BASIS OF PREPARATION
The financial statements are prepared on the historical cost basis except for certain financial instruments and liabilities that are stated at fair value. Significant details of the Company’s and the Group’s accounting policies are set out below and are consistent with those applied in the previous year, except where otherwise indicated.
The financial statements are in compliance with International Financial Reporting Standards (IFRS) of the International Accounting Standards Board, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by Financial Reporting Standards Council, the requirements of the JSE Limited’s Listings Requirements and the Companies Act of South Africa.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
In preparing the annual financial statements in terms of IFRS, management is required to make certain estimates and assumptions that may materially affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period and the related disclosures. The actual results often vary from these estimates owing to the inherent uncertainty involved in making estimates and assumptions concerning future events. These estimates and judgements are based on historical experience, current and expected future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
As the estimates are reviewed on a regular basis, any changes to these accounting estimates are recognised in the period in which the estimate is revised, if it impacts only the current period. If the revision of the estimate impacts both the current and future periods, then the change in estimate is recognised in the current and future periods.
Critical accounting estimates
Those estimates and assumptions that may result in material adjustments to the carrying amount of assets and liabilities and related disclosures within the next financial year are discussed below:
Work-in-progress metal inventory is valued at the lower of net realisable value and the average cost of production or purchase less net revenue from sales of other metals, in the ratio of the contribution of these metals to gross
sales revenue. Production costs are allocated to platinum, palladium, rhodium and nickel (joint products) by dividing the mine output into total mine production costs, determined on a 12-month rolling average basis. The quantity of ounces of joint products in work-in-progress is calculated based on the following factors:
- The theoretical inventory at that point in time which is calculated by adding the inputs to the previous physical inventory and then deducting the outputs for the inventory period.
- The inputs and outputs include estimates due to the delay in finalising analytical values.
- The estimates are subsequently trued up to the final metal accounting quantities when available.
- The theoretical inventory is then converted to a refined equivalent inventory by applying appropriate recoveries depending on where the material is within the production pipeline. The recoveries are based on actual results as determined by the inventory count and are in line with industry standards.
Other than at the Precious Metals Refinery, an annual physical count of work-in-progress is done, usually around February of each year. The Precious Metals Refinery is subject to a physical count usually every three years. The annual physical count is limited to once per annum owing to the dislocation of production required to perform the physical inventory count and the in-process inventories being contained in tanks, pipes and other vessels. Once the results of the physical count are finalised, the variance between the theoretical count and actual count is investigated and recorded. Thereafter the physical quantity forms the opening balance for the theoretical inventory calculation. Consequently, the estimates are refined based on actual results over time. The nature of the production process inherently limits the ability to precisely measure recoverability levels. As a result, the metallurgical balancing process is constantly monitored and the variables used in the process are refined based on actual results over time.
IAS 39 – Financial Instruments: Recognition and Measurement is applied to all commodity contracts where the Group is unable to apply the ‘own purchase, sale or usage requirement’ scope exemption in paragraph 5 of IAS 39.
Critical accounting judgements
The following accounting policies have been identified as being particularly complex or involving subjective judgments or assessments:
Owing to the vertically integrated operations of the Group and the fact that there is no active market for the Group’s intermediate products, the Group’s operations as a whole constitute the smallest cash-generating unit.
Decommissioning and rehabilitation obligations
The Group’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. Management estimates, with the assistance of independent experts, the Group’s expected total spend for the rehabilitation, management and remediation of negative environmental impacts at closure at the end of the lives of the mines and processing operations. The estimation of future costs of environmental obligations relating to decommissioning and rehabilitation is particularly complex and requires management to make estimates, assumptions and judgments relating to the future. These estimates are dependent on a number of factors including assumptions around environmental legislation, life-of-mine estimates and discount rates.
The Group’s assets, excluding mining development and infrastructure assets, are depreciated over their expected useful lives which are reviewed annually to ensure that the useful lives continue to be appropriate. In assessing useful lives, technological innovation, product life cycles, physical condition of the assets and maintenance programmes are taken into consideration.
Mining development and infrastructure assets are depreciated on a unit-of-production basis. The calculation of the unit-of-production depreciation is based on forecasted production which is calculated using numerous assumptions. Any changes in these assumptions may have an impact on the calculation.
Valuation of mineral rights
The valuation of mineral rights is performed using the comparable transaction valuation methodology. This methodology involves determining the in-situ mineral reserves and resources of specific properties within the context of other mineral property valuations.
Consolidation of special-purpose entities
The Lefa La Rona Trust was established to subscribe for shares in the Company as part of the community economic empowerment transaction that was approved by shareholders at a general meeting of shareholders on 14 December 2011, known as Alchemy. The trust will administer and hold the shares for the benefit of the beneficiaries as outlined in the circular to shareholders dated 14 November 2011. The substance of the transaction has been assessed and based on the results of this assessment, management has concluded that the Group does not control the trust as it is not exposed nor has any rights to, the variable returns of the trust.
NEW ACCOUNTING POLICIES ADOPTED
NEW ACCOUNTING POLICIES ADOPTED
Accounting standards and interpretations adopted impacting the annual financial statements
The Group did not adopt any new or revised accounting standards or interpretations in the current year that have had a material impact on the amounts or disclosures reported in these annual financial statements.
Accounting standards adopted having no impact on the annual financial statements
During the current year, the Group adopted the following amendments to accounting standards. The adoption of these amendments did not have a material impact on these annual financial statements:
- IFRS 1 – First-time Adoption of International Financial Reporting Standards – Replacement of ‘fixed dates’ for certain exceptions with ‘the date of transition of IFRS’.
- IFRS 1 – First-time Adoption of International Financial Reporting Standards – Additional exemption for entities ceasing to suffer from severe hyperinflation.
- IFRS 7 – Financial Instruments: Disclosures – Amendments enhancing disclosures about transfers of financial assets.
- IAS 1 – Presentation of Financial Statements – Amendments to revise the manner in which other comprehensive income is presented.
- IAS 12 – Income Taxes – Limited scope amendment dealing with the recovery of underlying assets.
Impact of standards and interpretations not yet adopted
At the reporting date, the following new and/or revised accounting standards and interpretations were in issue but not yet effective:
- IFRS 1 – First-time Adoption of International Financial Reporting Standard – Amendments for government loan with a below-market rate of interest when transitioning to IFRS.
- IFRS 7 – Financial Instruments: Disclosures – Amendments enhancing disclosures about offsetting of financial assets and financial liabilities.
- IFRS 7 – Financial Instruments: Disclosures – Deferral of mandatory effective date of IFRS 9 and amendments to transition disclosures.
- IFRS 9 – Financial Instruments: Classification and Measurement – This standard is set to replace the current IAS 39.
- IFRS 10 – Consolidated Financial Statements – The standard establishes the principles for the presentation and preparation of consolidated financial statements when an entity controls one or more entities.
- IFRS 11 – Joint Arrangements – The standard is set to replace the current version of IAS 31 and establishes principles for financial reporting by entities that have an interest in joint arrangements.
- IFRS 12 – Disclosures of Interests in Other Entities – The standard deals with the disclosure requirements regarding an entity’s interests in subsidiaries, joint arrangements, investment in associates or other unconsolidated structured entities.
- IFRS 13 – Fair Value Measurement – The standard provides a single framework, within which fair value is defined, provides guidelines on how to measure fair value and also provides guidelines on the required disclosures.
- IAS 1 – Presentation of Financial Statements – Amendments resulting from Annual Improvements 2009–2011 Cycle which relates to the presentation of comparative information.
- IAS 16 – Property, Plant and Equipment – Amendments resulting from Annual Improvements 2009–2011 Cycle relating to servicing equipment.
- IAS 19 – Employee Benefits – The amendment deals with various aspects ranging from modification of accounting for termination benefits to enhanced disclosures about defined benefit plans.
- IAS 27 – Separate Financial Statements – The revised standard will supersede the current version of IAS 27 and deals with the accounting and disclosure of an entity’s interest in subsidiaries, joint ventures and associates in the entity’s separate financial statements.
- IAS 28 – Investment in Associates and Joint Ventures – The revised standard will supersede the current version of IAS 28 and prescribes the accounting for investment in associates and also sets out the requirements for the equity method when accounting for investments in associates and joint ventures.
- IAS 32 – Financial Instruments: Presentation – Amendments to application guidance on the offsetting of financial assets and financial liabilities.
- IAS 32 – Financial Instruments: Presentation – Amendments resulting from Annual Improvements 2009–2011 Cycle relating to the tax effect of equity distributions.
- IAS 34 – Interim Financial Reporting – Amendments resulting from the Annual Improvements 2009–2011 Cycle relating to the interim reporting of segment assets.
- IFRIC 20 – Stripping Costs in the Production Phase of a Surface Mine – The interpretation deals with how and when to account for the costs associated with the stripping activity (during the production phase of a surface mine), as well as how to measure these benefits both initially and subsequently.
The Group is in the process of assessing the impact of IFRS 9 and IFRIC 20. The Group has assessed the remaining amendments and new standards and does not believe that the adoption of these will have a material impact on the financial results or disclosures of the Group.
EXISTING ACCOUNTING POLICIES
EXISTING ACCOUNTING POLICIES
The consolidated financial statements include the results and financial position of Anglo American Platinum Limited, its subsidiaries, joint ventures and associates. Subsidiaries are entities in respect of which the Group is exposed, or has rights, to variable returns from its involvement with these entities and has the ability to affect those returns through its power over those entities. The results of any subsidiaries acquired or disposed of during the year are included from the date control was acquired and up to the date control ceased to exist. Total comprehensive income of the subsidiary is attributed to owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a negative balance.
Where an acquisition of a subsidiary is made during the financial year, any excess or deficit of the purchase price compared to the fair value of the attributable net identifiable assets is recognised respectively as goodwill or as part of profit and accounted for as described in the goodwill accounting policy.
All intragroup transactions and balances are eliminated on consolidation. Unrealised profits that arise between Group entities are also eliminated.
All changes in the parent’s ownership interests that do not result in the loss of control are accounted for within equity. The carrying amount of the Group’s interest and the interest of the non-controlling shareholders is adjusted to reflect the changes in their relative interests in the subsidiary. Any differences between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid/received are recognised directly in equity.
When an entity loses control of a subsidiary, it derecognises the assets and liabilities of the subsidiary at their carrying amounts at the date when control is lost and also derecognises the carrying amount of any non-controlling interests in the former subsidiary at that date. It also recognises the fair value of any consideration received on the loss of control and recognises any of the investment retained in the former subsidiary at its fair value at the date when control is lost. Any resulting differences are reflected as a gain or loss in profit or loss attributable to the Group.
2. Investment in associates
An associate is an entity over which the Group exercises significant influence but which it does not control, through participation in the financial and operating policy decisions of the investee. These investments are accounted for using the equity method, except when the investment is classified as held-for-sale, in which case it is accounted for under IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations.
The carrying amount of the investment in an associate in the statement of financial position represents the cost of the investment, including goodwill arising on acquisition, the Group’s share of post-acquisition retained earnings and any other movements in reserves as well as any long-term debt interests which in substance form part of the Group’s net investment in the associate. Where the Group’s share of losses in the associates is in excess of its interest in that associate, these losses are not recognised unless the Group has an obligation to fund such losses. The total carrying amount of the associate is reviewed for impairment when there is objective evidence that the asset is impaired. If an impairment is identified, it is recorded in the period in which the circumstances arose.
When a Group entity transacts with its associates, any profits or losses arising on the transactions with the associate are recognised in the Group’s consolidated financial statements only to the extent of the interests in the associate that are not related to the Group.
When the Group loses significant influence over an associate, it recognises the fair value of any consideration received on the loss of significant influence and recognises any of the investment retained in the former associate at its fair value at the date when significant influence is lost. Any resulting differences are reflected as a gain or loss in profit or loss attributable to the Group.
3. Joint ventures
A joint venture is an entity in which the Group holds a long-term interest and shares joint control over the strategic, financial and operating decisions with one or more other venturers under a contractual agreement. The Group’s interest in joint ventures, except when the investment is classified as held-for-sale and treated in accordance with IFRS 5, is accounted for through proportionate consolidation.
Under this method the Group includes its share of the joint ventures’ individual income and expenses, assets and liabilities in the relevant components of its financial statements on a line-by-line basis. Where a Group company undertakes its activities under a joint-venture arrangement directly, the Group’s share of jointly controlled assets and any liabilities incurred jointly with other venturers is recognised in the financial statements of the relevant company and classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group’s share of the output of jointly controlled assets is recognised when the revenue recognition criteria are met.
When a Group entity transacts with its jointly controlled entity, any profits or losses arising on the transactions with the jointly controlled entity are recognised in the Group’s consolidated financial statements only to the extent of the interests in the jointly controlled entity that are not related to the Group.
When the Group loses joint control over a jointly controlled entity, it derecognises its proportionate share of the assets and liabilities of the jointly controlled entity at their carrying amounts at the date when joint control is lost. It also recognises the fair value of any consideration received on the loss of joint control and recognises any of the investment retained in the former jointly controlled entity at its fair value at the date when joint control is lost. Any resulting differences are reflected as a gain or loss in profit or loss attributable to the Group.
4. Business combinations
The acquisition method is used to account for the acquisition of a business by the Group. At the acquisition date, the Group recognises the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the business being acquired (acquiree). The assets acquired and liabilities assumed are measured at their at-acquisition-date fair value. In addition, the Group measures non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets on liquidation, at either fair value or at the non-controlling shareholder’s interest in the proportionate share of the acquiree’s identifiable net assets. The choice of measurement basis for non-controlling interests is made on a transaction-by-transaction basis. Any other type of non-controlling interest is measured at fair value.
The consideration transferred in the business combination is measured at fair value, which is based on the sum of the acquisition date fair value of the assets transferred by the Group, the liabilities incurred by the Group to former owners of the acquiree and equity interests issued by the Group. Costs directly related to the transaction are recognised in profit or loss as they are incurred. Goodwill on the business combination is measured at the excess of the sum of the following:
- The fair value of the consideration transferred at acquisition date.
- The amount of any non-controlling interest.
- If the business combination was achieved in stages, then the acquisition date fair value of the Group’s previously held interest in the acquiree over the net of the at-acquisition-date identifiable assets and liabilities.
If the net of the at-acquisition assets and liabilities is in excess of the sum of the fair value of the consideration transferred at acquisition date, the amount of any non-controlling interest and, if applicable, the acquisition-date fair value of the Group’s previously held interest in the acquiree, then the excess is recognised in profit or loss on the acquisition date.
When a business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at its acquisition-date fair value and any resulting gain or loss is reflected in profit or loss. If, in prior periods, the Group recognised changes in the value of its equity interest in the acquiree, in other comprehensive income, then this amount is reclassified to profit or loss where such treatment would be appropriate if the interest had been disposed of.
Goodwill arising on the acquisition of a subsidiary, a jointly controlled entity or an associate represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary, jointly controlled entity or associate and is recognised at the date of acquisition. Goodwill in respect of subsidiaries and jointly controlled entities is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill relating to associates is included in the carrying amount of the investment in the associate. Goodwill is not amortised.
Goodwill is tested for impairment annually and an impairment loss recognised is not reversed in a subsequent period. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
To the extent that the fair value of the net identifiable assets of the subsidiary, jointly controlled entity or associate acquired exceeds the cost of acquisition, the excess is credited to profit for the period.
6. Property, plant and equipment
Mine development and infrastructure costs are capitalised to capital work-in-progress and transferred to mining property, plant and equipment when the mining venture reaches commercial production.
Capitalised mine development and infrastructure costs include expenditure incurred to develop new mining operations and to expand the capacity of the mine. Costs include interest capitalised during the construction period where qualifying expenditure is financed by borrowings and the discounted amount of future decommissioning costs. Items of mine property, plant and equipment, excluding capitalised mine development and infrastructure costs, are depreciated on a straight-line basis over their expected useful lives. Capitalised mine development and infrastructure costs are depreciated on a unit-of-production basis. Depreciation is first charged on mining assets from the date on which they are available for use.
Items of property, plant and equipment that are withdrawn from use, or have no reasonable prospect of being recovered through use or sale, are regularly identified and written off. Residual values and useful economic lives are reviewed at least annually and adjusted if and where appropriate.
Revenue derived during the project phase is recognised in the statement of comprehensive income and an appropriate amount of development costs is charged against it.
With respect to open-pit operations, stripping costs incurred are deferred to the extent that they exceed the expected life-of-pit stripping ratio. In instances where the in-period stripping ratio is below the expected life-of-pit ratios, an appropriate amount of deferred cost is written off. However, where the pit profile is such that the actual cumulative stripping ratio is below the expected life-of-pit stripping ratio (typically in the early years), no deferral takes place as this would result in the recognition of a liability for which there is no obligation. This position is monitored and once the cumulative calculation reflects a debit balance, deferral of the stripping costs commences.
Non-mining assets are measured at historical cost less accumulated depreciation. Depreciation is charged on the straight-line basis over the useful lives of these assets.
Residual values and useful economic lives are reviewed at least annually and adjusted if and where appropriate.
An impairment review of property, plant and equipment is carried out when there is an indication that these may be impaired by comparing the carrying amount thereof to its recoverable amount. The Group’s operations as a whole constitute the smallest cash-generating unit. The recoverable amount thereof is the Group’s market capitalisation adjusted for the carrying amounts of financial assets that are tested for impairment separately. Where the recoverable amount is less than the carrying amount, the impairment charge is included in other net expenditure in order to reduce the carrying amount of property, plant and equipment to its recoverable amount. The adjusted carrying amount is depreciated on a straight-line basis over the remaining useful life of property, plant and equipment.
7. Non-current assets held-for-sale
Non-current assets and disposal groups are classified as held-for-sale if the carrying amount of these assets will be recovered principally through a sale transaction rather than through continued use. This condition will only be regarded as met if the sale transaction is highly probable and the asset (or disposal group) is available for sale in its present condition. Furthermore, for the sale to be highly probable management must be committed to the plan to sell the asset (or disposal group) and the transaction should be expected to qualify for recognition as a completed sale within 12 months from date of classification.
Non-current assets (or disposal groups) held-for-sale are measured at the lower of their previous carrying amounts and their fair value less costs to sell.
A finance lease transfers substantially all the risks and rewards of ownership of an asset to the Group.
Assets subject to finance leases are capitalised as property, plant and equipment at the fair value of the leased asset at inception of the lease, with the related lease obligation recognised at the same amount. Capitalised leased assets are depreciated over their estimated useful lives.
Finance lease payments are allocated between finance costs and the capital repayments, using the effective interest method.
Minimum lease payments on operating leases are charged against operating profit on a straight-line basis over the lease term.
Investments in subsidiaries are measured at cost.
Metal inventories are measured at the lower of cost, on the weighted average basis, or net realisable value. The cost per ounce or tonne is determined as follows:
- Platinum, palladium, rhodium and nickel are treated as joint products and are measured by dividing the mine output into total mine production cost, determined on a 12-month rolling average basis, less net revenue from sales of other metals, in the ratio of the contribution of these metals to gross sales revenue.
- Gold, copper and cobalt sulphate are measured at net realisable value.
- Iridium and ruthenium are measured at a nominal value of R1 per ounce.
Work-in-progress is valued at the average cost of production or purchase less net revenue from sales of other metals. Production cost is allocated to joint products in the same way as is the case for refined metals. Work-in-progress includes purchased and produced concentrate.
Stores and materials
Stores and materials consist of consumable stores and are valued at cost on the first-in first-out (FIFO) basis. Obsolete and redundant items are written off to operating costs.
11. Revenue recognition
- Revenue from the sale of metals and intermediary products is recognised when the risk and rewards of ownership are transferred to the buyer. Gross sales revenue represents the invoiced amounts excluding value-added tax.
- Dividends are recognised when the right to receive payment is established.
- Interest is recognised on a time proportion basis, which takes into account the effective yield on the asset over the period it is expected to be held.
- Royalties are recognised when the right to receive payment is established.
12. Dividends declared
The liability for dividends and related taxation thereon is raised only when the dividend is declared.
A provision is recognised when there is a legal or constructive obligation as a result of a past event for which it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The charge for current tax is based on the profit before tax for the year, as adjusted for items which are exempt or disallowed. It is calculated using tax rates that have been enacted or substantively enacted at the reporting date.
Current and deferred tax is recognised in profit or loss, except when it relates to items credited or charged directly to other comprehensive income or to equity, in which case the taxation effect is also recognised in other comprehensive income or equity respectively.
Deferred tax assets and liabilities are measured using tax rates that are expected to apply to the period when the asset is realised and the liability is settled.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences or assessed or calculated losses can be utilised. However, such assets or liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or an asset or liability in a transaction (other than in a business combination) that affects neither the taxable income nor the accounting profit.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
15. Research and exploration cost
Research expenditure is written off when incurred. Exploration expenditure is written off when incurred, except when it is probable that a mining asset will be developed for commercial production as a result of the exploration work. Insuch cases, the capitalised exploration expenditure is depreciated on a unit-of-production basis over the expected useful life of the constructed mining asset.
Capitalisation of exploration expenditure ceases when the project is discontinued. Any previously capitalised costs are expensed.
16. Leased metal
When metal is leased to fulfil marketing commitments and the settlement is through physical delivery of metal, the market value of the metal, at the inception date of the lease, is charged to profit or loss as a cost of sale and reflected as a current liability in the statement of financial position. The liability is measured at the fair value of the physical metal to be delivered to the counterparty.
The leasing costs associated with borrowed metal are expensed on a time proportion basis.
17. Financial instruments
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument in another entity. The Group’s financial instruments consist primarily of the following financial assets: non-current receivables, cash and cash equivalents, trade and other receivables; other current financial assets; and the following financial liabilities: borrowings, trade and other payables, and certain derivative instruments.
Where financial instruments are recognised at fair value, the instruments are measured at the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair values have been determined as follows:
- Where market prices are available, these have been used.
- Where there are no market prices available, fair values have been determined using valuation techniques incorporating observable market inputs or discounting expected cash flows at market rates.
The fair value of the trade and other receivables, cash and cash equivalents, and trade and other payables approximates their carrying amount owing to the short maturity period of these instruments.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income or expense over the period of the instrument.
Effectively, this method determines the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or, if appropriate, a shorter period, to the net carrying amount of the financial asset or liability.
The Group classifies financial assets into the following categories:
- At fair value through profit or loss (FVTPL).
- Loans and receivables.
- Held-to-maturity (HTM).
- Available-for-sale (AFS).
The classification of the financial assets is dependent on the purpose and characteristics of the particular financial assets and is determined at the date of initial recognition. Management reassesses the classification of financial assets on a biannual basis.
Financial assets at fair value through profit or loss (FVTPL)
Financial assets are classified as at FVTPL when the asset is either held-for-trading or is a derivative that does not satisfy the criteria for hedge accounting or is designated at FVTPL.
A financial asset is designated at FVTPL on initial recognition if this designation provides more useful information because:
- it eliminates or significantly reduces a measurement or recognition inconsistency (i.e. an accounting mismatch); or
- the financial asset is part of a group of financial assets, financial liabilities or both, that is managed and its performance evaluated on a fair value basis in accordance with a documented risk/investment management strategy, and information regarding this grouping is reported internally to key management on this basis.
In addition, if a contract contains one or more embedded derivatives, the entire contract can be designated at FVTPL.
Financial assets at FVTPL are recognised at fair value. Any subsequent gains or losses are recognised in profit or loss.
Financial assets which have been designated at FVTPL consist of trade receivables due in respect of sale of concentrate. The reason for this designation is that the receivables due from the third parties are based on concentrate sold to them which is only priced three months into the future. The pricing is therefore dependent on commodity and exchange rate movements in the interim period. Consequently, the receivables are initially reflected at fair value. This receivable is then remeasured on a monthly basis based on the movement in the forward curves of commodity prices and exchange rates. Any gains/losses on these remeasurements are reflected in revenue.
Financial assets classified as held-for-trading comprise the foreign forward exchange contracts which are not designated as hedges in terms of IAS 39 – Financial Instruments: Recognition and Measurement.
Loans and receivables
Financial assets that are non-derivative with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables.
Loans and receivables are measured at amortised cost using the effective interest method. Any subsequent impairment is included in the determination of other net income/expenditure.
Loans, trade and other receivables, and cash and cash equivalents with short-term maturities have been classified as loans and receivables. Loans and receivables are considered as current if their maturity is within a year, otherwise they are reflected in non-current assets.
Non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has an intention and ability to hold to maturity are classified as held-to-maturity.
These financial assets are measured at amortised cost using the effective interest method. Any subsequent impairment, where the carrying amount falls below the recoverable amount, is included in the determination of other net income/expenditure.
The Group held no HTM instruments during the period or at year end.
Other non-derivative financial assets are classified as AFS which are initially recognised at fair value. Any subsequent gains or losses are recognised directly in other comprehensive income, unless there is objective evidence and the fair value has declined below cost less accumulated impairments. On disposal or impairment of the financial asset, all cumulative unrecognised gains or losses, which were previously reflected in equity, are included in profit or loss for the period.
Financial assets that are not held-for-trading or designated at FVTPL, are assessed for objective evidence of impairment at the reporting date (e.g. evidence that the Group will not be able to collect all the amounts due according to the original terms of the receivable). If such evidence exists, the impairment for financial assets at amortised cost is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
The carrying amount of these financial assets, with the exception of trade receivables, is reduced by the impairment. Trade receivables are reduced through an allowance account, with movements in the allowance account included in the determination of net income/expenditure.
If a decline in fair value has been recognised in equity in respect of an AFS instrument and there is objective evidence that the asset is impaired, then the cumulative loss recognised in equity is reversed from equity and reflected in profit or loss even if the financial asset has not been derecognised. An impairment loss recognised on an investment in an equity instrument classified as AFS is not reversed through profit or loss. However, for any other AFS instruments, if in a subsequent period the fair value increases and the increase can be objectively linked to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, with the reversal reflected in profit or loss.
Classification between debt and equity
Debt and equity instruments are classified according to the substance of the contractual arrangements entered into.
An equity instrument represents a contract that evidences a residual interest in the net assets of an entity. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities.
Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the liability is either incurred for trading or is a derivative that does not satisfy the criteria for hedge accounting or is designated at FVTPL.
A financial liability is designated at FVTPL on initial recognition if this designation provides more useful information because:
- it eliminates or significantly reduces a measurement or recognition inconsistency (i.e. an accounting mismatch); or
- the financial liability forms part of a group of financial assets, financial liabilities or both, that is managed and its performance evaluated on a fair value basis in accordance with a documented risk/investment management strategy, and information regarding this grouping is reported internally to key management on this basis.
In addition, if a contract contains one or more embedded derivatives, the entire contract can be designated at FVTPL.
Financial liabilities at FVTPL are recognised at fair value. Any subsequent gains or losses are recognised in profit or loss.
Financial liabilities which have been designated at FVTPL consist of trade creditors due in respect of purchase of concentrate. The reason for this designation is that these liabilities due to the third parties are based on concentrate purchased from them which is mostly priced three months into the future. The pricing is thus dependent on commodity and exchange rate movements in the interim period. Consequently, the liability is initially reflected at fair value. This liability is then remeasured on a monthly basis based on the movement in the forward curves of commodity prices and exchange rates. Any gains/losses on the remeasurements are reflected in cost of sales.
Financial liabilities which are regarded as held-for-trading comprise the foreign forward exchange contracts which have not been designated as hedges in terms of IAS 39 – Financial Instruments: Recognition and Measurement.
Other financial liabilities
Other financial liabilities are recorded initially at the fair value of the consideration received, which is cost net of any issue costs associated with the borrowing. These liabilities are subsequently measured at amortised cost, using the effective interest method. Amortised cost is calculated taking into account any issue costs and any discount or premium on settlement.
Borrowings, obligations under finance leases and trade and other payables have been classified as other financial liabilities.
Loan commitments provided at below market interest rates are measured at initial recognition at their fair values, and if not designated at FVTPL, are subsequently measured at the higher of:
- the amount of the obligation in terms of the contract as determined in accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets; or
- the amount initially recognised less the cumulative amortisation recognised in accordance with
IAS 18 – Revenue.
In the ordinary course of its operations, the Group is exposed to fluctuations in metal prices, volatility of exchange rates and changes in interest rates. From time to time portions of these exposures are managed through the use of derivative financial instruments. Derivatives are initially measured at cost.
All derivatives are subsequently marked-to-market at financial reporting dates and any changes in their fair values are included in other net income/expenditure in the period to which they relate.
Commodity contracts that are entered into and continue to meet the Group’s expected purchase, sale or usage requirements, which were designated for that purpose at their inception and are expected to be settled by delivery, are recognised in the financial statements when they are delivered into, and are not marked-to-market.
Commodity contracts that fall within the scope of IAS 39 are recognised and measured at fair value.
Gains and losses arising on all other contracts not spanning a reporting interval are recognised and included in the determination of other net income/expenditure at the time that the contract expires.
Cash flow hedges
Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss for the period. If the cash flow hedge of a firm commitment or a forecasted transaction results in the recognition of a non-financial asset, then, at the time the asset or liability is recognised, the related gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. If an effective hedge of a forecasted transaction subsequently results in the recognition of a financial asset or liability, the related gains or losses recognised in equity are recycled in profit or loss for the period in the same period when the hedged item affects earnings for the period.
A hedge of the foreign currency risk of a firm commitment is designated and accounted for as a cash flow hedge.
When a hedge expires, is sold, or no longer meets the criteria for hedge accounting, any cumulative gains or losses in equity at that time remain in equity until the forecasted transaction occurs, at which time it is recognised in profit or loss. When the forecasted transaction is no longer expected to occur, the cumulative gains or losses reflected in equity are immediately transferred to the profit or loss for the period.
Fair value hedges
Changes in the fair value of derivative financial instruments that are designated and qualify as fair value hedges, together with any changes in the fair value of the hedged assets or liability that are attributable to the hedged risk, are recognised immediately in profit or loss for the period.
Derivatives embedded in other financial instruments or host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of their host contracts and the host contracts themselves are not carried at fair value with unrealised gains or losses reported in the profit or loss for the period.
18. Foreign currencies
The South African rand is the functional currency of all the operations of the Group, except Unki Platinum Mine and Anglo Platinum Marketing Limited which have a US dollar functional currency.
Foreign currency transactions are recorded at the spot rate of exchange on the transaction date. At the end of the period, monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange ruling at the reporting date. Non-monetary assets and liabilities carried at fair value are translated at the rate of exchange ruling at the date of determining the fair value. Non-monetary items that are denominated in foreign currencies and measured at historical cost are not retranslated. Foreign exchange differences arising on monetary items are reflected in profit or loss except in limited circumstances.
The financial position of the Group’s foreign operations is translated into rand, using the exchange rate ruling at the end of the reporting period. Income and expenses are translated at the average exchange rates for the period. If the exchange rates fluctuate significantly, then the items are translated at the exchange rates ruling at the date of the transaction. All resulting exchange differences on the Group’s foreign operations are recognised in other comprehensive income.
19. Environmental rehabilitation provisions
Estimated long-term environmental obligations, comprising pollution control, rehabilitation and mine closure, are based on the Group’s environmental management plans in compliance with current technology, environmental and regulatory requirements.
When the asset reaches commercial production an estimate is made of future decommissioning costs. The discounted amount of estimated decommissioning costs that embody future economic benefits is capitalised as a decommissioning asset and concomitant provisions are raised. These estimates are reviewed annually and discounted using a pretax risk-free rate that reflects current market assessments of the time value of money. The increase in decommissioning provisions, due to the passage of time, is charged to interest paid. All other changes in the carrying amount of the provision subsequent to initial recognition are included in the determination of the carrying amount of the decommissioning asset. Decommissioning assets are amortised on a straight-line basis over the lesser of 30 years or the expected benefit period.
Changes in the discounted amount of estimated restoration costs are charged to profit or loss during the period in which such changes occur. Estimated restoration costs are reviewed annually and discounted using a pretax risk-free rate that reflects current market assessments of the time value of money. The increase in restoration provisions, owing to the passage of time, is charged to interest paid. All other changes in the carrying amount of the provision subsequent to initial recognition are included in profit or loss for the period in which they occur.
Ongoing rehabilitation costs
Expenditure on ongoing rehabilitation costs is recognised as an expense when incurred.
Platinum Producers’ Environmental Trust
The Group contributes to the Platinum Producers’ Environmental Trust annually. The trust was created to fund the estimated cost of pollution control, rehabilitation and mine closure at the end of the lives of the Group’s mines. Contributions are determined on the basis of the estimated environmental obligation over the life of a mine. Contributions made are reflected in non-current investments held by the Platinum Producers’ Environmental Trust if the investments are not short term. If the investments are short term and highly liquid, the amounts are reflected as cash and cash equivalents, but the restrictions are disclosed.
20. Borrowing costs
Borrowing costs are charged to interest paid.
When borrowings are utilised to fund qualifying capital expenditure, such borrowing costs are capitalised in the period in which the capital expenditure and related borrowing costs are incurred.
21. Employee benefits
Short-term employee benefits
Remuneration paid to employees in respect of services rendered during a reporting period is recognised as an expense in that reporting period. Accruals are made for accumulated leave and are measured at the amount that the Group expects to pay when the leave is used.
Termination benefits are charged against income when the Group is demonstrably committed to terminating the employment of an employee or group of employees before their normal retirement date.
Defined contribution plans
Retirement, provident and pension funds
Contributions to defined contribution plans in respect of services rendered during a reporting period are recognised as an expense in that period.
Defined benefit plans
Post-retirement medical aid liability
The post-retirement medical aid liability is recognised as an expense systematically over the periods during which services are rendered using the projected unit credit method. Independent actuarial valuations are conducted annually.
Actuarial gains and losses arising as a result of experience adjustments and/or the effects of changes in actuarial assumptions are recognised as income or expenditure as and when they occur. Any increase in the present value of plan liabilities expected to arise from employee service during the period is charged to operating profit. The expected return on plan assets and the expected increase during the period in the present value of plan liabilities are included in interest income and interest expense.
Past-service cost is recognised immediately to the extent that benefits are already vested and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognised at the reporting date represents the present value of the defined benefit obligation as adjusted for unrecognised past-service costs and as reduced by the fair value of scheme assets.
22. Share-based payments
The Group issues equity-settled and cash-settled share-based instruments to certain employees. Equity-settled share-based payments are measured at the fair value of the equity instruments at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, based on management’s estimate of shares that are expected to eventually vest.
For cash-settled share-based payments, a liability equal to the portion of the services or goods received is recognised initially at fair value. This is then remeasured at each reporting period until the liability is settled, with the resulting gain or loss in fair value being recognised in profit or loss for the period. Fair value is measured using the binomial option-pricing model. The fair values used in the model have been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services rendered. If the fair value of the goods or services cannot be reliably measured, it is then based on the fair value of the equity instruments issued to the third party at the relevant date.
23. Black economic empowerment (BEE) transactions
When the Group disposes of a portion of its subsidiary/operation to a BEE company at a discount, this is treated as a share-based payment in accordance with the principles of AC 503 – Accounting for Black Economic Empowerment (BEE) Transactions. The IFRS 2 charge is calculated as the difference between the fair value of the asset disposed of and the proceeds received. This charge is included in the determination of profit and loss on the disposal.
24. Treasury shares
The carrying value of the Company’s shares held by the Group Employee Share Participation Scheme (the Kotula Trust) and the Company’s subsidiaries in respect of the Group’s share option schemes are reflected as treasury shares and shown as a reduction in shareholders’ equity.