INTEGRATED ANNUAL REPORT 2016 Sentula Integrated Annual Report 2016

123 Pages·2016·2.51 MB·English

INTEGRATED ANNUAL
REPORT 2016
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CONTENTS
Overview 2 Equity
Five-year review 3
Group operational structure 4
Directorate 6
Opencast mining
Chairman’s and Chief Executive Officer’s report 8

Financial Director’s report 12 37%
Governance reports
Corporate governance report 16
Risk management report 26 2015: 55%
Information technology report 29
Remuneration report 30
Sustainability report 32
Consolidated financial statements 41
Exploration drilling
Shareholders’ information 111

JSE performance 112 24%
Shareholders’ diary 112
Notice of annual general meeting 113
Form of proxy 121 2015: 16%
Abbreviations 123
Subsidiaries 124
Administration IBC
Drilling and blasting

35%
2015: 19%
Crane hire

42%
2015: 20%
Coal mining

35%
For more detailed information about Sentula and
2015: 20%
its financial statements please refer to our website:
www.sentula.co.za
ABOUT SENTULA

Sentula Mining Limited has been listed on the Main Board of the JSE Limited (“JSE”) since
1993. The Group is actively involved in the provision of contracted opencast mining,
overburden drilling and blasting, mobile crane hire and exploration drilling services to the
mining sector. Sentula is one of the major suppliers of outsourced mining services in the South
African coal mining industry and also owns and mines an anthracite mine. The Group’s portfolio
of blue chip customers, coupled with its diversified service offering, has contributed to its
ability to weather the prevailing challenging economic environment.
Integrated reporting
This Integrated Annual Report covers the 2016 annual financial period and has been compiled and presented
in accordance with the requirements and principles of the following:
® the King Report on Governance for South Africa, and the King Code of Governance Principles
(“King III”);
® the International Integrated Reporting Committee’s prototype of the
international Integrated Reporting (“IR”) framework;
® the Companies Act 2008 (Act 71 of 2008), as amended (“Companies Act”);
® the Listings Requirements of the JSE;
® International Financial Reporting Standards (“IFRS”); and
® the Global Reporting Initiative’s GR3.1 guidelines on reporting of
non-financial information (“GRI G3.1”).
We recognise, in line with the principles of King III, that companies should not only report on financial
performance, but also on their sustainability, by disclosing social, environmental and economic issues. This
report provides stakeholders with relevant financial and non-financial information to enable them to obtain a
more balanced view of the Group’s business.
Forward-looking statements
This report contains forward-looking statements which are not historical facts. Forward-looking statements
involve inherent risks, uncertainties and assumptions, including, without limitation, risks related to the timing or
ultimate completion of any proposed transactions; and the possibility that benefits may not materialise or such
assumptions prove incorrect, actual results could differ materially from those expressed or implied by such
forward-looking statements and assumptions. The forward-looking statements in this report are made as of the
date of this report and Sentula expressly disclaims any obligations to update or correct the statements due to
events occurring after issuing this report.
Definitions
“The Company” refers to Sentula Mining Limited the holding company. “The Group” refers to Sentula Mining
Limited and all its subsidiaries. Also, “last year”, “previous year” and “previous corresponding period” refers
to the prior financial year ended 31 March 2015, “the current year”, “the current period”, “the year”, “the
period”, “this year”, “this period” refers to the fifteen months ended 30 June 2016 and “next year” refers
to the financial year ending 30 June 2017. For a full list of abbreviations used refer to page 123.
Sentula Mining Limited Integrated Annual Report 2016 1
OVERVIEW

Classified injury frequency rate Operating loss
Five-year history (per million man hours worked) Five-year history (R’million)
2016* 2016*
2015**
2015**
2014
2014
2013
Restated 2013
2012
2012
0 0,5 1,00 1,50 2,00
0 -200 -400 -600 -800 -1 000
EBITDA****
Five-year history (R’million)
Revenue
2016*
Five-year history (R’million)
2015**
2016*
2014***
2015**
Restated 2013
2014
2012
Restated 2013 -100 0 100 200 300 400 500
adjusted for exclusion of mineral right
2012
0 500 1 000 1 500 2 000 2 500 3 000
Cash generated from operating activities
Five-year history (R’million)
2016*
Headline (loss)/earnings per share 2015**
Five-year history (cents)
2014
2016* Restated 2013
2015** 2012
0 50 100 150 200 250 300 350
2014
Restated 2013
2012
Net debt to equity gearing
-50 -40 -30 -20 -10 0 10 20 30 Five-year history (%)
2016*
2015**
Basic loss per share 2014
Five-year history (cents)
Restated 2013
2016* 2012
2015** 0 10 20 30 40 50 60
2014
Restated 2013 Net asset value per share
Five-year history (cents)
2012
0 -20 -40 -60 -80 -100 -120 -140 -160
2016*
2015**
2014
* For the 15 months ended 30 June 2016
** 2 015 restated for Benicon Coal and Nkomati no longer classified as Restated 2013
held-for-sale
*** 2014 EBITDA adjusted to exclude impairment of Nkomati mining right 2012
**** A djusted for impairment of intangible asset, share-based payments, loss 0 100 200 300 400 500
on sale of assets and net realisable inventory adjustments
2 Sentula Mining Limited Integrated Annual Report 2016
FIVE-YEAR REVIEW

Fifteen
months Restated Restated
ended March March March
June 2016* 2015** 2014 2013*** 2012
Revenue (R‘000) 1 535 689 1 374 752 1 591 482 2 084 118 2 512 415
Operating loss (R‘000) (441 422) (221 589) (176 445) (843 559) (420 071)
Earnings before Interest, tax, depreciation and
amortisation (EBITDA) (R‘000)***** (16 247) 48 696 181 530 254 949 382 879
Cash generated from operations (R‘000) 100 729 119 808 288 782 206 525 319 156
Attributable loss (R‘000) (447 429) (293 445) (533 565) (862 687) (516 703)
Loss per share (cents) (61,3) (49,2) (47,7) (149,0) (88,9)
Headline (loss)/earnings per share (cents) (43,5) (40,2) (43,7) (25,4) 21,7
Tax rate (%) 3,6 (5,8) 7,7 3,4 (8,5)
Dividend per share (cents) – – – – –
Dividend cover (times) – – – – –
Net asset value per share (cents)***** 31 123 176 265 408
Total assets employed (R‘000) 1 042 963 1 424 435 1 785 186 2 788 885 3 855 635
Return on shareholders‘ equity (%) (81,5) (33,4) (41,7) (44,1) (19,8)
Gearing (%) 52 37 31 32 22
Liquidity
– Current ratio**** 0,70 1,08 1,28 0,92 2,48
– Current ratio**** excluding current portion of
long-term borrowings 0,75 1,40 2,55 2,23 4,03
– Asset test ratio**** 0,64 0,96 1,08 0,72 1,84
Safety
– Classified injury frequency rate 1,22 0,69 0,78 0,29 1,65
* 2016 represents 15 months ending June 2016
** Income statement restated due to Benicon Coal and Nkomati Anthracite no longer classified as held-for-sale assets.
*** Restated due to IFRS 11 change in accounting policy
**** Current assets include assets held-for-sale
***** March 2014 EBITDA adjusted to exclude impairment of Nkomati mining right
Sentula Mining Limited Integrated Annual Report 2016 3
GROUP OPERATIONAL STRUCTURE

83%
Sentula Contracting Shanike Investments No 171
17%
Proprietary Limited Proprietary Limited
Benicon Opencast Mining Thebe Mining
100% 40%
Proprietary Limited Resources
Classic Challenge Trading Anglo American
100% 20%
Proprietary Limited Khula Mining Fund
Ritchie Crane Hire Sentula
100% 20%
Proprietary Limited Empowerment Trust
JEF Drill and Blast
100% Sentula Employee Trust 20%
Proprietary Limited
50% Benicon Coal 60% Nkomati Anthracite 40% Mpumalanga Economic
Proprietary Limited Proprietary Limited Growth Agency
50%
Sentula Coal
50,5% 49,5% Sentula Employee Trust
Proprietary Limited
51%
100% Sentula Mining Services 49% Buenti Drilling
Proprietary Limited Proprietary Limited
100% Sentula Mining 100% Sentula Mining Services
Mauritius Limited Mauritius Limited
100%
Benicon Sales
100% Geosearch International
Proprietary Limited
Operating Entities
100%
AguaTerra Mozambique
100%
Myna Projects Geosearch
Botswana
4 Sentula Mining Limited Integrated Annual Report 2016
DIRECTORATE

INDEPENDENT NON-
EXECUTIVE DIRECTORS
EXECUTIVE DIRECTORS
Jacques (JC) Badenhorst (46) Johann (JC) Lemmer (38) Ralph (RB) Patmore (64)
CA(SA) CA(SA) BCom (Wits), MBL (SBL) (UNISA), Stanford
Executive director: Chief Executive Officer Executive director: Financial Director Executive Programme (Stanford
Appointed Acting CEO on 7 October Appointed: 27 May 2014 University, USA), Accredited Associate of
2015 and Permanent CEO on the Institute for Independent Business
1 March 2016 Board committee membership International
Attends various Board committee Independent non-executive director
Board committee membership meetings ex officio and is a member of (Chairman)
Member of the Social and Ethics the Social and Ethics Committee. Appointed: 25 January 2012
Committee and attends various Board
committee meetings ex officio. Skills, expertise and experience Board committee membership
Johann is a chartered accountant with Chairman of the Board, Chairman of the
Skills, expertise and experience more than 10 years’ experience. He was Nomination Committee, Chairman of the
Jacques joined the Company as appointed as the Financial Director of Investment Committee and member of
non-executive director on 8 May 2015 and Sentula in May 2014. Prior to his the Remuneration Committee.
was appointed acting Chief Executive appointment in 2012 as Chief Financial
Officer on 7 October 2015 and appointed Officer of the Geosearch group of Skills, expertise and experience
as permanent CEO on 1 March 2016. companies (“Geosearch”), a wholly Ralph obtained his BCom and MBL from
Jacques was formerly a financial analyst at owned subsidiary of Sentula, he was an the University of the Witwatersrand and
JP Morgan and subsequently Group audit partner at BDO. Unisa Graduate School of Business
Executive for Strategy and Planning at Leadership respectively, and was the
Absa Group Limited and thereafter a co-founder of Iliad Africa Limited, a listed
director of various entities where he company focused on building materials,
provided advice to key clients on where he served as Chief Executive
corporate finance, mergers and Officer for 10 years. He has also served as
acquisitions, financial advisory and debt Managing Director to various companies
capital markets. Jacques also served as an and held the position of director on the
independent non-executive director of board of Group Five Limited, a listed
Dorbyl Limited. company operating in the integrated
construction services and materials sector.
Currently Ralph is also the non-executive
of various other listed entities.
6 Sentula Mining Limited Integrated Annual Report 2016
INDEPENDENT NON- NON-EXECUTIVE
EXECUTIVE DIRECTORS DIRECTORS
Stephen (Steve) Naudé (65) Mdu Gama (47) Dalikhaya (Rain) Zihlangu (49)
BCom (Wits), CA(SA), MBA (Chicago BCom (Accounting) (University of Lesotho), BSc (Mining) Engineering, MBA
Booth) MBA (University of Durban – Westville), Non-executive director
Independent non-executive director PhD (University of Johannesburg) Appointed: 1 July 2010
Independent non-executive director
Appointed: 27 May 2014
Appointed: 1 February 2015
Board committee membership
Board committee membership Board committee membership Member of the Audit and Risk
Chairman of the Audit and Risk Member of the Audit and Risk Committee Committee, member of the Investment
Committee and Chairman of the and Chairman of the Social and Ethics Committee, member of the Remuneration
Remuneration Committee and member Committee. Committee and member of the
of the Nomination Committee. Nomination Committee.
Skills, expertise and experience
Skills, expertise and experience Mdu is the first recipient of a PhD Skills, expertise and experience
(Finance) degree awarded by the
Steve is a chartered accountant and Rain obtained his first degree in Mining
University of Johannesburg (UJ) and its
obtained his MBA from the University of Engineering through the University of the
predecessor Rand Afrikaans Universiteit
Chicago Graduate School of Business. (RAU). He is also an alumni of Cornell Witwatersrand in 1989 to become the
Steve has more than 30 years’ experience University (USA) and Henley University second black mining engineer in South
in corporate finance and investment (UK). He has been a founder and director Africa. He joined the Anglo American
banking in both the domestic and of various companies for more than Corporation graduate training
cross-border markets. Currently Steve is a 20 years. He is a lead independent programme at Vaal Reefs Exploration and
non-executive director and Audit director at Mustek Limited, serves on its Mining Company and obtained his mine
Committee Chairperson of a private Audit and Risk Committee and also chairs manager’s government certificate of
the Mustek Employment Equity
technology company. He is also a competence.
Committee. He is also a non-executive
member of the Institute of Directors
director of Calgro M3 Limited. Mdu is the
South Africa. co-founder and CEO of Resultant Finance His professional membership includes
Proprietary Limited, an asset rental South African Institute of Mining and
company operating in the public and Metallurgy, Engineering Council of South
private sectors. He is also a trustee of the Africa and Association of Mine Managers
UJ Trust. of South Africa.
Theunis de Bruyn (48)
CA(SA)
Non-executive director
Appointed: 15 June 2016
Board committee membership
Member of the Board.
Skills, expertise and experience
Theunis is a chartered accountant with
more than 20 years’ experience in the
financial services sector and founded
Calibre Capital and RECM asset
management in 2001.
Sentula Mining Limited Integrated Annual Report 2016 7
CHAIRMAN’S AND CHIEF EXECUTIVE OFFICER’S REPORT

Strategic update
The support of our shareholders during the past financial year
facilitated the completion of the restructuring of operations and
reduction in debt. Our strategic objectives are:
u Settlement of outstanding senior Group debt;
u Reduction in the Group’s exposure to opencast mining
services;
u Investment in performing businesses;
u Unlocking value in Nkomati Anthracite mine; and
u Returning to profitability.
The capital injection came in the form of a R105 million rights
issue, which was partially used to reduce the senior debt burden,
provide capital to restructure key businesses as well as some
working capital.
Sentula is on track to complete an aggressive restructuring
exercise, which included closing, merging and recapitalising
affected businesses in its portfolio. The priorities on a long list of
action items were:
u to plug the cash flow drain in the contract mining businesses,
which have been losing money for a long time. The end result
We recognise that the roles of Chairman and Chief Executive are
was the proposed merger between two contract miners to
separate and, accordingly, they operate under separate
create a profitable and very competitive contract mining
Board-approved mandates. Our presentation of a combined
company in which Sentula will take up a minority interest, if
Chairman’s and Chief Executive’s review is based on a practical
approved by shareholders;
decision to avoid duplication and provide the reader with a
succinct account of how the Sentula Group is integrating u to develop the Nkomati Anthracite Mine which today, after the
restructuring, is a profitable and well managed mine;
sustainable development into everything it does.
u to substantially reduce fixed overhead expenses across the
Overview Group, which was achieved;
The 2016 financial period continued to be a very challenging u to consolidate the exploration drilling expertise across the
Group and pursue new growth opportunities, which was done.
period for Sentula. Since 2010 Sentula has been battling to keep
head above water as the debt load, fraud, declining commodity
The key qualities which are long-term contracts with blue chip
prices, declining margins, rising labour costs, legal disputes and
customers, a diversified revenue base, well established track
mining regulatory uncertainty continued to weigh on its
records, good safety records and top quality and loyal staff with
performance. All these factors resulted in excess of R2 billion of
the technical expertise to deliver results, have kept Sentula alive
shareholders capital being destroyed over the years and
against all odds and enabled management to restructure the
substantially more lost in market value. In addition, as the
individual businesses. These qualities, combined with a fresh
commodity binge came to an end and as lenders started to
approach from the new executive management, assisted in
suffer losses, they simply started applying more pressure on
repositioning each business as a standalone and sustainable unit.
mining services companies like Sentula to accelerate repayment
There are more hurdles to cross but we are confident that
of outstanding debt. For Sentula it all culminated in the tipping
Sentula is on track to turn the corner. The environment remains
point being reached during the past financial period. The new
very challenging but the emphasis will be on focusing on those
starting point was to install an executive team that was capable
things that we can control rather than those that we cannot. In
of focusing the business, identifying the issues and
future the focus will be on businesses that have good investment
opportunities, and then to move forward despite the negative
characteristics and yield attractive returns on capital.
past.
Safety management
Sentula was in desperate need of a capital injection to stabilise
The Group boasts a proud track record of more than 5,7 million
operations, keep the lenders at bay for another year to allow the
fatality free operating hours. Safety is a core value of the Sentula
newly appointed executive time to restructure key businesses.
8 Sentula Mining Limited Integrated Annual Report 2016
“Significant restructuring and
repricing of our contract mining
operations enabled us to plug
the cash flow drain...”
Sustainability
The Board and executive leadership team remain committed to
building a sustainable business that takes into account the
economic, social and environmental needs of communities in
which the Group operates. This commitment to sustainable
development is driven at a Group level, endorsed and measured
by the Board, and implemented across the operations. The
Chairman and directors, through their involvement on various
Board committees, are able to contribute to and support the
attainment of the Group’s objectives.
Sentula is committed to conducting its operational activities in
an environmentally responsible and sustainable manner within its
Group and integral to ensuring sustainable business. It is
scope of control.
demonstrated by commitment to high standards and assignment
of specific responsibilities for safety. The Group places an
Transformation
absolute priority on the safety of employees and sub-contractors.
It is our vision to market Sentula as a home for all South Africans,
For the period under review the Group achieved a CIFR of
where there are no divisions or boundaries and where no one
1,22 per million man hours worked.
feels excluded. Sentula is rated as a level 5 BBBEE entity, with
an effective shareholding of 20,77% in terms of dti codes. Its
The safety policy and framework of the Group provides direction
South African mining services businesses as a group, are rated a
and sets standards for operations to develop and manage its
level 4 contributor with an effective shareholding of 33,99%.
proactive safety programmes and strategies with the objective of
continuously improving in terms of safety performance.
The Board and corporate governance
Sentula has a tainted history of governance breaches and
People
non-compliance with standard governance requirements. The
The quality of our people is critical to the Group’s competitive
current Board has every intention to ensure that Sentula in future
advantage. We recognise that in order to achieve the sustained
maintains the highest standards in terms of corporate
high performance that is necessary for Sentula to meet the
governance and ethics. The Board operates under the terms
demands of its business environment, it needs to attract, retain
stipulated by the Board Charter, which regulates the roles and
and continuously develop its employees at all levels.
responsibilities of the directors.
Sentula Mining Limited Integrated Annual Report 2016 9