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Reviewed Condensed Consolidated Interim Financial Results for the Six Months Ended 31 August 2017
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
Reviewed as Unreviewed Audited as
at 31 Aug as at 31 Aug at
2017 2016 29 Feb 2017
Note R'000 R'000 R'000
ASSETS
Non-current assets 901,551 278,024 274,903
Property, plant and
equipment 817 027 1,624 2,859
Intangible assets 16,194 273,322 268,886
Goodwill 5 8 314 - -
Other financial assets 55,159 - -
Environmental rehabilitation
obligation investments 4,857 3,078 3,158
Current assets 262 316 985 2,624
Trade and other receivables 58,227 482 64
Inventory 65,325 - -
Cash and cash equivalents 9,243 502 2,560
Non-current disposal group held-
for-sale 129,522 - -
Total assets 1,163,867 279,009 277,527
EQUITY AND LIABILITIES
Capital and reserves 440,151 221,019 209,017
Stated capital 388,512 158,062 158,062
Retained earnings / (accumulated
loss) (37,489) 38,874 29,716
Non-controlling interest 89,128 24,083 21,239
Non-current liabilities 543,979 56,824 62,106
Deferred taxation 130,284 52,194 56,528
Borrowings 330,978 - -
Other financial liability 74,451 - -
Finance lease liability 6,014 - -
Environmental Rehabilitation
Provision 2,253 4,630 5,578
Current liabilities 179,737 1,166 6,404
Trade and other payables 142,440 1,156 1,174
Borrowings - - 5,221
Provisions - 10 10
Finance lease liability 3,507 - -
Non-current disposal group held-
for-sale 33,790 - -
Total equity and liabilities 1,163,867 279,009 277,527
Condensed consolidated statement of comprehensive income
Audited as
Unreviewed
Reviewed as at 31 at
as at 31
Aug 2017 29 Feb
Aug 2016
2017
Note R'000 R'000 R'000
Revenue 18,221 - -
Cost of sales (19,860) - -
Gross profit (1,639) - -
Amortisation of
(10,550) (3,101) (10,869)
intangible assets
Other income 1,064 165 294
Other expenses (2,319) (1,965) -
Salaries (1,912) (792) (5,907)
Professional fees (3,457) (3,282) -
Maintenance expenses (57) - -
Gain on bargain 9,923
5 - -
purchase
Impairment loss 6 (120,535) - -
Operating loss (129,482)
(8,975) (16,567)
before interest
Investment income 598 - 54
Finance charges (2,133) (689) (819)
(131,017)
Loss before taxation (9,664) (17,332)
Taxation 29,786 (3,183) (7,518)
Loss for the year (101,233) (12,848) (24,850)
Other comprehensive
- - -
income
Total comprehensive
(101,233) (12,848) (24,850)
loss for the year
Attributable to
(67,204) (11,086) (20,245)
owners of the parent
Attributable to non-
(34,028) (1,762) (4,606)
controlling interest
Basic and diluted
earnings / (loss) (13.73) (4.03) (7.36)
per share (cents)
Condensed consolidated statement of cash flows
Audited
Reviewed Unreviewed
as at
as at 31 as at 31
29 Feb
Aug 2017 Aug 2016
2017
Note R'000 R'000 R'000
Net inflow/(outflow) from operating 1,629 (1,183) (3,948)
activities
Cash flows from investing 3,296 - (,177)
activities
Cash flows from financing 1,758 - 5,000
activities
Net increase/(decrease) in cash and 6,683 (1,183) 875
cash equivalents
Cash and cash equivalents at 2,560 1,685 1,685
beginning of year
Cash and cash equivalents at end of 9,243 502 2,560
year
Condensed consolidated statement of changes in equity
Retained
earnings/ Non-
Stated (accumulate controlling
capital d loss) interest Total
R'000 R'000 R'000 R'000
Balance at 1 March
2016 158,062 49,960 25,845 233,867
Non-controlling
interest's share of
loss for the year - - (1,762) (1,762)
Comprehensive loss
for the period
attributable to
owners - (11,086) - (11,086)
Balance at 31 August
2016 158,062 38,874 24,083 221,019
Non-controlling
interest's share of
loss for the year - - (2,844) (2,844)
Comprehensive loss
for the period
attributable to
owners - (9,159) - (9,159)
Balance at 28
February 2017 158,062 29,715 21,239 209,016
Shares issued 230,450 - - 230,450
Acquisition of
subsidiary with non-
controlling interests - - 101,916 101,916
Non-controlling
interest share of - - (34,029) (34,029)
loss for the six
months ended 31
August 2017
Total comprehensive
loss for the six
months ended 31
August 2017 - (67,204) - (67,204)
Balance at 31 August
2017 388,512 (37,489) 89,128 440,151
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:
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 (113,080)
Total fair value of identifiable net assets acquired 310,058
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 220,417
Fair value of identifiable net assets (310,058)
Non-controlling interests, based on their proportionate interest
in the recognised amounts of the assets and liabilities 97,955
Goodwill 8,314
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 54,273
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 (10,846)
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.
Gain on bargain purchase arising from the acquisition has been recognised as
follows:
R'000
Consideration transferred 3,755
Investment in Sail Minerals held prior to obtaining
control 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.
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:
R'000
Property, plant and equipment 2,798
Intangible assets 126,723
Cash and cash equivalents 1
Disposal group held for sale 129,522
Liabilities included in the disposal group held-for-sale is the following:
R'000
Deferred tax 27,763
Environmental rehabilitation obligation 5,847
Trade and other payables 180
Disposal group held for sale 33,790
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
31 Aug 31 Aug 29 Feb
17 16 2017
Shares in issue at the beginning of the period
274,929 274,929 274,929
Weighted average shares issued during the
period 214,620 - -
Weighted average number of shares (`000) 489,549 274,929 274,929
Potential ordinary shares with dilutive effect - - -
Diluted weighted average number of shares 489,549 274,929 274,929
8. Headline loss per share
31 Aug 17 31 Aug 16 29 Feb 2017
Profit attributable to the owners
of Chrometco (67,204) (11,086) (20,245)
Gain on bargain purchase (9,923) - -
Impairment of disposal group, net
of tax 69,216 - -
Total impairment, net of tax 93,535
Portion attributable to non-
controlling interest, net of tax (24,319)
Headline loss attributable to the
owners of Chrometco (7,911) (11,086) (20,245)
Headline loss per share (cents) (1.62) (4.03) (7.36)
Diluted headline loss per share
(cents) (1.62) (4.03) (7.36)
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
Date: 27/10/2017 03:59:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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