IFL.L Regulatory News (IFL)

International Ferro Metals Limited - Final Results for the year ended 30/6/15

PR Newswire

London, November 1

1 November 2016

International Ferro Metals Limited

(“IFL” or the “Company”)

Financial results for the year to 30 June 2015

IFL announces that its Annual Financial Report for the year ended 30 June 2015 is now available on its website at http://www.ifml.com/investor-centre/results-and-presentations/2015.

For further information please visit www.ifml.com or contact:

International Ferro Metals Limited

About International Ferro Metals:

International Ferro Metals produces ferrochrome, the essential ingredient in stainless steel, from its integrated chromite mine and ferrochrome processing operations in South Africa. International Ferro Metals is listed on the London Stock Exchange under the symbol IFL.

Forward Looking Statements

This announcement contains certain forward looking statements which by nature, contain risk and uncertainty because they relate to future events and depend on circumstances that occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements.

OPERATIONS REVIEW

Overview

The year under review was noted for the continued marked slowdown in the ferrochrome market as well as operational issues that plagued performance. This was on the back of declining demand, continued oversupply and lower market prices for most commodities across the globe. Since the beginning of the 2015 financial year, the IFL Group has suffered from a downtrend in its operations and profitability that has proved more deep-seated and sustained than anyone expected.

Chrome ore and alloy prices dropped significantly over the year. The European benchmark price for ferrochrome dropped throughout the year and into the subsequent period since year end, from U$c119/lb in Q3 of calendar 2014 to U$c92/lb Cr in Q1 of calendar 2016, a drop of 26.7% over the period. Chrome ore prices showed some resilience in the earlier part of the year but lost steam in November 2015 dropping from U$183/t CIF China in Q3 of 2014 to U$110/t CIF China in Q4 of 2015 as Chinese demand slowed down. The rand/U.S. dollar exchange rate did bring some relief.

The price of ferrochrome continued to decline. This was caused largely by the slowdown in Chinese economic activity and its consequent effect on stainless steel output and increased production by Chinese ferrochrome producers. These factors drove prices lower and are expected to continue to keep prices low.

IFMSA was also affected by rising costs and other factors which impacted its operations, largely outside of its control. This included militant union activity and a general thrust for above inflation wage hikes which increased IFMSA's labour costs.

Most significant of all were the rising electricity costs and interruptions in power supply. Ferrochrome producers rely heavily on electricity for their furnaces and are particularly vulnerable to power discontinuity. In July 2015 IFMSA lost more than 10% of its ferrochrome production because of load shedding and power trips.

Production losses also occurred during the year resulting from section 54 orders to shut the furnaces made by government inspectors. While IFMSA was vindicated in court proceedings to lift these orders, the damage was done. A strike of workers employed by one of IFMSA's contractors resulted in IFMSA having to reduce production from its furnaces and disrupted its logistics and shipping schedule, causing a further loss in production and strain on its liquidity.

Management made stringent efforts to continue the cost cutting programme that had previously been reported, but despite these efforts, the Group’s profitability continued to be under pressure. As a result of deteriorating business conditions, IFL’s South African subsidiary, International Ferro Metals (SA) (Pty) Limited (“IFMSA”), which operates the IFL Group's Lesedi mine and ferrochrome smelting operations, took the step of entering into business rescue on 26 August 2015. This is a South African statutory means of enabling a financially distressed company to continue in business, under the supervision of a business rescue practitioner (“BRP”), protected from its creditors. While in business rescue there is a moratorium on creditors and others taking legal proceedings or enforcement action against IFMSA. This allows for the development and implementation of a business rescue plan.

Mining Operations

Mining activities were challenged on many fronts. The Lesedi underground mine ramp-up was below expectations as reported in the second half. In the 4th quarter the mine produced 34,390 tonnes of run-of-mine ore (“RoM”), a decrease of 25% on the previous quarter. The targeted production level of approximately 25kt/m RoM by the financial year end was not achieved due to low availabilities of mobile equipment and a Department of Mineral Resources related stoppage during April 2015. The stoppage lasted for 10 days.

The introduction of a drill rig and roof bolter machines in the 4th quarter improved productivity in the MG2 ore seam areas significantly. It was a further step in the mechanisation of the MG2 reef which was expected to improve productivity as the mine ramps up.

The accelerated mine ramp up plan was in line with the overall strategy of becoming self-sufficient in terms of ore supply. Significant infrastructure developments were completed to support the accelerated ramp up with particular focus on ore reserve development to ensure sustainability of ore supply. In addition, the ends on both reef horizons were extended and the load haul dumper rebuild programme delivered 4 of the 8 machines. These two key initiatives were designed to decrease downtime and tram distances to enable increased production levels of 40kt/m RoM by the end of calendar 2016.

The Company previously announced it had signed agreements with Chrometco Limited (“Chrometco”) to mine at its LG6 open pit mine (Rooderand mine) and to purchase the ore mined. Mining at Chrometco’s Rooderand mine was started in November 2014. The difficulties related to the ore body exhibiting a higher degree of geological faulting, steeper dips and a higher degree of weathering resulted in mining operations being suspended in May 2015. In the meantime the Group was successful in securing high grade ore supply below the cost of Rooderand Mine production.

Smelter Operations

The pelletiser plant achieved a new production record for the year. However, the smelter production was below expectation due to:

· The furnaces were shut down for the annual planned maintenance and although the maintenance was carried out on time, this had a negative impact on production costs.

· The quality of coke sourced within South Africa deteriorated as reported in the first half of the year. This had a negative influence on power efficiency and ultimately production levels. An alternative supply was secured successfully from China.

· In order to develop alternative reductant technology IFMSA embarked on a silicon carbide trial, which did not yield the desired results.

· After this test IFMSA was instructed to shut down its furnaces as a S54 stoppage was issued by the DMR. The situation was resolved but had a direct impact on cost and production.

· With the improved stability of electrodes during the prior financial year, furnace power was increased during the first half in an effort to raise output, testing previous assumptions on electrode integrity versus power input. However, some issues with electrode integrity recurred, although not as significant as in the past, which contributed to lower than planned production. Furnace input power was subsequently decreased to the levels maintained in the prior financial year to ensure integrity of electrodes and process stability. Although not as severe as in previous quarters, the furnace operations were still affected by tip losses on the electrodes. Continued work on eliminating these tip losses resulted in an alternative electrode paste being identified and introduced to the furnaces by the end of the third quarter of the financial year. The aim of this paste was to produce an electrode with improved resistance to thermal shock that occurs during downtimes on the furnaces, which is the main cause of the tip losses on the electrodes.

· The low grade ore stockpile from Sky Chrome was used in the furnaces in the first half that negatively influenced efficiencies therefore production and costs. All low grade ore was used in the first half of the year.

· This resulted in total ferrochrome production of 198kt for 2015, 13.2% lower than the previous year. Commensurately cost increased by 21.7% to R8.36/lb.

· In addition a few safety deviations at the metal recovery plant resulted in a production stoppage for a few days to implement corrective actions. This reduced production and increased costs due to less dilution of the recovered alloy. Production costs increased 7.8% quarter on quarter due to the aspects identified above.

During August 2015, the employees of the materials handling contractor went on strike. This resulted in the furnaces operating at low load for a number of days. The dispute seemed to be part of labour unrest affecting other mining operations in the region, and was with the contractor, Almar Investments, not with the Company. As a result of the labour unrest, the Company’s furnaces had to intermittently reduce production. About 1,000t ferrochrome production for the month of August was lost. This also caused a disruption to the Company’s logistics and shipping schedules affecting the Company’s liquidity.

Power supply and costs

Power supply was at times variable which resulted in regular load reductions on the furnaces. The annual increase in power prices amounted to 12.69%, greatly in excess of inflation, further exacerbating the winter tariff costs.

Since 2007, Eskom’s prices have increased by 374% for heavy industrial users, which equates to 21.5% p.a. against CPI inflation of 6.3% p.a. over that same period. In July IFMSA lost more than 10% of its ferrochrome production because of load shedding and power trips.

Sales and Marketing

The Group achieved ferrochrome sales of 204,730t, 10% down on the previous year. The decrease is a result of the lower production of alloy.

Inventories ended at 7,582t at year end. All alloy and ore stocks were sold during the business rescue proceedings.

Health and Safety

The Group maintained its zero fatality rate since inception achieving 3 758 238 fatality free shifts. Lost time injuries increased from 3 in the previous year to 12.

The increase in injuries was mostly due to the recommencement of underground mining operations.

Environmental Impact

The Group has always, and continued this year, to run environmentally sustainable operations. This forms part of the zero harm strategy which includes people and the environment we operate in.

On the back of the ISO 14001:2004 system, the Group continues to monitor and manage the impact that the operations had on the environment. This was done by conducting regular audits, verifying compliance to these standards and recording and investigating all incidents.

Black Economic Empowerment

In July 2012, the DMR granted the conversion of the Old Order Mining Right to a New Order Mining Right. However, since the submission of the proposed BEE transaction to the DMR in 2009, there have been legislative changes, and developments within the Group which have presented an opportunity for the Group to implement a more simplified BEE transaction.

The Company has therefore not executed the conversion and in February 2014 resubmitted its proposal, which aims to simplify the funding of the BEE transaction. The DMR has informed the Company that it is satisfied with the revised plan and ready to execute the conversion of the mining right. However, because the IFMSA business rescue plan contemplates the sale of IFMSA’s assets, the proposed BEE transaction will not be implemented.

UG2 supply

The Company has a chromite supply agreement with Rustenburg Platinum Mines Limited (“RPM”), a subsidiary of Anglo Platinum, to provide 15,000t per month of UG2 chrome concentrate until 2020. This beneficial agreement delivers UG2 at a cost significantly below the Company’s in-house cost of concentrate production.

Due to the protracted strike action at Anglo Platinum from February to June 2014, a backlog of UG2 ore was created, which at 30 June 2015 was approximately 71kt. Anglo Platinum is obliged under the agreement to make up any shortfalls from future production, and the Company will benefit from a higher supply of UG2 ore, which is a direct contributor to profitability.

During December 2015 proceedings commenced against RPM to protect IFMSA’s interests under the chromite supply agreement. RPM had purported to terminate the agreement. The Company received counsel's advice that the purported termination was invalid, and commenced court proceedings to seek orders to protect its position, including orders that the purported termination is ineffective and that RPM is obliged to continue to supply chrome ore under the agreement.

In January 2016 the company entered into a settlement agreement RPM under which RPM is obliged to continue supply of UG2 chrome ore under the following revised terms:

RPM to supply 10,000 tonnes of UG2 per month for calendar year 2016 at no cost and 7,500 tonnes per month from January 2017 to November 2020 at a cost of ZAR170 per tonne. The backlog of approximately 57,000 tonnes at the end of December 2015 to be supplied at a rate of 10,000 tonnes per month from January 2016, also at no cost. The original contract provided for RPM to supply 15,000 tonnes per month until November 2020 at no cost. The settlement eliminated the uncertainty surrounding the supply agreement and accordingly assisted with the asset sale process that was in progress.

FINANCIAL REVIEW

Overview

The year was extremely challenging as a combination of lower ferrochrome prices, high electricity prices, and production losses due to DMR stoppages and power disruptions, significantly impacted production, profitability and liquidity.

FeCr production volumes were 198,131t achieved against the previous year’s 228,260t, a decrease of 13.2%. Production costs increased by 21.7% from ZAR6.87/lb in 2014 to ZAR8.36/lb with the main contributors being increase in ore, electricity and fixed costs.

The Group incurred a loss before tax of ZAR176 million for the first half of the year and net borrowings increased by ZAR113 million to ZAR451 million at 31 December 2014. The first half was negatively impacted by annual maintenance, silicon carbide trials, the DMR stoppage in November 2014, more expensive ores due to the ramp-up of mining operations at Lesedi and Rooderand, and the low grade ore stock consumed by the furnaces during the period. This had a negative impact on all efficiencies, resulting in lower production volumes and higher production cost.

In the third quarter of the financial year the European benchmark price for ferrochrome decreased to 108¢/lb from 115¢/lb in the previous quarter. Ferrochrome production cost increased to ZAR8.43/lb, up 7.8% from the previous quarter’s ZAR7.82/lb, mainly due to lower recoveries on ore beneficiation, lower UG2 consumption due to committed UG2 sales, and a lower ratio of alloy recovery production relative to furnace production as unplanned maintenance was required on the metal recovery plant. By 31 March 2015 net borrowings had increased by ZAR34 million to ZAR485 million.

The fourth quarter of the financial year saw a rollover in the European benchmark price at 108¢/lb even though electricity prices had increased by 12.69% on 1 April 2015 and with June 2015 being a winter tariff month, where electricity prices are almost 60% higher than in summer. This resulted in further significant cost pressures and ferrochrome production costs for the quarter increased by 3% to ZAR8.70/lb. Net borrowings decreased by ZAR35 million to ZAR450 million at 30 June 2015 from ZAR485 million at 31 March 2015, as a result of a forward sale of 15,000t FeCr during May 2015 for an upfront payment of ZAR116 million.

For the full financial year the Group recorded a loss before tax from operations of ZAR313 million for the full year. The deterioration in market conditions and operating results of the Company has necessitated a re-assessment of the carrying value of the assets of the Group which has resulted in an impairment charge of ZAR1.6 billion for the year. This increased the loss before tax to ZAR1.9 billion for the year. The deferred tax asset was derecognised resulting in a charge of ZAR235 million to the tax line in the income statement for an after tax loss of ZAR2.2 billion for the year.

The first quarter of the new financial year staring 1 July 2015 again saw a rollover of the European benchmark price at 108¢/lb, despite the first two months being electricity winter tariff months. During July 2015 the supply of electricity was constrained and the Company lost more than 10% of its ferrochrome production because of load shedding and power trips. In August 2015 the Company’s materials handling contractor’s staff went on strike on site which resulted in production losses of about 1,000 tonnes of ferrochrome and caused a disruption to the Company’s logistics and shipping schedules. This affected approximately 1,500 tonnes of ferrochrome shipments, and consequently further impacting the Company’s liquidity.

These factors caused IFMSA’s financial position to deteriorate so that it became financially distressed and on 26 August 2015 the directors of IFMSA placed it under business rescue. 

Business rescue is a South African statutory means of enabling a financially distressed company to continue in business, under the supervision of a business rescue practitioner, protected from its creditors. While in business rescue there is a moratorium on creditors and others taking legal proceedings or enforcement action against IFMSA. This allowed for the development and implementation of a business rescue plan that seeks to enhance the potential return for IFMSA's stakeholders. 

As a result of the business rescue, operations were placed on care and maintenance, significantly reducing expenses.

On 7 December 2015 the creditors of IFMSA approved the business rescue plan which provided for the sale of the business and assets of IFMSA and the shares and claims against Sky Chrome, to Samancor Chrome Limited (“Samancor”) for ZAR650 million and ZAR70 million respectively for a total consideration of ZAR720 million.

During December 2015 Rustenburg Platinum Mines Limited (“RPM”) purported to cancel the UG2 chrome ore supply agreement with IFMSA and the IFL Group proceeded with legal action to protect its interests under the supply agreement. In January 2016 the Company entered into a settlement agreement with RPM under which RPM would continue the supply of UG2 ore but at reduced quantities and at additional costs to IFMSA.

The settlement eliminated the uncertainty surrounding the supply agreement and accordingly assisted with the business rescue process. However, it had a material impact on the UG2 agreement's value and consequently on the value of the assets of IFMSA. As a result, Samancor revised its offer price down from ZAR720 million to ZAR520 million, with the transaction split into three divisible tranches:

1. ZAR310 million for the business and assets of IFMSA;

2. ZAR140 million for the IFMSA Mining Right and Beneficiation Plant; and

3. ZAR70 million for certain receivables of Sky Chrome and Sky Chrome’s equity for ZAR100.

The BRP proposed an amendment of the business rescue plan to the creditors of IFMSA to take account of the settlement agreement reached in respect of the UG2 supply agreement and the reduced offer price from Samancor and on 24 March 2016 creditors unanimously approved the amended business rescue plan.

The proceeds were distributed to creditors of IFMSA in September 2016 in accordance with the amended business rescue plan.

The outstanding conditions for the remaining two tranches of the transactions include obtaining regulatory approvals, specifically ministerial approval for the transfer of mining rights, and consents of other parties to certain material contracts, which are usual for transactions of this nature.

Due to the reduced offer price of ZAR520 million, it is expected that the shareholders will not receive any dividend or distribution.

Operational Results

Ferrochrome sales volumes decreased by 7.9% to 204,730t recording a 3% decrease in revenue to ZAR2.04 billion. Adjusting for ore sales, revenue decreased by 8%. Ore sales of 120kt generated revenue of ZAR130 million against prior year ore sales of 40kt as the Group received more UG2 ore from its supply agreement with Rustenburg Platinum Mines. FeCr sales were well diversified with 32% to Europe, 25% China and the balance mainly to India and the U.S.

The Rand depreciated on average by some 10% against the U.S. dollar. However, the average European benchmark ferrochrome price for the year decreased by 3.2% to 112¢/lb and discounts increased in the second half resulting in lower realised ZAR prices.

Operating margin deteriorated severely from 11% in the prior year to -5% this financial year. A gross operating loss of ZAR111 million was recorded compared with a gross profit of ZAR231 million in the prior year.

EBITDA decreased by ZAR345 million from ZAR202 million in the prior year to negative ZAR143 million.

Earnings per share were negative 398 ZAR cents for the year against a prior year earnings of 7.91 cents.

Costs

Production costs for the year were ZAR8.36/lb, an increase of 21.7% on the prior year’s ZAR6.87/lb. This was mainly driven by higher ore and electricity cost and per unit fixed costs.

Ore costs increased due to the higher cost of mining Lesedi underground mine during the ramp-up phase and the buy-in of more expensive sweetener ores to compensate for higher use of UG2 ore.

Electricity costs increased as a result of Eskom’s annual increase of 12.69%, a deterioration in electricity consumption due to the production interruptions and the cogeneration plant not being in operation. Since 2007, electricity prices for large industrial users have increased by a total of 374%, which equates to 21.5% p.a. against CPI inflation of 6.3% p.a. over that same period.

Fixed costs per unit increased owing to higher maintenance costs resulting from production interruptions, above-inflation wage increases and lower production volumes.

Other income and expenses

Administrative and other expenses, excluding asset impairments, decreased by 9.2% to ZAR86 million. This was mainly because mine related salaries were recognised in production cost with the restart of the Lesedi mine whereas in the prior year it was treated as an unabsorbed cost and expensed directly through the income statement.

Impairment of assets

The present low price environment and reduction in market activity, has necessitated the re-assessment of the carrying value of the assets of the Group. The future viability of the assets has become uncertain given the current challenges faced by the Group. Previously impairment was determined using value in use as the valuation basis. In determining ‘value in use’, future cash flows are based on estimates for which there is a high degree of confidence of future production levels, future commodity prices and future cash costs of production. Due to the Business Rescue Process, IFMSA was placed under care and maintenance and as a result of the uncertainties surrounding the timing of restarting the operations and working capital requirements, the ‘value in use’ assessment was not used.

On the basis of the above it has been concluded that the carrying value of the assets be written down to the best estimate of fair value less costs to sell. The fair value is determined as a level 3 hierarchy as the final offer through the business rescue process was used to determine the impairment. The Company had initiated negotiations with an interested party for the sale of IFMSA before year end but before any transaction could be concluded, IFMSA became financially distressed and on 26 August 2015 entered into Business Rescue, and its operations were placed on care and maintenance.

The outcome of the discussions were used to determine the best estimate of fair value less cost to sell as at 30 June 2015.This resulted in an impairment of ZAR1,547,057 on the tangible and intangible assets of IFMSA (refer note 20 and note 21) and ZAR67,378 on the assets of International Ferro Metals Limited. The remainder of the impairment mainly relates to specific impairment on the Cogen plant ZAR13,773 due to the failure of the engines, Furnace winter shutdown of ZAR1,943 due to the items being replaced annually, Capital work in progress items ZAR6,902 due to the project not continuing. Bankable feasibility study and previously expansion costs capitalised ZAR15,418 due to the financial position of the Group and the unlikelihood for an expansion to proceed, Rooderand mining development costs ZAR1,539 due to cessation of mining operations, and the Madibeng water project ZAR1,927 due to the project not going ahead.

This has resulted in a significant impairment charge of ZAR1.6 billion on the assets of the Group and reversal of all deferred tax assets amounting to ZAR235 million.

Capital expenditure

Capital expenditure amounted to ZAR100 million compared with ZAR35 million in the prior year, and the main items were engineering capital of ZAR41 million for furnace maintenance, Lesedi mine development of ZAR35 million and cogeneration plant capital of ZAR9 million.

Cash

The Company's net borrowings increased by ZAR112 million to ZAR450 million at 30 June 2015, from ZAR338 million at 30 June 2014. The increase was as a result of operations utilising ZAR106 million, working capital generating ZAR162 million, investing activities utilising ZAR119 million and financing activities utilising ZAR50 million.

During May 2015 a forward sale of 15,000t FeCr was concluded resulting in an upfront receipt of ZAR116 million.

The ZAR500 million Bank of China working capital facility expired on 16 September 2015 and was rolled forward for 3 months to 9 December 2015 to allow sufficient time for the business rescue practitioner to publish the business rescue plan. The Bank of China working capital facility then became repayable on demand. On 24 March 2016 the amended business rescue plan was approved unanimously by creditors including the Bank of China. While the facility is repayable on demand it is subject to the provisions of the business rescue process which imposes a moratorium on creditor claims and enforcement. Since year end an amount of ZAR30 million capital was repaid on the facility resulting in an outstanding balance of ZAR470 million. The proceeds of the first tranche of the total consideration to be received from Samancor resulted in a payment of ZAR232 million to the Bank of China. The proceeds of the remaining two tranches, which amounts to ZAR210 million, will be distributed to the Bank of China. These payments along with any residual funds available in IFMSA, are expected to result in settlement of the facility.

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2015

The above income statement should be read in conjunction with the notes to the financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2015

The above statement of comprehensive income should be read in conjunction with the notes to the financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2015

The above statement of changes in equity should be read in conjunction with the notes to the financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2015

The above statement of financial position should be read in conjunction with the notes to the financial statements.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2015

The above statements of cash flows should be read in conjunction with the notes to the financial statements.

RECONCILIATION OF OPERATING (LOSS)/PROFIT TO CASH FLOWS FROM OPERATING ACTIVITIES

FOR THE YEAR ENDED 30 JUNE 2015

NOTES TO THE FINANCIAL REPORT

1. CORPORATE INFORMATION

International Ferro Metals Limited (“the Parent”) is a Company limited by shares incorporated in Australia whose shares are publicly traded on the London Stock Exchange, as of 1 September 2007. The Company previously traded on the Alternative Investment Market of the London Stock Exchange.

The financial report for the year ended 30 June 2015 was issued in accordance with a resolution of Directors on 31 October 2016.

2. ACCOUNTING POLICIES

a) Basis of preparation

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for certain financial instruments which have been measured at fair value.

The financial report is presented in South African Rand and all values are rounded to the nearest thousand Rand (ZAR’000) unless otherwise stated.

Comparative information is reclassified where appropriate to enhance comparability.

Going concern

As at 30 June 2015, the Group had net current liabilities of ZAR392 million (2014: ZAR114 million) including the Bank of China working capital facility. The ZAR500 million working capital facility expired on 16 September 2015 and was rolled forward for 3 months to 10 December 2015 to enable the Business Rescue Practitioner to publish the Business Rescue Plan. The facility is payable on demand subject to the provisions of business rescue. Since year end an amount of ZAR30 million capital was repaid on the facility resulting in an outstanding balance of ZAR470 million. The proceeds of the first tranche of the total consideration to be received from Samancor resulted in a payment of ZAR232 million to the Bank of China. The proceeds of the remaining two tranches, which amounts to ZAR210 million, will be distributed to the Bank of China. These payments along with any residual funds available in IFMSA, are expected to result in settlement of the facility.

Since the inception of business rescue the appointed business rescue practitioner has been facilitating the support of IFML by cash flow from IFMSA to cover ongoing costs. This support continued until June 2016. The amount of cash flow to IFML totalled ZAR17.4 million which was used to pay expenses subsequent to year end. South African Exchange Control approval has recently been obtained and IFML’s claim of ZAR4.5 million is expected to be paid shortly. This amount is expected to be sufficient to fund the limited operations of IFML until such time as the outstanding conditions for the remaining two tranches of the transaction with Samancor have been met. These conditions include obtaining regulatory approvals, specifically ministerial approval for the transfer of mining rights, and consents of other parties to certain material contracts, which are usual for transactions of this nature. The company does not expect any further distributions from its subsidiaries. After the completion of the above transactions the directors will consider all options available for the company, which may include the wind up of the company. It is not expected that the shareholders of IFML will receive any dividend or distribution from the conclusion of the process.

Taking the above risks into consideration, the Directors have concluded that the combination of these circumstances presents material uncertainty that casts significant doubt upon the Company’s ability to continue as a going concern. The Company may not be able to realise its assets and discharge its liabilities whilst IFMSA is under business rescue. However, the Company will continue to adopt the going concern basis of accounting in preparing the annual financial statements, with the necessary disclosures included, regarding the material uncertainties that are being faced.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

b) Statement of compliance

The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

4. SEGMENT INFORMATION

Identification of reportable segments.

The group has determined operating segments based on the information provided to the Board of Directors (Chief Operating Decision Maker).

The group operates predominately in one business segment, being the mining and processing of chromite in South Africa and sale of ferrochrome. There is no material difference between the financial information presented to the Chief Operating Decision Maker and the financial information presented in this report.

Sales revenue by geographic location

Revenue obtained from external customers is attributed to individual countries based on the location of the customer.

Major customers

The group received 76% (2014: 89%) of its external revenue from its Chinese and European agents. During 2015 the group received 51% (2014:56%) of its external revenue from CMC Cometals, 16% (2014:5%) from Jindal and 24% (2014:33%) from JISCO.

There are no additional customers which account for more than 10% of the group’s external revenues.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

5. SALES REVENUE

a) Fair value adjustments represent re-valuations performed on chrome ore and ferrochrome sales contracts for which the price is linked to future fluctuations in the published ferrochrome and ore prices until the day of consumption by the end customer (also refer to note 3(j)).

b) Other sales relate to chrome ore, including UG2 sales.

6. OTHER INCOME

a) Other income for the current financial year relates mainly to the reversal of a previously recognised impairment on the loan to Global Eagle Mineral and Beneficiation (Pty) Ltd. The loan was recovered through the repurchase of their shares in International Ferro Metals SA (Pty) Ltd. Other income for the prior year mainly relates to an insurance claim received of ZAR3,702.

7. ADMINISTRATIVE AND OTHER EXPENSES

NOTES TO THE FINANCIAL REPORT (CONTINUED)

8. REMUNERATION OF KEY MANAGEMENT PERSONNEL

a) Details of Key Management Personnel

Please refer to the audited Remuneration Report for details of Key Management Personnel, option and shareholding disclosures.

b) Remuneration of Key Management Personnel

* Superannuation represents payments made in respect of a defined contribution pension scheme.

9. STAFF COSTS (EXCLUDING REMUNERATION OF KEY MANAGEMENT PERSONNEL

* Superannuation represents payments made in respect of a defined contribution pension scheme.

** Termination payment relate to the organisational restructuring during the year.

10. SHARE BASED PAYMENT EXPENSE

Refer to note 27 and 31 for further details on the phantom option plan and share option plan.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

11. FINANCING INCOME AND COSTS

12. INCOME TAX

Calculated taxation losses

The Group has de-recognised the net deferred tax asset of ZAR235 million previously recognised due to the probability that the asset would not be fully utilised in future. IFML has unrecognised tax losses of ZAR233 million (2014:ZAR215 million) in relation to the parent entity. IFMSA has unrecognised gross tax losses of ZAR734 million (2014: ZAR49 million). IFMSA Holdings has unrecognized gross tax losses of ZAR18 million (2014: ZAR14 million). Sky Chrome mining has unrecognised gross tax losses of ZAR23 million (2014: nil).

NOTES TO THE FINANCIAL REPORT (CONTINUED)

13. EARNINGS PER SHARE

Share Options and performance rights at 30 June 2015 and 30 June 2014 are anti-dilutive and therefore have not been included in the calculation of diluted earnings per share in the current period.

14. DIVIDENDS PAID AND PROPOSED

The Board of Directors resolved not to declare a dividend for the year ended 30 June 2015 (2014: nil).

15. CASH AND CASH EQUIVALENTS

16. TRADE AND OTHER RECEIVABLES

a) Trade debtors relate to the sale of ferrochrome and chrome ore. Payment terms are thirty days from date of final invoice.

b) Tax refunds relate to the relevant Goods and Services Tax and Value Added Tax refunds owing in Australia and South Africa.

c) Other debtors mainly relate to funds receivable from Eskom under the instantaneous trips of ZAR1,087 as well as ZAR12,600 which relates to VAT paid on forward sale.

Details of the terms and conditions of receivables are discussed in detail under note 33.

The carrying value of trade and other receivables is assumed to approximate the fair value due to the short term nature of the trade and other receivables. 

NOTES TO THE FINANCIAL REPORT (CONTINUED)

17. PREPAYMENTS

Prepaid creditors in the prior period relates to payments made in advance for raw materials. This was utilised during the current period.

18. INVENTORIES

Cost of sales reflects the amount of inventory expensed for the year.

Included in the value of inventory is provisions for handling losses of ZAR542 (2014: ZAR1,604).

Included in inventory is a net realisable value adjustment of R25 840 (2014: R4 851)

19. FINANCIAL INVESTMENTS

a) These financial assets consist of investment portfolios which are managed by various financial institutions in favour of rehabilitation. Of these investments ZAR99,644 (2014: ZAR75,238) is ceded to Lombard Insurance Company Ltd for guarantees issued. The remainder of the funds can only be applied to relevant rehabilitation expenditure. These financial assets are classified at fair value through profit and loss.

The fair value of these financial instruments has been estimated by the financial institutions using a variety of valuation techniques. These financial instruments are classified as a level 2 in the fair value hierarchy as their fair values have been estimated using inputs other than quoted prices that are observable for the assets, either directly or indirectly.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

20. PROPERTY, PLANT & EQUIPMENT

a) Mineral rights and reserves of ZAR61 million relating to the Sky Chrome deposit is held in Purity Metals Holdings Limited (“Purity”), a wholly owned subsidiary of the Group. 

b) Capital work in progress relates to capital costs incurred for the expansion of the Group’s associated infrastructure.

c) The adjustment relates to reallocation of capital work in progress to the various assets and changes in estimates in relation to the decommissioning asset.

d) Impairment of assets

The present low price environment and reduction in market activity, has necessitated the re-assessment of the carrying value of the assets of the Group. The future viability of the assets has become uncertain given the current challenges faced by the Group. Previously impairment was determined using value in use as the valuation basis. In determining ‘value in use’, future cash flows are based on estimates for which there is a high degree of confidence of future production levels, future commodity prices and future cash costs of production. Due to the Business Rescue Process, IFMSA was placed under care and maintenance and as a result of the uncertainties surrounding the timing of restarting the operations and working capital requirements, the ‘value in use’ assessment was not used.

On the basis of the above it has been concluded that the carrying value of the assets be written down to the best estimate of fair value less costs to sell. The fair value is determined as a level 3 hierarchy as the final offer through the business rescue process was used to determine the impairment. The Company had initiated negotiations with an interested party for the sale of IFMSA before year end but before any transaction could be concluded, IFMSA became financially distressed and on 26 August 2015 entered into Business Rescue, and its operations were placed on care and maintenance.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

20. PROPERTY, PLANT & EQUIPMENT (continued)

(d) Impairment of assets (continued)

The outcome of the discussions were used to determine the best estimate of fair value less cost to sell as at 30 June 2015.This resulted in an impairment of ZAR1,547,057 on the tangible and intangible assets of IFMSA (refer note 21) and ZAR67,378 on the assets of International Ferro Metals Limited. The remainder of the impairment mainly relates to specific impairment on the Cogen plant ZAR13,773 due to the failure of the engines, Furnace winter shutdown of ZAR1,943 due to the items being replaced annually, Capital work in progress items ZAR6,902 due to the project not continuing. Bankable feasibility study and previously expansion costs capitalised ZAR15,418 due to the financial position of the Group and the unlikelihood for an expansion to proceed, Rooderand mining development costs ZAR1,539 due to cessation of mining operations, and the Madibeng water project ZAR1,927 due to the project not going ahead.

Property, mineral rights and plant and equipment of IFMSA have been pledged as security for the working capital facility provided by the Bank of China. (Refer to note 25 for further details). The carrying value of this Property, mineral rights and plant and equipment at 30 June 2015 is ZAR0.3 billion (2014: ZAR1.89 billion).

Refer to previous page for notes (a), (b) and (c).

NOTES TO THE FINANCIAL REPORT (CONTINUED)

21. INTANGIBLE ASSETS

a) Licence fees relate to the fees paid for the use of patented technology and is amortised over the life of plant. An impairment of ZAR6,690 was recognised on the license fees.

b) The UG2 Chrome Retreatment Plant (“CRP”) at RPM's Waterval operations in Rustenburg started producing the contractual 15,000 tonnes per month in April 2012. The original supply agreement entitled IFM to receive 15,000 tonnes per month of chrome concentrate until November 2020. This intangible is amortised to inventory with the quantities received.

During January 2016 the company entered into a settlement agreement with Rustenburg Platinum Mines Limited ("RPM") regarding its interests under the chromite supply agreement under which RPM is obliged to supply UG2 chrome ore to IFMSA.

The terms of the settlement are that RPM will supply IFMSA with 10,000 tonnes of UG2 per month for calendar year 2016 at no cost and 7,500 tonnes per month from January 2017 to November 2020 at a cost of ZAR170 per tonne. The backlog of approximately 57,000 tonnes at the end of December 2015 will be supplied at a rate of 10,000 tonnes per month from January 2016, also at no cost. The original contract provided for RPM to supply 15,000 tonnes per month until November 2020 at no cost. 

22. OTHER NON-CURRENT ASSETS

a) Restricted cash represents cash set aside for bank guarantees provided by Standard Bank to the Department of Minerals Resources for environmental rehabilitation and cash set aside for foreign exchange contracts with the Bank of China.

b) Deposits mainly relates to funds deposited into a trust account. The trust account was set up to provide funds for possible damages to houses in the proximity of the Sky Chrome mining operations.

23. TRADE AND OTHER PAYABLES

a) Refer to note 35.

b) This represents advance debtor payments mainly received from Noble Resources International SA (Pty) Limited during May 2015. The forward sale was for 15,000t FeCr, to be delivered at 3,000 tonnes per month for the 5 months to October 2015. As at 30 June 2015 12,000t FeCr remained outstanding for delivery.

Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

24. PROVISIONS

a) The provision for employee entitlements represents accrued annual leave liabilities and other employee provisions. Resulting from the business rescue process all current and non-current employee entitlements were paid in the 2016 financial year. .

b) The provision for decommissioning and restoration represents management’s estimate of the restoration and exit costs associated with the integrated mining and ferrochrome smelting facility at Buffelsfontein and mining operations at Sky Chrome. It is expected that these costs will be incurred at the end of the operations/mine life. Due to the long-term nature of the liability the greatest uncertainty in estimating the provision is the costs that will be ultimately incurred. The provision has been calculated using a pre-tax discount rate of 8% (2014: 8%).

c) The Phantom Share Option scheme options are treated as “cash settled” share based payments in accordance with the accounting policy described in note 2(q). These were cancelled subsequent to year end.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

25. INTEREST BEARING LOANS AND BORROWINGS

a) Working capital facility

The ZAR500 million Working capital facility expired on 16 September 2015 and was rolled forward for 3 months to 10 December 2015 to enable the Business Rescue Practitioner to publish the Business Rescue Plan. On 24 March 2016 the amended business rescue plan was approved unanimously by creditors including the Bank of China. While the facility is repayable on demand it is subject to the provisions of the business rescue process which imposes a moratorium on creditor claims and enforcement. The facility interest is charged at JIBAR rate plus 3.85%. Since year end an amount of ZAR30 million capital was repaid on the facility resulting in an outstanding balance of ZAR470 million. The proceeds of the first tranche of the total consideration to be received from Samancor resulted in a payment of ZAR232 million to the Bank of China. The proceeds of the remaining two tranches, which amounts to ZAR210 million, will be distributed to the Bank of China. These payments along with any residual funds available in IFMSA, are expected to result in settlement of the facility. The entire statement of financial position of IFMSA is pledged as collateral for the loan facility. Bank of China has the option to cancel the loan facility and call upon any balance outstanding in the event of a material deterioration in the financial position of IFMSA. 

b) Finance leases

The weighted average effective interest rate on finance leases is 11%. The current portion of this is reflected in note 23. The lease liabilities were settled in terms of the amended business rescue in September 2016.

c) Other loans

The loan constitutes the 20% community participation of funding provided to Sky Chrome by the group. The loan is interest free and payable on demand before earning distributions are made.

As at 30 June 2015, the Group had no undrawn loan facilities (2014: nil), excluding debtors discounting facilities.

The carrying values of each class of interest bearing loans and borrowings approximates their fair value.

26. CONTRIBUTED EQUITY

No ordinary shares were issued during the years ended 30 June 2015 and 30 June 2014.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

26. CONTRIBUTED EQUITY (continued)

Ordinary shares

Ordinary shares have the right to receive dividends as declared and, in the event of the winding up of the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held.

Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

Options

The Group has a share option scheme under which options to subscribe for the Company’s shares have been granted to certain executives. See note 31 for further details.

JISCO Anti-Dilution Rights

JISCO has certain non-dilution rights under the Subscription Agreement, which apply if an Option is exercised, to require JISCO to be offered and issued Ordinary Shares at the same exercise price at which such Options are exercised to enable JISCO to maintain its guaranteed holding of 26.1% of the issued Ordinary Shares of the Company. These non-dilution rights are accounted for as a derivative liability. Since JISCO’s shareholding is above 26.1%, under the Subscription Agreement, IFM is not obliged to offer JISCO shares in terms of the anti-dilution clause, unless the issue would dilute JISCO’s ownership below 26.1% and therefore no derivative liability has been recognised at 30 June 2015 (2014: nil).

Capital Management

When managing capital, management’s objective is to ensure the Group continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the Group.

Capital is defined as total shareholders’ equity which represented ZAR51 million at 30 June 2015 (2014: ZAR2.3 billion).

The Board of Directors and Management regularly review the group’s capital structure using a detailed cash flow model. They assess the adequacy of the capital structure against the major variables impacting the Group’s profitability. 

As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders or issue new shares to reduce debt. Should a strategic acquisition be assessed, management may issue further shares on the market.

27. SHARE BASED PAYMENT RESERVE

Share based payment expense relates to options and performance rights issued to Mr Jordaan and the performance share scheme implemented the prior year. See note 31 for further details.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

28. ACCUMULATED LOSSES

a) During the year International Ferro Metals (SA) Pty Ltd (IFMSA) repurchased the 0.625% shareholding that Global Eagle Minerals and Beneficiation Pty Ltd held in IFMSA. These shares were cancelled.

29. NON-DISTRIBUTABLE RESERVE

The non-distributable reserve relates to the transaction that took place to reduce the non-controlling interest shareholding.

30. NON-CONTROLLING INTEREST

31. SHARE BASED PAYMENT PLANS

Phantom Share Option Plan

The Phantom Share Option Scheme was introduced on 15 November 2006 as a long term incentive scheme. Options are offered to eligible Key Management Personnel and employees subject to the satisfaction of certain vesting and exercise conditions. A cash amount is determined by reference to the excess of the market price of an ordinary share in the Company over the exercise price at the time the options are exercised. The options, in most cases, vest in equal tranches over three years subject to the recipients’ continued employment by the Company. The options may also vest immediately. Vesting and exercise conditions are determined by the Board. Executives and employees are able to exercise the share options for up to five years from the grant of the options. Each tranche of these options has a price cap of £1.00. The Phantom Share Option Scheme options are treated as “cash settled” share based payments in accordance with the accounting policy described in note 2(q).

NOTES TO THE FINANCIAL REPORT (CONTINUED)

31. SHARE BASED PAYMENTS PLANS (continued)

The following tables list the inputs to the Binomial model taking into account the terms and conditions upon which the options were granted. 

a) The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. Share price volatility is re-assessed at each reporting period based on historical share prices. The current volatility is based on actual volatility since the listing of the company in September 2005.

The estimated fair value of each phantom option tranche is estimated as at the financial reporting date and is detailed in the table below:

The total number of phantom options granted, forfeited or cancelled and exercised during the relevant periods are as follows:

At 30 June 2015 the total number of options outstanding was 2,352,000 with a fair value of ZAR16,072 (2014: ZAR395,743). Refer to note 24.

The weighted average share price for the year ended 30 June 2015 is £0.05 (2014: £0.11).

The weighted average remaining contractual life of the above outstanding options is 1.34 years (2014: 1.6 years).

All these share options were cancelled subsequent to year end.

Performance Rights Plan

The Performance Right Plan is an incentive aimed at creating a stronger link between employee and executive officer performance and reward and increasing shareholder value by enabling participants to have a greater involvement with, and share in the future growth and profitability of, the Company. The Performance Right Plan Options are treated as “equity settled” share based payments in accordance with the accounting policy described in note 2(q).

NOTES TO THE FINANCIAL REPORT (CONTINUED)

31. SHARE BASED PAYMENTS PLANS (continued)

i. On 23 November 2011, at the Company’s Annual General Meeting, Mr C Jordaan was granted a total of 4 million options (rights) to subscribe for fully paid ordinary shares in the capital of the Company. The options will vest in three tranches on 31 July 2012, 31 July 2013 and 31 July 2014 subject to Mr Jordaan being employed on each of these dates. These rights have been issued under the Company’s Performance Rights Plan and on the terms and conditions of the Performance Rights Plan Rules as described below:

· Tranche 1: 1,333,334 Performance Rights vesting on 31 July 2012, subject to employment with the Company until vesting date, with an exercise price of £0.17 and having an expiry date of 31 July 2015.

· Tranche 2: 1,333,333 Performance Rights vesting on 31 July 2013, subject to employment with the Company until vesting date, with an exercise price being the volume weighted average price of the Company’s shares traded on the main market of London Stock Exchange plc (“LSE”) over the last 30 days prior to 30 June 2012 and having an expiry date of 31 July 2016.

· Tranche 3: 1,333,333 Performance Rights vesting on 31 July 2014, subject to employment with the Company until vesting date, with an exercise price being the volume weighted average price of the Company’s shares traded on the main market of London Stock Exchange plc (“LSE”) over the last 30 days prior to 30 June 2013 and having an expiry date of 31 July 2017.

The following tables list the inputs to the Binomial model taking into account the terms and conditions upon which the options were granted at grant date. 

a) The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. The current volatility is based on actual volatility since the listing of the company in September 2005.

The fair value of the outstanding share options is estimated as at the grant date using a Binomial model taking into account the terms and conditions upon which the options were granted.

The estimated fair value of the share options issued at grant date is detailed in the table below:

The weighted average share price for the year ended 30 June 2015 is £0.05 (2014: £0.11).

The weighted average remaining contractual life of the above outstanding options is 1.08 years (2014: 2.08 years).

All these options were cancelled subsequent to year end.

ii. The Company also issued Mr Jordaan rights to receive the equivalent of up to ZAR6 million worth of fully paid ordinary shares (to a maximum of 1.1 million shares per tranche), calculated on the basis of the volume weighted average sale price of the shares of the Company on the LSE on the five trading days immediately prior to the relevant performance condition being satisfied. If the relevant performance condition is satisfied, then the relevant number of shares will vest and those shares will then be issued upon such performance rights being exercised. The performance conditions are as follows:

Transaction 1: ZAR2 million equivalent of shares, up to a maximum of 1,100,000 shares, dependent upon continuing employment and the Company achieving nameplate ferrochrome production of 66,250 tonnes for one calendar quarter. 

This right was cancelled subsequent to year end.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

31. SHARE BASED PAYMENTS PLANS (continued)

Performance Share Scheme

On 25 June 2013, a Performance Share Scheme (“PSS”) was introduced and implemented to replace the existing Phantom Option Scheme, where upon fulfilment of certain performance conditions, employees are issued with fully paid-up physical shares in the Company. The PSS was implemented after Shareholder’s approval was obtained at the company’s AGM on 21 November 2012. 

Awards of performance shares will be made annually and will have a three-year vesting cycle. The performance period for each grant will be the three year period following grant date and coinciding with the Company’s financial year-end, subject to the recipients’ continued employment by the Company on both grant and ultimate vesting date. This performance period will apply to all grants, except for grant 1 during financial year 2013 for which the performance period will be 2 years and 9 months. The PSS is split into three equal tranches each with its own performance vesting criteria being (refer table below for vesting conditions):

· Absolute Total Shareholder Return (A-TSR);

· Relative Total Shareholder Return(R-TSR); and

· Return On Capital Employed (ROCE).

Recipients are awarded the fully paid up shares immediately once it has been determined that all performance conditions were satisfied and no exercise conditions will apply. The Performance Shares are treated as “equity settled” share based payments in accordance with the accounting policy described in note 2(q).

The following table lists the inputs to the Binomial model taking into account the terms and conditions upon which the performance shares were granted as well as the performance conditions that include a market condition:

NOTES TO THE FINANCIAL REPORT (CONTINUED)

31. SHARE BASED PAYMENTS PLANS (continued)

NOTES TO THE FINANCIAL REPORT (CONTINUED)

32. PARENT ENTITY INFORMATION

a) The ZAR500 million Working capital facility expired on 16 September 2015 and was rolled forward for 3 months to 10 December 2015 to enable the Business Rescue Practitioner to publish the Business Rescue Plan. On 24 March 2016 the amended business rescue plan was approved unanimously by creditors including the Bank of China. While the facility is repayable on demand it is subject to the provisions of the business rescue process which imposes a moratorium on creditor claims and enforcement. The facility interest is charged at JIBAR rate plus 3.85%. Since year end an amount of ZAR30 million capital was repaid on the facility resulting in an outstanding balance of ZAR470 million. The proceeds of the first tranche of the total consideration to be received from Samancor resulted in a payment of ZAR232 million to the Bank of China. The proceeds of the remaining two tranches, which amounts to ZAR210 million, will be distributed to the Bank of China. These payments along with any residual funds available in IFMSA, are expected to result in settlement of the facility. The entire statement of financial position of IFMSA is pledged as collateral for the loan facility. Bank of China has the option to cancel the loan facility and call upon any balance outstanding in the event of a material deterioration in the financial position of IFMSA.

b) The following table represents details of other financial assets:

c) This provision has arisen as a result of losses incurred by subsidiary companies and the impairment of assets amounting to ZAR1.6 billion during the current financial year.

The parent entity has no contingent liabilities, nor does it have any contractual commitments for the acquisition of property, plant or equipment.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

33. FINANCIAL RISK MANAGEMENT AND OBJECTIVES

Exposure to foreign currency risk, interest rate risk, commodity price risk, credit risk, liquidity risk and share price risk arises in the normal course of the Group’s business. Derivative financial instruments may be used to hedge exposure to fluctuations in foreign exchange rates, interest rates, and commodity prices. During the period under review the Group entered into certain forward exchange contracts (“FEC”) in order to hedge against fluctuating exchange rates.

The following table displays the financial instruments held at the end of the year:

Financial assets and liabilities (including leases) by categories

¹ These financial assets consist of investment portfolios which are managed by various financial institutions. The fair value of these financial instruments has been estimated by the financial institutions using a variety of valuation techniques. These financial instruments are classified as a level 2 in the fair value hierarchy as their fair values have been estimated using inputs other than quoted prices that are observable for the assets, either directly or indirectly.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

33. FINANCIAL RISK MANAGEMENT AND OBJECTIVES (continued)

Financial assets and liabilities (including leases) by categories

¹ These financial assets consist of investment portfolios which are managed by various financial institutions. The fair value of these financial instruments has been estimated by the financial institutions using a variety of valuation techniques. These financial instruments are classified as a level 2 in the fair value hierarchy as their fair values have been estimated using inputs other than quoted prices that are observable for the assets, either directly or indirectly.

For all feasibility assessments including expansion planning, raising of debt funding, evaluation of acquisition opportunities and corporate strategy, the Group uses various methods to measure the types of risk to which it is exposed. These methods include cash flow forecasting, sensitivity and breakeven analysis. The Group performs an ageing analysis for credit risk.

Treasury risk management is carried out by a central treasury function under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

33. FINANCIAL RISK MANAGEMENT AND OBJECTIVES (continued)

(i) Foreign currency risk

Foreign currency risk arises from commercial transactions and recognised assets and liabilities that are denominated in currencies other than the functional currency of each entity in the Group, which is South African Rand (ZAR). In order to hedge this foreign currency risk, the Group may enter into forward foreign exchange (“FEC”), foreign currency swaps and foreign currency option contracts. During the year the Group entered into FEC contracts in order to hedge against the fluctuations of the ZAR against the USD. The details of the FEC’s are as follows:

The above forward exchange contracts were used to manage transactional exposure and were not classified as cash flow, fair value or net investment hedges and are entered into for periods consistent with the currency transaction exposure. These derivatives do not qualify for hedge accounting and therefore profits and or losses resulting from the transactions were accounted for in the income statement with other foreign exchange movements.

The following table represent the financial assets and liabilities denominated in foreign currencies:

The Group had no foreign currency borrowings at year end (2014: nil).

The following table demonstrates the estimated sensitivity to a 10% increase and decrease in the different exchange rates the Group is exposed to, with all other variables held constant, the estimated impact on post tax profit would be as shown in the following table. Equity is not directly affected by changes in currency rates. The flow through effect of the post-tax effect will be the same for equity. 

NOTES TO THE FINANCIAL REPORT (CONTINUED)

33. FINANCIAL RISK MANAGEMENT AND OBJECTIVES (continued)

(i) Foreign currency risk

(ii) Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rate. The Group is exposed to interest rate movement through variable rate debt and interest bearing investment of surplus funds. Other than for finance leases, the Group has no undrawn borrowing facilities at year end (2014: ZAR: nil).

The following table sets out the variable interest bearing and fixed interest bearing financial instruments of the Group:

The ZAR500 million Working capital facility expired on 16 September 2015 and was rolled forward for 3 months to 10 December 2015 to enable the Business Rescue Practitioner to publish the Business Rescue Plan. On 24 March 2016 the amended business rescue plan was approved unanimously by creditors including the Bank of China. While the facility is repayable on demand it is subject to the provisions of the business rescue process which imposes a moratorium on creditor claims and enforcement. Since year end an amount of ZAR30 million capital was repaid on the facility resulting in an outstanding balance of ZAR470 million. The proceeds of the first tranche of the total consideration to be received from Samancor resulted in a payment of ZAR232 million to the Bank of China. The proceeds of the remaining two tranches, which amounts to ZAR210 million, will be distributed to the Bank of China. These payments along with any residual funds available in IFMSA, are expected to result in settlement of the facility. Since draw down of the funds commenced, the Group has maintained an interest rate structure which reduces the impact of rapidly increasing interest rates on projects. This has been done by alternating between one and three months JIBAR roll forward. This decision is reviewed at each treasury committee meeting.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

33. FINANCIAL RISK MANAGEMENT AND OBJECTIVES (continued)

(iii) Commodity price risk exposure

The Group is exposed to the risk of fluctuations in prevailing market commodity prices of ferrochrome and coke. The price of ferrochrome has fluctuated widely, particularly in recent years, and is affected by numerous factors beyond the Group’s control including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new extraction developments and improved extraction and production methods. The effect of these factors on the price of ferrochrome, and therefore the financial performance of the Group cannot accurately be predicted. However, the Group may enter into ferrochrome option contracts to manage its commodity price risk. To date these contracts have not been easily accessible and the Group has not entered into any of these agreements. The final trade receivables balance, where applicable, is adjusted to take into account any movements in the ferrochrome price.

(iv) Credit risk

Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents (note 15), trade and other receivables (note 16), deposits (note 22) and financial instruments held by third parties (note 19). The Group's exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. The Group trades only with recognised, creditworthy third parties and as such collateral is not requested nor is it the Group's policy to securitise its trade and other receivables. Due to the global demise in large reputable companies the group has made use of bank issued Letters of Credit and has discounted certain of its debtors. In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant. A provision for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Doubtful debts are written off to the income statement. To date the Group has not been required to write off any significant debts.

Trade Receivables

IFMSA has an off-take agreement with JISCO, the largest steel maker in Northwest China. Under the terms of the agreement entered into in June 2005, JISCO agreed to purchase at least 120,000 tpa of ferrochrome on a take-or-pay basis at a market related price dependant on IFM’s sales to Europe. JISCO also agreed to act as agent for IFMSA to market ferrochrome in China, Taiwan, Japan and Korea.

In addition, IFMSA has a further off-take agreement with CMC Cometals, a division of Commercial Metals Company (“CMC”) to purchase 30,000 tpa of ferrochrome, as well as 20,000 tpa of ferrochrome fines, on a take-or-pay basis at a market related price. In addition, CMC acts as an exclusive agent selling the remainder of the Group’s ferrochrome production outside JISCO’s territories as identified above.

As a result of the off-take agreements most of the Group’s trade receivables relate to sales made to JISCO and Co-Metals, presenting a counterparty concentration of risk. JISCO is a Chinese state owned company and CMC is a New York Stock Exchange listed metals trader with a market capitalisation of US$1.6 billion. IFMSA has the option of receiving a provisional payment from its offtake partners of up to 90% of the value of each shipment within 15 working days of any shipment. This provisional payment accrues interest by IFMSA. The balance due, which is payable up to six months later, is jointly determined by the offtake partners and IFMSA, based on actual prices, costs and factors that affect the landed price of each shipment. The Group does not hold any credit derivatives to offset its credit exposure, other than Letters of Credit. No impairment was recognised as the group considers the offtake partners to be in a sound financial position. There are no receivables past due and considered impaired. 

Cash and Investments

The credit risk policy aims to ensure that the organisation is adequately protected against settlement risk for cash, investments and derivatives by transacting with reputable financial institutions with a minimum Fitch Ratings International long term credit rating of A (or equivalent S&P or Moody’s rating) and where applicable, within stated limits. It is noted that the group is not envisaged to hold large cash balances for extended periods of time. At the reporting date, cash deposits were spread amongst a number of financial institutions to minimise the risk of default by counterparties.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

33. FINANCIAL RISK MANAGEMENT AND OBJECTIVES (continued)

(iv) Credit risk (continued)

Other receivables

Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due.

The following table sets out the financial assets that are exposed to credit risk:

Set out below is an ageing analysis on the Group’s trade receivables: 

* Past due not impaired ('PDNI')

None of the consolidated or parent trade and other receivables are considered past due or impaired.

Credit terms for customers and agents are 30 days from the date of the final invoice. The final invoice is issued once the product is received (average time between product being delivered FOB and to time received by customer is between 3-4 months) and final specification agreed by the customer. Debtors’ sales are recognised, in accordance with AASB 118 “Revenue”, when risks and rewards transfer. The long shipment lead time between BOL date and final invoice date may move certain debtors into the PDNI category. Sales are recognised on “Free On Board”, “at-port” or “Free on truck”.

(iv) Liquidity risk

Liquidity risk is the risk that there will be inadequate funds available to meet financial commitments as they fall due. The Group recognises the ongoing requirement to have committed funds in place to cover both existing business cash flows and reasonable headroom for cyclical debt fluctuations, and capital expenditure programmes. The key funding objective is to ensure the availability of flexible and competitively priced funding from alternative sources to meet the Group’s current and future requirements. The Group utilises a detailed cash flow model to manage its liquidity risk. 

The Group attempts to accurately project the sources and uses of funds, whereby a framework for decision making is established which increases the effectiveness and efficiency with which the treasury function operates.

The table below summarises the maturity profile of the Group’s contractual cash flow financial liabilities at 30 June 2015 based on contractual undiscounted repayment obligations. Repayments which are subject to notice are treated as if notice were to be given immediately.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

33. FINANCIAL RISK MANAGEMENT AND OBJECTIVES (continued)

(v) Liquidity Risk (continued)

34. EVENTS AFTER THE REPORTING DATE

On 19 August 2015, a strike of workers employed by one of IFMSA's contractors resulted in IFMSA having to reduce production from its furnaces and disrupted its logistics and shipping schedule, causing losses in production.

The combination of low ferrochrome prices, rising electricity prices, interruptions to power supply and other costs and losses of ferrochrome production strained IFMSA’s liquidity to the point that it became financially distressed.

As a result, on 26 August 2015, the Company announced that IFMSA, which operates the IFL Group's Lesedi mine and ferrochrome smelting operations, was placed under business rescue by the Board of Directors of IFMSA. Business rescue is a South African statutory means of enabling a financially distressed company to continue in business, under the supervision of a business rescue practitioner (“BRP”), protected from its creditors. While in business rescue there is a moratorium on creditors and others taking legal proceedings or enforcement action against IFMSA. This allows for the development and implementation of a business rescue plan (“Plan”) that seeks to enhance the potential return for IFMSA's stakeholders. On the same day The Financial Conduct Authority (FCA) granted a suspension of the listing of the Company’s fully paid ordinary shares on the Official List.

As a result of the business rescue process, IFMSA’s operations were placed under care and maintenance, significantly reducing its expenses. In view of the operational requirements of IFMSA, a process in terms of section 189A of the Labour Relations Act 66 of 1995 ("LRA") commenced on 7 September 2015. In order to treat all employees equally, the process entailed the retrenchment of the entire staff compliment and thereafter, the re-engagement of a limited number of people on a limited duration contract basis for the duration of the business rescue proceedings. All the outstanding long term incentive rights were cancelled subsequent to year end.

The Bank of China, IFMSA’s largest and secured creditor, agreed to the following:

· Trade receivables that existed at the date of commencement of business rescue proceedings to be collected and applied to reduce the Bank of China working capital facility; and

· Proceeds derived from the sale of inventory at the date of commencement of business rescue proceedings together with the proceeds derived from the RPM UG2 supply agreement, to be applied to fund business rescue proceedings.

In January 2016 a settlement was reached with RPM under which RPM would continue the supply of UG2 chrome ore but at reduced quantities and at additional costs to IFMSA. The settlement eliminated the uncertainty surrounding the supply agreement and accordingly assisted in business rescue process. However, it had a material impact on the UG2 agreement's value and consequently on the value of the assets of IFMSA.

The amended business rescue plan, which has been approved by creditors on 24 March 2016, provides for the sale of IFMSA’s business and assets together with IFMSA’s loan claim against and IFL’s 80% equity interest in Sky Chrome, to Samancor for a total of ZAR520 million, split into three divisible tranches:

1. ZAR310 million for the business and assets of IFMSA;

2. ZAR140 million for the IFMSA Mining Right and Beneficiation Plant; and

3. ZAR70 million for certain receivables of Sky Chrome and Sky Chrome’s equity for ZAR100.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

34. EVENTS AFTER THE REPORTING DATE (continued)

In August 2016 the first tranche transaction was concluded and in September 2016 the proceeds from the transaction were distributed to creditors of IFMSA in accordance with the amended business rescue plan. South African Exchange Control approval has recently been obtained and IFML’s claim of ZAR4.5 million is expected to be paid shortly. The proceeds from the second and third tranches will be paid to the Bank of China.

Since the inception of business rescue the appointed business rescue practitioner has been facilitating the support of IFML by cash flow from IFMSA to cover ongoing costs. This support continued until June 2016. The amount of cash flow to IFML totalled ZAR17.4 million which was used to pay expenses subsequent to year end. IFML will receive ZAR4.5 million as settlement of its claim against IFMSA once Exchange Control approval has been received. This amount is expected to be sufficient to fund the limited operations of IFML until such time as the outstanding conditions for the remaining two tranches of transactions with Samancor have been met. These conditions include obtaining regulatory approvals, specifically ministerial approval for the transfer of mining rights, and consents of other parties to certain material contracts, which are usual for transactions of this nature. The proceeds of the remaining two tranches, which amounts to ZAR210 million, will be distributed to the Bank of China. These payments along with any residual funds available in IFMSA, are expected to result in settlement of the facility. After which the directors will consider all options available including the wind up of the company. It is not expected that the shareholders of IFML will receive any dividend or distribution from any of the above.

Due to the disposal process, assets will be realised principally through a sales transaction rather than through continuing use. The affected assets should thus be classified as assets held for sale in terms of AASB 5 for the year ending 30 June 2016 as the criteria per AASB 5 has only been met after year end. 

Other than those outlined above and in note 34 to the Financial Statements, no matters or circumstances have arisen since 30 June 2015 that have significantly affected or may significantly affect:

· the Company’s operations in future financial years; or

· the result of those operations in future financial years; or

· the Company’s state of affairs in future financial years.

35. COMMITMENTS AND CONTINGENCIES

Capital commitments

Capital incurred for the subsequent financial year amounted to R13 million.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

35. COMMITMENTS AND CONTINGENCIES (continued)

Finance lease commitments

The minimum lease payments under finance lease arrangements are set out in the following table:

Contingent liabilities

There were no contingent liabilities outstanding at 30 June 2015 (2014: nil).

36. RELATED PARTY TRANSACTIONS

Loans to Directors and Director-related entities

No loans have been granted to Directors and/or Director-related entities.

Refer to audited Remuneration Report for details of remuneration and arrangements with Key Management Personnel.

The community royalty accrued at year end amounted to ZAR0.3 million (2014: ZAR0.5 million). 

The Parent company is due management fees of ZAR6.8 million (2014: ZAR5.67 million) from its subsidiary company International Ferro Metals (SA) Pty Ltd. Related party transactions exist between the companies within the Group. 

Jiuquan Iron and Steel Group Company (JISCO) own 29.10% (2014: 29.10%) of the Parent company’s shares. Sales made to JISCO totalled 46,095 tonnes (2014: 71,546 tonnes) and were made in terms of the off-take agreement which was entered into at arm’s length. The value of sales made to JISCO during the year amounted to ZAR460 million (2014: ZAR691 million). 

37. INTEREST IN SUBSIDIARIES

The Company has the following direct/indirect material interests in subsidiaries:

(a) This company was placed under business rescue on 26 August 2015.

NOTES TO THE FINANCIAL REPORT (CONTINUED)

38. AUDITORS REMUNERATION

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