Accounting policies

for the year ended 28 February 2011

1. Basis of preparation

These annual financial statements have been prepared in conformity with International Financial Reporting Standards (“IFRS”), the AC 500 standards as issued by the Accounting Practices Board, the requirements of the South African Companies Act as amended and the Listings Requirements of the JSE Limited on the historic cost basis except in the case of financial instruments which are measured using the fair value and amortised cost models. The preparation of annual financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts in the annual financial statements. The areas involving a higher degree of judgement or complexity, or areas where assumptions or estimates are significant to the annual financial statements are disclosed under the management estimates heading.

Except for the adoption of the new and revised accounting standards the principal accounting policies of the group are consistent with those applied in the audited consolidated financial statements for the year ended 28 February 2010.

1.1 Standards and Interpretations issued but not yet effective

At the date of authorisation of these financial statements, the following amendment to Standards and Interpretations were in issue but not yet effective.

Standard	Details of amendment		Effective for annual periods beginning on or after

IFRS 1 First-time Adoption of International Financial Reporting Standards	Amendment relieves first-time adopters of IFRSs from providing the additional disclosures introduced through Amendments to IFRS 7 in March 2009.	1 July 2010
	Amendment clarifies that changes in accounting policies in the year of adoption fall outside of the scope of IAS 8.	1 January 2011
	Amendment permits the use of revaluation carried out after the date of transition as a basis for deemed cost.	1 January 2011
	Amendment permits the use of carrying amount under previous GAAP as deemed cost for operations subject to rate regulation.	1 January 2011
	Standard amended to provide guidance for entities emerging from severe hyperinflation and resuming presentation of IFRS compliant financial statements, or presenting IFRS complaint financial statements for the first time.	1 July 2011
	Standard amended to remove the fixed date of 1 January 2004 relating to the retrospective application of the derecognition requirements of IAS 39, and relief for first-time adopters from calculating day 1 gains on transactions that occurred before the date of adoption.	1 July 2011

IFRS 3 Business Combinations	Amendments to transition requirements for contingent consideration from a business combination that occurred before the effective date of the revised IFRS.	1 January 2011
	Clarification on the measurement of non-controlling interests.	1 January 2011
	Additional guidance provided on unreplaced and voluntarily replaced share-based payment awards.	1 January 2011

IFRS 7 Financial Instruments: Disclosures	Amendment clarifies the intended interaction between qualitative and quantitative disclosures of the nature and extent of risks arising from financial instruments and removed some disclosure items which were seen to be superfluous or misleading.	1 January 2011
	Amendments require additional disclosure on transfer transactions of financial assets, including the possible effects of any residual risks that the transferring entity retains. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period.	1 July 2011

IFRS 9 Financial Instruments	New standard that forms the first part of a three-part project to replace IAS 39 Financial Instruments: Recognition and Measurement.	1 January 2013

IAS 1 Presentation of Financial Statements	Clarification of statement of changes in equity.	1 January 2011

IAS 12 Income Taxes	Rebuttable presumption introduced that an investment property will be recovered in its entirety through sale.	1 January 2012

IAS 21 The Effects of Changes in Foreign Exchange Rates	Consequential amendments from changes to IAS 27 Consolidated and Separate Financial Statements (Clarification on the transition rules in respect of the disposal or partial disposal of an interest in a foreign operation).	1 July 2010

IAS 24 Related Party Disclosures	Simplification of the disclosure requirements for government-related entities.	1 January 2011
	Clarification of the definition of a related party.	1 January 2011

IAS 27 Consolidated and Separate Financial Statements	Transition requirements for amendments arising as a result of IAS 27 Consolidated and Separate Financial Statements.	1 July 2010

IAS 28 Investments in Associates	Consequential amendments from changes to IAS 27 Consolidated and Separate Financial Statements (Clarification on the transition rules in respect of the disposal or partial disposal of an interest in a foreign operation).	1 July 2010

IAS 31 Interests in Joint Ventures	Consequential amendments from changes to IAS 27 Consolidated and Separate Financial Statements (Clarification on the transition rules in respect of the disposal or partial disposal of an interest in a foreign operation).	1 July 2010

IAS 34 Interim Financial Reporting	Clarification of disclosure requirements around significant events and transactions including financial instruments.	1 January 2011

IFRIC 13 Customer Loyalty Programmes	Clarification on the intended meaning of the term “fair value” in respect of award credits.	1 January 2011

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments		1 April 2010

The directors have not yet determined which are applicable to the company and what the impact of these Standards and Interpretations on the company will be.

1.2 Standards and Interpretations adopted with no effect on financial statements

The following new and revised Standards and Interpretations have been adopted in these financial statements. Their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements.

Standard	Details of amendment		Effective for annual periods beginning on or after

IFRS 3 Business Combinations	Amendments to accounting for business combinations.	1 July 2009

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations	Plan to sell the controlling interest in a subsidiary. Disclosures of non-current assets (or disposal groups) classified as held for sale or discontinued operations.	1 July 2009 1 January 2010
	Amendments resulting from IFRIC 17 for assets held for distribution to owners.	1 July 2009

IFRS 8 Operating Segments	Disclosure of information about segment assets.	1 January 2010

IAS 1 Presentation of Financial Statements	Current/non-current classification of convertible instruments.	1 January 2010

IAS 7 Statement of Cash Flows	Classification of expenditures on unrecognised assets.	1 January 2010

IAS 10 Events after the Reporting Period	Amendment resulting from the issue of IFRIC 17.	1 July 2009

IAS 17 Leases	Classification of leases of land and buildings.	1 January 2010

IAS 21 The Effects of Changes in Foreign Exchange Rates	Consequential amendments from changes to Business Combinations.	1 July 2009

IAS 27 Consolidated and Separate Financial Statements	Consequential amendments from changes to Business Combinations.	1 July 2009

IAS 32 Financial Instruments: Presentation	Consequential amendments from changes to Business Combinations Accounting for rights issues (including rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer.	1 July 2009

IAS 36 Impairment of Assets	Unit of accounting for goodwill impairment test.	1 January 2010

IAS 38 Intangible Assets	Measuring the fair value of an intangible asset acquired in a business combination.	1 July 2009
	Additional consequential amendments arising from revised IFRS 3.	1 July 2009

IAS 39 Financial Instruments: Recognition and Measurement	Clarifies two hedge accounting issues: – Inflation in a financial hedged item
	– A one-sided risk in a hedged item.	1 July 2009
	Treating loan prepayment penalties as closely related embedded derivatives.	1 January 2010
	Scope exemption for business combinations.	1 January 2010
	Cash flow hedge accounting.	1 January 2010
	Amendments for embedded derivatives when reclassifying financial instruments.	1 July 2009

IFRIC 9 (amended) Reassessment of Embedded Derivatives	Scope of IFRIC 9 and revised IFRS 3.	1 July 2009

1.3 Basis of consolidation

Goodwill

All business combinations are accounted for by applying the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred, liabilities incurred by the group and the equity interests issued by the group in exchange for the control of the acquiree. Goodwill represents amounts arising on the acquisition of businesses. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets, liabilities and contingent liabilities acquired.

Goodwill is measured at cost less accumulated impairment losses. For impairment testing purposes, goodwill is allocated to cash-generating units expected to benefit from synergies of the combination and is tested at least annually for impairment. Negative goodwill arising on an acquisition is recognised directly in the statement of comprehensive income.

Investments in subsidiary companies

In the company’s financial statements the investments in subsidiary companies are carried at cost less any accumulated impairment losses. The results of subsidiaries are consolidated from the effective date of control up to the date control ceases in the consolidated financial statements of the group.

Intra-group transactions and balances

Consolidation principles relating to the elimination of intra-company transactions and balances and adjustments for unrealised intra-company profits, are applied in all intra-group transactions.

Transactions and outside shareholders’ interests

The group applies a policy of treating transactions with minority interest as transactions with parties external to the group. Disposals to minority interests results in gains or losses for the group and are recorded in the statement of comprehensive income. For purchases from minority interests, the cost of the business combination is the aggregate of the consideration transferred and the amount of any non-controlling interest in the acquiree measured in accordance with IFRS 3.

1.4 Impairment of assets

The carrying amounts of the company’s assets are reviewed at financial year-end to determine whether there is any indication of impairment. If there is an indication that an asset may be impaired, its recoverable amount is estimated. For goodwill, intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at least annually.

The recoverable amount is the higher of an asset’s fair market value less cost to sell and its value in use. In assessing value in use, the expected future cash flows from the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised in the statement of comprehensive income whenever the carrying amount of an asset exceeds its recoverable amount.

For an asset that does not generate cash inflows that are largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised in the statement of comprehensive income whenever the carrying amount of the cash-generating unit exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating units and then to reduce the carrying amount of other assets in the unit on a pro rata basis.

Where an impairment loss on tangible and intangible assets (other than goodwill) subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the statement of comprehensive income. An impairment loss recognised for goodwill is not reversed in a subsequent period.

1.5 Property, plant and equipment

Items of plant and equipment are recorded at historic cost less accumulated depreciation and amortisation. They are depreciated over the estimated useful lives of the assets, on a hourly basis, as follows:

Articulated dump trucks, graders, dozers, rollers, front-end loaders and drilling machines	12 000 hours
Excavators	15 000 hours
Rigid dump trucks	18 000 hours
Diesel and water bowsers, tipper and service trucks	30 000 hours

Other items are recorded at historic cost less accumulated depreciation and amortisation. They are depreciated over the estimated useful lives of the assets, on a straight-line basis, as follows:

Other plant and equipment	5 – 20 years
Other equipment	3 years
Motor vehicles	4 – 5 years
Leasehold improvements	Over the term of the lease
Land	No depreciation is provided

Computer and office equipment
Computer equipment and software	2 – 4 years
Office equipment	10 years
Furniture and equipment	6 – 10 years

The carrying value of assets is reviewed at each reporting date to assess whether there is an indication of impairment. If any indication exists, the recoverable amount of the asset is estimated. Where the carrying amount is greater than its estimated recoverable amount, the asset is written down to its estimated recoverable amount and an impairment loss is recognised in the statement of comprehensive income.

The useful lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In reassessing assets’ lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values.

Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with the carrying value and are included in operating profit.

Repairs and maintenance are charged to the statement of comprehensive income during the financial year in which they are incurred. The cost of major refurbishments is included in the carrying amount of the asset when it is probable that future economic benefits will flow to the company. Major refurbishments are depreciated over their remaining useful lives.

1.6 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in the statement of comprehensive income in the period in which they are incurred.

1.7 Intangible assets

Intangible assets are stated at cost less accumulated amortisation and impairment losses. Intangible assets include mining rights, marketing-related intangibles and customer-related intangibles.

Marketing-related intangibles include trademarks, trade names, service marks. Customer-related intangibles include customer lists, order or production backlog, customer contracts and the related customer relationships and non-contractual customer relationships.

Intangible assets with finite lives are amortised over their estimated useful economic lives, and tested for impairment where there is a triggering event. The directors’ assessment of the useful life of intangible assets is based on the nature of the asset acquired, the durability of the products to which the asset attaches and the expected future impact of competition on the business. The intangible assets are amortised over the following periods:

Mining rights	15 – 22 years
Marketing-related intangibles	7 – 10 years
Customer-related intangibles	5 – 8 years

1.8 Leases

Leases are classified as finance leases where substantially all the risks and rewards associated with ownership of an asset are transferred from the lessor to the company as lessee.

Assets subject to finance leases are recognised at the commencement of the lease term at the amount equal to their fair value or, if lower, the present value of the minimum lease payments determined at inception of the lease, using a discount rate implicit in the lease. The related lease obligation is recognised at the same value. Capitalised leased assets are depreciated to their estimated residual values over their estimated useful lives. Finance lease payments are allocated, using the effective interest rate method, between lease finance costs, which is included in financing costs, and the capital repayment, which reduced the liability to the lessor.

Operating leases where the lessor retains significant risks and rewards of ownership of the underlying asset are classified as operating leases. Payments made under operating leases are charged against income. Rentals payable under operating leases are charged to the statement of comprehensive income on a straight-line basis over the term of the relevant lease.

1.9 Inventories

Inventories are valued at the lower of cost or net realisable value using the first-in-first-out (FIFO) basis, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress costs includes an appropriate share of production overheads.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Inventories include contract work in progress which include direct labour, other costs and fixed production overheads incurred for services rendered but not invoiced at year-end.

Where necessary, specific provision is made for obsolete, redundant and slow-moving inventories based on the age of merchandise.

1.10 Foreign currency transactions

Transactions in foreign currencies are converted to South African Rand at the rate of exchange ruling at the date of the transaction. Assets and liabilities in foreign currencies are stated in South African Rand using rates of exchange ruling at the financial year-end. Resulting surpluses and deficits are included in interest expense and are separately identified.

1.11 Taxation

Current taxation comprises taxation payable calculated on the basis of the expected taxable income for the year, using the taxation rates and laws enacted and substantively enacted at the reporting date, and any adjustment of taxation payable for previous years.

Current and deferred tax are recognised in the statement of comprehensive income, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where the current or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

1.12 Deferred taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the taxation bases of assets and liabilities and their carrying amounts for financial reporting purposes. Current enacted or substantively enacted taxation laws and rates are used to calculate deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is not probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit or loss nor the accounting profit or loss.

1.13 Provisions

Provisions are recognised when the company has a legal or constructive obligation as a result of a past event, for which it is probable that an outflow of economic benefit will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the present value of future expenditure expected to settle the current obligation using a discount rate that reflects the current assessment of the risks and uncertainties surrounding the obligation.

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the group has a contract where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

1.14 Revenue

Revenue is stated at invoice value of finished goods, excluding value added tax. Revenue from sale of goods is recognised when the significant risks and rewards of ownership are transferred to the buyer, costs can be measured reliably and receipt of the future benefits is probable.

Service revenue is recognised when the service is completed in terms of the substance of the various customer agreements.

Other income earned by the group is recognised on the following basis:

• Interest income is recognised as it accrues on the effective interest method unless collectability is in doubt.

• Rental income from operating leases in respect of property is recognised in the statement of comprehensive income on a straight-line basis – including escalations – over the term of the lease.

Revenue is recognised net of VAT, returns, rebates and discounts.

1.15 Employee benefits

Short-term employee benefits

The cost of all short-term employee benefits is recognised during the period in which the employee renders the related service. The provisions for employees’ entitlements to wages, salaries, annual and sick leave represent the amount which the company has a present obligation to pay as a result of the employees’ services provided to the reporting date.

Retirement benefits

The company provides retirement benefits for employees by payments to independent defined contribution funds and contributions are charged against income as incurred. The company has no liability towards any pension or provident fund, apart from normal recurring monthly contributions deducted from employees to be paid to relevant funds.

1.16 Government grants

Government grants are not recognised until there is reasonable assurance that the group will comply with the conditions attaching to them and that the grants will be received.

Government grants whose primary condition is that the group should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the statement of financial position and transferred to the statement of comprehensive income on a systematic and rational basis over the useful lives of the related assets.

Other government grants are recognised as revenue over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the group with no future related costs are recognised in the statement of comprehensive income in the period in which they become receivable.

1.17 Financial instruments

Initial recognition and measurement

All financial instruments are recognised in the statement of financial position. Financial instruments are initially recognised when the company becomes party to the contractual terms of the instruments and are measured at cost, which is the fair value of the consideration given (financial asset) or received (financial liability or equity instrument). Financial liabilities and equity instruments are classified according to the substance of the contractual arrangement on initial recognition. Transaction costs are included in the initial measurement of the financial instrument other than for financial instruments recognised at fair value through the profit or loss. Subsequent to initial recognition these instruments are measured as set out below.

Financial assets

Trade and other receivables
Trade and other receivables are stated at amortised cost using the effective interest rate method less provision for impairment. The allowance for impairment is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. Bad debts are written off during the year in which they are identified.

Amounts owing by subsidiaries
Amounts owing by subsidiaries are stated at amortised cost using the effective interest rate method.

Cash and cash equivalents
Cash and cash equivalents are measured at their fair value. For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held on call, and investments in money market instruments, net of bank overdrafts, all of which are available for use by the company unless otherwise stated.

The carrying amount of financial assets are reduced by impairment losses directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the statement of comprehensive income.

Financial liabilities

The company’s principal financial liabilities are borrowings, trade and other payables and bank overdrafts.

Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective interest method. Any difference between the proceeds and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings.

Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

Trade and other payables
Trade payables are measured initially at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Derivative instruments
Hedge accounting is applied to derivatives designated as cash flow hedges provided certain criteria are met. At the inception of a hedging transaction, the relationship between the hedging instrument and the hedged items, the group’s management objective and its strategy for undertaking the hedge, is documented. A documented assessment, both at the inception of the hedge and on an ongoing basis, of whether the hedging instruments that are used in hedging transactions are highly effective in offsetting the changes attributable to the hedged risks in the cash flows of the hedged items, is also prepared.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised as other comprehensive income until the hedging instrument expires or is sold, or when the hedge no longer meets the criteria for hedge accounting.

Derecognition

Financial assets (or a portion thereof) are derecognised when the company realises the rights to the benefits specified in the contract, the rights expire or the company surrenders or otherwise loses control of the contractual rights that comprise the financial asset. In derecognition, the difference between the carrying amount of the financial asset and proceeds receivable and any prior adjustment to reflect fair value that have been reported as other comprehensive income are included in profit or loss.

Financial liabilities (or a portion thereof) are derecognised when the obligation specified in the contract is discharged, cancelled or expires. On derecognition, the difference between the carrying amount of the financial liability, including related unamortised costs, and amount paid for it are included in the statement of comprehensive income.

Fair value methods and assumptions

The fair value of financial instruments not traded in an organised financial market, is determined using a variety of methods and assumptions that are based on market conditions and risk existing at reporting date, including independent appraisals and discounted cash flow methods. The fair value determined is adjusted for any transaction costs necessary to realise the assets or settle the liabilities.

The carrying amounts of financial assets and liabilities with a maturity of less than one year are assumed to approximate their nominal amounts as the effects of the time value of money are considered to be immaterial.

Set-off

Where a legally enforceable right to set-off exists for recognised financial assets and financial liabilities, and there is an intention to settle the liability and realise the asset simultaneously, or to settle on a net basis, all related financial effects are set-off in the financial statements.

1.18 Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current assets (or disposal group) is available for immediate sale in its present condition.

When the group is committed to a sale plan involving loss of control of a subsidiary, all the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the group will retain a non-controlling interest in its former subsidiary after the sale.

Non-current assets and disposal groups classified as held for sale are measured at the lower of their previous carrying amounts and fair value
less cost to sell.

1.19 Discontinued operations

A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and represents a separate major line of business or geographical area of operation and is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations. The financial results of an operation classified as discontinued is disclosed separately for all periods presented in the statement of comprehensive income.

1.20 Management estimates
Certain accounting policies have been identified as involving particularly complex or subjective judgements or assessments, as follows:

Assets’ lives and residual values
Property, plant and equipment are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In reassessing assets lives, factors such as usage, technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values.

Impairment of assets
Goodwill is tested for impairment at least annually. Property, plant and equipment and intangible assets are also considered for impairment if there is any reason to believe that impairment may be necessary. Factors taken into consideration include the economic viability of the asset itself and where it is a component of a larger cash-generating unit, the viability of the unit. Future cash flows expected to be generated by the assets are projected, taking into account market conditions and the expected useful lives of the assets. The present value of these cash flows determined using an appropriate discount rate, is compared to the current asset value and, if lower, the assets are impaired to the present value.

Trade and other receivables
The company assesses its trade and other receivables for impairment at each reporting date. In determining whether impairment should be recognised in the statement of comprehensive income, the company makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from each receivable.

Stock impairments
Impairment of stock is calculated on a line by line basis with reference to average consumption to identify slow moving, defective or obsolete items.

Deferred tax asset
The group recognises the future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the company to make significant estimates related to expectations of future taxable income.

Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the company to realise the net deferred tax assets recorded at the reporting date could be impacted.

Provision for onerous contract
An opencast mining contract in Diesel Power Open Cast Mining (Pty) Limited, a subsidiary in the mining services business unit, has become unprofitable largely as a result of unforeseen conditions adversely affecting the company’s ability to perform in terms of the contract. Since the outcome of ongoing initiatives and planned remedies to return the contract to profitability, remained uncertain at the date of this report, management has considered it prudent to raise a provision against this onerous contract for estimated future losses.

Provision for ground rehabilitation
The group’s mining activities are subject to various laws and regulations governing the protection of the environment. Management estimates the company’s expected expenditure for the rehabilitation, management and remediation of environmental impacts on closure at the end of the lives of the mines. The estimation of future costs on environmental obligations relating to decommissioning and rehabilitation is particularly complex and requires management to make estimates, assumptions and judgements. These estimates are dependent on a number of factors including assumptions around current environmental legislation, life of mine estimates and discount rates.