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1. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these group and company financial statements are set out below. Accounting policies that refer to "consolidated or group", apply equally to the company financial statements where relevant.

1.1 Basis of preparation

Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), interpretations of those standards (as adopted by the International Accounting Standards Board) and applicable legislation (requirements of the South African Companies Act and the regulations of the JSE Limited.)

Basis of measurement

The consolidated financial statements have been prepared under the historical cost convention except for the following:

• revaluation of available-for-sale financial investments at fair value,
• certain financial assets and financial liabilities are measured at fair value,
• derivative financial instruments are measured at fair value, and
• liabilities for cash-settled share-based payment arrangements are measured based on fair value.

The principal accounting policies used by the group are consistent with those of the previous year, unless otherwise stated.

Functional and presentation currency

These consolidated financial statements are presented in South African rand, which is the company's functional currency. All financial information is presented in rand million, unless otherwise stated.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management and the board to exercise its judgment in the process of applying the group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 3.

1.2 Changes in accounting policies

The following standards and amendments to standards have become effective and have been adopted by the group:

• IFRS 7 Financial Instruments: Disclosures (effective 1 January 2007). This standard deals with disclosure for financial instruments. The adoption of this standard requires additional disclosure for financial instruments. The effect of implementation of this IFRS is set out mainly in notes 2 and 43.

The following new interpretations of International Financial Reporting Standards have been issued and have been early adopted:

• IFRIC 15: Agreements for the construction of Real Estate (effective 1 January 2009). The adoption of IFRIC 15 applies to the accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The implementation of this interpretation had no material impact on the results of the group.
• IFRIC 16: Hedges of a Net Investment in a Foreign Operation (effective 1 October 2008). This interpretation applies to an entity that hedges the foreign currency risk arising from its net investments in foreign operations and wishes to qualify for hedge accounting in accordance with IAS 39: Financial instruments: Recognition and Measurements. The implementation of this interpretation had no material impact on the results of the group.
• IFRIC 10 to 14 were early adopted in prior years.

The following standards and amendments to standards have been issued and have been early adopted by the group:

• IFRS 8 Operating Segments (effective 1 January 2009). This standard requires that an entity disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. The effect of implementation of this standard is set out in note 4.
• IAS 1 Presentation of Financial Statements (effective 1 January 2009). This standard requires additional disclosure. The most significant disclosures can be seen in the consolidated statements of: financial position, income statement, statement of comprehensive income and statement of changes in equity.
• IAS 23 (amendment) Borrowing Costs (effective 1 January 2009). This amendment has no impact on the results in the group. Existing Implats accounting policies were in line with the amendment in the standard.
• IFRS 2 (amendment) Vesting Conditions and Cancellations (effective 1 January 2009). This amendment has no impact on the results of the group.
• IAS 32 (amendment) Puttable Instruments and Obligations on Liquidation (effective 1 January 2009). This amendment has no impact on the results of the group.

The following standards, amendments to standards and interpretations have been issued but are not effective yet and have not been early adopted:

• IFRS 3 Business Combinations (effective 1 July 2009). This comprehensive revision in IFRS 3 will have an impact on future acquisitions, for example transaction costs can not be seen as part of the purchase consideration.
• IAS 27 (amendment) Consolidated and Separate Financial Statements (effective 1 July 2009). The amendment to IAS 27 may not be adopted without also adopting IFRS 3 (effective 1 July 2009). The impact will be assessed.
• Annual Improvement project: May 2008 (effective 1 January 2009). Various changes to different standards will not be early adopted. The impact will be assessed.
• IAS 39 (amendment) Eligible Hedged Items (effective 1 July 2009). Clarifies the principles relating to hedged risk of portions of cash flows. The amendment does not currently impact the group.

1.3 Consolidation

The consolidated financial statements include those of Impala Platinum Holdings Limited, its subsidiaries, associates, joint ventures and special purpose entities, using uniform accounting policies.

Subsidiaries

Subsidiary undertakings, are those companies (including special purpose entities) in which the group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations. Subsidiaries are consolidated from the date on which effective control is transferred to the group and are no longer consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.

The excess of the cost of acquisition over the fair value of the group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement (Refer note 1.8).

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Special purpose entities (SPEs) are those undertakings that are created to satisfy specific business needs of the group, which has the right to the majority of the benefits of the SPE and/or are exposed to majority of the risks inherent to the activities thereof.

SPEs are consolidated when the substance of the relationship indicates that the SPE is controlled by the group.

Transactions with non-controlling interest holders, where the group already has control over the entity, are accounted for using the 'economic entity model'.

In terms of this accounting model, any surplus or deficit arising from such transactions, compared to the carrying amount of the non-controlling interest, is adjusted against other reserves.

Associates

Associates are undertakings in which the group has a long-term interest and over which it exercises significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associated undertakings are accounted for by the equity method of accounting in the group. The group's investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (Refer note 1.8).

The purchase method of accounting is used to account for the acquisition of associates by the group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Equity accounting involves recognising in the income statement the group's share of the associate's post-acquisition profit or loss for the year, and, its share of post-acquisition movements in reserves in equity. Under the equity method, the investment in the associate is initially recognised at cost and the carrying amount is increased or decreased to recognise the investor's share of profit or loss and movement in reserves of the investee, after the date of acquisition. Dividends and other equity receipts received reduce the carrying amount of the investment.

When the group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the group and its associates are eliminated to the extent of the group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Joint ventures

The group's interest in jointly controlled entities is accounted for by proportionate consolidation. The group combines its share of the joint ventures' individual total comprehensive income, assets and liabilities and cash flows on a line-by-line basis with similar items in the group's financial statements. The group recognises the portion of gains or losses on the sale of assets by the group to the joint venture that is attributable to the other venturers. The group does not recognise its share of profits or losses from the joint venture that result from the purchase of assets by the group from the joint venture until it re-sells the assets to an independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately.

1.4 Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each entity in the group are measured using the currency of the primary economic environment in which the entity operates. For South African operations the functional currency is South African rand and for Zimbabwean operations it is US dollar. The consolidated financial statements are presented in South African rand, which is the functional and presentation currency of Impala Platinum Holdings Limited.

Group companies

Total comprehensive income of foreign subsidiaries, associates and joint ventures are translated into South African rand at the actual exchange rate on transaction date. The average exchange rate is, where appropriate, used as an approximation of the actual rate at transaction date. Assets and liabilities are translated at rates ruling at the reporting date. The exchange differences arising on translation of assets and liabilities of foreign subsidiaries and associates are transferred directly to other reserves. On disposal of the foreign entity such translation differences are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Transactions and balances

Foreign currency transactions are accounted for at the rates of exchange ruling at the date of the transaction. Monetary assets and liabilities are translated at year-end exchange rates. Gains and losses arising on settlement of such transactions and from the translation of foreign currency monetary assets and liabilities are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges or qualifying net investment hedges.

Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity.

1.5 Property, plant and equipment

Property, plant and equipment are recorded at cost less accumulated amortisation and less any accumulated impairment losses. Pre-production expenditure, including evaluation costs, incurred to establish or expand productive capacity, to support and maintain that productive capacity incurred on mines are capitalised to property plant and equipment. The recognition of costs in the carrying amount of an asset ceases when the item is in the location and condition necessary to operate as intended by management. Any net income earned while the item is not yet capable of operating as intended reduces the capitalised amount. Interest on borrowings, specifically to finance the establishment of mining assets, is capitalised during the construction phase.

The present value of decommissioning cost, which is the dismantling and removal of the asset included in the environmental rehabilitation obligation, is included in the cost of the related assets and changes in the liability resulting from changes in the estimates are accounted for as follows:

• Any decrease in the liability reduces the cost of the asset. The decrease in the asset is limited to its carrying amount and any excess is accounted for in the income statement.
• Any increase in the liability increases the carrying amount of the asset. An increase to the cost of an asset is tested for impairment when there is an indication of impairment.
• These assets are depreciated over their useful lives.

Subsequent costs are included in the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be reliably measured. All repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Assets are not depreciated while the residual value equals or exceeds the carrying value of the asset. Amortisation is calculated on the carrying amount less residual value of the assets or components of the assets where applicable. Amortisation methods and amortisation rates are applied consistently within each asset class except where significant individual assets have been identified which have different amortisation patterns. Residual values are reviewed at least annually. The amortisation calculation is adjusted prospectively for changes in the residual amount.

Other assets consist of furniture and fittings, information technology equipment and vehicles.

Shafts, mining development and infrastructure

Individual mining assets are amortised using the units-of-production method based on their respective estimated economically recoverable proved and probable mineral reserves.

Metallurgical and refining assets

Metallurgical and refining assets are amortised using the units of production method based on the expected estimated economically recoverable proved and probable mineral reserves to be concentrated or refined by that asset.

Land, buildings and general infrastructure (including housing and mineral rights)

Assets in this category, excluding land which is not depreciated, are depreciated over life of mine using the units of production method and the economically recoverable proved and probable mineral reserves.

Other assets

These assets are depreciated using the straight line method over the useful life of the asset limited to life of mine as follows:

Amortisation rates are reassessed annually.

1.6 Exploration for and evaluation of mineral resources

The group expenses all exploration and evaluation expenditures until the directors conclude that a future economic benefit is more likely than not of being realised, i.e. probable. In evaluating if expenditures meet this criterion to be capitalised, the directors utilise several different sources of information depending on the level of exploration. While the criteria for concluding that expenditure should be capitalised is always the “probability” of future benefits, the information that the directors use to make that determination depends on the level of exploration.

• Exploration and evaluation expenditure on greenfields sites, being those where the group does not have any mineral deposits which are already being mined or developed, is expensed as incurred until a final feasibility study has been completed, after which the expenditure is capitalised within development costs, if the final feasibility study demonstrates that future economic benefits are probable.
• Exploration and evaluation expenditure on brownfields sites, being those adjacent to mineral deposits which are already being mined or developed, is expensed as incurred until the directors are able to demonstrate that future economic benefits are probable through the completion of a pre-feasibility study, after which the expenditure is capitalised as a mine development cost. A ''pre-feasibility study'' consists of a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, has been established, and which, if an effective method of mineral processing has been determined, includes a financial analysis based on reasonable assumptions of technical, engineering, operating economic factors and the evaluation of other relevant factors.

  The pre-feasibility study, when combined with existing knowledge of the mineral property that is adjacent to mineral deposits that are already being mined or developed, allows the directors to conclude that it is more likely than not that the group will obtain future economic benefit from the expenditures.

• Exploration and evaluation expenditure relating to extensions of mineral deposits which are already being mined or developed, including expenditure on the definition of mineralisation of such mineral deposits, is capitalised as a mine development cost following the completion of an economic evaluation equivalent to a pre-feasibility study. This economic evaluation is distinguished from a pre-feasibility study in that some of the information that would normally be determined in a pre-feasibility study is instead obtained from the existing mine or development. This information when combined with existing knowledge of the mineral property already being mined or developed allows the directors to conclude that more likely than not the group will obtain future economic benefit from the expenditures.

Exploration and evaluation assets acquired in a business combination are initially recognised at fair value. Subsequently it is stated at cost less impairment provision. Once commercial reserves are found, exploration and evaluation assets are tested for impairment and transferred to assets under construction. No amortisation is charged during the exploration and evaluation phase.

For the purposes of assessing impairment, the exploration and evaluation assets subject to testing are grouped with existing cash-generating units of operating mines that are located in the same geographical region. Where the assets are not associated with a specific cash generating unit, the recoverable amount is assessed using fair value less cost to sell for the specific exploration area.

1.7 Prepaid royalty – Rustenburg operation

Prepaid royalty is recorded initially at cost and subsequently at cost less accumulated depreciation. The royalty is amortised using the units-of-production method based on the relevant estimated economically recoverable proved and probable minerals reserves of the Rustenburg operation.

1.8 Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the group's share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment loss. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing (Refer note 1.9). Impairment write downs on goodwill may not be reversed.

1.9 Impairment of assets

Non-financial assets

Assets that have an indefinite useful life which are not subject to amortisation, are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets are considered to be impaired when the higher of the asset's fair value less cost to sell and its value in use is less than the carrying amount.

The recoverability of the long-lived assets is based on estimates of future discounted cash flows. These estimates are subject to risks and uncertainties including future metal prices and exchange rates. It is therefore possible that changes can occur which may affect the recoverability of the mining assets. The recoverable amounts of non-mining assets are generally determined by reference to market values. Where the recoverable amount is less than the carrying amount, the impairment is charged against income to reduce the carrying amount to the recoverable amount of the asset. The revised carrying amounts are amortised over the remaining lives of such affected assets. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

An impairment previously recognised will be reversed when changes in circumstances, that have an impact on estimates, occur after the impairment was recognised. The reversal of an impairment will be limited to the lower of the newly calculated recoverable amount or the book value that would have existed if the impairment was not recognised. The reversal of an impairment is recognised in the income statement.

1.10 Leases

Determining whether an arrangement is, or contains a lease, is based on the substance of the arrangement, and requires an assessment of whether fulfilment of the arrangement is dependent on the use of a specific asset or assets and whether the arrangement conveys the right to control the asset.

Leases where the lessee assumes substantially all of the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the lower of the estimated present value of the underlying lease payments and the fair value of the asset. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term and short-term payables respectively. The interest element is expensed to the income statement, as a finance charge, over the lease period.

The property, plant and equipment acquired under finance leasing contracts is amortised in terms of the group accounting policy limited to the lease contract term (Refer note 1.5).

Leases of assets under which substantially all the benefits and risks of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on the straight line basis over the life of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

1.11 Inventories

Metal inventories

Platinum, palladium and rhodium are treated as main products and other platinum group and base metals produced as by-products. Metals mined by the group, including in-process metal contained in ore, concentrate and matte produced by the smelter and precious metal concentrate in the base and precious metal refineries, are valued at the lower of average cost of production and net realisable value. Quantities of in-process metals are based on latest available assays. The average cost of production is taken as total costs incurred on mining and refining, including amortisation, less net revenue from the sale of by-products, allocated to main products on a units produced basis. Refined by-products are valued at net realisable value. Stocks of metals purchased or recycled by the group are valued at the lower of cost or net realisable value.

Stores and materials

Stores and materials are valued at the lower of cost or net realisable value, on a weighted average basis. Obsolete, redundant and slow moving stores are identified and written down to net realisable values. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses.

1.12 Financial instruments

Financial instruments carried on the statement of financial position include money market instruments, investments, receivables, trade creditors, metal leases, borrowings and forward commitments.

The group participates in financial instruments that reduce risk exposure to foreign currency and future metal price fluctuations. The recognition and measurement methods adopted are disclosed in the individual policy statements associated with each item.

Financial assets

The group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired:

• In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is, considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in income statement – is removed from equity and recognised in the income statement.
• A provision for impairment of trade receivables, held-to-maturity investments and loans is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the asset. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default on or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. 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 original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within selling and marketing costs. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against selling and marketing costs in the income statement.

Investments

The group classifies its investments in the following categories: financial assets held for trading at fair value through profit and loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. No financial instruments were designated at fair value through profit and loss on initial recognition. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Purchases and sales of investments are recognised on the trade date – the date on which the group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs except financial assets at fair value through profit or loss which are recognised at fair value. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership.

Financial assets held for trading at fair value through profit and loss

Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as financial assets held for trading at fair value through profit and loss and are included in current assets. These investments are measured at fair value. Movements in fair value is recognised in the income statement.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables are included in trade and other receivables in the statement of financial position. Loans and receivables are subsequently carried at amortised cost using the effective interest method less any accumulated impairment loss.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the group's management has the positive intention and ability to hold to maturity, and are included in non-current assets, except for those with maturities within 12 months from the reporting date which are classified as current assets.

Held-to-maturity investments are subsequently carried at amortised cost using the effective interest method less any accumulated impairment loss.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the reporting date. Available-for-sale financial assets are subsequently carried at fair value which is determined using period end bid rates. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities.

The fair values of listed investments are based on current closing bid market prices. If the market for a financial asset is not active (and for unlisted securities), the group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer's specific circumstances.

Cash and cash equivalents

Cash and cash equivalents are carried in the statement of financial position at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, bank overdrafts, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are included within cash and cash equivalents in current liabilities in the statement of financial position.

Derivative financial instruments

Metal futures, options and lease contracts are entered into from time to time to preserve and enhance future cash flow streams. Forward exchange contracts are from time to time entered into to hedge anticipated future transactions.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:

• hedges of the fair value of recognised liabilities (fair value hedge); or
• hedges of a particular risk associated with a recognised liability or a highly probable forecast transaction (cash flow hedge).

The group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as current assets or liabilities.

Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain or loss relating to the ineffective portion is recognised in the income statement within other income or expense.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within other income or expenses.

Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss. When the hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, or a forecast transaction for a non-financial asset or non-financial liability becomes a firm commitment for which fair value hedge accounting is applied, then the associated gains and losses that were recognised directly in equity are included in the initial cost or other carrying amount of the asset or liability.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within other income or other expenses.

Derivatives at fair value through profit or loss

Certain derivative instruments do not qualify for hedge accounting and are accounted for at fair value through profit or loss. Changes in the fair value of these derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement within other income and expenses.

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

Financial liabilities

Metal purchase commitments

Metal purchase commitments are recognised as a trading liability. These commitments are initially and subsequently measured at fair value. Movements in fair value is accounted for in other income and expense in the income statement.

Borrowings

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

When borrowings are utilised to fund qualifying capital expenditure, such borrowings costs that are directly attributable to the capital expenditure are capitalised from the point at which the capital expenditure and related borrowing cost are incurred until completion of construction. All other borrowing costs are charged to finance costs in the income statement.

Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost.

1.13 Accounting for derivative financial instruments and hedging activities

The group's risk management policy on hedging is not prescriptive regarding the available financial instruments to be used, but financial limits and exposures are set by the Board. Due to the limited extent of these hedges, hedge accounting is generally not applied and therefore changes in the fair value of any derivative instruments are recognised in the income statement immediately.

1.14 Fair value estimation

The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. The listed market price used for financial assets held by the group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price at reporting date.

The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the reporting date.

The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the group for similar financial instruments.

The carrying amounts of current financial assets and current liabilities approximate their fair values.

1.15 Provisions

Provisions are recognised when the group has a present legal or constructive obligation as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are not recognised for future operating losses.

Provisions are recognised as the best estimate of the expenditure required to settle the present obligation at reporting date taking into account the time value of money where relevant.

1.16 Environmental rehabilitation obligations

These long term obligations result from environmental disturbances associated with the group's mining operations. Estimates are determined by independent environmental specialists in accordance with environmental regulations.

Decommissioning costs

This cost will arise from rectifying damage caused before production commences. The net present value of future decommissioning cost estimates as at year-end is recognised and provided for in full in the financial statements. The estimates are reviewed annually to take into account the effects of changes in the estimates. Estimated cash flows have been adjusted to reflect risks and timing specific to the rehabilitation liability. Discount rates that reflect the time value of money are utilised in calculating the present value.

Changes in the measurement of the liability, apart from unwinding the discount, which is recognised in the income statement as a finance cost, are capitalised to the environmental rehabilitation asset (Refer note 1.5).

Restoration costs

Restoration costs represent the cost of restoring site damage, caused after the start of production, incurred in the production of inventory. The liability is estimated as the present value of estimated expenditures to settle this obligation. Estimates are discounted at a pre-tax rate reflecting the time value of money.

Increases in this provision are charged to the income statement as a cost of production.

Ongoing rehabilitation cost

The cost of the ongoing current programmes to prevent and control pollution is charged against income as incurred.

Impala Pollution Control, Rehabilitation and Closure Trust Fund

Contributions are made to this trust fund, created in accordance with statutory requirements, to provide for the estimated cost of rehabilitation during and at the end of the life of Impala Platinum Limited's mines. Income earned on monies paid to the trust is accounted for as investment income. The trust investments are included under held-to-maturity-investments and cash and cash equivalents.

The group has control over the trust and it is consolidated as a special purpose entity.

1.17 Employee benefits

Short-term employee benefits

Remuneration to employees is charged to the income statement on an ongoing basis. Provision is made for accumulated leave, incentive bonuses and other short-term employee benefits.

Defined benefit and defined contribution retirement plans

Employee benefit schemes are funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations.

A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. A defined contribution plan is a pension scheme under which the group pays fixed contributions into a separate entity. The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recorded in the income statement immediately.

The group operates or participates in a number of defined benefit and defined contribution retirement plans for its employees. The pension plans are funded by payments from the employees and by the relevant group companies to insurance companies or trustee-administered funds, determined by periodic actuarial calculations, and contributions to these funds are expensed as incurred. The assets of the different plans are held by independently managed trust funds. These funds are governed by either the South African Pension Fund Act of 1956 or Zimbabwean law. The defined benefit plan is a multi-employer plan in Zimbabwe. Sufficient information is not available to account for it as a defined benefit plan. It is in substance accounted for as a defined contribution plan. Defined benefit plans are subject to actuarial valuations at intervals of no more than three years.

Post-employment medical obligations

The group provides post-retirement healthcare benefits to qualifying employees and retirees. The expected costs of these benefits are accrued over the period of employment. Valuations of these obligations are carried out annually by independent qualified actuaries. Actuarial gains or losses as a result of these valuations are recognised in the income statement as incurred.

Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after reporting date are discounted to present value.

Bonus plans

The group recognises a liability and an expense for bonuses based on a formula that takes into consideration production and safety performance. The group recognises a provision when contractually obliged or where there is a past practice that has created a constructive obligation.

Share-based payments

Equity-settled share option incentive scheme

Implats Share Incentive Trust

This group share option plan provides for the granting of options to key employees who are able to purchase shares in the holding company at a price equal to the average market price of the five trading days preceding the trading day preceding the date upon which the Remuneration Committee approved the granting of the options.

The scheme is administrated through the Impala Share Incentive Trust. Shares are issued to the trust as required. Employees are entitled to exercise their options at the option price.

The maximum number of share options outstanding in terms of the share scheme may not exceed 3.5% of the issued share capital of Impala Platinum Holdings Limited.

Vesting of options first occurs two years after the granting of the options, equal to 25% of the total options granted. In subsequent years an additional 25% vests per year. All outstanding options lapse after 10 years from the date of granting the options.

The fair value of the employee services received in exchange for the grant of options is recognised as an expense. The total amount to be expensed over the vesting period is determined with reference to the fair value of the options granted, excluding non-market vesting conditions, on grant date and is expensed on a straight line basis over the vesting period. The fair value is determined by using the binomial option valuation model and assumptions used to determine the fair value is detailed in note 3. At each reporting date, the group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement and a corresponding adjustment to equity over the remaining vesting period.

Cash-settled share-based payments

Share appreciation rights scheme

The group allocates to selected executives and employees notional shares in the holding company. These notional shares will confer the conditional right on a participant to be paid a cash bonus equal to the appreciation in the share price from the date of allocation to the date of surrender of the notional share. Notional shares are first surrenderable after two years of allocation to a maximum of 25% of the allocation. In subsequent years an additional 25% becomes exercisable per year. All outstanding notional shares lapse after 10 years from date of allocation.

Morokotso Trust

The Employee Share Ownership Programme (ESOP), for South African operations, provides for participation in the Morokotso Trust and is for employees in the A,B and C Patterson bands in the employment of the company before 4 July 2008. The trust acquired 16.4 million shares on behalf of employees. Each employee has an equal stake in the Trust.

The Trust will hold the shares on behalf of these employees for a maximum period of ten years. After the end of five years, 40% of the shares will be sold by the Trust and the profit made from the sale, less costs, will be distributed equally among employees in these bands. After another five years, 60% of the shares will be sold on the same basis.

The fair value of employee services received in exchange for cash settled share-based payments is recognised as an expense. A liability equal to the portion of the services received is determined and recognised at each reporting date. The Binomial option valuation model is used to determine the fair value (excluding non-market vesting conditions) and the assumptions are detailed in note 3.

1.18 Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and deferred income tax liabilities of the same taxable entity are offset when they relate to taxes levied by the same taxation authority and the entity has a legally enforceable right to set off current tax assets against current tax liabilities.

The principal temporary differences arise from amortisation and depreciation on property, plant and equipment, provisions, post-retirement medical benefits, tax losses carried forward and fair value adjustments on assets acquired from business combinations.

1.19 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable, in respect of the sale of metals produced and metals purchased and toll income received by the group. Revenue, net of sales taxes and discounts, is recognised when the risks and rewards of ownership are transferred.

Sales of metals mined and metals purchased

The group recognises revenue when the amount of revenue and costs associated with the transaction can be reliably measured and it is probable that future economic benefits will flow to the entity. Revenue is recognised when the risk and reward of ownership is transferred and when the entity has no longer any managerial involvement or control over goods that would constitute control. Consequently sales are recognised when a group entity has delivered products to the customer and collectability of the related receivables is reasonably assured.

Toll income

Toll refining income is recognised at date of declaration or dispatch of metal from the refinery in accordance with the relevant agreements with customers.

Interest income

Interest income is recognised on a time-proportion basis using the effective interest method.

Dividend income

Dividend income is recognised at the accrual date when the shareholder's right to receive payment is established.

1.20 Segment reporting

An operating segment is a component of an entity:

• that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity),
• whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and
• for which discrete financial information is available.

The group is an integrated PGM and associated base metal producer. The operating segments are:

• mine-to-market primary PGM producer, including the marketing of metals produced by the group,
• toll refiner for third party material (Impala Refining Services) and
• other.

1.21 Dividend distribution

Dividend distribution to the company's shareholders is recognised as a liability in the group's financial statements in the period in which the dividends are approved by the board of directors.

1.22 BEE transactions

This accounting policy relates to transactions where the group grants or sells equity instruments to people in context of empowerment in terms of the Broad-Based Black Empowerment Act no 53 of 2003. The difference between the fair value and the selling price of the equity instruments granted or sold is accounted for as an expense through the income statement as a share-based compensation charge. Refer note 1.17 for discussion of share-based payments.

The fair value of the equity instruments for non-listed entities is determined using the main assumptions as described in note 3 'Critical accounting estimates and judgments' for impairment of assets.

2. Financial risk management

2.1 Financial risk factors

The group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group's financial performance. The group, from time to time, uses derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by a central treasury department. Policies are approved by the Board of Directors, which set guidelines to identify, evaluate and hedge financial risks in close co-operation with the group's operating units. The risk management committee approves written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity.

2.1.1 Market risk

Foreign exchange risk

The group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises from future commercial transactions, recognised financial assets and liabilities and net investments in foreign operations.

To manage foreign exchange risk arising from future commercial transactions, recognised financial assets and liabilities, the group, from time to time, uses forward contracts within board approved limits. Group treasury committee is responsible for managing the net position in each foreign currency.

The group has investments in foreign operations, whose net assets are exposed to foreign currency translation risk.

Sensitivity analysis

Foreign exchange risk sensitivity analysis presents the effect of a 10% change in the year end exchange rate on financial instruments denominated in foreign currency in the income statement and other comprehensive income.

Securities price risk

The group is exposed to equity securities price risk because of investments held by the group and classified on the consolidated statement of financial position as available-for-sale financial assets. Although Group Treasury monitors this exposure, the investment was acquired as a strategic investment and was not actively managed with reference only to securities price risk. This investment was disposed of during the year.

Sensitivity analysis:

The calculation of a 20% change in the carrying value of Aquarius Platinum Limited would have resulted in a R308 million movement in other comprehensive income in 2007.

Commodity price risk

Commodity price risk refers to the risk of changes in fair value or cash flow of financial instruments as a result of commodity prices. Where the group holds forward sales contracts, metal purchase commitments, sales debtors or receivables from related parties which are determined with reference to commodity prices, this exposes the group to commodity price risk.

From time to time, the group enters into metal forward sales contracts, options or lease contracts to manage the fluctuations in metal prices, thereby preserving and enhancing it's cash flow streams.

Sensitivity analysis

Commodity price risk sensitivity analysis presents the effect of a 10% change in the commodity prices on commodity based financial instruments in the statement of financial position, income statement and other comprehensive income.

Interest rate risk

The group is exposed to insignificant fair value interest rate risk in respect of fixed rate financial assets and liabilities.

At year-end there were no fixed rate financial liabilities in the group. Fixed rate financial assets consist of BEE as loans as detailed in note 11.

Sensitivity analysis

Interest rate risk sensitivity analysis presents the effect of a 100 basis points up and down in the interest rate in the income statement.

Further disclosure is presented in note 14.

2.1.2 Credit risk

Credit risk arises from the risk that the financial asset counterpart may default or not meet its obligations timeously. The group minimises credit risk by ensuring that the exposure is spread over a number of counterparties.

The maximum exposure to the credit risk is represented by the carrying value of all the financial assets and the maximum amount the group could have to pay if the guarantees are called on (note 38).

The potential concentration of credit risk could arise in cash and cash equivalents, trade receivables, advances and other financial assets.

The group has policies that limit the amount of credit exposure related to cash and cash equivalents and rehabilitation trust investments to any single financial institution by only dealing with well-established financial institutions of high credit quality standing. The credit exposure to any one of the counterparties is managed by setting exposure limits which are regularly reviewed by the treasury committee.

Cash and cash equivalents

Financial institutions credit rating by exposure:

Credit risk on cash and cash equivalents is further analysed in note 14. Exposure of the group's borrowings to interest rate changes and contractual repricing dates is analysed further in note 17.

Trade receivables

The group has policies in place to ensure that the sales of products are made to customers with an appropriate credit history. Trade debtors comprise a number of customers, dispersed across different geographical areas. Regular credit evaluations are performed on the financial condition of these and other receivables. Trade receivables are presented in the statement of financial position net of impairment. Receivables continue to be in sound financial position.

Default for reporting purposes is measured as payments outstanding form more than one month. Customers have payment terms of less than one month and are charged market related interest on late payments. Credit risk exposure in respect of trade receivables is analysed further in note 14.

Advances

Advances are made to customers based on ‘in-process metal’. Credit risk on advances and related party receivables is low as in-process metal in concentrate serves as collateral. Advances only comprise a portion of the creditor to be settled in future.

Other financial assets

Credit risk relating to other financial assets consisting of loans to BEE companies is secured by a guarantee from Lonmin Plc (note 11).

The group is exposed to credit related losses in the event of non-performance by counterparties to derivative instruments. The counterparties to these contracts are major financial institutions. The group continually monitors its positions and the credit ratings of its counterparties and limits the amount of contracts it enters into with one party.

Employee receivables

Employee receivables consist mainly of vehicle loans for which the vehicles serve as collateral.

No financial assets were past due for the current or the comparative period under review. No terms relating to financial assets have been renegotiated resulting in assets not being past due.

2.1.3 Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, group treasury committee aims to maintain flexibility in funding by keeping committed and uncommitted credit lines available.

Of these facilities, none had been drawn down at year-end. These facilities are renewed annually.

Management monitors rolling forecasts of the group's liquidity reserve comprising undrawn borrowing facilities (note 17) and cash and cash equivalents (note 14) on the basis of expected cash flows.

The table below analyses the group's financial liabilities and derivative financial liabilities into the relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within a year equal their carrying amount as the impact of discounting is not significant.

2.1.4 Cash flow interest rate risk

The group is exposed to cash flow interest rate risk in respect of its floating rate financial assets and liabilities.

The group monitors its exposure to fluctuating interest rates. Cash and cash equivalents and rehabilitation trust investments are primarily invested with short term maturity dates, which expose the group to cash flow interest rate risk.

The group's primary exposure in respect of borrowings in detailed in note 17.

2.1.5 Sovereign risk

Sovereign risk arises from foreign government credit risk, the risk that a foreign central bank or government will impose exchange regulations and the risk associated with negative events relating to taxation policy or other changes in the business climate of a country. These risks are monitored by management by actively engaging with both local and foreign government officials and by operating within the set frameworks to ensure favourable outcomes.

2.2 Capital risk management

The group defines total capital as ‘equity’ in the consolidated statement of financial position plus debt. The group's objectives when managing capital are to safeguard the group's ability to continue as a going concern in order to provide returns for shareholders and benefits to other stakeholders and to maintain an optimal capital structure to reduce cost of capital.

In order to maintain or improve the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue or repurchase shares.

The group monitors capital on a basis of the gearing ratio.

Management is in the process of reviewing its financial strategy and for this reason a credit rating was obtained. Implats obtained a Long-term Issuer Default rating International Long-term BBB+ and a National Long-term AA (zaf) rating. A stable outlook has been assigned.

3. Critical accounting estimates and judgements

Use of estimates

The preparation of the financial statements requires the group's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The determination of estimates requires the exercise of judgement based on various assumptions and other factors such as historical experience, current and expected economic conditions, and in some cases actuarial techniques. Actual results may differ from these estimates.

The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis of future cash flow estimates and unit-of-production depreciation, depletion and amortisation calculations, environmental, reclamation and closure obligations, estimates of recoverable metals, asset impairments (including impairments of goodwill), write-downs of inventory to net realisable value, post-employment, post-retirement and other employee benefit liabilities, the fair value and accounting treatment of financial instruments and deferred taxation.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Carrying value of property plant and equipment

Various units-of-production (UOP) depreciation methodologies are available to management e.g. centares mined, tonnes mined, tonnes milled or ounces produced. Management elected to depreciate all mining and processing assets using the centares mined methodology.

For mobile and other equipment, the straight-line method is applied over the estimated useful life of the asset which does not exceed the estimated mine life based on proved and probable mineral reserves as the useful lives of these assets are considered to be limited to the life of the relevant mine.

The calculation of the UOP rate of amortisation could be impacted to the extent that actual production in the future is different from current forecast production based on proved and probable mineral reserves. This would generally result from changes in any of the factors or assumptions used in estimating mineral reserves. Changes in mineral reserves could similarly impact the useful lives of assets depreciated on a straight-line basis, where those lives are limited to the life of the mine.

The recoverable amounts of cash generating units and individual assets have been determined based on the higher of value-in-use calculations and fair values less costs to sell. The group reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. In addition, goodwill is tested on an annual basis for impairment (note 1.9). Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets. Expected future cash flows used to determine the recoverable amount of goodwill and tangible assets are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including published reserves, resources, exploration potential and production estimates, together with economic factors such as spot and future metal prices, discount rates, foreign currency exchange rates, estimates of costs to produce reserves and future capital expenditure.

The key financial assumptions used in the impairment calculations are:

• long-term real revenue per platinum ounce sold of R14 954 (2007: R11 085) and
• long-term real discount rate, a range of 6% to 8% (2007: 8% to 10%) for South African operations and 11% to 13% (2007: 13% to 15%) for Zimbabwean USD cash flows.

Production start date

The group assesses the stage of each mine construction project to determine when a mine moves into the production stage. The criteria used to assess the start date are determined based on the unique nature of each mine construction project, such as the complexity of a plant and its location. The group considers various relevant criteria to assess when the mine is substantially complete, ready for its intended use and moves into the production stage. Some of the criteria would include, but are not limited to the following:

• the level of capital expenditure compared to the construction cost estimates;
• completion of a reasonable period of testing of the mine plant and equipment;
• ability to produce metal in saleable form (within specifications); and
• ability to sustain ongoing production of metal.

When a mine construction project moves into the production stage, the capitalisation of certain mine construction costs ceases and costs are either regarded as inventory or expensed, except for capitalisable costs related to mining asset additions or improvements, underground mine development or mineable reserve development.

Income taxes

The group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Fair value of derivatives and other financial instruments

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at each reporting date. The group uses discounted cash flow analyses for various available-for-sale financial assets that are not traded in active markets.

Metal in process and product inventories

Costs that are incurred in or benefit the production process are accumulated as stockpiles, metal in process and product inventories. Net realisable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing metal prices, less estimated costs to complete production and bring the product to sale.

Although the quantities of recoverable metal are reconciled by comparing the grades of ore to the quantities of metal actually recovered (metallurgical balancing), the nature of the process inherently limits the ability to precisely monitor recoverability levels. As a result, the metallurgical balancing process is constantly monitored and the engineering estimates are refined based on actual results over time.

Provisions

Environmental rehabilitation obligations

The group's mining and exploration activities are subject to various laws and regulations governing the protection of the environment. The group recognises management's best estimate for asset retirement obligations in the period in which they are incurred. Actual costs incurred in future periods can differ materially from the estimates. Additionally, future changes to environmental laws and regulations, life of mine estimates and discount rates can affect the carrying amount of this provision.

Estimated long-term environmental provisions, comprising pollution control, rehabilitation and mine closure, are based on the group's environmental policy taking into account current technological, environmental and regulatory requirements.

Provisions for future rehabilitation costs have been determined, based on calculations which require the use of estimates (note 19).

Assumptions used in calculating the provision:

South African operations:

The interest rate is the long-term risk free rate as indicated by the government bonds which ranged between 10.38% and 11.62% at the time of calculation. The net present value of current rehabilitation estimates is based on the assumption of a long-term real interest rate of 2.4% (2007: 3.9%). The lower real rate reflects the higher inflation environment.

Zimbabwe operations:

As the functional currency is used by both the group's Zimbabwean operations is the US$, the US inflation and US long-term risk-free interest rates were used:

Mineral reserves

The estimation of reserves impact the amortisation of property, plant and equipment, the recoverable amount of property, plant and equipment, the timing of rehabilitation expenditure and purchase price allocation.

Factors impacting the determination of proved and probable reserves are:

• the grade of mineral reserves may vary significantly from time to time (i.e. differences between actual grades mined and resource model grades);
• differences between actual commodity prices and commodity price assumptions;
• unforeseen operational issues at mine sites;
• changes in capital, operating, mining, processing and reclamation costs, discount rates and foreign exchange rates.

Post-employment pension plans and medical benefits

The determination of Implats' obligation and expense for pension and provident funds, as well as post-retirement health care liabilities, depends on the selection of certain assumptions used by actuaries to calculate amounts. These assumptions include, among others, the discount rate, the expected long-term rate of return of plan assets, health care inflation costs, rates of increase in compensation costs and the number of employees who reach retirement age before the mine reaches the end of its life. Whilst Implats' believes that these assumptions are appropriate, significant changes in the assumptions may materially affect pension and other post-retirement obligations as well as future expenses, which may result in an impact on earnings in the periods that the changes in the assumptions occur.

As at 30 June 2008, actuarial parameters used by independent valuators assumed 9.1% (2007: 6.4%) as the long-term medical inflation rate and an 11.25% (2007: 8.5%) risk-free interest rate corresponding to the yields on long-dated high-quality bonds.

A 1% increase in the real discount rate results in a R4.4 million reduction in the provision and a decrease of 1% results in an increase in the provision of R5.3 million.

Provisions for post-retirement medical liability cost have been determined, based on calculations which require the use of estimates (note 19).

Share-based payments

The group issues equity-settled and cash-settled share-based payments to employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed as services are rendered over the vesting period, based on the group's estimate of the shares that will eventually vest and adjusted for the effect of non-market based vesting conditions. Cash-settled share-based payments are valued on reporting date and recognised over the vesting period.

The fair value of share-based payments is calculated using the Binomial option pricing model. The average inputs into this model are as follows:

The calculation pertains to non-vested shares. Vested cash-settled shares are valued at their intrinsic value.

Financial liabilities

The fair value on derivative instruments is calculated at year end. The fair value of the forward sales contract is determined by using metal lease rates and the London Interbank Offer Rate (LIBOR) on date of sale and the rand/US$ exchange rate at year-end.

Contingencies

By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events.

Purchase price allocation

In determining the purchase price allocation for African Platinum Plc (Afplats) during the 2007 financial year, the following critical assumptions and judgements were used:

• Leeuwkop reserves were valued using a discounted cash flow model. The key assumptions used were: a discount rate of 14.4% and a long-term real rand revenue per platinum ounce of R11 085.
• The resource ounce valuation is based on the UG2 3PGE+Au ounces that are not included in the discounted cash flow valuation. Most of these ounces are in the 'inferred resource' category and were valued at $14 per ounce. If adjusted to include the Merensky 3PGE+Au ounces, this value is reduced to $9 per ounce.

Fair value of the royalty prepayment

The expected future royalty payments were valued using the life-of-mine discounted cash flow models for the Rustenburg lease area. The following main assumptions were used: a nominal discount rate of 11.1% and a long-term real rand revenue per platinum ounce of R11 085.

Goodwill impairment test

In testing whether goodwill is impaired the following critical assumptions and judgements were used:

• Leeuwkop reserves were valued using a discounted cash flow model. The key assumptions used were: a discount rate of 15% and a long-term real rand revenue per platinum ounce of R14 954.
• The resource ounce valuation is based on the UG2 3PGE+Au ounces that are not included in the discounted cash flow valuation. Most of these ounces are in the ‘inferred resource’ category and were valued at $14 per ounce. If adjusted to include the Merensky 3PGE+Au ounces, this value is reduced to $9 per ounce.

Foreign currency translation

The following exchange rates were used:
Year-end rate: R7.93 (2007: R7.06)
Annual average rate: R7.26 (2007: R7.19)

4. Segment information

Segment reporting

Operating segments – June 2008

* External revenue excludes intergroup sales and is calculated as actual sales outside the group.

Operating segments – June 2007

* External revenue excludes intergroup sales and is calculated as actual sales outside the group.

Notes to operating segment analysis:

The group distinguishes its segments between mine-to-market operation and refining services which include metals purchased and toll refined. Apart from Impala, none of the other mining segments exceeded the 10% threshold of revenue, profit or assets, hence the mine-to-market operations were aggregated.

Operating segments have consistently adopted the consolidated basis of accounting and there are no differences in measurement applied.

Capital expenditure comprises additions to property, plant and equipment (note 5), including additions resulting from acquisitions through business combinations.

Sales to two customers in the Impala mining segment comprised 10% and 12% of total sales.

Sales

Metals mined

Reflect the mine-to-market sales primarily from the Impala Rustenburg mining operations.

Metals purchased

Revenue from metals purchased is recognised within two separate legal entities:

• for Impala this incorporates sales of metals purchased principally from Impala Refining Services.
• for Impala Refining Services this includes sales from purchases of metals from third party refining customers. The majority of sales are to Impala, and a portion directly to the market.

Treatment income

Fees earned by Impala Refining Services for the treatment of metals from third party refining customers.

Inter-company

Comprises sales of concentrate from Marula, Mimosa and Zimplats mining operations to Impala Refining Services.

Segment operating expenses for:

Gross cost

Comprises total costs associated with the mining, refining and purchase of metals.

Inter-segment adjustments

Elimination of inter-segment sales, purchases, interest, administration fees and unrealised profit in the group.

Inter-segment transfers

Inter-segment transfers are based on market-related prices.

Non current assets and capital expenditure are allocated according to the location of the asset.

Sales are allocated based on the country in which the sale originates.

5. Property, plant and equipment

This expenditure will be funded internally and from borrowings, where necessary.

Apart from finance leases, assets are not encumbered by loans. No assets were pledged as collateral.

Included in property, plant and equipment are assets with a carrying amount of R213 million (2007: R220 million) which is a result of finance leases capitalised.

Impairment test for goodwill

Goodwill is allocated to the group's cash generating units (CGUs) identified in accordance with business operations.

The recoverable amount of the Leeuwkop project is based on fair value less cost-to-sell derived from discounted cash flow calculations. These calculations use cash flow projections based on financial budget approved by management covering a five-year period. Cash flows beyond the five-year period are determined by using estimated metal prices adjusted with long-term inflation forecasts.

Key assumptions used for cash flow projection calculations are metal prices and the rand/US dollar exchange rate (note 3).

The recoverable amount of the evaluation and exploration assets is based on fair value less cost-to-sell, as these two projects are still being evaluated. Fair value is determined using market related value of resources, and exchange rates as indicated in note 3.

The results of the associate are based on audited financial statements.

There were no unrecognised losses in the associate for which the group had not accounted.

Unrealised profit on sales from Two Rivers to Implats were eliminated in the share of profit recognised above.

The table below excludes the treasury shares, Morokotso Trust and the Implats share incentive scheme as these special purpose vehicles are consolidated.

The group acquired, through a subsidiary, 826 473 (2007: nil) of its own shares in this financial year in terms of an approved share buy-back scheme. This was done through purchases on the JSE Limited for an amount of R183 million (2007: nil) and through the exercising of its right of first refusal. Shares were sold by the Morokotso Trust for an amount of R71 million (2007: nil).

Refer to the Directors' report for the details on share options held by key management personnel (directors and senior management).

Share options outstanding (number in thousands) at the end of the year have the following terms:

The Share Option Scheme was closed to future grants with effect from October 2004.

Borrowings from Standard Bank Limited:

• loans obtained by BEE partners for purchasing a 27% (2007: 22.5%) share in Marula Platinum (Proprietary) Limited amounting to R755 million (2007: R395 million). The BEE partnership in Marula is consolidated as the loans are guaranteed by Implats. The loan carries interest at the Johannesburg Interbank Acceptance Rate (JIBAR) plus 90 basis points and a revolving credit facility amounting to R57 million (2007: R73 million), which carries interest at JIBAR plus 100 basis points. The loans are repayable over 7.5 (2007: 8.5) years.
• a loan facility of R635 million (US$80 million) was obtained during the year to partially finance the Ngezi Phase One expansion at Zimplats. An amount of R404 million (US$51 million) of this facility was drawn at year end. The loan carries interest at London Interbank Offering Rate (LIBOR) plus 700 basis points. It is repayable in 12 equal quarterly instalments starting December 2009 and will be repaid by December 2012.

  This loan is secured by sessions over cash, debtors and revenues of Zimplats Mines (Pvt) Limited.

The effective interest rates for the year were as follows:

The interest rates applicable are 10.5% (2007: 5.0%) for Zimbabwean US dollar denominated liabilities and 11.5% (2007: 11.5%) for South African rand-denominated liabilities.

* Represents the future tax benefit on dividends receivable that will be realised when future dividends are declared.

The aggregate amount for deferred tax liabilities relating to subsidiaries, associates and interest in a joint venture is R5 604 million (2007: R4 857 million).

19 Long-term provisions

i) Pension and provident plans

Independent funds provide pension and other benefits to all permanent employees and their dependants. At the end of the financial year the following funds were in existence:

• Impala Provident Fund
• Impala Platinum Refineries Provident Fund
• Impala Workers Provident Fund
• Impala Supplementary Pension Fund
• Sentinel Pension Fund (industry fund)
• Mine Employees Pension Fund (industry fund)
• Mining Industry Pension Fund Zimbabwe (industry fund)
• National Social Security Scheme Zimbabwe (industry fund) ⁽¹⁾
• Novel Platinum Pension Fund
• Old Mutual – Zimasco Pension Fund

ii) Post-employment medical benefits

The amounts recognised in the income statement were as follows:

Movement in the liability recognised in the statement of financial position:

Share appreciation rights outstanding (number in thousands) at the end of the year have the following terms:

There are no contingent liabilities relating to the group’s interest in the joint venture.

43 Financial instruments by category