Integrated Annual Report 2014

Summarised notes to the consolidated financial statements

FOR THE YEAR ENDED 31 DECEMBER 2014
1. SEGMENT REPORTING
Figures in million – SA randGroupDriefonteinKloofBeatrixCooke1Corporate2
31 December 2014      
Revenue21,780.57,829.47,502.84,566.31,882.0
Underground revenue19,908.77,200.26,887.34,228.81,592.4
Surface revenue1,871.8 629.2 615.5 337.5 289.6
Operating costs3(14,311.4)(4,912.3)(4,502.3)(3,204.0)(1,692.8)
Underground operating costs(13,032.3)(4,427.6)(4,087.0)(3,052.1)(1,465.5)
Surface operating costs(1,279.2) (484.7) (415.3) (151.9) (227.3)
        
Operating profit37,469.12,917.13,000.51,362.3189.2
Amortisation and depreciation(3,254.7)(1,129.3)(1,322.3)(468.4)(308.3)(26.4)
Net operating profit4,214.41,787.81,678.2893.9(119.1)(26.4)
Investment income183.248.342.724.514.753.0
Finance expense(400.0)(152.8)(132.6)(41.8)(56.5)(16.3)
Share-based payments(417.9)(69.1)(58.2)(45.9)(244.7)
Exploration and feasibility costs(15.1)(9.4)(5.1)(0.6)
Net other costs4(735.7)(86.3)(56.6)(56.5)(5.8)(530.5)
Non-recurring items5(63.4)(95.1)(152.0)469.4(17.9)(267.8)
Royalties(430.5)(165.5)(174.5)(82.1)(8.4)
Current taxation(879.2)(339.2)(379.6)(153.9)(6.5)
Deferred taxation51.19.871.3(128.5)10.388.2
Profit for the year1,506.9937.9838.7869.7(187.8)(951.6)
Attributable to:       
Owners of the parent1,551.5937.9838.7869.7(143.2)(951.6)
Non-controlling interest holders(44.6)(44.6)
Sustaining capital expenditure974.6465.3355.7101.951.7
Ore reserve development2,126.5683.6879.8446.1117.0
Projects132.861.271.6
Other16.916.9
Total capital expenditure3,250.81,148.91,235.5548.0229.988.5
  1. Figures may not add as they are rounded independently.
  2. 1 Cooke’s performance is for the seven months ended 31 December 2014, as it was only acquired on 15 May 2014.
  3. 2 Corporate represents the items to reconcile segment data to consolidated financial statement totals. This does not represent a separate segment as it does not generate mining revenue.
  4. 3 Operating costs is defined as cost of sales excluding amortisation and depreciation. Operating profit is defined as revenue minus operating costs.
  5. 4 Net other costs consists of (loss)/gain on financial instruments; (loss)/gain on foreign exchange differences; other income and other costs as detailed in the income statement. Corporate net other costs includes the share of results of equity-accounted investees after taxation as detailed on the income statement.
  6. 5 Non-recurring items consists of impairment; reversal of impairment; profit on disposal of property, plant and equipment; loss on loss of control of subsidiary; transaction costs and restructuring costs as detailed in the income statement.
Figures in million – SA randGroupDriefonteinKloofBeatrixCorporate1
31 December 2013     
Revenue19,331.28,162.76,954.44,214.1
Underground revenue17,663.67,354.66,323.43,985.6
Surface revenue1,667.6 808.1 631.0 228.5
Operating costs2(11,973.3)(4,881.2)(4,100.7)(2,991.4)
Underground operating costs(11,030.5) (4,421.9) (3,762.1) (2,846.5)
Surface operating costs(942.8) (459.3) (338.6) (144.9)
       
Operating profit27,357.93,281.52,853.71,222.7
Amortisation and depreciation(3,103.9)(1,458.0)(1,096.5)(528.1)(21.3)
Net operating profit4,254.01,823.51,757.2694.6(21.3)
Investment income160.355.047.427.530.4
Finance expense(420.3)(193.6)(152.3)(72.8)(1.6)
Share-based payments(305.8)(61.1)(47.2)(41.8)(155.7)
Net other costs3(24.7)(67.0)(70.5)(40.4)153.2
Non-recurring items4(1,294.4)(159.5)(125.6)(900.1)(109.2)
Royalties(414.6)(198.3)(147.1)(69.2)
Current taxation(809.8)(427.7)(273.5)(97.5)(11.1)
Deferred taxation553.6174.018.3336.325.0
Profit for the year1,698.3945.31,006.7(163.4)(90.3)
Attributable to:      
Owners of the parent1,692.4945.31,006.7(163.4)(96.2)
Non-controlling interest holders5.95.9
Sustaining capital expenditure1,018.5320.2459.8200.637.9
Ore reserve development1,883.0702.8843.8336.4
Total capital expenditure2,901.51,023.01,303.6537.037.9
  1. Figures may not add as they are rounded independently.
  2. 1 Corporate represents the items to reconcile segment data to consolidated financial statement totals. This does not represent a separate segment as it does not generate mining revenue.
  3. 2 Operating costs is defined as cost of sales excluding amortisation and depreciation. Operating profit is defined as revenue minus operating costs.
  4. 3 Net other costs consists of (loss)/gain on financial instruments; (loss)/gain on foreign exchange differences; other income and other costs as detailed in the income statement. Corporate net other costs includes the share of results of equity-accounted investees after taxation as detailed on the income statement.
  5. 4 Non-recurring items consists of impairment; reversal of impairment; profit on disposal of property, plant and equipment; loss on loss of control of subsidiary; transaction costs and restructuring costs as detailed in the income statement.
Figures in million – SA randGroupDriefonteinKloofBeatrixCorporate1
31 December 2012     
Revenue16,553.55,946.66,693.93,913.0
Underground revenue14,661.14,842.95,046.83,771.4
Surface revenue1,892.4 1,103.7 647.1 141.6
Operating costs2(10,823.8)(4,302.4)(3,899.0)(2,622.4)
Underground operating costs(9,999.4) (3,891.1) (3,567.2) (2,541.1)
Surface operating costs(824.4) (411.3) (331.8) (81.3)
       
Operating profit25,729.71,644.22,794.91,290.6
Amortisation and depreciation(2,362.8)(986.5)(726.4)(631.8)(18.1)
Net operating profit3,366.9657.72,068.5658.8(18.1)
Investment income105.538.236.819.311.2
Finance expense(176.7)(63.0)(78.5)(29.9)(5.3)
Share-based payments(263.5)(72.1)(43.5)(42.3)(105.6)
Net other costs315.5(53.6)(65.1)(30.3)164.5
Non-recurring items4(150.4)(84.3)(58.4)(8.0)0.3
Royalties(282.1)(66.2)(145.3)(70.5)
Current taxation(474.8)(22.6)(306.3)(121.5)(24.4)
Deferred taxation839.8377.3207.4238.216.9
Profit for the year2,980.2711.41,615.6613.839.5
Attributable to:      
Owners of the parent2,979.6711.41,615.6613.838.9
Non-controlling interest holders0.60.6
Sustaining capital expenditure979.0241.3504.5210.722.5
Ore reserve development2,127.9849.6830.8447.5
Total capital expenditure3,106.91,090.91,335.3658.222.5
  1. Figures may not add as they are rounded independently.
  2. 1 Corporate represents the items to reconcile segment data to consolidated financial statement totals. This does not represent a separate segment as it does not generate mining revenue.
  3. 2 Operating costs is defined as cost of sales excluding amortisation and depreciation. Operating profit is defined as revenue minus operating costs.
  4. 3 Net other costs consists of (loss)/gain on financial instruments; (loss)/gain on foreign exchange differences; other income and other costs as detailed in the income statement. Corporate net other costs includes the share of results of equity-accounted investees after taxation as detailed on the income statement.
  5. 4 Non-recurring items consists of impairment; reversal of impairment; profit on disposal of property, plant and equipment; loss on loss of control of subsidiary; transaction costs and restructuring costs as detailed in the income statement.
2. RAND REFINERY

The share of results of equity-accounted investees after taxation amounting to a loss of R470.7 million, relates to Sibanye’s 33.1% interest in Rand Refinery Proprietary Limited (Rand Refinery) and 50% interest in Living Gold Proprietary Limited.

As disclosed in Sibanye’s financial statements for the year ended 31 December 2013 in April 2013, Rand Refinery implemented a new Enterprise Resource Planning (ERP) system; the customisation of this software was problematic with the result that Rand Refinery was not able to fully reconcile certain accounts at 30 September 2013 being Rand Refinery’s year end. More specifically an imbalance was detected between physical gold and silver on hand (physical inventory) and what Rand Refinery owed its depositors and bullion bankers (ownership) per the metallurgical trial balance. The uncertainty around the true inventory position prevented Rand Refinery from finalising its annual financial statements for the year ended 30 September 2013 by the time that Sibanye finalised its financial results for the year ended 31 December 2013. Accordingly, Sibanye’s estimated share of results of Rand Refinery for the year ended 31 December 2013 was based on Rand Refinery’s unaudited management accounts. As further disclosed the maximum share of the potential adjustment from the unaudited management accounts would be limited to the carrying value of the investment of R270.1 million.

Rand Refinery’s investigations to determine the root cause of the imbalance continued throughout of the 2014 calendar year and are still ongoing.

Based on information available at 30 June 2014, the gold imbalance was estimated at 87,000oz. Based on its detailed discussions and due diligence Sibanye estimated a 50% probability that the gold imbalance was not recoverable. Sibanye’s share of this loss adjustment was R196.4 million. This amount was partly offset by Sibanye’s R45.9 million share of Rand Refinery’s profits for the six-month period, resulting in an estimated net loss share of R150.5 million which was recognised in Sibanye’s profit and loss for the six months ended 30 June 2014. At 30 June 2014, the continued uncertainty relating to the imbalance and discussions regarding the establishment of an irrevocable subordinated shareholder loan were an indicator of impairment. As Sibanye’s proportional share of the proposed shareholder loan exceeded the carrying value of the investment at 30 June 2014, the remaining carrying value of the investment in Rand Refinery was fully impaired and accordingly an impairment loss of R119.6 million was recognised.

On 23 July 2014 following discussion with the bullion bankers, AngloGold Ashanti Limited (42.4% shareholding), Sibanye, Harmony Gold Mining Company Limited (11.3% shareholding) and Gold Fields Operations Limited (2.8% shareholding) (together, the Financing Shareholders) collectively agreed to offer financial support to Rand Refinery in the form of an irrevocable subordinated loan of up to R1.2 billion (the Facility). Under the terms of this agreement Rand Refinery could only draw on the Facility when there was confirmation that an actual imbalance exists. Sibanye’s proportional share of the Facility amounted to R448.8 million.

On 18 December 2014, Rand Refinery drew down R1.029 billion under the Facility, with Sibanye’s proportional share of the Facility being R384.6 million. Any amounts drawn under the Facility are repayable within two years from the first draw down date. If the loan is not repaid within the two years, it will automatically convert into equity in Rand Refinery. Interest under the Facility will be at Jibar plus a margin of 3.5%. Sibanye has subordinated all claims it might have against Rand Refinery as part of the Facility agreement.

On 19 December 2014, Rand Refinery issued its audited annual financial statements for the years ended 30 September 2013 and 30 September 2014 which indicated a total loss of 71,000oz relating to the imbalance. The financial statements stated that despite various internal projects undertaken and external reviews by experts, the root cause of the imbalance has not yet been identified. The interim conclusion that Rand Refinery’s management has reached, is that the imbalance is a processing inefficiency. Further initiatives are being introduced to continue to try to identify the root cause of the imbalance. Based on the latest information available, Sibanye prospectively reduced the carrying value of its investment in Rand Refinery by R329.5 million.

The carrying value of Rand Refinery remains an area of estimation and uncertainty, until the root cause of the imbalance is determined.

The equity-accounted investment in Rand Refinery movement for the period is as follows:

Figures are in South African Rand millions unless otherwise stated201420132012
Balance at the beginning of the period270.1218.6125.5
Share of results of Rand Refinery after tax(480.0)51.593.1
Impairment of investment in Rand Refinery(119.6)
Loan to Rand Refinery384.6
Balance at the end of the period55.1270.1218.6
3.IMPAIRMENTS

The impairments of R275.1 million for the year ended 31 December 2014 consists of R119.6 million relating to the impairment of the Group’s investment in Rand Refinery and R155.5 million relating to the impairment of the Python plant at Kloof.

4.REVERSAL OF IMPAIRMENT AT BEATRIX WEST

Due to the positive results of the restructured Beatrix West Section it returned to profitability and as a result a decision was taken to reverse the impairment recorded during the six months ended 30 June 2013. This resulted in a R474.1 million (R360.3 million net of deferred taxation) reversal of impairment to the historical carrying value.

5.COOKE ACQUISITION

On 15 May 2014 all conditions precedent to the acquisition of Gold One’s 76% shareholding in, and the Gold One Group claims against, Newshelf 1114 Proprietary Limited (Newshelf) were fulfilled. Newshelf holds a 100% shareholding in Rand Uranium Proprietary Limited and Ezulwini Mining Company Proprietary Limited, the activities of these companies include the Cooke Operations.

On completion of the Newshelf black economic empowerment structure, Sibanye will have a 74% interest in Newshelf. The current balance of 24% not owned by Sibanye forms part of the Newshelf black economic empowerment structure and is reflected as the non-controlling interest.

As consideration for the acquisition of the Cooke Operations, Sibanye issued 156,894,754 new Sibanye ordinary shares at R28.61, representing 17% of Sibanye's issued share capital, on a fully diluted basis to Gold One.

Consideration transferred

The following table summarises the acquisition date fair value of each major class of consideration transferred:

Figures are in South African Rand millions unless otherwise stated2014
Equity instruments (156,894,754 ordinary shares)4,488.8
Loans advanced pre-acquisition161.2
Total consideration transferred4,650.0
Acquisition related costs

The Group incurred acquisition related costs of R81.5 million on advisory and legal fees. These costs are recognised as “transaction costs” in profit and loss.

Identifiable assets acquired and liabilities assumed.

The following table summarises the recognised amounts of assets acquired and liabilities assumed at the acquisition date:

Figures are in South African Rand millions unless otherwise stated2014
Property, plant and equipment5,556.4
Environmental rehabilitation obligation funds341.7
Inventories77.6
Trade and other receivables156.8
Cash and cash equivalents31.8
Deferred taxation(169.2)
Borrowings(696.2)
Environmental rehabilitation obligation(501.8)
Trade and other payables(486.2)
Taxation and royalties payable(1.4)
Total identifiable net assets acquired4,309.5
Goodwill

Goodwill arising from the acquisition has been recognised as follows:

Figures are in South African Rand millions unless otherwise stated2014
Consideration transferred4,650.0
Fair value of identifiable net assets(4,309.5)
Non-controlling interest in their proportionate interest in the recognised amounts of the assets and liabilities of the Cooke operations 396.2
Goodwill736.7

The allocation of goodwill has been provisionally allocated to the Group’s Beatrix, Driefontein and Kloof cash generating units (CGU) on synergies, the underlying assets of Cooke and the West Rand Tailings Retreatment Project. None of the goodwill recognised is expected to be deducted for tax purposes.

6. WITWATERSRAND CONSOLIDATED GOLD RESOURCES LIMITED ACQUISITION

On 14 April 2014, Sibanye paid R400.5 million to the Wits Gold shareholders and obtained control (100%) of Wits Gold. Wits Gold is not a business as defined in IFRS and thus the acquisition is considered to be outside the scope of IFRS 3 Business Combinations. The acquisition was accounted for as an asset acquisition in which the consideration paid for the acquisition is allocated to the individual identifiable assets acquired and liabilities assumed based on their relative fair values. Transaction related expenses of R14.8 million have been capitalised.

7. BURNSTONE ACQUISITION

On 5 July 2013 Witwatersrand Consolidated Gold Resources Limited (Wits Gold) announced to its shareholders that it had submitted a final binding offer (“the Offer”) to Mr Peter van den Steen, the business rescue practitioner of Sibanye Gold Eastern Operations Proprietary Limited (SGEO) (previously Southgold Exploration Proprietary Limited), to acquire SGEO, the sole owner of the Burnstone gold mine (Burnstone) located in South Africa’s Mpumalanga Province. The Offer was included in the business rescue plan that was approved by the creditors of SGEO on 11 July 2013.

All the outstanding conditions precedent were met on 1 July 2014, and Sibanye, through its subsidiary Wits Gold, took control (100%) of Burnstone from this date, also the date on which SGEO came out of business rescue. Sibanye acquired all of the issued shares of SGEO together with all shareholder and inter-group loans against SGEO for a purchase consideration of R100.00. Wits Gold was required to fund R77.4 million for the settlement of all outstanding creditors of SGEO. As at 30 June 2014, R82.1 million was held in escrow accounts and forms part of the Group’s cash and cash equivalents.

Consideration transferred

The following table summarises the acquisition date fair value of each major class of consideration transferred:

Figures are in South African Rand millions unless otherwise stated2014
Cash
Loans advanced pre-acquisition77.4
Total consideration transferred77.4
Identifiable assets acquired and liabilities assumed

The following table summarises the recognised amounts of assets acquired and liabilities assumed at the acquisition date:

Figures are in South African Rand millions unless otherwise stated2014
Property, plant and equipment1,089.7
Environmental rehabilitation obligation funds32.4
Inventories0.4
Trade and other receivables27.2
Cash and cash equivalents0.7
Burnstone Debt(1,007.6)
Environmental rehabilitation obligation(42.2)
Trade and other payables(23.2)
Total identifiable net assets acquired77.4
Burnstone Debt

SGEO had bank debt of R1,883.9 million (US$178.1 million) (the Burnstone Debt) of which R1.9 million (US$0.2 million) was settled on 1 July 2014. The Burnstone Debt will be interest free at first and will attract interest at the London Interbank Offered Rate (LIBOR) plus a margin of 4% from 1 July 2017. The Burnstone Debt is fully secured against the assets of Burnstone and there is no recourse to the Sibanye Group.

The first 50% of Burnstone’s free cash flow will be used to repay the Wits Gold Loan and the balance of 50% to repay US$7.8 million of the Burnstone Debt. On settlement of this US$7.8 million, 90% of Burnstone’s free cash flow will be used to repay the Wits Gold Loan and the balance of 10% to repay the Burnstone Debt. On settlement of the Wits Gold Loan and interest, Burnstone Debt will be repaid from 30% of Burnstone’s free cash flow and the balance will be paid to Wits Gold.

The Bank Lenders will continue to participate in 10% of Burnstone’s free cash flow after the Burnstone Debt has been repaid in full to a maximum amount of US$63.0 million under a revenue participation agreement.

8. BORROWINGS

The Group’s borrowings movement during the period is as follows:

Figures are in South African Rand millions unless otherwise stated201420132012
Balance at the beginning of the period1,990.94,220.0
Borrowings acquired on acquisition of subsidiaries1,743.8
Loans raised1,623.67,620.04,220.0
– R4.5 billion Facilities884.6 2,000.0
– Bridge Loan Facilities and other facilities4,570.0
– Other committed and uncommitted facilities739.0 1,050.0 4,220.0
Loans repaid(2,296.9)(9,840.0)
– Cooke borrowings(616.0)
– Wits Gold borrowings(40.0)
– Burnstone Debt(1.9)
– R4.5 billion Facilities(900.0)
– Bridge Loan Facilities and other facilities(4,570.0)
– Other committed and uncommitted facilities(739.0) (5,270.0)
Franco-Nevada settlement (non-cash)(26.2)
Financing costs capitalised(9.1)
Unwinding of loans recognised at amortised cost43.3
Translation adjustment91.5
Balance at the end of the period3,170.01,990.94,220.0
Borrowings consist of:   
– R4.5 billion Facilities1,979.51,990.9
– Franco-Nevada liability56.2
– Burnstone Debt1,134.3
– Other committed and uncommitted facilities4,220.0
Borrowings3,170.01,990.94,220.0
Current portion of borrowings(554.2)(499.5)(2,220.0)
Non-current borrowings2,615.81,491.42,000.0
9. OCCUPATIONAL HEALTHCARE SERVICES

The Group provides occupational healthcare services to its employees through its existing facilities at the various operations. There is a risk that the cost of providing such services could increase in the future depending upon changes in the nature of underlying legislation and the profile of employees. Any such increased cost has not yet been quantified. The Group is monitoring developments in this regard.

The principal health risks associated with Sibanye's mining operations in South Africa arise from occupational exposure to silica dust, noise, heat and certain hazardous chemicals. The most significant occupational diseases affecting Sibanye's workforce include lung diseases (such as silicosis, tuberculosis, a combination of the two and chronic obstructive airways disease (COAD) as well as noise induced hearing loss (NIHL). The Occupational Diseases in Mines and Works Act, 78 of 1973, or ODMWA, governs the compensation paid to mining employees who contract certain illnesses, such as silicosis. Recently, the South African Constitutional Court ruled that a claim for compensation under ODMWA does not prevent an employee from seeking compensation from its employer in a civil action under common law (either as individuals or as a class). While issues, such as negligence and causation, need to be proved on a case by case basis, it is possible that such ruling could expose Sibanye to claims related to occupational hazards and diseases (including silicosis), which may be in the form of a class or similar group action. If Sibanye were to face a significant number of such claims and the claims were suitably established against it, the payment of compensation for the claims could have a material adverse effect on Sibanye’s results of operations and financial position. In addition, Sibanye may incur significant additional costs arising out of these issues, including costs relating to the payment of fees, levies or other contributions in respect of compensatory or other funds established (if any) and expenditures arising out of its efforts to resolve any outstanding claims or other potential action.

On 21 August 2012, a court application was served on a group of respondents that included Sibanye (the August Respondents). On 21 December 2012, a further court application was issued and was formally served on a number of respondents, including Sibanye (the December Respondents and, together with the August Respondents, the Respondents), on 10 January 2013, on behalf of classes of mine workers, former mine workers and their dependants who were previously employed by, or who are currently employed by, amongst others, Sibanye and who allegedly contracted silicosis and/or other occupational lung diseases (the Classes). The court application of 21 August 2012 and the court application of 21 December 2012 are together referred to below as the Applications.

These Applications request that the court certify a class action to be instituted by the applicants on behalf of the Classes. The Applications are the first and preliminary steps in a process where, if the court were to certify the class action, the applicants may, in a second stage, bring an action wherein they will attempt to hold the Respondents liable for silicosis and other occupational lung diseases and resultant consequences. In the second stage, the Applications contemplate addressing what the applicants describe as common legal and factual issues regarding the claim arising from the allegations of the entire Classes. If the applicants are successful in the second stage, they envisage that individual members of the Classes could later submit individual claims for damages against the respective Respondents. The Applications do not identify the number of claims that may be instituted against the Respondents or the quantum of damages the applicants may seek.

With respect to the Applications, Sibanye filed a notice of its intention to oppose the application and instructed its attorneys to defend the claims. The two class actions were consolidated into one action during 2013. Sibanye and its attorneys further engaged with the applicants’ attorneys and the court in both Applications to try to establish a court-sanctioned process to agree the timelines. Such a process was agreed upon and timelines imposed by means of a timetable. Sibanye has thus far filed all its papers opposing the Applications. The date for the hearing of the Applications is currently the week of 12 and 19 October 2015.

At this stage, Sibanye cannot quantify the potential liability from the action as the Application is currently for certification of a class nor the timing of possible out flow.

10. LIQUIDITY

The Group’s current liabilities exceeded its current assets by R1,630.1 million as at 31 December 2014. Current liabilities at 31 December 2014 include the financial guarantee liability of R197.0 million which does not reflect the true liquidity of Sibanye per se, as Sibanye believes that Gold Fields Limited (Gold Fields) is currently in the position to meet its obligations under its US$1 billion, 4.875% guaranteed notes.

The current portion of borrowings of R554.2 million includes the two semi-annual repayments due and payable in June and December 2015 respectively.

Sibanye generated cash from operating activities of R4.1 billion for the year ended 31 December 2014. If the acquisition related cash outflows during the year are added back to the cash flow, the Group would have had R1.3 billion in additional cash on the statement of financial position, confirming the strong cash generating ability of the Group. Over and above the Group has committed unutilised debt facilities of R2 billion at 31 December 2014.

The Directors believe that the cash generated by its operations and the remaining balance of the Company’s revolving credit facility will enable the Group to continue to meet its obligations as they fall due.

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 December 2014, other than what has already been disclosed above and:

  • The Board approved a final dividend of 62 cents per share (ZAR) for the six months ended 31 December 2014, resulting in a total dividend of 112 cents per share (ZAR) relating to the year ended 31 December 2014.