report of the auditor-general - mintek

annual report 2006

Report of the Auditor-General

page 43

Report of the Auditor-GeneralREPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS AND THE PERFORMANCE INFORMATION OF THE COUNCIL FOR MINERAL TECHNOLOGy (MINTEK) FOR THE yEAR ENDED 31 MARCH 2006

1. AUDIT ASSIGNMENTThe financial statements as set out on pages 48 to 73, for the year ended 31 March 2006, 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 are the responsibility of the accounting authority. My responsibility is to express an opinion on these financial statements, based on the audit.

2. SCOPEThe audit was conducted in accordance with International Standards on Auditing (ISA) read with General Notice 544 of 2006, issued in the Government Gazette no. 28723 of 10 April 2006 and General Notice 808 of 2006, issued in the Government Gazette no. 28954 of 23 June 2006. 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.I believe that the audit provides a reasonable basis for my opinion.

3. QUALIFICATION

3.1 PROPERTy, PLANT AND EQUIPMENT

3.1.1 Determination of residual lives and valuesThe residual lives of fully depreciated assets were reviewed subsequent to year-end, resulting in an adjustment of R19 477 756 to the opening balance of the prior year retained earnings. The following errors were identified in the calculations made by management:(a) Due to a lack of documentation of the process followed, adequate audit evidence could not be obtained to

substantiate the adjustment;(b) The asset acquisition dates used were incorrect;(c) The remaining residual life of a scrapped asset was estimated to be two years, resulting in an incorrect

adjustment of R784 616;(d) Detailed criteria for the determination of residual lives were not documented to ensure consistent

application;(e) Although management estimated the residual life of assets, the exercise was limited to assets with a zero

book value; and(f) The component approach depreciation method as required by IAS 16 (AC123) was not implemented by

Mintek. Plant and furnaces comprised of various sub-assets with different residual lives.Furthermore, contrary to the requirements of IAS 16 (AC123), Mintek did not review the residual value of individual assets as at 31 March 2006. The financial impact of the non-compliance with this accounting statement could not be quantified.

3.1.2 Asset impairment review Mintek did not perform a detail impairment review of plant and equipment during the year under review, as required by IAS 36, despite the existence of the following impairment indicators:(a) The present value of future economic benefits to be derived from property, plant and equipment was

annual report 2006


materially lower than the net book value of property, plant and equipment disclosed in note 11 of the annual financial statements;

(b) Evidence obtained indicated that assets to the value of R1 103 721 were impaired; and(c) Certain assets that were physically verified were damaged. I could not determine the impact of possible impairment of the carrying value of property, plant and equipment. The impairment review conducted by management was inadequate.

3.2 DEFERRED INCOME AND REVENUERevenue transactions to the amount of R3 418 851 were incorrectly recorded as unearned income as a result of inadequate monitoring controls. Management performed a subsequent review of all unearned income transactions and made an adjustment of R6 743 576 to the balance as at 31 March 2006. Due to the late submission of supporting documentation, audit could not review the accuracy or completeness of the adjustment made. Based on the audit findings, the errors found also pertained to the deferred income balance as at 31 March 2005. Mintek did not review the opening balance of unearned income of R7 600 000.

4. QUALIFIED AUDIT OPINIONIn my opinion, except for the effect on the financial statements of the matters referred to in the preceding paragraph, the financial statements present fairly, in all material respects, the financial position of Mintek at 31 March 2006 and the results of its operations and its cash flows for the year then ended, in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the Public Finance Management Act, 1999 (Act No. 1 of 1999).

5. EMPHASIS OF MATTERWithout further qualifying the audit opinion expressed above, attention is drawn to the following matters:

5.1 PROPERTy, PLANT AND EQUIPMENT

5.1.1 AssetverificationAdequate audit evidence could not be obtained to verify the existence of assets with a collective book value of R517 350 (Cost price: R2 887 817).

5.1.2 AdjustmentstoopeningbalancesAdequate audit evidence could not be obtained to substantiate a difference of R184 199 between asset retirements in the fixed asset register and asset retirements included in the trial balance as well as depreciation adjustments of R252 115.

5.1.3 Fixed asset adjustments Mintek conducted a review of the fixed asset register subsequent to the financial year-end. This resulted in the retirement of assets with a cost price of R13 724 020 (Net book value: R1 114 043) and the inclusion of 149 newly identified assets recorded at R1 each. The process followed to adjust the fixed asset register had the following weaknesses:• Amendments were done at the discretion of the divisional managers;• Proper count sheets were not used during the exercise; and• Measures to ensure the completeness and accuracy of the asset counts were inadequate.Although the Mintek Board ratified the asset retirements, Mintek did not report the asset retirements to National Treasury, as required by the Mintek materiality framework.

5.2 UNCONDITIONAL GRANTSDue to inadequate management information, it was not possible to verify that the project costs were in

page 44

annual report 2006


accordance with the budget approved by the executive authority and that there were no misallocations within projects. Furthermore, adequate audit evidence could not be obtained for expenditure to the amount of R512 673 claimed from the Department of Science and Technology in respect of earmarked funding.

5.3 CASH AND BANKMonthly bank reconciliations were not performed and reviewed timely. The lack of proper bank reconciliation and review procedures resulted in the following:(a) Insufficient audit evidence to verify bank clearing accounts with a net value of R25 797; (b) Unallocated payments to the amount of R87 124 were outstanding for a period longer than 12 months.

Audit evidence could not be obtained to verify the validity and accuracy of the payments made;(c) Deposits to the amount of R12 728 were outstanding for more than a year; and(d) Three staff members who resigned during the 2005-06 financial year were still authorised cheque

signatories of the current bank account.

5.4 VALUE ADDED TAXA difference of R305 137 existed between the VAT Return (R107 375) and the SAP 201 report for the month of April 2005 (R412 512). This resulted in an understatement of the VAT liability as at 31 March 2006.

5.5 PRODUCT WARRANTIESA provision for product warranties to the amount of R894 508 (2004/05: R1 555 011) was based on 5 per cent of product sales during the financial year. The reliability of the estimate made could not be verified due to the unavailability of historic information on the past warranty claims.

5.6 ACCOUNTS PAyABLEThe accounts payable balance was overstated by R294 171 as a result of duplicate payments made and incorrect data capturing.

5.7 REVENUE RECOGNITION(a) 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 IAS 8 (AC111). Revenue and interest received were respectively overstated and understated by approximately R351 729.

(b) Mintek calculated deferred income at year-end by applying the percentage completion method based on actual expenditure incurred. The total costs planned for different projects were incorrectly used as the project value. Consequently, revenue for the financial period under review was understated.

5.8 LONG-TERM DEBTORSIncorrect debtors calculation resulted in the short-term portion of staff loans amounting to R202 260 being incorrectly classified as long-term debtors.

5.9 FINANCIAL STATEMENT DISCLOSUREContrary to the requirements of IAS 20, paragraph 39(b), the nature and extent of government grants recognised in the financial statements and an indication of other forms of government assistance from which the entity directly benefited, were not disclosed in the financial statements.

5.10 INTEREST RECEIVEDAn unexplained difference of R329 796 between interest recognised and the external confirmation was identified.

page 45

annual report 2006


5.11 WEAKNESSES IN INTERNAL CONTROLThe following significant weaknesses in internal control were identified during the course of the audit:(a) Debtor credit limits were not determined;(b) Debtors with credit balances were not appropriately monitored. This resulted in revenue of R315 762 not

being recognised;(c) Debtors reconciliations were not performed on a monthly basis;(d) The risk management plan of Mintek deferred the responsibility for accurate financial reporting to the

external auditors; and(e) Goods received vouchers were not adequately controlled.

5.12 COMPLIANCE WITH LAWS AND REGULATIONS

5.12.1 Value Added TaxContrary to the requirements of section 28 of the Value Added Tax Act, 1991 (Act No. 89 of 1991), Value Added Tax payable for the periods May 2005 to December 2005 amounting to R6 151 371 was only paid over to SARS on the 23 December 2005. SARS may levy interest and penalties for late payment resulting in fruitless expenditure.

5.12.2DisposalofassociateAlthough Board approval was obtained for the sale of an associate with an investment value of R12 312 255 as at 31 March 2005, the National Treasury was not informed of the sale as required by section 54(2)(c) of the PFMA.

5.12.3InvestmentpolicyContrary to Mintek’s investment policy, investments at commercial banking institutions exceeded the maximum investment limit of 25 per cent per institution.

5.12.4 Approval for debtor write-offStaff debtors to the amount of R1 037 482 were written off during the 2005-06 financial year without prior approval from the Mintek Board. Furthermore, in terms of the Mintek materiality framework, debtors written off should be reported to the National Treasury. This requirement was not complied with.

5.13 PROJECT MANAGEMENT The following errors arose as a result of a poor internal control environment with regards to project management:(a) Contrary to the pricing policy, losses of approximately R775 908 were noted on certain projects;(b) Various instances were found where the planned project costs were not allocated to projects. This could

impair the decision making process regarding the profitability of cost centres;(c) An adjustment of R3 368 642 was made as a result of inadequate monitoring of project invoicing which

resulted in excessive profits being made on earmarked funding; and(d) Significant deviations were found between project budgets and actual expenditure incurred on completed

projects. Mintek did not have any review process in place where deviations were monitored.

5.14 PERFORMANCE BONUSESPerformance bonuses for the 2004-05 financial year were approved by the Mintek Board to the amount of R3 976 859 and were based on 25 per cent of the net profit for the preceding year. The bonuses were paid to staff during the year under review. Due to a number of adjustments made to the prior year financial statements these payments exceeded the approved limit by R2 708 784.

5.15 HUMAN RESOURCE PLANNINGMintek did not have a Human Resources plan for the period under review that included succession planning, staff training and the analysis of the impact of vacancies.

page 46

annual report 2006


5.16 FINANCIAL STATEMENTSSignificant deviations from SA GAAP, the PFMA and related Treasury Regulations were identified during a high level review of the financial statements submitted on 31 May 2006 in terms of section 55(1) of the PFMA. A 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 were of concern.Furthermore, weaknesses within the accounting, control, IT and governance environment were identified. These weaknesses were attributable to poor accounting skills, inconsistent control environment and inadequate review and supervision. These weaknesses had a negative effect on the operational effectiveness and additional costs were incurred to address the problems.

5.17 PERFORMANCE OBJECTIVESAdequate audit evidence could not be obtained to verify the accuracy of non-financial information presented in the report of performance against objectives, set out on page 10 and 11 of the annual report.

6. APPRECIATIONThe assistance rendered by the staff of the Council for Mineral Technology during the audit is sincerely appreciated.

Ms. M. A. Masemolafor Auditor-General25 August 2006

page 47

annual report 2006

Financial Statements and notes BALANCE SHEET AT 31 MARCH 2006 GROUP MINTEK 2006 2005 2006 2005 Notes R R R R

ASSETS Non-current assets Property, plant and equipment 11 138,233,487 65,562,738 138,233,487 65,562,738 Investment property 12 8,835,416 4,937,220 8,835,416 4,937,220 Equity accounted investments 13 12,285,939 27,945,059 – – Investment in subsidiary 14 – – 100 100 Long-term loans and advances 15 1,151,611 1,273,453 1,151,611 1,273,453

Total non-current assets 160,506,452 99,718,470 148,220,613 71,773,511 Current assets Inventory 16 2,744,373 2,072,871 2,744,373 2,072,871 Loans and advances to subsidiary 14 – – – 8,489,598 Trade and other receivables 17 46,487,963 39,016,354 48,180,671 39,927,812 Short-term investments 18 102,830,270 101,679,514 102,830,270 101,679,514 Cash and cash equivalents 30,937,858 20,400,480 30,937,858 20,400,480

Total Current assets 183,000,465 163,169,220 184,693,172 172,570,276

Total assets 343,506,917 262,887,690 332,913,786 244,343,787

Equity Non-distributable reserves 63,046,831 – 63,046,831 – Retained earnings 155,789,155 150,716,855 137,776,752 133,388,995Total equity 218,835,986 150,716,855 200,823,583 133,388,995

Liabilities

Non-current liabilities Long-termretirementbenefitobligation 22 61,235,000 51,429,000 61,235,000 51,429,000 Long-term creditors 23 1,792,727 795,362 1,379,915 –

Total non-current liabilities 63,027,727 52,224,362 62,614,915 51,429,000

Current liabilities Loans and advances to subsidiary 14 – – 8,277,896 – Trade and other payables 19 27,324,090 18,724,190 26,878,278 18,303,509 Deferred income 20 21,674,053 22,793,861 21,674,053 22,793,861 Provisions 21 12,645,061 18,428,422 12,645,061 18,428,422

Total current liabilities 61,643,204 59,946,473 69,475,288 59,525,792

Total equity and liabilities 343,506,917 262,887,690 332,913,786 244,343,787

P.P. JOURDAN V. GOVENDER CEO General Manager Corporate Services Randburg, 17 July 2006

page 48

annual report 2006

Financial Statements and notes INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2006 GROUP MINTEK 2006 2005 2006 2005 Notes R R R R

Continuing operations Revenue 2 256,514,905 232,370,288 257,296,155 233,151,538 Operating expenses 3 (242,161,677) (224,186,842) (242,161,677) (224,186,842) Gross profit 14,353,227 8,183,446 15,134,477 8,964,696 Other operating income 4 18,162,113 5,685,742 18,224,316 5,685,742 Investment income 5 9,817,025 8,503,391 9,817,025 8,503,391 Finance expenses 6 (337,424) – (242,843) – Audit fees 7 (1,924,160) (752,108) (1,884,479) (725,038) Fees for services 8 (11,999,983) (6,585,089) (11,999,983) (6,585,089) Depreciation 9 (10,619,572) (11,283,459) (10,619,572) (11,283,459) (Loss)/profitondisposalofproperty, (1,131,011) 34,575 (1,131,011) 34,575 plant and equipment Loss on disposal of associate 28.2 (653,037) – – – Post-retirementbenefitobligation 10 (12,828,438) (3,459,724) (12,828,438) (3,459,724) Loss on foreign currency translations (81,735) (570,211) (81,735) (570,211) Shareofprofitfromassociatesaftertax 13 2,315,295 7,514,265 – –

Profit before taxation 5,072,300 7,270,829 4,387,757 564,884 Taxation – – – –

Profit for the year 5,072,300 7,270,829 4,387,757 564,884

page 49

annual report 2006

Financial Statements and notes CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 MARCH 2006 GROUP MINTEK 2006 2005 2006 2005 Notes R R R R

Cash flows from operating activities

Cash receipts from customers 180,821,671 164,871,616 180,638,217 163,621,616 Parliamentary grant received 108,880,000 88,632,000 108,880,000 88,632,000 Cash paid to suppliers and employees 276,272,026 201,584,127 275,412,647 199,366,941

Cash generated from operations 28 13,429,645 51,919,489 14,105,570 52,886,675

Cash flow from financing activities Investment income 5 9,817,025 8,503,391 9,817,025 8,503,391 Finance expenses 6 (337,424) – (242,843) – Long-term creditor payments (595,696) – (133,696) – Provisions utilised 21 (5,783,361) (10,956,850) (5,783,361) (10,956,850) Net cash inflow from operating activities 16,530,189 49,466,030 17,762,695 50,433,216 Cash flows from investing activities Additions to property, plant and equipment (19,823,232) (9,219,740) (19,823,232) (9,219,740) Increase in investment deposits (1,150,757) (21,679,514) (1,150,757) (21,679,514) Receipts/(cash advanced to) from subsidiary – – 16,767,494 (967,186) Proceedsondisposaloffixedassets 3,616 37,922 3,616 37,922 Proceeds from disposal of associate 28.2 18,000,000 – – – Post-retirement health care payments 22 (3,022,438) (2,698,724) (3,022,438) (2,698,724)

Net cash flow from investing activities (5,992,811) (33,560,056) (7,225,317) (34,527,242) Netcashoutflowfromfinancingactivities – – – – Net increase/(decrease) in cash and cash equivalents 28.1 10,537,379 15,905,974 10,537,379 15,905,974

Cash and cash equivalents at beginning of year 20,400,480 4,494,505 20,400,480 4,494,505

Cash and cash equivalents at end of year 30,937,858 20,400,480 30,937,858 20,400,480

page 50

annual report 2006

Financial Statements and notes STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2006 Non Distributable Note Retained-Earnings Reserve Total R R R

GROUP

Balance at 31 March 2004 as previously stated 122,524,086 – 122,524,086 Restatements 29 20,921,940 – 20,921,940

Balance at 31 March 2004 restated 143,446,026 – 143,446,026 Net profit as previously reported 12,806,032 – 12,806,032 Prior year adjustments Revenue provisions (9,155,011) – (9,155,011) Depreciation (2,561,748) – (2,561,748) Guaranteed liability raised (1,193,043) – (1,193,043) Revenue recognised 2,343,750 – 2,343,750 Stock (18,000) – (18,000) Post-retirement obligations 2,170,648 – 2,170,648 Operating expenses 2,878,201 – 2,878,201

Net profit for the year as restated 7,270,829 – 7,270,829

Balance at 31 March 2005 restated 150,716,855 – 150,716,855 Revaluation of property 11 – 63,046,831 63,046,831 Netprofitfortheyear 5,072,300 – 5,072,300

Balance as at 31 March 2006 155,789,155 63,046,831 218,835,986

MINTEK

Balance at 31 March 2004 as previously stated 111,759,528 – 111,759,528Restatements 29 21,064,583 – 21,064,583

Balance at 31 March 2004 restated 132,824,111 – 132,824,111 Net profit as previously reported 5,331,271 – 5,331,271 Prior year adjustments Revenue provisions (9,155,011) – (9,155,011) Depreciation (2,561,748) – (2,561,748) Guaranteed liability raised (1,193,043) – (1,193,043) Revenue recognised 3,125,000 – 3,125,000 Stock (18,000) – (18,000) Post-retirement obligations 2,170,648 – 2,170,648 Operating expenses 2,865,767 – 2,865,767

Net profit for the year as restated 564,884 – 564,884 Balance at 31 March 2005 restated 133,388,995 – 133,388,995 Revaluation of property 11 – 63,046,831 63,046,831 Netprofitfortheyear 4,387,757 – 4,387,757

Balance as at 31 March 2006 137,776,752 63,046,831 200,823,583

page 51

annual report 2006

Financial Statements and notesNOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2006

1. Significant accounting policies and basis of preparationTheannualfinancialstatementsarepreparedinaccordancewiththehistoricalcostconventionasmodifiedbytherevaluationofgeneralpurposelandandbuildingsandinvestmentpropertyandtherestatementofcertainfinancialinstrumentstofairvalue.Thefinancialstatementsincorporatethefollowingprincipalaccountingpolicies,whichconformtoSouthAfricanStatementsofGeneralAccepted Accounting Practice (GAAP), and in the manner required by the Public Finance Management Act (PFMA). The annual financialstatementsareexpressedinitsFunctionalcurrencySouthAfricanRands(R).Theaccountingpoliciesareconsistentwiththoseappliedinthepreviousyear,exceptforcertainrestatementsandchangesinaccountingpolicies.

1.1 Change in accounting policyDuringtheyeartheGroupchangeditsaccountingpolicywithrespecttoaccountingforLandandBuildings,andInvestmentProperty.The change in accounting policy is as a result of the Group considering that the fair value method for accounting for Land and Buildings,andInvestmentPropertywillbemoreappropriatethanthecostmethod.ThemajoreffectontheGroup’sresultsareasfollows:• ThevalueofLandandBuildingsandnon-distributablereservesincreasedbyR63046831withnoimpactonincomeforthe

current year.• A reduction of depreciation on investment property of R143 811 compared to the previous year.• AnincreaseincurrentincomeasaresultofthefairvalueadjustmenttoInvestmentPropertyofR3898196.

1.2 Basis of consolidationTheGroupannualfinancialstatementscomprisethoseofMintek,itssubsidiariesandjointlycontrolledoperations,presentedasasingleeconomicentity.Theeffectsofintra-grouptransactionsareeliminatedinpreparingtheGroupannualfinancialstatements.Subsidiaries,whicharedirectlyorindirectlycontrolledbytheGroup,areincludedintheconsolidatedfinancialstatementsasfromthedateofacquisitionanduntilthedateofdisposalwherecontrolisceased.Theidentifiableassetsandliabilitiesofcompaniesacquiredareassessedandincludedinthebalancesheetattheirfairvaluesasatthedateofacquisition.Equityandnetprofitattributabletominoritiesareshownseparatelyinthebalancesheetandincomestatementrespectively.

1.3 Foreign currency transactions and balancesForeign currency transactions are recorded at the exchange rate ruling at the date of the transaction.At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into South African Rand at exchange rates ruling at the balance sheet date. Exchange differences arising on the settlement of transactions at rates different from those at the date of the transaction and unrealised foreign exchange.Exchange differences on unsettled foreign currency monetary assets and liabilities, are recognised in the income statement and includedinincomefrominvestmentsandfinancingcosts.

1.4 Investment in subsidiarySubsidiarycompaniesareenterprisesinwhichthecompanyholdsalong-termequityinterestandoverwhichithasthepowertocontrolthefinancialandoperatingactivitiesoftheentitiessoastoobtainbenefitsfromitsactivities.All investments in subsidiary companies are initially recognised at cost less impairment loss. The carrying amount of such investments is reduced to recognise any decline, other than a temporary decline, in the value of individual investments. Any carryingvalueadjustmentsarechargedtotheincomestatementintheperiodinwhichtheyareincurred.

1.5 Investment in associatesAnassociateisanentityinwhichtheGrouphassignificantinfluence,throughparticipationinthefinancialandoperatingpolicydecisions of the investee, but not control over those policies. The results, assets and liabilities of associates are incorporated intheseconsolidatedannualfinancialstatementsbyusingtheequitymethodofaccounting,fromtheeffectivedatesoftheiracquisition until the effective dates of their disposal. Investmentsinassociatesarecarriedinthebalancesheetatcostasadjustedbypost-acquisitionchangesintheGroup’sshare of the net assets of the associate, less any impairment in the value of individual investments. Losses of the associate in excess oftheGroup’sinvestmentsinthoseassociatesarenotrecognised.Anydifferencebetweenthecostofacquisitionandthe

page 52

annual report 2006

Financial Statements and notes1.5 Investment in associates (continued)Group’sshareofthefairvalueoftheidentifiablenetassetsoftheassociateatthedateofacquisitionisrecognisedaccordingtothegroup’saccountingpoliciesongoodwill.Whereagroupenterprisetransactswithanassociatecompany,unrealisedprofitsandlossesareeliminatedtotheextentoftheGroup’sinterestintherelevantassociate,exceptwhereunrealisedlossesprovide evidence of an impairment of the asset transferred.

1.6 GoodwillGoodwillrepresentstheexcessofthepurchaseconsiderationoverthefairvalueoftheGroup’sshareofthenetidentifiableassetsoftheacquiredentityatthedateofacquisition.Goodwilliscapitalisedasanassetandreviewedannuallyforimpairment.Ateachbalancesheetdategoodwillisreviewedforindicationsofimpairmentorchangesinestimatedfuturebenefits.Ifsuchindicationexistsananalysisisperformedtoassesswhetherthecarryingamountofgoodwillisfullyrecoverable. An impairment charge is recognised to the extent that the carrying amount exceeds the recoverable amount.

1.7 Intangible assetsAllintangibleassetsareinitiallyrecognisedatcost.Intangibleassetswithafiniteusefullifeareamortisedonastraight-linebasisovertheirestimatedusefullives.Intangibleassetswithanindefiniteusefullifearenotamortised.Theusefullifeofintangibleassetsnotamortisedisreviewedannuallytodeterminewhethereventsandcircumstancescontinuetosupportanindefiniteusefullifeassessmentforthoseassets.

1.8 Research and development costsExpenditureonresearchactivitiesisrecognisedasanexpenseintheperiodinwhichitisincurred.AninternallygeneratedintangibleassetarisingfromtheGroup’sresearchanddevelopmentisrecognisedonlyifallofthefollowingconditionsaremet:• Anassetiscreatedthatcanbeidentified(suchassoftwareandnewprocesses);• Itisprobablethattheassetcreatedwillgeneratefutureeconomicbenefits;• Thedevelopmentcostoftheassetcanbemeasuredreliably;• Itistechnicallyfeasibletocompletetheintangibleassetsothatitwillbeavailableforuseorsale;• Theabilitytouseorselltheintangibleasset;and• Itistheintentiontocompletetheintangibleassetsothatitwillbeavailableforuseorsale.Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in theperiodinwhichitisincurred.Internallygeneratedintangibleassetsareamortisedonastraight-linebasisovertheirusefullives.

1.9 Impairment Ateachbalancesheetdate,anassessmentismadeofwhetherthereisanyobjectiveevidenceofimpairmentoffinancialassets. If there is evidence of, then the recoverable amount is estimated and an impairment loss is recognised. Where it is not possible to estimate the recoverable amount for an individual asset, the recoverable amount is determined for the cash-generatingunittowhichtheassetbelongs.Intangibleassets,withanindefiniteusefullife,andgoodwillacquiredinabusinesscombinationaretestedforimpairmentannually,irrespectiveofwhetherthereisanyindicationthattheassetsmaybeimpaired.The recoverable amount is the higher of fair value less costs to sell and value in use. Value in use represents the present valueofthefuturecashflowsexpectedtobederivedfromanasset(cash-generatingunit).Theexpectedfuturecashflowsarediscountedtotheirpresentvalueusinganappropriatediscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtheriskspecifictotheassetforwhichthefuturecashflowestimateshavenotbeenadjusted.Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount thatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognisedfortheasset(cash-generatingunit)inprioryears.Areversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, inwhichcasethereversaloftheimpairmentlossistreatedasarevaluationincrease.Impairmentlossesforgoodwillarenotreversed in subsequent periods.

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2006

page 53

annual report 2006

Financial Statements and notes1.10 LeasesLeasesareclassifiedasfinanceleaseswheresubstantiallyalltherisksandrewardsassociatedwithownershipofanassetaretransferredfromthelessortothelessee.Allotherleasesareclassifiedasoperatingleases.

The Group as a lessorAmountsduefromlesseesunderfinanceleasesarerecordedasreceivablesattheamountoftheGroup’snetinvestmentintheleases.FinanceleaseincomeisallocatedtoaccountingperiodssoastoreflectaconstantperiodicrateofreturntotheGroup’snetinvestmentoutstandinginrespectoftheleases.Rentalincomefromoperatingleasesisrecognisedonastraight-line basis over the term of the relevant lease.

The Group as a lesseeAssetssubjecttofinanceleasesarecapitalisedattheircashcostequivalent,withtherelatedleaseobligationrecognisedatthe same value. Capitalised leased assets are depreciated to their estimated residual values over their estimated useful lives. Financeleasepaymentsareallocatedusingtheeffectiveinterestratemethodbetweentheleasefinancecostwhichisincludedinfinancingcostsandthecapitalrepayment,whichreducestheliabilitytothelessor.Operatingleasesarethoseleases,whichfalloutsidethescopeoftheabovedefinition.Operatingleaserentalsarechargedtoincome on a straight-line basis over the term of the lease.

1.11 Property, plant and equipmentPropertiescomprisegeneralpurposelandandbuildingsheldbytheGroupforitsownuseandinvestmentpropertyandbuildings for purposes of generating rental income or held for capital appreciation. Properties are initially valued at historical costandsubsequentlyrevaluedeverytwoyearsbyanindependentprofessionalvaluer,toreflectthenetrealisableopenmarketvalueusingthealternativeorexistinguseasbasiswhereappropriate.The cost of property, plant and equipment includes all directly attributable expenditure incurred in the acquisition, establishment and installation of such assets so as to bring them to the location and condition necessary for it to be capable of operating in the manner intended by management. Interest costs are not capitalised.Depreciationiscalculatedsoastowriteoffthecostofproperty,plantandequipmentonastraight-linebasis,overtheestimatedusefullivestotheestimatedresidualvalue.Usefullivesandresidualvaluesarereviewedonanannualbasis.Residualvaluesaremeasuredastheestimatedamountcurrentlyreceivableforanassetiftheassetwerealreadyoftheageand condition expected at the end of its useful life.Property,plant,equipmentandvehiclesareperiodicallyreviewedforimpairment.Assetsheldunderfinanceleasesaredepreciatedovertheirexpectedusefullivesonthesamebasisasownedassetsor,whereshorter,thetermoftherelevantlease. All assets under construction are carried at cost and depreciation only commences once the asset is commissioned and ready for its intended use. The gains and losses arising on the disposal or retirement of an item of property, plant, equipment and vehicles is determined asthedifferencebetweenthesalesproceedsandthecarryingamountoftheassetandisrecognisedinprofitandloss.

1.12 Investment PropertyInvestmentpropertyisrecognisedusingthefairvaluemodel.Allfixedpropertywhererentalscontractsareinexcessofthree(3)yearsandwhichisoccupiedbyindependentorganisationsareclassifiedasinvestmentproperty.Thefairvalueisdetermined at balance sheet date by an independent professional valuer based on market evidence of the most recent prices achieved in arms length transactions of similar properties in the same area.

1.13 Employee benefitsTheGroupoperatesanumberofretirementbenefitplansforitsemployees.Theseplansincludeadefinedcontributionplanandotherretirementbenefitssuchasmedicalaidbenefitplans.Currentcontributionsforthedefinedcontributionplanarechargedagainstincomewhenincurred.


page 54

annual report 2006

Financial Statements and notes1.14 Post-retirement health care costsThisGrouphasanobligationtofundthemedicalaidbenefitsofallitspastemployeesanddependantsofpastemployeeswhoretiredorwereintheemploymentoftheGrouppriorto31December1999.Theplanliabilityisunfundedandfullyprovidedforinthefinancialstatements.TheGroupusestheprojectunitcreditactuarialmethodtodeterminethepresentvalueofitspastservicecost.Actuarialgainsand losses are recognised in full in the reporting period it relates to and is the excess over the greater of the present value of the past service obligation at the end of the reporting period before deducting the present value of assumed assets at the same date. Valuations of these obligations are carried out annually by independent actuaries using appropriate mortality tables, long-term estimates of increases in medical costs and appropriate discount rates. General increases to medical aid contributions wereestimatedtakingintoaccounttheprojectedfuturechangesinthecostofmedicalservicesresultingfrombothinflationandspecificchangestomedicalcosts.Theobligationcalculatedaboveassumesthatthecrosssubsidyofpensioner’sbenefitsbytheactivememberswillcontinueasatpresent.Ifthiscross–subsidyweretoberemoved,itwouldresultinanincreasedestimated liability.

1.15 InventoriesInventoriesarevaluedstatedatthelowerofcostornetrealisablevalue.Costscomprisedirectmaterialsand,whereapplicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present locationandcondition.Costiscalculatedusingtheweightedaveragemethod.Netrealisablevaluerepresentstheestimatedselling price in the ordinary course of business less any costs of completion and costs to be incurred in marketing, selling and distribution.

1.16 ProvisionsProvisionsarerecognisedwhentheGrouphasapresentobligationasaresultofapasteventanditisprobablethatthiswillresultinanoutflowofeconomicbenefitsandtheamountcanbereasonablydetermined.TheGrouprecognisesitsobligationforguaranteeingitsproductandservicesforperiodsasstipulatedinitscontractswiththeGroup’scustomers.The Group is exposed to certain environmental liabilities relating to its operations. Provision for the cost of environmental and otherremedialworksuchasreclamationcosts,closedownandrestorationcostsandpollutioncontrolismadewhensuchexpenditure is probable and the cost can be reasonably estimated.

1.17 Financial instrumentsFinancial instruments recognised on the balance sheet include derivative instruments, investments, investments in debt securities, accounts receivable, cash and cash equivalents, accounts payable and interest bearing debt. Financial instruments areinitiallymeasuredatcostincludingtransactioncostswhentheGroupbecomesapartytotheircontractualarrangements.Thesubsequentmeasurementoffinancialinstrumentsisdealtwithinthesubsequentnotes.WhentheGroupcanlegallydosoandtheGroupintendstosettleonanetbasis,orsimultaneously,relatedpositiveandnegativevaluesoffinancialinstrumentsareoffsetwithinthebalancesheetamounts.

1.17.1 Derivative instrumentsTheGroupdoesnotusederivativefinancialinstrumentsincludingforwardrateagreementsandforwardexchangecontractstohedgeitsexposuretointerestrateandforeignfluctuations.ItistheGroup’spolicynottohedgeitsexposurefromforeigncurrencyfluctuations,asitdoesnotconsidertheimpacttobesignificant.ItisthepolicyoftheGroupnottotradeinderivativefinancialinstrumentsforspeculativepurposes.

1.17.2 InvestmentsInvestmentsconsistoflong-termmoneymarketinstrumentsinitiallyrecordedatcost,whichisthefairvalueofthecashplacedwiththeinstitution.Interestisaccruedusingtheeffectiveinterestratemethodandincludedintheincomestatementonanaccrual basis.


page 55

annual report 2006

Financial Statements and notes1.17 Financial instruments (continued)

1.17.3 Trade and other receivablesTradeandotherreceivablesarestatedatcostlessanallowancefordoubtfuldebts.Theallowanceraisedistheamountneededtoreducethecarryingvaluetotheexpectedfuturecashflows.Irrecoverableamountsarewrittenoffduringtheyearinwhichtheyareidentified.

1.17.4 Cash and cash equivalentsCash and cash equivalents comprise cash on hand, demand deposits and investment in short term money market instruments. The carrying amount of cash is measured at its fair value.

1.17.5 Financial liabilitiesFinancial liabilities other than derivative instruments are amortised at their original debt value less principal payments and amortisation. Derivatives are subsequently measured at fair value and gains and losses are included in the income statement for the period.

1.17.6 Impairment of financial liabilitiesAteachbalancesheetdateanassessmentismadeofwhetherthereisanyobjectiveevidenceofimpairmentoffinancialassets.IfthereisevidencethentherecoverableamountisestimatedandanimpairmentlossisrecognisedinaccordancewithIAS 39 (AC 133) Financial Instruments and Recognition.

1.18 Government grantsGovernmentgrants,whichareunconditionalandareintendedtocompensateexpensesandgiveimmediatefinancialsupporttotheentitywithnofuturerelatedcostsandisrecognisedasincomeintheperiodinwhichitisreceived.GovernmentgrantsarefullyutilisedtofinancetheoperationsofMintekandanyadditionsandexpansionsfixedassetsarefinancedthroughcashflowsgeneratedfromgeneralbusinessactivities.

1.19 Revenue recognitionRevenueisrecognisedwhenthesaletransactionsgivingrisetosuchrevenueisconcludedandrisksandrewardsofownershipandtitlepasstothebuyerunderthetermsoftheapplicablecontractandthepricingisfixedanddeterminable.Revenue arising from the rendering of services is recognised based on the percentage of completion determined by reference tothephysicalamountofworkperformedinrelationtothetotalproject.Advanceincomearisingasresultofcontractsundertakenintermsofcommercialworkinrespectofinvoicesraisedandpaidforinadvancebutforwhichnosubstantialworkhasbeenmadetojustifytherecognitionofanyrevenue,isdeferreduntiltheincomeisearnedbasedonthepercentageworkcompleted.Revenuearisingfromlicencefeesisrecognisedonanaccrualbasisinaccordancewiththetermsoftheapplicablecontracts.Revenue from royalties is accrued based on the nature of the applicable contracts.Interest income is accrued on a time proportion basis recognising the effective yield on the underlying assets. Dividendincomefrominvestmentsisrecognisedwhentherighttoreceivepaymenthasbeenestablished.Rentalincomeisderivedfromrentalofinvestmentsinfixedpropertyandequipmentandisrecognisedonanaccrualbasisinaccordancewiththesubstanceoftherelevantagreements.

1.20 Contracts in progressWhere 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 ofcontractcostsincurredinrelationtotheestimatedtotalcontractcosts.Variationsincontractwork,claimsandincentivepayments are included to the extent that they have been agreed to the customer.Where the outcome of the contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurredandprobablyrecoverable.Contractcostsarerecognisedasexpensesintheperiodinwhichtheyareincurred.Whenitisprobablethattotalcontractcostswillexceedtotalcontractrevenue,theexpectedlossisimmediatelyrecognisedasanexpense to the income statement.


page 56

annual report 2006

Financial Statements and notes1.21 TaxationIncome tax represents the sum of the tax currently payable and deferred tax.The tax currently payable is based on taxable profitforthefinancialyear.Taxableprofitdiffersfromprofitasreportedintheincomestatementbecauseitexcludesitemsof income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible.TheGroup’sliabilityforcurrenttaxiscalculatedusingtaxratesthathavebeenenactedorsubstantivelyenactedbythe balance sheet date.Deferredtaxisrecognisedondifferencesbetweenthecarryingamountofassetsandliabilitiesinthefinancialstatementsandthecorrespondingtaxbasesusedinthecomputationoftaxableprofit,andareaccountedforusingthebalancesheetliabilitymethod. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhichdeductibletemporarydifferencescan be utilised. Such assets and liabilities are not recognised if the temporary differences arise from the initial recognition (otherthanabusinesscombination)ofotherassetsandliabilitiesinatransactionthataffectsneitherthetaxableprofitnortheaccountingprofit.Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, andinterestinjointventures,exceptwherethecompanyisnotabletocontrolthereversalofthetemporarydifferenceanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.Thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartoftheassettoberecovered.Deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplyintheperiodwhentheliabilityissettledortheassetrealised.Deferredtaxischargedorcreditedtoprofitorloss,exceptwhenitrelatestoitemschargedorcrediteddirectlytoequity,inwhichcasethedeferredtaxisalsodealtwithinequity.Deferredtaxassetsandliabilitiesareoff-setwhenthereisalegallyenforceablerighttosetoffcurrenttaxassetsagainstcurrenttaxliabilitiesandwhentheyrelatetoincometaxleviedbythesametaxationauthorityandthecompanyintendstosettle its current tax assets and liabilities on a net basis.TheprincipaloperatingentityMintekisexemptfromnormalcompanytaxationasitisastatecontrolledandfinancedentity.

1.22 Irregular, fruitless and wasteful expenditureIrregularexpendituremeansexpenditureincurredincontraventionof,ornotinaccordancewith,arequirementofanyapplicablelegislation,including:• The PFMA, or• Any provincial legislation providing for procurement procedures in that provincial government.Fruitlessandwastefulexpendituremeansexpenditurethatwasmadeinvainandcouldhavebeenavoidedhadreasonablecarebeenexercised.Allirregular,fruitlessandwastefulexpenditureischargedagainstincomeintheperiodinwhichitisincurred.

1.23 Financing costs Financingcostsarerecognisedintheincomestatementintheperiodinwhichtheyareincurred.

1.24 Comparative figuresWherenecessary,comparativefigureshavebeenrestatedtoconformtochangesinpresentationinthecurrentyear.Wherecomparativefigureshavebeenadjusted,thenature,amountof,andreasonfor,suchrestatementorreclassificationhavebeendisclosed. Refer to note 29 for details in this regard.


page 57

annual report 2006


GROUP MINTEK 2006 2005 2006 2005 R R R R

2. REVENUE Government grants 95,508,772 88,632,000 95,508,772 88,632,000 Commercial income 161,006,133 143,738,288 161,787,383 144,519,538 Contract research 99,945,779 79,147,243 100,727,029 79,928,493 Public sector 9,153,866 9,620,506 9,153,866 9,620,506 Manufactured products 11,659,357 24,292,081 11,659,357 24,292,081 Service income 32,331,773 21,204,465 32,331,773 21,204,465 Material sales 7,130,364 9,473,994 7,130,364 9,473,994 Royalty income 784,993 - 784,993 -

TOTAL REVENUE 256,514,905 232,370,288 257,296,155 233,151,538

3. OPERATING EXPENSES 242,161,677 224,186,842 242,161,677 224,186,842 Staff costs 156,364,750 144,099,295 156,364,750 144,099,295 Consumables 33,921,978 36,167,296 33,921,978 36,167,296 General running expenses 38,043,292 30,195,235 38,043,292 30,195,235 Administration overheads 7,234,557 9,304,457 7,234,557 9,304,457 Repairs and maintenance 5,847,596 1,959,224 5,847,596 1,959,224 Provisionforandamountswrittenoff 749,503 2,461,335 749,503 2,461,335

4. OTHER OPERATING INCOME Operating Income 11,131,118 3,263,300 11,193,321 3,263,300 Library services 137,913 142,525 137,913 142,525 Breach of contract 351,723 101,323 351,723 101,323 Bursary learnerships 3,895,852 - 3,895,852 - Commission 26,651 315,606 26,651 315,606 Conferences 1,491,139 920,621 1,491,139 920,621 Mintek cafeteria 712,467 712,650 712,467 712,650 Sundry income 209,063 853,080 209,063 853,080 Bad debts recovered 4,168,421 90,425 4,168,421 90,425 Other 137,890 127,071 200,093 127,071 Rental income - properties 1,604,068 1,256,585 1,604,068 1,256,585 Investment Property 5,426,927 1,165,857 5,426,927 1,165,857 Rental Income 1,528,731 1,309,667 1,528,731 1,309,667 Depreciation - (143,810) - (143,810) Fairvalueadjustment 3,898,196 - 3,898,196 -

18,162,113 5,685,742 18,224,316 5,685,742

page 58

annual report 2006



5. INVESTMENT INCOME Financial income Interestearned:fixeddeposits 7,476,604 7,071,556 7,476,604 7,071,556 Loans to Subsidiary - - 813,178 661,887 Loans to Associates 813,178 661,887 - - Interestearned:bankbalances 822,553 561,659 822,553 561,659 Interestearned:staffdebtors 704,690 208,289 704,690 208,289 Dividend income - - - -

9,817,025 8,503,391 9,817,025 8,503,391

6. FINANCE EXPENSES Interest paid guaranteed liability 94,581 - - - Interest other 129,279 - 129,279 - Interestonfinancelease 113,564 - 113,564 -

337,424 - 242,843 -

7. AUDIT FEES Audit fees Provision for current year 1,083,000 752,108 1,050,000 725,038 Underprovided prior year 841,160 - 834,479 -

1,924,160 752,108 1,884,479 725,038

8. FEES FOR SERVICES Consultants 11,287,396 6,585,089 11,287,396 6,585,089 Legal 712,587 - 712,587 -

11,999,983 6,585,089 11,999,983 6,585,089

9. DEPRECIATION Buildings 325,339 325,339 325,339 325,339 Plant 2,268,203 3,309,972 2,268,203 3,309,972 Equipment 7,549,025 7,209,796 7,549,025 7,209,796 Vehicles 185,956 351,592 185,956 351,592 Leased assets 198,801 - 198,801 - Furnitureandfittings 92,248 86,760 92,248 86,760 10,619,572 11,283,459 10,619,572 11,283,459

10. POST-RETIREMENT BENEFIT OBLIGATIONS Actuarial loss/(gain) - post-retirement medical 8,729,894 (2,214,069) 8,729,894 (2,214,069) obligation Interest on post-retirement medical obligation 3,692,544 4,512,793 3,692,544 4,512,793 Actuarial/(loss)/gain pension fund 406,000 1,161,000 406,000 1,161,000

12,828,438 3,459,724 12,828,438 3,459,724

Number of employees 524 493 524 493

page 59

annual report 2006

Financial Statements and notes

GROUP MINTEK Opening Closing Opening Closing Balance Additions Transfers Disposals Balance Balance Additions Transfers Disposals Balance2006 R R R R R R R R R R 11. PROPERTY, PLANT AND EQUIPMENT Land 4,927,776 - 50,481,024 - 55,408,800 4,927,776 - 50,481,024 - 55,408,800 Buildings 16,266,961 27,172 12,565,807 - 28,859,940 16,266,961 27,172 12,565,807 - 28,859,940 Plant 32,795,382 413,341 - (630,495) 32,578,228 32,795,382 413,341 - (630,495) 32,578,228 Equipment 85,424,741 17,631,643 - (13,159,271) 89,897,113 85,424,741 17,631,643 - (13,159,271) 89,897,113 Vehicles 2,322,637 - - (1,332,056) 990,581 2,322,637 - - (1,332,056) 990,581 Furnitureandfittings 1,914,879 312,534 -(275,072) 1,952,341 1,914,879 312,534 - (275,072) 1,952,341 Finance leased assets - 1,995,394 - - 1,995,394 - 1,995,394 - - 1,995,394 Capitalworkinprogress 24,345 1,438,542 - - 1,462,887 24,345 1,438,542 - - 1,462,887

143,676,721 21,818,626 63,046,831 (15,396,894) 213,145,284 143,676,721 21,818,626 63,046,831 (15,396,894) 213,145,284

Current Current Year Year Accumulated Opening Depreciation Transfers Disposals Closing Opening Depreciation Transfers Disposals Closing Depreciation R R R R R R R R R R

Land - - - - - - - - - - Buildings 9,434,837 325,339 - - 9,760,176 9,434,837 325,339 - - 9,760,176 Plant 11,364,250 2,268,203 - (457,375) 13,175,078 11,364,250 2,268,203 - (457,375) 13,175,078 Equipment 54,206,717 7,549,025 180,511 (12,172,283) 49,763,970 54,206,717 7,549,025 180,511 (12,172,283) 49,763,970 Vehicles 1,679,621 185,956 - (1,103,274) 762,303 1,679,621 185,956 - (1,103,274) 762,303 Furnitureandfittings 1,428,557 92,248 - (269,336) 1,251,469 1,428,557 92,248 - (269,336) 1,251,469 Finance leased assets - 198,801 - - 198,801 - 198,801 - - 198,801 Capitalworkinprogress - - - - - - - - - -

78,113,982 10,619,572 180,511 (14,002,268) 74,911,797 78,113,982 10,619,572 180,511 (14,002,268) 74,911,797

GROUP MINTEK 2006 2006 Net book value R R

Land 55,408,800 55,408,800 Buildings 19,099,764 19,099,764 Plant 19,403,150 19,403,150 Equipment 40,133,143 40,133,143 Vehicles 228,278 228,278 Furnitureandfittings 700,872 700,872 Finance leased assets 1,796,593 1,796,593 Capitalworkinprogress 1,462,887 1,462,887

138,233,487 138,233,487


page 60

annual report 2006


GROUP MINTEK Opening Closing Opening Closing Balance Additions Transfers Disposals Balance Balance Additions Transfers Disposals Balance2005 R R R R R R R R R R 11. PROPERTY, PLANT AND EQUIPMENT 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 3,834,787 (184,126) (321,600) 85,424,743 82,095,682 3,834,787 (184,126) (321,600) 85,424,743 Vehicles 2,443,835 - - (121,198) 2,322,637 2,443,835 - - (121,198) 2,322,637 Furnitureandfittings1,844,530 73,630 - (3,283) 1,914,877 1,844,530 73,630 - (3,283) 1,914,877 Capitalworkinprogress - 24,344 - - 24,344 - 24,344 - - 24,344

135,087,187 9,219,740 (184,126) (446,081) 143,676,721 135,087,187 9,219,740 (184,126) (446,081) 143,676,721

Current Current Year Year Accumulated Opening Depreciation Transfers Disposals Closing Opening Depreciation Transfers Disposals Closing Depreciation R R R R R R R R R R

Land - - - - - - - - - - Buildings 9,109,498 325,339 - - 9,434,837 9,109,498 325,339 - - 9,434,837 Plant 8,054,278 3,309,972 - - 11,364,250 8,054,278 3,309,972 - - 11,364,250 Equipment 47,499,577 7,209,796 (184,126) (318,530) 54,206,717 47,499,577 7,209,796 (184,126) (318,530) 54,206,717 Vehicles 1,449,228 351,592 - (121,199) 1,679,621 1,449,228 351,592 - (121,199) 1,679,621 Furnitureandfittings1,344,801 86,760 - (3,004) 1,428,557 1,344,801 86,760 - (3,004) 1,428,557 Capitalworkinprogress - - - - - - - - - -

67,457,382 11,283,459 (184,126) (442,733) 78,113,982 67,457,382 11,283,459 (184,126) (442,733) 78,113,982

GROUP MINTEK 2005 2005 Net book value R R

Land 4,927,776 4,927,776 Buildings 6,832,124 6,832,124 Plant 21,431,132 21,431,132 Equipment 31,218,026 31,218,026 Vehicles 643,016 643,016 Furnitureandfittings 486,320 486,320 Capitalworkinprogress 24,344 24,344

65,562,738 65,562,738 Freehold land and buildings comprise: Acquired in the prior year - Land and Buildings 11,759,900 11,759,900 Land Revalued 50,481,024 - Buildings 12,565,807 - Revaluation 74,806,731 11,759,900 Directors’Valuation 74,806,731 11,759,900

Portion175andportion226ofthefarmKlipfontein,203-IQJohannesburg,withbuildingsthereon. ThevalueofthebuildingcomplexwasestimatedatR84268740byLyonsFinancialSolutions(Proprietary)Limited, anindependentvaluer,duringthefinancialyearending31March2006.Thelatestvaluationreportwasissuedon7February2006. Theestimatedusefullivesofdepreciableproperty,plant,equipmentandvehiclesareasfollows: Buildings 50 years Plant 10 years Equipment 5 -10 years Vehicles 5 years Furnitureandfittings 10years

page 61

annual report 2006

Financial Statements and notes

GROUP AND MINTEK 2006 GROUP AND MINTEK 2005 Opening Closing Opening Closing Balance Additions Transfers Disposals Balance Balance Additions Transfers Disposals Balance R R R R R R R R R R 12. INVESTMENT PROPERTY Buildings - Billiton 7,190,526 (2,253,306) 3,898,196 - 8,835,416 7,190,526 - - - 7,190,526

7,190,526 (2,253,306) 3,898,196 - 8,835,416 7,190,526 - - - 7,190,526

Current Year Accumulated Opening Reversal Transfers Disposals Closing Opening Depreciation Transfers Disposals Closing Depreciation R R R R R R R R R R

Buildings - Billiton 2,253,306 (2,253,306) - - - 2,109,496 143,810 - - 2,253,306

2,253,306 (2,253,306) - - - 2,109,496 143,810 - - 2,253,306

Fair Value as at 8,835,416 4,937,220 31 March 2006 Directors’Valuation 8,835,416 4,937,220

Portionofportion175ofthefarmKlipfontein,203-IQJohannesburg,withbuildingsthereon.ThevalueofthebuildingcomplexwasestimatedatR8835416byLyonsFinancialSolutions(Proprietary)Limited,anindependentvaluerduringtheyearended31March2006.Thelatestvaluationreportwasissuedon 7 February 2006.

During the year the entity changed its accounting policy for investment property from the cost method to the fair value method as described in Note 1.1 as the entitybelievesthismethodtobemoreappropriatetoreflecttheinvestmentproperty.


page 62

annual report 2006


13. EQUITY ACCOUNTED INVESTMENTS Detailsofassociatesareasfollows: Portion Place of Portion of of voting Financial 2006 2005 Name of associate incorporation ownership power held year end R R Apic Toll Treatment (Proprietary) Limited South Africa 40% 40% 30 June 2005 - 12,873,565 Mogale Alloys (Proprietary) Limited South Africa 25% 25% 31 March 2006 12,285,939 15,071,494 Tollsort (Proprietary) Limited (discontinued) South Africa 25% 25% 28 February 2006 - - Tollsort Phase II (Proprietary) Limited South Africa Prepayment for pre-incorporation costs 31 March 2005 - - 12,285,939 27,945,059 The Group disposed of its shareholding in Apic Toll Treatment (Pty) Limited for an amount of R18 000 000 effective 1 July 2005. - - GROUP 2006 2005 R R Cost of unlisted investments 250 1,850 Apic Toll Treatment (Proprietary) Limited - 1,600 Mogale Alloys (Proprietary) Limited 250 250 Tollsort (Proprietary) Limited - - Shareofacquisitionreserves:ApicTolltreatmentandMogaleAlloys(Proprietary)Limited 5,715,831 11,839,521 Fair value of net assets acquired - 5,212,452 Interest bearing loans 6,569,858 10,891,236 Mogale Alloys (Proprietary) Limited 6,569,858 5,891,236 Apic Toll Treatment (Proprietary) Limited - 5,000,000 12,285,939 27,945,059 Directors’ valuation 12,285,939 27,945,059 GROUP 2006 2005 Reconciliation between opening and closing balance: R R Carrying value at the beginning of year 27,945,059 18,300,100 Loans to associates 678,622 2,215,462 Disposal of associate (18,653,037) - Shareofpostacquisitionprofitsaftertax 2,315,295 7,514,265 Losswrittenoff - (84,768) Carrying value at the closing of year 12,285,939 27,945,059

Thefollowingaredetailsofthesignificantassociate’sassets,liabilities,incomeandexpenses Long-term assets 108,138,022 164,254,982 Investment - 3,000,040 Current assets 78,390,473 139,323,771 Total Assets 186,528,495 306,578,793 Current liabilities 67,622,011 164,523,409 Long-term liabilities 96,042,164 94,254,742 Total Liabilities 163,664,175 258,778,151

Income 247,518,635 319,943,600 Profitbeforetaxation 5,216,118 58,590,583 Net operating profit 3,898,048 31,002,883 14. INVESTMENT IN SUBSIDIARY Detailsofsubsidiaryareasfollows: Place of Portion of Financial Shares at cost Shares at cost Indebtness Indebtness Name of subsidiary incorporation ownership year end 31 March 2006 31 March 2005 31 March 2006 31 March 2005 R R R R Mindev (Proprietary) Limited South Africa 100% 31 March 2006 100 100 (8,277,896) 8,489,598 100 100 (8,277,896) 8,489,598 Mindev(Proprietary)LimitedisengagedinthecommercialisationofMintek’spatentsandtechnologythroughtheidentificationofsuitablepartnerstoadvancesuchinterestsbywayofdirectinvestmentsinequityandthroughjointventures.Mintekholds100%oftheissuedsharecapitalofMindev(Proprietary)Limited.Theloansgrantedareunsecuredanddonothavefixedrepaymentsterms.DISCONTINUED OPERATIONS:TOLLSORT (PROPRIETARY) LIMITEDTollsort (Proprietary) Limited ceased its operations at the end of September 2004. Mindev (Proprietary) Limited has included the operating losses from Tollsort (Proprietary) LimitedtoanamountofR1193043.Thisrepresentstwenty-fivepercentofMindev’sportionoftheloanguaranteemadetoStandardBankonbehalfofTollsort(Proprietary)Limited. The total amount outstanding as at 31 March 2006 is R 3 309 564 and the amount recognised by Mindev (Proprietary) Limited as R825 624 at 31 March 2006.

page 63

annual report 2006



15. LONG-TERM LOANS AND ADVANCES Staff loans 1,979,876 2,183,523 1,979,876 2,183,523 Less: Short-term portion of staff loans (Note 17) (828,265) (910,070) (828,265) (910,070) 1,151,611 1,273,453 1,151,611 1,273,453 Staff loans are granted to qualifying staff in terms of schemes approved by theBoardofMintek.Theseloansaresubjecttoamaximumrepayment termsof60months,bywayoffixedmonthlyinstalments.Theinterestpayable ontheseloansiscalculatedattheprevailingofficialinterestrateasprescribed in the Seventh Schedule to the Income Tax Act, No. 58 of 1962.

16. INVENTORY Consumables 1,625,333 1,662,141 1,625,333 1,662,141 Finished goods 32,052 32,730 32,052 32,730 Contracts in progress 1,086,988 378,000 1,086,988 378,000 2,744,373 2,072,871 2,744,373 2,072,871

17. TRADE AND OTHER RECEIVABLES Trade debtors 51,333,575 48,458,296 53,026,283 49,369,754 Short-term portion of staff loans (Note 14) 828,265 910,070 828,265 910,070 Other receivables 2,346,499 1,840,656 2,346,499 1,840,656 SA Revenue Services (VAT) – 35,873 – 35,873 Less: – – – – Provision for bad debts (8,020,376) (12,228,541) (8,020,376) (12,228,541) 46,487,963 39,016,354 48,180,671 39,927,812

18. SHORT-TERM INVESTMENTS Short-term investments 102,830,270 101,679,514 102,830,270 101,679,514

Investmentsinshort-termfixeddepositsareheldwithvariousreputable financialinstitutionsatmarketvalue. Fixedinvestmentsheldwithvariouspublicfinancialinstitutionsarepartly earmarkedasfinancingforthepost-retirementmedicalaidliability.

19. TRADE AND OTHER PAYABLES Trade creditors 10,782,865 10,672,871 10,782,865 10,672,871 Other payables 2,528,345 1,266,367 2,495,345 1,243,367 Current portion of lease liability 221,785 – 221,785 – Current portion of guaranteed liability 412,812 397,681 – – SA Revenue Services (VAT) 6,578,183 – 6,578,183 – Other creditors and accruals 6,800,100 6,387,271 6,800,100 6,387,271 27,324,090 18,724,190 26,878,278 18,303,509

20. DEFERRED INCOME Deferred income 18,917,629 15,193,861 18,917,629 15,193,861 Advanced client billing 2,756,424 7,600,000 2,756,424 7,600,000 21,674,053 22,793,861 21,674,053 22,793,861

Deferred income arises as a result of contracts undertaken in terms of the Lead Fund and Innovation funds 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 arises as a result of contracts undertaken in terms ofcommercialworkwhereinvoicesareraisedbasedonworkthathas been done. The quantum of cost incurred provides the basis for the level of revenue recognised in the period.

page 64

annual report 2006


Opening Additional Utilised and Closing Balance provisions reversed Balance R R R R

21. PROVISIONS GROUP AND MINTEK 31 March 2006 Provision for leave pay 12,873,411 – 1,122,858 11,750,553 Provision for lncentive Bonus 4,000,000 – 4,000,000 – Productwarranties 1,555,011 – 660,503 894,508 18,428,422 – 5,783,361 12,645,061

Opening Additional Utilised and Closing Balance provisions reversed Balance R R R R

GROUP AND MINTEK 31 March 2005 Provision for leave pay 8,259,236 12,325,225 7,711,050 12,873,411 Provision for Incentive Bonus 1,097,738 6,148,062 3,245,800 4,000,000 Productwarranties – 1,555,011 – 1,555,011 9,356,974 20,028,298 10,956,850 18,428,422

Theprovisionforleavepayrelatestovestedleavepaytowhichemployeesbecomeentitleduponleavingtheemploymentoftheentity. The provision arises as employees render a service that increases their entitlement to future compensated leave. The provision is utilised whenemployeeswhoareentitledtoleavepay,leavetheemploymentoftheentityorwhentheaccruedleaveduetoanemployee,is utilised. The provision for bonus consists of component elected by the employees from their total cost of employment package and a performancebonus.BonusesbecomepayableinNovemberannually.Theprovisionrepresentmanagement’sbestestimateoftheliability atyearend.Theperformancebonusiscalculatedonaspecificformulabasedontheconsolidatedannualfinancialresults. Theprovisionforproductwarrantiesistheentityrecognisingitsprobableliabilityformeetingitsobligationsintermsofproductsand servicesasstipulatedinitscontractswithitscustomers. GROUP MINTEK 2006 2005 2006 2005 R R R R

22. LONG-TERM RETIREMENT BENEFIT OBLIGATION Post-retirement medical aid 58,300,000 48,900,000 58,300,000 48,900,000 Pensionbenefitliability 2,935,000 2,529,000 2,935,000 2,529,000 Long-term retirement benefit obligation 61,235,000 51,429,000 61,235,000 51,429,000 Post-retirement medical benefits The amounts included in the balance sheet arising from Mintek’sobligationinrespectofpost-retirementmedical benefitsisasfollows: Present value of obligations as at 31 March 2006 58,300,000 48,900,000 58,300,000 48,900,000 Fair value of plan assets as at 31 March 2006 – – – – Post-retirement benefit obligation 58,300,000 48,900,000 58,300,000 48,900,000

Fixedinvestmentsheldwithvariouspublicfinancialinstitutionsispartlyearmarkedasfinancingforthepost-retirementmedicalaid liability(refertostatementofchangesinequity).Mintekhasnotassignedaspecificfundtohedgeagainstthepost-retirement medical aid liability. Movement in the net liability recognised in the balance sheet Netpastservicebenefitliability: Beginning of the year 48,900,000 49,300,000 48,900,000 49,300,000 Interest cost 3,692,544 4,512,793 3,692,544 4,512,793 Contributions paid to service providers (3,022,438) (2,698,724) (3,022,438) (2,698,724) Net Actuarial loss/(gains recognised) 8,729,894 (2,214,069) 8,729,894 (2,214,069) – – – – Net past service benefit liability: End the year 58,300,000 48,900,000 58,300,000 48,900,000

page 65

annual report 2006


GROUP MINTEK 2006 2005 2006 2005 R R R R 22. LONG-TERM RETIREMENT BENEFIT OBLIGATION (continued) Key assumptions Expected long-term rate of return on plan assets 7.5% 9.0% 7.5% 9.0% Expected increase in health care costs 6.0% 6.0% 6.0% 6.0% Amountsrecognisedinincomeinrespectoftheschemeareasfollows: Current cost 12,422,438 2,298,724 12,422,438 2,298,724 Benefits paid Contributions (3,022,438) (2,698,724) (3,022,438) (2,698,724) Expected average remaining life of employees (years) 16 16 16 16

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 servicelivesoftherelevantemployees.Thegrouphasanobligationtoprovidemedicalbenefitstocertainpensioners and dependants of ex-employees. These liabilities have been provided in full, calculated on an actuarial basis. Theliabilitiesareunfunded.Periodicvaluationofthisobligationiscarriedoutbyindependentactuarieseverytwoyears,the latest one being 31 March 2006. Pension benefits are provided by membership of the Mintek Retirement Fund (MRF) and the Mintek Employees Retirement Fund (MERF). Movement in the net liability recognised in the balance sheet Employer liability 2,529,000 1,368,000 2,529,000 1,368,000 Movement in Guaranteed liability 400,000 9,000 400,000 200,000 – – – – Actuarial loss/(gain) 6,000 1,152,000 6,000 961,000 Net employer liability at end of year 2,935,000 2,529,000 2,935,000 2,529,000 Current cost 406,000 1,161,000 406,000 1,161,000

AtinceptionoftheFundaRetirementReservewasallocatedtocertainmemberswhichwillbecomepayableatthetimeofthe membersdeathorwithdrawal.Theemployeralsofundsaminimumguaranteedpensionforthememberswhoenteredthefundas at 1 January 1995. For purpose of calculating the valuation investment returns are expected to exceed salary increases by 3 %. Employercontributionsarechargedagainstincomeintheperiodinwhichtheyareincurred.Contributionssochargedwereas follows: MRF and MERF 8,814,634 9,682,030 8,814,634 9,682,030 Employeecontributionstothefundswereasfollows: MRF and MERF 4,863,246 3,749,733 4,863,246 3,749,733

page 66

annual report 2006



23. LONG-TERM CREDITORS Finance lease obligation 1,379,915 - 1,379,915 - Amountdueforfinanceleaseobligation 1,601,700 - 1,601,700 - Less:currentportionoffinanceleaseobligation (221,785) - (221,785) - Guarantee liability 412,812 795,362 - - Long-term liability 825,624 1,193,043 - - Less:currentportionoflong-termliability (412,812) (397,681) - - 1,792,727 795,362 1,379,915 -

23.1 FINANCE LEASE OBLIGATION Capitalised leased assets Payablewithinoneyear 221,785 - 221,785 - Payablewithin2-5years 1,379,915 - 1,379,915 - Net lease liability 1,601,700 - 1,601,700 - Itisthegroup’spolicytoleasecertainofitsequipmentunderleases. Thegrouphasanequipmentfinanceleaseagreementwithanaverage leasetermoffourtosixyears.Allleasesareonafixedrepaymentbasis and no arrangements have been entered into for contingent rental repayments. As of 31 March 2006 the aggregate amounts of minimum lease payments and the related imputed interest under capitalised lease contracts payable Present value ineachofthenextfivefiscalyearsandthereafterareasfollows: Mininimum minimum lease lease payments Interest payments Payable in the years ended 31 March 2007 379,234 157,449 221,785 2008 379,234 133,006 246,228 2009 379,234 105,772 273,462 2010 316,850 74,301 242,549 2011 111,178 22,925 88,253 Thereafter 529,423 - 529,423 2,095,153 493,453 1,601,700 GROUP MINTEK 2006 2005 2006 2005 R R R R

23.2 GUARANTEED LIABILITY Associate company liability 825,624 1,193,043 - - Less:currentportionincludedinaccountspayable (412,812) (397,681) - -

412,812 795,362 - -

The Group has assumed its share of the guaranteed liability of anassociatecompanywhichwillberepaidby15March2008 24. FUTURE LEASE LIABILITY Future operating lease charges for vehicles 362,672 324,276 362,672 324,276 -Payablebetweentwoandfiveyears 181,336 160,203 181,336 160,203 544,008 484,479 544,008 484,479

25. CONTINGENT LIABILITIES Mintek has various legal claims relating to disputed performance in sales and supply contacts. The amounts of the disputes are not expected to exceed R555 185. Mintek also has disputed employment termination contractswithformeremployees,theaggregateisnotexpectedto exceed R87 674. Mintek has performance guarantees outstanding of R713 503 for services rendered. A cession in favour of Absa for R5 000 000 to meet requirements for credit card and other banking facilities has been registered. TheGroup’ssubsidiaryMindev(Proprietary)Limited,hascededits shareholder loan in Mogale Alloys (Proprietary) Limited to the bank as surety for banking facilities granted.

page 67

annual report 2006


page 68

GROUP MINTEK 2006 2005 2006 2005 R R R R26. TAXATION Taxation on entity share in associate post-acquisition reserves (330,241) (2,410,641) - -

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. NoprovisionforincometaxwasmadeasMintekis exempted in terms of section 10(1)(CA)(i) of the Income Tax Act, No. 58 of 1962. Tax provisions liabilities arewithrespecttoMindevanditsassociatedcompanies and are payable through those entities. 27. COMMITMENTS Contractedfor: Capital expenditure 338,276 216,346 338,276 216,346 Authorised and not contracted for - - - - Internalfundswillbeprovidedtomeettheexpenditure inrespectofthesecommitments,whichhavebeenapproved and contracted for. 28. CASH GENERATED FROM OPERATIONS Notes Profit from operations 5,072,300 7,270,829 4,387,757 564,884 Adjusted for Investment income (9,817,025) (8,503,391) (9,817,025) (8,503,391) Finance expenses 337,424 - 242,843 - Non Cash items Investmentpropertyfairvalueadjustment 4 (3,898,196) - (3,898,196) - Depreciation - investment property 4 - 143,810 - 143,810 Depreciation 9 10,619,572 11,283,459 10,619,572 11,283,459 Fixed asset correction 180,510 - 180,510 - Loss/(Profit)ondisposaloffixedassets 1,131,011 (34,575) 1,131,011 (34,575) Loss on disposal of associates 653,037 - - - Provisions raised/(utilised) 20 - 20,028,298 - 20,028,298 Increase in post-retirement obligation 21 12,828,438 3,459,724 12,828,438 3,459,724 Post-retirement obligation – restatement of opening balance - 1,368,000 - 1,368,000 Share of associates income (2,315,295) (7,514,265) - - Increase in Loan to associate (678,622) (2,130,694) - - Long-term liability raised (142,335) 1,193,043 (221,785) - Prior year restatement 28 - 1,444,184 - 1,586,827 Reversal of long-term rental 28 - (1,843,861) - (1,843,861) Cashflowfromoperationsbeforeworkingcapitalchanges 13,970,819 26,164,561 15,453,125 28,053,175 Working capital changes: (541,174) 25,754,927 (1,347,555) 24,833,499 Decrease in loans 121,842 1,162,893 121,842 1,162,893 (Increase)/decrease in inventories (671,501) 2,326,247 (671,501) 2,326,247 Decrease in receivables (7,471,608) (1,760,598) (8,252,858) (2,672,057) Increase in payables 8,599,901 8,358,980 8,574,770 8,349,011 (Decrease)/increase in deferred income (1,119,808) 15,667,405 (1,119,808) 15,667,405 13,429,645 51,919,489 14,105,570 52,886,675 28.1 INCREASE IN CASH AND CASH EQUIVALENTS Cash on hand 4,929,673 5,521,367 4,929,673 5,521,367 Cash on deposit 5,617,008 10,384,893 5,617,008 10,384,893 Foreign currency (9,303) (285) (9,303) (285) 10,537,378 15,905,975 10,537,378 15,905,975

28.2 DISPOSAL OF SHARE IN ASSOCIATE Cost of investment 1,600 - - - Fair value at acquisition 5,212,452 - - - Post-acquisition reserves 8,438,985 - - - Loans and advances 5,000,000 - - - Carrying value at disposal date 18,653,037 - - - Proceeds 18,000,000 - - - Loss on disposal 653,037 - - -

annual report 2006


29. RESTATEMENTS AND RECLASSIFICATIONS Thetablesbelowreflectthechangesthatweremadetothe2005and2004yearsasaresultofcertainrestatementsandbalancesheetreclassifications.

Balance Provisions Staff cost Rental Interest Finance Reclassification Subsidiary Balance previously created and reversal adjustment reversal lease and errors consolidation as restated reported corrected adjustment adjustment Reconciliation 2005 R R R R R R R R R

GROUP Income statement Revenue 239,181,549 (9,155,011) - - - - 2,343,750 - 232,370,288 Operating expenses 160,367,724 - - - - - 63,819,117 - 224,186,841 Other operating income 7,186,535 - - - - - (1,500,793) - 5,685,742 Investment income - - - - - - 8,503,391 - 8,503,391 Audit fees 1,190,553 - - - - - (438,445) - 752,108 Fees for services 2,826,026 - - - - - 3,759,063 - 6,585,089 Administrative expenditure 75,800,172 - - - - - (75,800,172) - - Depreciation 8,868,497 2,096,821 - - - - 318,141 - 11,283,459 Post-retirement obligations - - - - - - 3,459,724 - 3,459,724 Shareofprofitofequity 9,924,906 - - - - - (2,410,641) - 7,514,265 accounted associates Balance sheet Capital and reserves Retained earnings at beginning 122,524,086 (1,368,000) 3,197,862 2,140,050 (2,903,920) - 19,855,948 - 143,446,026 of the year Non-current liabilities Long-term retirement 52,231,648 1,161,000 - - - - (1,963,648) - 51,429,000 benefitobligation Rentals in advance 1,768,218 - - (1,768,218) - - - - - Finance creditor - - - - - 795,362 - - 795,362 Current liabilities Trade and other payables 16,954,759 - - - - - 1,769,431 - 18,724,190 Deferred income 15,193,861 7,600,000 - - - - - - 22,793,861 Provisions 18,018,564 1,555,011 - - - - (1,145,153) - 18,428,422 Non-current assets Property, plant and equipment 48,646,730 (2,096,821) - - - - 19,012,829 - 65,562,738 Equity accounted investments 28,029,827 - - - - - (84,768) - 27,945,059 Current assets - - - - - - Inventory 2,090,871 (18,000) - - - - - - 2,072,871 Trade and other receivables 37,447,578 (2,402,480) - - - - 3,971,257 - 39,016,355 Short-term investments 100,000,000 - - - - - 1,679,514 - 101,679,514 Cash and cash equivalents 20,292,877 107,603 - - - - - - 20,400,480

Cash Flow Cash generated from operations Profitfromoperations 5,862,627 5,748,642 - - - - (2,817,363) 12,434 8,806,340 Depreciation - Investment property - - - - - - 143,810 - 143,810 Depreciation 8,868,497 2,096,821 - - - - 318,141 - 11,283,459 Provisions raised 8,661,590 11,366,708 - - - - - - 20,028,298 Long-termretirementbenefitobligation - 4,827,724 - - - - - - 4,827,724 Shareofprofitofequity - - - - - - - 7,514,265 7,514,265 accounted associates Rentals in advance - - - (1,843,861) - - - - (1,843,861) Prior year restatements 6,442,779 19,477,756 - - - - (4,998,595) - 20,921,940 Working Capital Decrease in inventory 2,308,247 - 18,000 - - - - - 2,326,247 Increase in receivables (191,823) - - - - - (1,698,984) - (1,890,807) Increase in payables 8,249,668 - - - - - 109,313 - 8,358,981 Increase in deferred income 8,067,404 7,600,000 - - - - - - 15,667,404 Cash inflow from operating activities Investment income 10,752,591 - - - (2,249,200) - - - 8,503,391 Payments to long-term retirement obligations - - (2,698,724) - - - - - (2,698,724) Provisions uitilsed - (10,956,850) - - - - - - (10,956,850) Cash inflow from investing activities Increase in investment deposits 20,000,000 - - - - - 1,679,514 - 21,679,514 Decrease in equity accounted (3,725,597) - - - - - 2,254,600 533,446 (937,551) associates Increase in short-term investment (1,381,711) - - - - - 1,381,711 - - interest Net increase in cash and 15,798,372 107,603 - - - - - - 15,905,975 cash equivalents

page 69

annual report 2006


29. RESTATEMENTS AND RECLASSIFICATIONS (continued)

Balance Provisions Staff cost Rental Interest Finance Reclassification Subsidiary Balance previously created and reversal adjustment reversal lease and errors consolidation as restated reported corrected adjustment adjustment Reconciliation 2005 R R R R R R R R R

MINTEK Income statement Revenue 239,181,549 (9,155,011) - - - - 3,125,000 - 233,151,538 Operating expenses 160,367,724 - - - - - 63,819,117 - 224,186,841 Other operating income 7,186,535 - - - - - (1,500,793) - 5,685,742 Investment income - - - - - - 8,503,391 - 8,503,391 Audit fees 1,190,553 - - - - - (465,515) - 725,038 Fees for services 2,826,026 - - - - - 3,763,063 - 6,589,089 Depreciation 8,868,497 2,096,821 - - - - 318,141 - 11,283,459 Post-retirement obligations - - - - - - 3,459,724 - 3,459,724 Balance sheet Capital and reserves Retained earnings at beginning of the year 111,759,528 (1,368,000) 3,197,862 2,140,051 - - 17,094,670 - 132,824,111 Non-current liabilities - - Long-termretirementbenefitobligation 52,231,648 1,161,000 - - - - (1,963,648) - 51,429,000 Rentals in advance 1,768,218 - - (1,768,218) - - - - - Current liabilities Trade and other payables 18,181,759 - - - - - 121,750 - 18,303,509 Deferred income 15,193,861 7,600,000 - - - - - - 22,793,861 Provisions 18,018,564 1,555,011 - - - - (1,145,153) - 18,428,422 Non-current assets Property, plant and equipment 48,646,730 (2,096,821) - - - - 19,012,829 - 65,562,738 Current assets Inventory 2,090,871 (18,000) - - - - - - 2,072,871 Trade and other receivables 11,017,411 - - - - - (2,527,813) - 8,489,598 Short-term investments 100,000,000 - - - - - 1,679,514 - 101,679,514 Cash and cash equivalents 20,292,877 - - - - - 107,603 - 20,400,480 Cash Flow Cash generated from operations Profitfortheyear 5,331,271 (11,453,735) - - - - 8,784,169 - 2,661,705 Depreciation - Investment property - - - - - - 143,810 143,810 Depreciation 8,868,497 2,096,821 - - - - 318,141 - 11,283,459 Provisions raised 8,661,590 11,366,708 - - - - - - 20,028,298 Long-termretirementbenefitobligation - -4,827,724 - - - - - 4,827,724 Prior year restatements 6,442,779 - - - - - (4,855,952) - 1,586,827 Rentals in advance - - - (1,843,861) - - - - (1,843,861) Working Capital Decrease in inventories 2,308,247 18,000 - - - - - - 2,326,247 Increase in receivables (191,823) - - - - - (2,480,234) - (2,672,057) Increase in short-term (1,062,145) - - - - 1,062,145 - - investment accrual Increase in payables 6,977,262 - - - - - 1,371,749 - 8,349,011 Increase in deferred income 8,067,404 7,600,000 - - - - - - 15,667,404 Cash inflow from operating activities Investment income - - - - - - 8,503,391 - 8,503,391 Provisions utilised - (10,956,850) - - - - - - (10,956,850) Cash inflow from investing activities Increase in investment deposits 20,000,000 - - - - - 1,679,514 - 21,679,514 Increase in interest in subsidiary (2,492,697) - - - - - 1,525,511 - (967,186) Payments to long-term retirement obligation - - (2,698,724) - - - - - (2,698,724) Increase in short-term investment interest 1,062,146 - - - - - (1,062,146) - - Net increase in cash and cash equivalents 15,798,372 - - - - - 107,603 - 15,905,975

page 70

annual report 2006


29. RESTATEMENTS AND RECLASSIFICATIONS (continued)RevenueTheEntityrestatedrevenuetotakeaccountofprovidingforproductandservicewarrantiesandreversalofrevenuerelatingtoadvancedbillingandaccountingforrevenuepreviouslynotincludedwhichimpactedprofitsfortheyearended31March2005 by R6 030 011.Retained earningsTheEntityrestatedretainedearningsexpendituretakeaccountofprovidingforpost-employmentbenefitswhichimpactedprofitsfortheyearended31March2005byR1368000,reversalofstaffexpenditurewhichincreasedprofitsbyR3197862,restatementofaliabilitywhichwasincorrectwhichincreasedprofitsbyR2140050;andreversalofinterestincorrectlyincludedinincomewhichreducedretainedearningsbyR2903920.Long-term retirement benefit obligationTheEntityrestateditsliabilitytoprovideforpostemploymentbenefitspreviouslyomittedwhichimpactedprofitsfortheyearended 31 March 2005 by R1 161 000 .Rentals in advanceTheEntityreversedaliabilitywhichwaspreviouslyrecordedincorrectlyforadvancedrentalsreceivedwhichincreasedprofitsfortheyearended31March2005byR1843861.Long-term creditorTheEntityrecognisedaliabilitywhichwaspreviouslyomittedrelatingtotheguaranteeofasubsidiary’sdebtwhichimpactedprofitsfortheyearended31March2005byR1193043. Deferred incomeTheEntityrestateditsliabilityfordeferredincometoreverseadvancedbillingwheretheworkwasnotcompletedandtherevenuesorecognisedexcluded,whichimpactedprofitsfortheyearended31March2005byR7600000.ProvisionsTheEntityprovidedforproductandservicewarrantieswhichimpactedprofitsfortheyearended31March2005by R1 555 011.Property, Plant and EquipmentThe Entity revised the useful lives of its fully depreciated assets resulting in a reversal of excess depreciation of R19 477 756 at 31 March 2004 and a charge to depreciation as a result thereof of R2 096 821 for the years ended 31 March 2005 and 31 March 2006.InventoriesTheEntityimpairedapartofitsinventory,whichimpactedprofitsfortheyearended31March2005byR18000.Trade and other receivablesTheEntityincreaseditsprovisionfordoubtfuldebtswhichimpactedprofitsfortheyearended31March2005byR2402481.Cash and cash equivalentsTheEntityrestateditscashandcashequivalentstorecogniseabankingaccountpreviouslyomittedwhichincreasedtheincomeandcashflowfortheyearended31March2005byR107603.

RECLASSIFICATIONSIncome StatementTheEntityreclassifiedandcorrectedanumberofoperatingandincomeitemstoimprovecomplianceofitsannualfinancialstatementswiththerequirementsofSouthAfricanStatementsofGenerallyAcceptedAccountingPractice.Balance SheetTheEntityreclassifiedanumberofbalancesheetitemstoimprovecomplianceofitsAnnualFinancialStatementswiththerequirements of South African Statements of Generally Accepted Accounting Practice.Cash FlowTheEntityrestateditscashflowinformationtotakeaccountofthenumberofreclassificationsasindicatedabove.Thechangeinclassificationsdoesnotimpactitstaxpositionorcashequivalentsfortheyearto31March2006.

page 71

annual report 2006


30. BOARD MEMBERS AND EXECUTIVE MANAGEMENT REMUNERATION

GROUP AND MINTEK Fees for Performance services as bonus and 2006 2005 Entity Basic Salary director other expenses TOTAL TOTAL R R R R R Executive Management MINTEK Dr. P.P. Jourdan Mintek 1,153,972 – 39,945 1,193,917 996,728 Dr. R.L Paul Mintek 818,380 – 215,499 1,033,879 850,324 Dr. N.A Barcza (Resigned) Mintek & Mindev 650,853 – 112,847 763,700 834,277 Dr. M. Motuku Mintek 705,836 – 76,593 782,429 – Mr. P. Fusi Mintek 629,087 – 199,391 828,478 – Mr. V. Govender Mintek 690,786 – 130,664 821,450 – Dr. F. Petersen – – – – 777,447 Ms. K. Mzondeki Mintek 104,141 – 23,025 127,166 532,000 Non Executive Management Board Members 4,753,055 – 797,964 5,551,019 3,990,776 MINTEK Mr. M. Khumalo (Chairman) Metallon Corporation – 9,108 – 9,108 4,554 Dr.F.Crundwell CMSolutions – 18,668 – 18,668 3,382 Ms. T. Mosery-Eboka (Resigned Jan 2006) Standard Bank – 15,286 – 15,286 3,382 Ms.L.Mojela(ResignedDecember2005) WIPHOLD – 5,659 – 5,659 1,691 Mr. R. Havenstein Anglo American Platinum – 6,764 – 6,764 1,691 Ms.G.Mthethwa StandardBank – 15,219 – 15,219 1,691 Mr. V. Pillay CSIR – 12,423 – 12,423 – Prof. P.E. Ngoepe University of North – 10,146 – 10,146 1,691 Mr. A. Mngomezulu Department of Minerals and Energy – – – – –

MINDEV (Proprietary) Limited Mr. N. Morrison Mindev – 3,382 – 3,382 1,691 Mr. G. Mosinyi Mindev – 5,073 – 5,073 1,691 4,753,055 103,419 797,964 5,654,438 4,015,622

31. INSURANCE AND RISK MANAGEMENT TheinsuranceandriskmanagementpoliciesadoptedbyMintekareaimedatobtainingsufficientcoverattheminimumcosttoprotectitsassetbase,earningcapacity

and legal obligations against acceptable losses. Allproperty,plantandequipmentareinsuredatcurrentreplacementvalue.Risksofapossiblecatastrophicnatureareidentifiedandinsuredwhileacceptablerisks.

32. FINANCIAL INSTRUMENTS Credit risk FinancialassetsthatcouldsubjecttheGrouptocreditriskconsistprincipallyofbankbalancesandcash,deposits,tradeandotherreceivablesandloanstoassociates.

TheGroupbankbalancesareplacedwithhighcreditqualityfinancialinstitutions.Tradeandotherreceivablesandloanstoassociatesarepresentednetoftheallowancefordoubtfulreceivablesorloanwrite-offs.Creditriskwithrespecttotradereceivablesislimitedduetothelargenumberofcustomerscomprisingthegroup’scustomerbaseandtheirdispersionacrossdifferentindustriesandgeographicareas.Accordinglythegroupdoesnothavesignificantconcentrationofcreditrisk.

ThecarryingamountsoffinancialassetsincludedinthebalancesheetrepresenttheGroup’sexposuretocreditriskinrelationtotheseassets. TheGroupdoesnothaveanysignificantexposuretoanycustomerorcounterparty. Interest risk Thevaluationofinterestrateexposureandinvestmentstrategiesisdonebymanagementonaregularbasis.Interestbearinginvestmentsareheldwithreputable

banks to minimise exposure. Fair values As at 31 March 2006 the carrying amount of bank balances and cash, deposits, trade and other receivables, trade and other payables. Contracts in progress,

advancesreceivedandshort-termborrowingapproximatedtheirfairvaluesduetotheshort-termnatureoftheseassetsandliabilities.Long-termloanstoassociatesandsubsidiariesareinterestfreewithnofixedrepaymenttermsandthereforethefairvalueoftheseloanscannotbecalculated.Thefairvalueoftheloanstooutsideshareholderscannotbedeterminedastheloansareinterestfreewithnofixedtermsofrepayment.

Foreign currency risk TheGroupundertakescertainriskincertaindenominatedforeigncurrencies,henceexposurestoratefluctuationsarise.Thegroupdoesnotcurrentlyenterintoforwardforeignexchangecontractstobuyandsellamountsofvariouscurrenciesatpredeterminedexchangerate,astheforeigncurrencyamountsarenotsignificantinrelationtotheentity’sincome.Forwardexchangecontractsareenteredintowithlargecommercialcontractsdenominatedinforeigncurrency.Asamatterofprinciple,theGroupdoesnotenterintoforeigncurrencyexchangecontractsforspeculativereasons.Theestimatedfairvaluegain/(loss)perincomestatementwasdetermined by comparing the contracted value rate to an equivalent spot rate on the settlement or at year end rate for outstanding foreign currency.

33. RELATED PARTY Controlling entity

TheGroupcomprisesofMintekanditswhollyownedsubsidiaryMindev(Proprietary)Limited.MindevisengagedinthecommercialisationofMintekpatentsandtechnologythroughtheidentificationofsuitablepartnersandinvestmentsinequityassociates,namelyMogaleAlloys(Proprietary)LimitedandTollsort(Proprietary)Limited.TheGroup,intheordinarycourseofbusiness,entersintovarioussaleandpurchasetransactionsonanarm’slengthbasisatmarketrateswithrelatedparties.Noneofthedirectors,officersormajorshareholdersofMintekGroupor,totheknowledgeofMintek,theirfamilies,hadanyinterest,directorindirect,inanytransactionswhichhasaffectedorwillmateriallyaffectMintekoritsinvestmentinterestorsubsidiaries. Forwardexchangecontractsareenteredintowithlargecommercialcontractsdenominatedinforeigncurrency.Asamatterofprinciple,theGroupdoesnotenterintoforeigncurrencyexchangecontractsforspeculativereasons.Theestimatedfairvaluegain/(loss)perincomestatementwasdeterminedbycomparingthecontractedvalue rate to an equivalent spot rate on the settlement or at year end rate for outstanding foreign currency .

page 72

annual report 2006


34. RELATED PARTY (continued) Associates During the year the Group advanced interest bearing loans to Associates. GROUP MINTEK 2006 2005 2006 2005 R R R R Interest bearing loans Mogale Alloys (Proprietary) Limited 6,569,858 5,891,236 - - Apic Toll Treatment (Proprietary) Limited - 5,000,000 - 5,000,000 Tollsort (Proprietary) Limited - 762,500 - 762,500 Tollsort (Proprietary) Limited ceased its operations at the end of September 2004. Mindev(Proprietary)Limitedhasincludedtheoperatinglossesfrom: Tollsort(Proprietary)LimitedforanamountofR1193043,whichrepresents twenty-fivepercentofMindev(Proprietary)Limited’sportionoftheloan guarantee made to Standard Bank on behalf of Tollsort (Proprietary) Limited. Related party transactions RelatedpartytransactionsexistwithintheGroup.Duringtheyearallselling transactionswereconcludedatarm’slength.Agreementdetailsofmaterial transactionswithrelatedpartiesnotdisclosedelsewhereinthe financialstatementsareasfollows: Mintek sales to Mintek sales to

Department of Minerals and Energy 6,933,125 537,998 6,933,125 537,998 Department of Science and Technology 3,154,516 9,987,661 3,154,516 9,987,661 Mogale Alloys (Proprietary) Limited 6,250,000 - 6,250,000 - Mindev (Proprietary) Limited - - 62,203 -

page 73

report of the auditor-general - mintek

Documents