Reviewed condensed group financial statements and unreviewed production and sales volumes information for the year ended 31 December 2014

NOTES TO THE REVIEWED CONDENSED GROUP FINANCIAL STATEMENTSfor the year ended 31 December

19

Financial instruments  

 
(a) Carrying amounts and fair values  
  The carrying amounts and fair values of financial assets and financial liabilities in the condensed group statement of financial position, are as follows: 
    At 31 December  
    2014
Reviewed
2013
Audited
    Carrying  
amount  
Rm  
Fair value  
Rm  
Carrying  
amount  
Rm  
Fair value  
Rm  
 

ASSETS  

       
  Non-current assets          
  Financial assets, consisting of:   2 693   2 693   2 469   2 469  
  – Environmental Rehabilitation Funds   826   826   618   618  
  – Loans to joint ventures   83   83   255   255  
  – Kumba Iron Ore Limited   22   22   40   40  
  – Chifeng   267   267   253   253  
  – RBCT   973   973   551   551  
  – New Age Exploration Limited       1   1  
  – Non-current receivables   522   522   751   751  
  Current assets1   4 104   4 104   2 875   2 875  
  Trade and other receivables   2 090   2 090   1 845   1 845  
  Derivative financial assets   8   8   1   1  
  Cash and cash equivalents   2 006   2 006   1 029   1 029  
  Non-current assets held-for-sale   76   76   67   67  
  Total financial instrument assets   6 873   6 873   5 411   5 411  
 

LIABILITIES  

       
  Non-current liabilities   2 976   2 976   3 569   3 569  
  Interest-bearing borrowings2   2 976   2 976   3 569   3 569  
  Current liabilities1   2 603   2 603   2 907   2 907  
  Trade and other payables   2 502   2 502   2 056   2 056  
  Derivative financial liabilities       14   14  
  Interest-bearing borrowings2   34   34   31   31  
  Overdraft   67   67   806   806  
  Non-current liabilities held-for-sale   14   14   36   36  
  Total financial instrument liabilities   5 593   5 593   6 512   6 512  
  1 Carrying amounts approximate the fair values due to the short-term nature of the maturities of these financial assets and liabilities.  
  2 Carried at amortised cost representing fair value in terms of IAS 39 Financial Instruments: Recognition and Measurement.  

  (b)  Fair value hierarchy          
   

The table below analyses recurring fair value measurements for financial assets and financial liabilities. These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to the valuation techniques used. The different levels are defined as follows:  

   

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the group can access at the measurement date.  
Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  
Level 3 – unobservable inputs for the asset and liability.  

             
    At 31 December 2014 (Reviewed)  Level 1  
Rm  
Level 2  
Rm  
Level 3  
Rm  
Total  
Rm  
    Financial assets held-for-trading at fair value through profit or loss          
    – Current derivative financial assets     8     8  
    Financial assets designated at fair value through profit or loss          
    – Environmental Rehabilitation Funds   826       826  
    – Environmental Rehabilitation Fund held-for-sale   73       73  
    – Kumba Iron Ore Limited   22       22  
    Available-for-sale financial assets          
    – Chifeng       267   267  
    – RBCT       973   973  
    Net financial assets carried at fair value   921   8   1 240   2 169  
             
    At 31 December 2013 (Audited)  Level 1  
Rm  
Level 2  
Rm  
Level 3  
Rm  
Total  
Rm  
    Financial assets held-for-trading at fair value through profit or loss          
    – Current derivative financial assets     1     1  
    Financial assets designated at fair value through profit or loss          
    – Environmental Rehabilitation Funds   618       618  
    – Environmental Rehabilitation Fund held-for-sale   67       67  
    – Kumba Iron Ore Limited   40       40  
    Available-for-sale financial assets          
    – Chifeng       253   253  
    – New Age Exploration Limited   1       1  
    – RBCT       551   551  
    Financial liabilities held-for-trading at fair value through profit or loss          
    – Current derivative financial liabilities     (14)    (14) 
    – Current derivative financial liabilities held-for-sale     (9)    (9) 
    Net financial assets/(liabilities) carried at fair value   726   (22)  804   1 508  
             
  (c)  Level 3 fair values          
    Reconciliation of assets within Level 3 of the hierarchy:       Chifeng  
Rm  
RBCT  
Rm  
    Opening balance at 1 January 2013 (Audited)      174   467  
    Movement during the year          
    Gains recognised for the period in OCI (pre-tax effect)      46   82  
    Exchange gains for the period recognised in OCI       33    
    Closing balance at 31 December 2013 (Audited)      253   551  
    Movement during the year          
    Gains recognised for the period in OCI (pre-tax effect)      1   422  
    Exchange gains for the period recognised in OCI       13    
    Closing balance at 31 December 2014 (Reviewed)      267   973  

   

Transfers
The group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the transfer has occurred.

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended 31 December 2014 and 31 December 2013.

There were no transfers between Level 2 and Level 3, as shown in the reconciliations above.

Valuation process applied by the group
The fair value computations of the investments are performed by the group’s corporate finance department, reporting to the financial director, on a six monthly basis. The valuation reports are discussed with the audit committee in accordance with the group’s reporting governance.

Current derivative financial instruments
Level 2 fair values for simple over-the-counter derivative financial instruments are based on market quotes. These quotes are tested for reasonableness by discounting estimated future cash flows using the market rate for similar instruments at measurement date.

Valuation techniques used in the determination of fair values within Level 3 of the hierarchy, as well as significant inputs used in the valuation models
Chifeng
Chifeng is classified within Level 3 of the fair value hierarchy as there is no quoted market price or observable price available for this investment. This unlisted investment is valued as the present value of the estimated future cash flows, using a discounted cash flow model. The valuation technique is consistent to that used in previous reporting periods.

The significant observable and unobservable inputs used in the fair value measurement of the investment in Chifeng are Rand/Renmimbi (RMB) exchange rate, RMB/US$ exchange rate, Zinc London Metal Exchange (LME) price, production volumes, operational costs and the discount rate.

    At 31 December 2014 (Reviewed)  Inputs   Sensitivity of inputs  
and fair value measurement1
Sensitivity analysis  
of a 10% increase  
in the inputs is  
demonstrated below2
Rm  
    Observable inputs        
    Rand/RMB exchange rate   R1,86/RMB1   Strengthening of the  
Rand to the RMB  
26  
    RMB/US$ exchange rate   RMB6,13 to RMB6,75/US$1   Strengthening of the  
RMB to the US$  
152  
    Zinc LME price (US$ per tonne in real terms)  US$2 311 to US$2 226   Increase in price of  
zinc concentrate  
152  
    Unobservable inputs        
    Production volumes (tonnes)  85 000 tonnes   Increase in production volumes   37  
    Operational costs (US$ million per annum in real terms)  US$63 to US$76   Decrease in operations costs   (133) 
    Discount rate (%)  9,94%   Decrease in the discount rate   (20) 
    At 31 December 2013 (Audited)       
    Observable inputs        
    Rand/RMB exchange rate   R1,72/RMB1   Strengthening of the  
Rand to the RMB  
25  
    RMB/US$ exchange rate   RMB6,02 to RMB5,95/US$1   Strengthening of the  
RMB to the US$  
161  
    Zinc LME price (US$ per tonne in real terms)  US$2 039 to US$2 027   Increase in price of  
zinc concentrate  
161  
    Unobservable inputs        
    Production volumes (tonnes)  208 750 tonnes   Increase in production volumes   177  
    Operational costs (US$ million per annum in real terms)  US$74 to US$88   Decrease in operations costs   (143) 
    Discount rate (%)  10%   Decrease in the discount rate   (21) 
   
1 Change in observable/unobservable input which will result in an increase in the fair value measurement.  
2 A 10% decrease in the respective inputs would have an equal but opposite effect on the above, on the basis that all other variables remain constant.  
           
    Interrelationships        
   

Any interrelationships between unobservable inputs is not considered to have a significant impact within the range of reasonably possible alternative assumptions for both reporting periods.  

    RBCT        
   

RBCT is classified within Level 3 of the fair value hierarchy as there is no quoted market price or observable price available for this investment. This unlisted investment is valued as the present value of the estimated future cash flows, using a discounted cash flow model. It is not anticipated that the RBCT investment will be disposed of in the near future. The valuation technique is consistent to that used in previous reporting periods.  

   

The significant observable and unobservable inputs used in the fair value measurement of the investment in RBCT are Rand/US$ exchange rate, API4 export price, Transnet Market Demand Strategy, discount rate and annual utilisation factor.  

    At 31 December 2014 (Reviewed)  Inputs   Sensitivity of inputs  
and fair value measurement1
Sensitivity analysis  
of a 10% increase  
in the inputs is  
demonstrated below2
Rm  
    Observable inputs        
    Rand/US$ exchange rate   R10,94 to R18,80/US$1   Strengthening of the  
Rand to the US$  
257  
    API4 export price  
(US$ steam coal A-grade price per tonne in real terms) 
US$62 to US$93   Increase in API4  
export price per tonne  
154  
    Unobservable inputs        
    Transnet Market Demand Strategy for the terminal   74Mtpa to 81Mtpa   Acceleration of Transnet  
Freight Rail (TFR) performance, ie:  
reach full capacity sooner  
97  
    Discount rate (%)  13% to 17%   Decrease in the discount rate   (120) 
    Annual utilisation factor (safety and rail delay factor) (%)  90%   Increase in annual utilisation factor   123  
   
1 Change in observab
2 A 10% decrease or increase in the respective inputs would have an equal but opposite effect on the above, on the basis that all other variables remain constant.  
           
    At 31 December 2013 (Audited)  Inputs   Sensitivity of inputs  
and fair value measurement1
Sensitivity analysis  
of a 10% increase  
in the inputs is  
demonstrated below2
Rm  
    Observable inputs        
    Rand/US$ exchange rate   R9,85 to R10,15/US$1   Strengthening of the  
Rand to the US$  
119  
    API4 export price  
(US$ steam coal A-grade price per tonne in real terms) 
US$75,50 to US$97   Increase in API4  
export price per tonne  
119  
    Unobservable inputs        
    Transnet Market Demand Strategy for the terminal   77Mtpa to 81Mtpa   Acceleration of TFR performance,  
ie: reach full capacity sooner  
127  
    Discount rate (%)  13% to 17%   Decrease in the discount rate   (109) 
    Annual utilisation factor (safety and rail delay factor) (%)  90%   Increase in annual utilisation factor   119  
   
1 Change in observable/unobservable input which will result in an increase in the fair value measurement.  
2 A 10% decrease in the respective inputs would have an equal but opposite effect on the above, on the basis that all other variables remain constant.  
           
    Interrelationships        
    Any interrelationships between unobservable inputs is not considered to have a significant impact within the range of reasonably possible alternative assumptions for both reporting periods.