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Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Issued 08 March 2021

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

ntents
	Page
Directors' Responsibilities and Approval	2
CEO and FD's responsibility statement	3
Company Secretary’s Certification	4
Report of the Audit and Risk Committee	5-8
Directors' Report	9 - 14
Independent Auditor's Report	15
Statement of financial position	19
Statement of profit or loss and other comprehensive income	20
Statement of changes in equity	21
Statement of cash flows	22
Significant Accounting Policies	23 - 37
Notes to the audited annual financial statements	38 - 82
Shareholder Information	83 - 84

The following individuals were responsible for the preparation of the annual financial statements:

Masechaba Masemola CA(SA)

Financial Manager

Ditabe Chocho CA(SA)

Financial Director

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(Registration number 1987/003452/06)

Audited Consolidated �nd Separate Annual Financial Statements for the year ended 31 December 2020

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The directors are required in terms of the Companies Act of South Africa to maintain adequate accounting records and are responsible for the content and integrity of the consolidated and separate annual financial statements and related financial information included in this report. It is their responsibility to ensure that the consolidated and separate annual financial statements fairly present the state of affairs of the Group and Company as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards the requirements of International Financial Reporting Standards (IFRS), interpretations by the International Financial Reporting Interpretations Committee (IFRIC), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee (APC), the Financial Pronouncements as issued by Financial Reporting Standards Council, the JSE Limited Listing Requirements and the requirements of the Companies Act 2008 of South Africa.

The annual financial statements are prepared in accordance with International Financial Reporting Standards and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the Group and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the Board sets standards for internal control aimed at reducing the risk of error or loss in a cost-effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the Group and all employees are required to maintain the highest ethical standards in ensuring the Group’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the Group is on identifying, assessing, managing and monitoring all known forms of risk across the Group. While operating risk cannot be fully eliminated, the Group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.

The directors are of the opinion that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The directors confirm that the Company is in compliance with the provisions of the Companies Act, specifically relating to its incorporation and operates in compliance with its memorandum of incorporation.

The directors have reviewed the Group’s cash flow forecast for the 12 months from date of issue of the financial statements and, in light of this review which includes an evaluation and expected impact of the COVID-19 pandemic on the Group and the current financial position, they are satisfied that the Group has or had access to adequate resources to continue in operational existence for the foreseeable future.

The external auditors are responsible for independently auditing and reporting on the Group's consolidated and separate annual financial statements. The annual financial statements have been examined by the Group's external auditors and their report is presented on page 15.

The annual financial statements set out on pages � to 82, which have been prepared on the going concern basis, were approved by the Board on 05 March 2021 and were signed on their behalf by:

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(Registration number 1987/003452/06)

Audited Consolidated �nd Separate Annual Financial Statements for the year ended 31 December 2020

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The directors, whose names are stated below hereby confirm that:

the annual financial statements set out on pages 4 to 82, fairly present in all material respects the financial position, financial performance and cash flows of Merafe Resources Limited in terms of IFRS;
no facts have been omitted or untrue statements made that would make the annual financial statements false or misleading;
internal financial controls have been put in place to ensure that material information relating to Merafe Resources Limited and its consolidated subsidiaries has been provided to effectively prepare the financial statements of Merafe Resources Limited; and
the internal financial controls are adequate and effective and can be relied upon in compiling the annual financial statements, having fulfilled our role and function within the combined assurance model pursuant to principle 15 of the King Code. Where we are not satisfied, we have disclosed to the Audit and Risk Committee and the auditors the deficiencies in design and operational effectiveness of the internal financial controls and any fraud that involves directors, and have taken the necessary remedial action.

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In addition to the above, the directors confirm that remedial action in respect of the deficiencies reported to the Audit and Risk Committee and the auditors referred to above has begun and is ongoing.

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(Registration number 1987/003452/06)

Audited Consolidated �nd Separate Annual Financial Statements for the year ended 31 December 2020

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In terms of Section 88(2)(e) of the Companies Act of South Africa, as amended, I certify that the Company has lodged with the Commissioner all such returns as are required of a public company in terms of the Act and that all such returns are true, correct and up to date.

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(Registration number 1987/003452/06)

Audited Consolidated �nd Separate Annual Financial Statements for the year ended 31 December 2020

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This report is provided by the Audit and Risk Committee (the Committee) appointed in respect of the 2020 financial year of Merafe Resources Limited (Merafe).

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The Committee is pleased to present its report for the financial year ended 31 December 2020. The Committee confirms that it has adopted formal terms of reference as its Audit and Risk Committee Charter (the Charter), and that it has discharged all of its responsibilities for the current financial year, in compliance with the Charter. The report has been prepared based on the requirements of the South African Companies Act, No 71 of 2008, as amended (Companies Act), King IV Report on Corporate Governance for South Africa, 2016 (King IV Code/King IV), the JSE Limited Listings Requirements (Listings Requirements) and other applicable regulatory requirements. The report provides an overview of the work done by the Committee during the year under review.

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The overall objectives of the Committee are to:

Assess the adequacy of the internal financial controls and the accounting systems, including the Company's authority framework;
Review the summarised financial statements, interim financial statements and annual financial statements and recommend these to the Merafe board of directors (Board) for approval;
Assess and evaluate the Company's combined assurance and provide independent oversight the effectiveness on that;
Nominate the external auditor who in the opinion of the Committee is considered independent for appointment, determine and approve external audit fees, set the Company and its subsidiaries’ (the Group) policy on nonaudit services provided by the external auditor and ensure that the appointment complies with legislation;
Monitor compliance with legal requirements and debt covenants;
Recommend budgets and plans to the Board;
Consider and recommend to the Board any dividend;
Conduct periodic reviews and assessments of the business risks the Group faces by considering Merafe's and the Glencore Merafe Pooling and Sharing Venture (Venture) risk reports;
Assess the impact of COVID-19 by reviewing monthly accounts with emphasis on cash flows and availability of borrowing facilities;
Receive and deal with any concerns from within, outside the Company or on its own initiative in relation to accounting practices, internal audit of the Company or any related matter and ensure that all issues are addressed;
Make submissions to the Board on any matter concerning the Company’s accounting policies, financial control, records and reporting. This includes a review of key matters requiring judgement such as impairment;
Review the Company’s related party transactions;
Perform duties that are attributed to it by the Act, the Johannesburg Stock Exchange (JSE) and King IV Code; and
Consider the JSE’s proactive monitoring reports.

The objectives of the Committee were adequately met during the year under review.

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The Committee consists of three independent non-executive directors, all of whom have the necessary qualifications and experience to execute their responsibilities, with two members forming a quorum.

The members of the Committee are all independent non-executive directors of the Group and include:

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(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

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Ms M Vuso (Chairman)	-	5/5
Ms B Majova	-	5/5
Ms HG Motau	Resigned 31 October 2020	4/4
Mr K Tlale	Appointed 1 December 2020	0/0

The Committee is satisfied that the members thereof have the required knowledge and experience as set out in Section 94(5) of the Companies Act and Regulation 42 of the Companies Regulation, 2011.

In addition, Ms Z Matlala, Mr D Chocho, Mr A Mngomezulu, Mr S Blankfield and Deloitte are also permanent invitees to the meetings. At the date of this report there have been no other changes to the composition of the Committee. Members of the Committee are independent and are nominated annually by the Board for re-election at the Annual General Meeting. Independence of the long-standing Committee members is assessed annually by the Remuneration and Nomination Committee of the Board. Additionally, every second year, the Committee performs a self-evaluation on their competence and performance via a structured checklist.

At least once a year, a session is held with the independent external auditor where management is not present as a way to strengthen the independent oversight role of the Committee. The session facilitates an exchange of views and concerns about the scope of the audit.

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The Committee performs the duties laid upon it by Section 94(7) of the Companies Act by holding meetings with the key role players on a regular basis and by the unrestricted access granted to the external auditor.

The Committee held five meetings during the year and the quorum was met at all the meetings, refer to the composition of the Committee for meeting attendance.

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The CEO and FD, have reviewed the controls over financial reporting, and presented their findings to the Audit Committee. During the current financial year, management and the external auditor identified significant deficiencies in internal controls over financial reporting. The significant deficiencies are in relation to the matters reported in note 33 of these annual financial statements as well as a corrected misstatement identified in the reporting period. The CEO and FD’s evaluation of controls included:

The identification and classification of risks including the determination of materiality;
� Testing the design and determining the implementation of controls addressing high and low risk areas;
Testing the operating effectiveness of controls addressing high risk areas; and
Obtaining control declarations from the Venture on the operating effectiveness of all controls on a quarterly basis.

A formal remediation plan has been developed and the implementation to address identified control deficiencies including significant deficiencies is ongoing. The Committee will monitor and evaluate the implementation of the remediation plan.

The Committee has discussed and documented the basis for its conclusion, which includes discussions with external auditors as well as management. The Committee believes that Merafe’s internal controls, in conjunction with the remedial plan which has been put in place to address deficiencies, can be relied upon as a reasonable basis for the preparation of the Annual Financial Statements.

The Committee has considered the key audit matter set out in the independent auditor’s report and is satisfied that it is correctly presented. The key audit matter assessed relates to impairment of the Group’s net assets in accordance with the requirements of IAS 36: Impairments of Assets . The Committee considered key assumptions and sensitivities underlying the valuation model. A discounted cash flow model which considered the business as one cash generating unit was used to estimate the recoverable amount. This represents the value in use. The assets have been valued at the lower of their carrying value and the recoverable amount.

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(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

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The Committee considered the nature of the operations, risks and internal control environment at the Merafe head office and concluded that it was not necessary to have a dedicated internal audit function as they rely on the internal audit function at the Venture which provides reports to the Merafe head office on a quarterly basis. Internal audit assignments specific to the Merafe head office are considered on a periodic basis and are outsourced. The Committee has satisfied itself with the internal audit function at the Venture through the review of their scope of work, quarterly review of their reports and evaluation of their findings and are satisfied that there were no material areas of concern that would render the function ineffective.

The Committee has reviewed all legal and regulatory matters that could have a significant impact on the Group and is satisfied with the compliance thereof.

The Committee is satisfied that it has discharged its duties as set out in its terms of reference for the year under review.

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The Committee, having considered all relevant matters, satisfied itself through enquiry that auditor independence, objectivity and effectiveness were maintained in 2020. The Committee noted the change in the external audit partner from Mr Eugene Zungu to Ms Carmeni Naidoo Bester effective November 2020. The Committee is satisfied with Ms Bester’s assessment that complies with the relevant provisions of the Companies Act and the Listings Requirements. The Committee has satisfied itself that the external auditor and lead partner are not included in the JSE’s list of disqualified auditors and has considered the external auditor suitability assessment in terms of paragraph 3.84(g)(iii) and section 22.15(h) of the JSE Listing Requirements.

The Committee in consultation with executive management, agreed to the terms of the engagement. The audit fee for the external audit has been considered and approved taking into consideration such factors as the timing of the audit, the extent of the work required and the scope.

In line with a documented policy on the nature and extent of non-audit services that the external auditor can provide to the Company, the Committee pre-approves all audit and permitted non-audit services by the external auditor. This is to further ensure the independence of the external auditor is maintained. For the year these services comprise of tax and transfer pricing reviews.

Deloitte and Touche have served as the Company’s external auditor since 4 May 2017. The performance of the external auditor is reviewed by the Committee annually. The Committee also considered and is satisfied with the quality of the audit for the year under review.

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The Committee is committed to quality financial reporting. Accordingly, the Committee regularly reviews and considers the JSE proactive monitoring reports to ensure that, where applicable, the recommendations are implemented in the preparation of the annual financial statements.

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The review of the consolidated and separate financial statements is also the responsibility of the Committee. The Committee has evaluated the consolidated and separate financial statements of the Company for the year ended 31 December 2020 and based on the information provided to the Committee, considers that they comply, in all material respects, with the requirements of the various statutes and regulations governing disclosure and reporting.

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The Committee reviewed the performance and expertise of the Financial Director, Ditabe Chocho, and continues to be satisfied of his suitability to hold office as the Financial Director in terms of the Listings Requirements. The Committee also considered the appropriateness of the expertise, continued improvement and adequacy of the finance function. The Committee is satisfied that there were no material areas of concern that would render the internal financial controls ineffective.

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(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

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Having taken all of the above assessments into account, the Committee recommended the approval of the consolidated and separate financial statements for the year ended 31 December 2020 by the Board.

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Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Directors' Report

The directors have pleasure in submitting their report for the Group for the year ended 31 December 2020.

1. Nature of business

Merafe was incorporated in South Africa with interests in the ferrochrome and chrome industry. The activities of the Group are undertaken through the Company and its principal subsidiaries and joint arrangements. The Group operates in South Africa.

Merafe holds 100% share capital in Merafe Ferrochrome and Mining (Pty) Ltd (Merafe Ferrochrome) which through a pooling and sharing venture with Glencore Operations South Africa Proprietary Limited (GOSA), participates in chrome mining and the beneficiation of chrome ore into ferrochrome. The Glencore-Merafe Chrome Venture (Venture) operates five ferrochrome smelters (including pelletising and sintering plants), twenty-two ferrochrome furnaces, six chrome ore mines and five UG2 plants, situated in the North-West, Limpopo and Mpumalanga Provinces of South Africa. The Venture is one of the largest ferrochrome producers in the world with an installed capacity of 2.3 million tonnes per annum. Merafe Ferrochrome’s share of the earnings before interest, taxation, depreciation and amortisation (EBITDA) is 20.5%. Merafe Ferrochrome shares in the revenue, expenses and liabilities at 20.5%. The Venture comprises assets to which both GOSA and Merafe Ferrochrome have granted the right of use but own in different proportions.

Listed below are the operations to which Merafe Ferrochrome has granted the right of use to the Venture:

Ferrochrome	smelters	Chrome	mines	UG2 plants and	pelletisers
Asset	Ferrochrome's Merafe	Asset	Merafe Ferrochrome's	Asset	Merafe Ferrochrome's
	interest		interest		interest
Wonderkop smelter	50%	Boshoek mine	100%	2 Impala Kanana UG2 plants	100%
(furnaces 5
and 6)
Boshoek smelter	100%	Kroondal and Wonderkop mine	50%	3 Lonmin UG2 plants	20.5%
Lion I smelter	20.5%	Helena mine	20.5%	Bokamoso pelletising plant	20.5%
Lion II smelter	20.5%	Magareng mine	20.5%	Motswedi pelletising plant	100%
		Marikana	26%	Tswelopele	20.5%
				pelletising plant
				Unicorn Chome	20.5%

There have been no material changes to the nature of the Group's business from the prior year other than the acquisition of Uncorn Chrome (Pty) Ltd, refer to note 27.

2. Group financial results

The financial statements set out the financial results of the Group and Company and have been prepared using appropriate accounting policies, conforming to International Financial Reporting Standards and the requirements of the Companies Act of South Africa, supported by reasonable and prudent judgements where required.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Directors' Report

2. Group financial results (continued)

The COVID-19 pandemic has introduced uncertainty into our operating environment and has negatively impacted the financial results for the year ended 31 December 2020. The combined impact of the pandemic and an already fragile operating environment have contributed to a loss after tax for the year. The national lockdown, a response by the South African government to curb the spread of the pandemic, saw the Company’s operations being placed under care and maintenance under Level 5 with a commencement of operations in a phased approach under Level 4 and Level 3. All operations, except those on care and maintenance, were brought back to operation in the third quarter of the year under stringent COVID-19 restrictions. After closure emanating from the COVID-19 lockdowns, the Rustenburg Furnace 5 and Lydenburg smelter did not resume operations in September 2020 when the rest of the smelters started operating and has continued to be placed under care and maintenance. Waterval mine and Boshoek mine also remain under care and maintenance. The Venture concluded Section 189 and 189A of the Labour Relations Act No.66 of 1995 consultations which resulted in 976 employees being retrenched. The uncertain environment led to increased effort to preserve cash flows.

The Group achieved an EBITDA of R168m during these trying times (2019: R379m).

After an impairment charge of R1.366bn (2019: R1.789bn), the Group made a loss after tax of R1.003bn (2019: R1.362bn).

Merafe Ferrochrome’s share of EBITDA from the Venture is 20.5%. In addition to Merafe Ferrochrome’s share of EBITDA from the Venture, corporate expenses, interest expense, depreciation and interest received are accounted for in order to determine earnings before taxation of the Group. Refer to note 1.3.2, Basis of consolidation – Transactions with the Venture, for further information regarding the accounting policy for Merafe Ferrochrome’s interest in the Venture.

In terms of the forthcoming financial year, we anticipate that the operating environment will continue to be challenging as the path of COVID-19 remains uncertain but are optimistic that global markets will recover once this thread has been brought under control.

Full details of the financial position and cash flows of the Group and Company are set out in these consolidated and separate annual financial statements.

3. Loans and borrowings

The Group had a cash balance of R278m at 31 December 2020 (31 December 2019: R354m). The Group's Revolving Credit Facility (RCF) to the value of R300m remains unutilised for the year. Refer to note 28 for the disclosure on the Group’s facilities and for covenants associated to these facilities, which includes the facilities at the Venture.

4. Going concern

As stated above, the Group had a cash balance amounting to R278m at the reporting date with no debt and a cash balance of R364m and no debt as of the 31 January 2021.

The Group has the benefit of unutilised debt facilities through its 20.5% share of the Venture, which the board considers sufficient to sustain the business for at least the next 12 months in the event that the effect of COVID-19 risk affects cash flows negatively. The Group's forecasts and projections of its short to medium term profitability, taking account of likely changes in production and performance, show that the Group will be able to operate within the level of its cash resources and facilities for at least 12 months from the approval date of the annual financial statements.

Although the Group made a loss after tax in the current year, a positive EBITDA of R168m was generated. The loss is in large part due to significant impairment adjustments. Merafe Group and Company maintains healthy cash balances as per note 12 with access to banking and other lending facilities. The Group and Company’s credit and liquidity risks have been assessed in notes 28.1 and 28.2. Having considered the Group and Company’s key risks, current financial position, solvency and liquidity, debt levels, lending facilities, impairment review as well as the Group and Company’s financial budgets with their underlying business plans, the directors believe that the Group and Company have sufficient resources and cash flows to be able to continue as a going concern at least for the year ahead. The Group and Company’s lending facilities are referenced in note 28.2.

The Group continues to be vigilant in monitoring the impacts of the COVID-19 outbreak and other identified risks factors that may affect the Company’s business.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Directors' Report

5. Dividend policy and ordinary cash dividend

The Company has a hybrid dividend policy that has features of a stable dividend policy and a residual dividend policy. The Company intends to pay a dividend of at least 30% of headline earnings at least once a year taking into account, inter alia , the annual financial performance, expansionary projects and economic circumstances prevailing at the time. In addition, in any given year, the directors may consider an additional distribution in the form of special dividends and share buy-backs dependent on the Company’s financial position, future cash requirements, future earning prospects, availability of distributable reserves and other factors. Dividends are recognised when they are declared by the Board of the Company.

Given the current state of the global economy and the significant operational and market risks that still remain, the Board believes that it would be more appropriate for the Group to conserve cash, maintain sufficient working capital as well as adequate debt headroom to ensure that the Group is best placed to withstand any prolonged adverse economic conditions. Therefore, the Board has resolved not to declare a dividend for the financial year ended 31 December 2020.

6. Share capital

The full details of the authorised and issued share capital of the Company are set out in note 13 to the annual financial statements. Merafe did not issue any shares for cash or effect any share repurchases under a general or specific authority in the current year.

7. Directorate

Details of transactions with directors and key management are detailed in note 32.2.

The Board comprised of the following directors during the year under review:

Directors	Appointment/Resignation	Designation
Mr A Mngomezulu (Chairman)	-	Independent non-executive
Ms M Vuso	-	Independent non-executive
Ms HG Motau	Resigned 31 October 2020	Independent non-executive
Ms B Majova	-	Independent non-executive
Mr J Mclaughlan	-	Independent non-executive
Mr K Tlale	Appointed 1 December 2020	Independent non-executive
Ms M Mosweu	-	Non-executive
Mr S Blankfield	-	Non-executive
Ms Z Matlala	-	Executive
Mr D Chocho	-	Executive

Ms HG Motau resigned as a non-executive director effective 31 October 2020. Mr K Tlale was appointed on 01 December 2020 to succeed Ms HG Motau. The board expresses its sincere appreciation to the outgoing director for her contributions during her tenure and wishes Mr Tlale well.

8. Major shareholders

The following shareholders were the registered holders of 5% or more of the issued ordinary shares in the Company at 31 December 2020:

Glencore Netherlands B.V. – 28.68%;
Industrial Development Corporation of South Africa Limited – 21.78%;
PSG Konsult – 6.64%; and
Ninety One - 5.00%.

The analysis of the ordinary shareholding is given on pages 83 - 84.

9. Directors' interests in Merafe Resources Limited

Refer to note 32.3 for the beneficial interests of directors in shares of the Company as well as note 32.2 for transactions with key management personnel and non-executive directors.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Directors' Report

10. Details of investments in subsidiaries, associates and structured entities

Details of material interests in subsidiary companies, associates and structured entities are presented in the annual financial statements in notes 5 and 6.

The interests of the Group in the profits and losses of its subsidiaries, associates and joint arrangements for the year ended 31 December 2020 are as follows:

Subsidiaries Total losses before income tax Associates Total share of income from equity accounted investments	2020 2019 R '000 R '000 (995,238) (1,482,000) 860 -
	(994,378) (1,482,000)

On 29 May 2020, the Company published a SENS announcement in which its purchase of a 20.5% interest in Unicorn Chrome Proprietary Limited (“Unicorn”) for approximately R33m was announced. Unicorn has a shareholding in a UG2 chrome concentrate producer which extracts chrome concentrate from a tailings stream in the North West Province. Accordingly, the Company considers Unicorn to be a valuable addition to its chrome interests.

11. Property, plant and equipment

There was no change in the nature of the property, plant and equipment of the Group or in the policy regarding their use during the year.

During the current year the Group recognised an impairment loss of R1.366bn (2019: R1.789bn) against the assets, refer to note 3 and note 36 to the annual financial statements.

12. Independent external auditor

Deloitte were re-elected as the Company’s independent external auditor on 15 May 2020 in accordance with section 90 of the Companies Act and will again be proposed for re-election in respect of the 2021 financial year at the forthcoming Annual General Meeting (AGM) of shareholders.

13. Audit and Risk Committee

The Audit and Risk Committee's report is presented on pages 3 to 5.

14. Related party transactions

Details of related party transactions are set out in note 32 to the annual financial statements.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Directors' Report

15. COVID-19: Business impact and response

COVID-19 has destabilised global health systems and disrupted economies. The Goup’s initial response to the pandemic has been detailed above. In order to estimate the impact of COVID-19 on the business, an assessment was made based on year-end results.

The assessment of the quantifiable impact of COVID-19 on the Group’s operating and financial results in the 2020 financial year against budget is summarised below:

Standing charges during the initial hard lockdown (excluding direct COVID-19 costs over this period): R127m;
Direct COVID-19 related costs such as the procurement of masks and sanitisers for the year: R61m; and
Lower production during initial hard lockdown as follows: - Ferrochrome: 77k tonnes; and
Chrome ore and UG2: 133k tonnes.

Measures implemented across our operations to manage the COVID-19 risks include working from home, social distancing, wearing of masks and constant washing of hands or sanitising. Sadly, as at the 28 February 2021, we had lost the lives of 15 colleagues at the Venture as a result of COVID-19.

While the impact of COVID-19 on our busines in 2021 is uncertain we will continue to monitor its development with key focus areas being the health and safety of our employees in operations as well as sustainability of the business including liquidity and the preservation of cash resources.

16. Events after the reporting period

As reported above, the Board has resolved not to declare a final dividend (2019: R100m, 4 cents per share) for the 2020 financial year.

At the last AGM held on 22 May 2020, shareholders gave the Company or any of its subsidiaries a general approval in terms of section 48 of the Companies Act of South Africa, by way of a special resolution, for the acquisition of its own shares. As this general approval remains valid only until the next AGM is held on 18 May 2021, the shareholders will be asked at that meeting to consider a special resolution to renew this general authority until the 2022 AGM. In line with this authority, from 4 January 2021, the Company started a share buyback program through which Merafe’s shares were to be repurchased from the open market and cancelled thereafter. In due course, the necessary SENS announcement will be published in accordance with the JSE Listings Requirements.

Shareholders are informed that Belese Majova (Independent Non-Executive Director) and Mpho Mosweu (Non-Executive Director) will be retiring at the Merafe Annual General Meeting on 18 May 2021, and will not be offering themselves for reelection. Belese and Mpho served on the Merafe board from 2009 and 2011 respectively.

The directors are not aware of any other material event which occurred after the reporting date and up to the date of this report that may require adjustment or disclosure in these annual financial statements.

17. Special resolutions

The following special resolutions were passed by the shareholders at the 2020 AGM held on 15 May 2020.

Loans or other financial assistance to related or inter-related companies; and
General authority to repurchase Company shares.

The resolution for approval of the non-executive directors’ fees was not passed.

The next AGM of the shareholders of the Company will be held (subject to any adjournment or postponement) on Tuesday 18 May 2021.

18. Environmental and decommissioning provision

New legislation and financial provisioning regulations relating to asset retirement obligations were enacted i.e. The National Environmental Management Act (NEMA). The legislation which is effective from July 2021 impacts the manner in which the environmental rehabilitation costs are determined. Current and prior year provisions of the Group are already inclusive of the impact of NEMA although it is not yet effective.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Directors' Report

19. Mining rights and mining operations

The directors are satisfied that there are no foreseeable material risks relating to the Resources and Reserves of the Venture and the ability of the Venture to conduct its mining operations. The abridged Mineral Resources and Reserves statement and the detailed Resources and Reserves statement have been signed off by a competent person in accordance with the South African Mineral Reporting Codes (SAMREC) and the Listings Requirements.

20. Restatement of financial statements

The Group has identified an error in the prior year financial statements in the current year. To comply with International Financial Reporting Standards (IFRS), the 2019 consolidated financial statements have been restated. The unwinding of the discount on the rehabilitation provision has been restated due to an error in the accounting for the change in estimate, out of finance income in the prior year into operating and other expenses and the impairment expense. As a result, there has been no change in the total loss and comprehensive loss for the prior year nor in the statement of financial position, the changes in equity, the basic loss per share nor the diluted loss per share.

The statement of cashflow has also been restated with the reclassification of a net realisable inventory adjustment as a non-cash flow item and the effects of the error relating to the rehabilitation provision.

Refer to note 33 for the impact of the restatement.

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INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Merafe Resources Limited

Report on the Audit of the Consolidated and Separate Financial Statements

Opinion

We have audited the consolidated and separate financial statements of Merafe Resources Limited (“the Group“) set out on pages 19 to 82, which comprise the consolidated and separate statements of financial position as at 31 December 2020, and the consolidated and separate statements of profit or loss and other comprehensive income, the consolidated and separate statements of changes in equity and the consolidated and separate statements of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of the Group as at 31 December 2020, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the Group and Company in accordance with the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the corresponding sections of the International Ethics Standards Board for Accountants’ (IESBA) International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matter

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. There were no key audit matters identified for the separate financial statements.

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INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Merafe Resources Limited (continued)

Key Audit Matter (continued)

Key Audit Matter How the matter was addressed in the audit?
Impairment assessment of the Merafe Resources Limited Group net asset value (Group)

As disclosed in Note 36 of the consolidated financial statements, the Merafe Resources Limited market capitalisation value as at 31 December 2020 was R1.054 billion which was less than the net asset value of R2.227 billion. This was an indicator that the Group net asset value may be impaired in accordance with the requirements of IAS 36: Impairments of Assets .

In evaluating the impairment assessment of the Group’s net asset value, we tested the value in use calculations prepared by directors, with a particular focus on the cash flow forecast (including the production input factors, forecasted South Africa/US Dollar exchange rates), commodity prices and the discount rate applied.

Our procedures included the following:

The Glencore-Merafe chrome venture (Venture) is the only cash-generating unit of the Group. The directors performed an impairment assessment using the value in use method, where the Group net asset carrying value was compared to the value in use.

The value in use amount is based on the cash flow forecasts of the Venture and the weighted average cost of capital of Merafe Resources Limited and the assessment is dependent on macro-economic factors, which include foreign currency exchange rates, commodity price forecasts as well as internal assumptions and estimates related to production levels, operating costs and customer demand.

The assumptions with the most significant impact on the cash flow forecast were:

Forecasted ferrochrome production levels and forecasted sales volume estimates;
Forecasted ferrochrome and chrome commodity prices;
Forecasted South African Rand/US Dollar exchange rates; and
The discount rate, i.e. weighted average cost of capital (WACC), used to discount the future cash flows.

Significant judgement is required by the directors in determining the forecasted South African Rand/US Dollar exchange rates and forecasted ferrochrome commodity prices.

The impairment assessment of the Group was identified as a key audit matter due to the significance of the directors’ judgement involved in determining the value in use of the Venture, together with the sensitivity of the forecasted South African Rand/US Dollar exchange rate and forecasted commodity prices in the value in use.

Assessing the design and implementation of the entity’s key controls relating to the determination of the assumptions used in the determination of the cash flow forecasts;
Engaging our internal specialists in evaluating the reasonableness of forecasted sales volume estimates and forecasted production levels against strategies;
Engaging our internal specialists to assist with assessing the reasonability of the following key assumptions:
Forecasted production levels;
Discount rate (WACC);
Forecasted South African/US Dollar exchange rates; and
Forecasted ferrochrome and chrome ore commodity prices.
Re-computing the value in use amount based on inputs and assumptions adopted by the directors; and
Performed and re-computed the director’ sensitivity analyses on the forecasted ferrochrome commodity prices and forecasted South African/US Dollar exchange rates to evaluate the extent of impact on the value in use and the appropriateness of the directors’ disclosures in the consolidated financial statements.

The valuation yielded a negative headroom of R1.34 billion lower than the net asset value of the Group. This resulted in the impairment of the property, plant and equipment balances by R1.34 billion. In aggregate, the assumptions applied appeared to be reasonable.

We considered the disclosures relating to impairment assessment to be appropriate.

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Merafe Resources Limited (continued)

Other Information

The directors are responsible for the other information. The other information comprises the information included in the document titled “Merafe Resources Limited Annual Financial statements for the year ended 31 December 2020”, which includes the Company Secretary’s Certification, the Report of the Audit and Risk Committee, the Directors’ Report, as required by the Companies Act of South Africa, the CEO and FD’s responsibility statement, which we obtained prior to the date of this report and the Integrated Annual Report, which is expected to be made available to us after that date. The other information does not include the consolidated and separate financial statements and our auditor’s report thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements 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 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.

Responsibilities of the Directors for the Consolidated and Separate Financial Statements

The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group’s and the Company’s ability 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 and/ or the Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are 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 ISAs 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 these consolidated and separate financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control.

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Merafe Resources Limited (continued)

Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements (continued)

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and/or the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Audit and Risk Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Audit and Risk Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Audit and Risk Committee, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that Deloitte & Touche has been the auditor of Merafe Resources Limited for 4 years.

Deloitte & Touche Registered Auditor Per: C.N. Bester Partner 8 March 2021

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Statement of financial position as at 31 December 2020

	Group Company
Note(s)	2020 2019 2020 2019 R '000 R '000 R '000 R '000
3 4 5 6 18 8 9 7 19 10 12 13 14 16 18 17 15 20 11 16 15 Assets Non-Current Assets Property, plant and equipment Intangible assets Investments in subsidiaries Investment in associate Deferred tax asset Long-term receivable Current Assets Inventories Loan to subsidiary Current tax receivable Trade and other receivables Cash and cash equivalents Total Assets Equity and Liabilities Equity Share capital Share premium Retained earnings/(accumulated loss) Liabilities Non-Current Liabilities Lease obligation Deferred tax liability Provisions Share-based payment liability Current Liabilities Trade and other payables Derivatives Lease obligation Share-based payment liability Total Liabilities Total Equity and Liabilities*	338,619 1,435,080 549 606 38,539 49,268 - - - - - - 2,151 - - - 110,367 1,374 964 1,374 13,982 16,612 - -
	503,658 1,502,334 1,513 1,980
	1,433,681 2,008,799 - - - - 1,173,867 1,284,281 17,210 18,635 - - 880,916 675,344 4,156 3,491 277,629 354,181 671 390
	2,609,436 3,056,959 1,178,694 1,288,162
	3,113,094 4,559,293 1,180,207 1,290,142
	25,107 25,107 25,107 25,107 1,269,575 1,269,575 1,269,575 1,269,575 982,380 2,085,835 (125,180) (16,103)
	2,277,062 3,380,517 1,169,502 1,278,579
	15,583 19,972 - - - 226,065 - - 175,361 337,716 - - 1,483 1,004 1,483 1,004
	192,427 584,757 1,483 1,004
	636,967 579,131 8,228 7,804 2,476 8,090 - - 3,534 4,460 366 417 628 2,338 628 2,338
	643,605 594,019 9,222 10,559
	836,032 1,178,776 10,705 11,563
	3,113,094 4,559,293 1,180,207 1,290,142

Less than R1000

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Statement of profit or loss and other comprehensive income

	Group Company
Note(s)	2020 2019 2020 2019 Restated R '000 R '000 R '000 R '000*
Revenue 21 Foreign exchange losses Operating and other expenses Earnings/(loss) before interest, taxation, depreciation and impairment 22 Depreciation and amortisation 3 Impairments 3 Results from operating activities Finance expense 23 Finance income 23 Income from equity accounted investments (Loss)/profit before income tax Income tax credit/(expense) 24 (Loss)/profit and total comprehensive (loss)/income for the year Loss per share Per share information* Basic loss per share (cents) 25 Diluted loss per share (cents) 25	4,780,387 5,379,329 4,106 156,091 (59,711) (14,373) - - (4,552,769) (4,985,699) (12,142) (19,444)
	167,907 379,257 (8,036) 136,647
	(153,361) (467,261) (139) (232) (1,365,962) (1,789,316) - -
	(1,351,416) (1,877,320) (8,175) 136,415
	(1,713) (1,594) (68) (70) 6,517 11,998 4 138 860 - - -
	(1,345,752) (1,866,916) (8,239) 136,483 342,725 505,097 (410) (16,571)
	(1,003,027) (1,361,819) (8,649) 119,912
	(40.00) (54.20) - - (40.00) (54.20) - -

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Statement of changes in equity

Statement of changes in equity
	Issued share capital Share premium Retained earnings/ (accumulated loss) Total equity R '000 R '000 R '000 R '000
Group Balance at 01 January 2019 Total comprehensive loss for the year Dividends paid Balance at 01 January 2020 Total comprehensive loss for the year Dividends paid Balance at 31 December 2020 Note(s) Company Balance at 01 January 2019 Total comprehensive income for the year Dividends paid Balance at 01 January 2020 Total comprehensive loss for the year Dividends paid Balance at 31 December 2020 Note(s)	25,107 1,269,575 3,598,296 4,892,978
	- - (1,361,819) (1,361,819) - - (150,642) (150,642)
	25,107 1,269,575 2,085,835 3,380,517
	- - (1,003,027) (1,003,027) - - (100,428) (100,428)
	25,107 1,269,575 982,380 2,277,062
	13 14 25,107 1,269,575 14,627 1,309,309
	- - 119,912 119,912 - - (150,642) (150,642)
	25,107 1,269,575 (16,103) 1,278,579
	- - (8,649) (8,649) - - (100,428) (100,428)
	25,107 1,269,575 (125,180) 1,169,502
	13 14

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Statement of cash flows

Statement of cash flows
	Group Company
Note(s)	2020 2019 2020 2019 Restated 0 R '000 R '000 R '000 R '000*
Cash flows from operating activities Cash generated/(used in) from operating activities 26 Taxation (paid)/received 19 Finance income received Finance expense paid Net cash generated from/(utilised in) operating activities Cash flows from investing activities Acquisition of property, plant and equipment - sustaining 3 Acquisition of property, plant and equipment - expansionary 3 Proceeds from the sale of property, plant and equipment Acquisition of Unicorn Chrome 27 Net cash utilised in investing activities Cash flows from financing activities Decrease in loans to subsidiary Lease liabilities repaid Dividends paid Net cash (utilised in)/generated from financing activities Total cash movement for the year Cash at the beginning of the year Effect of exchange rate movement on cash balances Total cash at end of the year 12	490,782 684,745 (9,508) (328,601) (15) 5,040 - - 6,156 10,952 4 138 (1,617) (1,524) (68) (70)
	495,306 699,213 (9,572) (328,533)
	(333,676) (469,644) (49) (63) (9,310) - - - 169 3,037 - - (33,124) - - -
	(375,941) (466,607) (49) (63)
	- - 110,414 474,739 (7,581) (4,228) (84) - (100,428) (150,642) (100,428) (150,642)
	(108,009) (154,870) 9,902 324,097
	11,356 77,736 281 (4,499) 354,181 280,855 390 4,889 (87,908) (4,410) - -
	277,629 354,181 671 390

The unwinding of discount on the rehabilitation provision has been restated due to an error and has been reclassified out of finance income in the prior year into operating and other expenses and impairment expense. This has also been impacted by the change in estimate in the rehabilitation provision which has been reclassified out of the acquisition of property, plant and equipment - sustaining and into cash generated from operating activities. Refer to note 33. *Relates to 20.5% of the Venture’s total cash outflow. Note 3 details the property, plant and equipment owned by the Group.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1. Significant accounting policies

Merafe Resources Limited (Company) is domiciled in the Republic of South Africa. The address of the Company’s registered office is Building B, Second Floor, Ballyoaks Office Park, 35 Ballyclare Drive, Bryanston, 2191. The consolidated and separate annual financial statements as at and for the year ended 31 December 2020 comprise the Company and its subsidiaries (together referred to as the Group and individually as Group entities). The Group is primarily involved in the mining and beneficiation of chrome ore into ferrochrome. Where reference is made to “Group”, this should be interpreted as “consolidated”. Further, where reference is made to the “Group” and “consolidated” in the accounting policies, it should be interpreted as also referring to the “Company” where the context requires, unless otherwise indicated.

The principal accounting policies applied in the preparation of these consolidated and separate annual financial statements are set out below.

The accounting policies set out below are in line with International Financial reporting Standards (IFRS) have been applied consistently to all periods presented in these consolidated and separate financial statements and have been applied consistently by the Group entities.

During the current year, certain comparative amounts in the statement of profit or loss and other comprehensive income have been reclassified or re-represented, either as a result of a correction of errors regarding the presentation of items in the statement of profit or loss and other comprehensive income (refer to note 33) or a change in the classification of certain non-cash flow movements in the cash flow statement (refer to note 33), or as a result of disclosure inconsistencies (refer to note 28).

1.1 Basis of preparation

Statement of compliance

The consolidated and separate annual financial statements have been prepared in accordance with the requirements of IFRS, interpretations by the International Financial Reporting Interpretations Committee (IFRIC), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee (APC), the Financial Pronouncements as issued by Financial Reporting Standards Council, the JSE Limited Listing Requirements and the requirements of the Companies Act 2008 of South Africa.

The consolidated and separate financial statements were authorised for issue by the Board on 5 March 2021.

Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the statement of financial position which are measured at their fair values:

Derivative financial instruments (refer to note 1.20); and
Long-term receivables (refer to note 8).

Functional and presentation currency

The consolidated and separate financial annual statements are presented in South African Rand, which is the Company’s functional currency.

All financial information presented in South African Rand has been rounded to the nearest thousand, unless otherwise indicated.

1.2 Critical accounting judgements and key sources of estimation uncertainty

The preparation of the consolidated and separate financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.2 Critical accounting judgements and key sources of estimation uncertainty (continued)

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised.

Information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes:

Note 1.6.3,1.7.2, 1.17.2, 3, 4 and 36: Measurement of depreciation and impairment, useful lives and residual values of property, plant and equipment and intangible assets;

Note 1.12.3 and 15: Inputs used in the determination of the fair value of the share-based payment transactions;

Note 1.14, 3 and 16: Lease classification and depreciation of right-of-use assets;

Note 1.10 and 17: Assumptions used in calculation of the life of the mines/smelters, estimation of the closure and restoration costs and inputs used in the calculation of the present value of the provision for closure, restoration costs and discount rate applied;

Note 1.16 and 18: Recognition of deferred tax asset on assessable losses;

Note 1.20.2: Fair value measurement of embedded derivative;

Note 1.17.1: Assumptions used in the assessment of expected credit losses (ECLs) on financial assets;

Note 1.21 and 17: Estimation of the tonnages extracted in determining the royalty provision. During the financial year, the Group received senior legal counsel opinion with regard to the estimates and judgements made in determining the gross sales and amounts recognised in the statement of profit or loss. Based on the opinion, management made the judgement to reverse the prior year mining royalty provision recognised in profit and loss with no further judgements and estimations to be made in the future; and

Note 1.3.2: Assumptions around joint control of the PSV.

The global environment, the risk of adverse impacts on our revenue, costs and capital spend by the Group, due to COVID-19, as well as the effects of the ramp-up period after the lockdown on production, were all taken into account in determining the accounting estimates and judgements for the year. Not all the estimates and judgements included in the financial statements were impacted by COVID-19.

Note 1.17.2, 3 and 36 Impairment of non-financial assets. The Group determines whether any of the cash-generating units are impaired at each reporting date. This requires consideration of the current and future economic and trading environment and available valuation information, to ascertain if there are indications of impairment to those owned by the Group.

Note 9: Inventories. The Group determines whether there is obsolete inventory on an annual basis and adjustments to the net realisable value of inventory as required.

Note 28: Financial risk management. The Group assesses credit risk and the impact of COVID-19 on liquidity risk, cash and cash equivalents and trade and other receivables. There has been no material increase in either liquidity risk and own credit risk based on this assessment.

1.3 Basis of consolidation

1.3.1 Subsidiaries and controlled entities

Subsidiaries and controlled entities are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The results of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

(Registration number 1987/003452/06)

Merafe Resources Limited

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.3 Basis of consolidation (continued)

1.3.2 Transactions with the Glencore Merafe Pooling and Sharing Venture (Venture)

GOSA and Merafe Ferrochrome pooled and shared their ferrochrome assets on 1 July 2004 to form the Venture. The Venture’s primary business is the production and sale of ferrochrome to the stainless steel industry. The Venture is the only operating asset of the Group and is strategic to the Group’s activities. While Merafe Ferrochrome’s assets form part of the Venture, Merafe Ferrochrome retains ownership of its assets and is closely involved in the Venture’s operations through the Venture’s executive committee, joint board and sub-committees. Merafe Ferrochrome receives 20.5% of the Venture’s EBITDA and owns 20.5% of the working capital.

In management’s view, the Venture is a joint operation as defined in IFRS 11: Joint Arrangements as Merafe Ferrochrome and GOSA are bound by a contractual arrangement which constitutes joint control. The Venture is not consolidated but Merafe Ferrochrome accounts for the assets, liabilities, revenues and expenses in relation to its interest in the joint operation in accordance to IFRS 11. The following significant judgements and assumptions were relevant in the joint control assessment:

The ultimate operational decision making responsibility in the Venture resides with the joint board. The chairman of the board, who is appointed by GOSA, has a casting vote at the joint board level on all decisions except for decisions relating to reserved matters. The reserved matters include, inter-alia, the managing of input costs relating to chrome production, operation of the various chrome producing assets, disposal of assets forming part of the pooled operations, increasing the operational capacity of chrome producing assets and acquiring or constructing new chrome producing assets. These reserved matters, in management’s view, are likely to have the most significant impact on returns of the Venture and therefore would constitute its “relevant activities” as defined in IFRS 10: Consolidated Financial Statements . Contractually, decisions over the reserved matters require the unanimous consent of Merafe Ferrochrome and GOSA as those decisions cannot be made unilaterally.
There is a significant disparity in holdings between Merafe Ferrochrome’s interest in the Venture at 20.5% and GOSA’s interest in the Venture at 79.5%. However, this does not influence the joint control conclusion as the benefits each party stands to gain from the arrangement was the determining factor in the joint control arrangement rather than other forms of arrangements. Furthermore, any dispute relating to the interpretation of the Pooling and Sharing Agreement (the Venture agreement) is to be settled by an arbitrator appointed by the Arbitration Foundation of South Africa (AFSA) and in management’s view the AFSA provides for a neutral dispute resolution process and would not favour either GOSA or Merafe Ferrochrome.
The lack of legal form of the Venture results in Merafe Ferrochrome and GOSA having rights to the assets and obligations for the liabilities held in the Venture. This lack of legal separation between the Venture, GOSA and Merafe Ferrochrome is further supported by the fact that the South African Revenue Services assesses the Venture and directly taxes Merafe Ferrochrome and GOSA respectively for the income generated from the Venture.
In terms of the Venture agreement, Merafe Ferrochrome and GOSA maintain legal ownership of their respective assets contributed to the Venture and upon winding up of the Venture, GOSA and Merafe Ferrochrome will also receive a portion of any new assets acquired by the parties post 1 July 2004 and to the extent that an asset relates to their existing assets, be required to acquire the other party’s portion at fair value which indicates that the parties have rights to the assets of the Venture. The lack of legal form of the Venture results in GOSA and Merafe Ferrochrome having rights to the assets and obligations for the liabilities held in the Venture and consequently joint operations classification in terms of IFRS 11.

Accounting for joint operations results in Merafe Ferrochrome recognising its assets that were contributed to the Venture and its portion of the assets held jointly in the Venture. Similarly Merafe Ferrochrome recognises its liabilities, including its share of any liabilities incurred jointly. Merafe Ferrochrome recognises its revenue and share of the revenue from the Venture as well as its expenses and share of expenses relating to the Venture. The accounting that was adopted by Merafe since the formation of the Venture is consistent with the accounting for joint operations as required by IFRS 11.

Refer to note 32.4 for the items that represent the Group’s share of the working capital and EBITDA of the Venture.

(Registration number 1987/003452/06)

Merafe Resources Limited

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.3 Basis of consolidation (continued)

1.3.3 Business combinations

The Group accounts for business combinations using the acquisition method of accounting. The cost of the business combination is measured as the aggregate of the fair values of assets given, liabilities incurred or assumed and equity instruments issued. Costs directly attributable to the business combination are expensed as incurred, except the costs to issue debt which are amortised as part of the effective interest and costs to issue equity which are included in equity.

The acquiree's identifiable assets, liabilities and contingent liabilities which meet the recognition conditions of IFRS 3: Business combinations are recognised at their fair values at acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5: Non-current assets Held For Sale and Discontinued Operations , which are recognised at fair value less costs to sell.

Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where there is a present obligation at acquisition date.

On acquisition, the acquiree's assets and liabilities are reassessed in terms of classification and are reclassified where the classification is inappropriate for group purposes. This excludes lease agreements and insurance contracts, whose classification remains as per their inception date.

Non-controlling interests in the acquiree are measured on an acquisition-by-acquisition basis either at fair value or at the non-controlling interests' proportionate share in the recognised amounts of the acquiree's identifiable net assets. This treatment applies to non-controlling interests which are present ownership interests, and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation. All other components of non-controlling interests are measured at their acquisition date fair values, unless another measurement basis is required by IFRS's.

Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior to obtaining control, plus non-controlling interest and less the fair value of the identifiable assets and liabilities of the acquiree. If, in the case of a bargain purchase, the result of this formula is negative, then the difference is recognised directly in profit or loss.

1.4 Investment in associate

An associate is an entity over which the Group has significant influence and which is neither a subsidiary nor a joint arrangement. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. It generally accompanies a shareholding of between 20% and 50% of the voting rights.

The Group's share of post-acquisition profit or loss is recognised in profit or loss, and its share of movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. Losses in an associate in excess of the Group's interest in that associate, including any other unsecured receivables, are recognised only to the extent that the Group has incurred a legal or constructive obligation to make payments on behalf of the associate.

Any goodwill on acquisition of an associate is included in the carrying amount of the investment, however, a gain on acquisition is recognised immediately in profit or loss.

Profits or losses on transactions between the Group and an associate are eliminated to the extent of the Group's interest therein. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group.

When the Group reduces its level of significant influence or loses significant influence, the Group proportionately reclassifies the related items which were previously accumulated in equity through other comprehensive income to profit or loss as a reclassification adjustment. In such cases, if an investment remains, that investment is measured to fair value, with the fair value adjustment being recognised in profit or loss as part of the gain or loss on disposal.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.5 Foreign currency

The Group transacts in a number of foreign jurisdictions that have multiple quoted exchange rates for customer sales and other financial liabilities. Transactions in foreign currencies are translated to the functional currency of the Group entities at the exchange rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to South African Rand (Rand) at the foreign exchange rate ruling at that date. The foreign exchange gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for the effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Nonmonetary assets and liabilities denominated in foreign currency that are measured at fair value are translated to Rand at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on translation are recognised in profit or loss in the period in which they arise. Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rate at the date of the transaction.

1.6 Property, plant and equipment

1.6.1 Recognition and measurement

1.6.1.1 Mining assets including mine development costs

Mining assets, including mine development costs and mine plant facilities, are stated at cost less accumulated depreciation and accumulated impairment. Costs include pre-production expenditure incurred in the development of the mine and the present value of future decommissioning costs. Development costs incurred to develop new ore bodies, to define mineralisation in existing ore bodies and to establish or expand productive capacity are capitalised. Mine development costs in the ordinary course of maintaining production are expensed as incurred. Initial development and pre-production costs relating to a new ore body are capitalised until the ore body achieves commercial levels of production, at which time the asset is deemed to be available for use and is amortised as set out below.

1.6.1.2 Land, non-mining assets and corporate assets

Land is stated at cost and is not depreciated. Buildings and other non-mining property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of self constructed assets includes the cost of materials, direct labour, the initial estimate (where relevant) of the costs of dismantling and removing the items, restoring the site on which they are located and any other costs directly attributable to bringing the assets to a working condition for their intended use.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

1.6.1.3 Exploration and evaluation expenditure

Exploration and evaluation expenditure relates to costs incurred during the exploration and evaluation of potential mineral reserves and resources and includes costs such as exploratory drilling and sample testing and the costs of pre-feasibility studies. Exploration and evaluation expenditure for each area of interest, other than acquired from the purchase of another mining company, is recognised as an asset in work-in-progress provided that one of the following conditions are met:

Such costs are expected to be recouped in full through successful development and exploration of the area of interest or alternatively, by its sale; or
Exploration and evaluation activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in relation to the area are continuing, or planned for the future. Purchased exploration and evaluation assets are recognised as assets at fair value if purchased as part of a business combination.

An impairment review is performed, either individually or at the cash-generating unit level. To the extent that an impairment is recognised, the impairment loss is recognised in the financial year in which this is determined. Exploration and evaluation assets are reassessed on a regular basis and these costs are carried forward provided that at least one of the conditions outlined above is met. Expenditure is transferred to mine development assets or capital work in progress once the work completed to date supports the future development of the property and such development received appropriate approvals.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.6 Property, plant and equipment (continued)

1.6.2 Subsequent costs

Subsequent costs on property, plant and equipment are capitalised when the costs enhance the value or output up to the assets original expectation and its costs can be measured reliably. Costs incurred on repairing and manufacturing are recognised in the statement of profit or loss and other comprehensive income in the period in which they are incurred.

1.6.3 Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, less its residual value.

Depreciation methods, estimated useful lives and residual values are reviewed at each financial year end and adjusted prospectively, if appropriate. Useful lives are assessed using internal experts. Residual values are assessed using market information on similar sales transactions.

1.6.3.1 Mining assets including mine development costs

Mining equipment, structures and plant and equipment are depreciated using the straight-line method over the estimated useful life. The useful life ranges between one and thirty years, depending on the nature of the asset.

1.6.3.2 Capital work in progress

Capital work in progress is not depreciated. The net carrying amounts of capital work in progress at each mine property are reviewed for impairment either individually or at the cash-generating unit level when events and changes in circumstances indicate that the carrying amount may not be recoverable. To the extent that these values exceed their recoverable amounts, an impairment loss is recognised in the financial year in which this is determined.

1.6.3.3 Land, non-mining assets and corporate assets

Non-mining equipment, structures and plant and equipment are depreciated using the straight-line method over the estimated useful life. The useful life ranges between one and thirty years depending upon the nature of the asset. Land is not depreciated.

1.6.4 Derecognition

Property, plant and equipment are derecognised upon disposal or when no future economic benefits are expected to flow to the Group from their use. Gains or losses on derecognition of an item of property, plant and equipment are determined by the comparing of the proceeds from disposal, if applicable, with the carrying amount of the item and are recognised directly in profit or loss.

1.7 Intangible assets

1.7.1 Mineral and surface rights recognition and measurement

Mineral and surface rights are stated at cost less accumulated amortisation and accumulated impairment losses. When there is little likelihood of a mineral right being exploited, or the value of mineral rights has diminished below cost, an impairment loss is recognised in profit or loss in the period that such determination is made.

1.7.2 Mineral and surface rights amortisation

Mineral rights that are being depleted are amortised over their estimated useful lives using the units of production method, based on proven and probable ore reserves. Mineral rights that have no commercial value are impaired in full.

Intangible assets are carried at cost less any accumulated amortisation and any impairment losses.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.8 Financial instruments

1.8.1 Financial assets

On initial recognition financial assets are classified as measured at fair value through profit or loss, amortised cost, or fair value through other comprehensive income. The classification is based on two criteria: the Group’s business model for managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding.

The assessment of whether contractual cash flows on financial assets are solely comprised of principal and interest was made based on the facts and circumstances as at the initial recognition of the assets. Subsequent to initial recognition financial assets are not reclassified unless the Group changes its business model for managing its financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

The Group classifies non-derivative financial assets into financial assets carried at amortised cost:

Loans and receivables which include trade receivables and intercompany loans are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. These are classified and measured as debt instruments at amortised cost. Subsequent to initial recognition debt instruments are measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses.
Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Cash and cash equivalents are classified and measured at amortised cost.

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

1.8.2 Financial liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the date that they originated. All other financial liabilities are recognised initially on the trade date, which is the date the Group becomes a party to the contractual provisions of the instrument. All financial liabilities are measured subsequently at amortised cost using the effective interest method or at fair value through profit or loss (FVTPL).

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. On derecognition, the variance that arises between the carrying value of the financial liability and its proceeds, is recognised in profit and loss.

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs.

Other financial liabilities comprise lease obligations and trade and other payables.

1.8.3 Derivative financial instruments

Embedded derivatives are separated from the host contract and accounted for separately if:

the economic characteristics and risk of the host contract and the embedded derivative are not closely related;
a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
the combined instrument is not measured at fair value through profit or loss.

Derivatives are recognised initially at fair value; any attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted as described below under 1.20.2.

Refer to note 1.17.1 for the impairment of financial instruments.

Note 28 presents the financial instruments held by the Group based on their specific classifications.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.9 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. Ordinary shares are recognised at par value and classified as 'share capital' in equity. Any amounts received from the issue of shares in excess of par value is classified as 'share premium' in equity. Dividends are recognised as a liability in the Group in which they are declared.

1.10 Provisions

Provision for closure and restoration costs

Long-term environmental obligations are based on the Group’s environmental management plan, in compliance with current environmental and regulatory requirements.

A full provision is made based on the net present value of the estimated cost of restoring the environmental disturbance that has occurred up to the reporting date. The related costs are capitalised to mining assets and are amortised over the useful lives of the related assets. Annual movements in the provision relating to the change in the net present value of the provision due to changes in estimated cash flows or discount rates are adjusted against the costs capitalised to mining assets. The changes relate to the closure costs as well as the unwinding of interest. Immaterial ongoing rehabilitation costs are expensed in profit or loss.

These estimates are reviewed at least annually and changes in the measurement of the provision that result from the subsequent changes in the estimated timing or amount of cash flows, or a change in discount rate, are added to, or deducted from, the cost of the related asset in the current period. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in the statement of profit or loss. If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy on ‘Impairment of non-financial assets’. Annual movements in the provision relating to passage of time, i.e. unwinding of discount, are expensed as incurred.

Cost estimates are not reduced by the potential proceeds from the sale of assets or from plant clean-up at closure.

1.11 Inventories

Inventories are measured at the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Cost is determined on the following basis:

Finished goods on hand are valued using the weighted average cost and comprises material costs, labour costs and allocated production related overhead costs. Where the production process results in more than one product being produced, cost is allocated between the various products according to the ratio of contribution of these metals to gross sales revenue. Financing and storage costs related to inventory are expensed as incurred.
Consumable stores and raw materials are valued at weighted average cost and include expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.

1.12 Employee benefits

1.12.1 Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus plans and accumulated leave if the Group has a present legal or constructive obligation to pay as a result of past services provided by the employee and the obligation can be estimated reliably.

(Registration number 1987/003452/06)

Merafe Resources Limited

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.12 Employee benefits (continued)

1.12.2 Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payment is available.

Defined contribution plans are funded through monthly contributions to the provident fund, which is governed by the Pension Fund Act of 1956. All employees of the Group belong to the provident fund. The Group’s liability is limited to its annually determined contributions.

The Group and Company provide medical cover to current employees through various funds. The medical plans are funded through monthly contributions to the medical aid fund. The Group’s and Company’s liability is limited to its annually determined contributions.

1.12.3 Share-based payment transaction

The share incentive scheme allows qualifying directors and employees to be granted share grants. Share grants may be granted to all employees of the Company and any of its subsidiaries at the discretion of the directors, subject to the limitations imposed by the share grant scheme. The fair value of share grants are measured at grant date and spread over the period during which the employees become unconditionally entitled to the share grants. The fair value of the share grants are measured using the Monte Carlo model, taking into account the terms and conditions upon which the share grants were granted.

Share-based payment arrangements in which the Group received goods or services as consideration of its own equity instruments are settled in cash.

The fair value of the amount payable to employees in respect of cash settled share-based payment arrangements is recognised as an expense with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to payment. The liability is remeasured at fair value at each reporting date and at settlement date. Any changes in the fair value of the liability is recognised in profit or loss.

1.13 Revenue

1.13.1 Contracts with customers

The Group recognises revenue from customers on the sales of ferrochrome and chrome ore. Revenue is derived principally from the sale of these goods which are sold on Cost and Freight (CFR) or Cost, Insurance and Freight (CIF) Incoterms. Revenue is measured at the net of returns and allowances, trade discounts and volume rebates. Revenue is measured based on consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. The same recognition and presentation principles apply to revenues arising from physical settlement of forward sale contracts that do not meet the own use exemption.

The revenue is recognised when the performance obligation related to the sale of goods to customers is recognised when the product is delivered to the destination specified by the customer (which is typically the vessel on which it is shipped, the destination port or the customer’s premises) and the buyer has gained control through their ability to direct the use of and obtain substantially all the benefits from the asset. For certain sales, the sales price is determined on a provisional basis at the date of sale as the final selling price is subject to movements in market prices up to the date of final pricing, normally ranging from 30 to 120 days after initial booking (provisionally priced sales).

(Registration number 1987/003452/06) Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Merafe Resources Limited

Significant accounting policies

1.13 Revenue (continued)

Revenue on provisionally priced sales is recognised based on the estimated fair value of the total consideration receivable. The revenue adjustment mechanism embedded within provisionally priced sales arrangements has the character of a commodity derivative. The ferrochrome is provisionally invoiced to the distribution agents at a price that is linked to the ruling benchmark price when the risks and rewards pass to the distribution agents. The embedded derivative is recognised at fair value and is included in the statement of financial position. Accordingly, the fair value of the final sales price adjustment is re-estimated continuously and changes in fair value are recognised as an adjustment to revenue once the distribution agent receives the final price via the sale to the stainless steel customer. In all cases, fair value is estimated by reference to forward market prices. Revenue from the sale of material byproducts is included within revenue. Where a by-product is not regarded as significant, revenue may be credited against cost of goods sold.

The sale of goods is also done through distribution agreements noted below with the Glencore plc Group. Determining whether the Group is acting as an agent or principal is based on an evaluation of when control of the goods is taken by the Group, including inventory risk and responsibility for the delivery of goods or services.

Ferrochrome and chrome ore marketing arrangement with Glencore International AG (GIAG):

Glencore is acting as agent and the Group is acting as principal for ferrochrome and chrome ore sales.

Distribution arrangements with Glencore Limited, Glencore Canada Inc and Mitsui and Co Europe plc (the distribution agents):

The Group is acting as principal for the ferrochrome sales to the distribution agents when control of the goods passes from the Group to the distribution agents.

The distribution agents are acting as principal for subsequent sales to stainless steel customers and the performance obligation for revenue recognition is met when the product is delivered to the destination specified by the customer, which is typically the vessel on which it is shipped, the destination port or the customer’s premises and the buyer has gained control through their ability to direct the use of, and obtain substantially all the benefits from the asset .

1.13.2 Management fees

Revenue from management fees is recognised at the fair value of the consideration received or receivable. Revenue is recognised in the accounting periods in which the services are rendered.

The Company charges its wholly-owned subsidiary Merafe Ferrochrome management fees for the recovery of costs from the subsidiary, and are recognised when the costs are recovered net of Value Added Taxation. This is when the performance obligations are considered met.

1.14 Leases

The Group assesses whether a contract is, or contains a lease at inception of a contract.

The Group recognises a right-of-use asset as property, plant and equipment and a lease liability at the lease commencement date except for short-term leases (defined as leases with a lease term of 12 months or less and leases of low value assets). The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group uses its incremental borrowing rate as the discount rate.

Lease payments included in the measurement of the lease liability comprise the following:

fixed payments, including in-substance fixed payments;
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.14 Leases (continued)

amounts expected to be payable under a residual value guarantee;
the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option; and
penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

The lease liability is measured at amortised cost using the effective interest method.

1.15 Finance income and expenses

1.15.1 Finance income

Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method.

1.15.2 Finance expenses

Finance expenses comprise interest on tax related items and interest on finance leases.

1.16 Tax

Tax expense comprises current tax and deferred tax. Tax expenses are recognised in profit or loss except to the extent that it relates to items recognised directly in equity, or in other comprehensive income, in which case it is recognised in equity or in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. The current tax rate is 28%.

Deferred tax is not recognised for the following temporary differences:

The initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; and
Differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on laws that have been enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same tax authorities on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

Deferred tax assets, including deferred tax assets relating to the carry forward of unutilised tax losses and/or unutilised capital allowances are recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Dividend withholding tax

Dividend withholding tax is payable at a rate of 20% on dividends paid to shareholders. This tax is not attributable to the Company paying the dividend but is collected by the Company and paid to the South African Revenue Services on behalf of the shareholders.

Tax exposures

In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Company to change its judgement regarding the adequacy of existing tax liabilities. Such changes to tax liabilities will impact tax expense in the period that such a determination is made.

(Registration number 1987/003452/06)

Merafe Resources Limited

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.17 Impairment of assets

1.17.1 Financial assets

The Group recognises loss allowances for ECLs on financial assets measured at amortised cost.

Loss allowances on the loan to subsidiary are are measured at an amount equal to lifetime of the ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment, that includes forward-looking information.

The Group does not recognise ECLs on its trade receivables as the Group has historically not experienced credit losses on trade receivables due to non-payment through the various economic cycles.

Although payment terms range between 30 and 120 days depending on the region of the customer, there have been no defaults on payments and shipments are subject to letters of credit providing security in the event of default. Management ensures strict controls over monitoring debtors aging. GIAG (agent for sales purposes) also provides credit risk cover on the debtors balances and assumes 60% credit on ferrochrome sales and 100% on chrome ore sales substantially reducing the risk of any ECLs.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

Write off

The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. The Group expects no significant recovery from the amount written off.

1.17.2 Non-financial assets

The carrying amount of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

Recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset. The Group reviews and tests the carrying value of asset when events or changes in circumstances suggest that the carrying amount may not be recoverable by comparing the recoverable amounts to these carrying values. If there are indications that impairment may have occurred, estimates are prepared of recoverable amounts. The recoverable amount of the cash generating unit (CGU) is considered to be the value in use (VIU). The VIU is determined based on expected future cash flows of property, plant and equipment and intangible assets which are inherently uncertain and could materially change over time. It is significantly affected by a number of factors including reserves and production estimates, together with economic factors such as the ferrochrome prices, discount rates and foreign currency exchange rates.

An impairment loss is recognised if the carrying amount of the asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of the cash-generating unit is allocated to reduce the carrying amount of the asset in the unit on a pro rata basis.

Merafe Resources Limited

(Registration number 1987/003452/06) Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.17 Impairment of assets (continued)

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and the reversal is recognised in profit or loss. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined net of depreciation or amortisation, if no impairment loss has been recognised. The impairment loss that is reversed is recognised in profit or loss.

1.18 Segmental reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. The Group has one reportable segment being the mining and beneficiation of chrome ore into ferrochrome. Internal management accounts are prepared monthly on the basis of one reportable segment which is reviewed monthly by the Financial Director and Chief Executive Officer.

Ferrochrome and chrome ore are the products produced by the Venture. Most of the products produced are used in the manufacturing of stainless steel. Refer to note 21 for geographical areas of ferrochrome and chrome ore sales and information on customers that individually comprise more than 10% of total ferrochrome and chrome ore sales.

1.19 Dividend distributions

Dividend distributions to the Company’s shareholders are recognised as a liability in the consolidated and separate financial statements in the period in which the dividends are approved by the Board. Dividends declared after the reporting period are disclosed in the notes to the financial statements and are not recognised in the current financial statements. The cash flows for dividends are included in financing activities. Dividend withholding tax is levied on dividend recipients and has no impact on the Group taxation charge as reflected in the statement of profit or loss and other comprehensive income.

Merafe Resources Limited

(Registration number 1987/003452/06) Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.20 Determination of fair values

A number of the Group accounting policies and disclosures require the determination of fair value, for financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the methods as indicated below. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. The carrying values of financial assets and liabilities as reflected in the statement of financial position are a reasonable approximation of their fair values, unless otherwise stated in the respective note. To maintain consistency and comparability in fair value measurements and related disclosures, a fair value hierarchy that categorises the inputs to the valuation techniques used to measure fair value is categorised into three levels. Level one inputs are defined as inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date. Level two inputs are inputs other than quoted prices included within Level one that are observable for the asset or liability, either directly or indirectly. Lastly, level three inputs are unobservable inputs for the asset or liability. Refer to note 28.5.

1.20.1 Net trade receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.

1.20.2 Embedded derivatives

The fair value of the embedded derivative is based on the latest available ferrochrome prices and closing foreign exchange rate. Derivative instruments are carried at fair value for which the Group evaluates the quality and reliability of the assumptions and data used to measure fair value in the three hierarchy levels, Level 1, 2 and 3.

1.20.3 Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements.

1.20.4 Share-based payment transactions

Employee share grants are valued using measurement inputs which include the share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on Government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. Refer to note 15 for details regarding the assumptions used in the valuation model.

1.20.5 Investments in subsidiaries and loan to subsidiary

Investment in subsidiaries are measured at cost. The loan to the subsidiary is initially measured at fair value and subsequently at amortised cost. The fair value is determined based on the present value of cash flows, discounted at the Group interest rate for debt over the period based on the resources and reserves of the Group.

1.21 Mining royalty

The mining royalty has been effective from 1 March 2010 and requires the payment of a royalty for the benefit of the National Revenue Fund, in respect of the transfer of mineral resources. The mining royalty is payable on chrome ore in lumps, chips and fines as listed in schedule 2 of the Mineral and Petroleum Resources Royalty Act (the Act).

Chrome ore in lumps, chips and fines is an unrefined mineral resource and therefore the mining royalty is payable on “gross sales” as defined and is calculated in accordance with the unrefined mineral resource formula as detailed in the Act.

Management is required to make certain judgements in determining the gross sales value of the extracted ore tonnages. Gross sales is calculated using third party sales prices.

The mining royalty is recognised in the statement of profit or loss and is included in operating and other expenses.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Significant accounting policies

1.22 Other income

Dividend income

Dividends received by the Company are recognised at the fair value of the consideration received or receivable.

1.23 Loss per share

The Group presents basic and diluted loss per share. Basic loss per share is calculated on the loss attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the period. Diluted loss per share is determined by adjusting the losses attributable to shareholders, if applicable, and the weighted number of all potentially dilutive ordinary shares.

Headline loss per share is calculated by adjusting the losses attributable to the ordinary shareholders of Merafe Resources for all separately identifiable remeasurements. The result is then divided by the weighted average number of ordinary shares in issue/outstanding during the period. Diluted headline loss per share is calculated by dividing headline loss by the weighted average number of ordinary shares outstanding, adjusted for the effects of all dilutive potential ordinary shares which comprise grants granted to employees and future cash-settled share-based payments.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

2. New Standards and Interpretations

2.1 Standards and interpretations effective and adopted in the current year

In the current year, the Group has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations:

Definition of a business - Amendments to IFRS 3

The amendment:

confirmed that a business must include inputs and a processes, and clarified that the process must be substantive and that the inputs and process must together significantly contribute to creating outputs.
narrowed the definitions of a business by focusing the definition of outputs on goods and services provided to customers and other income from ordinary activities, rather than on providing dividends or other economic benefits directly to investors or lowering costs; and
added a test that makes it easier to conclude that a company has acquired a group of assets, rather than a business, if the value of the assets acquired is substantially all concentrated in a single asset or group of similar assets.

The effective date of the amendment is for years beginning on or after 01 January 2020.

The Group has adopted the amendment for the first time in the 2020 annual financial statements.

The impact of the amendment is not material.

Presentation of Financial Statements: Disclosure initiative

The amendment clarify and align the definition of ‘material’ and provide guidance to help improve consistency in the application of that concept whenever it is used in IFRS Standards.

The effective date of the amendment is for years beginning on or after 01 January 2020.

The Group has adopted the amendment for the first time in the 2020 annual financial statements.

The impact of the amendment is not material.

Accounting Policies, Changes in Accounting Estimates and Errors: Disclosure initiative

The amendment clarify and align the definition of ‘material’ and provide guidance to help improve consistency in the application of that concept whenever it is used in IFRS Standards.

The effective date of the amendment is for years beginning on or after 01 January 2020.

The Group has adopted the amendment for the first time in the 2020 annual financial statements.

The impact of the amendment is not material.

Amendments to References to the Conceptual Framework in IFRS Standard s

The Group has adopted the amendments included in Amendments to References to the Conceptual Framework in IFRS Standards for the first time in the current year. The amendments include consequential amendments to affected Standards so that they refer to the new Framework. Not all amendments, however, update those pronouncements with regard to references to and quotes from the Framework so that they refer to the revised Conceptual Framework. Some pronouncements are only updated to indicate which version of the Framework they are referencing to (the IASC Framework adopted by the IASB in 2001, the IASB Framework of 2010, or the new revised Framework of 2018) or to indicate that definitions in the Standard have not been updated with the new definitions developed in the revised Conceptual Framework.

(Registration number 1987/003452/06)

Merafe Resources Limited

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

2. New Standards and Interpretations (continued)

The Standards which are amended are IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32.

The impact of the amendment is not material.

2.2 Standards and interpretations issued and not yet effective

The Group has chosen not to early adopt the following standards and interpretations, which have been published and are mandatory for the Group’s accounting periods beginning on or after 01 January 2021 or later periods:

Classification of Liabilities as Current or Non-Current - Amendment to IAS 1

The amendment changes the requirements to classify a liability as current or non-current. If an entity has the right at the end of the reporting period, to defer settlement of a liability for at least twelve months after the reporting period, then the liability is classified as non-current.

If this right is subject to conditions imposed on the entity, then the right only exists, if, at the end of the reporting period, the entity has complied with those conditions.

In addition, the classification is not affected by the likelihood that the entity will exercise its right to defer settlement. Therefore, if the right exists, the liability is classified as non-current even if management intends or expects to settle the liability within twelve months of the reporting period. Additional disclosures would be required in such circumstances.

The effective date of the amendment is for years beginning on or after 01 January 2022.

The Group expects to adopt the amendment for the first time in the 2022 annual financial statements.

It is unlikely that the amendment will have a material impact on the Group's annual financial statements.

Amendments to IFRS 3 – Reference to the Conceptual Framework

The amendments update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework. They also add to IFRS 3 a requirement that, for obligations within the scope of IAS 37: Provisions, Contingent Liabilities and Contingent Assets , an acquirer applies IAS 37 to determine whether at the acquisition date a present obligation exists as a result of past events. For a levy that would be within the scope of IFRIC 21: Levies , the acquirer applies the same standard to determine whether the obligating event that gives rise to a liability to pay the levy has occurred by the acquisition date. Finally, the amendments add an explicit statement that an acquirer does not recognise contingent assets acquired in a business combination.

The amendments are effective for business combinations for which the date of acquisition is on or after the beginning of the first annual period beginning on or after 1 January 2022. Early application is permitted if an entity also applies all other updated references (published together with the updated Conceptual Framework) at the same time or earlier. It is unlikely that the amendment will have a material impact on the Group's annual financial statements.

Merafe Resources Limited (Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

2. New Standards and Interpretations (continued)

Amendments to IAS 16 – Property, Plant and Equipment — Proceeds before Intended Use

The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced before that asset is available for use, i.e. proceeds while bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Consequently, an entity recognises such sales proceeds and related costs in profit or loss. The entity measures the cost of those items in accordance with IAS 2: Inventories . The amendments also clarify the meaning of ‘testing whether an asset is functioning properly’. IAS 16 now specifies this as assessing whether the technical and physical performance of the asset is such that it is capable of being used in the production or supply of goods or services, for rental to others, or for administrative purposes.

The amendments are applied retrospectively, but only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments. The entity shall recognise the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of that earliest period presented.

The amendments are effective for annual periods beginning on or after 1 January 2022, with early application permitted. It is unlikely that the amendment will have a material impact on the Group's annual financial statements.

Amendments to IAS 37 – Onerous Contracts — Cost of Fulfilling a Contract

The amendments specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract consist of both the incremental costs of fulfilling that contract (examples would be direct labour or materials) and an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract).The amendments apply to contracts for which the entity has not yet fulfilled all its obligations at the beginning of the annual reporting period in which the entity first applies the amendments. Comparatives are not restated. Instead, the entity shall recognise the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings or other component of equity, as appropriate, at the date of initial application.

Annual Improvements to IFRS Standards 2018 – 2020

IFRS 9 Financial Instruments

The amendment clarifies that in applying the ‘10 per cent’ test to assess whether to derecognise a financial liability, an entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf. The amendment is applied prospectively to modifications and exchanges that occur on or after the date the entity first applies the amendment

The amendment is effective for annual periods beginning on or after 1 January 2022, with early application permitted.

IFRS 16 Leases

The amendment removes the illustration of the reimbursement of leasehold improvements. As the amendment to IFRS 16 only regards an illustrative example, no effective date is stated.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

3. Property, plant and equipment

Group		2020 (R'000)			2019 (R'000)
	Cost	Accumulated	Carrying value	Cost	Accumulated	Carrying value
		depreciation		Restated*	depreciation
		and			and
		impairment			impairment
					Restated*
Non-mining assets
Smelters	3,459,448	(3,235,821)	223,627	3,400,128	(2,353,984)	1,046,144
Pelletising plant	389,608	(374,407)	15,201	390,099	(326,434)	63,665
Right-of-use asset	35,993	(19,488)	16,505	36,159	(14,494)	21,665
Corporate asset	4,417	(4,341)	76	4,396	(4,024)	372
Mining assets
Mines	1,187,795	(1,104,585)	83,210	1,091,143	(787,909)	303,234
Total	5,077,261	(4,738,642)	338,619	4,921,925	(3,486,845)	1,435,080

The cost and accumulated depreciation of the 2019 property, plant and equipment has been restated due to the error in the treatment of the change of estimate relating to the rehabilitation provision and related impact on the impairment expense. Refer to note 33.

Company Right-of-use asset Corporate assets Total	2020 (R'000) 2019 (R'000)
	Cost Accumulated depreciation Carrying value Cost Accumulated depreciation Carrying value
	533 (208) 325 500 (100) 400 1,579 (1,355) 224 1,555 (1,349) 206
	2,112 (1,563) 549 2,055 (1,449) 606

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

3. Property, plant and equipment (continued)

Reconciliation of property, plant and equipment - Group 2020 (R'000)

Non-mining assets Smelters Pelletising plant Right-of-use-asset Corporate assets Mining assets Mines	Opening balance Additions Disposals Disposal accumulated depreciation Movement in capital work in progress Depreciation Impairment loss* Total 1,046,144 185,945 (144,382) 144,382 17,757 (81,812) (944,407) 223,627 63,665 10,774 (13,025) 13,025 1,760 (4,763) (56,235) 15,201 21,665 - (166) 166 - (5,160) - 16,505 372 49 (28) 25 - (79) (263) 76 303,234 112,287 (31,379) 31,379 15,745 (27,301) (320,756) 83,210
	1,435,080 309,055 (188,980) 188,977 35,262 (119,115) (1,321,661) 338,619

Non-mining assets
Smelters
Pelletising plant
Right-of-use-asset
Corporate assets
Mining assets
Mines

Opening
balance
Additions
Disposals
Disposal
accumulated
depreciation
Movement in
capital work
in progress
Depreciation
*Impairment
loss
Total
1,046,144
185,945
(144,382)
144,382
17,757
(81,812)
(944,407)
223,627
63,665
10,774
(13,025)
13,025
1,760
(4,763)
(56,235)
15,201
21,665
-
(166)
166
-
(5,160)
-
16,505
372
49
(28)
25
-
(79)
(263)
76
303,234
112,287
(31,379)
31,379
15,745
(27,301)
(320,756)
83,210

1,435,080
309,055
(188,980)
188,977
35,262
(119,115)
(1,321,661)
338,619

Impairment assessment

As a result of an impairment indicator arising from Merafe’s market capitalisation being lower than the net asset value at 31 December 2020, management performed an impairment assessment on the basis set out in note 1.17 and note 36. Significant judgement and estimates were made in determining the value-in-use calculation which is further explained in note 36. The recoverable amount was determined by using the value-in-use calculation via a discounted cash flow model. Based on the model the carrying value was higher than the recoverable amount therefore an impairment of R1.340bn was raised against the cash generating unit which has been raised against property, plant and equipment as well as the intangible assets. Additional impairments were raised against the assets to the value of R26m due to assets having a nil economical value.

Depreciation

R153m depreciation and amortisation is recognised in the statement of profit or loss and other comprehensive income which comprises of R119m resulting from property, plant and equipment and R5m of amortisation. R29m relates to a reversal of depreciation capitalised to inventory.

Change in estimate

**An amount of R1.3m of change in estimate on the rehabilitation provision is included in the additions for the Group. This is a non-cash item for purposes of the Group statement of cashflows.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

3. Property, plant and equipment (continued)

Reconciliation of property, plant and equipment - Group - 2019 (R'000)

Non-mining assets Smelters Pelletising Plant Right-of-use asset Corporate assets Mining assets Mines	Opening balance Additions Disposals Disposal* accumulated depreciation Movement in capital work in progress Depreciation Impairment loss Restated Total 2,314,004 301,110 (133,624) 135,954 (21,882) (329,499) (1,219,919) 1,046,144 263,048 22,234 (18,473) 18,473 38 (32,205) (189,450) 63,665 - 36,159 - - - (14,494) - 21,665 1,176 66 (28) 28 - (437) (433) 372 773,234 203,668 (35,389) 35,389 (202,537) (91,617) (379,514) 303,234 Restated***
	3,351,462 563,237 (187,514) 189,844 (224,381) (468,252) (1,789,316) 1,435,080

Non-mining assets
Smelters
Pelletising Plant
Right-of-use asset
Corporate assets
Mining assets
Mines

Opening
balance
Additions
*Disposals
Disposal
accumulated
depreciation
Movement in
capital work
in progress
Depreciation
Impairment
loss
Restated
*Total
2,314,004
301,110
(133,624)
135,954
(21,882)
(329,499)
(1,219,919)
1,046,144
263,048
22,234
(18,473)
18,473
38
(32,205)
(189,450)
63,665
-
36,159
-
-
-
(14,494)
-
21,665
1,176
66
(28)
28
-
(437)
(433)
372
773,234
203,668
(35,389)
35,389
(202,537)
(91,617)
(379,514)
303,234
Restated**

3,351,462
563,237
(187,514)
189,844
(224,381)
(468,252)
(1,789,316)
1,435,080

Impairment assessment

As a result of an impairment indicator arising from Merafe’s market capitalisation being lower than the net asset value at 31 December 2019, management performed an impairment assessment on the basis set out in note 1.17 and note 36. The recoverable amount was determined by using the value-in-use calculation via a discounted cash flow model. Based on the model the carrying value was higher than the recoverable amount therefore an impairment of R1.789bn was raised against the cash generating unit.

Depreciation

*R467m depreciation is recognised in the statement of profit or loss and other comprehensive income. R3.8m relates to depreciation capitalised to inventory

Restatement

**The unwinding of discount on the rehabilitation provision has been restated due to an error and reclassified out of finance income in the prior year into operating and other expenses and the impairment expense. This has been corrected to reflect under additions and impairment loss respectively. Refer to note 33.

Change in estimate

***An amount of R61.8m of change in estimate on the rehabilitation provision is included in the additions for the Group. This is a non-cash item for purposes of the Group statement of cashflows.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

3. Property, plant and equipment (continued)

Reconciliation of property, plant and equipment - Company - 2020 (R'000)

Reconciliation of property, plant and equipment - Company - 2020 (R'000)
Right-of-use asset Corporate assets Reconciliation of property, plant and equipment - Company - 2019 (R'000) Right-of-use asset Corporate assets	Opening balance Additions Disposals Disposal accumulated depreciation Depreciation Total 400 33 - - (108) 325 206 49 (25) 25 (31) 224
	606 82 (25) 25 (139) 549
	Opening balance Additions Disposals Disposal accumulated depreciation Depreciation Total - 500 - - (100) 400 275 63 (28) 28 (132) 206
	275 563 (28) 28 (232) 606

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

4. Intangible assets

Group		2020 (R'000)			2019 (R'000)
	Cost	Accumulated	Carrying value	Cost	Accumulated	Carrying value
		amortisation			amortisation
		and			and
		impairment			impairment
Mineral rights	163,006	(124,467)	38,539	124,002	(74,734)	49,268

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

4. Intangible assets (continued)

Reconciliation of intangible assets - Group - 2020 (R'000)

	Opening	Additions	Amortisation	Impairment	Total
	balance	through		loss
		business
		combinations
Mineral assets	49,268	39,004	(5,432)	(44,301)	38,539

Impairment assessment

Reconciliation of intangible assets - Group - 2019 (R'000)

	Opening	Additions	Disposals	Disposal	Amortisation	Total
	balance			accumulated
				amortisation
Mineral assets	51,376	739	(739)	739	(2,847)	49,268

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group		Company	Company
2020		2019	2020	2019
R '000		R '000	R '000	R '000

5. Investments in subsidiaries

Investments in subsidiaries
		2020			2019
	Issued share	Percentage	Investment	Issued share	Percentage	Investment
	capital	holding	cost*	capital	holding	cost*
Investments in subsidiaries	Number of	%	R '000	Number of	%	R '000
	shares			shares
Directly held
Merafe Chrome and Alloys	200	100	-	200	100	-
Merafe Ferrochrome	400	100	-	400	100	-

The Company’s share in the losses of subsidiaries for the year ended 31 December 2020 amounted to R995.2m (2019: R1.482bn loss). In the prior year, before simplification of the Group structure, Merafe Ferrochrome was indirectly held by the Company through its subsidiary Merafe Chrome and Alloys.

*Less than R1000

Controlled entities

Merafe Kroondal Rehabilitation Trust is consolidated as it is a controlled entity of the Company.

Refer to note 1.3.1 for further details on consolidation of controlled entities. There have been no significant changes in the nature and risks associated with this entity.

6. Investment in associate

The following table lists the associate of the Group. The investment in associate, being Impala, is as a result of the acquisition of the 20.5% interest in Unicorn which has been proportionately consolidated in the consolidated financial statements. Unicorn holds the 31.15% investment in Impala.

Group

Group
Name of company	Method	%		%		Carrying	Carrying
		ownership		ownership		amount 2020	amount 2019
		interest		interest		(R'000)	(R'000)
		2020		2019
Impala Chrome (Pty) Ltd	Equity	31.15	%	-	%	2,151	-
	accounting

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group		Company	Company
2020		2019	2020	2019
R '000		R '000	R '000	R '000

6. Investment in associate (continued) Summarised financial information of material associate

Summarised Statement of Profit or Loss and Other Comprehensive Income for the period 28 May 2020 - 31 December 2020 Revenue Other income and expenses Profit before tax Tax expense Profit Total comprehensive income Summarised Statement of Financial Position as at 31 December 2020 Assets Non-current Current Total assets Liabilities Non-current Current Total liabilities Total net assets Reconciliation of net assets of investment in associate Carrying value of investment in associate Investment at beginning of period Acquisition Other adjustments Share of earnings of associate Investment at end of period	Impala Chrome (Pty) Ltd (R'000)
	2020 2019
	112,796 - (95,596) -
	17,200 - (4,820) -
	12,380 -
	12,380 -

	Impala Chrome (Pty) Ltd (R'000)
	2020 2019
	28,275 - 158,281 - 186,556 -
	51,599 - 70,952 - 122,551 -

	64,005 -
	3,227 - (1,936) - 860 -
	2,151 -

Associates with different reporting dates

The end of the reporting year of Impala is 30 June. The financial information used in the consolidated results is as at 31 December 2020. In reporting the financial information for the associate, information from date of acquisition to the 31 December 2020 has been reported, using management accounts.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group		Company	Company
2020		2019	2020	2019
R '000		R '000	R '000	R '000

7. Loan to subsidiary

Loan to subsidiary - Merafe Ferrochrome Loss allowances	- - 1,173,867 1,285,567 - - - (1,286)
	- - 1,173,867 1,284,281

The loan is unsecured, interest free, and have no fixed term of repayment. The loan is repayable on demand with less than a year’s notice. The loan is short term in nature. The wholly-owned subsidiary is incorporated in the Republic of South Africa. Loss allowances on intercompany loans are measured at an amount equal to lifetime of the ECLs as the loans are repayable on demand discounted by an effective interest rate of 0%.

8. Long-term receivable

Receivable at fair value - Lanxess 13,982 16,612 - -

In 2017 the Venture entered into an asset swop arrangement with Lanxess Chrome Mine (Pty) Ltd (Lanxess) through which the Venture’s mineral rights were swopped for Lanxess’ mineral rights. The debtor arises as payment for the Venture’s mineral rights is through ore recovery and sale from mining in the rights area which is expected to be concluded in 2032. No ECLs were recognised for this receivable as the debtor is revalued at each reporting period based on the latest mining plans and probabilities and measured at its fair value.

9. Inventories

Inventories
Raw materials	630,726	638,677	-	-
Work in progress	5,735	20,702	-	-
Finished goods	710,847	1,256,727	-	-
Consumable stores	86,373	92,693	-	-
	1,433,681	2,008,799	-	-

The cost of inventories recognised as an expense and included in cost of sales amounted to R3.3bn (2019: R4.0bn) which is a decrease from the prior year due to lower sales experienced as a result of market conditions exacerbated by the pandemic. No inventories were encumbered during the year.

For the year ended 31 December 2020, inventory was written down to its net realisable value due to low commodity prices at reporting date. This resulted in a loss of R13.6m (2019: R133m).

10. Trade and other receivables

Financial instruments: Trade receivables Other receivables Related party receivable - Note 32 Non-financial instruments: Prepayments Total trade and other receivables	814,820 632,138 - - 52,721 38,620 4,156 3,491 2,952 - - - 10,423 4,586 - -
	880,916 675,344 4,156 3,491

Trade receivables is net of R22m (2019: R26m) of the commodities weight loss allowances. The commodity weight loss allowance is estimated using an estimated percentage of allowance per category of goods sold and by reference to past exposure experience. The Group’s exposure to credit and currency risks related to trade and other receivables are disclosed in note 28. No ECLs have been incurred and provided for. Trade receivables relating to local and foreign sales have an average payment term of between 30 and 120 days and are non-interest bearing.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group Company
	2020 2019 2020 2019 R '000 R '000 R '000 R '000
10. Trade and other receivables (continued) Trade receivables per sales region Africa 58,569 32,151 - - Asia 490,574 429,734 - - America 145,368 99,800 - - Europe 120,309 70,453 - - 814,820 632,138 - - The following table shows the movement in the weight allowances that have been recognised for trade receivables. Opening balance 25,775 11,666 - - Provision raised 42,104 52,708 - - Claims (21,358) (25,216) - - Amounts released (24,270) (13,383) - - Closing balance 22,251 25,775 - - 11. Derivatives Non-hedging derivatives Embedded derivative (2,476) (8,090) - -	58,569 32,151 - - 490,574 429,734 - - 145,368 99,800 - - 120,309 70,453 - -
	814,820 632,138 - -
	22,251 25,775 - -
	(2,476) (8,090) - -

Level 2 hierarchy per IFRS 13. The fair value of the embedded derivative is based on the latest available ferrochrome prices and closing foreign exchange rate of R14.65

12. Cash and cash equivalents

Cash and cash equivalents consist of:

Bank balances Short-term deposits Other cash and cash equivalents Reconciliation of cash in the Group Cash in the Venture Cash in Merafe Resources Cash in Merafe Ferrochrome Cash in Kroondal Rehabilitation Trust* Cash in Chrome & Alloys	276,960 353,795 2 4 42 39 42 39 627 347 627 347 277,629 354,181 671 390 125,701 142,627 - - 671 390 671 390 144,775 204,886 - - 6,437 6,212 - - 45 66 - -
	277,629 354,181 671 390

Cash at bank earns interest at a floating rate based on daily bank deposit rates. Call deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective call deposit rates.

The Group’s exposure to interest rate risk and sensitivity analysis for financial assets and financial liabilities are disclosed in Note 28.

*The cash trust account is restricted in use for the rehabilitation of Venture’s mines and smelters.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

		Group Company
		2020 2019 2020 2019 R '000 R '000 R '000 R '000
13. Share capital Authorised 3 500 000 000 ordinary shares of 1 cents each Issued 2 510 704 248 ordinary shares of 1 cent each All ordinary shares have equal voting rights. There are capital in terms of the memorandum of incorporation of 14. Share premium Balance at the beginning and end of the year 15. Cash-settled share-based payment arrangements Cash-settled share-based payment liability Balance at beginning of year Share-based payment (income)/expense Share grants vested Balance at the end of year* Current Non-current	no the	35,000 35,000 35,000 35,000
		25,107 25,107 25,107 25,107
		restrictions on the distribution of dividends or repayment of Company. 1,269,575 1,269,575 1,269,575 1,269,575 3,342 6,775 3,342 6,775 (649) 155 (649) 155 (582) (3,588) (582) (3,588)

		2,111 3,342 2,111 3,342
		628 2,338 628 2,338 1,483 1,004 1,483 1,004

the net statement of profit or loss and other comprehensive income is R0.7 million income (2019: R0.2 million expense).

Share grants

The share incentive scheme was approved by shareholders on 13 April 2010. Over time various share grants and share options were issued to directors and employees of the Company.

The purpose of the share incentive scheme is to serve as an incentive and reward to employees (including executive directors) of the Company and its subsidiaries for services rendered and to be rendered, aimed at promoting the continued growth of the Company by giving employees an opportunity to acquire shares in the Company and to serve as a retention mechanism for employees whose services are regarded by the Company to be crucial to the future growth and sustainability of the Company’s business. Share options and share grants are granted by the Board on the recommendation of the Remuneration Committee.

The Monte Carlo option pricing model was used to determine the fair value of the share grants.

The vesting of the grants is based solely on performance which is measured based on two conditions as follows: 50% based on Merafe’s total shareholder return (TSR) and 50% based on headline earnings per share (HEPS) growth.

If Merafe’s TSR over the three-year period places it in one of the top four positions, then 50% of the number of performance shares granted (TSR Portion) will vest in equal proportions on the 3rd, 4th and 5th anniversaries of their grant. If Merafe’s TSR over the three-year period places it in 6th position, then one third of the TSR Portion will vest in equal proportions on the 3rd, 4th and 5th anniversaries of their grant. If Merafe’s performance over the three-year period lies between any of the above points, then a prorated number of the TSR Portion will vest in equal proportions on the 3rd, 4th and 5th anniversaries of their grant. No share grants will vest for positions 7 and less.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

15. Cash-settled share-based payment arrangements (continued)

Vesting of the other 50% of grant shares will be in accordance with the following policy as determined by the Board of directors:

The performance shares allocated will be subject to performance against the growth in HEPS measure;
If performance meets or exceeds target, i.e. CPI + 2% per annum over the performance period, 100% of shares will vest;
If performance is at threshold, i.e. CPI + 1% per annum over the performance period, 50% of shares subject to this measure will vest;
For performance below threshold, 0% of shares subject to this measure, will vest; and
Linear vesting will take place between different performance milestones.

To avoid dilution of equity, all grants are currently cash settled.

The following assumptions were used in the valuation model:

	2020	2019
	2015 - 2020	2015 - 2019
	share grants	share grants
Risk free rate	3.92%	6.65%
Expected volatility*	59.12%	40%
Expected dividend yield	7.62	5.47
Expected life (years)	0.25 - 4.25	0.25 - 4.25
Vesting periods (years)	3 - 5	3 -5
Weighted average exercise price (Rands)	R0.28	R1.42
Weighted average grant price (Rands)	0.3 - 1.67	0.77 - 1.67
Weighted average option value (Rands)	0.26	0.60
Performance conditions	Yes	Yes
Intrinsic value of shares	R12.8m	R9.8m

The expected volatility of 59.12% (2019: 40%) is based on historic volatility of the Merafe share price over the past five years.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

15. Cash-settled share-based payment arrangements (continued)

The following share grants relating to employees and executive directors were outstanding at 31 December 2020:

Vesting date
01 April 2021
01 April 2021
01 April 2022
01 April 2021
01 April 2022
01 April 2023
06 August 2021
06 August 2022
06 August 2023
10 September 2021
10 September 2022
10 September 2023
01 April 2022
01 April 2023
01 April 2024
01 April 2023
01 April 2024
01 April 2025
Total

Total
Share grant date
977,675 01 April 2016
478,343 01 April 2017
478,343 01 April 2017
665,776 01 April 2018
665,776 01 April 2018
665,776 01 April 2018
213,154 06 August 2018
213,154 06 August 2018
213,154 06 August 2018
85,600 10 September 2018
85,600 10 September 2018
85,600 10 September 2018
1,415,970 01 April 2019
1,415,970 01 April 2019
1,415,970 01 April 2019
7,096,897 01 April 2020
7,096,897 01 April 2020
7,096,898 01 April 2020
30,366,553

The following share grants relating to executive directors were outstanding at 31 December 2020:

Vesting date 01 April 2021 01 April 2021 01 April 2022 01 April 2021 01 April 2022 01 April 2023 06 August 2021 06 August 2022 06 August 2023 01 April 2022 01 April 2023 01 April 2024 01 April 2023 01 April 2024 01 April 2025	Ms Z Matlala Mr D Chocho 941,409 - 460,433 - 460,433 - 576,692 - 576,692 - 576,692 - - 208,333 - 208,333 - 208,333 781,971 337,500 781,971 337,500 781,971 337,500 3,904,903 1,685,362 3,904,903 1,685,362 3,904,903 1,685,362
	17,652,973 6,693,585

The movement in the number of share grants can be summarised as follows:

Opening balance Granted during the year Vested during the year Forfeited during the year Closing balance	2020 Number of shares 2019 Number of shares 11,413,707 9,675,093 21,290,690 4,247,910 (2,042,397) (2,509,296) (295,447) -
	30,366,553 11,413,707

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group Company
	2020 2019 2020 2019 R '000 R '000 R '000 R '000
	5,668 7,807 468 564 16,434 20,474 - - 5,267 6,834 - -
	27,369 35,115 468 564 (8,252) (10,683) (102) (147)
	19,117 24,432 366 417
	3,534 4,460 366 417 11,691 15,419 - - 3,892 4,553 - -
	19,117 24,432 366 417
	15,583 19,972 - - 3,534 4,460 366 417

These financial liabilities are secured by leases over plant and equipment which is included in note 3. The loans are repayable in monthly instalments averaging R266k (2019: R168k) on all finance leases. Interest is payable at an average of 12.8% (2019: 12.5%) per annum. Contingent rent, special renewal terms and specific escalation clauses are not applicable to the leases. There are no restrictions that are imposed by the current lease arrangements.

In accordance with the agreement with the Venture, Merafe Ferrochrome receives 20.5% of the Venture's EBITDA whilst retaining ownership of its assets. The lease obligations in the Group's statement of financial position and the lease repayments represent 20.5% of the Venture's total obligations whereas the carrying values of assets that secure the finance leases, relate to the assets that are controlled by the Group and are reflected in the Group statement of financial position.

(Registration number 1987/003452/06)

Merafe Resources Limited

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

17. Provisions

Reconciliation of provisions - Group - 2020 (R'000)

Environmental rehabilitation Provision for uncertain obligation	Opening balance Change in esimate Income statement movement Unwinding of discount Total 158,267 1,331 2,412 13,351 175,361 179,449 - (179,449) - -
	337,716 1,331 (177,037) 13,351 175,361

Reconciliation of provisions - Group - 2019 (R'000) Restated*

Environmental rehabilitation Provision for uncertain obligation	Opening balance Change in estimate Utilised during the year Unwinding of discount Total 210,457 (61,829) (2,989) 12,628 158,267 161,447 18,002 - - 179,449
	371,904 (43,827) (2,989) 12,628 337,716

Environmental rehabilitation

The provision for closure and restoration costs is for a liability for the rehabilitation of land involved in any prospecting or mining operations of the Group and to discharge any liability which may arise in terms of the Atmospheric Pollution Prevention Act of 1965, the Environment Conservation Act, No 73 of 1989, the Minerals Act, No 50 of 1991, the Water Act, No 54 of 1956, NEMA which will be effected in July 2021 and any such other legislation that may be enacted in the future. The environmental obligations and corresponding liability remain the sole responsibility of the Venture.

Guarantees have been provided by the Venture to the Department of Mineral Resources in respect of the liability for closure and restoration costs. These guarantees are in the name of Glencore and relate to the Venture and are disclosed in note 28.2. The guarantees are not recognised as liabilities in the financial statements. The estimated cost of rehabilitation is based on environmental plans in accordance with current technology, environmental and regulatory requirements and the measurements of an independent professional surveyor.

The measurement of the environmental rehabilitation and decommissioning provisions is a key area where management’s judgement is required. The closure provisions are measured at the present value of the expected future cash flows required to perform the rehabilitation and decommissioning. This calculation requires the use of certain estimates and assumptions when determining the amount and timing of the future cash flows and the discount rate. The closure provisions are updated at each reporting date, for changes in the estimates of the amount or timing of future cash flows, inflationary changes in the expected cash flows, utilisation of prior year provisions and changes in the discount rate. The life of mine plan (LoMP) on which accounting estimates are based only includes proved and probable ore reserves as disclosed in Merafe’s annual ore reserves and mineral resources statement.

For purposes of calculating the provision on closure costs, management have assumed a long-term inflation rate of 5.5% (2019: 5.5%) and a risk free discount rate representative of the future cashflows of 9.3% (2019: 9.5%). A 10% increase in the inflation rate would have a R22m increase in profit or a 10% decrease in the inflation rate would have a R19m decrease in profit. A 10% increase in the discount rate would have a R27m decrease in profit, a 10% decrease would have a R42m increase in profit. The timing of the cash outflows relating to the provision is uncertain but is expected to range between two and thirty years.

The unwinding of discount on rehabilitation provision has been restated due to an error and reclassified out of finance income in the prior year into operating and other expenses and the impairment expense. The change in estimate for the prior year has also been restated with cashflow implications. Refer to note 33.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group		Company	Company
2020		2019	2020	2019
R '000		R '000	R '000	R '000

17. Provisions (continued)

Provision for uncertain obligation

The provision for uncertain obligation related to royalty tax. In the current financial year management has obtained the advice of Senior Counsel of the Bar in South Africa which has advised that the Group may discharge it obligation and mnagement accordingly reverse the provisions raised as no present legal obligation exists relating to the royalty tax. Based on this, there will be no further provisions raised.

As no obligation exits for the provision for uncertain obligation, management has reversed the provision as per note 1.22. In the 2019 financial year the following was assumed: interest rate payable of 10.25% and a 10% increase or decreased in the interest rate would have a R1.7m effect on profit.

18. Deferred tax

Deferred tax asset/(liability)

Property plant and equipment Provisions and accruals Finance lease obligations Trade and other receivables Total deferred tax liability	(27,963) (361,704) - - 121,035 120,908 964 1,374 6,100 6,719 - - 11,195 9,386 - -
	110,367 (224,691) 964 1,374

Deferred tax asset

Deferred tax assets are reviewed at the end of each reporting period. Management is of the view that the deferred tax asset raised is recoverable as it predominately relates to unredeemed capex balances which will be utilised in against future taxable profits when available.

The Company had an assessed tax loss of R60m at 31 December 2020 (2019: R56m). The tax loss does not have an expiry date and no deferred tax asset have been raised on this loss.

Deferred tax liability Deferred tax asset Total net deferred tax asset/(liability) Reconciliation of deferred tax asset /(liability) At beginning of year Decrease in tax loss available for set off against future taxable income - gross of valuation allowance Taxable/(deductible) temporary difference movement on property, plant and equipment (Deductible)/taxable temporary difference on trade and other receivables (Deductible) temporary difference on provisions and accruals (Deductible)/taxable temporary difference movement on finance leases	- (226,065) - - 110,367 1,374 964 1,374
	110,367 (224,691) 964 1,374
	(224,691) (733,158) 1,374 17,945 - (15,628) - (15,628) 333,741 541,240 - (4) 1,809 10,046 (410) (939) 127 (30,799) - - (619) 3,608 - -
	110,367 (224,691) 964 1,374

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group Company
	2020 2019 2020 2019 R '000 R '000 R '000 R '000
19. Current tax receivable Balance at the beginning of the year Current tax expense Prior year overprovision Provisional and top up tax payments Refunds received 20. Trade and other payables Financial instruments: Trade payables Related party loan: Glencore - Note 32 Employee benefit accruals Other payables	18,635 26,368 - - (353) (517) - - (1,087) (2,176) - - 15 22,670 - - - (27,710) - -
	17,210 18,635 - -
	432,555 428,509 331 445 33,314 10,351 - - 121,329 112,803 6,572 3,739 49,769 27,468 1,325 3,620
	636,967 579,131 8,228 7,804

Trade payables are non–interest bearing and are normally settled on 30 to 45 day terms. Other payables are non–interest bearing and are normally settled on 30 day terms. An accrual is recognised for the employer's liability for annual leave and associated costs. The accrual for compensated absences is recognised when the employee renders the service and the accrual is updated on a monthly basis. Employee benefits include an accrual for bonuses in terms of the Group's bonus scheme. The Group's exposure to currency, credit and liquidity risk related to trade and other payables is disclosed in note 28.1.

21. Revenue

Revenue from contracts with customers Ferrochrome sales Chrome ore sales Other mining income Revenue other than from contracts with customers Dividends received (trading) Management fees/sundry income Total revenue*	4,002,077 4,454,820 - - 777,092 909,619 - - - 12,490 - -
	4,779,169 5,376,929 - -
	- - - 150,642 1,218 2,400 4,106 5,449
	1,218 2,400 4,106 156,091
	4,780,387 5,379,329 4,106 156,091

*Other mining income includes revenue on the sale of silica, slags and scrap.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group		Company	Company
2020		2019	2020	2019
R '000		R '000	R '000	R '000

21. Revenue (continued)

Geographical areas of ferrochrome sales from customers

The majority of customers are stainless steel mills located at the following revenue destinations:

Revenue destination Africa and Middle East America Asia Europe Total**	2020 2019 Revenue % of revenue in relation to total ferrochrome revenue Revenue % of revenue in relation to total ferrochrome revenue R '000 R '000 124,103 3 138,553 3 357,456 9 432,025 10 2,901,682 73 3,146,283 70 618,836 15 737,959 17
	4,002,077 100 4,454,820 100

Includes South Africa and United Arab Emirates.

** Includes Brazil and USA

*** Includes China, India, Japan, South Korea and Taiwan.

**** Includes Germany, Italy, Luxembourg, Malta, Spain, Belgium, Switzerland.

Geographical areas of chrome ore sales from customers

Revenue destination South Africa Asia, Australia, USA and Europe Total	2020 2019 Revenue % of revenue in relation to total chrome revenue Revenue % of revenue in relation to total chrome revenue R '000 R '000 44,349 6 98,309 11 732,743 94 811,310 89
	777,092 100 909,619 100

Sales to the following customers individually comprise more than 10% of total sales:

Revenue destination Customer A Customer B Total	2020 2019 Revenue % of revenue in relation to total ferrochrome revenue Revenue % of revenue in relation to total ferrochrome revenue R '000 R '000 1,359,872 34 1,371,614 31 545,673 14 882,024 20
	1,905,545 48 2,253,638 51

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

		Group	Group	Company	Company
		2020	2019	2020	2019
			Restated *
		R '000	R '000	R '000	R '000
22.	Earnings/(loss) before interest, taxation, depreciation and impairment		(EBITDA)
	The following items have been taken into account in arriving at EBITDA:
	Revenue	4,780,387	5,379,329	4,106	156,091
	Cost of goods sold	(3,016,806)	(3,152,164)	-	-
	Loss on exchange differences	(59,711)	(14,373)	-	-
	Auditors remuneration - external auditors	(1,239)	(1,335)	(646)	(98)
	Consulting and professional fees	(4,751)	(6,563)	(4,221)	(5,016)
	Selling expense	(622,750)	(594,807)	-	-
	Commissions	(197,988)	(222,346)	-	-
	Net realisable value adjustment of stock	(13,583)	(133,249)	-	-
	Marketing fees	(2,025)	(1,776)	-	-
	Corporate social investment	(6,714)	(9,524)	(459)	(3,248)
	Social labour plans	(11,634)	(6,973)	-	-
	Enterprise development	(1,470)	(1,131)	-	-
	Movement in provision for closure and restoration	(13,351)	(12,628)	-	-
	Movement in provision relating to uncertain	179,449	(17,671)	-	-
	obligation
	Profit on sale of asset	167	17,087	-	-
	Embedded derivative recognised as a sales	5,614	(40,677)	-	-
	contract
	Short term and low value leases	(390)	-	-	-
	Other expenses	(3,373)	(7,404)	(3,373)	(7,404)
	Personnel expenses**	(841,925)	(794,538)	(3,443)	(3,678)
	Salaries and wages	(617,503)	(666,704)	(3,088)	(2,911)
	Bonus	(2,462)	(20,547)	(406)	(237)
	Medical aid - company contributions	(57,573)	(68,106)	(94)	(71)
	Leave pay provision accrual	(869)	(1,986)	(174)	(12)
	Post-employment benefits - defined pension	(66,946)	(78,134)	(330)	(292)
	contribution
	Termination benefits	(97,221)	-	-	-
	Share-based payment	649	(155)	649	(155)

		167,907	379,257	(8,036)	136,647

The unwinding of discount on the rehabilitation provision has been restated due to an error and reclassified out of finance income in the prior year into operating and other expenses and the impairment expense. Refer to note 33.

** Includes remuneration relating to key management personnel (see note 32).

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group Company
	2020 2019 2020 2019 Restated R '000 R '000 R '000 R '000*
23. Net finance income/(expense) Finance expense Lease liabilities Interest paid Total finance costs Finance income Interest income Bank and other cash Net finance income/(expense)*	(150) (206) (40) (45) (1,563) (1,388) (28) (25)
	(1,713) (1,594) (68) (70)
	6,517 11,998 4 138

	4,804 10,404 (64) 68

*The unwinding of discount on rehabilitation provision has been restated due to an error and reclassified out of finance income in the prior year into operating and other expenses and the impairment expense in the prior year. Refer to note 33.

24. Taxation

Major components of the tax credit/(expense)

Current
Local income tax - current period	(353)	(517)		-		-
Local income tax - prior year under provision	(1,087)	(2,176)		-		-
	(1,440)	(2,693)		-		-
Deferred
Deferred tax- current year	329,698	506,892	(410)		(16,571)
Deferred tax - prior year	14,467	898	-			-
	344,165	507,790	(410)		(16,571)
	342,725	505,097	(410)		(16,571)
Reconciliation of the tax credit/(expense)
Reconciliation between applicable tax rate and average	effective tax rate.
Applicable tax rate	% 28.00	% 28.00	28.00	%	28.00	%
Exempt dividend income received	% -	% -	-	%	(28.30)%
Permanent differences*	1.05%	% -	(23.00)	%	-	%
Derecognition of deferred tax asset	% -	% (1.00)	-	%	12.40	%
Prior year(under)/overprovision	% (3.55)	% 0.10	-	%	-	%
	% 25.50	% 27.10	5.00	%	12.10	%

*Includes cash-settled share-based payments, legal fees, consulting fees, other costs incurred to produce non-taxable income and other permanent differences.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group		Company	Company
2020		2019	2020	2019
R '000		R '000	R '000	R '000

25. Loss per share

25.1 Basic loss per share

Basic loss per share is determined by dividing loss attributable to the ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Basic loss per share

From operations (c per share) (40.00) (54.20)

The calculation of basic loss per share is based on a loss attributable to ordinary shareholders of R1.003bn (2019: R1.362bn) and a weighted average number of ordinary shares outstanding during the year of 2 510 704 248 (2019: 2 510 704 248).

25.2 Diluted loss per share

In the determination of diluted loss per share, loss attributable to the equity holders of the parent and the weighted average number of ordinary shares are adjusted for the effects of all potentially dilutive ordinary shares.

Diluted loss per share From operations (c per share) Reconciliation of weighted average number of ordinary shares used for loss per share to weighted average number of ordinary shares used for diluted loss per share Weighted average number of ordinary shares used for basic earnings per share '000	(40.00) (54.20)
	2,510,704 2,510,704

The calculation of diluted loss per share is based on a loss attributable to ordinary shareholders of R1.003bn (2019: R1.362bn) and a weighted average number of shares outstanding during the year of 2 510 704 248 (31 December 2019: 2 510 704 248).

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group	Company	Company
2020	2019	2020	2019
	Restated *
R '000	R '000	R '000	R '000

25. Loss per share (continued)

25.3 Headline loss and diluted headline loss per share

Headline loss per share and diluted headline loss per share are determined by dividing headline loss and diluted headline loss by the weighted average number of ordinary share outstanding during a period.

The calculation of headline loss per share is based on a loss attributable to ordinary shareholders of R19.7m (2019: R85.8m loss) and a weighted average number of shares outstanding during the year of 2 510 704 248 (31 December 2019: 2 510 704 248).

Headline loss per share (c) Diluted headline loss per share (c) Headline loss reconciliation Loss for the year attributable to equity holders of the parent Adjusted for: Impairment Profit on sale of assets Deferred tax Income tax Headline loss for the year 26. Cash generated from/(used in) operations (Loss)/profit before taxation Adjustments for: Depreciation and amortisation Effect of exchange rate fluctuations Income from equity accounted investment Finance income Finance costs Impairments Movements in provisions Non-cash movement Profit on sale property, plant and equipment Embedded derivative Movement in long-term receivable Share grants exercised Share-based payment (income)/ expense Unicorn fair value adjustment Net realisable value inventory adjustment Changes in working capital:* Inventories Trade and other receivables Trade and other payables	(0.80) (3.40) - - (0.80) (3.40) - - 2020 (R'000) 2019 (R'000) Restated* (1,003,027) (1,361,819) 1,365,962 1,789,316 (167) (17,087) (382,469) (501,008) - 4,784 (19,701) (85,814) (1,345,752) (1,866,916) (8,239) 136,484 153,361 467,261 139 232 87,908 4,410 - - (860) - - - (6,517) (11,998) (4) (138) 1,713 1,594 68 70 1,365,962 1,789,316 - - (163,686) 46,816 - - (3,006) 3,055 - - (167) (17,087) - - (5,614) 40,677 - - 2,630 (3,617) - - (582) (3,588) (582) (3,588) (649) 155 (649) 155 1,936 - - - 13,583 133,000 - - 532,720 (95,343) - - (211,002) 293,240 (665) 1,973 68,804 (96,230) 424 (463,789)	(0.80) (3.40) - - (0.80) (3.40) - - 2020 (R'000) 2019 (R'000) Restated* (1,003,027) (1,361,819) 1,365,962 1,789,316 (167) (17,087) (382,469) (501,008) - 4,784
		(19,701) (85,814)
	490,782 684,745 (9,508) (328,601)

*The unwinding of discount on the rehabilitation provision has been restated due to an error and has been reclassified out of finance income in the prior year into operating and other expenses and impairment expense. This has also been impacted by the change in estimate in the rehabilitation provision which has been reclassified out of the acquisition of property, plant and equipment - sustaining and into cash generated from operating activities. Refer to note 33. The net realisable inventory adjustment has been restated in the prior year to correctly treat this as a non-cash item.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

26. Cash generated from/(used in) operations (continued)

Reconciliation of movements of liabilities to cash flows from net cash utilised in financing activities

Group Lease obligations repaid Dividends paid Total changes from financing cash flows 31 December Lease obligation repaid Loan to subsidiary repaid Dividends paid Total changes from financing cash flows 31 December Company	2020 2019 Loans Bank Loans Bank R '000 R '000 R '000 R '000 - (7,581) - (4,288) (150,642) (100,428)
	- (108,009) - (154,870)
	2020 2019 Loans Loans R '000 Bank R '000 R '000 Bank R '000 (110,414) - 474,739 - - (100,428) - (150,642) (84) - - -
	(110,414) (100,512) 474,739 (150,642)

(Registration number 1987/003452/06)

Merafe Resources Limited

Audited Consolidated And Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

27. Business combinations

Acquisition of an interest in a joint operation: Unicorn Chrome (Pty) Ltd

On 28 May 2020 the Group acquired 20.5% of the voting equity interest of Unicorn through GOSA. Unicorn has a shareholding in a UG2 chrome concentrate producer Impala which extracts chrome concentrate from a tailings stream in the North West Province. Accordingly, Merafe considers Unicorn to be a valuable addition to its chrome interests. Unicorn holds a 31.15% interest in Impala and is accounted for as an associate and the equity method is applied. The Group acquired the interest in Unicorn for a cash purchase consideration of R33.1m which represented the fair value of the consideration excluding the cash aquired.

The interest in Unicorn is accounted for using IFRS 11: Joint Arrangements with the Group recognising in its interest in Unicorn its share of assets, liabilities, revenue and expenses.

Fair value of assets acquired and liabilities assumed Investment in associate Deferred tax Trade and other receivables Cash and cash equivalents Shareholders loan Trade and other payables Total identifiable net assets Mineral assets Sales claim	Group 2020 2019 R '000 R '000 3,227 - - - (9,107) - - - 50 - - - 1,419 - - - (2,632) - - - (50) - - - Company 2020 2019 R '000 R '000
	(7,093) - - - 39,004 - - - 2,632 - - -
	34,543 - - -

The fair value of trade receivables and other receivables represent the gross contractual amounts receivable and payable. The intangible asset arising from the acquisition consists of current contractual agreements in place to access underlying commodity being UG2. No acquisition related costs were incurred.

28. Financial instruments and risk management

Principles of risk management

The Group has exposure to the following risks from its use of financial instruments:

Credit risk;
Liquidity risk; and
Market risk

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital, also with the consideration of the impact of COVID-19 on the Group. Further quantitative disclosures are included throughout these consolidated financial statements.

The Board of directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Board has established a Group Audit and Risk Committee, which is responsible for monitoring the Group's risk management policies. The Committee reports directly to the Board of directors on its activities.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Merafe Resources Limited

Notes to the audited annual financial statements

28. Financial instruments and risk management (continued)

The Group Audit and Risk Committee oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit and Risk Committee is assisted in the oversight role at operations level by internal audit. Internal audit undertakes both regular and adhoc reviews of risk management controls and procedures, the result of which are reported to the Group Audit and Risk Committee.

The overall objective of the Venture's treasury department is to effectively manage credit risk, liquidity risk and market risks in accordance with the Group's strategy as the Group's activities expose it to a variety of risks. Other responsibilities of the Venture's treasury department include management of the Group's cash resources, approval of counter-parties and relevant transaction limits and the monitoring of all significant treasury activities undertaken by the Group. As of the current year, the Venture manages the treasury department through a Central Treasury Function.

The Venture's treasury department prepares monthly treasury reports which monitor all significant treasury activities undertaken by the Venture through the Central Treasury Function. The report also benchmarks significant treasury activities and monitors key banking risks to ensure continued effectiveness.

The Group's significant financial instruments comprise financial assets and financial liabilities measured at amortised cost. The main purpose of these financial instruments is to finance the Group's acquisitions and ongoing operations.

Certain comparative amounts in this note have been reclassified from financial to non-financial assets/liabilities.

28.1. Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counter-party to a financial instrument fails to meet its contractual obligation. The Group minimises credit risk by ensuring that the exposure is spread over a number of counterparties.

Exposure to credit risk arises as a result of transactions in the Group's ordinary course of business and is applicable to all financial assets. Counter-parties are assessed both prior to, during and after conclusion of transactions to ensure exposure to credit risk is limited to an acceptable level. There is no material concentration of credit risk in cash and cash equivalents, trade and other receivables and loans.

Cash and cash equivalents

The Group limits its exposure to credit risk by investing only in liquid securities and only with approved banks and financial institutions. The Group's cash balances are in the form of short-term deposits in both local and foreign currency.

Trade and other receivables

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group's customer base, including the default risk of the industry and country in which the customers operate, has less of an influence on credit risk. Management have considered recoverability of trade and other receivables noted in note 1.17.1 and 10 and no significant ECLs are expected. Trade receivables are presented in the statement of financial position net of any provision for impairment. No trade receivables are past due.

The Group sells the majority of its ferrochrome to a broad range of international customers in terms of the Venture agreement.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group		Company	Company
2020		2019	2020	2019
R '000		R '000	R '000	R '000

28. Financial instruments and risk management (continued)

The marketing agent, Glencore International AG (GIAG), accepts 60% of the risk related to non-payment of credit sales of ferrochrome and 100% of the risk of non-payment of credit sales of chrome ore. In general, GIAG acts as a sales and marketing agent, on-selling purchases from the Group to a wide variety of customers. These sales are governed by various sales, marketing and distribution agreements. As these agreements have been in place for a number of years and the Group has not been exposed to significant unrecoverable amounts, the Group does not believe that these arrangements expose it to unacceptable credit risks.

Where concentrations of credit risk exist, management closely monitors the receivable and ensures appropriate controls are in place to ensure recovery. The Group does not have netting arrangements with any debtors.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: (refer note 28.4 and note 10)

Exposure to credit risk Loan to subsidiary at amortised cost Trade and other receivables at amortised cost Long-term receivable at fair value Cash and cash equivalents at amortised cost	- - 1,173,867 1,284,281 670,758 4,156 3,491 13,982 16,612 - - 277,629 354,181 671 390 870,493
	1,162,104 1,041,551 1,178,694 1,288,162

28.2. Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Liquidity risk is the risk that the Group will not be able to meet its financial obligations on time. As part of the Group’s cash preservation measures as a result of COVID-19, the Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The Venture's treasury department is responsible for management of liquidity risk, including funding, settlements, related processes and policies of the Venture. The Group manages its liquidity risk on a concentrated basis, utilising various sources of finance to maintain flexibility while ensuring access to cost-effective funds when required. The operational, tax, capital and regulatory requirements and obligations of the Group are considered in the management of liquidity risk. In addition, management utilises both short and long term cash flow forecasts and other consolidated financial information to manage liquidity risk.

The Group uses activity-based costing to cost its products, which assists it in monitoring cash flow requirements and optimising its cash return on investments. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations, this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.

In addition, the Group maintained the following facilities at 31 December 2020:

The Company

ABSA Bank Limited (ABSA): R1m credit card facilities. Interest is payable at ABSA’s prime lending rate. At the reporting date the prime lending rate was 7%; and
ABSA: R0.3m guarantee facility.

Merafe Ferrochrome

ABSA: R20m guarantee facility

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

28. Financial instruments and risk management (continued)

ABSA facility: this is a R300m (2019: R300m) revolving credit facility and interest on the facility is calculated at 3 months JIBAR plus a margin of 240 basis points. At 31 December 2020, the facility was unutilised with a zero balance. A commitment fee of 0.50% per annum is payable on the unused portion of the facility which is a payable quarterly in arrears. Interest is charged at three months JIBAR plus 240 basis points. As at 31 December 2020 the 3 months JIBAR was at 3.64%.
The financial covenants relating to the facility are as follows: the interest cover ratio for any measurement period should not be less than 4 times and the net debt to EBITDA ratio for any measurement period should not be more than 2.5 times. There was no utilization of the facility during the year and therefore no requirement to meet covenants.
ABSA: R0.5m credit card facilities. Interest is payable at ABSA’s prime lending rate. At the reporting date the prime lending rate was 7%.

The Venture

In July 2020 GOSA, acting on behalf of the Venture, and Merafe Ferrochrome entered into a Treasury Services Agreement (TSA) with Glencore Holdings South Africa (Pty) Ltd (Service Provider/GHSA). Loans and overdraft funding and issuance of guarantee instruments are among the services offered by the Service Provider to the Venture.
Interest is charged as follows on overnight funding: USD – Fed Funds Lower Bound plus 2.1%; ZAR – South African Prime Lending rate less 1%. Accordingly, GOSA has cancelled the previously held US$100m debtors' facility and a US$175m overdraft facility with various South African financial institutions.
The facilities remain undrawn as at 31 December 2020.

As indicated, GHSA now also issues guarantees on behalf of the Venture. At year end, the Venture had the following guarantees in place (Merafe’s attributable portion):

ABSA R '000 13,244	Nedbank R '000 22,868	GHSA Total R '000 R '000 128,701 128,701
		52,323 52,323 66,087 66,087 9,023 9,023 1,268 1,268

		% 100 % 100
		FNB Standard Total R '000 R '000 R '000 66,084 7,906 110,102 41,980 - 53,494 24,104 7,906 54,960 - - 314 - - 1,334 % 100 % 100 % 100
11,514 82 314 1,334	- 22,868 - -	41,980 - 53,494 24,104 7,906 54,960 - - 314 - - 1,334

% 100 % 100

All of the above guarantees are in the name of GHSA and relate to the Venture. The guarantees are not assessed for ECLs as per IFRS 9 as they are guaranteed by the individual banks and measured at fair value.

Company 31 December 2020 Facility available Department of Mineral Resources Percentage utilised	ABSA R '000 1,310	FNB Total R '000 R '000 20 1,330
	1,310	20 1,330

	% 100 % 100 % 100

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

28. Financial instruments and risk management (continued)

Company 31 December 2019 Facility available Department of Mineral Resources Percentage utilised	ABSA FNB Total R '000 R '000 R '000 1,310 20 1,330
	1,310 20 1,330

	% 100 % 100 % 100

The following are the contractual maturities of financial liabilities including estimated interest payments and excluding the impact of netting arrangements.

Group 2020 (R'000) Non-derivative Finance lease liabilities Trade and other payables Total Group 2019 (R'000) Non-derivative Finance lease liabilities Trade and other payables Total	Year ended 31 December 2021 Year ended 31 December 2022 Year ended 31 December 2023 Year ended 31 December 2024 onwards Total (5,668) (5,818) (5,026) (10,857) (27,369) (636,967) - - - (636,967)
	(642,635) (5,818) (5,026) (10,857) (664,336)
	Year ended 31 December 2020 Year ended 31 December 2021 Year ended 31 December 2022 Year ended 31 December 2023 onwards Total (7,062) (6,004) (5,313) (16,736) (35,115) (579,131) - - - (579,131)
	(586,193) (6,004) (5,313) (16,736) (614,246)

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

	Group		Company	Company
2020		2019	2020	2019
R '000		R '000	R '000	R '000

28. Financial instruments and risk management (continued)

28.3. Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and ferrochrome prices, will affect the Group's income or the value of its holding of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising return.

Currency risk

Foreign currency

In the normal course of business, the Group enters into transactions denominated in foreign currencies (primarily US$). As a result, the Group was subject to transactions and translation exposure from fluctuations in foreign currency exchange rates.

The Group's exposure to foreign currency risk is as follows:

Exposure to currency risk Amounts in US$'000 Trade receivables Derivatives CFC account The following exchange rates were applied during the year: Rand: United States Dollar	48,435 46,888 - - (169) (579) - - 526 3,457 - -
	48,792 49,766 - -
	Average rate Reporting date spot rate 2020 2019 2020 2019 16.46 14.50 14.65 14.04

Foreign currency sensitivity analysis

A 10 percent (strengthening)/weakening of the Rand against the US$ at 31 December 2020 would have (decreased)/increased equity and profit before tax by R71m. A 10 percent (strengthening)/weakening of the Rand at 31 December 2019 against the US$ would have (decreased)/increased equity and profit before taxation by R71m. This analysis assumes that all other variables, in particular interest rates, remain constant. This sensitivity does not represent the statement of profit or loss and other comprehensive income impact that would be expected from a movement in foreign currency exchange rates over the course of a period of time.

Interest rate risk profile

At the reporting date, the interest rate profile of the Group's interest-bearing financial instruments were:

	2020		2019
	Average	Carrying	Average	Carrying
	interest rate	amount	interest rate	amount
Variable rate instruments	%	R '000	%	R '000
Interest-bearing borrowings
Finance leases – plant and equipment	12.8	(19,117)	13.3	(24,432)
Cash and cash equivalents
Local currency*	4.3	268,918	7.3	305,641
Foreign currency	2.1	8,711	3.4	48,540
		258,512		329,749

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

28. Financial instruments and risk management (continued)

Cash balances in local currency receive interest as follows at reporting date:
a) The Venture: prime less 5.75%
b) The Company and Merafe Ferrochrome

Call deposits: daily call deposits rates. At year end the call deposit rate was 4,31%

Current account balances

favourable: 1%
unfavourable: prime which was 7.0%

*Access Deposit: The average rate was 4.8%.

Sensitivity Analysis for interest rate risk

Cash and cash equivalents

A decrease of 50 basis points in interest rates will decrease equity and profit or loss by R1.4m (2019: R1.8m). An increase of 50 basis points would have the equal but opposite effect. This analysis assumes all other variables remain constant.

Interest-bearing borrowings

A decrease of 50 basis points on the interest rates on the interest-bearing borrowings will increase equity and profit or loss by R1m (2019: R1.2m). An increase of 50 basis points would have the equal but opposite effect. This analysis assumes all other variables remain constant.

28.4. Financial Instruments

The following tables present the carrying values and fair values of the Group’s financial instruments adjusted for the impacts of COVID-19 where relevant. Fair value is the price that would be expected to be received to sell an asset or paid to transfer a liability in a market at the measurement date under current market conditions. Where available, market values have been used to determine fair values. When market values are not available, fair values have been calculated by discounting expected cash flows at prevailing market interest and exchange rates. The estimated fair values have been determined using market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the Group could realise in the normal course of business. Amortised costs approximates fair value.

The financial assets and liabilities are presented by class in the tables below at their carrying values.

Categories of financial assets

Group 2020 (R'000)

Group 2020 (R'000)
	Note(s)	Fair value	Amortised	Total
		through profit	cost
		or loss
Trade and other receivables	10	-	870,493	870,493
Cash and cash equivalents	12	-	277,629	277,629
Long-term receivable	8	13,982	-	13,982
		13,982	1,148,122	1,162,104

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

28. Financial instruments and risk management (continued)

Group 2019 (R'000)

Group 2019 (R'000)
	Note(s)	Fair value	Amortised	Total
		through profit	cost
		or loss
Trade and other receivables	10	-	670,758	670,758
Cash and cash equivalents	12	-	354,181	354,181
Long-term receivable	8	16,612	-	16,612
		16,612	1,024,939	1,041,551
Company 2020 (R'000)
		Note(s)	Amortised	Total
			cost
Loan to subsidiary		7	1,173,867	1,173,867
Trade and other receivables		10	4,156	4,156
Cash and cash equivalents		12	671	671
			1,178,694	1,178,694
Company 2019 (R'000)
		Note(s)	Amortised	Total
			cost
Loan to subsidiary		7	1,284,281	1,284,281
Trade and other receivables		10	3,491	3,491
Cash and cash equivalents		12	390	390
			1,288,162	1,288,162

(Registration number 1987/003452/06)

Merafe Resources Limited

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

28. Financial instruments and risk management (continued)

Categories of financial liabilities

Group 2020 (R'000)

Group 2020 (R'000)
	Note(s)	Fair value	Amortised	Leases	Total
		through profit	cost
		or loss
Trade and other payables	20	-	636,967	-	636,967
Derivatives - non-hedging	11	2,476	-	-	2,476
Finance lease obligations	16	-	-	19,117	19,117
		2,476	636,967	19,117	658,560
Group 2019 (R'000)
	Note(s)	Fair value	Amortised	Leases	Total
		through profit	cost
		or loss
Trade and other payables	20	-	579,131	-	579,131
Derivatives - non-hedging	11	8,090	-	-	8,090
Finance lease obligations	16	-	-	24,432	24,432
		8,090	579,131	24,432	611,653
Company 2020 (R'000)
		Note(s)	Amortised	Leases	Total
			cost
Trade and other payables		20	8,228	-	8,228
Finance lease obligations		16	-	366	366
			8,228	366	8,594
Company 2019 (R'000)
		Note(s)	Amortised	Leases	Total
			cost
Trade and other payables		20	7,804	-	7,804
Finance lease obligations		16	-	417	417
			7,804	417	8,221

28.5. Fair value estimation

A number of the Group’s accounting policies and disclosures require the measurement of fair values. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Refer to note 1.20 for the accounting policy and valuation of these financial instruments.

The Group’s assets and liabilities that are measured at fair value are classified into different levels based on the extent that quoted prices are used in the calculation of fair value and the levels have been defined as follows:

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

28. Financial instruments and risk management (continued)

level 1: fair value based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
level 2: fair value based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); or
level 3: fair value based on inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The following table presents the fair value measurement hierarchy of the Group’s assets and liabilities measured at fair value:

Group 2020 Financial asset/(liability) Derivative Long-term receivable Group 2019 Financial asset/(liability) Derivative Long-term receivable	Level 1 Level 2 Level 3 Total R '000 R '000 R '000 R '000 - (2,476) - (2,476) - 13,982 - 13,982
	- 11,506 - 11,506
	Level 1 Level 2 Level 3 Total R '000 R '000 R '000 R '000 - (8,090) - (8,090) - 13,982 - 13,982
	- 5,892 - 5,892

29. Capital management

The Board’s policy is to maintain a strong capital base in order to maintain investor, debt providers and the market confidence in the business. The Group's objective when managing capital is to maintain a flexible capital structure that reduces the cost of capital to an acceptable level of risk and to safeguard the Group's ability to continue as a going concern while taking advantage of strategic opportunities in order to maximise stakeholder returns sustainably.

The strong capital base should ensure that any organic or acquisitive growth in the business is sustainable and provides a cushion for the cyclical nature of the resources business.

The Board has actively pursued a policy of debt reduction and its objective is to maintain its net gearing level to a maximum of 25% versus total assets. This ratio is calculated taking into account interest bearing debt excluding cash balances divided by total assets. At 31 December 2020 year end, the gearing level was 0% (31 December 2019: 0%).

As the required gearing level has been achieved, the Board will focus on balancing the requirement to pay dividends, while at the same time ensuring that there is sufficient capital in the business to see the Company through the continued global economic uncertainty, to fund working capital, to fund capital expenditure requirements and to fund other growth opportunities in the business.

When analysing growth opportunities, the Board seeks to obtain a minimum internal rate of return of 20%.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

30. Commitments

Commitments relating to the Venture (R'000) The Group's capital commitments at year end in respect of the Venture were: Contracted for but not provided for Authorised but not contracted for	Group 2020 2019 R '000 R '000 67,097 67,686 177,087 129,048
	244,184 196,734

31. Contingencies

To the best of our knowledge and belief, other than as set out elsewhere in this report, there are no contingencies in both the current and prior year which may materially affect the financial position of the Group.

Merafe Resources Limited (Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

32. Related parties

32.1. Related party transactions and balances

On an annual basis management reviews its related party relationships in accordance with IAS 24: Related Party Disclosures . The Glencore plc Group was identified as a related party taking into consideration the shareholding and related significant influence coupled with the substance of the relationship. Significant transactions and balances with all entities within the Glencore plc Group are therefore disclosed together with the comparative figures.

All related party transactions relate to Merafe’s attributable 20.5% interest in the Venture. Income and receivable amounts are shown in brackets. There are no outstanding commitments at the reporting date.

Name of related party The Venture Merafe Chrome and Alloys Proprietary Limited Merafe Ferrochrome and Mining Proprietary Limited Merafe Kroondal Rehabilitation Trust (SE) Industrial Development Corporation of South Africa Limited (IDC)	Description of relationship	Transactions and balance
	In July 2004, GOSA and Merafe Ferrochrome pooled and shared ferrochrome assets to form the Venture.	Refer note 32.4 for the amounts that are included in the consolidated financial statements of the Group.
	Merafe Chrome is a wholly owned subsidiary of Merafe.	No dividends were paid to Merafe by Merafe Chrome (2019: R150m).
	Merafe Ferrochrome is a wholly–owned subsidiary of Merafe Chrome.	Merafe Resources charges Merafe Ferrochrome a management fee as per note 21. No dividends were paid to Merafe Chrome (2019: R150m). At the reporting date a loan of R1.17bn (2019:R1.28bn) is owing by Merafe Ferrochrome. The loan account is of a short-term nature, is interest free, unsecured and does not have fixed repayment terms.
	The Trust, which was registered on 31 May 2006, was established to provide funds for the rehabilitation of land involved in any prospecting or mining operations of Merafe Ferrochrome of the Kroondal mine and to discharge any liability which might arise in terms of the Atmospheric Pollution Prevention Act of 1965, the Environment Conservation Act 45, No 50 of 1991, the Water Act, No 54 of 1956 and any such other legislation as may be enacted in the future. The environmental obligations and corresponding liability remain the sole responsibility of the Venture. The trust is a subsidiary of Merafe Resources and is consolidated.	A loan account is recognised with Merafe Resources of R108k (2019: R108k) which relates to the payment of audit fees. The loan account is of a short-term nature, is interest free, unsecured and does not have fixed repayment terms.
	The IDC holds 21.8% of the issued share capital of Merafe Resources Limited and has the ability to exercise significant influence over Merafe Resources Limited as a result of its shareholding.	The IDC received the non–executive director's fees for Ms M Mosweu as disclosed in note 32.2. The IDC received dividends declared by Merafe Resources. At the reporting date there are no amounts due to the IDC.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

32. Related parties (continued)

Ms M Mosweu, Ms B Majova, Mr A Mngomezulu, Ms Z Matlala, Mr S Blankfield, Mr D Chocho, Ms M Vuso, Ms G Motau, Mr J Mclaughlan, Mr K Tlale* Glencore Limited (Stamford) (GLS)# Glencore International AG (GIAG)# African Carbon Manufacturers (Pty) Ltd (ACM)# African Fine Carbon (Pty) Ltd (AFC)# Chartech Technology (Pty) Ltd (Chartech)# African Carbon Producers (Pty) Ltd (ACP)# Glencore Operations South Africa (Pty) Ltd (GOSA)# Access world (South Africa) Pty Ltd (Access)# Glencore Holdings SA (Pty) Ltd (GHSA)#	Directors of Merafe Resources Limited.	Refer to note 32.2 for transactions with directors.
	GLS acts as the Venture’s exclusive marketing agent to sell ferrochrome on its behalf and acts as distributor in the USA and Canada.	Sale of ferrochrome R315m (2019: R390m). Commission expense R8m (2019: R8m). Interest expense R4m (2019: R5m). Receivable at the reporting date R117m (2019: R83m) which is reduced as and when GLS receives funds from customers and receivable 120 days after bill of lading.
	GIAG acts as the Venture’s exclusive marketing agent to sell ferrochrome and chrome ore on its behalf. The Venture purchases various raw materials from GIAG on an ongoing basis. The Venture sells chrome ore to GIAG on an ad-hoc basis.	Commission expense on sale of ferrochrome and chrome ore R156m (2019: R212m). Marketing fee expense R2m (2019: R2m). Interest income R3m (2019: (R2m). Purchase of raw materials nil (2019: R159m). Balance owing at the reporting date R26m (2019: R21m) payable on confirmation of final sales.
	ACM sells raw materials to the Venture.	Purchase of raw materials R11m (2019: R21m). Balance owing at the end of the reporting date R2m (2019: R2m) payable 30 days from statement date.
	AFC sells raw materials to the Venture.	Purchase of raw materials R20m (2019: R40m).Balance owing at the reporting date R4m (2019: R3m) payable 30 days from statement date.
	Chartech sells raw materials to the Venture.	Purchase of raw materials R22m (2019: R40m).
	ACP sells raw materials to the Venture.	Purchase of raw materials R1m (2019: R1m). Balance owing at the reporting period R4m (2019: R4m) payable 30 days from statement date.
	GOSA is Merafe Ferrochrome partner in the Venture.	Employee costs R148m (2019: R144m). Head- office costs R23m (2019: R23m). Training costs R5m (2019: R5m). Lion housing R15m (2019: R15m). Balance owing at the end of the year R11m (2019: R11m) payable 10 days after month end. GOSA received the non–executive director's fees for Mr S Blankfield as disclosed in note 32.2.
	Access is a warehousing company that provides storage facilities of ferrochrome and chrome ore to the Venture.	Storage of ferrochrome and chrome ore R10m (2019: R15m). Outstanding balance owing at the reporting date R2m (2019: R3m) payable 30 days after statement date.
	GHSA offers the Central Treasury Function for the Venture.	Cash deposits of R79m.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

32. Related parties (continued)

Impala Chrome (Pty) Ltd (Impala) Astron Energy (Pty) Ltd (Astron)# Unicorn Chrome (Pty) Ltd (Unicorn)	Impala is an associate jointly controlled by the Venture.	Revenue from logistics and maintenance contracts R20m. Receivable at the reporting date R14m.
	Astron sells fuel to the Venture.	Purchases of R10m. Payable of R2m at the reporting date.
	Unicorn is a jointly controlled operation by the Venture.	Receivables of R3m at the reporting date and payables of Rnil at the reporting date.

Resigned on 31 October 2020

** Appointed 1 December 2020.

Subsidiary of Glencore plc.

32.2. Transactions with key management personnel and non-executive directors

Non-executive directors

2020 (R'000)

Mr A Mngomezulu Ms M Vuso Ms HG Motau¹ Ms B Majova Mr J Mclaughlan Ms M Mosweu Mr S Blankfield³ Mr K Tlale² 2019 (R'000) Mr C Molefe Mr A Mngomezulu Ms M Vuso Ms B Majova Ms M Mosweu Mr S Blankfield Mr J Mclaughlan Ms HG Motau	Directors' fees Total 802 802 561 561 392 392 584 584 435 435 326 326 401 401 22 22
	3,523 3,523
	Directors' fees Total 271 271 681 681 516 516 541 541 357 357 364 364 274 274 435 435
	3,439 3,439

The above fees relate to services rendered as directors. No other services were

rendered.

¹ Resigned on 31 October 2020

² Appointed 1 December 2020.

³ Paid to GOSA.

(Registration number 1987/003452/06)

Merafe Resources Limited

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

32. Related parties (continued)

Key management compensation

2020 (R'000)

Ms ZJ Matlala Mr SD Chocho 2019 (R'000) Ms ZJ Matlala Mr SD Chocho	Salary Fringe benefits and leave pay Provident fund contributions Share grants vested Total 5,242 69 590 558 6,459 2,994 64 350 - 3,408
	8,236 133 940 558 9,867
	Salary Fringe benefits and leave pay Provident fund contributions Share grants vested Total 5,033 67 461 3,459 9,020 2,792 78 366 - 3,236
	7,825 145 827 3,459 12,256

32.3. Directors’ interests in Merafe Resources Limited

As at 31 December 2020, the directors of the Company are beneficially interested (directly and indirectly) in 3 616 175 (31 December 2019: 3 016 175) shares in the Company. During the financial year no material contracts were entered into in which directors and prescribed officers of the Company had an interest and which significantly affected the Group.

Executive directors of the Company and their immediate families control 0.1% (31 December 2019: 0.1%) of the voting shares of the Company. In addition to their salaries, the Company also contributes to a provident fund (defined contribution plan) and medical aid fund on their behalf. Executive directors also participate in the Company’s share incentive schemes (refer note 15).

Ms Z Matlala Mr D Chocho Ms B Majova	2020 2019 Direct Indirect Direct Indirect Number of shares Number of shares 2,945,000 - 2,695,000 - 608,565 - 258,565 - - 62,610 - 62,610
	3,553,565 62,610 2,953,565 62,610

No additional directors’ interests have been noted post 31 December 2020 till the date of approval of this report, being 5 March 2021.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

32. Related parties (continued)

32.4. Transactions with the Venture

The Venture resulted in GOSA and Merafe Ferrochrome pooling and sharing their ferrochrome assets. The Venture’s head-office is located at Portion 27, Farm Waterval 306 JQ, Rustenburg, 0302. While Merafe Ferrochrome’s assets form part of the Venture, Merafe Ferrochrome retains ownership of its assets and is closely involved in the Venture’s operations through the Chrome Executive Committee, Joint Board and sub–committees (Treasury, Transformation, Sustainable Development and Health and Safety) formed to oversee the combined operation of both companies. The Group receives 20.5% of the Venture’s earnings before interest, tax, depreciation and amortisation (EBITDA) and owns 20.5% of the Venture’s working capital.

Included in the consolidated financial statements are the following items that represent the working capital and EBITDA of the Venture in its totality.

Group

BITDA of the Venture in its totality.	Group
Inventories Trade and other receivables Net cash Finance leases Long-term provisions Trade and other payables Net working capital Revenue Net foreign exchange losses Operating expenses EBITDA	2020 2019 R '000 R '000 7,451,254 9,660,211 4,618,887 3,242,964 43,374 520,123 (87,597) (110,527) (949,138) (772,035) (2,126,200) (2,127,573)
	8,950,580 10,413,163
	23,313,106 26,156,502 (291,271) (70,114) (22,470,549) (24,006,370)
	551,286 2,080,018

33. Prior period restatement

The Group has corrected an error identified in the prior year financial statements. The Group has reclassified the unwinding of the discount on the rehabilitation provision out of finance income into the impairment on property, plant and equipment as well as operating and other expenses due to an error in the accounting for the change in estimate on the rehabilitation provision. As a result, there has been no change in the total loss and comprehensive loss for the prior year, in the statement of financial position, the basic loss per share nor diluted loss per share but the headline loss per share has been impacted. The effect of the restatement was an increase of the operating and other expenses by R12.6m, a decrease of the impairment expense by R57.0m as well as a decrease of net finance income by R44.4m. The net realisable value adjustment of inventory has also been restated in the cash flows from operating activities with R133m and a non-cash movement of the change in estimate of R61m out of net cash utilised in investing activities.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

33. Prior period restatement (continued)

The restatement adjustment is as follows:

e restatement adjustment is as follows:
	As restated	As previously
	2019	reported
Group	R'000	2019
		R'000
Statement of profit or loss and other comprehensive income
Operating and other expenses	(4,985,699)	(4,973,071)
Impairment	(1,789,316)	(1,846,343)
Finance income	11,998	56,397
Headline loss for the year	(85,814)	(44,755)
Headline loss per share (cents per share) Statement of cash flows	(3.4)	(1.8)
Net realisable value inventory adjustment - Note 26	133,000	-
NetCash generated from operating activities	699,213	761,042
Net cash utilised in investing activities	(466,607)	(528,436)

34. Going concern

As stated above, the Group had a net cash balance amounting to R278m at year end with no debt and a net cash balance of R364m and no debt as of the 31 January 2021.

The Group continues to be vigilant in monitoring the impacts of the COVID-19 outbreak and other identified risks factors that may affect the Company’s business.

35. Events after the reporting period

As reported, the Board has resolved not to declare a final dividend (2019: R100m, 4 cents per share) for the 2020 financial year.

Merafe Resources Limited (Registration number 1987/003452/06)

Audited Consolidated And Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

35. Events after the reporting period (continued)

Shareholders are informed that Belese Majova (Independent Non-Executive Director) and Mpho Mosweu (NonExecutive Director) will be retiring at the Merafe Annual General Meeting on 18 May 2021, and will not be offering themselves for re-election. Belese and Mpho served on the Merafe board from 2009 and 2011 respectively.

36. Impairment assessment

As per IAS 36: Impairment of assets , an entity shall assess at the end of each reporting period whether there is an indication that an asset may be impaired. If such an indication exists, the entity shall estimate the recoverable amount of the asset.

At 31 December 2020, Merafe's share price closed at 42c per share (2019: 86c per share). Based on this share price, the market capitalisation was R1.222bn, less than the net asset value of R2.277bn. The net asset value includes an impairment of R1.366bn recorded in June 2020. The impairment was allocated to the cash generating unit's assets in proportion to the carrying amount of the assets. As per IAS 36.12(d), if the carrying amount of net assets of an entity is higher than its market capitalisation, this is an impairment indicator. The impairment indicator was prevalent at both the interim period and at year end.

As the impairment indicator remained at year end, management estimated the recoverable amount of the Group's assets by calculating the value in use of the Group. This calculation was based on the future cash flows expected to be derived from the Venture. No additional impairment was required over and above the impairment recorded in June 2020. The following key assumptions were used in the calculation of the value-in-use (VIU) model (30 years) at the reporting date:

Assumptions	Unit of	2020	2019
	measure
Average exchange rate – real	USD/ZAR	17.00	14.50
Weighted average cost of capital – real	%	9.3%	9.8%
Ferrochrome prices – real	$c/lb	75	80.38 – 86.09
Chrome ore prices (CIF) – real	$/ton	143	187

The inputs into the VIU model include key macro-economic assumptions as detailed above as well as operational assumptions. These assumptions are necessary given the uncertainty that underlies future outcomes. In determining the final VIU amount, Merafe considered scenarios involving possible future operational outcome. The range of these values for Merafe, calculated by keeping the macro assumptions constant and only varying business assumptions, were R2.10bn at the low end and R2.30bn at the top end. The valuation determined based on the most probable scenario was R2.25bn. Although all the values in the range exceed the carrying value of the net assets, due to continued uncertainty in the market, the impairment loss was not reversed by the headroom.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Notes to the audited annual financial statements

36. Impairment assessment (continued)

Key sensitivity analysis for impairment

Change in weighted average cost of capital

A decrease/increase of 5% in the weighted average cost of capital will decrease/increase the valuation by approximately R90m. This analysis assumes all other variables remain constant.

Change in exchange rate

A decrease/increase of 5% in the exchange rates will decrease/increase the valuation by approximately R2.2bn. This analysis assumes all other variables remain constant.

Change in ferrochrome price

A decrease/increase of 5% in the the ferrochrome and chrome ore prices will decrease the valuation by approximately

R2bn and increase it by approximately R1.6bn. This analysis assumes all other variables remain constant.

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Shareholder Information

1. Distribution of shareholders

The following distribution of shareholders existed at 31 December 2020:

Ordinary shares Public shareholders Non public shareholders Where non-public shareholders consist of: Directors and Associates of the Company Glencore Netherlands B.V. Industrial Development Corporation of South Africa Limited Shareholder spread 1 – 1000 shares 1 001 – 10 000 shares 10 001 – 100 000 shares 100 001 – 1 000 000 shares 1 000 001 shares Distribution of shareholders Banks/Brokers Close Corporations Endowment Funds Government Individuals Insurance Companies Medical Schemes Mutual Funds Other Corporations Private Companies Public companies Retirement Funds Strategic Investor Trusts	Number of shareholders % of shareholders Number of shares % of issued shares 5,673 99.88 1,240,044,086 49.39 7 0.12 1,270,660,162 50.61 5 0.09 3,666,175 0.15 1 0.02 720,163,887 28.68 1 0.02 546,830,100 21.78
	5,680 100 2,510,704,248 100
	Number of shareholders % of shareholders Number of shares % of issued shares 1,534 27.01 580,082 0.02 2,075 36.53 9,874,474 0.39 1,525 26.85 55,523,667 2.21 447 7.87 134,667,942 5.36 99 1.74 2,310,058,083 92.01
	5,680 100 2,510,704,248 100
	Number of shareholders % of shareholders Number of shares % of issued shares 49 0.86 141,853,477 5.65 64 1.13 11,334,525 0.45 10 0.18 1,624,605 0.06 2 0.04 547,376,593 21.80 5,135 90.40 203,835,280 8.12 8 0.14 4,930,266 0.20 2 0.04 1,162,657 0.05 48 0.85 663,028,147 26.41 27 0.48 449,822 0.02 85 1.50 32,002,119 1.27 2 0.04 5,493,509 0.22 59 1.04 159,158,873 6.34 1 0.02 720,163,887 28.68 188 3.31 18,290,488 0.73
	5,680 100 2,510,704,248 100

2. Major shareholders

The following shareholders have a holding of greater than 5% of the issued shares of the company:

	Number of	% of shares
	shares	held
Glencore Nederlands B.V.	720,163,887	28.6
Industrial Development Corporation of South Africa Limited	546,830,100	21.78
PSG Konsult	162,152,786	6.64
Ninety One	125,535,200	5.00

83 The supplementary information presented does not form part of the audited consolidated and separate annual financial statements and is unaudited

Merafe Resources Limited

(Registration number 1987/003452/06)

Audited Consolidated and Separate Annual Financial Statements for the year ended 31 December 2020

Shareholder Information

Shareholder Information
	Group	Company
3. JSE share performance
	2020	2019
Market capitalisation as at 31 December	1,054,495,784	2,159,205,653
Share Price (cents)
High	89	153
Low	24	74
Closing	42	86
Shares traded
Volume of shares traded	516,518,844	394,825,944
Value of shares (ZAR)	222,224,871	473,519,527
Volume of shares traded as a percentage of weighted average of	20.57	16
shares in issue (%)
Shares in issue as at 31 December	2,510,704,248	2,510,704,248
Distribution of local and foreign beneficial shareholding (%)
South African	64	64
Foreign	36	36

Meetings

Annual General Meeting for the 2021 financial year will be held on 18 May 2021.

The supplementary information presented does not form part of the audited consolidated and separate annual financial statements and is unaudited

AI assistant

MERAFE RESOURCES LIMITED — Annual Report 2020

48759_rns_2021-03-31_c536908c-0f9e-4cb4-9b54-7650017eae70.pdf

Merafe Resources Limited

Merafe Resources Limited

(Registration number 1987/003452/06)

Contents

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Merafe Resources Limited

Directors' Report

1. Nature of business

2. Group financial results

Merafe Resources Limited

Directors' Report

2. Group financial results (continued)

3. Loans and borrowings

4. Going concern

Merafe Resources Limited

Directors' Report

5. Dividend policy and ordinary cash dividend

6. Share capital

7. Directorate

8. Major shareholders

9. Directors' interests in Merafe Resources Limited

Merafe Resources Limited

Directors' Report

10. Details of investments in subsidiaries, associates and structured entities

11. Property, plant and equipment

12. Independent external auditor

13. Audit and Risk Committee

14. Related party transactions

Merafe Resources Limited

Directors' Report

15. COVID-19: Business impact and response

16. Events after the reporting period

17. Special resolutions

18. Environmental and decommissioning provision

Merafe Resources Limited

Directors' Report

19. Mining rights and mining operations

20. Restatement of financial statements

INDEPENDENT AUDITOR’S REPORT

Opinion

Basis for Opinion

Key Audit Matter

INDEPENDENT AUDITOR’S REPORT

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Merafe Resources Limited (continued)

Other Information

Responsibilities of the Directors for the Consolidated and Separate Financial Statements

Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements

INDEPENDENT AUDITOR’S REPORT

Report on Other Legal and Regulatory Requirements

Merafe Resources Limited

Statement of financial position as at 31 December 2020

Merafe Resources Limited

MERAFE RESOURCES LIMITED Annual Report 2020

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