracts with customers for the supply of goods (namely coal). The Group recognises revenue on inventory sold to a customer on delivery to the contractually agreed upon delivery point. This is the point at which the performance obligation is satisfied and the receivable is recognised as the consideration is unconditional and only the passage of time is required before payment is due. No element of financing is present due to the short-term nature of Group contracts and credit terms are consistent with market practice. The total sales consideration is in the sales contract.
Revenue from contracts with customers
Sale of coal 25,207 32,693
Transport and other 1,196 -
26,403 32,693
----------- -----------
Disaggregation of revenue by location
of customers
South Africa 26,403 29,267
Other - 3,426
26,403 32,693
----------- -----------
6. COST OF SALES
Cost of sales consists of:
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Employee costs (8,304) (3,232)
Depreciation and amortisation (2,101) (1,240)
Inventory (262) (3,433)
Mining contractor (1,469) (12,912)
Underground mining (4,731) -
Utilities (681) (454)
Human resources (1,063) (756)
Training (102) (53)
Wash plant (386) (418)
Administration (1,744) (349)
Environmental (65) (60)
Logistics (829) (1,109)
Engineering (3,074) (2,602)
Safety (128) (105)
Security (243) (226)
Royalties (207) (391)
------------------ ---------------
(25,389) (27,340)
------------------ ---------------
7. OTHER OPERATING INCOME
Other operating income includes:
Profit on sale of Opgoedenhoop mining 1,174 -
right
Rental income 185 212
Scrap sales 23 102
Transport income - 728
Diesel recoupment - 239
Other 224 129
---------- ----------
1,606 1,410
---------- ----------
8. OTHER OPERATING GAINS/(LOSSES)
Other operating gains/(losses) include:
Foreign exchange gain/(loss)
- unrealised 244 (2,211)
- realized 78 699
Fair value adjustments 839 -
Loss on sale of Tshipise (311) -
Other 119 320
---------- ------------
969 (1,192)
---------- ------------
9. NET IMPAIRMENT EXPENSE
The net impairment expense includes:
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Exploration and Evaluation Assets (i) (23,309) -
Development Assets (ii) 1,277 (87,475)
Property, Plant and Equipment (iii) 116 -
(21,916) (87,475)
------------------ ---------------
(i) In terms of AASB 6 - Exploration and Evaluation Assets, management identified that indicators existed that the Makhado Project asset may be impaired and performed a formal impairment assessment at 30 June 2019. Refer to note 15 for details of the impairment. As a result an impairment of $23,268 thousand was recognised.
In addition, exploration costs amounting to $41 thousand incurred in Tshikunda Mining Proprietary Limited were impaired as a result of a sale agreement entered into for the sale of the company.
(ii) During the period a sale agreement was entered into for land that was impaired as part of the Vele impairment in the prior period. As a result, an impairment reversal of $1,277 thousand was recognised based on the selling price. The sale was concluded in the current period.
During the prior period, the Group made the decision to prioritise the Makhado Project and consequently to delay the redevelopment of the Vele Colliery to better align with the timing of the Musina-Makhado SEZ in Limpopo. This resulted in the forecast production date for the Vele Colliery being delayed, with production expected to commence in July 2021. In terms of AASB 136 - Impairment of Assets, management identified this as an indicator that the Vele assets may be impaired and performed a formal impairment assessment at 31 December 2017. Refer to note 16 for details of the impairment.
(iii) During the period, certain previously impaired land was disposed of resulting in an impairment reversal of $248 thousand. In addition, certain vehicles amounting to $132 thousand were impaired.
10. ADMINISTRATIVE EXPENSES
Employee expense (4,904) (5,979)
IFRS2 Black Economic Empowerment expense
(1) - (884)
Depreciation (217) (264)
Professional fees (250) (542)
Transaction costs - (608)
Legal expenses (714) (534)
Impairment of Mooiplaats receivable (1,144) -
Other overheads (3,327) (3,893)
------------- -------------
(10,556) (12,704)
------------- -------------
(1) The Black Economic Empowerment expense relates to the 21% shareholding that Pan African Resources Coal Holdings Proprietary Limited (the majority shareholder in Uitkomst Colliery) sold to the Black economic empowerment parties on 1 January 2018, in order to comply with BEE legislation pertaining to the mining industry and ensure a social licence to operate.
10. ADMINISTRATIVE EXPENSES (CONTINUED)
Included in administrative expenses is auditors' remuneration as follows:
Remuneration for audit and review of the financial report:
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
PWC - Australia (prior period Deloitte
Australia) (89) (115)
PWC - South Africa (prior period Deloitte
South Africa) (223) (289)
------------------ ---------------
(312) (404)
------------------ ---------------
Non-audit related services performed:
PWC - Australia (prior period Deloitte
Australia) (6) (7)
PWC - South Africa (prior period Deloitte
South Africa) - (4)
-------- ---------
(6) (11)
-------- ---------
11. FINANCE COSTS
Interest on borrowings (2,981) (2,932)
Unwinding of discount (482) (559)
Other (2,224) (145)
------------ ------------
(5,687) (3,636)
------------ ------------
12. INCOME TAX CHARGE
Income tax recognised in profit or loss from continuing operations
Current tax
Tax expense in respect of the current year - (1,565) Tax expense in respect of the prior year (291) 878
Deferred tax (Note 26)
Deferred tax asset derecognised - (5,816)
Current year deferred tax 18 (213)
Prior year deferred tax 71
Withholding taxes (2) (4)
---------- ------------
Total income tax (expense)/credit recognised (204) (6,720)
---------- ------------
12. INCOME TAX CHARGE (CONTINUED)
The Group's effective tax rate for the year from continuing operations was 0.6% (2018: (6.9%)). The tax rate used for the 2019 and 2018 reconciliations below is the corporate tax rate of 30% for Australian companies. The income tax expense for the year can be reconciled to the accounting profit as follows:
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Loss from continuing operations before
income tax (33,522) (97,043)
Income tax benefit calculated at 30%
(2018: 30%) 10,057 29,114
Tax effects of:
Expenses that are not deductible for
tax purposes (9,666) (26,846)
Differences in tax rates (76) (53)
Income not taxable 922 380
Other temporary differences not recognized (1,313) (4,080)
Other 92 (297)
Prior year adjustments (220) 878
De-recognition of deferred tax asset
- Losses - (5,816)
------------------ ---------------
Income tax (expense)/credit (204) (6,720)
------------------ ---------------
Income tax recognised in profit or loss from discontinued operations
Current tax
Tax expense in respect of the current - -
year
------ ------
- -
------ ------
Deferred tax
Recognition of deferred tax asset - - -
Losses
------ ------
Income tax credit - -
------ ------
The Group's effective tax rate for the year from discontinued operations was (0%) (2018: 0%). The tax rate used for the 2018 reconciliation below is the corporate tax rate of 30% payable by Australian corporate entities.
Profit/(loss) before income tax from
discontinued operations - 2,185
Income tax benefit calculated at 30%
(2018: 30%) - (656)
Tax effects of:
Expenses that are not deductible for
tax purposes - (144)
Differences in tax rates - (10)
Income not taxable - 936
Other temporary differences not recognized - (126)
----------
Income tax credit - -
-------- ----------
13. DISCONTINUING OPERATIONS
13.1 Disposal of Langcarel (Pty) Ltd ("Mooiplaats")
During the prior period, the Company as well as it's BEE partner Ferret, entered into a sale of shares and claims agreement ("the Agreement") with MCH and Mooiplaats Mining Limited ("Mooiplaats Mining"). In terms of the Agreement, MC Mining and Ferret disposed of 100% of their shares in Mooiplaats Mining and the Group disposed of its respective claims against Mooiplaats Mining and its wholly-owned subsidiary Langcarel Proprietary Limited ("the Transaction"), the owner of the Mooiplaats Colliery. The sale was finalized on 2 November 2017 for an aggregate purchase price of $13,100 tousand (ZAR179,900 thousand). The purchase price was to be settled as follows:
-- an initial tranche of $4,900 thousand (ZAR 67,000 thousand) on the effective date of sale ($3,800 thousand (ZAR52,000 thousand) to the Group and $1,100 thousand (ZAR15,000 thousand) to Ferret for full and final settlement of their equity); and
-- the balance of $8,200 thousand (ZAR112,900 thousand) to be settled in not more than 10 quarterly instalments, with the first Deferred Payment expected to be due by the end of August 2018, to coincide with the timing of the incorporation of Portions 2, 3 and the remaining extent of the farm Klipbank 295 IT into the Mooiplaats Colliery MR.
The Deferred Payments of $8,200 thousand (ZAR 112,900 thousand) was present valued to an amount of $6,638 thousand at 2 November 2017, to account for the time value of money.
The profit for the period until the sale of Mooiplaats is analysed as follows:
Period ended
2 November
2017
$'000s
-------- --------------
Other gains 3,126
--------------
Expenses (941)
--------------
Profit before tax 2,185
--------------
Profit for the year from operations
held for sale (attributable to owners
of the Company) 2,185
--------------
Included in other gains is the reversal of prior year asset impairments of $3,121 thousand.
Net cash outflows from operating activities (483)
Net cash inflows from investing activities 1,451
Net cash inflows from financing activities 513
----------
Net cash inflows 1,481
----------
13. DISCONTINUING OPERATIONS (CONTINUED)
The major classes of assets and liabilities of Mooiplaats at the effective date of sale were as follows:
Period ended
2 November
2017
$'000s
-----------------
Assets classified as held for sale
Property, plant and equipment 8,332
Other financial assets -
Inventories 1
Trade and other receivables 234
Cash and cash equivalents 1,403
-----------------
9,970
-----------------
Liabilities classified as held for sale
Provisions (2,744)
Trade payables and accrued expenses (30)
-----------------
(2,774)
-----------------
Net assets classified as held for sale 7,196
Impairment reversal 3,160
-----------------
Net assets of Mooiplaats 10,356
-----------------
Consideration received or receivable:
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------- ----------------------
Cash - 3,718
Receivable - 6,638
----------------------------- ----------------------
Total disposal consideration - 10,356
Carrying value of net assets sold - (10,356)
----------------------------- ----------------------
- -
----------------------------- ----------------------
Opening balance/Present value of loan
receivable at 2 November 2017 7,236 6,638
Unwinding of interest 596 505
Written off (1,144) -
Receipts (6,457) -
Foreign exchange difference (231) 93
------------ ------------
Balance at end of year - 7,236
Current - (3,290)
------------ ------------
Long term - 3,946
------------ ------------
During the period, an agreement was entered into with MCH and an additional party, Last Mile Fund Proprietary Limited, for full and final settlement of $4,068 thousand (ZAR57,676 thousand) for the balance outstanding. The final settlement was discounted, resulting in a portion of the receivable being written off.
13. DISCONTINUING OPERATIONS (CONTINUED)
13.2 Analysis of profit for the year from discontinuing operations
The combined results of the operations held for sale included in the loss for the prior year are set out below.
Profit for the year from discontinuing operations
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------- -------- ---------------
Reversal of impairment - 3,120
Other gains - 6
----------------------------- ---------------
- 3,126
Expenses - (941)
----------------------------- ---------------
Profit before tax - 2,185
----------------------------- ---------------
Profit for the year from operations
held for sale (attributable to owners
of the Company) - 2,185
----------------------------- ---------------
14. LOSS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY
14.1. Basic loss per share
Cents per Cents per
share share
From continuing operations (23.72) (73.54)
From discontinuing operations - 1.55
-------------- --------------
(23.72) (71.99)
-------------- --------------
Loss for the year attributable to owners
of the Company (33,421) (101,413)
Less: Profit for the year from operations
held for sale - (2,185)
------------- --------------
Loss used in the calculation of basic
loss per share from continuing operations (33,421) (103,598)
------------- --------------
Weighted number of ordinary shares
'000 shares '000 shares
---------------- ----------------
Weighted average number of ordinary
shares for the purposes of basic loss
per share 140,880 140,880
---------------- ----------------
14.2. Diluted loss per share
Diluted loss per share is calculated by dividing loss attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of diluted ordinary share that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
As at 30 June 2019, 2,408,752 warrants (2018 - 1,250,000 options and 2,408,752 warrants), were excluded from the computation of the loss per share as their impact is anti-dilutive.
14. LOSS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY (CONTINUED)
14.3. Headline loss per share (in line with JSE requirements)
The calculation of headline loss per share at 30 June 2019 was based on the headline loss attributable to ordinary equity holders of the Company of $9,669 thousand (2018: $17,068 thousand) and a weighted average number of ordinary shares outstanding during the period ended 30 June 2019 of 140,879,585 (2018: 140,879,585).
The adjustments made to arrive at the headline loss are as follows:
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Loss for the period attributable to
ordinary shareholders (33,421) (101,413)
Adjust for:
Impairment expense 23,404 87,475
Impairment reversal (1,525) (3,120)
Profit on disposal of property, plant
and equipment (887) (10)
------------------ ---------------
Headline earnings (12,429) (17,068)
------------------ ---------------
Headline loss per share (cents per share) (8.82) (12.12)
15. EXPLORATION AND EVALUATION ASSETS
A reconciliation of exploration and evaluation assets is presented below:
Exploration and evaluation assets
Balance at beginning of year 116,889 118,652
Additions 5,819 3,801
Movement in Rehabilitation asset 19 (79)
Disposals (570) -
Impairment (23,309) -
Foreign exchange differences (3,977) (5,485)
------------- ------------
Balance at end of year 94,871 116,889
------------- ------------
As of 30 June 2019, the net book value of the following project assets were classified as Exploration and Evaluation assets:
-- Greater Soutpansberg Project: $60,368 thousand -- Makhado Project: $34,188 thousand -- Uitkomst North adit: $315 thousand -- Other: $42 thousand 15. EXPLORATION AND EVALUATION ASSETS (CONTINUED)
Impairment testing
In terms of AASB 6 - Exploration for and Evaluation of Mineral Resource management have performed an assessment of whether facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. In performing its assessment, management have considered its exploration rights to the exploration areas, its planned & budgeted exploration activities and the likelihood of the recoverability of the net book value from the successful development of the areas of interest. Management have concluded that indicators of impairment for its Exploration and Evaluation assets exist as at 30 June 2019 and therefore, recognised an impairment charge of $23,268 thousand relating to the Makhado project.
The discount between the Group's market capitalisation and net asset value at 30 June 2019, together with the deterioration in thermal and premium coal prices during the second half of the year and subsequent to year-end respectively, prompted management to perform an impairment assessment.
Details of the key assumptions used in the calculations are set out in note 3.1.
Impairment charge
USD '000
---------------------------------------
Carrying value of the Makhado Project
before impairment charge 57,456
----------------
Estimated recoverable value 34,188
----------------
Impairment expense 23,268 (i)
----------------------------------------- ----------------
(i) The impairment expense is all allocated to the historical carrying value of A$33 million, which relates to amounts paid by MC Mining in 2007 for the acquisition of new order prospecting rights over certain of the Makhado project properties. The recoverable value all relates to the carrying value of the exploration costs in the Baobab corporate entity on which no impairment in necessary.
16. DEVELOPMENT
A reconciliation of development, exploration and evaluation expenditure is presented below:
Development assets
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Balance at beginning of year 28,033 114,170
Additions 5 4
Disposals (1,880) -
Movement in Rehabilitation asset 802 (2,323)
Reversal of impairment* 1,277 -
Impairment expense - (87,475)
Transfer to assets classified as held (607) -
for sale
Foreign exchange differences (711) 3,657
------------------ ---------------
Balance at end of year 26,919 28,033
------------------ ---------------
* The reversal of impairment during the year related to the sale of land that had previously been impaired.
16. DEVELOPMENT (CONTINUED)
Impairment testing
As of 30 June 2019 the net book value of the following project assets were included in Development Assets:
-- Vele Colliery: $26,919 thousand
The discount between the Group's market capitalisation and net asset value at 30 June 2019, together with the deterioration in thermal and premium coal prices during the second half of the year and subsequent to year end respectively, prompted management to perform an impairment assessment.
Details of the key assumptions used in the impairment assessment are set out in note 3.1. No additional impairment charge or reversal was required for Vele Colliery at 30 June 2019 following the impairment assessment.
Impairment recognised in 2018:
In the prior year, the Group made the decision to prioritise the Makhado Project and consequently to delay the redevelopment of the Vele Colliery to better align with the timing of the Musina-Makhado SEZ in Limpopo. This resulted in the forecast production date for the Vele Colliery being delayed with production expected to commence in July 2021. In terms of AASB 136 - Impairment of Assets, management identified this as an indicator that the Vele assets may be impaired and management performed a formal impairment assessment.
The recoverable value of the project was calculated using the fair value less costs of disposal approach to estimate the recoverable amount of the project, before comparing this amount with the carrying value of the associated assets and liabilities in order to assess whether an impairment of the carrying value was required under AASB 136. Due to the recoverable value being less than the carrying value, an impairment charge of $87,475 thousand was recognised during the year ended 30 June 2018.
In calculating the fair value less costs of disposal, management forecasted the cash flows associated with the project over its expected life of 15 years until 2037 based on the current life of mine model. The cash flows are estimated for the assets of the colliery in its current condition together with capital expenditure required for the colliery to resume operations, discounted to its present value using a post-tax discount rate that reflects the current market assessments of the risks specific to the Vele Colliery. The identification of impairment indicators and the estimation of future cash flows required management to make significant estimates and judgments. Details of the key assumptions used in the prior year fair value less costs of disposal calculation have been included below.
Key assumptions
2018 2019 2020 2021 LT
Thermal coal price (USD, nominal)(1) 80 75 69 69 70(2)
----- ----- ----- ----- --------
Hard coking coal price (USD, nominal)3 153 135 129 125 129(4)
----- ----- ----- ----- --------
Exchange rate (USD / ZAR, nominal) 12.7 12.5 13.2 14.3 15.0(5)
----- ----- ----- ----- --------
Discount rate(6) 16.75%
------------------------------------
Inflation rates USD 2.1%
ZAR 5.1%
------------------------------------
Production start date(7) FY 2022
------------------------------------
16. DEVELOPMENT (CONTINUED)
(1) Management's assumptions reflected the Richards Bay export thermal coal (API4) price.
(2) Long-term thermal coal price equivalent to USD 65 per tonne in 2017 dollars.
(3) Management's assumption of the hard coking coal price was made after considering relevant broker forecasts.
(4) Long-term hard coking coal price equivalent to USD 120 per tonne in 2017 dollars.
(5) From 2022, the exchange rate was derived with reference to the 2021 assumption, and inflated by the compounding differential between USD and ZAR inflation rates. The comparative discount rate applied at 30 June 2017 was 16.1%.
(6) Management prepared a nominal ZAR-denominated, post-tax discount rate, which was calculated with reference to the Capital Asset Pricing Model (CAPM).
(7) The production start date assumed that sufficient project finance was able to be raised by management in order to commence production in July 2021.
Impairment Assessment
USD thousand
Carrying Value of Vele Cash Generating Unit 117,800
-------------
Recoverable value 30,325
-------------
Impairment expense (allocated to development assets) (87,475)
-------------
Sensitivity Analysis
Sensitivity Change in variable Effect on fair value less costs of disposal
Long term coal prices +10.0% 21
-10.0% (24)
------------------- --------------------------------------------
Long term exchange rate +10.0% 25
-10.0% (29)
------------------- --------------------------------------------
Discount rate +1.0% (2)
-1.0% 2
------------------- --------------------------------------------
Operating costs +10.0% (14)
-10.0% 14
------------------- --------------------------------------------
Delays in production start date +12 months (4)
------------------- --------------------------------------------
17. PROPERTY, PLANT AND EQUIPMENT
Mining Mining Land Leasehold Motor Other Total
property, rights and buildings improvements vehicle
plant and
equipment
$'000 $'000 $'000 $'000 $'000 $'000 $'000
----------- -------- --------------- -------------- --------- ------ --------
30 June 2019
Cost
At beginning
of year 2,348 19,268 9,658 120 947 1,927 34,268
Additions 1,687 - 398 - 38 73 2,196
Disposals - - (570) - (186) (325) (1,081)
Rehabilitation
asset (82) - - - - - (82)
Impairment reversal - - 248 - - - 248
Khethikile acquisition 4,479 - - - 197 - 4,676
Transfer to assets
classified as
held for sale - - (644) - - - (644)
Exchange differences (18) (489) (244) (4) (26) (50) (831)
----------- -------- --------------- -------------- --------- ------ --------
At end of year 8,414 18,779 8,846 116 970 1,625 38,750
----------- -------- --------------- -------------- --------- ------ --------
Accumulated depreciation
At beginning
of year 163 910 1,311 120 555 1,757 4,816
Depreciation
charge 720 979 270 - 227 122 2,318
Accumulated depreciation
on disposals - (199) - (153) (319) (671)
Transfer to assets
classified as
held for sale - - (312) - - - (312)
Exchange differences (1) (16) (34) (4) (13) (46) (114)
----------- -------- --------------- -------------- --------- ------ --------
At end of year 882 1,873 1,036 116 616 1,514 6,037
----------- -------- --------------- -------------- --------- ------ --------
Net carrying
value at end
of fiscal year
2019 7,532 16,906 7,810 - 354 111 32,713
----------- -------- --------------- -------------- --------- ------ --------
17. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Mining Mining Land Leasehold Motor Other Total
property, rights and buildings improvements vehicle
plant and
equipment
$'000 $'000 $'000 $'000 $'000 $'000 $'000
----------- -------- --------------- -------------- --------- ------ --------
30 June 2018
Cost
At beginning
of year 1,996 20,243 8,783 438 1,048 2,037 34,545
Additions 296 - 2,566 - - 25 2,887
Disposals (23) - - (318) (22) (23) (386)
Rehabilitation
asset 207 - - - - - 207
Exchange differences (128) (975) (1,691) - (79) (112) (2,985)
----------- -------- --------------- -------------- --------- ------ --------
At end of year 2,348 19,268 9,658 120 947 1,927 34,268
----------- -------- --------------- -------------- --------- ------ --------
Accumulated depreciation
At beginning
of year 34 - 1,184 438 610 1,748 4,014
Depreciation
charge 149 974 197 - 63 121 1,504
Accumulated depreciation
on disposals (9) - - (318) (22) (22) (371)
Exchange differences (11) (64) (70) - (96) (90) (331)
----------- -------- --------------- -------------- --------- ------ --------
At end of year 163 910 1,311 120 555 1,757 4,816
----------- -------- --------------- -------------- --------- ------ --------
Net carrying
value at end
of fiscal year
2018 2,185 18,358 8,347 - 392 170 29,452
----------- -------- --------------- -------------- --------- ------ --------
As of 30 June 2019 the net book value of the following operating assets were included in Property, Plant and Equipment:
-- Uitkomst Colliery: $26,419 thousand
The discount between the Group's market capitalisation and net asset value at 30 June 2019, together with the deterioration in thermal and premium coal prices during the second half of the year and subsequent to year end respectively, prompted management to perform an impairment assessment.
Details of the key assumptions used in the impairment assessment are set out in note 3.1. No impairment charge was required for the Uikomst Colliery at 30 June 2019.
18. OTHER RECEIVABLES
Carrying amount of: Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Other loans 219 226
------------------ ---------------
Balance at beginning of year 226 237
Foreign exchange differences (7) (11)
Balance at end of year 219 226
-------- ---------
19. OTHER FINANCIAL ASSETS
Carrying value of financial assets at fair value through profit or loss
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Listed securities
* Equity securities 23 4
Unlisted securities
- Equity securities in investment funds* 4,592 3,901
4,615 3,905
------------------ ---------------
Deposits** 414 423
---------- ----------
5,029 4,328
---------- ----------
Fair value movements in other financial assets are recognised in other (losses)/gains in the consolidated statement of profit or loss. Refer note 8.
* Listed investments are carried at the market value as at the reporting date and unlisted investments are valued with reference to the investment company's fund statement.
** Deposits are classified as financial assets at amortised cost.
Balance at beginning of year 4,328 9,176
Revaluations 157 297
Interest received 81 -
Disposal of investment (121) (5,712)
Acquisition of investments 689 791
Foreign exchange differences (105) (224)
---------- ------------
Balance at end of year 5,029 4,328
---------- ------------
20. INVENTORIES
Finished goods 360 249
Consumable stores 470 212
Other 235 278
Provision for obsolete inventory (23) (9)
---------- --------
1,042 730
---------- --------
The cost of inventories recognised as an expense during the year in respect of continuing operations was $262 thousand (2018: $3,433 thousand).
21. TRADE AND OTHER RECEIVABLES
Trade receivables 2,444 4,189
Other receivables 552 1,307
2,996 5,496
---------- ----------
The carrying amount of trade and other receivables approximate their fair value due to their short-term maturity.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables as disclosed above. The Group does not hold any collateral as security.
21. TRADE AND OTHER RECEIVABLES (CONTINUED)
Trade receivables inherently expose the Group to credit risk, being the risk that the Group will incur financial loss if customers fail to make payments as they fall due. In order to mitigate the risk of financial loss from defaults, the Group only deals with reputable customers with consistent payment histories. Each customer is analysed individually for creditworthiness before terms and conditions are offered. Customer credit limits are in place and are reviewed on a regular basis. The exposure to credit risk and the creditworthiness of customers is continuously monitored.
The average credit period on trade receivables is 30 days (2018: 30 days).
A loss allowance is considered for all trade receivables, in accordance with AASB 9 Financial Instruments, and is monitored at the end of each reporting period. The Group measures the possible loss allowance for trade receivables by applying the simplified approach which is prescribed by AASB 9. In accordance with this approach, the loss allowance on trade receivables is determined as the lifetime expected credit losses (ECLs) on trade receivables. To measure the ECLs, trade receivables are grouped based on shared credit risk characteristics and the days past due to identify non-performing receivables. In addition, forward-looking macro economic conditions and factors are considered when determining the ECLs for trade receivables, namely trading conditions in the regional coal user markets, as well as economic growth and inflationary outlook in the short-term. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, among others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for a period of greater than 90 days past due. Based on the year-end ECL assessment performed, no material loss allowance provision was required at the end of the financial year.
The estimation techniques explained have been applied for the first time in the current financial period, as a result of the adoption of AASB 9. Trade receivables were previously impaired only when there was objective evidence that the asset was impaired. The impairment was calculated as the difference between the carrying amount and the present value of the expected future cash flows. No provision for impairment of trade debtors was recognised at the end of the previous financial year. Upon adoption of AASB 9 at the start of the current financial year a reassessment of ECLs was performed on trade receivables an no material loss allowance was required.
No trade receivables were past due at the end of the current or previous financial year.
All trade receivables at the end of the current and previous financial year are denominated in South African Rand.
22. CASH AND CASH EQUIVALENTS
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Bank balances 8,811 10,931
8,811 10,931
------------------ ---------------
Restricted cash 68 84
68 84
------- -------
The restricted cash balance of $0.1 million (2018 - $0.1 million) is held on behalf of subsidiary companies mainly in respect of the rehabilitation guarantees issued to the DMR in respect of environmental rehabilitation costs of $6.3 million (2017: $6.3 million). This cash is not available for use other than for those specific purposes.
Credit risk
Cash at bank earns interest at a floating rate based on daily bank deposit rates. Cash is deposited at highly reputable financial institutions of a high quality credit standing within Australia, the United Kingdom and the Republic of South Africa.
The fair value of cash and cash equivalents equates to the values as disclosed in this note.
23. DEFERRED CONSIDERATION
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ----------------------
Deferred consideration 4,071 2,017
------------------ ----------------------
Balance at beginning of year 2,017 1,916
Deferred consideration on Khethekile 629 -
acquisition
Deferred consideration on the acquisition 2,527 -
of Lukin and Salaita
Repaid during the year - Khethekile (239) -
Interest accrued 162 374
Deferred finance charges (33) -
Fair value adjustment (839) -
Foreign Exchange (153) (273)
----------
Balance at end of year 4,071 2,017
---------- ----------
Current 1,406 2,017
Non-Current 2,665 -
----------
4,071 2,017
---------- ----------
The opening balance deferred consideration relates to a deferred amount of $2,017 thousand, inclusive of interest for the acquisition of PAR Coal from Pan African Resources Plc ("Pan African") on 30 June 2017. The amount bears interest at the South African prime rate and is due on 1 July 2019. The Company was entitled to prepay any amounts in respect of the deferred consideration at any time until 30 June 2019. To the extent that certain coal buy in opportunities were not secured by or with the assistance of Pan African, within 2 years from the effective date, which could result in MC Mining suffering a lower economic benefit, the deferred consideration could be reduced by such value, subject to a maximum of $1,300 thousand (ZAR15 million). During the period, it was assessed that these buy in opportunities had not materialised and a fair value adjustment was recognised and no further interest was accrued. The amount outstanding was paid on 1 July 2019.
Khethekile acquisition deferred consideration
During the period, as part of the acquisition of Khethekile (refer note 34), the transaction included a deferred consideration of $629 thousand (ZAR8,281 thousand) of the acquisition price. This amount is payable in monthly instalments of $25 thousand (ZAR350 thousand) over 27 months. There is no interest payable on the outstanding balance. This obligation has been accounted for using an effective interest rate of 11%.
Lukin and Salaita deferred consideration
The Company's subsidiary, Baobab Mining and Exploration (Pty) Ltd ("Baobab"), completed the acquisition of the properties Lukin and Salaita, the key surface rights required for its Makhado hard coking and thermal coal project for an acquisition price of $4,971 thousand (ZAR70,000 thousand). $2,485 thousand (ZAR35,000 thousand) of the acquisition price has been deferred to the earlier of:
-- the third anniversary of the transfer of the properties; or -- the first anniversary of production of coal underlying the properties; or
-- completion of a potential land claims and expropriation process. In terms of current legislation, this will result in Baobab receiving market related compensation and will be followed by negotiations with the Minister of Land Affairs and the successful claimants, who are shareholders in Baobab, for long-term access to the Properties.
The deferred consideration accrues interest at the South African prime interest rate (currently 10%) less 3.0%.
24. BORROWINGS
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Industrial Development Corporation of
South Africa Limited 12,782 10,191
Pan African Resources Management Services 1,363 -
(Pty) Ltd
Environmental and Process Technologies 154 -
(Pty) Ltd
------------------ ---------------
14,299 10,191
------------------ ---------------
Balance at beginning of year 10,191 8,197
PARMS loan acquired 1,550 -
Enprotec loan 579 -
Repayment - PARMS (231) -
Repayment Enprotec (461) -
Interest accrued 2,981 2,439
Deferred finance charges (1)
Foreign Exchange (309) (445)
-----------
Balance at end of year 14,299 10,191
----------- -----------
Industrial Development Corporation of South Africa Limited
The Company entered into a loan agreement (the "Loan Agreement") with the Industrial Development Corporation of South Africa Limited ("IDC") and Baobab Mining and Exploration Proprietary Limited ("Baobab"), a subsidiary of MC Mining and owner of the mining right for the Makhado Project ("the Project"). In terms of the Loan Agreement, the IDC will advance loan funding up to $17,042 thousand (ZAR240,000 thousand) to Baobab for use in the Project to advance the operations and implementation of the Project. Under the Loan Agreement, the loan funding is to be provided in two equal tranches of $8,521 thousand (ZAR120,000 thousand) upon written request from Baobab.
In May 2017, the first tranche was drawn down by the Company. This is repayable on the third anniversary of each advance. On the third anniversary, the Company is required to repay the loan amount plus an amount equal to the after tax internal rate of return equal to 16% of the amount of each advance.
MCM is also required to issue warrants under the Loan Agreement, in respect of MCM shares, to the IDC pursuant to each advance date as soon as the relevant shareholder approval is obtained. The warrants for the first draw down equates to 2.5% of the entire issued share capital of MCM as at 5 December 2016. This equated to 2,408,752 shares. The price at which IDC shall be entitled to purchase the MCM shares is equal to a thirty percent premium to the 30 day volume weighted average price of the MCM shares as traded on the JSE as at 5 December 2016 (ZAR12 per share post the share consolidation). The IDC is entitled to exercise the warrants for a period of five years from the date of issue.
Furthermore, upon each advance date, Baobab shall be required to issue new ordinary shares in Baobab to the IDC equivalent to 5% of the entire issued share capital of Baobab at such time. New ordinary shares equivalent to 5% in Baobab were issued to the IDC following the first advance.
If the second tranche of $8,521 thousand (ZAR120,000 thousand) is not required by Baobab and therefore not advanced by Baobab, the IDC may elect to exercise one of the following rights:
-- Baobab shall issue new ordinary shares in Baobab equivalent to 5% of the entire issued share capital of Baobab to the IDC for an aggregate subscription price of $4.3 million (ZAR60,000 thousand); or
-- Baobab shall issue ordinary shares in Baobab equivalent to 1% of the entire issued share capital of Baobab to the IDC for an aggregate share price of $0.07 (ZAR1); or
-- A penalty fee of $852 thousand (ZAR12,000 thousand) shall be paid to the IDC by Baobab.
The second tranche remains undrawn at the date of this report.
24. BORROWINGS (CONTINUED)
Pan African Resources Management Services (Pty) Ltd
As part of the acquisition of the underground mining equipment and liabilities of Khethekile (refer note 34), the Group assumed a loan of $1,458 thousand (ZAR20,539 thousand) from Pan African Resources Management Services (Pty) Ltd ("PARMS"). The loan bears interest at the South African Prime rate and is compounded monthly. It is repayable in 48 monthly instalments of approximately $39 thousand (ZAR543 thousand) per month.
Environmental and Process Technologies (Pty) Ltd ("Enprotec")
During the period, Uitkomst Colliery entered into an agreement with Enprotec for the supply and installation of an upgrade to modify its plant for the purchase price of $619 thousand (ZAR8,717 thousand). This was to facilitate the production of an additional high ash, coarse discard product. The purchase price is payable over 12 instalments of $52 thousand (ZAR726 thousand). This obligation has been accounted for using an effective interest rate of 11%.
25. PROVISIONS
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ----------------------
Employee provisions 350 378
Biodiversity offset provision 2,219 2,146
Rehabilitation provisions 4,531 3,503
----------------------
7,100 6,027
------------------ ----------------------
Employee provisions
The provision for employees represents unused annual leave entitlements.
Biodiversity offset provision
The Biodiversity offset agreement("BOA") was signed by the Department of Environmental Affairs ("DEA"), South African National Parks Board and the Company to the value of $3,905 thousand ( ZAR55,000 thousand ) over a 25 year period. The BOA commits the Company to pay $3,905 thousand (ZAR55,000 thousand ) to the South African National Parks Board over a period of 25 years. The following payment arrangement has been agreed:
Phase 1 - ZAR2,000 thousand paid in 2015
Phase 2 - ZAR15,000 thousand from year 2016 to 2021 (*ZAR2,500 thousand annually)
Phase 3 - ZAR13,000 thousand from year 2022 to 2028 (*ZAR1,8000 thousand annually)
Phase 4 - ZAR13,000 thousand from 2029 to 2033 (*ZAR2,600 thousand annually)
Phase 5 - ZAR12,000 thousand from 2034 to 2038 (*ZAR2,400 thousand annually)
*For the purpose of the present value calculation, these payments per phase have been assumed as equal annual payments and discounted at the South Africa inflation rate of 6%.
Rehabilitation provision
Balance at beginning of year 3,503 5,558
Unwinding of discount 355 427
Change in assumptions on rehabilitation
provisions 754 (2,337)
Foreign Exchange (81) (145)
------------
Balance at end of year 4,531 3,503
---------- ------------
25. PROVISIONS (CONTINUED)
The rehabilitation provision represents the current cost of environmental liabilities as at the respective year end. An annual estimate of the quantum of closure costs is necessary in order to fulfil the requirements of the DMR, as well as meeting specific closure objectives outlined in the mine's Environmental Management Programme ('EMP').
Although the ultimate amount of the obligation is uncertain, the fair value of the obligation is based on information that is currently available. This estimate includes costs for the removal of all-current mine infrastructure and the rehabilitation of all disturbed areas to a condition as described in the EMP.
The period assumed in the calculation of the present value of the obligation is the shorter of the remaining period of the mining licence and the aggregate of the construction period of the mine and the total estimated LOM.
The current estimate available is inflated by the South African inflation rate of 4.5% annually and the discount rate applied to establish the current obligation is a South Africa government bond rate at 30 June 2019 of 8.09% (2018: 9.25%) annually.
Due to the changes in assumptions the Vele Colliery and the Makhado Project had an increase in the present value of the environmental obligation while Uitkomst Colliery had a decrease in the present value of the environmental obligation.
The Makhado Project is still in Exploration phase and no formal decision to mine is currently in place.
Provisions have been analysed between current and non-current as follows:
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Current 536 569
Non-current 6,564 5,458
---------------
7,100 6,027
------------------ ---------------
26. DEFERRED TAX
Deferred tax liability 5,750 5,991
---------- ----------
The gross movement on the deferred tax account is as follows:
Balance at beginning of year 5,991 374
Provisions 6 (104)
Capital allowances (25) 225
Prepayments (11) -
Prior year adjustment (71) 92
Deferred tax asset de-recognised (1) - 5,816
Foreign Exchange (140) (412)
------------
Balance at end of year (5,750) (5,991)
------------ ------------
The deferred tax balances at year-end are represented by:
Deferred tax assets
Provisions 361 371
Prepayments 11 -
Balance at end of year 372 371
Deferred tax liabilities
Capital allowances on property plant
and equipment (6,122) (6,362)
------------ ------------
Balance at end of year (6,122) (6,362)
------------ ------------
Net deferred tax liabilities (5,750) (5,991)
------------ ------------
26. DEFERRED TAX (CONTINUED)
Deferred income tax assets are recognised for tax losses carried-forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Group did not recognise deferred income tax assets of $52,132 thousand (2018: $49,080 thousand) in respect of losses amounting to $51,012 thousand (2018: $47,580 thousand) and unredeemed capital expenditure of $133,626 thousand (2018: $126,937 thousand) that can be carried forward against future taxable income.
(1) The deferred tax asset balance at 30 June 2017 of $5,713 million, relating to the Vele Colliery, was derecognised in 2018. This decision was made due to the increased risk of recoverability of the deferred tax asset through future taxable earnings. This arises from the later commencement date of the Vele mine due to management's view of development of the SEZ and the prioritization of the Makhado Project. The charge to profit and loss was $5,816 thousand because of foreign exchange differences.
27. OTHER LIABILITIES
This liability relates to a retention agreement entered into with employees to provide a retention payment to encourage employees to remain with the Company, perform in a highly effective manner and proactively execute the commercial strategy that the Company employs.
28. TRADE AND OTHER PAYABLES
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Trade payables 1,777 1,395
Accrued expenses 6,199 4,942
Other 874 508
------------------ ---------------
8,850 6,845
------------------ ---------------
The average credit period is 30 days. Interest at the South African prime overdraft rate is charged on overdue creditors.
29. ISSUED CAPITAL
During the reporting period, there were no shares issued.
Fully paid ordinary shares
140,879,585 (2018: 140,879,585) fully
paid ordinary shares 1,040,950 1,040,950
Movements in fully paid ordinary shares Number $'000
---------------- --------------
At 30 June 2018 140,879,585 1,040,950
Shares issued - -
---------------- --------------
At 30 June 2019 140,879,585 1,040,950
---------------- --------------
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders meetings.
In the event of winding up of the Company ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation.
Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the Company does not have a limited amount of authorised capital and issued shares do not have a par value.
Share options granted
Share options granted under the Company's employee share option plan and performance rights carry no rights to dividends and no voting rights. Further details of the employee share option plan are provided in note 32.
30. ACCUMULATED DEFICIT
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Accumulated deficit at the beginning
of the financial year (851,535) (750,100)
Net loss attributed to Owners of the
Company (33,421) (101,413)
Transferred from share based payment 670 -
reserve
Dividend expense (11) (22)
------------------ ---------------
Accumulated deficit at the end of the
financial year (884,297) (851,535)
------------------ ---------------
31. RESERVES
Capital profits reserve 91 91
Share based payment reserve 2,234 2,052
Warrants reserve 1,134 1,134
Foreign currency translation reserve (28,060) (22,352)
------------- -------------
(24,601) (19,075)
------------- -------------
Movements for the year can be reconciled as follows:
Share-based payments reserve
Opening balance 2,052 713
Share options issued during the year 852 616
Share options cancelled/forfeited/expired (670) (161)
IFRS 2 Black economic empowerment charge 884
---------- ----------
Closing balance 2,234 2,052
---------- ----------
Foreign currency translation reserve
Opening balance (22,352) (20,473)
Exchange differences on translating
foreign operations (5,708) (2,393)
Sale of Mooiplaats Colliery - 514
------------- -------------
Closing balance (28,060) (22,352)
------------- -------------
Warrants reserve
Opening balance 1,134 1,134
Warrants issued - -
----------
Closing balance 1,134 1,134
---------- ----------
Nature and purpose of reserves:
Capital reserve
The capital profits reserve contains capital profits derived during previous financial years.
Share-based payment reserve
Share based payment reserve represent the value of unexercised share options and performance rights to directors and employees. It also includes IFRS2 Black Economic Empowerment charges.
Foreign currency translation reserve
The foreign currency translation reserve records the foreign currency differences arising from the translation of foreign operations.
31. RESERVES (CONTINUED)
Warrants reserve
The warrants reserve relates to the warrants issued to the IDC in terms of the Loan Agreement to advance funding to Baobab. Refer note 24.
32. SHARE-BASED PAYMENTS
Employee share option plan
The Group maintains certain Employee Share Option Plans ('ESOP's') for executives and senior employees of the Group as per the rules approved by shareholders on 30 November 2009. In accordance with the terms of the schemes, eligible executives and senior employees may be granted options to purchase ordinary shares. Share options have not been granted to employees.
Share options granted to Directors and Officers
The Group also grants share options to directors, officers, lenders and equity funders of the Group outside the ESOP. In accordance with the Group's policies, directors and officers may be granted options to purchase ordinary shares.
Share Option Terms, Vesting Requirements and Options Outstanding at 30 June 2019
Each option converts into one ordinary share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options hold no voting or dividend rights, and are not transferable. Upon exercise of the options the ordinary shares received rank equally with existing ordinary shares.
There were no share-based payments existing at 30 June 2019 due to the expiration of those that existed during the financial period ended 30 June 2019:
-- The Company finalised an 18-month, ZAR210 million working capital facility from Investec Bank Limited during October 2013 and announced that it would issue 20,000,000 options to Investec. The 20,000,000 shareholder approved options were issued on 30 January 2015 and have an exercise price of ZAR1.32 and expired on 21 October 2018. Upon conversion the shares would have ranked equally with existing shares, were not transferable and would have held no voting or dividend rights. Post the share consolidation in the 2018 financial year, Investec held 1,000,000 options.
-- On 27 November 2015, 1,000,000 options were awarded and vested to five independent non-executive directors at a price of GBP0.055 per option. The options expired on 27 November 2018. Upon conversion the shares would have ranked equally with existing shares, would have not been transferable and would have held no voting or dividend rights. Post the share consolidation in the 2018 financial year, the independent non-executive directors each held 50,000 options, totalling 250,000 options.
Fair value of share options granted during the year
There were no share options granted during the period.
Options were priced using a binomial option pricing model and the Black-Scholes option pricing model was used to validate the price calculated. Where relevant, the expected life used in the model has been adjusted based on management's best estimate of the effects of non-transferability, exercise restrictions (including the probability of meeting market conditions attached to the option), and behavioural considerations.
Expected volatility is calculated by Hoadley's volatility calculator for one, two and three year periods and a future estimated volatility level of 100% was used in the pricing model.
The total share based payment expense recognised in the current financial year is disclosed in the statement of changes in equity.
32. SHARE-BASED PAYMENTS (CONTINUED)
Movement in share options (post share consolidation)
Year ended Year ended
30 June 2019 30 June
2018
---------------- --------------
Options outstanding at beginning of
year 1,250,000 1,250,000
Options expired (1,250,000) -
Options outstanding at end of year - 1,250,000
---------------- --------------
Weighted average exercise price (A$) 1.40 1.40
Options exercisable - 1,250,000
Share options exercised during the year
No share options were exercised during the period.
Share options outstanding at the end of the year
The share options outstanding at the end of the year were NIL. The options in the prior year had a weighted average exercise price of A$1.40, post the share consolidation, and a weighted average contractual life of 0.32 years.
Performance Rights Plan
The Performance Rights factor in a hurdle rate based on the compound annual growth rate of total shareholder return across the period from the grant date. The Performance Rights were valued using a hybrid employee share option pricing model to simulate the total shareholder return of MC Mining at the expiry date using a Monte-Carlo model.
On 23 November 2018, 3,465,558 Performance Rights were issued to senior management.
Inputs into the model were as follows:
Performance rights
Spot 5 day VWAP ZAR7.5
Exercise price Nil
Expiry date 22 November 2021
Performance period 3.00
Risk free interest rate 7.28%
On 24 November 2017, 1,722,383 Performance Rights were issued to senior management.
Inputs into the model were as follows:
Performance rights
Spot 5 day VWAP ZAR8.8
Exercise price Nil
Expiry date 23 November 2020
Performance period 3.00
Risk free interest rate 8.09%
32. SHARE-BASED PAYMENTS (CONTINUED)
On 30 November 2016, 1,770,470 (post consolidation 35,409,403) Performance Rights were issued to senior management.
Inputs into the model for the prior financial year were as follows:
Performance rights
Spot 5 day VWAP ZAR12.6 (post share
consolidation)
Exercise price Nil
Expiry date 29 November 2019
Performance period 3.00
Risk free interest rate 8.24%
Performance Rights issued on 27 November 2015 expired during the current year on 1 December 2018
The total share based payment expense recognised in relation to the Performance Rights in the current financial year is $0.9 million (FY2018: $616 thousand).
Movement in Performance Rights (post consolidation)
Year ended Year ended
30 June 2019 30 June
2018
---------------- ----------------------
Performance rights outstanding at beginning
of year 3,832,467 2,781,767
Performance rights expired (1,027,209) -
Performance rights forfeited - (1,066,545)
Performance rights granted 3,465,556 2,117,245
----------------------
Performance rights outstanding at end
of year 6,270,814 3,832,467
---------------- ----------------------
33. NON-CONTROLLING INTEREST
Non-controlling interests comprise the following:
Freewheel Trade and Invest 37 Proprietary
Limited 575 575
Baobab non-controlling interest (486) (181)
----------
89 394
---------- ----------
34. BUSINESS COMBINATIONS
The underground operations at Uitkomst Colliery were historically undertaken by an independent mining contractor, Khethekile Mining (Pty) Ltd ("Khethekile"). During the period, Uitkomst acquired all of Khethekile's mining equipment, loans, trade payables, accrued expenses and took transfer of the Khethekile employees working at Uitkomst Colliery.
The acquisition of the Khethekile business was agreed to be settled as follows:
-- A cash consideration of $1,238 thousand (ZAR16,400 thousand) of which $521 thousand (ZAR6,900 thousand) was payable on closing and the balance, $717 thousand (ZAR9,500 million) payable in 27 monthly instalments
Fair value of assets and liabilities acquired:
1 August
2018
$'000
Non-current assets
Plant and equipment 5,008
Non-current liabilities
Loans 1,263
Finance lease liabilities 11
Current liabilities
Trade and other liabilities 1,479
Loans 1,024
Finance lease liabilities 81
-------------
1,150
-------------
Purchase consideration
1 August
2018
$'000
----------
Cash consideration paid 521
Cash consideration deferred 629
----------
1,150
----------
Goodwill
No goodwill arose on the acquisition of the assets, as the fair value of the assets were equivalent to the acquisition value of the assets.
35. FINANCIAL INSTRUMENTS
35.1. Capital management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged.
The capital structure of the Group consists of net deferred consideration and debt (as detailed in notes 23 and 24) (net of cash) and equity of the Group (comprising issued capital, reserves, retained earnings and non-controlling interests as detailed in notes 30 to 32).
The Group is not subject to any externally imposed capital requirements.
The Group's risk management committee reviews the capital structure of the Group on a semi-annual basis. As part of this review, the committee considers the cost of capital and the risks associated with each class of capital. The Group maintained its target-gearing ratio, determined as the proportion of net debt to equity, at 15%. This was to enable the Company to raise the loan from the IDC.
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Net debt (1) 9,559 1,277
Equity (2) 132,141 170,734
---------------
Debt to equity ratio 7% 0.7%
1. Debt is defined as long-term and short-term borrowings as described in notes 23 and 24 less unrestricted cash and cash equivalents.
2. Equity includes all capital and reserves of the Group that are managed as capital
35.2. Categories of financial instruments
The accounting policies for financial instruments have been applied to the line items below:
Financial assets
Other receivables 219 226
Trade and other receivables 2,996 5,496
Cash and cash equivalents 8,811 10,931
Restricted cash 68 84
Loan receivable - 7,236
Other Financial Assets 5,029 4,328
----------- -----------
Total financial assets 17,123 28,301
----------- -----------
Financial liabilities
Deferred consideration 4,071 2,017
Borrowings 14,298 10,191
Trade and other payables 8,850 6,845
----------- -----------
Total financial liabilities 27,219 19,053
----------- -----------
Fair value of financial assets and liabilities
The fair value of a financial asset or a financial liability is the amount at which the asset could be exchanged or liability settled in a current transaction between willing parties in an arm's length transaction. The fair values of the Group's financial assets and liabilities approximate their carrying values, as a result of their short maturity or because they carry floating rates of interest.
35. FINANCIAL INSTRUMENTS (CONTINUED)
All financial assets and liabilities recorded in the consolidated financial statements approximate their respective fair values.
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Level 1 to 3, based on the degree to which the fair value is observable.
Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities. The balances classed here are financial assets comprising deposits and listed securities (note 19).
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The financial assets classed as Level 2 comprise of investments with investment firms. These investments serve as collateral for rehabilitation guarantees. The fair value has been determined by the investment firms' fund statement (note 19).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.
There were no assets reclassified into / out of FVTPL during the year nor were any assets transferred between levels.
As at 30 June Level 1 Level Level 3 Total 2019 2 ------------------ ----------- ------ -------- ------ Financial assets at FVTPL 23 4,581 - 4,604 ------------------ ----------- ------ -------- ------ As at 30 June Level 1 Level Level 3 Total 2018 2 ------------------ ----------- ------ -------- ------ Financial assets at FVTPL 4 3,901 - 3,905
35.3. Financial risk management objectives
The Group's Corporate Treasury function provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk.
The Corporate Treasury function reports quarterly to the Group's risk management committee, an independent body that monitors risks and policies implemented to mitigate risk exposures.
35.4. Market risk
Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Australian dollar and the US dollar. Foreign exchange risk arises from future commitments, assets and liabilities that are denominated in a currency that is not the functional currency. Most of the Company's purchases are denominated in SA rand. However, certain items during the exploration, development and plant construction phase as well as long lead-capital items are denominated in US dollars, Euros or Australian dollars. These have to be acquired by the South African operating company due to the South African Reserve Bank's Foreign Exchange Control Rulings. This exposes the South African subsidiary companies to changes in the foreign exchange rates.
The Group's cash deposits are largely denominated in US dollar and SA rand. A foreign exchange risk arises from the funds deposited in US dollar which will have to be exchanged into the functional currency for working capital purposes.
The Group generally does not enter into forward sales, derivatives or other hedging arrangements to manage this risk.
35. FINANCIAL INSTRUMENTS (CONTINUED)
At financial period end, the financial instruments exposed to foreign currency risk movements are as follows:
Held in Held in Held in Total
Balances at 30 GBP AUD USD $'000
June 2019 $'000 $'000 $'000
----------------------- -------- -------- -------- -------
Financial assets
Cash and cash
equivalents (1) - 77 748 825
-------- -------- -------- -------
Total financial
assets - 77 748 825
-------- -------- -------- -------
(1) Cash includes
restricted cash
Financial liabilities
Trade and other
payables 12 102 25 139
Total financial
liabilities 12 102 25 139
-------- -------- -------- -------
Held in Held Held in Total
Balances at 30 GBP in AUD USD $'000
June 2018 $'000 $'000 $'000
----------------------- -------- -------- -------- -------
Financial assets
Cash and cash
equivalents (1) - 58 2,386 2,444
-------- -------- -------- -------
Total financial
assets - 58 2,386 2,444
-------- -------- -------- -------
(1) Cash includes
restricted cash
Financial liabilities
Trade and other
payables 1 12 - 13
Total financial
liabilities 1 12 - 13
-------- -------- -------- -------
The following table details the Group's sensitivity to a 10% increase and decrease in the US dollar against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year-end for a 10% change in foreign currency rates.
Impact on profit / (loss)
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Judgements on reasonable possible movements
USD/ZAR increase by 10% (69) (243)
USD/ZAR decrease by 10% 69 243
35. FINANCIAL INSTRUMENTS (CONTINUED)
35.5. Interest rate risk management
The Group's interest rate risk arises mainly from short-term borrowings, long-term borrowings, cash and bank balances and restricted cash. The Group has variable interest rate borrowings. Variable rate borrowings expose the Group to cash flow interest rate risk.
The Group has not entered into any agreements, such as hedging, to manage this risk.
The following table summarises the sensitivity of the financial instruments held at the reporting date, following a movement in variable interest rates, with all other variables held constant. The sensitivities are based on reasonably possible changes over a financial period, using the observed range of actual historical rates.
Impact on profit / (loss)
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- ---------------
Judgements on reasonable possible movements
Increase of 0.2% in interest rate 8 26
Decrease of 0.2% in interest rate (8) (26)
Increase of 1.0% in interest rate 38 130
Decrease of 1.0% in interest rate (38) (130)
The impact is calculated on the net financial instruments exposed to variable interest rates as at reporting date and does not take into account any repayments of short-term borrowings.
35.6. Credit risk
Credit risk is the risk that a contracting entity will not complete its obligation under a financial instrument that will result in a financial loss to the Group. The carrying amount of financial assets represents the maximum credit exposure. Receivable balances are monitored on an ongoing basis with the result that the Group's exposure to credit losses not being significant.
At year-end there is no significant concentration of credit risk represented in the cash and cash equivalents, restricted cash and trade accounts receivables balance. The Group manages its credit risk by predominantly dealing with counterparties with a positive credit rating.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.
35.7 Liquidity risk
The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet financial commitments in a timely and cost effective manner. The Group's Executive continually reviews the liquidity position including cash flow forecasts to determine the forecast liquidity position and maintain appropriate liquidity levels.
35. FINANCIAL INSTRUMENTS (CONTINUED)
The concentration of cash balances on hand in geographical areas was as follows:
United Kingdom Australia South Total
Balances at 30 June 2019 $'000 $'000 Africa $'000
$'000
---------------------------- --------------- ---------- -------- -------
Cash and cash equivalents
and restricted cash 748 77 8,054 8,879
--------------- ---------- -------- -------
748 77 8,054 8,879
--------------- ---------- -------- -------
United Kingdom Australia South Total
Balances at 30 June 2018 $'000 $'000 Africa $'000
$'000
---------------------------- --------------- ---------- -------- -------
Cash and cash equivalents
and restricted cash 2,386 58 8,571 11,015
--------------- ---------- -------- -------
2,386 58 8,571 11,015
--------------- ---------- -------- -------
The contractual maturities of the Group's financial assets and liabilities at the reporting date were as follows:
Less than Between Greater than Total
6 months 6 - 12 months 12 months
Balances at 30 June $'000 $'000 $'000 $'000
2019
----------------------------- ---------- --------------- ------------- -------
Deferred consideration
(1) 1,257 149 3,206 4,612
Borrowings (1) 310 15,968 898 17,176
Trade and other payables 6,843 - - 6,843
---------- --------------- ------------- -------
8,410 16,117 4,104 28,631
---------- --------------- ------------- -------
Less than Between Greater than Total
6 months 6 - 12 months 12 months
Balances at 30 June $'000 $'000 $'000 $'000
2019
----------------------------- ---------- --------------- ------------- -------
Other Receivables - - 219 219
Trade and Other Receivables 2,996 - - 2,996
Cash and Cash Equivalents 8,811 - - 8,811
Restricted Cash - - 68 68
Other financial assets 23 - 4,995 5,018
----------------------------- ---------- --------------- ------------- -------
11,830 5,282 17,112
----------------------------- ---------- --------------- ------------- -------
1. Interest bearing at rates between
7 % and 22.2 %
35. FINANCIAL INSTRUMENTS (CONTINUED)
Less than Between Greater than Total
6 months 6 - 12 months 12 months
Balances at 30 June $'000 $'000 $'000 $'000
2018
----------------------------- ---------- --------------- ------------- -------
Deferred consideration
(1) - 2,228 - 2,228
Borrowings (1) - - 14,587 14,587
Trade and other payables 6,845 - - 6,845
---------- --------------- ------------- -------
6,845 2,228 14,587 23,660
---------- --------------- ------------- -------
Less than Between Greater than Total
6 months 6 - 12 months 12 months
Balances at 30 June $'000 $'000 $'000 $'000
2018
----------------------------- ---------- --------------- ------------- -------
Other Receivables - - 226 226
Loan receivables 1,645 1,645 4,935 8,225
Trade and Other Receivables 5,502 - - 5,502
Cash and Cash Equivalents 10,931 - - 10,931
Restricted Cash - - 84 84
Other financial assets 4 - 5,453 5,457
----------------------------- ---------- --------------- ------------- -------
18,082 1,645 10,698 30,425
----------------------------- ---------- --------------- ------------- -------
1. Interest bearing at rates between
10.25 % and 22.2 %
36. NOTES TO THE STATEMENT OF CASH FLOWS
Reconciliation of cash
For the purposes of the consolidated statement of cash flows, cash and cash equivalents include cash on hand and in banks, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the reporting period as shown in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of financial position as follows:
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- --------------
Cash and bank balances 22 8,811 10,931
36. NOTES TO THE STATEMENT OF CASH FLOWS (CONTINUED)
Reconciliation of loss before tax to net cash used in operations
Year ended Year ended
30 June 2019 30 June
2018
$'000 $'000
------------------ ------- -----------------
Loss before tax (continuing and discontinuing
operations) (33,522) (94,858)
Add back:
Depreciation 2,318 1,504
Net impairment expense 21,916 84,355
Share-based payment 852 1,343
Bad debt written off 1,100 59
Employee incentive - 1,289
Fair value adjustment (839) -
Re-valuation of investments (82) (294)
Movement in provisions (31) (105)
Finance costs (net) 4,639 2,394
Disposal of assets (904) (10)
Foreign exchange loss/(gains) on operating
activities (244) 2,211
Changes in working capital:
Increase in inventories (401) 938
Decrease in trade and other receivables 1,656 728
Decrease in trade and other payables (1,735) 2,448
------------------ ---------------
Cash used in operations (5,277) 2,002
------------------ ---------------
37. CONTINGENCIES AND COMMITMENTS
Contingent liabilities
The Group has no significant contingent liabilities at the reporting date.
Commitments
In addition to the commitments of the parent entity as disclosed under note 41, subsidiary companies have typical financial commitments associated with their MR's granted by the South African DMR.
38. RELATED PARTY DISCLOSURES
The aggregate compensation made to directors and other members of key management personnel of the Company and the Group is set out below:
Short-term employee benefits 1,347 1,308
Post-employment benefits 4 4
Termination benefits - 178
Share-based payments 328 273
----------
1,679 1,763
---------- ----------
The Group has not provided any of its key management personnel with loans.
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.
39. CONTROLLED ENTITIES
Particulars in relation to controlled entities.
Year Year
ended ended
30 June 30 June
2019 2018
Country
of incorporation % %
Bakstaan Boerdery Proprietary Limited * South Africa 100 100
Baobab Mining & Exploration Proprietary
Limited**
Chapudi Coal Proprietary Limited ***
Coal of Africa & ArcelorMittal Analytical
Laboratories Proprietary Limited
Cove Mining NL
Freewheel Trade and Invest 37 Proprietary
Limited
Fumaria Property Holdings Proprietary
Limited
Golden Valley Services Proprietary Limited South Africa 95 95
GVM Metals Administration (South Africa) South Africa 74 74
Proprietary Limited South Africa 50 50
Harrisia Investments Holdings Proprietary Australia 100 100
Limited South Africa 74 74
Kwezi Mining Exploration Proprietary Limited South Africa 100 100
*** Australia 100 100
Limpopo Coal Company Proprietary Limited South Africa 100 100
Makhado Centre of Learning NPC** South Africa 100 100
MbeuYashu Proprietary Limited South Africa 74 74
Newshelf 1384 Proprietary Limited South Africa 100 100
Nyambose Mining Proprietary Limited South Africa 95 95
Pan African Resources Coal Holdings Proprietary South Africa 74 74
Limited South Africa 100 100
Regulus Investment Holdings Proprietary South Africa 100 100
Limited South Africa 100 100
Silkwood Trading 14 Proprietary Limited South Africa 100 100
Tshikunda Mining Proprietary Limited**** South Africa 100 100
Tshipise Energy Investments Proprietary South Africa - 60
Limited**** South Africa - 50
Uitkomst Colliery Proprietary Limited South Africa 100 100
------------------------------------------------------ -------------------- --------- ---------
* Subsidiary company of Fumaria Property Holdings
Proprietary Limited
** 69% on completion of the Makhado Project BBBEE transactions
*** Subsidiary companies of MbeuYashu Proprietary Limited
**** Sold during the year
40. EVENTS AFTER THE REPORTING PERIOD
IDC Debt Funding Secured
The IDC approved a term loan facility (the "Term Loan") to fund the construction of Phase 1 of the Makhado Project.
The salient features of the Term Loan are, subject to documentation:
-- the IDC will advance $17,397 thousand (ZAR245,000 thousand) to MC Mining;
-- draw-down can take place any time before 30 June 2021 and the Loan will endure for a period of seven years following draw-down;
-- coupon of the South African Prime interest rate (currently 10%) plus a margin that reflects the significant progress made on Makhado as well as the increased confidence that the IDC has in the execution of the project; and
-- capital repayments will only commence 24 months after the first draw-down and will be repaid in 20 equal quarterly instalments.
The Loan is subject to various conditions precedent including:
-- MC Mining issuing additional equity to shareholders for a minimum of $14,201 thousand (ZAR 200,000 thousand); and
-- settlement of the existing 2017 loan facility between the IDC, MC Mining and Baobab, which at 30 June 2019 amounted to $13,116 thousand (ZAR 184,700 thousand), and termination of all agreements in this regard.
Sale of land in Harrisia Investments Holdings Proprietary Limited ("Harrisia")
Subsequent to year-end, the Company finalised the sale of land and buildings held by its subsidiary Harrisia. These land and buildings were classified as assets held for sale at 30 June 2019.
41. PARENT ENTITY FINANCIAL INFORMATION
Parent entity
Year ended Year ended
30 June 30 June
2019 2018
$'000 $'000
Summary financial information
Non-current assets 133,026 171,397
Current assets 886 2,051
----------- -----------
Total assets 133,912 173,448
----------- -----------
Non-current liabilities - 2,017
Current liabilities 1,771 697
----------- -----------
Total liabilities 1,771 2,714
----------- -----------
Net assets 132,141 170,734
----------- -----------
Shareholders' Equity
Issued capital 1,040,950 1,040,950
Accumulated deficit and reserves (908,809) (870,216)
132,141 170,734
----------- -----------
Profit/(Loss) for the year (23,871) (110,839)
----------- -----------
Total comprehensive loss (23,871) (110,839)
----------- -----------
41. PARENT ENTITY FINANCIAL INFORMATION (CONTINUED)
Contingencies and commitments
-- MC Mining has subordinated all loans to subsidiary companies
-- MC Mining has provided surety for the IDC borrowing facility entered into by Baobab (refer note 24)
MC MINING LIMITED
AUDIT OPINION
Independent auditor's report
To the members of MC Mining Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of MC Mining Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including:
(a) giving a true and fair view of the Group's financial position as at 30 June 2019 and of its financial performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
-- the consolidated statement of financial position as at 30 June 2019 -- the consolidated statement of changes in equity for the year then ended -- the consolidated statement of cash flows for the year then ended
-- the consolidated statement of profit or loss and other comprehensive income for the year then ended
-- the notes to the consolidated financial statements, which include a summary of significant accounting policies
-- the directors' declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
Material uncertainty related to going concern
We draw attention to Note 1 in the financial report, which indicates that the Group incurred a net loss of US$33,726 thousand during the year ended 30 June 2019 and a net cash outflow from operating
activities of US$5,412 thousand. The Group is dependent on obtaining additional financing or raising additional capital in the next 12 months to enable it to continue its normal business activities, including progression of Phase 1 of the Makhado project and its subsequent ramp-up to planned levels of production. These conditions, along with other matters set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates.
* For the purpose of our audit we used overall Group * Our audit focused on where the Group made subjective * Amongst other relevant topics, we communicated the
materiality of US$1,700 thousand, which represents judgements; for example, significant accounting following key audit matters to the Audit and Risk
approximately 1% of the Group's total assets. estimates involving assumptions and inherently Committee:
uncertain future events.
* We applied this threshold, together with qualitative * Impairment assessment of Exploration and evaluation
considerations, to determine the scope of our audit * Given that the Group's main operations, management assets, Development assets and Property, plant and
and the nature, timing and extent of our audit and accounting records are located in South Africa, equipment.
procedures and to evaluate the effect of local auditors in South Africa assisted in performing
misstatements on the financial report as a whole. audit procedures.
* These are further described in the Key audit matters
section of our report, except for the matter which i
* We chose the Group's total assets, as in our view, i s
t described in the material uncertainty related to
is the metric which reflects the key focus of users going concern section.
of the financial report.
* We utilised a 1% threshold based on our professional
judgement, noting it is within the range of commonly
acceptable thresholds.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context.
In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matter described below to be the key audit matters to be communicated in our report.
Impairment assessment of Exploration and
evaluation assets, Development assets and
Property,
plant and equipment. We performed the following procedures amongst others:
(Refer to note 3.1, 15, 16 and 17) * Evaluated the Group's assessment of whether there
At 30 June 2019, the Group held Exploration and were indicators of asset impairment by comparing the
evaluation assets of US$94,871 thousand, Group's net asset value with its market
Development capitalisation and considering trends in thermal and
assets of US$26,919 thousand and Property, plant hard coking coal prices. This led us to focus on all
and equipment assets of $32,713 thousand. CGU's, given the pervasive nature of these
The Group considered whether there were any indicators.
indicators of impairment for any individual
assets
or cash generating units (CGU's). * Assessed whether the division of the Group's
Exploration and evaluation assets, Development assets
Indicators of possible impairment were identified and Property, plant and equipment assets into CGUs,
by the Group for all CGUs due to the carrying which are the smallest identifiable groups of assets
amount of the Group's net asset value being that can generate largely independent cash inflows,
higher than its market capitalisation and was consistent with our knowledge of the Group's
commodity operations and internal Group reporting.
prices having declined.
Australian Accounting Standards require the * Assessed whether the CGUs included assets,
carrying value of assets tested for impairment liabilities and cash flows directly attributable to
to be compared to their recoverable amount. The each CGU and a reasonable allocation of corporate
Group estimated the recoverable amount for assets and overheads.
all CGUs based on 'fair value less costs of
disposal' assessments. The recoverable amount
was determined from a combination of discounted
cash flow models and valuation of mineral * Obtained the Group's 'fair value less cost of
resources based on recent comparable market disposal' assessments for all CGU's and considered if
transactions. the impairment models were consistent with the
requirements of Australian Accounting Standards.
As described in note 15, the Group has recognised
impairment charges in relation to the Makhado
Project of US$23,268 thousand during the year * Tested the mathematical accuracy of the discounted
ended 30 June 2019. cash flow models used by the Group.
This was a key audit matter because of the
significant judgement required by the Group in * Compared key market related assumptions used in the
estimating the recoverable amounts of the CGUs, discounted cash flow models, including thermal and
and the financial significance of the impairment hard coking coal prices as well as forecast South
charge. African Rand versus United States Dollar exchange
rates to a range of observable external forecasts
developed by market analysts.
* Evaluated the discount rates used in the discounted
cash flow models by calculating a range of weighted
average cost of capital discount rates using relevant
comparable third-party sources and market data such
as the cost of debt, risk-free rates, market risk
premiums, debt to equity ratios and betas of
comparable companies.
* Considered whether the Group's assumptions related to
production volumes and operating cash outflows used
in the discounted cash flow models were consistent
with the Group's mine plans and operating budgets, as
well as actual performance outcomes achieved to date
(where applicable).
* Considered recent comparable transactions in the
South African coal industry supporting the resource
multiple values used to evaluate the recoverable
amount.
* Considered the Group's sensitivity analysis on the
key assumptions used in the discounted cash flow
models to assess under which assumptions an
impairment would occur and whether this was
reasonably possible.
* Evaluated the adequacy of the disclosures made in
note 3.1, including those regarding the key
assumptions and sensitivities to changes in such
assumptions in light of the requirement of Australian
Accounting Standards.
================================================== ==================================================================
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2019, but does not include the financial report and our auditor's report thereon. Prior to the date of this auditor's report, the other information we obtained included the Directors' report. We expect the remaining other information to be made available to us after the date of this auditor's report.
Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 12 to 20 of the directors' report for the year ended 30 June 2019.
In our opinion, the remuneration report of MC Mining Limited for the year ended 30 June 2019 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.
PricewaterhouseCoopers
Douglas Craig Perth Partner 30 September 2019
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR KMGFLVGKGLZG
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