CMO - 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 28 Feb 2018		Audited as at 28 Feb 2017
	Note	R'000		R'000
Assets
Non-current assets		1,107,615		274,903
Property, plant and equipment	5	962,653		2,859
Intangible assets		15,857		268,886
Goodwill	6	40,465		-
Other financial assets	7	82,844		-
Environmental rehabilitation obligation investments	15	5,796		3,158
Current assets		355,722		2,624
Trade and other receivables		24,470		64
Inventory		164,088		-
Cash and cash equivalents		34,885		2,560
Non-current disposal group held-for-sale	8	132,279		-
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)/ retained earnings		(49,607)		29,716
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 rehabilitation provision	12	11,980		5,579
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 held-for-sale	8	36,517		-
Total equity and liabilities		1,463,337		277,528

 

 

 

 

 

 

 

Condensed consolidated statement of comprehensive income

 

		Reviewed as at 28 Feb 2018		Audited as at 28 Feb 2017
	Note	R'000		R'000
Revenue		336,764		-
Cost of sales		(254,015)		-
Gross profit		82,749		-
Amortisation and depreciation		(46,953)		(10,954)
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 taxation		(143,647)		(16,567)
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 loss for the year		(111,354)		(24,850)
Loss and total comprehensive loss for the year
Attributable to owners of the parent		(79,323)		(20,245)
Attributable to non-controlling interest		(32,031)		(4,606)
Basic loss per share (cents)		(9.58)		(7.36)
Diluted loss per share (cents)		(9.58)		(7.36)

 

 

 

 

 

 

Condensed consolidated statement of cash flows

 

		Reviewed as at 28 Feb 2018		Audited as at 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

 

	Stated capital	Retained earnings/ (accumulated loss)	Non- controlling interest	Total
	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 year	-	(20,245)	(4,606)	(24,850)
Balance at 28 February 2017	158,062	29,716	21,239	209,017
Shares issued	230,450	-	-	230,450
Acquisition of subsidiary with non-controlling interests	-	-	132,702	132,702
Transaction with Onicstar	-	-	54,391	54,391
Total comprehensive loss for the year	-	(79,323)	(32,031)	(111,354)
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
	Mining Assets	Mobile Mining Machinery and Vehicles	Other	Total
	R'000	R'000	R'000	R'000
Carrying amount 29 February 2016	1 993	-	6	1 999
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 2017	2 859	-	-	2 859
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 2018	767 748	172 841	20 794	961 383
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 the assets and liabilities	122,456
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-18	28-Feb-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 years		61,879
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-18	28-Feb-17
			R'000	R'000
Balance at the beginning of the year			5,579	4,032
Environmental rehabilitation obligation on acquisition of subsidiaries			981	-
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 year	553,253	-
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 Chrometco	(79,323)	(20,245)
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 interest, net of tax	(44,214)	-
Change in estimate	1,403	-
Total change in estimate, net of tax	3,820	-
Tax effect	(1,069)	-
Portion attributable to non-controlling interest, net of tax	(1,348)	-
Headline loss attributable to the owners of Chrometco	(12,918)	(20,245)
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

28-May-18

 

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