CMO - CHROMETCO LIMITED - Reviewed provisional consolidated annual financial statements

Chrometco Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/026265/06)
Share code: CMO
ISIN: ZAE007020249
("Chrometco" or "the Group")

REVIEWED PROVISIONAL CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2017

Provisional condensed consolidated statement of financial position

Provisional condensed consolidated statement of comprehensive income

Provisional condensed consolidated statement of cash flows

Provisional condensed consolidated statement of changes in equity

Commentary – Financial and operational overview.

1. The directors present the reviewed results for the year ended 28 February 2017.

2. Basis of preparation

The provisional condensed consolidated annual financial statements for the year ended 28 February 2017 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 applied in the preparation of the condensed consolidated preliminary financial statements are in terms of IFRS and are consistent with those applied in the previous consolidated annual financial statements.

The provisional condensed consolidated annual financial statements were prepared by the financial director, Mr NL Waisberg.

3. Auditors report

The modified review report issued on these provisional condensed consolidated annual financial statements by Chrometco group’s auditors, Mazars, is available for inspection at the group's registered office during normal office hours. The review report included an emphasis of matter paragraph referring to the going concern note in the provisional financial information. The Group has incurred operating losses for a number of years due to limited trading. The ability of the Group to fund operations in the foreseeable future is largely dependent on the ability of the directors to arrange for alternative sources of funding and the realisation of the income from potential expansion opportunities as more fully described in the note pertaining to going concern.

These conditions, along with the matters set forth in the notes to the accompanying provisional financial information, indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.

4. Nature of business

The Group is involved in the exploration of mineral resources and the possible beneficiation thereof. The Group’s mineral resources and reserves statement has been updated to be 2016 SAMREC compliant. The full report was included in the Circular published on 30 May 2017.

5. Revenue

The Group did not sell any chrome ore in the period under review after the arrangement, in terms of which a third party extracted chrome ore from the Rooderand Mine, came to an end during the period ended 29 February 2016. Revenue for the year decreased to Rnil (2016: R1.4 million).

6. Other income

The Group recovered bad debts amount to R0.3 million from International Ferro Metals Limited.

7. Loss for the year

Net loss for the year is arrived at after taking the following items into account:

Legal and professional fees of R1.1 million (2016: R1.2 million). Legal fees relate to transaction costs in respect of the transaction with Sail.

Directors’ remuneration for the year amounted to R0.8 million (2016: R1.3 million).

Provision for doubtful debts of Rnil (2016: R2.5 million). During 2016, an amount of R2.5 million, relating to International Ferro Metals Limited (“IFM”) for the recovery of rehabilitation expenditure, was recognised as a provision for doubtful debts.

Finance charges of R0.60 million (2016: R0.34 million) on the Environmental rehabilitation provision, were incurred during 2017.

8. Taxation

A deferred tax charge of R7.5 million was recognised for the year (2016: R18.0 million).  No deferred tax asset is being recognised.

9. Intangible assets

10. Environmental rehabilitation investment

During the year, the Group contributed approximately R0.18 million to an environmental rehabilitation investment fund (managed by Guardrisk Insurance Company Limited).

                                                          2017        2016    

                                                         R’000       R'000   

Balance at beginning of the year         3,007       1,579      

Cash contributions to fund                     176       1,483     

Net investment management fees         (25)         (55) 

Balance at the end of the year            3,158       3,007    

11. Borrowings

On 30 September 2016, Sail Minerals Proprietary Limited (“Sail”) granted a standby loan facility to Chrometco to the amount of R10 000 000. In terms of the agreement, Chrometco drew R5 000 000 of the facility within 1 business day from opening the facility.

The facility carry the following payment terms:
Interest rate: Bears interest at the Prime Rate, calculated on a nominal annual compounded monthly in arrears basis

Repayment terms: The facility will be repaid from:
a) Amounts received by Chrometco in terms of any share subscription agreements concluded between Sail and Chrometco; and
b) Income and/or distributions that Chrometco receives or becomes entitled to.

Additionally, the entire outstanding facility becomes repayable by Chrometco if:
a) Any of the following agreements is cancelled by Sail and/or GSE as direct result of a breach of any provision therein by Chrometco:
- the Share Subscription Agreement
- the Black Chrome Agreement; and
- the Palm Chrome Agreement.

b) Any of the following agreements are not in force or effect of each respective agreement outlined below, other than to the extent that they are not within the control of Chrometco:
- the Share Subscription Agreement
- the Black Chrome Agreement; and
- the Palm Chrome Agreement.

Security provided: Chrometco provided all the shares, including any preference shares, owned or held by Chrometco in the share capital of Rooderand as security on the facility.

                                                 2017        2016

                                                R’000       R'000

Loan raised                                5,000          -

Finance charges                            221          -

Balance at the end of the year    5,221          -

For the 2017 financial year, the loan carried interest at a rate of 10.5%.

12. Environmental rehabilitation provision

                                                                     2017        2016 

                                                                    R’000       R'000

Balance at beginning of the year                    4,042       2,912  

Decommissioning cost capitalised to property,

plant and equipment                                        947        (180)

Increase in rehabilitation provision
for the period                                                       -          969  

Interest unwind on rehabilitation provision        599         341  

Balance at the end of the year                       5,588       4,042 

Short-term portion                                             10          10

Long-term portion                                         5,578       4,032

13. Reconciliation between loss and headline loss per share

                                                                           2017          2016  

Headline loss attributable to equity holders        (20,245)      (24,579)

Headline loss per share (cents)                              (7.36)       (10.77)

Diluted headline loss per share (cents)                   (7.36)         (8.94)

Weighted average number of shares (`000)      274,929       228,262

Potential ordinary shares with dilutive effect                 -         46,667

Diluted weighted average number of shares     274,929       274,929

There were no reconciling items on the Headline loss attributable to equity holders for 2017.

14. Contingent liability – the Long-Term Incentive Plan (LTIP)

The Group has identified that in terms of the LTIP, a potential liability exist in case of a take-over of Chrometco. In terms of the scheme, if a similar scheme which contains materially similar terms and conditions of the current LTIP is not offered by the acquirer, the Board may, in its absolute discretion, determine, in respect of all of the LTIP Awards, that the restrictions imposed become unconditional at the date of take-over.

A contingent liability exist as the following events have not occurred:

-Resolution by the Board to lift the restrictions imposed by the LTIP, making the awards unconditional.
-Occurrence of a take-over (refer to the going concern note for more detail regarding the transaction with Sail).

15. Segment Information

Segment information is not disclosed as the Group is currently not operational.

16. Events after the reporting date

There were no events that could have a material impact on the financial results of the Group after 28 February 2017, except for the following:

The Group issued the Circular for the approval of the Sail transaction on 30 May 2017.

17. Going Concern

The directors have reviewed the Group’s financial budgets with their underlying business plans. In light of the current financial position and existing borrowing facilities, they consider it appropriate that the Group and company annual financial statements be prepared on the going concern basis. However, sufficient short-term liquidity to sustain operations until the transaction discussed below is concluded is dependent on the drawing of further funds from the facility discussed in note 11 above. Furthermore, as discussed below the conclusion of the pending transaction is dependent on a number of outstanding conditions. These factors represent a material uncertainty that may cast significant doubt about the Group’s and Company’s ability to continue as a going concern.

Notwithstanding the fact that Chrometco did not trade during the 2017 financial year the transaction with Sail Minerals and Grand Slam Enterprise (Pty) Ltd has a very high probability of being concluded. The transaction includes the acquisition of a fully functional chrome mine (Black Chrome), a chrome prospecting right (Palm Chrome) and a minerals trading company (Sail Minerals). The transaction will result in the recapitalisation of Chrometco and reposition the Group in the market as a resource holding and active minerals trading company.

The outstanding conditions precedent for the conclusion of the transaction includes the following:
-The approval by the Company’s shareholders of a waiver of the mandatory offer to minority shareholders;
-The approval of the transaction by Chrometco shareholders;
-All other regulatory approvals required; and
-Section 11 approval by the DMR for change in ownership of the assets.

The board is of the opinion that the transaction has a very high probability of being concluded. Chrometco has appointed a corporate advisor (PSG) who has assisted in the submission of the Circular and the Competent Persons Reports.  

In light of the high probability of conclusion of the above transaction the company is well placed to have the beneficial use of Black Chrome in the 2018 financial year and is of the opinion that it is and will remain a going concern for both a cash flow and operational perspective.

18. Dividends

No dividend has been declared for the period (2016: R nil).

Signed on behalf of the Board of Directors

PJ Cilliers
Managing Director

Johannesburg
31 May 2017

Directors:

JG Scott+ (Chairman), PJ Cilliers (MD), NL Waisberg (FD), R Rossiter*, E Bramley*, IWS Collair+,
* non-executive
+ independent non-executive

CORPORATE INFORMATION

Designated Advisor:
PSG Capital

Company Secretary:
The Green Board CC

Registered Office
71 Van Beek Avenue
Glenanda
Johannesburg
2091

Postal address
PO Box 758
Mondeor
2110

Auditors
Mazars