financial statements and notes - mintek

Mintek annual report 2005 F

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Financial statements and notesFOR THE YEAR ENDED 31 MARCH 2005

Contents

Report of the Auditor-General......................................................... 35

Balance sheets................................................................................40

Statements of changes in equity..................................................... 41

Income Statements......................................................................... 42

Cash Flow Statements.................................................................... 43

Notes to the Annual Financial Statements...................................... 4434

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Report of the Auditor-General

Report of the Auditor-General to Parliament on the group financial statements of the Council for

Mineral Technology (MINTEK) for the year ended 31 March 2005.

1. AUDIT ASSIGNMENT

The group financial statements as set out on pages 40 to 59, for the year ended 31 March 2005, have been audited in terms of section 188 of the

Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996), read with sections 4 and 20 of the Public Audit Act, 2004 (Act No. 25 of

2004) and section 12(2) of the Mineral Technology Act, 1989 (Act No. 30 of 1989). These financial statements, the maintenance of effective control

measures and compliance with relevant laws and regulations are the responsibility of the accounting officer. My responsibility is to express an

opinion on these financial statements, based on the audit.

2. NATURE AND SCOPE

The audit was conducted in accordance with Statements of South African Auditing Standards. Those standards require that I plan and perform the

audit to obtain reasonable assurance that the financial statements are free of material misstatement.

An audit includes:

• examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,

• assessing the accounting principles used and significant estimates made by management, and

• evaluating the overall financial statement presentation.

Furthermore, an audit includes an examination, on a test basis, of evidence supporting compliance in all material respects with the relevant laws

and regulations which came to my attention and are applicable to financial matters.

The audit was completed in accordance with Auditor-General Directive No. 1 of 2005.

I believe that the audit provides a reasonable basis for my opinion.

3. QUALIFICATION

3.1 Revenue and deferred income

Contrary to paragraphs 14(e) and 20(d) of AC 111, Revenue, issued in terms of South African Statements of Generally Accepted Accounting

Practice (SA GAAP), Mintek did not correctly determine the total cost to be incurred in respect of projects undertaken prior to recognising the

revenue from the projects. Various projects were found where revenue was recognised in advance, instead of matching it to the costs incurred.

Consequently, revenue and deferred income disclosed in the annual financial statements was misstated.

3.2 Warranty provision

Contrary to AC130, Mintek did not provide for warranty claims on certain products sold during the 2004-05 financial year. I could not determine the

value of possible claims as a result of incomplete management information.

3.3 Accounts receivable and accounts payable

Accounts receivable and accounts payable were understated by R 4 383 892 due to the incorrect classification of debtors with credit balances.

3.4 Interest on outstanding debtors

During the 2004-05 financial year Mintek reversed interest charges on long outstanding debtors. Documentation authorising this reversal could not

be furnished for audit purposes. Consequently, I was unable to verify the validity of the interest written back of R2 903 920.

Furthermore, revenue received from debtors was not measured at the fair value of the consideration received or receivable. When the inflow of

cash or cash equivalents was deferred, the fair value of the consideration was not determined by discounting all future receipts using an imputed

rate of interest, as required by AC 111, issued in terms of SA GAAP. The extent of this error could not be quantified.

3.5 Value Added Tax

Included on VAT201 returns submitted to the South African Revenue Services (SARS) were export sales amounting to R45 121 844. Contrary to

the requirements of section 11(3), read with VAT Practice Note 2 of the Value Added Tax Act, 1991 (Act No. 89 of 1991), Mintek could not submit

the required documentary proof for goods exported to foreign countries.

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Value Added Tax and possible penalties and interest, could be levied by SARS if the required documentation to substantiate the exports are not

submitted. These expenses would be fruitless and wasteful.

3.6 Post employment benefits

The post retirement medical aid liability of R52 231 647 disclosed in note 17 of the annual financial statements was overstated by R3 331 647,

based on an actuarial valuation of R48 900 000 at 31 March 2005. Furthermore, the disclosure requirements set out in paragraph 120(f) of AC116,

were not complied with in the following instances:

(a) Actuarial gains were not calculated or disclosed;

(b) Interest raised on the liability was incorrectly calculated and not disclosed as interest expenses;

(c) The corridor, as disclosed in the accounting policy of Mintek was not used to determine actuarial gains and losses;

(d) The amount of R4 191 876 charged to the income statement did not agree with benefit payments made less contributions paid; and

(e) The movement in the prior year liability was not disclosed.

Also, although investments to the amount of R100 000 000 were held at year-end, they had not been ring - fenced to cover the post retirement

medical liability. Consequently, interest earned on such investments was not allocated to cover the interest accruals on the liability.

I could not re - perform the calculation required by AC116 due to inadequate information available in respect of payments to retired and current

employees from the 2002 to the 2005 financial year as well as the number of people that were entitled to these benefits from the 2002 to the 2005

financial year.

3.7 Cash and bank

Included in the bank confirmation was account number 4058904484 to the amount of R107 602. Appropriate information could not be obtained to

substantiate the exclusion of this account from the annual financial statements, and therefore the bank balance was understated by R107 602.

3.8 Contingent liabilities

Mintek raised a contingent liability for a guarantee in respect of a loan to an associate that was liquidated during the 2004-05 financial year as

disclosed in note 20 to the annual financial statements. The contingent liability to the amount of R1 193 043 therefore should have been raised as a

liability. This resulted in an understatement of current liabilities.

Furthermore, contingent liabilities arising from legal action against Mintek to the amount of R861 940 were not disclosed as required by AC130 in

note 20 to the annual financial statements.

3.9 Deferred income

Supporting documentation to substantiate the difference of R458 973 between deferred income per the trial balance (R14 734 887) and the

deferred income balance disclosed in the financial statements (R15 193 861) could not be provided by management.

3.10 Inventory

Supporting schedules could not be submitted for the amount of R1 510 690 written off in the prior year in respect of obsolete inventory. I could

consequently not verify the accuracy or validity of the impairment made.

Furthermore, inventory of R664 239 was found to be impaired in the 2004-05 financial year. Mintek did not adjust the value of the closing inventory

as required by AC108. Inventory was consequently overstated by R664 239.

3.11 Accounts payable

Accounts payable as at 31 March 2005 was overstated by R449 015 as a result of not updating creditors reconciliations with manual payments

made.

3.12 Investment property

The requirements of AC135 (Investment property) were not met with respect to the following disclosures:

(a) The fair value of the property was not disclosed as per the requirements of AC 135, paragraph 70(e);

(b) Expenses incurred to generate the rental income were not disclosed in accordance with AC 135, paragraph 67(d);

(c) A reconciliation was not disclosed as per the requirements of AC 135, paragraph 70(d); and

(d) Investment properties were not transferred from the property classification at the carrying amount of the property.

3.13 Cession not disclosed

A cession to the value of R5 000 000 in favour of the bank was not disclosed in the annual financial statements.

3.14 Movement on debtors account

Debtor accounts totalling R305 922 did not show any movement from the 2003-04 to the 2004-05 financial year. Mintek did not consider the

possible impairment of these debtors. Consequently accounts receivable may have been overstated by R305 922.

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3.15 Expenses

A correction to the amount of R350 877 dating back to 2002 was made to the current year expenditure and not to retained earnings.

3.16 Cash flow statement

An adjustment of R6 442 779 was made and disclosed in note 24 to the annual financial statements. This adjustment resulted from movements in

certain balance sheet accounts that were not included in the calculation of profit from operations.

Also, supporting documentation to substantiate re-statements in the opening balances of the cash flow statement could not be obtained.

3.17 Outstanding information

The following information could not be obtained for audit purposes:

(a) Supporting documentation to substantiate repairs and maintenance expenditure to the amount of R144 989;

(b) Two supplier statements for April 2005 were outstanding;

(c) Subsistence and travel advances to the amount of R136 555;

(d) Supporting documentation could not be presented for journal 0897/04 that allocated R92 739 to consumable expenditure (Account

485000);

(e) Supporting documentation to substantiate general expenditure to the amount of R528 630;

(f) Supporting documentation to substantiate journal entries in respect of expense transaction to the amount of R1 129 141; and

(g) Supporting documentation to substantiate capital commitments to the amount of R216 346.

4. DISCLAIMER OF AUDIT OPINION

Because of the significance of the matters referred to in paragraph 3, I do not express an opinion on the group financial statements.

5. EMPHASIS OF MATTER

Without further qualifying the audit opinion expressed above, attention is drawn to the following matters:

5.1 Property, plant & equipment

Mintek did not perform an annual impairment review of fixed assets as required by section 10 of AC128. I could therefore not determine the impact

of possible impairments of the carrying value of property, plant and equipment.

5.2 Foreign exchange losses - fruitless and wasteful expenditure

Mintek was exposed to foreign exchange risk, which resulted in foreign exchange losses of R1 493 530. The losses were regarded as fruitless and

wasteful expenditure as defined in the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), but was not disclosed in annual financial

statements as required by the PFMA.

5.3 Rental received in advance

Mintek received R2 407 707 in advance in terms of a 15 year lease agreement (escalating at 7 per cent per annum). In terms of AC105, income

received in terms of operating leases must be allocated on a straight line basis to the income statement over the period of the agreement. Mintek

escalated the rental receipts at 7 per cent per annum.

The effect of this error on the financial statement was an understatement of the rental expense in the current year of R84 871.74 and an

understatement of the retained surplus of R237 018 at 31 March 2004. Also, the total liability at 31 March 2005 was overstated by R323 594.

5.4 Personnel expenditure

Personnel expenditure of R620 425 processed on the SAP payroll could not be traced to the general ledger. Management did not perform monthly

reconciliations on payroll data and could not explain this difference.

5.5 VAT

In addition to the matters raised in paragraph 3.5, Mintek did not comply with the Value Added Tax Act, 1991 (Act No. 89 of 1991) in the following

instances:

(a) Value Added Tax was not claimed on document number 1900047497. The input VAT claim should have been R80 881;

(b) Value Added Tax was incorrectly claimed on an invoice to the amount of R22 506 for catering, raised with journal number 0459/04; and

(c) Mintek did not declare output Value Added Tax on conference facilities rendered during the 2004-05 financial year. Value Added Tax due

to the South African Revenue Services was understated by approximately R90 788 based on the total revenue from conference facilities

amounting to approximately R648 482.

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5.6 Investments in associatesTollsort (Pty) Ltd ceased operations on 30 September 2004 but was kept running to service a loan. After redemption of the loan, it will be deregistered. This was in contravention of section 73 of the Companies Act, 1973 (Act No. 61 of 1973).

5.7 Weaknesses in internal control

The following significant weaknesses in internal control were identified during the course of the audit:(a) Reconciliations were not performed on suspense accounts balances of R13 518 445. Therefore duplicate entries passed against these

accounts were not detected timeously. Mintek subsequently corrected these errors; (b) Debtor credit limits were not monitored appropriately;(c) SAP consultants processed transactions in the live production system; (d) Reconciliations were not done between the PAYE deducted from the employees on the payroll and the general ledger;(e) The reconciliation between the leave accrual balance on the payroll report and leave accrual balance as per the general ledger was not

performed; (f) Weaknesses were observed in the staff incentive bonus scheme policy; (g) The human resources committee recommended an amount of R4 million for performance bonuses. This amount was not consistent with

the approved policy. Furthermore, the performance bonuses paid were based on unaudited financial results; and(h) Mintek did not implement a fraud policy as well as procedures and policies to deal with financial misconduct.

5.8 Lack of a service level agreement

A service level agreement was not drawn up between Mintek and Mindev Proprietary Limited during the 2004-05 financial year.

5.9 Lack of a job description for former Chief Financial Officer

Contrary to the requirements of Treasury Regulation 27 a formal job description and performance contract were not drawn-up between the former Chief Financial Officer and Mintek for the 2004-05 financial year.

5.10 Sustainable development

The quality environment and safety division of Mintek identified the following findings during two consecutive audits (i.e. audits performed in 2004 and 2005):(a) Hydro Metallurgy Division (HMD) procedures were not reviewed on an annual basis;(b) Calibration of HMD equipment listed was overdue; and(c) Several damaged bags containing samples were observed at the West yard storage area causing spillage onto the ground thus allowing

the possibility of leaching.

5.11 Payments made on photocopy invoices

Payments to the amount of R457 000 were made on photocopies of invoices.

5.12 Materiality and significance framework

The materiality and significance framework was not included in the strategic plan of Mintek. The percentages used to calculate the materiality figure could also not be substantiated by management.

5.13 Financial statement errors

A significant number of financial errors were identified during the course of the audit. Although the errors were corrected, the number of errors found in respect of the financial statements was of concern.

5.14 Compliance with laws and regulations

5.14.1 Lack of a formal tendering process

According to the procurement policy, a tendering process must be followed for purchases exceeding R300 000. No procedures were documented in respect of awarding contracts.

5.14.2 Property, plant & equipment

Contrary to section 51 (c) of the PFMA, management did not exercise sufficient internal controls to adequately safeguard fixed assets. The asset controller position was vacant from 31 May 2004 to 30 April 2005. During this period Mintek did not implement adequate internal controls in respect of assets.

5.14.3 Evaluation of the audit committee

Contrary to the requirements of the King Report on Corporate Governance, the board of directors did not formally evaluate the performance of the audit committee.

5.14.4 Corporate plan

Contrary to section 29 of the PFMA, the corporate plan of Mintek did not include and address the following:• Asset and liability management, and

• Cash flow projections.

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5.14.5 Tender advertisements and declaration of interest

Audit identified two tender advertisements that did not run for 30 days before closure of the tender as required by section 6.3 of the Supply Chain

Management Framework.

A declaration of interest by the tender committee members could not be obtained in respect of the above-mentioned tenders.

5.14.6 Losses made on projects

Contrary to the pricing policy of Mintek, losses of approximately R1 007 218 were noted on certain projects. I could not determine the total value of

losses incurred.

5.15 Information system audit

A number of weaknesses still existed in the IT general control environment. The most significant control weaknesses identified, were the following:

(a) Back-ups were not tested for recovery on a periodic basis. This resulted in the SAP system not being available for a long period of time;

(b) Several control weaknesses were noted with regard to the disaster recovery process;

(c) User account management was not adequately controlled; and

(d) Several security control weaknesses were noted on the operating system.

Weaknesses pertaining to disaster recovery planning, back-up and recovery, logical access security and user account management raised

concerns regarding the integrity of the data.

5.16 Financial management capacity

As is evident from this report, significant problems were identified by audit in the accounting, control, IT and governance environment of Mintek.

These problems were attributable to poor or inadequate accounting skills, a weak or inconsistent control environment and inadequate review and

supervision. These problems impacted on the effectiveness of the organisation to operate and lead to additional costs being incurred to address

the problems.

5.17 SAP systems failure

During February 2005, Mintek suffered from a system failure from which it only recovered during May 2005. This failure highlighted the inadequacy

of back-up and recovery procedures. As a result of the system failure, a breakdown of the normal system controls took place for an extended

period, which was not adequately compensated for by manual controls.

5.18 Financial sustainability figures not confirmed

The financial and other figures or percentages in the report on performance against key performance indicators were in some cases misstated and

could not be confirmed with either the trial balance or supporting evidence.

5.19 Submission of annual financial statements

Section 40(1)(c) of the PFMA prescribes the accounting officers’ reporting responsibilities and require that the annual financial statements should

be submitted within two months after the end of the financial year, which should have been 31 May 2005.

The annual financial statements of Mintek were submitted on 22 July 2005. Due to significant findings the statements were rectified and a final set

was re-signed on 22 November 2005 and presented for audit.

5.20 Late completion of audit

Section 40(1)(c) of the PFMA prescribes the accounting officers’ reporting responsibilities whilst section 40(2) requires that the Auditor-General

must audit the financial statements and submit an audit report on those statements to the accounting officer within two months of receipt of the

statements.

The audit was only completed on 13 January 2006 due to the following:

(a) Re-submission of the annual financial statements on 22 November 2005 as a result of numerous audit queries and adjustments; and

(b) Late completion of audits of subsidiary companies on 14 November 2005.

6. APPRECIATION

The assistance rendered by the staff of Mintek during the audit is sincerely appreciated.

I Vanker for Auditor-General Johannesburg

13 January 2006

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GROUP MINTEK

Notes 2004 – 2005

R2003 – 2004

R2004 – 2005

R2003 – 2004

R

ASSETS

Non-current assets

Land 6 4,927,776 4,927,776 4,927,776 4,927,776

Buildings 6 6,832,124 7,157,463 6,832,124 7,157,463

Property, plant and equipment 6 36,886,830 36,066,810 36,886,830 36,066,810

Investment property 7 4,937,219 5,081,030 4,937,219 5,081,030

Investment in associates 8 28,029,827 18,300,100 — —

Cost of investment shares 9 — — 100 100

Long-term staff debtors 12 1,273,453 2,436,346 1,273,453 2,436,346

Current assets 159,831,330 126,149,380 170,848,737 133,671,791

Inventories 11 2,090,871 4,399,118 2,090,871 4,399,118

Loans advanced to subsidiary 9 — — 11,017,411 7,522,412

Trade and other receivables 13 37,447,581 37,255,757 37,447,578 37,255,756

Short-term investments 10 100,000,000 80,000,000 100,000,000 80,000,000

Cash and cash equivalents 20,292,877 4,494,505 20,292,877 4,494,505

Total assets 242,718,558 200,118,905 225,706,239 189,341,316

FUNDS AND LIABILITIES

Funds: 138,551,508 122,524,086 120,312,189 111,759,528

Retained Earnings 138,551,508 122,524,086 120,312,189 111,759,528

Long-term liabilities

Non-current liabilities

Post-retirement liability 17 52,231,648 49,300,000 52,231,648 49,300,000

Rentals in advance – Billiton 18 1,768,218 1,843,861 1,768,218 1,843,861

Current liabilities 50,167,184 26,450,957 51,394,184 26,437,927

Trade and other payables 14 16,954,759 9,967,527 18,181,759 9,954,497

Deferred income 15 15,193,861 7,126,456 15,193,861 7,126,456

Provisions 16 18,018,564 9,356,974 18,018,564 9,356,974

Total funds and liabilities 242,718,558 200,118,905 225,706,239 189,341,316

P P JOURDAN V. GOVENDERCEO, MINTEK General Manager Corporate Services

Randburg15 November 2005

Financial statements and notesBALANCE SHEETS AT 31 MARCH 2005

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General Fund

Contract Research

Reserve Fund

Equipment Replacement

Fund

Technology Transfer

Fund

Postretirement

Benefit Fund RetainedEarnings Total

GROUP

Balance as at 31 March 2003 46,753,333 5,300,000 33,840,558 15,400,000 51,855,540 — 153,149,431

Transfer of funds to retained earnings (46,753,333) (5,300,000) (33,840,558) (15,400,000) (51,855,540) 153,149,431 —

Transfer to Post-retirement liability (49,300,000) (49,300,000)

Transfer of Post-retirement liability 19,799,131 19,799,131

Transfer to General reserve fund net group surplus for the period 7,995,750 7,995,750

Balance as at 31 March 2004 — — — — — 131,644,312 131,644,312

Prior year adjustments

Correction of error for overprovision of obsolete stock (refer to Note 25) 2,098,768 2,098,768

Adjustment for the understatement of depreciation on Buildings and Investment Property (refer to Note 25) (11,218,994) (11,218,994)


Adjustment for the overstatement of staff costs (refer to Note 25) 3,221,390 3,221,390

Net surplus for the year 12,806,032 12,806,032


MINTEK

Balance as at 31 March 2003 39,874,689 5,300,000 33,840,558 15,400,000 51,855,540 — 146,270,787

Transfer of funds to retained earnings (39,874,689) (5,300,000) (33,840,558) (15,400,000) (51,855,540) 146,270,787 —

Transfer to Post-retirement liability (49,300,000) (49,300,000)

Transfer of Post-retirement liability 19,799,131 19,799,131

Transfer to retained earnings net group surplus for the period 4,109,836 4,109,836


Prior year adjustments

Correction of error for overprovision of obsolete stock (refer to Note 25) 2,098,768 2,098,768

Adjustment for understatement of depreciation on Buildings and Investment Property (refer to Note 25) (11,218,994) (11,218,994)


Adjustment for overstatement of staff costs (refer to Note 25) 3,221,390 3,221,390

Net surplus for the year 5,331,271 5,331,271


Financial statements and notesSTATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2005

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Financial statements and notesINCOME STATEMENTS FOR THE YEAR ENDED 31 MARCH 2005

GROUP MINTEK

Notes 2004 – 2005

R2003 – 2004

R2004 – 2005

R2003 – 2004

R

CONTINUING OPERATIONS

Revenue 2 239,181,549 204,399,854 239,181,549 204,399,854

Cost of sales 5 (160,367,724) (133,348,680) (160,367,724) (133,348,680)

Gross profit 78,813,826 71,051,174 78,813,826 71,051,174

Other operating income 3 7,186,535 7,987,763 7,186,535 7,987,763

Income from investments 4 8,574,585 10,752,591 8,574,585 10,752,591

Auditor’s remuneration (1,217,623) (643,908) (1,190,553) (628,908)

Fees for services (2,826,026) (1,392,667) (2,826,026) (1,392,667)

Administrative expenditure (75,800,172) (74,597,533) (75,787,738) (74,610,068)

Depreciation (8,868,497) (8,675,290) (8,868,497) (8,675,290)

Profit from operations 5 5,862,627 4,482,130 5,902,131 4,484,595

Financing costs 22 (570,860) (843,909) (570,860) (843,909)

Income from Associates 9,924,906 3,987,260 — —

Profit before taxation 15,216,673 7,625,481 5,331,271 3,640,686

Taxation 21 (2,410,641) (98,881) — —

Net surplus for the year 12,806,032 7,526,600 5,331,271 3,640,686

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Financial statements and notesCASH FLOW STATEMENTS FOR THE YEAR ENDED 31 MARCH 2005

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GROUP MINTEK

Notes 2004 – 2005

R2003 – 2004

R2004 – 2005

R2003 – 2004

R

Cash flows from operating activities

Cash receipts from customers 164,871,616 125,168,543 163,621,616 125,168,543

Parliamentary grant received 88,632,000 82,439,000 88,632,000 82,439,000

Cash paid to suppliers and employees (213,860,725) (207,001,992) (213,843,625) (206,990,022)

Cash generated from operations 24 39,642,890 605,551 38,409,990 617,521

Interest received 8,574,585 10,752,591 8,574,585 10,752,591

Finance charges (570,860) (843,909) (570,860) (843,909)

Net cash inflow from operating activities 47,646,616 10,514,233 46,413,716 10,526,203

Cash flows from investing activities

Additions to property, plant and equipment (9,219,746) (10,516,398) (9,219,746) (10,516,398)

Increase in investment deposits (20,000,000) (8,000,000) (20,000,000) (8,000,000)

Decrease/(Increase) in interest in associate (3,725,597) 7,357,160 — —

Decrease/(Increase) in interest in subsidiary — — (2,492,697) 7,345,190

Proceeds on disposal of fixed assets 34,953 798,648 34,953 798,648

Decrease/(Increase) in short-term investment interest 1,062,146 (1,381,711) 1,062,146 (1,381,711)

Net cash outflow from investing activities (31,848,244) (11,742,301) (30,615,344) (11,754,271)

Net cash outflow from financing activities — — — —

Net increase/(decrease) in cash and cash equivalents 15,798,372 (1,228,068) 15,798,372 (1,228,068)

Cash and cash equivalents at beginning of period 4,494,505 5,722,573 4,494,505 5,722,573

Cash and cash equivalents at end of period 20,292,877 4,494,505 20,292,877 4,494,505

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Financial statements and notesNOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2005

1. PRINCIPLE ACCOUNTING POLICIES

The annual financial statements have been prepared in accordance with South African Statements of General Accepted Accounting Practice, and

in the manner required by the Public Finance Management Act (PFMA).

The following are the principle accounting policies of the group which are in all material respects consistent with those applied in the previous year,

except as otherwise indicated.

Basis of preparation

The financial statements have been prepared on the historical basis, except as modified for certain financial instruments.

The financial statements are expressed in South African Rands (R).

The following are approximate values at 31 March for selected currencies:

2005 2004

R R

US dollar 6.24 6.35

Euro 8.09 7.74

Australian dollar 4.81 4.79

1.1 Basis of consolidation

The consolidated annual financial statements incorporate the annual financial statements of the entity and enterprises controlled by the entity (i.e.

its subsidiaries) made up to 31 March each year. Control is achieved where the entity has the power to govern the financial and operating policies

of an investee enterprise so as to obtain benefits from its activities.

On acquisition, the assets and liabilities and contingent liabilities of the relevant subsidiaries are measured at their fair values at the date of

acquisition. The interest of minority shareholders is stated at the minority’s proportion of the fair value of the assets and liabilities recognised.

Subsequently, any losses applicable to the minority interest, in excess of the minority interest, are allocated against the interests of the parent.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of

acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used

by other members of the group.

All inter-entity transactions and balances between group enterprises are eliminated on consolidation.

1.2 Investment in associates

An associate is an entity in which the group has significant influence, through participation in the financial and operating policy decisions of the

investee, but not control over those policies.

The results, assets and liabilities of associates are incorporated in these consolidated financial statements by using the equity method of

accounting, from the effective dates of their acquisition until the effective dates of their disposal. Investments in associates are carried

in the balance sheet at cost as adjusted by post-acquisition changes in the group’s share of the net assets of the associate, less any impairment in

the value of individual investments. Losses of the associate in excess of the group’s investments in those associates are not recognised.

Any difference between the cost of acquisition and the group’s share of the fair value of the identifiable net assets of the associate at the date of

acquisition is recognised according to the group’s accounting policies on goodwill.

Where a group enterprise transacts with an associate company, unrealised profits and losses are eliminated to the extent of the group’s interest in

the relevant associate, except where unrealised losses provide evidence of an impairment of the asset transferred.

1.3 Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the group’s interest in the fair value of the identifiable assets

and liabilities of a subsidiary or associate at the date of acquisition.

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To the extent that the cost of acquisition of a subsidiary or associate exceeds the group’s interest in the net fair value of the identifiable assets,

liabilities, and contingent liabilities acquired, goodwill is recognised as an asset in the balance sheet. Goodwill is reviewed for impairment at least

annually and any impairment loss is recognised immediately in the income statement and is not subsequently reversed.

If the group’s interest in the net fair value of the identifiable assets, liabilities, and contingent liabilities exceeds the cost of acquisition of a

subsidiary or associate, the difference is recognised in the income statement in the period of acquisition.

On disposal of a subsidiary or associate the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Goodwill arising on acquisitions before 31 March 2004 is no longer amortised, but reviewed for impairment at least annually.

Negative goodwill arising on acquisitions before 31 March 2004 has been derecognised, with a corresponding adjustment to the opening balance

of retained earnings.

1.4 Intangible assets

All intangible assets are initially recognised at cost. Intangible assets with a finite useful life are amortised on a straight-line basis over their

estimated useful lives. Intangible assets with an indefinite useful life are not amortised. The useful life of intangible assets that are not being

amortised is reviewed annually to determine whether events and circumstances continue to support an indefinite useful life assessment for those

assets.

1.5 Research and development costs

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally generated intangible asset arising from the group’s research and development is recognised only if all of the following conditions are

met:

- An asset is created that can be identified (such as software and new processes);

- It is probable that the asset created will generate future economic benefits;

- The development cost of the asset can be measured reliably;

- It is technically feasible to complete the intangible asset so that it will be available for use or sale;

- The ability to use or sell the intangible asset; and,

- It is the intention to complete the intangible asset so that it will be available for use or sale.

Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it

is incurred. Internally generated intangible assets are amortised on a straight-line basis over their useful lives, which is usually no more than five

years.

1.6 Impairment of assets

At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any

indication that those assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine

the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount for an individual asset, the recoverable

amount is determined for the cash-generating unit to which the asset belongs.

Intangible assets, with an indefinite useful life, and goodwill acquired in a business combination are tested for impairment annually, irrespective of

whether there is any indication that the assets may be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. Value in use represents the present value of the future cash

flows expected to be derived from an asset (cash-generating unit). The expected future cash flows 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 risk specific to the asset for which the future

cash flow estimates have not been adjusted.

If the recoverable amount of an asset (cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset

(cash-generating unit) is reduced to its recoverable amount. Impairment losses are immediately recognised as an expense, unless the relevant

asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of

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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 (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income

immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation

increase. Impairment losses for goodwill are not reversed in subsequent periods.

1.7 Foreign currencies

These financial statements are presented in South African Rands since that is the currency in which the majority of the group’s transactions are

denominated.

Transactions in currencies other than the group’s reporting currency are initially recorded at the rates of exchange ruling on the dates of the

transactions. Gains and losses arising from the settlement of such transactions are recognised in the income statement.

Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates of exchange ruling on the balance sheet date.

Unrealised differences on monetary assets and liabilities are recognised in the income statement in the period in which they occurred.

1.8 Property, plant and equipment

Land

Land is stated at cost, i.e. no depreciation is provided thereon.

Buildings and investment property

Buildings and investment property is stated at cost less accumulated depreciation.

Plant, equipment and vehicles

Plant, equipment and vehicles are stated at cost less accumulated depreciation.

Assets under construction

All assets under construction are carried at cost and depreciation only commences once the asset is commissioned and ready for its intended use.

Depreciation is charged so as to write off the cost or valuation of assets, other than land and assets under constructions, over their estimated

useful lives, using the straight line method, on the following bases:

- Buildings and investment property 50 years

- Plant 10 years

- Equipment 5 - 10 years

- Vehicles 5 years

- Furniture and fittings 10 years

Assets specifically acquired for contract are depreciated over the life of the contract.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term

of the relevant lease.

The gain or loss arising from the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying

amount of the asset and is recognised as income.

Subsequent expenditure relating to an item of property, plant and equipment that has already been recognised is added to the carrying amount of

the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will

flow to the group. All other subsequent expenditure is recognised as an expense in the period in which it is incurred.

1.9 Post retirement benefits other than pensions

This fund was created to finance the long-term liability with respect to funding pensioners’ medical aid for retired members of staff and the past

service of staff presently employed by Mintek.

A portion of actuarial gains and losses is recognised as income or expense if the net cumulative unrecognised actuarial gains and losses at the end

of the previous reporting period exceed the greater of:

- 10% of the present value of the defined benefit obligation at the date before deducting plan assets, or,

- 10% of the fair value of any plan assets at that date.

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The portion of actuarial gains and losses to be recognised is the excess referred to above, divided by the expected average remaining working

lives of the employees participating in the plan.

Payments to defined contribution retirement benefit plans are charged to the income statement in the year to which they relate.

Current employer contributions with respect to retired members of staff are funded by way of withdrawals from this fund.

1.10 Post retirement benefits

The group operates a defined contribution plan, the assets of which are generally held in separate trustee-administered funds. The plans are

generally funded by payments from the group and employees, taking account of the recommendations of independent qualified actuaries.

1.11 Inventories

Inventories are stated at the lower of cost and net realisable value.

Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories

to their present location and condition. Cost is calculated using the weighted average method.

Net realisable value represents the estimated selling price in the ordinary course of business less any costs of completion and costs to be incurred

in marketing, selling and distribution.

1.12 Provisions

Provisions are recognised when the group has a present obligation as a result of a past event and it is probable that this will result in an outflow of

economic benefits that can be estimated reliably. Long-term provisions are discounted to net present value.

Provisions for restructuring costs are recognised when the group has a detailed formal plan for the restructuring and the group has raised a valid

expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those

affected by it. Restructuring provisions only include those direct expenditure that are necessarily entailed by the restructuring and not associated

with the ongoing activities of the enterprise.

The group is exposed to environmental liabilities relating to its operations. Provision for the cost of environmental and other remedial work such

as reclamation costs, close down and restoration costs and pollution control is made when such expenditure is probable and the cost can be

estimated with a reasonable range of possible outcomes.

1.13 Government grants

Government grant is unconditional and is intended to compensate expenses and give immediate financial support to the entity with no future

related costs and is recognised as income in the period in which it is received.

Government grant is wholly used to finance the operational expenses and fixed assets are financed through cash flows generated from general

commercial business activities.

1.14 Revenue recognition

Revenue is recognised when it is probable that future economic benefits will flow to the enterprise and these benefits can be measured reliably.

Revenue from the sale of manufactured products and material sales are recognised when significant risks and rewards of ownership of the goods

have been transferred to the buyer.

Revenue arising from the rendering of services is based on the stage of completion determined by reference to the physical amount of work

performed in relation to the total project.

Revenue arising from licence fees is recognised on an accrual basis in accordance with the substance of the relevant agreements.

Interest income is accrued on a time proportion basis, taking into account the principal outstanding and the effective interest rate over the period to

maturity.

Royalties accrued is based on the nature of the applicable contracts.

Dividend income from investments is recognised when the right to receive payment has been established.

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Rental income is derived from rental of investments in fixed property and equipment and is recognised on an accrual basis in accordance with the

substance of the relevant agreements.

Advance income arising as result of contracts undertaken in terms of commercial work in respect of invoices raised and paid for in advance but

for which no substantial work has been made to justify the recognition of any revenue, is deferred until the income is earned based on the work

completed.

1.15 Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.

All other leases are classified as operating leases.

The group as a lessor

Amounts due from lessees under finance leases are recorded as receivables at the amount of the group’s net investment in the leases. Finance

lease income is allocated to accounting periods so as to reflect a constant periodic rate of return to the group’s net investment outstanding in

respect of the leases.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

The group as a lessee

Assets held under finance leases are recognised as assets of the group at their fair value at the date of acquisition. The corresponding liability to

the lessor is included in the balance sheet as a finance lease obligation. Finance costs, which represent the difference between the total leasing

commitments and the fair value of the assets acquired, are charged to the income statement over the term of the relevant lease so as to produce a

constant periodic rate of interest on the remaining balance of the obligations for each accounting period.

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

1.16 Contracts in progress

Where the outcome of a contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the

contract activity at the balance sheet date. The stage of completion is determined by the proportion that contract costs incurred for work performed

to date bear to the estimated total contract costs. Variations in contract work, claims and incentive payments are included to the extent that they

have been agreed with the customer.

Where the outcome of the contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred and

probably recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is immediately recognised as an expense.

1.17 Investment property

Investment property is property that is held to earn rentals and/or for capital appreciation, is stated at cost less accumulated depreciation at the

balance sheet date.

1.18 Investments and loans

Investments, other than in associates, are stated at cost less any provision for diminution in value. Dividends are accounted for when declared in

respect of associates and on the disposal of an investment. The difference between the net disposal proceeds and the carrying amount is charged

or credited to the income statement.

1.19 Taxation

The charge for current tax is the amount of income taxes payable in respect of the taxable profit (tax loss) for the current period. It is calculated by

using tax rates that have been enacted or substantially enacted by the balance sheet date.

Deferred tax is accounted for by using the balance sheet liability method in respect of temporary differences arising from differences between the

carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible

temporary differences to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can

be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of an asset or liability that

affects neither accounting profit nor taxable profit at the time of the transaction.

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Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is

charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is

also dealt with in equity.

1.20 Offset

The group offsets assets and liabilities if, and only if, the group:

- has a legally enforceable right to set off the recognised amounts; and

- intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

1.21 Irregular, fruitless and wasteful expenditure

Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation,

including:

- The PFMA, or,

- Any provincial legislation providing for procurement procedures in that provincial government.

Fruitless and wasteful expenditure means expenditure that was made in vain and could have been avoided had reasonable care been exercised.

All irregular, fruitless and wasteful expenditure is charged against income in the period in which it is incurred.

1.22 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until

the assets are substantially ready for their intended use or sale. Qualifying assets are assets that necessarily take a substantial period to get

ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on

qualifying assets is deducted from the borrowing costs incurred. All other borrowing costs are charged against income in the period in which they

are incurred.

1.23 Financial instruments

Recognition

Financial assets and liabilities are recognised on the group’s balance sheet when the group becomes a party to the contractual provisions of the

instrument.

All “regular way” purchases and sales of financial assets are initially recognised using trade date accounting.

Measurement

Financial instruments are initially measured at cost, which includes transaction costs. Subsequent to initial recognition these instruments are

measured as set out below.

Financial assets

The group’s principal financial assets are investments and loans, accounts receivable and cash and cash equivalents.

Investments:

The following categories of investments are measured at subsequent reporting dates at amortised cost by using the effective interest rate method if

they have a fixed maturity, or at cost if there is no fixed maturity:

- Loans and receivables originated by the group;

- Held-to-maturity investments; and,

- An investment that does not have a quoted market price in an active market and whose fair value cannot be measured reliably.

Cost and amortised cost are inclusive of any impairment loss recognised to reflect irrecoverable amounts. The financial assets are subject to

review for impairment at each balance sheet date.

Investments other than those listed above are classified as available-for-sale investments or investments held-for-trading and are measured at

subsequent reporting dates at fair value without any deduction for transaction costs that may be incurred on sale or other disposal.

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Trade and other receivables:

Trade and other receivables are measured at subsequent reporting dates at fair value using the effective interest rate method, less provision for

impairment. A provision 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 receivables. The amount of the provision is the difference between the asset’s carrying amount and the present

value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.

Cash and cash equivalents:

Cash and cash equivalents are measured at fair value.

Equity instruments:

Equity instruments are recorded at the proceeds received, net of direct issue costs.

Financial liabilities

The group’s principal financial liabilities are interest bearing borrowings, accounts payable and bank overdraft.

Financial liabilities held-for-trading and derivative liabilities are measured at subsequent reporting dates at fair value. All other financial liabilities

are subsequently measured at amortised cost, comprising original debt less principal payments and amortisations, using the effective interest rate

method.

Convertible debentures:

Convertible debentures are regarded as compound instruments, consisting of a liability component and an equity component. At the date of

issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference

between the proceeds of issue of the convertible debentures and the fair value assigned to the liability component, representing the embedded

option to convert the liability into equity of the group, is included in equity.

Issue costs are apportioned between the liability and equity components of the convertible debentures based on their relative carrying amounts at

the date of issue. The portion relating to the equity component is charged directly against equity.

The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the

liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible

debenture.

Derivative financial instruments:

Derivative financial instruments are measured at fair value at subsequent reporting dates.

Derivative financial instruments, mainly interest rate swap contracts, commodity option contracts and forward foreign exchange contracts, are

used by the entity in its management of financial risks. The risks being hedged are fluctuations in interest rates, commodity prices and foreign

currencies.

The entity will classify a derivative financial instrument as a hedge if:

- The hedge is expected to be highly effective in achieving offsetting between changes in fair value of, or cash flows attributable to, the

hedged risk;

- The effectiveness of the hedge can be reliably measured throughout the duration of the hedge;

- At the inception of the hedge, formal documentation regarding the following exists:

- the hedging relationship;

- the entity’s risk management objective; and,

- the entity’s strategy for undertaking the hedge.

- In the case of a cash flow hedge, the forecasted transaction that is the subject of the hedge must be highly probable.

Gains and losses on subsequent measurement:

Gains and losses arising from a change in the fair value of financial instruments that are not part of a hedging relationship, other than available-

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for-sale financial assets, are included in net profit or loss in the period in which it arises. Gains and losses arising from a change in the fair value of

available-for-sale financial assets are recognised in equity, until the investment is disposed of or is determined to be impaired, at which time the net

profit or loss is included in the net profit or loss for the period.

For the purposes of hedge accounting, hedges are classified into two categories:

- Fair value hedges, which hedge the exposure to changes in the fair value of a recognised asset or liability; and,

- Cash flow hedges, which hedge exposure to variability in cash flows relating to a recognised asset or liability, an unrecognised firm

commitment or a forecasted transaction.

In relation to fair value hedges, which meet the conditions for hedge accounting, any gain or loss from re-measuring the hedging instrument at fair

value is recognised in net profit or loss. Any gain or loss on the hedged item attributable to the hedged risk is adjusted against the carrying amount

of the hedged item and recognised in net profit or loss.

In relation to fair value hedges, which meet the conditions for hedge accounting, the portion of the gain or loss on a hedging instrument that is

determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in net profit or loss.

If a hedged firm commitment or forecasted transaction results in the recognition of an asset or a liability, then the associated gains or losses

recognised in equity is adjusted against the initial measurement of the asset or liability. For all other cash flow hedges amounts recognised in equity

are included in net profit or loss in the same period during which the commitment or forecasted transaction affects net profit or loss.

Derecognition

A financial asset or a portion thereof is derecognised when the group realises the contractual rights to the benefits specified in the contract,

the rights expire, the group surrenders those rights or otherwise loses control of the contractual rights that comprise the financial asset. On

derecognition, the difference between the carrying amount of the financial asset and the sum of the proceeds receivable and any prior adjustment

to reflect the fair value of the asset that had been reported in equity, is included in net profit or loss for the period.

A financial liability or a part thereof is 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 the amount paid for it is

included in net profit or loss for the period.

Fair value considerations

The fair values at which financial instruments are carried at the balance sheet date have been determined using available market values. Where

market values are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair

values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of

the amounts that the group could realise in the normal course of business. The carrying amounts of financial assets and financial liabilities with a

maturity of less than one year are assumed to approximate their fair values due to the short-term trading cycle of these items.

1.24 Dividend declared

Dividends are recognised as a liability in the period in which they are declared.

1.25 Comparative figures

Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year. Where comparative figures

have been adjusted, the nature, amount of, and reason for, such reclassification has been disclosed. Refer to Note 26.

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GROUP MINTEK

2004 – 2005R

2003 – 2004R

2004 – 2005R

2003 – 2004R

2. REVENUE

Government grants 88,632,000 82,439,000 88,632,000 82,439,000

Commercial income 150,549,549 121,960,854 150,549,549 121,960,854

Contract research 84,403,493 64,514,610 84,403,493 64,514,610

Public sector 9,620,506 14,106,276 9,620,506 14,106,276

Manufactured products 24,292,425 10,538,714 24,292,425 10,538,714

Service income 22,759,476 24,103,531 22,759,476 24,103,531

Material sales 9,473,650 8,697,723 9,473,650 8,697,723

239,181,549 204,399,854 239,181,549 204,399,854

3. OTHER OPERATING INCOME

Special projects 10,800 1,463,080 10,800 1,463,080

Library services 145,525 295,053 145,525 295,053

Breach of contract 101,323 440,054 101,323 440,054

Commission 315,606 149,675 315,606 149,675

Conferences 920,621 1,320,200 920,621 1,320,200

Mintek cafeteria 712,650 791,023 712,650 791,023

Sundry income 2,023,290 396,112 2,023,290 396,112

Other 309,265 607,450 309,265 607,450

Rental income – properties 2,647,455 2,525,116 2,647,455 2,525,116

7,186,535 7,987,763 7,186,535 7,987,763

4. INCOME FROM INVESTMENTS

Interest earned: fixed deposits 7,733,443 10,002,866 7,733,443 10,002,866

Interest earned: bank balances 841,142 749,725 841,142 749,725

8,574,585 10,752,591 8,574,585 10,752,591

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GROUP MINTEK

2004 – 2005R

2003 – 2004R

2004 – 2005R

2003 – 2004R

5. PROFIT FROM OPERATIONS

Profit from operations is arrived at after taking into account the following items:

Auditors remuneration 1,217,623 643,908 1,190,553 628,908

Audit fees 1,212,920 642,777 1,187,350 627,777

Expenses 4,704 1,131 3,204 1,131

Fees for services 2,826,026 1,392,667 2,826,026 1,392,667

Consultants 2,392,460 979,828 2,392,460 979,828

Legal 433,566 412,839 433,566 412,839

Cost of sales 160,367,724 133,348,680 160,367,724 133,348,680

Staff costs 103,009,612 96,330,822 103,009,612 96,330,822

Repairs and maintenance 1,959,224 1,563,001 1,959,224 1,563,001

Consumables 31,854,441 22,178,747 31,854,441 22,178,747

General running expenses 22,801,958 11,039,612 22,801,958 11,039,612

Other 742,489 2,236,498 742,489 2,236,498

Administrative costs 75,800,172 74,597,533 75,787,738 74,610,068

Staff costs 41,089,683 31,011,062 41,089,683 31,011,062

Provision for post-retirement medical aid 4,532,773 1,419,109 4,532,773 1,419,109

Consumables 4,312,856 3,157,370 4,312,856 3,157,370

Provision for and amounts written off 2,461,335 3,609,458 2,461,335 3,609,458

General running expenses 6,456,432 20,972,230 6,443,998 20,972,230

Administration overheads 9,304,457 11,039,612 9,304,457 11,039,612

Other 7,642,637 3,388,692 7,642,637 3,401,227

Depreciation 8,868,498 8,675,290 8,868,498 8,675,290

Buildings and investment property 469,150 469,150 469,150 469,150

Plant 2,678,932 2,550,054 2,678,932 2,550,054

Equipment 5,326,844 5,237,070 5,326,844 5,237,070

Vehicles 314,253 338,173 314,253 338,173

Furniture and fittings 79,319 80,843 79,319 80,843

Number of employees 493 524 493 524

Proceeds on disposal of property, plant and equipment

Proceeds from disposal of property plant and equipment 34,953 798,648 34,953 798,648


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GROUP MINTEK

Opening Balance

RAdditions

RTransfers

RDisposals

R

Closing Balance

R

Opening Balance

RAdditions

RTransfers

RDisposals

R

Closing Balance

R

6. PROPERTY, PLANT AND EQUIPMENT

2005COST

Land 4,927,776 — — — 4,927,776 4,927,776 — — — 4,927,776

Buildings 16,266,961 — — — 16,266,961 16,266,961 — — — 16,266,961

Plant 27,508,403 5,286,979 — — 32,795,382 27,508,403 5,286,979 — — 32,795,382

Equipment 82,095,682 3,834,792 — (321,600) 85,608,874 82,095,682 3,834,793 — (321,600) 85,608,875

Vehicles 2,443,835 — — (121,198) 2,322,637 2,443,835 — — (121,198) 2,322,637

Furniture and fittings 1,844,530 73,630 — (3,283) 1,914,877 1,844,530 73,630 — (3,283) 1,914,877

Assets under construction — 24,344 — — 24,344 — 24,344 — — 24,344

135,087,187 9,219,746 — (446,081) 143,860,852 135,087,187 9,219,746 — (446,081) 143,860,852

ACCUMULATEDDEPRECIATION

Opening R

Current Year

DepreciationR

TransfersR

DisposalsR

ClosingR

OpeningR

Current Year

DepreciationR

TransfersR

DisposalsR

ClosingR

Land — — — — — — — — — —

Buildings 9,109,498 325,339 — — 9,434,837 9,109,498 325,339 — — 9,434,837

Plant 18,634,507 2,678,932 — — 21,313,439 18,634,507 2,678,932 — — 21,313,439

Equipment 56,304,727 5,326,844 — (321,222) 61,310,349 56,304,727 5,326,844 — (321,221) 61,310,350

Vehicles 1,536,440 314,253 — (121,198) 1,729,495 1,536,440 314,253 — (121,199) 1,729,494


Assets under construction — — — — — — — — — —

86,935,138 8,724,688 — (445,703) 95,214,122 86,935,138 8,724,688 — (445,703) 95,214,122

GROUP 2005

R

MINTEK 2005

R

NET BOOK VALUE

Land 4,927,776 4,927,776

Buildings 6,832,124 6,832,124

Plant 11,481,943 11,481,943

Equipment 24,298,525 24,298,525

Vehicles 593,143 593,143

Furniture and fittings 488,875 488,875

Assets under construction 24,344 24,344

48,646,730 48,646,730

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GROUP MINTEK

Opening Balance

RAdditions

RTransfers

RDisposals

R

Closing Balance

R

Opening Balance

RAdditions

RTransfers

RDisposals

R

Closing Balance

R

6. PROPERTY, PLANT AND EQUIPMENT (continued)

2004COST

Land 4,927,776 — — — 4,927,776 4,927,776 — — — 4,927,776

Buildings 16,266,961 — — — 16,266,961 16,266,961 — — — 16,266,961

Plant 26,760,779 747,624 — — 27,508,403 26,760,779 747,624 — — 27,508,403

Equipment 77,549,183 9,319,143 — (4,772,644) 82,095,682 77,549,183 9,319,143 — (4,772,644) 82,095,682

Vehicles 2,233,090 328,000 — (117,255) 2,443,835 2,233,090 328,000 — (117,255) 2,443,835



129,631,864 10,516,397 — (5,061,074) 135,087,187 129,631,864 10,516,397 — (5,061,074) 135,087,187

ACCUMULATED DEPRECIATION

Opening R

Current Year

DepreciationR

TransfersR

DisposalsR

ClosingR

OpeningR

Current Year

DepreciationR

TransfersR

DisposalsR

ClosingR

Land — — — — — — — — — —

Buildings 8,784,159 325,339 — — 9,109,498 8,784,159 325,339 — — 9,109,498

Plant 16,084,453 2,550,054 — — 18,634,507 16,084,453 2,550,054 — — 18,634,507

Equipment 55,808,930 5,237,070 — (4,741,273) 56,304,727 55,808,930 5,237,070 — (4,741,273) 56,304,727

Vehicles 1,315,522 338,173 — (117,255) 1,536,440 1,315,522 338,173 — (117,255) 1,536,440



83,428,981 8,531,479 — (5,025,322) 86,935,138 83,428,981 8,531,479 — (5,025,322) 86,935,138

GROUP 2005

R

MINTEK 2005

R

NET BOOK VALUELand 4,927,776 4,927,776

Buildings 7,157,463 7,157,463

Plant 8,873,896 8,873,896

Equipment 25,790,955 25,790,955

Vehicles 907,395 907,395

Furniture and fittings 494,564 494,564

Assets under construction — —

48,152,049 48,152,049

Freehold land and buildings comprise:

Acquired in the prior year – Land and Buildings 21,194,737 21,194,737

Directors valuation 21,194,737 21,194,737

Portion 203-175 Klipfontein, Johannesburg, with buildings thereon. The replacement value of the building complex was estimated at R321 674, 000 by Lyons Financial Solutions (Proprietary) Limited, an independent valuer, during 2004. The latest valuation report was issued on 31 May 2004.

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GROUP MINTEK

2004 – 2005R

2003 – 2004R

2004 – 2005R

2003 – 2004R

7. INVESTMENT PROPERTIES

Buildings – Billiton

Cost at beginning of year 7,190,526 7,190,526 7,190,526 7,190,526

Additions — — — —

Disposals — — — —

Transfers — — — —

Cost adjustments — — — —

Cost as at end of year 7,190,526 7,190,526 7,190,526 7,190,526

Accumulated Depreciation (2,109,496) (1,965,685) (2,109,496) (1,965,685)

Depreciation for the year (143,811) (143,811) (143,811) (143,811)

Net Book Value as at 31 March 2005 4,937,219 5,081,030 4,937,219 5,081,030

The property comprising land and buildings is part of the remaining extent of portion 175 of farm Klipfontein 203, Registration Division IQ, District of Randburg measuring 22.2662 hectares, situated at 200 Hans Strijdom Drive, in which the Landlord is the registered owner.

Investment Property has been valued at cost less accumulated depreciation.

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8. INVESTMENT IN ASSOCIATES

Details of associates are as follows:

Name of associatePlace of

incorporationPortion of

ownership

Portion of voting

power heldFinancial year end

2005R

2004R

Apic Toll Treatment (Proprietary) Limited South Africa 40% 40% 30 June 2005 12,312,255 10,599,913

Mogale Alloys (Proprietary ) Limited South Africa 25% 25% 31 March 2005 15,632,804 5,336,687 Tollsort (Proprietary ) Limited South Africa 25% 25% 28 February 2005 — 2,363,500

Tollsort Phase II (Proprietary ) Limited Prepayment for pre-incorporation costs. 31 March 2005 84,768 —

28,029,827 18,300,100

GROUP

2005R

2004R

Cost of unlisted investments 1,850 2,850

Apic Toll Treatment (Proprietary) Limited (40% shareholding) 1,600 1,600 Mogale Alloys (Proprietary) Limited (25% shareholding) 250 250 Tollsort (Proprietary) Limited (25% shareholding) — 1,000 Share of acquisition reserves: Apic Toll Treatment and Mogale Alloys (Proprietary) Limited 11,839,521 5,575,256 Fair value of net assets acquired 5,212,452 5,212,452 Interest free loans 84,768 2,362,500 Apic Toll Treatment (Proprietary) Limited — 1,600,000 Tollsort (Proprietary) Limited — 762,500 Tollsort Phase II (Proprietary) Limited 84,768 — Interest bearing loans 10,891,236 5,147,042 Mogale Alloys (Proprietary) Limited 5,891,236

5,000,000 —

5,147,042 Apic Toll Treatment (Proprietary) Limited

Directors’ valuation: value at year end 28,029,827 18,300,100

Reconciliation between opening and closing balance:

Carrying value at the beginning of year 18,300,100 1,000 Loans to associates 1,426,033 7,509,542 Share of post acquisition profits 3,091,242 5,577,106

Fair value assets acquired 5,212,452 5,212,452

Carrying value at the closing of year 28,029,827 18,300,100

The following are details of the significant assets, liabilities, income and expenses of the associates

Long-term assets 171,617,405 64,453,349 Investment — 22,325,588

Current assets 125,788,341 36,336,470

Total Assets 297,405,746 123,115,407

Current liabilities 175,992,323 25,386,858 Long term liabilities 83,079,875 80,920,334

Total Liabilities 259,072,198 106,307,192

Income 295,765,936 176,098,913 Operating profits 105,931,073 32,040,664

Net operating profit 23,435,128 7,464,428

9. INVESTMENT IN SUBSIDIARYDetails of subsidiary are as follows:

Name of subsidiaryPlace of

incorporationPortion of ownership

Financial year end

Shares at cost 31 March 2005

R

Shares at cost31 March 2004

R

Indebtness31 March 2005

R

Indebtness 31 March 2004

R

Mindev (Propietary)Limited

South Africa 100% 31 March 100 100 11,017,411 7,522,412

100 100 11,017,411 7,522,412 Mindev is engaged in the commercialisation of Mintek’s patents and technology through the identification of suitable partners to advance such interests by way of direct investments in equity and through joint ventures.Mintek holds 100% of the issued share capital of Mindev (Proprietary) Limited. The loans granted are unsecured and do not have fixed repayments terms.

DISCOUNTINUED OPERATIONS: TOLLSORT (PROPRIETARY) LIMITEDTollsort (Proprietary) Limited ceased its operations at the end of September 2004. Mindev has included the operating losses from Tollsort (Proprietary) Limited to an amount of R1 193 043. This represents 25% of Mindev’s portion of the loan guarantee made to Standard Bank on behalf of Tollsort (Proprietary) Limited. The total amount outstanding as at 31 March 2005 is R4 772 174.


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GROUP MINTEK

2004 – 2005R

2003 – 2004R

2004 – 2005R

2003 – 2004R

10. INVESTMENT IN SHORT-TERM FIXED DEPOSITS

Investments in short-term fixed deposits are held with various reputable financial institutions. 100,000,000 80,000,000 100,000,000 80,000,000

Fixed investments are held with various public financial institutions are partly earmarked as financing for the post retirement medical aid liability (refer to note 17).

11. INVENTORY AND CONTRACTS IN PROGRESS

Consumables 1,662,141 2,052,468 1,662,141 2,052,468

Finished goods 32,730 1,558,662 32,730 1,558,662

Contracts in progress 1,246,000 2,298,678 1,246,000 2,298,678

2,940,871 5,909,808 2,940,871 5,909,808

Less: Obsolete stock (850,000) (1,510,690) (850,000) (1,510,690)

2,090,871 4,399,118 2,090,871 4,399,118

12. LONG-TERM STAFF LOANS

Staff loans 2,183,523 3,226,394 2,183,523 3,226,394

Less: Short-term portion (Note 13) 910,070 790,048 910,070 790,048

1,273,453 2,436,346 1,273,453 2,436,346

Staff loans are granted to qualifying staff in terms of schemes approved by the Board of Mintek. These loans are subject to a maximum repayment term of 60 months, by way of fixed monthly instalments. The interest payable on these loans is calculated at the prevailing official interest rate as prescribed in the Seventh Schedule to the Income Tax Act, No. 58 of 1962.

13. TRADE AND OTHER RECEIVABLES

Trade Debtors 44,612,305 41,356,282 44,612,305 41,356,282

Current portion of staff loans( Note 12) 910,070 790,048 910,070 790,048

Other receivables 4,201,997 4,935,486 4,201,994 4,935,485

Less: Provision for bad debts 12,276,791 9,826,059 12,276,791 9,826,059

37,447,581 37,255,757 37,447,578 37,255,756

Two material debts totalling R7,741,877 (2003-2004 R6,915,457) included in trade debtors, are currently subject to legal recovery proceedings.The recovery of these debts is considered improbable and have been provided for in the provision for bad debts. Bad debts to the value of R476 837 ( 2003-2004 R29 448) was written-off during the year.

14. TRADE AND OTHER PAYABLES

Trade creditors 9,593,095 5,647,659 9,593,095 5,647,659

Other payables 5,096,486 3,097,219 5,096,486 3,097,219

Other creditors and accruals 2,265,179 1,222,649 3,492,179 1,209,619

16,954,759 9,967,527 18,181,759 9,954,497


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GROUP MINTEK

2004 – 2005R

2003 – 2004R

2004 – 2005R

2003 – 2004R

15. DEFERRED INCOME

Deferred income 15,193,861 — 15,193,861 —

Advance client billing — 7,126,456 — 7,126,456

15,193,861 7,126,456 15,193,861 7,126,456

Deferred income arises as a result of contracts undertaken in terms of the Lead Fund and Innovation fund administered by the Department of Science and Technology in respects of amounts received in cash not yet accounted for as revenue.Advance client billing income arise as a result of contracts undertaken in terms of commercial work in respect of invoices raised but for which no substantial work has been made to justify the recognition of any revenue.

Opening Balance

R

Additional provisions

R

Utilised and reversed

R

Closing Balance

R

16. PROVISIONS

GROUP

Provision for leave pay 8,259,236 12,325,226 7,711,050 12,873,412

Provision for bonus 1,097,738 7,293,214 3,245,800 5,145,152

9,356,974 19,618,440 10,956,850 18,018,564

MINTEK

Provision for leave pay 8,259,236 12,325,226 7,711,050 12,873,412

Provision for bonus 1,097,738 7,293,214 3,245,800 5,145,152

9,356,974 19,618,440 10,956,850 18,018,564

The provision for leave pay relates to vested leave pay to which employees become entitled upon leaving the employment of the entity. The provision arises as employees render a service that increases their entitlement to future compensated leave. The provision is utilised when employees who are entitled to leave pay, leave the employment of the entity or when the accrued leave due to an employee, is utilised.The provision for bonus consists of amounts elected by the employees from their total cost of employment package and a performance bonus. Bonuses become payable in November annually. The provision represents management’s best estimate of the liability at year end. The performance bonus is calculated on a specific formula based on the consolidated annual financial results.


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GROUP MINTEK

2004 – 2005R

2003 – 2004R

2004 – 2005R

2003 – 2004R

17. RETIREMENT BENEFITS OF EMPLOYEES

Post retirement medical benefits

The amounts included in the balance sheet arising from Mintek’s obligation in respect of post retirement medical benefits is as follows:

Present value of obligations as at 31 March 2005 52,231,647 49,300,000 52,231,647 49,300,000

Fair value of planned assets as at 31 March 2005 — — — —

Post retirement benefit obligation 52,231,647 49,300,000 52,231,647 49,300,000

Fixed investments held with various public financial institutions are partly earmarked as financing for the post retirement medical aid liability (refer to note 10). Mintek has not assigned a specific fund to hedge against the post retirement medical aid liability.

Movement in the net liability recognised in the balance sheet

Net past service benefit liability: as at 31 March 2005 49,300,000 19,375,330 49,300,000 19,375,330

Interest cost — — — —

Amounts charged to the income statement 4,191,876 423,801 4,191,876 423,801

Contributions received by the fund (1,260,228) — (1,260,228) —

Restatement of liability — 29,500,869 — 29,500,869

Net past service benefit liability as at 31 March 2005 52,231,648 49,300,000 52,231,648 49,300,000

Key assumptions

Expected long term rate of return on plan assets 9.0% 9.5% 9.0% 9.5%

Expected increase in health care costs 6.0% 6.5% 6.0% 6.5%

Amounts recognised in income in respect of the scheme are as follows:

Current cost — — — —

Benefits paid 2,713,776 2,361,081 2,713,776 2,361,081

Contributions paid 1,260,228 2,784,882 1,260,228 2,784,882

Expected average remaining life of employees (years) 16 15 16 15

Medical cover is provided through a number of different schemes. Post-retirement medical cover in respect of qualifying employees is recognised as an expense over the expected remaining service lives of the relevant employees. The group has an obligation to provide medical benefits to certain pensioners and dependants of ex-employees. These liabilities have been provided in full, calculated on an actuarial basis. The liabilities are unfunded. Periodic valuation of this obligation is carried out by independent actuaries every two years, the latest one being 31 March 2005.Pension benefits are provided by membership of the Mintek Retirement Fund (MRF) and the Mintek Employees Retirement Fund (MERF).The MRF and MERF are defined contribution plans, and are registered in terms of the Pensions Fund Act, 1956. These funds are managed independently by an insurance company. A valuation of the MRF was carried out by independent actuaries during the 2003 – 2004 financial year and no opinion was issued on the financial position of the fund as it is currently an unfunded plan with no planned assets. As at 31 March 2005, 442 employees were members of the fund.Employer contributions are charged against income in the period in which they are incurred. Contributions so charged were as follows:

MRF and MERF 9,682,030 8,429,049 9,682,030 8,429,049

Employee contributions to the funds were as follows:

MRF and MERF 3,760,054 3,749,733 3,760,054 3,749,733


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GROUP MINTEK

2004 – 2005R

2003 – 2004R

2004 – 2005R

2003 – 2004R

18. LONG-TERM LIABILITIES

Rentals received in advance – Billiton

Payable within one year 75,642 75,642 75,642 75,642

Payable within 2 – 15 years 1,692,576 1,768,219 1,692,576 1,768,219

Net rental lease liability 1,768,218 1,843,861 1,768,218 1,843,861

Mintek has entered into a long-term lease for the rental of part of its premises to Billiton (Proprietary) Limited. The average term of the lease is fifteen years. For the year ended 31 March 2005 the average effective borrowing rate was 11.00%. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental repayments.

19. FUTURE LEASE LIABILITY

Future operating lease charges for vehicles

Payable within one year 324,276 291,396 324,276 291,396

Payable between two and five years 160,203 — 160,203 —

Net operating lease liability 484,479 291,396 484,479 291,396

It is the group’s policy to lease certain of its vehicles under operating leases. The group has a vehicle operating lease agreement with an average lease term of three to four years. All leases are on a fixed repayment basis and no arrangement have been entered into for contingent rental repayments.

20. CONTINGENT LIABILITIES

Guarantees

Guarantees are in respect of loans offered by Mintek through Standard Bank to certain associate companies. The balance of R1,193,043 represents 25% of Mintek’s share of the total obligation. 1,193,043 — 1,193,043 —

No material claims have been filed against the group.

21. TAXATION

Taxation on entity share in associate post acquisition reserves 2,410,641 98,881 — —

No deferred taxation is raised on the assessed losses of Mindev (Proprietary) Limited due to the uncertainty regarding taxable income to utilise the assets in the foreseeable future.No provision for income tax was made as Mintek is exempted in terms of section 10(1)(CA)(i) of the Income Tax Act, No. 58 of 1962. Tax provision liabilities are with respect to Mindev and its associated companies and are payable through those entities.


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GROUP MINTEK

2004 – 2005R

2003 – 2004R

2004 – 2005R

2003 – 2004R

22. FINANCING COSTS

Interest paid (vendor charges) 2,489 2,384 2,489 2,384

Net realised foreign currency losses 568,371 841,525 568,371 841,525

570,860 843,909 570,860 843,909

23. COMMITMENTS

Contracted for:

Capital expenditure 216,346 205,694 216,346 205,694

Authorised and not contracted for — — — —

Internal funds will be provided to meet the expenditure in respect of these commitments, which have been approved and contracted for.

24. CASH GENERATED FROM OPERATIONS

Profit from operations 5,862,627 4,482,130 5,902,131 4,484,595

Adjusted for:

Income from investments (8,574,585) (10,752,591) (8,574,585) (10,752,591)

Depreciation 8,868,498 8,675,290 8,868,498 8,675,290

Adjustment for overstatement of prior year staff costs (refer to note 25) 6,442,779 — 6,442,779 —

(Profit)/Loss on disposal of fixed assets (34,575) (762,897) (34,575) (762,897)

Net realised foreign currency losses 568,371 841,525 568,371 841,525

Bad debts written off 476,837 29,448 476,837 29,448

Cash flow from operations before working capital changes 13,609,951 2,512,905 13,649,455 2,515,370

Working capital changes:

Decrease/(increase) in inventories 2,308,247 3,307,585 2,308,247 3,307,585

Decrease/(increase) in receivables (191,826) 668,910 (191,823) 668,910

Decrease/(increase) in short-term investment interest accrual (1,062,145) 1,381,711 (1,062,145) 1,381,711

Increase/(decrease) in payables 8,249,668 (2,288,886) 6,977,262 (2,279,381)

Increase/(decrease) in provisions 8,661,590 (500,425) 8,661,590 (500,425)

Increase/(decrease) in deferred income 8,067,405 (4,476,249) 8,067,405 (4,476,249)

39,642,890 605,551 38,409,991 617,521


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25. FUNDAMENTAL ERRORS

The prior year figures have been adjusted with the correction of an error relating to the over provision of obsolete or slow moving stock, depreciation of buildings and investment property, staff costs and the impairment of negative goodwill. The effect of the change is as follows:

GROUP2004 – 2005

MINTEK2004 – 2005

Prior to adjustment

RAdjustment

RTaxation

R

After adjustment

R

Prior to adjustment

RAdjustment

RTaxation

R

After adjustment

R

Obsolete stock adjustments

Increase in accumulated funds 131,644,312 2,098,768 — 133,743,080 131,644,312 2,098,768 — 133,743,080

Decrease in obsolete stock (3,609,458) 2,098,768 — (1,510,690) (3,609,458) 2,098,768 — (1,510,690)

Adjustment for the overstatement of staff costs — 3,221,390 — 3,221,390 — 3,221,390 — 3,221,390

Understatement of Depreciation for Buildings and Investment property

Decrease in accumulated funds 133,743,080 11,218,994 — 122,524,086 133,743,080 11,218,994 — 122,524,086

Increase in accumulated depreciation (77,825,634) (11,218,994) — (89,044,628) (77,825,634) (11,218,994) — (89,044,628)

(see Statement on changes in equity)

The prior year figures have been adjusted with the correction of errors relating to the elimination of intercompany interest and transactions in the consolidated income statement and cashflow statement:

GROUP 2004

MINTEK2004

Previously Reported

RAdjustment

RTaxation

RRestated

R

Previously Reported

RAdjustment

RTaxation

RRestated

R

Income Statement

Other operating income 19,789,380 (1,049,026) — 18,740,354 — — — —

Finance costs (1,051,410) 1,049,026 — (2,384) — — — —

Cashflow Statement

Cashflows from operating activities

Interest received — (1,049,026) — (1,049,026) — — — —

Interest paid (1,051,410) 1,049,026 — (2,384) — — — —

Cashflows from investment activities

Decrease/(Increase) in investment in associate — (7,338,455) — (7,338,455) — — — —

Cashflows from finance activities

(Decrease)/increase in shareholder’s loan (7,338,455) 7,338,455 — — — — — —


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26. RECLASSIFICATIONS AND RESTATEMENTS

The reclassifications were made to the comparatives to improve compliance with the requirements of South African Statements of Generally Accepted Accounting Practice.

Reconciliation 2004

Balance previously

reportedR

Investment income

R

Expenses by function

R

Contract income

R

Short-term investment

R

Investment in associate

RReceivables

R

Fundamental error

R

Cashflow restatements

R

Balance as reclassified

R

GROUP

Income statementOther operating income 19,789,380 (10,752,591) (1,049,026) 7,987,763 Income from investments 10,752,591 10,752,591 Administrative expenditure (77,463,377) 2,493,469 (74,969,908)Other operating expenses (8,218,396) 8,218,396 Auditors remuneration (643,908) (643,908)Fees for other services (1,392,667) (1,392,667)Depreciation (8,675,290) (8,675,290)Financing costs (1,051,410) 1,049,026 (2,384)Royalties 83,004 (83,004)

Balance sheet

AssetsNon-current assets

Investment: fixed deposits 80,000,000 (80,000,000) Investment in subsidiary 15,937,600 (15,937,600) Shareholders loans to subsidiary 2,362,500 (2,362,500)Investment in associate 18,300,100 18,300,100

Current assetsInvestment in short-term fixed deposits 80,000,000 80,000,000 Trade and other receivables 35,615,479 1,640,277 37,255,756 Deposits and prepayments 1,640,277 (1,640,277)

LiabilitiesCurrent liabilities

Advance client billing 7,126,456 (7,126,456) Deferred income 7,126,456 7,126,456

Cashflows from operating activities

Cash received from customers 208,284,731 (677,188) 207,607,543 Cash payment to suppliers (205,597,830) (1,404,162) (207,001,992)Interest received 9,370,880 9,370,880 Interest paid (1,051,410) 1,049,026 (841,525) (843,909)

Cashflows from investment activities

Decrease/(Increase) in investment in associate (7,338,455) 14,695,615 7,357,160 Decrease/(Increase) in investment in subsidiary 10,807,236 (10,807,236) Interest received 11,801,617 (1,049,026) (10,752,591) Decrease/(Increase) in staff loans (416,207) 416,207

Cash flows from financing activities

(Decrease)/increase in shareholder’s loan (7,338,455) 7,338,455


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26. RECLASSIFICATIONS AND RESTATEMENTS (continued)

Reconciliation 2004

Balance previously

reportedR

Investment income

R

Expenses by function

R

Short term investment

R

Shareholders loan

RReceivables

R

Deferred income

R

Cashflow restate-

mentsR

Balance as reclassified

R

MINTEKIncome statement

Other operating income 18,740,354 (10,752,591) 7,987,763 Income from investments 10,752,591 10,752,591 Administrative expenditure (77,448,377) 1,996,784 (75,451,593)Other operating expenses (8,230,931) 8,230,931 Auditors remuneration (628,908) (628,908)Fees for other services (1,392,667) (1,392,667)Depreciation (8,206,140) (8,206,140)

Balance sheetAssetsNon-current assets

Investment: fixed deposits 80,000,000 (80,000,000) Investment in subsidiary 5,160,012 (5,160,012) Shareholders loans to subsidiary 2,362,500 (2,362,500) Cost of investment shares 100 100

Current assetsInvestment in short-term fixed deposits 80,000,000 80,000,000 Loans advanced to subsidiary 7,522,412 7,522,412 Trade and other receivables 34,825,431 2,430,325 37,255,756 Deposits and prepayments 2,430,325 (2,430,325)

LiabilitiesCurrent liabilities

Advance client billing 7,126,456 (7,126,456) Deferred income 7,126,456 7,126,456

Cashflows from operating activitiesCash received from customers 204,408,322 3,199,221 207,607,543 Cash payment to suppliers (205,597,830) (1,392,192) (206,990,022)Interest received 9,370,880 9,370,880 Interest paid (2,384) (841,525) (843,909)

Cashflows from investment activitiesInterest received 10,752,591 (10,752,591) Decrease/(Increase) in staff loans (416,207) 416,207

Reclassifications:Operating incomeThe entity reclassified a portion of its other income included under “Other operating income” to “Income from investments”. The change in classification does not impact the entity’s tax position or results, however a reclassification of cashflow information for “Interest received” was made from “Cashflows from investment activities” to “Cashflow from operating activities” for the year ended 31 March 2004.Operating expensesThe entity reclassified its operating expenses initially included under “Administrative expenditure” and “Other operating expenses” to “Auditors remuneration”, “Fees for other services” and “Deprecation”. The change in classification does not impact the entity’s tax position, results or cashflow information for the year ended 31 March 2004.Investment: fixed depositsThe entity reclassified its investment in short-term fixed deposits initially included under “Non-current assets” to “Current assets”. The change in classification does not impact the entity’s tax position, results or cashflow information for the year ended 31 March 2004.Investment in subsidiary and shareholder loanThe entity reclassified a portion of investment in its subsidiary from “Investment in subsidiary” and “Shareholder loan to subsidiary” included under “Non-current assets” to reflect as “Current assets” under “Loan advanced to subsidiary” and “Cost of investment shares” included under “Non-current assets”. The change in classification does not impact the entity’s tax position, results or cashflow information for the year ended 31 March 2004.Trade and other receivablesThe entity reclassified its other receivables included under “Deposits and prepayments” to “Trade and other receivables”. The change in classification does not impact the entity’s tax position, results or cashflow information for the year ended 31 March 2004.Advanced billingThe entity reclassified its deferred income relating to “Advance client billing” to “Deferred Income”. The change in classification does not impact the entity’s tax position, results or cashflow information for the year ended 31 March 2004.Restatement:Cashflow from operating activitiesThe entity has restated its cashflow information relating to “Cashflow from operating activities” and “Cashflow from investment activities” due to incorrect classification between the categories. The adjustment affected “Cash receipts from customers”, “Cash payments to suppliers and employees”, “Interest Paid” and “Decrease/(Increase) in staff loans”. The change in classification does not impact the entity’s tax position or results for the year ended 31 March 2004.


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27. BOARD MEMBERS AND EXECUTIVE MANAGEMENT REMUNERATION

GROUP AND MINTEK 2004-2005

EntityBasic

Salary

Fees for services as

director

Performance bonus and

other expenses TOTAL

Executive Management

MINTEK

Dr P.P. Jourdan Mintek 996,728 — — 996,728

Dr R.L Paul Mintek 850,324 — — 850,324

Dr N.A Barcza Mintek & Mindev 834,277 — — 834,277

Dr F Petersen (resigned 28.02.2005) Mintek 777,447 — — 777,447

Ms K. Mzondeki (resigned 30.04.2005) Mintek 532,000 — — 532,000

Non Executive Management Board members

MINTEK

Mr M. Khumalo (Chairman) Metallon Corporation — 4,554 — 4,554

Dr F. Crundwell CM Solutions — 3,382 — 3,382

Ms T. Mosery-Eboka Standard Bank — 3,382 — 3,382

Dr N.P Mjoli Hlathi Development — 3,382 — 3,382

Ms L. Mojela WIPHOLD — 1,691 — 1,691

Mr. R Havenstein Anglo American Platinum — 1,691 — 1,691

Ms G. Mthethwa Standard Bank — 1,691 — 1,691

Mr V. Pillay CSIR — — — —

Prof PE Ngoepe University of North — 1,691 — 1,691

Mr A. Mngomezulu DME — — — —

MINDEV

Mr. N. Morrison Mindev — 1,691 — 1,691

Mr G. Mosinyi Mindev — 1,691 — 1,691

3,990,776 24,846 — 4,015,622


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30. RELATED PARTY

Controlling entityThe group comprises of Mintek and its wholly owned subsidiary Mindev (Proprietary) Limited. Mindev is engaged in the commercialisation of Mintek patents and technology through the identification of suitable partners and investments in equity associates, namely Mogale Alloys (Proprietary) Limited, Apic Toll Treatment ( Proprietary) Limited and Tollsort ( Proprietary) Limited .The group, in the ordinary course of business, enters into various sale and purchase transactions on an arm’s length basis at market rates with related parties.None of the directors, officers or major shareholders of Mintek group or, to the knowledge of Mintek, their families, had any interest, direct or indirect, in any transactions which have affected or will materially affect Mintek or its investment interest or subsidiaries.

AssociatesDuring the year the group advanced interest bearing loans to Associates.

GROUP MINTEK

2005R

2004R

2005R

2004R

Interest bearing loans

Mogale Alloys (Proprietary ) Limited 5,891,236 — 5,891,236 —

Apic Toll Treatment (Proprietary) Limited 5,000,000 5,147,042 5,000,000 5,147,042

Tollsort (Proprietary) Limited — 762,500 — 762,500

Tollsort (Proprietary) Limited ceased its operations at the end of September 2004. Mindev has included the operating losses from Tollsort (Proprietary) Limited to an amount of R1,193,043 which represents twenty-five percent of Mindev’s portion of the loan guarantee made to Standard Bank on behalf of Tollsort (Proprietary) Limited.

Related party transactionsRelated party transactions exist within the group. During the year all selling transactions were concluded at arm’s length. Details of material transactions with related parties not disclosed elsewhere in the financial statements are as follows:

Mintek sales to

Department of Minerals and Energy 537,998 552,980 537,998 552,980

Department of Science and Technology 9,987,661 9,559,613 9,987,661 9,559,613


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28. INSURANCE AND RISK MANAGEMENT

The insurance and risk management policies adopted by Mintek are aimed at obtaining sufficient cover at the minimum cost to protect its asset base, earning capacity and legal obligations against acceptable losses.All property, plant and equipment are insured at current replacement value. Risks of a possible catastrophic nature are identified and insured while acceptable risks.

29. FINANCIAL INSTRUMENTS

Credit riskFinancial assets that could subject the group to credit risk consist principally of bank balances and cash, deposits, trade and other receivables and loans to associates. The group bank balances are placed with high credit quality financial institutions. Trade and other receivables and loans to associates are presented net of the allowance for doubtful receivables or loan write-offs. Credit risk with respect to trade receivables is limited due to the large number of customers comprising the group’s customer base and their dispersion across different industries and geographic areas. Accordingly the group does not have significant concentration of credit risk.The carrying amounts of financial assets included in the balance sheet represent the group’s exposure to credit risk in relation to these assets.The group does not have any significant exposure to any customer or counter party.

Interest riskThe valuation of interest rate exposure and investment strategies is done by management on a regular basis. Interest bearing investments are held with reputable banks to minimise exposure.

Fair valuesAs at 31 March 2005 the carrying amount of bank balances and cash, deposits, trade and other receivables, trade and other payables, contracts in progress, advances received and short term borrowing approximated their fair values due to the short term maturities of these assets and liabilities.Long term loans to associates and subsidiaries are interest free with no fixed terms and therefore the fair value of these loans cannot be calculated.The fair value of the loans to outside shareholders cannot be determined as the loans are interest free with no fixed terms of repayment.

Foreign currency riskThe group undertakes certain risk in certain denominated foreign currencies, hence exposures to rate fluctuations arise. The group manages this risk by use of a foreign bank account. The group does not currently enter into forward foreign exchange contracts to buy and sell amounts of various currencies in the future at predetermined exchange rate, as the foreign currency amounts are not significant in relation to the entity’s income, however, forward exchange contracts are entered into with large commercial contracts denominated in foreign currency. As a matter of principle, the group does not enter into foreign currency exchange contracts for speculative reasons.The estimated fair value/value gain/(loss) per income statement was determined by comparing the contracted value rate to an equivalent spot rate on the settlement or at year end rate for outstanding foreign currency .

financial statements and notes - mintek

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