Commentary to Condensed Consolidated Interim Financial Statements for the six months ended 30 June 2010
General
The board of Randgold & Exploration Company Limited is pleased to announce the interim results for the six months ended 30 June 2010. The company has now fully implemented the JCI settlement as anticipated. Eligible shareholders will be aware of the distribution of Gold Fields Limited (GFI) and JCI Limited (JCI) shares made by the company on 5 July 2010.
Income
The majority of the income recognised in the period under review was a result of two recoveries of R783,5 million and R25,2 million which flowed from the settlement with JCI and the litigation settlement agreement, respectively.
Financial position
Excluding the effects of the settlement, R&E is liquid with no interest-bearing debt. R&E’s total assets consist primarily of cash and an investment in GFI shares. After the settlement distribution and unbundling of the company’s holding of JCI shares R&E has a net asset value per share of R7,01.
Cashflow
R&E started the period under review with a cash balance of R295 million. Operating activities (excluding the JCI settlement) generated cash inflow of R15,8 million, primarily as a result of cash collected from outstanding settlement receivables.
Investing activities yielded cash inflows of R85,5 million primarily as a result of dividends received, proceeds from the disposal of recovered assets and the repayment of loans receivable from JCI.
Dividends paid by Free State Investment and Development Corporation Limited (FSD) to its non-controlling shareholder (JCI group) resulted in a cash outflow from financing activities.
R&E remains in a strong cash position at 30 June 2010 with R323 million in cash and cash equivalents.
Outlook
Given R&E’s liquid financial position and position in the resources industry, management will focus on seeking out new opportunities, where appropriate, for the benefit of R&E and its shareholders. As in the past, a pragmatic commercial approach will be adopted in dealing with the outstanding legal claims.
DC Kovarsky Marais Steyn
Chairman Chief Executive Officer
Johannesburg
30 July 2010
Condensed Consolidated Interim Statement of Comprehensive Income
| For the six months ended | |||
| 30 June 2010 | 30 June 2009 | ||
| Reviewed | Un-reviewed | ||
| Notes | R’000 | R’000 | |
| Revenue | 12 048 | 9 890 | |
| Recoveries – JCI | 6 | 783 549 | – |
| – Other | 25 205 | 14 207 | |
| Other income | 10 353 | 211 | |
| Other operating expenses | (38 592) | (24 857) | |
| Results from operating activities | 792 563 | (549) | |
| Finance income | 1 320 | 17 489 | |
| Profit before taxation | 793 883 | 16 940 | |
| Taxation | (1 052) | (5 839) | |
| Profit for the period | 792 831 | 11 101 | |
| Other comprehensive income | |||
| Net change in fair value of available-for-sale investments | 7 | 11 618 | 3 234 |
| Total comprehensive income | 804 449 | 14 335 | |
| Profit or loss attributable to: | |||
| Non-controlling interest | 628 | 10 167 | |
| Owners of the company | 792 203 | 934 | |
| Profit for the period | 792 831 | 11 101 | |
| Total comprehensive income attributable to: | |||
| Non-controlling interest | 628 | 10 167 | |
| Owners of the company | 803 821 | 4 168 | |
| Total comprehensive income | 804 449 | 14 335 | |
| Basic and diluted earnings per share (cents) | 9 | 1 103 | 1 |
Condensed Consolidated Interim Statement of Financial Position
| As at | |||
| 30 June 2010 | 31 December 2009 | ||
| Reviewed | Audited | ||
| Notes | R’000 | R’000 | |
| Assets | |||
| Non-current assets | 211 409 | 247 032 | |
| Plant and equipment | 357 | 108 | |
| Intangible assets | 474 | 474 | |
| Investments in equity securities | 7 | 210 578 | 246 450 |
| Current assets | 1 151 066 | 549 096 | |
| Loans receivable | – | 207 543 | |
| Trade and other receivables | 4 946 | 46 747 | |
| Financial asset – settlement receivable | 6 | 791 416 | – |
| Investments held for distribution | 7 | 32 026 | – |
| Cash and cash equivalents | 322 678 | 294 806 | |
| Total assets | 1 362 475 | 796 128 | |
| Equity and liabilities | |||
| Shareholders’ equity | 503 633 | 484 152 | |
| Issued capital | 748 | 748 | |
| Share premium | 162 612 | 986 054 | |
| Reserves | 23 755 | 12 137 | |
| Retained earnings/(Accumulated loss) | 316 518 | (514 787) | |
| Non-controlling interest | 9 396 | 250 378 | |
| Liabilities | |||
| Non-current liabilities | |||
| Post-retirement medical benefit obligation | 34 355 | 34 575 | |
| Current liabilities | 815 091 | 27 023 | |
| Tax liabilities | 16 302 | 15 579 | |
| Shareholders for dividend | 9 | 790 419 | – |
| Trade and other payables | 8 370 | 11 444 | |
| Total equity and liabilities | 1 362 475 | 796 128 | |
Consolidated Interim Statement of Changes in Equity
| For the six months ended | |||
| 30 June 2010 | 30 June 2009 | ||
| Reviewed | Un-reviewed | ||
| Notes | R’000 | R’000 | |
| Share capital | |||
| Balance at the beginning and end of the period | 748 | 748 | |
| Share premium | 162 612 | 986 054 | |
| Balance at the beginning of the period | 986 054 | 986 054 | |
| Distribution dividend | 8 | (823 442) | – |
| Foreign currency translation reserve | – | – | |
| Balance at the beginning of the period | – | (19) | |
| Movement for the period | – | 19 | |
| Investment fair value reserve | 23 755 | 3 234 | |
| Balance at the beginning of the period | 12 137 | – | |
| Net change in fair value of available-for-sale investments | 11 618 | 3 234 | |
| Retained earnings/(Accumulated loss) | 316 518 | (548 596) | |
| Balance at the beginning of the period | (514 787) | (549 530) | |
| Transaction with non-controlling shareholders | 8 | 6 079 | – |
| Profit for the period | 792 203 | 934 | |
| Distribution dividend | 33 023 | – | |
| Non-controlling interest | 9 396 | 242 930 | |
| Balance at the beginning of the period | 250 378 | 232 763 | |
| Transaction with non-controlling shareholders | (168 034) | – | |
| Dividends paid to non-controlling shareholders | (73 576) | – | |
| Profit for the period | 628 | 10 167 | |
| Dividend per share | 9 | 1 101 | – |
Group Condensed Statement of Cash Flows
|
For the six months ended |
||
| 30 June 2010 | 30 June 2009 | |
| Reviewed | Un–reviewed | |
| R’000 | R’000 | |
| Profit before taxation | 793 883 | 16 940 |
| Adjusted for: | ||
| Recoveries not settled in cash | (808 754) | – |
| Other non-cash items | 5 277 | (42) |
| Interest received | (1 320) | (17 489) |
| Dividends received | (12 048) | (9 890) |
| Working capital changes | 38 727 | (2 301) |
| Cash flows from operations | 15 765 | (12 781) |
| Interest received | 478 | 940 |
| Taxation paid | (329) | (5 756) |
| Cash flows from operating activities | 15 914 | (17 597) |
| Cash flows from investing activities | 85 534 | (55 407) |
| Dividends received | 12 048 | 9 890 |
| Proceeds from disposal of recovered assets | 27 344 | – |
| Acquisition of investment in equity securities | – | (5 129) |
| Acquisition of plant and equipment | (288) | – |
| Loan payments received/(advanced) | 46 430 | (60 168) |
| Cash flow from financing activities | – | |
| Dividends paid to non-controlling shareholders | (73 576) | – |
| Translation effect on foreign cash and cash equivalents | – | 19 |
| Net increase/(decrease) in cash and cash equivalents | 27 872 | (72 985) |
| Cash and cash equivalents at the beginning of the period |
294 806 | 275 725 |
| Cash and cash equivalents at the end of the period | 322 678 | 202 740 |
Notes to the Condensed Consolidated Interim Financial Statements for the six months ended 30 June 2010
1. Reporting entity
R&E is a company domiciled and incorporated in the Republic of South Africa. The condensed consolidated interim financial statements of the company for the six months ended 30 June 2010 include the company and its subsidiaries (together referred to as the “group”).
2. Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the group as at and for the year ended 31 December 2009.
These condensed consolidated interim financial statements were approved by the board of directors on 30 July 2010.
3. Significant accounting policies
The accounting policies applied by the group in these condensed consolidated interim financial statements are the same as those applied by the group in its consolidated financial statements as at and for the year ended 31 December 2009, except for the following standards and interpretations adopted on 1 January 2010:
IAS 27 Amendment Consolidated and Separate Financial Statements
15 Amendments Improvements to International Financial Reporting Standards 2009
IFRS 3 Business Combinations
IFRIC 17 Distribution of Non-cash Assets to Owners (IFRIC 17)
There was no significant impact on these condensed consolidated interim financial statements as a result of adopting these standards and interpretations, except for IFRIC 17.
IFRIC 17 addresses the accounting treatment for non-cash distributions made to owners. In terms of IFRIC 17 a liability is recognised at the fair value of the asset to be distributed when the distribution is authorised. The asset to be distributed is reclassified as held for distribution and measured in accordance with IFRS 5. Re-measurement of the liability at fair value of the asset to be distributed will be recognised in equity. When the distribution is made, the liability and the asset will be derecognised. IFRIC 17 has been applied prospectively.
The distribution of the JCI settlement assets, as discussed in note 6 and the unbundling of R&E’s existing holding of 305 million JCI shares, as discussed in note 7, have been accounted for in terms of IFRIC 17.
4. Independent review by the auditor
The condensed consolidated interim financial statements of R&E were reviewed by the group’s auditor, CH Basson of KPMG Inc. The unmodified review report is available for inspection at the company’s registered office.
The comparative financial information presented in these interim financial statements has not been reviewed by the group’s auditor as the group did not publish interim financial statements for the six months ended 30 June 2009. The company obtained dispensation from the Registrar of Companies and the JSE Limited not to lodge interim financial statements for the six months ended 30 June 2009.
5. Segment reporting
The group operates in a single operating segment as an investment holding company with assets in the mining industry.
6. Settlement with JCI Limited and distribution of shares
On 28 May 2010, the shareholders of R&E approved the settlement agreement with JCI as well as the distribution of the shares received as part of the settlement to R&E shareholders. The JCI shareholders also approved the settlement with R&E on 4 June 2010.
The settlement circular, containing full details of the settlement, was distributed to shareholders on 12 May 2010. As a result of the settlement, the JCI group transferred the following assets to the R&E group on 4 July 2010:
– 6 051 632 GFI shares; and
– 1 555 710 220 JCI shares (a fresh issue).
On 5 July 2010 R&E distributed the above shares to its shareholders.
No tax liability is expected to arise from the settlement transaction as all the affected entities within the group have sufficient income tax and capital gains tax losses to absorb the recovery. There are also no tax consequences as a result of the distribution, as it is made partially out of share premium and partially as an unbundling in terms of section 46 of the Income Tax Act.
A recovery and a financial asset were recognised in profit or loss and in the statement of financial position, respectively, on 23 June 2010 (the date on which the last suspensive condition contained in the settlement agreement was met) at fair value of the shares receivable. A corresponding liability to shareholders was raised on the same day with the charge being taken directly to equity (distribution dividend) for the shares to be distributed to the ordinary shareholders of R&E.
At the reporting date, the financial asset was revalued with reference to the value of the underlying securities, with the fair value movement being recognised in profit or loss. The liability to shareholders was revalued on the same criteria with the change in fair value recognised directly in equity (distribution dividend).
| Financial asset – settlement receivable | Number of shares |
Price (ZAR/cents) |
Value (R’000) |
| At 23 June 2010 – settlement date | |||
| Recovery | 783 549 | ||
| GFI | 6 051 632 | 10 250 | 620 293 |
| JCI | 1 555 710 220 | 10,5 | 163 256 |
| Movement to profit or loss (included in ‘Other income’) | 7 867 | ||
| At 30 June 2010 | 791 416 | ||
| GFI | 6 051 632 | 10 380 | 628 160 |
| JCI | 1 555 710 220 | 10,5 | 163 256 |
JCI was suspended from trading on the JSE at a price of R0,16 per share on 1 August 2005. Having regard to the JCI group net asset value (NAV) statement at 31 December 2009, as published on 9 February 2010, adjusted for the settlement and other known variables, i.e. fair value movements in assets and liabilities and based on information available to the directors of R&E, the directors have calculated JCI group’s NAV at R0,15 per share at 30 June 2010. After applying a discount factor of 30% to the calculated NAV per share due to the illiquidity of JCI’s shares and nature of its assets, a fair value of R0,105 was arrived at. The directors of R&E believe that R0,105 represents their best estimate of JCI’s fair value based on currently available information.
7. Investments in equity securities and investments held for distribution
As part of the settlement transaction mentioned above, R&E also unbundled its current holding of 305 million JCI shares (the unbundling shares) on 5 July 2010. These shares were re-valued at R0,105 per share (refer note 6 for basis of valuation) and were re-classified as ‘investments held for distribution’ in accordance with IFRIC 17 at 30 June 2010. The revaluation of the shares resulted in a R15,6 million impairment being recognised in profit or loss. A liability at fair value of this asset to be distributed to shareholders was also recognised in equity (distribution dividend).
There are no tax consequences as a result of the unbundling, as it is in terms of section 46 of the Income Tax Act.
| R’000 | |
| Investment in equity securities – 1 January 2010 | 246 450 |
| Increase in fair value of available-for-sale GFI shares to other comprehensive income | 11 618 |
| Decrease in fair value of JCI shares taken to profit or loss (included in ‘Other operating expenses’) | (15 653) |
| Increase in fair value of GFI shares held for trading taken to profit or loss | 189 |
| Transfer of investment JCI shares to ‘Investments held for distribution’ | (32 026) |
| Investment in equity securities – 30 June 2010 | 210 578 |
The remaining investment in equity securities of R210,6 million represents an investment in GFI of 2 028 684 shares.
8. Excussion of FSD shares from JCI
At 30 December 2009, R&E had a loan receivable from the JCI group of R207,5 million. This loan was secured by a pledge of shares in FSD. On 14 January 2010 (the agreed settlement date), JCI was unable to make a full repayment of the loan. As a result, R&E exercised its security and became the beneficial owner of a further 6 690 610 FSD shares at an agreed value of R161,9 million, increasing its shareholding in FSD by 30,10% to 85,21%.
In terms of R&E’s accounting policies, the acquisition of a non-controlling interest is accounted for as a transaction with equity holders in their capacity as equity holders.
9. Earnings per share and dividend per share
| For the six months ended | ||
| 30 June 2010 | 30 June 2009 | |
| Basic earnings and diluted earnings per ordinary share | Reviewed | Un-reviewed |
| Basic and diluted earnings for the period (R’000) | 792 203 | 934 |
| Weighted average number of ordinary shares in issue |
71 813 128 | 74 313 128 |
| Earnings per share (cents) | 1 103 | 1 |
| Headline and diluted headline earnings per ordinary share | ||
| Headline and diluted headline earnings for the period (R’000) | 805 717 | 934 |
| Weighted average number of ordinary shares in issue |
71 813 128 | 74 313 128 |
| Headline earnings per share (cents) | 1 122 | 1 |
| Reconciliation between basic and headline earnings for the period | R’000 | R’000 |
| Profit for the period attributable to the equity holders of the company | 792 203 | 934 |
| Adjusted for: | ||
| Profit on disposal of available-for-sale investments | (2 139) | – |
| Impairment of investment held for distribution | 15 653 | – |
| 805 717 | 934 | |
| Tax effect of adjustments | – | – |
| Portion attributable to non-controlling interest | – | – |
| Headline earnings for the period attributable to equity holders of the company | 805 717 | 934 |
| Dividend per share | ||
| Total dividend declared | 790 419 | – |
| Eligible shares in issue | 71 813 128 | – |
| 1 101 | – | |
The distribution dividend payable to ordinary shareholders of the company, as approved on 28 May 2010, of R790,4 million comprises of the JCI settlement assets amounting to R791,4 million and the unbundling shares of R32,0 million adjusted for the portion which will be returned to the company by virtue of its 3 million treasury shares.
| Total dividend payable from R&E’s share premium | 823 442 | – |
| Dividend payable to group entities recognised in retained earnings | (33 023) | – |
| Shareholders for dividend per statement of financial position |
790 419 | – |
10. Net asset and tangible net asset value and per share
The net asset value per share is calculated using the following variables:
| 30 June 2010 Reviewed |
31 December 2009 Audited |
|
| Net asset value (R’000) | 503 633 | 484 152 |
| Ordinary shares outstanding | 71 813 128 | 71 813 128 |
| Net asset value per share (cents) | 701 | 674 |
| Net tangible asset value per share (cents) | 701 | 674 |
The number of shares outstanding at 31 December 2009 and 30 June 2010 has been adjusted for the 3 million treasury shares held.
11. Material changes
There have been no material changes to the information contained in the independent mineral asset valuation reports that were disclosed to shareholders in the settlement circular.
12. Related-party transactions
Refer notes 6 and 8 for transactions with JCI, a related party.
13. Events after reporting date
Refer notes 6 and 7 for significant events occurring after 30 June 2010.
Directors:
DC Kovarsky (Chairman)**, M Steyn (CEO)*, V Botha*, MB Madumise**,
JH Scholes**
(* Executive, ** Independent non-executive)
Secretary and Registered office:
RP Pearcey FCIS, 7th Floor Fredman Towers, Fredman Drive, Sandown, 2196
Transfer secretaries:
Computershare Investor Services (Pty) Ltd
(Registration number 2004/003647/07) 70 Marshall Street, Johannesburg 2001
04 August 2010
Sponsor
PSG Capital (Pty) Limited