Implats

Impala Platinum Holdings Limited (“Implats”, “the Company” or “the Group”) is one of the world’s leading producers of platinum and associated platinum group metals (PGMs). Implats is structured around five mining operations and a toll refining business in Springs in the Gauteng province. The mining operations are located on the Bushveld Complex in South Africa and the Great Dyke in Zimbabwe, the two most significant PGM-bearing ore bodies in the world.

The Company has its listing on the securities exchange operated by JSE Limited in South Africa, the Frankfurt Stock Exchange (2022 US$ convertible bonds) and a level 1 American Depositary Receipt programme in the United States of America.

The condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standard (IFRS), IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, requirements of the Companies Act, 71 of 2008, and the Listings Requirements of the JSE Limited.

The condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 30 June 2017, which have been prepared in accordance with IFRS, and the commentary included in the interim results.

The condensed consolidated interim financial statements have been prepared under the historical cost convention except for certain financial assets, financial liabilities and derivative financial instruments which are measured at fair value and some equity and liabilities for share-based payment arrangements which are measured using a binomial option model.

The condensed consolidated interim financial information is presented in South African rand, which is the Company’s functional currency.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The principal accounting policies applied are in terms of IFRS and are consistent with those of the annual consolidated financial statements for the year ended 30 June 2017.

The Group distinguishes its segments between the mining operations, refining services, chrome processing and an “all other segment.”

Management has defined the operating segments based on the business activities and management structure within the Group.

Capital expenditure comprises additions to property, plant and equipment (note 5).

The reportable segments’ measure of profit or loss is profit after tax. This is reconciled to the consolidated profit after tax.

Impala mining segment’s two largest sales customers amounted to 13% and 8% of total sales (December 2016: 10% and 8%) (June 2017: 11% and 10%).

This expenditure will be funded from internal cash flows and, if necessary, from borrowings.

Waterberg

During the period Implats acquired a 15% interest in Waterberg for $30 million (R408 million). Waterberg’s asset is a large scale platinum group metal (“PGM”) resource with an attractive risk profile given its shallow nature.

Implats exercises significant influence through board representation and therefore applies the equity method to account for the investment. Implats has an option to increase its stake to 50.01% in Waterberg within 90 days of the Waterberg shareholders approving the definitive feasibility study on the project.

Cross Currency Interest Rate Swap (CCIRS) (2022)

Implats entered into a CCIRS amounting to US$250 million to hedge the foreign exchange risk on the US$ convertible bonds, being: exchange rate risk on dollar interest payments and the risk of a future cash settlement of the bonds at a rand-dollar exchange rate weaker than R13.025/US$. US$250 million was swapped for R3 256 million on which Implats pays a fixed interest rate to Standard Bank of 9.8%. Implats receives the 3.25% coupon on the US$250 million from Standard Bank on the same date which Implats pays bond holders and the interest thereon. In June 2022, Implats will receive $250 million for a payment of R3 256 million.

The CCIRS is carried at its fair value of R299 (June 2017: R49) million. Hedge accounting has not been applied.

Conversion option - US$ convertible bond (2022)

The US$ bond holders have the option to convert the bonds to Implats shares at a price of $3.89. The conversion option is carried at its fair value of R377 (June 2017: R547) million.

Conversion option - ZAR convertible bond (2022)

The ZAR bond holders have the option to convert the bonds to Implats shares at a price of R50.01. At the general meeting held by shareholders on 24 July 2017, the approval to settle this option by means of Implats shares was obtained. This option meets the definition of equity and an amount of R625 million (R450 million after deferred tax) was therefore accounted within equity as from 24 July 2017.

The write-down to net realisable value comprises R82 (December 2016: R159) (June 2017: R78) million for refined mining metal and R1 124 (December 2016: R1 167) (June 2017: R948) million for in-process mining metal.

Included in refined metal is metal on lease to third parties of 40 000 (December 2016: 36 000) (June 2016: 36 000) ruthenium ounces.

Changes in engineering estimates of metal contained in-process resulted in a R431 (December 2016: R356) (June 2017: R376) million increase of in-process metal.

Non-mining metal consists of IRS inventory. No inventories are encumbered.

All of the facilities remain undrawn. Of these facilities, R4.0 billion expires on 30 June 2021.

Headline earnings attributable to equity holders of the Company arises from operations as follows:

As at the end of December 2017 the Group had contingent liabilities in respect of guarantees and other matters arising in the ordinary course of business from which it is anticipated that no material liabilities will arise. The Group has issued guarantees of R114 (December 2016: R122) (June 2017: R118) million. Guarantees of R1 396 (December 2016: R1 269) (June 2017: R1396) million have been issued by third parties and financial institutions on behalf of the Group consisting mainly of guarantees to the Department of Mineral Resources for R1 277 (December 2016: R1 150) (June 2017:R1 277) million.

• The Group entered into PGM purchase transactions of R1 831 (December 2016: R1 782) (June 2017: R3 745) million with Two Rivers, an associate company, resulting in a payable of R1 041 (December 2016: R860) (June 2017: R1 034) million. It received refining fees to the value of R17 (December 2016: R16) (June 2017: R32) million.
• The Group previously entered into sale and leaseback transactions with Friedshelf, an associate company. At the end of the period, R1 206 (December 2016: R1 230) (June 2017: R1 215) million was outstanding in terms of the lease liability. During the period, interest of R63 (December 2016: R63) (June 2017: R130) million was charged and a R72 (December 2016: R66) (June 2017: R147) million repayment was made. The finance leases have an effective interest rate of 10.2%.
• The Group entered into PGM purchase transactions of R 1 561 (December 2016: R1 386) (June 2017: R3 199) million with Mimosa, a joint venture, resulting in a payable of R920 (December 2016: R725) (June 2017: R844) million. It also received refining fees and interest of R150 (December 2016: R147) (June 2017: R317) million.

These transactions are entered into on an arm’s-length basis at prevailing market rates.

• Key management compensation (fixed and variable) was R31 (December 2016: R44) (June 2017: R90) million.

The carrying amount of financial assets and liabilities approximate their fair values.