CMO - Interims 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 INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2017

Condensed consolidated statement of financial position

Condensed consolidated statement of comprehensive income

Condensed consolidated statement of cash flows

Condensed consolidated statement of changes in equity

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. Nature of business

The Group is an exploration and mining company which focuses on Chrome exploration and mining in South Africa.

2. The condensed consolidated financial statements for the six months ended 31 August 2017 have been prepared by the Group’s financial reporting team, supervised by Chrometco’s Chief Financial Officer, Marcel Naude CA(SA) and approved by the Chrometco’s board of directors.

3. Basis of preparation

The condensed consolidated financial statements for the six months ended 31 August 2017 have been prepared in accordance with IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the JSE Limited’s 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.

4. Auditors report

The condensed consolidated interim financial results for the six months ended 31 August 2017 have been reviewed by Mazars in accordance with ISRE2410 – “Review of interim financial information performed by the independent auditor of the entity”. The review report issued by Mazars is unmodified. Shareholders are advised that in order to obtain a full understanding of the nature of the auditor’s engagement they should obtain a copy of the auditor’s report, together with the accompanying financial information from the issuer’s registered office.

5. 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.

In terms of the Black Chrome Share Swap Agreement, all conditions precedent for the tranche 1 issue of shares was met and Chrometco issued 835 000 000 shares to Grand Slam Enterprise in exchange for 25% interest in Sail Minerals (Pty) Ltd and for Chrometco Mining Services (Pty) Ltd, to be appointed 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 1 100 000 000 shares to Grand Slam Enterprise (Pry) Ltd upon the consent required in terms of section 11 of the Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA). This issue of shares will have an anti-dilutive impact on earnings per share.

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.

Consideration transferred for the acquisition of the Black Chrome Operation was R219.1 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:

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:

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:

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.

Gain on bargain purchase arising from the acquisition has been recognised as follows:

A gain on bargain purchase was realised due to settlement of a pre-existing relationship.

As the Black Chrome Operation and Sail Minerals is operating as one segment, the newly acquired segment contributed all the revenue for the period and loss of R9.3m.

6.  Disposal group held-for-sale

During the period 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 separate 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:

Liabilities included in the disposal group held-for-sale is the following:

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.

7. Weighted average number of shares

8. Headline loss per share

9. 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

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 31 August 2017.

10. Segment Information

Segment information is not disclosed as the Group currently only has one segment.

11. Events after the reporting date

There were no events that could have a material impact on the financial results of the Group after 31 August 2017.

12. Mineral reserves and resources

There have been no changes to the Mineral Reserves and Resources as disclosed in the circular published on 30 May 2017.

13. Going Concern

During the period the conditions precedent relating to Tranche 1 of the Black Chrome Share Swap Agreement were met, leading to recapitalising the Group through a share issue and the acquisition of an operating asset. In light of this transaction and the board’s review of the Group’s financial budgets with their underlying business plans, the Board has considered it appropriate that the Group consolidated interim financial statements be prepared on the going concern basis.

14. Dividends

No dividend has been declared for the period (31 Aug 2016 and 28 Feb 2017: R nil).

15. Changes to the Board

During the period 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 period, 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
27 October 2017

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
Mazars