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Reviewed Condensed Consolidated Financial Results for the Year Ended 28 February 2018
Chrometco Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/026265/06)
Share code: CMO
ISIN: ZAE007020249
("Chrometco" or "the Group")
REVIEWED CONDENSED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY
2018
Condensed consolidated statement of financial position
Reviewed as at Audited as at
28 Feb 2018 28 Feb 2017
Note R'000 R'000
Assets
Non-current assets 1,107,615 274,903
Property, plant and
5 962,653 2,859
equipment
Intangible assets 15,857 268,886
Goodwill 6 40,465 -
Other financial assets 7 82,844 -
Environmental
rehabilitation obligation 15 5,796 3,158
investments
Current assets 355,722 2,624
Trade and other
24,470 64
receivables
Inventory 164,088 -
Cash and cash equivalents 34,885 2,560
Non-current disposal group
8 132,279 -
held-for-sale
Total assets 1,463,337 277,528
EQUITY AND LIABILITIES
Capital and reserves 515,206 209,017
Stated capital 388,512 158,062
(Accumulated loss)/
(49,607) 29,716
retained earnings
Non-Controlling interest 176,301 21,239
Non-current liabilities 549,004 62,107
Deferred taxation 117,646 56,528
Borrowings 9 331,364 -
Other financial liability 53,053 -
Finance lease liability 11 34,961 -
Environmental 12 11,980 5,579
rehabilitation provision
Current liabilities 399,127 6,405
Cash and cash equivalents 85,547 -
Borrowings - 5,221
Trade and other payables 232,555 1,174
Provisions - 10
Finance lease liability 44,508 -
Non-current disposal group
8 36,517 -
held-for-sale
Total equity and
1,463,337 277,528
liabilities
Condensed consolidated statement of comprehensive income
Reviewed as at Audited as at
28 Feb 2018 28 Feb 2017
Note R'000 R'000
Revenue 336,764 -
Cost of sales (254,015) -
Gross profit 82,749 -
Amortisation and (46,953) (10,954)
depreciation
Other income 10,897 294
Other expenses (19,844) -
Salaries (16,833) (5,907)
Professional fees (7,186) -
Maintenance expenses (2,870) -
Gain on bargain purchase 6 9,923 -
Impairment 7, 8 (153,530) -
Loss before interest and (143,647) (16,567)
taxation
Investment income 8,337 54
Finance charges (15,479) (819)
Loss before taxation (150,789) (17,332)
Taxation 39,435 (7,518)
Loss for the year (111,354) (24,850)
Other comprehensive income - -
Total comprehensive income (111,354) (24,850)
loss for the year
Loss and total
comprehensive loss for the
year
Attributable to owners of (79,323) (20,245)
the parent
Attributable to non- (32,031) (4,606)
controlling interest
Basic loss per share (9.58) (7.36)
(cents)
Diluted loss per share (9.58) (7.36)
(cents)
Condensed consolidated statement of cash flows
Reviewed as at Audited as at
28 Feb 2018 28 Feb 2017
R'000 R'000
Cash utilised by operations and exploration
activities 87,047 (4,002)
Operating profit / (loss) before working
capital changes 36,571 (5,587)
Working capital changes 50,476 1,585
Interest received 4,695 54
Finance cost - -
Tax paid (2,663) -
Net inflow/(outflow) from operating activities 89,079 (3,948)
Cash flows from investing activities
Property, Plant and Equipment additions (114,854) -
Contributions to Guardrisk (2,152) (177)
Cash obtained as part of acquisitions 16,118 -
Net loans raised (8,166) -
Net cash outflow from investing activities (109,054) (177)
Cash flows from financing activities
Shares issued 5,188 -
Group loan repayment (3,000) -
Finance lease payments (17,489) -
Borrowings - settled on acquisition (5,514) -
Loans raised (12,430) 5,000
Net cash (outflow) / inflow from financing
activities (33,245) 5,000
Net (decrease)/increase in cash and cash
equivalents (53,220) 875
Cash and cash equivalents at beginning of year 2,560 1,685
Cash and cash equivalents at end of year (50,662) 2,560
Condensed consolidated statement of changes in equity
Retained
Non-
Stated earnings/
controlling Total
capital (accumulated
interest
loss)
R'000 R'000 R'000 R'000
Balance at 1 March 2016 158,062 49,960 25,845 233,867
Total comprehensive loss for the
- (20,245) (4,606) (24,850)
year
Balance at 28 February 2017 158,062 29,716 21,239 209,017
Shares issued 230,450 - - 230,450
Acquisition of subsidiary with
- - 132,702 132,702
non-controlling interests
Transaction with Onicstar - - 54,391 54,391
Total comprehensive loss for the
- (79,323) (32,031) (111,354)
year
Balance at 28 February 2018 388,512 (49 607) 176,301 515,206
1. Nature of business
The Group is a mining and exploration group, which focuses on Chrome mining in
South Africa.
2. The provisional condensed consolidated financial statements for the year
ended 28 February 2018 have been prepared by the Group’s financial reporting
team, supervised by Chrometco’s Chief Financial Officer, Mr. Marcel Naude CA(SA)
and approved by the Chrometco’s board of directors.
3. Basis of preparation
The provisional condensed consolidated annual financial statements for the year
ended 28 February 2018 have been prepared in accordance with the framework
concepts and the recognition and measurement criteria of International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, contains as a minimum information required by IAS 34 –
Interim Financial Reporting, the Financial Reporting Pronouncements as issued by
the Financial Reporting Accountants Council, the JSE Limited Listings
Requirements and the South African Companies Act, 71 of 2008, as amended.
The accounting policies and methods of computation applied in the preparation of
the condensed consolidated financial statements are in terms of IFRS and are
consistent with those applied in the previous consolidated annual financial
statements, with the exception of the following accounting policies:
Disposal group held-for-sale
Disposal groups comprising assets and liabilities, are classified as held-for-
sale if it is highly probable that they will be recovered primarily through sale
rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their
carrying amount and fair value less costs to sell. Any impairment loss on a
disposal group is allocated first to goodwill, and then to the remaining assets
and liabilities on a pro rata basis, except that no loss is allocated to
inventories, financial assets or deferred tax assets, which continue to be
measured in accordance with the Group’s other accounting policies. Impairment
losses on initial classification as held-for-sale and subsequent gains and
losses on remeasurement are recognised in profit or loss.
Once classified as held-for-sale, intangible assets and property, plant and
equipment are no longer amortised or depreciated.
Finance Leases
Assets acquired through a finance lease are initially recognised at the lower of
fair value and minimum lease payment on acquisition date. The corresponding
liability is recognised as a finance lease obligation on the same date.
Finance lease repayments are apportioned between finance costs and capital
repayments when they are repaid. This is done to ensure that there is a
constant rate of interest applied on the remaining balance of the finance lease
obligation remaining.
4. Auditors review report
The condensed consolidated financial statements for the year ended 28 February
2018 have been reviewed by Moore Stephens, who expressed an unmodified review
conclusion. A copy of the auditor’s review report is available for inspection at
the company’s registered office together with the financial statements
identified in the auditor’s report.
5. Property, plant and equipment
Mobile
Mining
Machinery
Mining and
Assets Vehicles Other Total
R'000 R'000 R'000 R'000
Carrying amount 29 February 1 993 - 6 1 999
2016
Cost 2 118 - 53 2 171
Accumulated depreciation (125) - (47) (172)
Depreciation (82) - (3) (85)
Changes in estimates 948 - - 948
Disposals - - (3) (3)
Carrying amount 28 February 2 859 - - 2 859
2017
Cost 3 066 - 50 3 116
Accumulated depreciation (207) - (50) (257)
Business combination
acquisition 722 157 68 490 18 960 809 607
Additions 54 850 119 144 3 031 177 025
Depreciation (10 846) (14 793) (1 197) (26 836)
Changes in estimates (1 272) - - (1 272)
Disposals - - - -
Reallocation to HFS - - - -
Carrying amount 28 February 767 748 172 841 20 794 961 383
2018
Cost 838 666 190 967 31 989 1 061 622
Accumulated depreciation (70 918) (18 126) (11 195) (100 239)
6. Business combinations
Acquisition of the Black Chrome Operation
On 18 July 2017, the shareholders of Chrometco approved the resolution to acquire
the shares of Black Chrome Holdings (Pty) Ltd and issue the acquisition shares to
Grand Slam Enterprise (Pty) Ltd. The primary reason for the acquisition was to
bring an operating asset into the Group. Goodwill has been recognised as part of
the acquisition due to an increased share price at the time of obtaining
shareholder approval.
The conditions precedent to Tranche 1 of the Black Chrome Share Swap Agreement
were fulfilled and accordingly Chrometco issued 835 000 000 shares to Grand Slam
Enterprise in exchange for 25% interest in Sail Minerals (Pty) Ltd and the
appointment of Chrometco Mining Services (Pty) Ltd as the exclusive subcontractor
in terms of the Management Agreement between Sail Minerals (Pty) Ltd and Umnotho
weSizwe Resources (Pty) Ltd.
Chrometco obtained contractual control of the Black Chrome Operation, by virtue
of the Management Agreement.
In terms of the Black Chrome Share Swap Agreement, Chrometco will issue a further
1 370 000 000 shares to Grand Slam Enterprise (Pty) Ltd upon implementation of
Tranche 2 of the Black Chrome Share Swap Agreement.
The purchase price allocation has been prepared on a provisional basis in
accordance with IFRS 3. The values measured on a provisional basis include, inter
alia, the mineral reserves and resources used to value the Black Chrome Operation
which was based on the most recent Black Chrome Mine Competent Person’s report.
Any changes to the declared reserves and resources will be assessed as to whether
it existed at acquisition date. This valuation directly impacts the value
allocated to property, plant and equipment, deferred tax and the environmental
rehabilitation provision.
The consideration transferred for the acquisition of the Black Chrome Operation
was R220.3 million by virtue of an issue of shares by Chrometco.
The following table summarises the recognised amounts of assets acquired and
liabilities assumed at the acquisition date:
R'000
Property, plant and equipment 729,122
Investment in rehabilitation asset 329
Inventory 17,439
Trade and other receivables 7,816
Cash and cash equivalents 4,810
Borrowings (329,565)
Environmental rehabilitation obligation (981)
Trade and other payables (5,833)
Deferred tax (120,892)
Total fair value of identifiable net assets acquired 302,245
The fair value of assets and liabilities excluding property plant and equipment,
environmental rehabilitation obligation, deferred tax and borrowings approximate
their carrying value. The fair value of property, plant and equipment was based
on the expected discounted cash flows of the expected (Chrome) reserves and costs
to extract the chrome discounted at a real discount rate of 9.8% and an average
benchmark price for 42% chrome concentrate of USD165/t. The fair value of
borrowings was determined as the present value of the contractual repayments,
applying a discount rate of 11.25%.
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
R'000
Consideration transferred (share issue) 220,254
Fair value of identifiable net assets (302,245)
Non-controlling interests, based on their
proportionate interest in the recognised amounts of
122,456
the assets and liabilities
Goodwill 40,465
Acquisition of Sail Minerals
On 1 August 2017, the Group obtained control over Sail Minerals (Pty) Ltd (Sail
Minerals), after subscribing for a further 70 ordinary shares at a subscription
price of R53 650.00 per share, increasing Chrometco’s interest in Sail Minerals
to 51%. This acquisition was affected to consolidate all the mining related
operating activities into Chrometco.
The subscription price will be settled by way of future dividends declared by
Sail Minerals.
The following table summarises the recognised amounts of assets acquired and
liabilities assumed at the acquisition date:
R'000
Property, plant and equipment 80,157
Other financial assets 54,272
Inventory 38,855
Trade and other receivables 34,110
Cash and cash equivalents 11,273
Other financial liabilities (76,114)
Finance lease liability (10,304)
Trade and other payables (92,781)
Deferred tax (10,845)
28,623
The fair value of assets and liabilities excluding other financial assets and
deferred tax approximate their carrying value due to recently being acquirer or
a short maturity date. The fair value of other financial assets was based on the
expected discounted cash flows of the expected loan repayments discounted at a
discount rate of 11.25%. The gross contractual receivables included in other
financial assets is R67.3 million.
R'000
Consideration transferred 3,756
Investment in Sail Minerals held prior to obtaining
control (share issue) 5,033
Settlement of a pre-existing relationship (4,114)
Fair value of identifiable net assets (28,623)
Non-controlling interests, based on their
proportionate interest in the recognised amounts of
the assets and liabilities 14,025
Gain on bargain purchase (9,923)
A gain on bargain purchase was realised due to settlement of a pre-existing
relationship.
7. Other Financial Assets
28-Feb- 28-Feb-
18 17
R'000 R'000
Onicastar loan 23,489 -
Black Chrome Holdings loan 50,119 -
Other 9,236 -
82,844 -
As a consequence of unsuspensive nature of the Rooderand transaction, the group
provided a loan to Onicastar to subscribe for shares in Rooderand amounting to
R54.4 million with the following terms:
- Bears interest at prime rate;
- Repayable out of all distributions made by Rooderand to its shareholders;
- As security for proper and timeous payment and performance by Onicastar,
Onicastar has ceded and pledged all of the shares they own in Rooderand to the
group.
As at 28 February 2018, an amount of R33.0 million was deemed to be not
recoverable and impaired. This was due to the value of the Rooderand disposal
group already recognised at fair value.
The group acquired a loan receivable from Black Chrome Holdings as part of the
Sail Minerals Business Combination. The carrying value at year end differs from
the fair value at acquisition date due to advances of R8.1 million and a change
in estimation of the carrying value of R13.4 million. The loan bears the following
terms:
- Bears interest at prime rate + 3.3%, with a 24 month interest moratorium on
these loans after regulatory approval for the transfer of the UWR mining right is
obtained;
- Repayable with fixed repayment terms. There is a 3 year capital repayment
moratorium following the regulatory approval for the transfer of the UWR mining
right;
8. Disposal group held-for-sale
During the year under review, the Group decided to actively explore options to
dispose of the Rooderand operation. The Board is of the view that a sale is highly
probable and a sale is expected to be finalised within 12 months.
On 31 August 2017, the Rooderand disposal group was reclassified to disposal group
held-for-sale in terms of IFRS 5 and an impairment was recognised to write the
disposal group down to fair value.
Impairment losses relating to the disposal group held-for-sale
Impairment losses of R120.5m for write-downs of the Rooderand disposal group to
the lower of its carrying amount and its fair value less costs to sell have been
disclosed separately in the condensed consolidated statement of comprehensive
income. The impairment losses have been applied to reduce the carrying amount of
intangible assets within the disposal group.
Assets included in the disposal group held-for-sale is the following:
R'000
Intangible assets 132,279
Disposal group held for sale 132,279
R'000
Deferred tax 27,643
Environmental rehabilitation obligation 8,874
Disposal group held for sale 36,517
The non-recurring fair value measurement for the disposal group of R95.7m has
been categorised as a level 2 fair value. The fair value was based on what a
market participant will pay for the disposal group.
9. Borrowings
The following borrowings were held at amortized cost:
28-Feb-18 28 Feb 2017
R'000 R'000
IDC loan (i)
252,484 -
Related party loan (ii)
78,880 5,221
Total
331,364 5,221
(i) This loan was acquired as part of the business combination of the Black Chrome
Operations. The lender of this loan is the Industrial Development Corporation.
This loan bears interest at a rate of prime +3.3%. There is a 24 month interest
moratorium on these loans after regulatory approval for the transfer of the UWR
mining right is obtained. There are fixed repayment terms for this loan, after a
3 year capital repayment moratorium after the regulatory approval is obtained.
(ii) This loan was acquired as part of the business combination of the Black
Chrome Operations. The lender of this loan is Black Chrome Holdings. This loan
bears interest at a rate of prime +3.3%. There is a 24 month interest moratorium
on these loans after regulatory approval for the transfer of the UWR mining right
is obtained. There is a 3 year capital repayment moratorium after regulatory
approval is obtained.
All balances as at 28 February 2018 are non-current. All balances as at 28
February 2017 are current.
10. Change in estimate
This expense has been included in Other costs in the Statement of comprehensive
income.
28-Feb-18 28-Feb-17
R'000 R'000
Change in estimate adjustment (3,820) -
Change in estimate on borrowings (8,295) -
Change in estimate on other financial assets 4,475 -
The change in estimate relates to a reestimation at 28 February 2018 of the loans.
These have been reestimated based on market factors that have changed relating to
the timing of the expected cash flows relating to the financial instruments.
These have been adjusted in line with AG 8 of IAS 39.
11. Finance lease liability
11.1 Leasing arrangement
The group leases certain of its mining equipment under financing leases. The
average terms are for the majority of the useful life of the assets.
The interest rate underlying all obligations under finance leases are fixed at
the beginning of the respective contracts dates, and range from 12.0% to 13.25%.
11.2 Finance lease liabilities
Minimum lease
payments
28-Feb-18
R'000
Not later than 1 year 82,044
Later than one year, but not later than five
61,879
years
Total 143,923
Less: future finance charges 16,392
Present value of minimum lease payments 127,531
Included in the statements
Finance lease liability
Non-current liabilities 34,961
Current liabilities 44,508
12. Environmental rehabilitation provision
As a result of various laws and regulations on mining activity, the group has
certain rehabilitation obligations. The environmental rehabilitation Provision
represents management's best estimate for the asset retirement obligation as at
the end of the period. Actual cost incurred in order to settle the obligations
could differ materially from the estimates. Further, future changes to the laws
and regulations governing these obligations could materially change the provisions
recognised.
28-Feb- 28-Feb-17
18
R'000 R'000
Balance at the beginning of the year 5,579 4,032
Environmental rehabilitation obligation 981 -
on acquisition of subsidiaries
Day 1 adjustment to the fair value 1,272 -
Interest expense (i) 677 -
Change in estimate (ii) 12,345 1,547
Reclassified as held for sale (8,874)
Balance at the end of the period 11,980 5,579
(i)The provision is calculated based on the discount rates of 8.15% – 9.11% (2017:
9.29% - 9.64%)
(ii)The change in estimate is as a result of changes in the reserves and resources,
changes to the life of mine, changes to discount rate, changes to inflation, and
changes to the laws and regulations governing the rehabilitation obligations.
13. Weighted average number of shares
28-Feb-18 28-Feb-17
R'000 R'000
Shares in issue at the beginning of the year 274,929 274,929
Weighted average shares issued during the
553,253 -
year
Weighted average number of shares (`000) 828,182 274,929
Diluted weighted average number of shares 828,182 274,929
14. Headline loss per share
28-Feb-18 28-Feb-17
R'000 R'000
Loss attributable to the shareholders of (79,323) (20,245)
Chrometco
Gain on bargain purchase (9,923) -
Impairment of disposal group, net of tax 74,925 -
Total impairment, net of tax 153,530 -
Tax effect (34,391) -
Portion attributable to non-controlling (44,214) -
interest, net of tax
Change in estimate 1,403 -
Total change in estimate, net of tax 3,820 -
Tax effect (1,069) -
Portion attributable to non-controlling (1,348) -
interest, net of tax
Headline loss attributable to the owners of
(12,918) (20,245)
Chrometco
Headline loss per share (cents) (1.56) (7.36)
Diluted headline loss per share (cents) (1.56) (7.36)
15. Fair value of financial assets and financial liabilities
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Investments and environmental rehabilitation obligation funds (refer note 12)
The environmental trust fund is stated at fair value based on the nature of the
fund’s investments
The fair value of financial instruments is estimated based on ruling market
prices, volatilities and interest rates at 28 February 2018.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Trade receivables/payables, and cash and cash equivalents. The carrying amounts
approximate fair values due to the short maturity of these instruments,
Investments and environmental rehabilitation obligation funds. The environmental
trust fund is stated at fair value based on the nature of the fund’s investments,
Borrowings The fair value of borrowings approximates its carrying amounts as the
impact of credit risk is included in the measurement of carrying amounts.
16. Segment information
Segment information is not disclosed as the Group currently only has one segment.
17. Events after the reporting date
On 24 May 2018, Tranche 2 of the Black Chrome Share Swap Agreement, as disclosed
in the circular to shareholders dated 30 May 2017, was implemented after the
remaining conditions precedent were met. The impact of this will be an issue of
1,37 billion ordinary shares to Grand Slam Enterprise (Pty) Ltd, in exchange for
51% ownership of Black Chrome Holdings (Pty) Ltd, the owner of 64% of Umnotho
weSizwe Resources (Pty) Ltd, subject to completion of the JSE review process.
18. Mineral reserves and resources
There have been no published changes to the mineral reserves and resources. These
have remained unchanged to those included in the circular dated 30 May 2017
Circular.
19. Going concern
The financial statements have been prepared on the basis of accounting policies
applicable to a going concern. This basis presumes that funds will be available
to finance future operations and that the realisation of assets and settlement of
liabilities, contingent obligations and commitments will occur in the ordinary
course of business.
The ability of the Group to continue as a going concern is dependent on a number
of factors. The most significant of these is that the directors continue to
procure funding for the ongoing operations for the Group and that the subordination
agreement referred to in note of these financial statements will remain in force
for so long as it takes to restore the solvency of the Group.
20. Dividends
No dividend has been declared or paid for the period (28 Feb 2017: R nil).
21. Changes to the Board
During the year under review the following members were appointed to the board:
Mr BL Sibiya was appointed as an independent non-executive director and chairman
of the board
Mr NL Waisberg was appointed as the Chief Executive Officer
Mr MC Naude was appointed as the Chief Financial Officer on a full-time basis.
Mr LJ Jordaan was appointed as an independent non-executive director
Ms NP Thomas was appointed as an independent non-executive director
During the year, Messrs JG Scott, PJ Cilliers, R Rossiter, E Bramley and IWS
Collair resigned from the Board of Directors of Chrometco.
Signed on behalf of the Board of Directors
Marcel Naude CA(SA)
Chief Financial officer
Johannesburg
30 May 2018
Directors:
BL Sibiya+ (Chairman), NL Waisberg (CEO), MC Naude (CFO), NP Thomas+,
LJ Jordaan+
+ independent non-executive
CORPORATE INFORMATION
Designated Advisor:
PSG Capital
Company Secretary:
The Green Board CC
Registered Office
Unit 25 Sunninghill Office Park
4 Peltier Drive
Sunninghill
Gauteng
2196
Postal address
PO Box 1553
Kelvin
2054
Auditors
Moore Stephens
Date: 30/05/2018 05:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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