In the normal course of its operations, the company is exposed to gold price, other commodity price, foreign exchange, interest rate, liquidity, equity price and credit risks. In order to manage these risks, the company may enter into transactions which make use of both on- and off-balance sheet derivatives. The company does not acquire, hold or issue derivatives for speculative purposes. The company has developed a comprehensive risk management process to facilitate, control and monitor these risks. The board has approved and monitors this risk management process, inclusive of documented treasury policies, counterparty limits and controlling and reporting structures.
Risk management activities within the company are the ultimate responsibility of the board of directors. The chief executive officer is responsible to the board of directors for the design, implementation and monitoring of the risk management plan. The Risk and Information Integrity Committee is responsible for overseeing risk management plans and systems, and the Audit and Corporate Governance Committee oversees financial risks which include a review of treasury activities and the company’s counterparties.
The financial risk management objectives of the company are defined as follows:
Gold price risk arises from the risk of an adverse effect on current or future earnings resulting from fluctuations in the price of gold. The gold market is predominately priced in US dollars which exposes the company to the risk that fluctuations in the SA rand/US dollar exchange rate may also have an adverse effect on current or future earnings. The company is also exposed to certain by-product commodity price risk.
During 2010, the company had utilised derivatives as part of its hedging of these risks. In order to provide financial exposure to the rising spot price of gold and the potential for enhanced cash-flow generation the company completed its final tranche of hedge buy-back programme during 2010 and settled all forward gold and foreign exchange contracts that had been used by the company in the past to manage those risks.
| Figures in million | 2011 | 2010 |
|---|---|---|
| SA Rands | ||
| Loss on hedge buy-back costs | – | (7,631) |
| Loss on realised non-hedge derivatives and other commodity contracts | – | (932) |
| Gain on unrealised non-hedge derivatives and other commodity contracts | – | 7,080 |
| Loss on non-hedge derivatives and other commodity contracts per the income statement | – | (1,483) |
The loss on non-hedge derivatives and other commodity contracts was nil (2010: R1,483m). This was as a result of the elimination of the hedge book during 2010.
The company had no outstanding commitments against future production as a result of the elimination of the hedge book during 2010.
Refer note 35 in the group financial statements.
The following are the contractual maturities of financial liabilities, including interest payments.
| (Rm) | Within one year Effective rate % | (Rm) | Between one and two years Effective rate % | (Rm) | Between two and five years Effective rate % | (Rm) | After five years Effective rate % | |
|---|---|---|---|---|---|---|---|---|
| 2011 | ||||||||
| Financial guarantees (1) | 100 | 6,345 | 18,893 | 8,041 | ||||
| Borrowings | 32 | 9.8 | 32 | 9.8 | 113 | 9.8 | 281 | 9.8 |
| Trade and other payables | 4,456 | – | – | – |
| 2010 | ||||||||
| Financial guarantees (1) | 100 | – | 16,567 | 6,570 | ||||
| Borrowings | 745 | 7.3 | 28 | 9.8 | 99 | 9.8 | 314 | 9.8 |
| Trade and other payables | 3,969 | – | – | – |
(1) Not included in the statement of financial position.
Refer note 35 in the group financial statements.
The combined maximum credit risk exposure of the company is as follows:
| Figures in million | 2011 | 2010 |
|---|---|---|
| SA Rands | ||
| Other investments | 14 | 14 |
| Other non-current assets | – | 4 |
| Trade and other receivables | 551 | 413 |
| Cash restricted for use | 9 | 9 |
| Cash and cash equivalents (note 19) | 3,117 | 1,000 |
| Total financial assets | 3,691 | 1,440 |
| Financial guarantees | 33,379 | 23,237 |
| Total | 37,070 | 24,677 |
The company has trade and other receivables that are past due totalling R29m (2010: R58m), an impairment totalling R15m (2010: R44m) and other investments that are impaired totalling R156m (2010: nil). Trade and other receivables arise mainly due to intergroup transactions. The principal receivables continue to be in a sound financial position. No other financial assets are past due but not impaired.
The estimated fair values of financial instruments are determined at discrete points in time based on relevant market information. The estimated fair value of the company’s financial instruments as at 31 December are as follows:
| Figures in million | Carrying amount | Fair value | Carrying amount | Fair value |
|---|---|---|---|---|
| SA Rands | 2011 | 2010 | ||
| Financial assets | ||||
| Other investments (note 13) | 106 | 105 | 44 | 43 |
| Other non-current assets | – | – | 4 | 4 |
| Trade and other receivables | 551 | 551 | 413 | 413 |
| Cash restricted for use | 9 | 9 | 9 | 9 |
| Cash and cash equivalents (note 19) | 3,117 | 3,117 | 1,000 | 1,000 |
| Financial liabilities | ||||
| Borrowings (note 22) | 268 | 268 | 960 | 960 |
| Trade and other payables | 4,456 | 4,456 | 3,969 | 3,969 |
The amounts in the tables above do not necessarily agree with the totals in the notes as only financial assets and liabilities are shown.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash restricted for use, cash and cash equivalents and trade and other payables
The carrying amounts approximate fair value because of the short-term duration of these instruments.
Trade and other receivables
The fair value of the non-current portion of trade and other receivables has been calculated using market interest rates.
Investments and other non-current assets
Listed equity investments classified as available-for-sale are carried at fair value while fixed income investments and other
non-current assets are carried at amortised cost. The fair value of fixed income investments and other non-current assets
has been calculated using market interest rates. The unlisted equity investment is carried at cost. There is no active market
for the unlisted equity investment and fair value cannot be reliably measured.
Borrowings
The interest rate on the borrowings is reset on a short-term floating rate basis, and accordingly the carrying amount is
considered to approximate fair value.
The company uses the following hierarchy for determining and disclosing the fair value of financial instruments:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following table sets out the company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy as at 31 December.
| Figures in million | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|---|---|---|---|
| SA Rands | 2011 | 2010 | ||||||
| Assets measured at fair value | ||||||||
| Available-for-sale financial assets | ||||||||
| Equity securities | 91 | – | – | 91 | 29 | – | – | 29 |
The amounts in the tables above do not necessarily agree with the totals in the notes as only financial assets and liabilities are shown.
Refer note 35 in the group financial statements.
Refer note 35 in the group financial statements.