ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

Page

 

 

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 Pryor

Independent Non-Executive Chairman

 

Mr Pryor is a Chartered 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 and Chief Executive Officer

 

 

 

 

Mr Brown is a Chartered Accountant (CA (SA)) and 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 and Chief Financial Officer

Ms Berlin was appointed as CFO and Executive Director 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 Mifflin

Independent Non-Executive Director

 

Mr Mifflin obtained his 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 Mosehla

Independent Non-Executive Director

Mr Mosehla is a CA (SA) 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 Cordin

Independent Non-Executive Director

Mr Cordin has a Bachelor 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 Director

 

Sam Randazzo began his career 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 Mosololi

 

 

 

Independent Non-Executive Director

Mr Mosololi is a CA (SA) 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

Northam Platinum Limited

2012 - Present

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

Zambezi Platinum Limited

2015 - Present

2015 - Present

Peter Cordin

Vital Metals Limited

Aurora Minerals Limited

2009 - Present

2014 - Present

Sebastiano Randazzo

Bardoc Gold Limited

October 2018 - March 2019

Shangren Ding

None

 

Thabo Mosololi

Evraz Highveld Steel & Vanadium Limited

Pan African Resources PLC

2013 - 2015

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:

Net impairment expense of $21,916 thousand (FY2018: impairment of the Vele assets of $87,475 thousand)

depreciation and amortisation of $2,186 thousand (FY2018: $1,504 thousand)

share based payment expense of $852 thousand (FY2018: $1,343 thousand)

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 under performance rights

Class of shares

Exercise price

Expiry date

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 Risk Committee Meetings

Nomination and Remuneration Committee Meetings

Safety, Health and Environment Committee 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

30 June 2019

$'000

Year ended

30 June 2018

$'000

Year ended

30 June 2017

$'000

Year ended

30 June 2016

$'000

Year ended

30 June 2015

$'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 year (1)

A$0.36

A$0.05

A$0.06

A$0.09

A$0.07

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 benefits

 

Share-based payments

Total

Share based % of Total

2019

Salary and fees

Bonus

 

Non -monetary benefits

Super-annuation

Termination benefits

Options / Shares

 

 

 

$

$

$

$

$

$

$

%

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 benefits

 

Share-based payments

Total

Share based % of Total

2018

Salary and fees

Bonus

 

Non -monetary benefits

Super-annuation

Termination benefits

Options / Shares

 

 

 

$

$

$

$

$

$

$

%

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:

Option series

Number

Grant date

Expiry date

Exercise price

Grant date value

Vesting 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

 

 

                       Name

Option series

Number granted

Number vested

% of grant vested

% of grant forfeited

% of compensation for the year consisting of 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

1 July 2018

Granted as remuneration

Exercised

Expired/Other changes

Held at

30 June 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            1 July 2018

Granted as remuneration

Exercised

Expired/Other changes

Held at              30 June 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

1 July 2018

Granted as remuneration

Exercised

Expired/Other changes(1)

Held at

30 June 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

PricewaterhouseCoopers

 

30 September 2019

 

 

 

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

30 June 2019

 

Year ended

30 June 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 sale

 

939

 

-

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 capital

Accumulated deficit

Share based payment reserve

Capital profits reserve

Warrants reserve

Foreign currency translation reserve

Attributable to owners of the parent

Non-controlling interests

Total equity

 

$'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

 30 June 2019

 

Year ended

 30 June 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 activities

 

(1,070)

 

-

 

 

 

 

 

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:

Financial instrument

Classification in terms of AASB 139

Classification in terms 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 assets

Fair Value Through Profit or Loss

Fair Value Through Profit 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:

Title of standard

Nature of change

Impact

Mandatory application date/ Date of adoption by Group

AASB 16

Leases

AASB 16 was issued in February 2016. It will result in almost all leases being recognized on the balance sheet, as the distinction between operating and finance leases is removed for lessees. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognized. The exceptions are short-term and low-value leases.

The standard will affect primarily the accounting for the Group's operating leases.

As at the reporting date, the present value of the Group's future operating lease commitments amounted to of $580 thousand. Some of these operating leases are covered by the exception for short-term and low-value leases.   The impact of adopting AASB 16 on 1 July 2019 will therefore not be material to the Group.

 

Mandatory for financial years commencing on or after 1 January 2019. The Group does not intend to adopt the standard before its effective date.

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$ per ton)

$138

(i)

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 (SA Rand per ton)

ZAR1- ZAR5

(v)

 

(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 Collierty

Vele Colliery

Makhado Project

 

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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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 right

1,174

 

-

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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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 share

 

 

Cents per 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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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 for sale

(607)

 

-

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

702

Hard coking coal price (USD, nominal)3

153

135

129

125

1294

Exchange rate (USD / ZAR, nominal)

12.7

12.5

13.2

14.3

15.05

Discount rate6

16.75%

Inflation rates    USD

2.1%

                          ZAR

5.1%

Production start date7

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 property, plant and equipment

Mining rights

Land and buildings

Leasehold improvements

Motor vehicle

Other

Total

 

$'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 property, plant and equipment

Mining rights

Land and buildings

Leasehold improvements

Motor vehicle

Other

Total

 

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'000

Deferred consideration

4,071

 

2,017

 

Balance at beginning of year

2,017

 

1,916

Deferred consideration on Khethekile acquisition

629

 

-

Deferred consideration on the acquisition of Lukin and Salaita

2,527

 

-

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

30 June 2019

$'000

 

Year ended

30 June 2018

$'000

Industrial Development Corporation of South Africa Limited

12,782

 

10,191

Pan African Resources Management Services (Pty) Ltd

1,363

 

-

Environmental and Process Technologies (Pty) Ltd

154

 

-

 

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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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 reserve

670

 

-

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

30 June 2019

 

Year ended

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

30 June 2019

 

Year ended

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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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 2019

Level 1

Level 2

Level 3

Total

Financial assets at FVTPL

23

4,581

-

4,604

 

 

 

 

 

As at 30 June 2018

Level 1

Level 2

Level 3

Total

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:

 

Balances at 30 June 2019

Held  in GBP

$'000

Held in AUD

$'000

Held in USD

$'000

Total

$'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

 

 

Balances at 30 June 2018

Held  in GBP

$'000

Held in AUD

$'000

Held in USD

$'000

Total

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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:

 

Balances at 30 June 2019

United Kingdom

$'000

Australia

$'000

South Africa

$'000

Total

$'000

 

 

 

 

 

Cash and cash equivalents and restricted cash

748

77

8,054

8,879

 

748

77

8,054

8,879

 

 

Balances at 30 June 2018

United Kingdom

$'000

Australia

$'000

South Africa

$'000

Total

$'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:

 

 

Balances at 30 June 2019

Less than 6 months

$'000

Between 6 - 12 months

$'000

Greater than 12 months

$'000

Total

 

$'000

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

 

 

 

 

 

 

Balances at 30 June 2019

Less than 6 months

$'000

Between 6 - 12 months

$'000

Greater than 12 months

$'000

Total

 

$'000

Other Receivables

-

-

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)

 

 

Balances at 30 June 2018

Less than 6 months

$'000

Between 6 - 12 months

$'000

Greater than 12 months

$'000

Total

 

$'000

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

 

 

 

 

 

 

Balances at 30 June 2018

Less than 6 months

$'000

Between 6 - 12 months

$'000

Greater than 12 months

$'000

Total

 

$'000

Other Receivables

-

-

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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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.

 

 

 

 

 

Country of incorporation

Year ended 30 June 2019

%

Year ended 30 June 2018

%

 

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

GVM Metals Administration (South Africa) Proprietary Limited

Harrisia Investments Holdings Proprietary Limited

Kwezi Mining Exploration Proprietary Limited ***

Limpopo Coal Company Proprietary Limited

Makhado Centre of Learning NPC**

MbeuYashu Proprietary Limited

Newshelf 1384 Proprietary Limited

Nyambose Mining Proprietary Limited

Pan African Resources Coal Holdings Proprietary Limited

Regulus Investment Holdings Proprietary Limited

Silkwood Trading 14 Proprietary Limited

Tshikunda Mining Proprietary Limited****

Tshipise Energy Investments Proprietary Limited****

Uitkomst Colliery Proprietary Limited

 

South Africa

South Africa

South Africa

Australia

South Africa

South Africa

Australia

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

95

74

50

100

74

100

100

100

100

74

100

95

74

100

100

100

100

100

-

-

100

95

74

50

100

74

100

100

100

100

74

100

95

74

100

100

100

100

100

60

50

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

30 June 2019

$'000

 

Year ended

30 June 2018

$'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 materiality of US$1,700 thousand, which represents approximately 1% of the Group's total assets.

·      We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.

·      We chose the Group's total assets, as in our view, it is the metric which reflects the key focus of users of the financial report.

 

 

 

 

 

·      We utilised a 1% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds.

·     Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events.

·     Given that the Group's main operations, management and accounting records are located in South Africa, local auditors in South Africa assisted in performing audit procedures.

·    Amongst other relevant topics, we communicated the following key audit matters to the Audit and Risk Committee:

-       Impairment assessment of Exploration and evaluation assets, Development assets and Property, plant and equipment.

·    These are further described in the Key audit matters section of our report, except for the matter which is described in the material uncertainty related to going concern section.

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.

(Refer to note 3.1, 15, 16 and 17)

At 30 June 2019, the Group held Exploration and evaluation assets of US$94,871 thousand, Development assets of US$26,919 thousand and Property, plant and equipment assets of $32,713 thousand. The Group considered whether there were any indicators of impairment for any individual assets or cash generating units (CGU's).

 

Indicators of possible impairment were identified by the Group for all CGUs due to the carrying amount of the Group's net asset value being higher than its market capitalisation and commodity prices having declined.

 

Australian Accounting Standards require the carrying value of assets tested for impairment to be compared to their recoverable amount. The Group estimated the recoverable amount for 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 resources based on recent comparable market transactions.

 

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 ended 30 June 2019.

 

This was a key audit matter because of the significant judgement required by the Group in estimating the recoverable amounts of the CGUs, and the financial significance of the impairment charge.

 

 

 

 

We performed the following procedures amongst others:

·      Evaluated the Group's assessment of whether there were indicators of asset impairment by comparing the Group's net asset value with its market capitalisation and considering trends in thermal and hard coking coal prices.  This led us to focus on all CGU's, given the pervasive nature of these indicators.

·      Assessed whether the division of the Group's Exploration and evaluation assets, Development assets and Property, plant and equipment assets into CGUs, which are the smallest identifiable groups of assets that can generate largely independent cash inflows, was consistent with our knowledge of the Group's operations and internal Group reporting.

·      Assessed whether the CGUs included assets, liabilities and cash flows directly attributable to each CGU and a reasonable allocation of corporate assets and overheads.

 

·      Obtained the Group's 'fair value less cost of disposal' assessments for all CGU's and considered if the impairment models were consistent with the requirements of Australian Accounting Standards.

·      Tested the mathematical accuracy of the discounted cash flow models used by the Group.

·      Compared key market related assumptions used in the discounted cash flow models, including thermal and hard coking coal prices as well as forecast South 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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