Implats

Impala Platinum Holdings Limited ("Implats", "the Company" or "the Group") is a leading producer of platinum group metals ("PGMs"). Implats is structured around six mining operations and Impala Refining Services, a toll refining business. The mining operations are located on the Bushveld Complex in South Africa, the Great Dyke in Zimbabwe – the two most significant PGM-bearing ore bodies in the world – and the Canadian Shield, a prominent layered igneous complex domain for PGMs.

The Company has its listing on the securities exchange operated by JSE Limited in South Africa and a level 1 American Depositary Receipt programme in the United States of America.

On 13 December 2019 Implats successfully concluded the acquisition of 100% of the outstanding shares in the Canadian PGM miner, North American Palladium ("NAP"). NAP is now a wholly owned subsidiary of Implats and will operate in Canada as Impala Canada Limited ("Impala Canada").

Impala Canada owns and operates the Lac des Iles Mine ("Lac des Iles") northwest of Thunder Bay, Ontario, and has a shareholding in two exploration properties, the Sunday Lake project and the Shebandowan Joint Venture.

The condensed consolidated interim financial statements were approved for issue on 27 February 2020 by the Board of Directors.

The independent auditor’s review has been conducted in accordance with International Standards on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor, Deloitte & Touche, and their unmodified review report is available in the Independent auditor's review report on interim financial statements. Any reference to future financial performance included in this announcement has not been reviewed or reported on by the Group’s external auditors. The auditor’s report does not necessarily report on all of the information contained in this announcement/financial results. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor’s engagement they should read the auditor’s report together with the accompanying financial information.

The condensed consolidated interim financial statements have been prepared in accordance with and contains the information required by 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 2019, 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.

The following foreign currency exchange rates were used to prepare the condensed consolidated interim financial statements:

US dollar:
Closing rate: R13.98 (December 2018: R14.38) (June 2019: R14.09)
Average rate: R14.69 (December 2018: R14.18) (June 2019: R14.19)

Canadian dollar:
Closing rate: R10.77
18-day average rate: R10.84

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings. During the current period, management changed its estimate of the expected profits to be distributed in the foreseeable future from its Zimplats subsidiary, which resulted in a reversal of R440 million of deferred tax raised on foreign currency exchange translation differences and a reversal of R248 million of deferred tax raised on un-distributable profits.

The principal accounting policies and methods used by the Group are consistent with those of the most recent annual financial statements, except for changes due to the adoption of new or revised IFRSs, for which the first time disclosure is more comprehensive than would otherwise be done on interim and includes the once-off transition impact. Further, the transition impact and accounting policies have been disclosed in the relevant notes.

The following standards became effective on 1 January 2019 and were adopted by the Group on 1 July 2019:

• IFRS 16 Leases, refer note 9; and
• IFRIC 23 Uncertainty over Income Tax Treatment, no material impact on the condensed consolidated interim financial statements.

The Group distinguishes its segments between the mining operations ("Mining"), processing and refining ("Impala Refining Services"), chrome processing ("Impala Chrome") and "all other segments".

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

The Impala Canada segment consists of the North American Palladium business acquired on 13 December 2019.

Capital expenditure comprises additions to property, plant and equipment (note 6).

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

The two largest sales customers amounted to 11.3% and 11.5% of total revenue (December 2018: 11% and 9%) (June 2019: 10% each).

Refer in-process metal inventory allocation below.

^# Land and buildings of R29 million and mobile equipment of R88 million were capitalised following the adoption of IFRS 16. Refer note 9.

Included in property, plant and equipment are right-of-use assets, namely, land and buildings with a carrying amount of R582 million (December 2018: R637 million) (June 2019: R598 million), equipment (acquired through the acquisition of NAP) with a carrying amount of R132 million (December 2018: Rnil) (June 2019: Rnil), mobile equipment with a carrying amount of R71 million (December 2018: Rnil) (June 2019: Rnil), refining plants with a carrying amount of R42 million (December 2018: R54 million) (June 2019: R48 million) and other assets with a carrying amount of R1 million (December 2018: R1 million) (June 2019: R1 million) arising from leases capitalised.

This expenditure will be funded internally and from borrowings, where necessary. Apart from the leases, assets are not encumbered by loans. A portion of land (R18 million) has been pledged as payment to the developer of stands to be allocated to eligible non-managerial employees based at the Selous Metallurgical Complex. No other assets were pledged as collateral.

The net realisable value ("NRV") adjustment included in inventory comprised Rnil (December 2018: R39 million) (June 2019: Rnil) for refined metal and Rnil (December 2018: R180 million) (June 2019: Rnil) for in-process metal inventory.

Included in refined metal inventory is ruthenium on lease to third parties of 21 200 (December 2018: 45 000) (June 2019: 25 600) ounces.

Purchased metal consists of Impala Refining Services inventory. Inventory includes 55 000 ounces of platinum and palladium each, which were forward sold and which will be delivered to the counterparty on 28 February 2020, 29 April 2020, 29 May 2020 and 30 June 2020.

Change in in-process metal estimate

Changes from an in-process metal inventory estimate review resulted in a R625 million (December 2018: R389 million) (June 2019: R404 million) (pre-tax) increase of in-process metal inventory.

Accounting estimates and judgement

Metals classification between main and by-products are determined based on an assessment of the relative metal content for each segment. The relative metal content of the recently acquired Impala Canada, mining on the Canadian Shield, differs materially from what is mined in the Bushveld Complex in South Africa or the Great Dyke in Zimbabwe.

The African operations treat platinum, palladium, rhodium and nickel as main products and other precious and base metals produced, as by-products, for purposes of inventory valuation.

Impala Canada’s mining and processing process does not form part of the African operations’ production process and inventory is valued independently. Impala Canada treats palladium as a main product and all other precious and base metals as by-products for inventory valuation purposes.

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

Note 5 contains additional disclosure of revenue per operating segment.

Forward sale of metal inventory

During the period, Implats entered into a forward sale arrangement for the sale of 55 000 ounces of platinum and 55 000 ounces of palladium.

The cash receipt has been accounted for as a contract liability in terms of IFRS 15 Revenue from Contracts with Customers. The contract liability forms part of the trade and other payables balance.

The performance obligations under the arrangement will be satisfied, through delivery of Impala’s inventory on the scheduled dates (28 February, 29 April, 29 May and 30 June 2020), at the agreed upon location.

The difference between the cash received in advance and the contract price is a finance cost that will be recognised over the duration of the contract.

At 31 December 2019, no revenue had been recognised as the first tranche of metal delivery is due on 28 February 2020.

The following table summarises the changes in the contract liability:

* Refer note 8.

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

As at 31 December 2019, the Group had contingent liabilities in respect of guarantees and other matters arising in the ordinary course of business from which it anticipated that no material liabilities will arise. The Group has issued guarantees of R982 million (December 2018: R2 159 million) (June 2019: R1 587 million) in respect of liabilities held by companies in the Group. Guarantees of R1 877 million (December 2018: R1 477 million) (June 2019: R1 877 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 755 million (December 2018: R1 355 million) (June 2019: R1 755 million).

At 31 December 2019, the Group have certain unresolved tax matters. SARS issued additional assessments relating to these matters and the Group have lodged objections to these assessments.

The Group entered into PGM purchase transactions of R2 776 million (December 2018: R1 763 million) (June 2019: R5 175 million) with Two Rivers Platinum, an associate company, resulting in an amount payable of R1 901 million (December 2018: R1 286 million) (June 2019: R1 361 million) at year end. It also received refining fees of R16 million (December 2018: R17 million) (June 2019: R33 million).

The Group previously entered into sale and leaseback transactions with Friedshelf, an associate company. At the end of the period, R1 128 million (December 2018: R1 175 million) (June 2019: R1 154 million) was outstanding in terms of the lease liability. During the period, interest of R59 million (December 2018: R61 million) (June 2019: R122 million) was charged and an R85 million (December 2018: R78 million) (June 2019: R160 million) repayment was made. The finance leases have an effective interest rate of 10.2%.

The Group entered into PGM purchase transactions of R2 297 million (December 2018: R1 708 million) (June 2019: R4 876 million) with Mimosa investments, a joint venture, resulting in an amount payable of R1 485 million (December 2018: R1 091 million) (June 2019: R1 166 million) at year end. It also has advances receivable of R1 076 million (December 2018: R806 million) (June 2019: R1 004 million) that yielded interest of R8 million (December 2018: R8 million) (June 2019: R17 million). The Group received refining fees of R147 million (December 2018: R157 million) (June 2019: R317 million).

These transactions are entered into on an arm’s length basis at prevailing market rates. Fixed and variable key management compensation was R84 million (December 2018: R47 million) (June 2019: R97 million).

The carrying amounts of financial assets and liabilities approximate their fair values except for the ZAR convertible bond (carrying amount R2 838 million), carried at amortised cost, which had a fair value of approximately R3 028 million. This fair value was categorised within Level 3 of the fair value hierarchy – unobservable inputs. A discounted cash flow valuation technique was used, using a discount rate of 9.74%.

With effect from 13 December 2019, Implats acquired control of North American Palladium Limited ("NAP") through the acquisition of 100% of the outstanding shares for a cash consideration of CAD$983 million (US$747 million or R10 859 million). The acquisition of NAP, now Impala Canada, will improve the Group’s competitive industry position, result in sustained profitability, strengthen financial returns and rebalance its commodity mix.

As part of the closing process, NAP amalgamated with Implats’ wholly owned Canadian subsidiary, 11638050 Canada Inc. and NAP’s wholly owned subsidiary Lac Des Iles Mines Limited to form Impala Canada Limited ("Impala Canada"). Impala Canada is now a wholly owned subsidiary of Implats.

Impala Canada is a Canadian-based primary platinum group metals ("PGM") producer previously listed on the TSX and the US OTC market. Impala Canada wholly owns and operates the Lac des Iles Mine northwest of Thunder Bay, Ontario, Canada and had an ownership in two Canadian exploration properties, the Sunday Lake Project and Shebandowan Joint Venture.

The Lac des Iles Mine has been in operation since 1993 and is an established PGM producer located in a stable and attractive mining jurisdiction. The operation comprises an underground mine, surface mining activities, and a 13 500 tonnes per day (c. 400 000 tonnes per month) concentrator plant. It benefits from year-round road access and low-cost green power from the provincial grid.

The following table summarises the provisionally recognised fair value of assets acquired and liabilities assumed at the acquisition date:

Accounting policy – Business combinations

The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Costs directly attributable to the acquisition are expensed.

Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at fair values at the acquisition date. The excess of the aggregate of the cost of the acquisition, the non-controlling interest and the fair value of the acquirer’s previously held equity interest in the acquiree over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed is recognised as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the gain is recognised directly in profit or loss.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are initially measured either at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets or at fair value. The choice of measurement basis is made on a transaction-by-transaction basis.

Changes in the Group’s ownership interest in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. Any difference between the fair value of the consideration paid or received and the carrying amount of the non-controlling interest, is recognised directly in equity and attributed to the owners of the Company.

The profit or loss realised when control is lost by the Group as a result of the disposal of an entity is calculated after taking into account any related goodwill.