Blanket Zimbabwe Indigenisation Transaction

February 20, 2012

the Group announced it had signed a Memorandum of Understanding (“MoU”) with the Minister of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe pursuant to which the Group agreed that indigenous Zimbabweans would acquire an effective

51%

ownership interest in the Zimbabwean company owing the Blanket Mine for a paid transactional value of

$30.09

million. Pursuant to the above, members of the Group entered into agreements with each indigenous shareholder to transfer

51%

of the Group’s ownership interest in Blanket Mine whereby it:

sold a

16%

interest to the National Indigenisation and Economic Empowerment Fund (“NIEEF”) for

$11.74

million;

sold a

15%

interest to Fremiro Investments (Private) Limited (“Fremiro”), which is owned by indigenous Zimbabweans, for

$11.01

million;

sold a

10%

interest to Blanket Employee Trust Services (Private) Limited (“BETS”) for the benefit of present and future managers and employees for

$7.34

million. The shares in BETS are held by the Blanket Mine Employee Trust (“Employee Trust”) with Blanket Mine’s employees holding participation units in the Employee Trust; and

donated a

10%

ownership interest to the Gwanda Community Share Ownership Trust (“Community Trust”). In addition, Blanket Mine paid a non-refundable donation of

million to the Community Trust.

The Group facilitated the vendor funding of these transactions which is repaid by way of dividends from Blanket Mine.

80%

of dividends declared by Blanket Mine are used to repay such loans and the remaining

20%

unconditionally accrues to the respective indigenous shareholders. Following a modification to the interest rate on

June 23, 2017,

outstanding balances on these facilitation loans attract interest at a rate of the lower of a fixed

7.25%

per annum payable quarterly or

80%

of the Blanket Mine dividend in the quarter. The timing of the repayment of the loans depends on the future financial performance of Blanket Mine and the extent of future dividends declared by Blanket Mine. The facilitation loans relating to the Group were transferred as dividends in specie intra Group and now the loans and most of the interest thereon is payable to the Company.

November 5, 2018

the Company and Fremiro entered into a sale agreement for Caledonia to purchase Femiro’s

15%

shareholding in Blanket Mine. As at the date of approval of these financial statements the transaction remained subject to, amongst other things, approvals from various Zimbabwean regulatory authorities to be effective. In terms of the sale agreement, the Company plans to issue

727,266

shares at

$7.15

per share to Fremiro for the cancellation of their facilitation loan which stood at

$11,467

as at

June 30, 2018

and the purchase of their

15%

shareholding in Blanket Mine, increasing the Company’s total shareholding in Blanket Mine to

64%.

The Company will continue to consolidate Blanket Mine in the consolidated financial statements after the transaction becomes effective.

Accounting treatment

The directors of Caledonia Holdings Zimbabwe (Private) Limited (“CHZ”), a wholly owned subsidiary of the Company, performed a re-assessment, using the requirements of IFRS

10:

Consolidated Financial Statements (IFRS

), and concluded that CHZ should continue to consolidate Blanket Mine after the indigenisation and accordingly the subscription agreements with the indigenous shareholders have been accounted for as a transaction with non-controlling interests and as a share based payment transaction.

The subscription agreements, concluded on

February 20, 2012,

were accounted for as follows:

Non-controlling interests (“NCI”) were recognised on the portion of shareholding upon which dividends declared by Blanket Mine will accrue unconditionally to equity holders as follows:

(a)

20%

of the

16%

shareholding of NIEEF;

(b)

20%

of the

15%

shareholding of Fremiro; and

(c)

100%

of the

10%

shareholding of the Community Trust.

This effectively means that NCI is recognised at

16.2%

of the net assets of Blanket Mine.

The remaining

80%

of the shareholding of NIEEF and Fremiro is recognised as non-controlling interests to the extent that their attributable share of the net asset value of Blanket Mine exceeds the balance on the facilitation loans including interest. At

December 31, 2018

the attributable net asset value did

not

exceed the balance on the respective loan accounts and thus

additional NCI was recognised.

The transaction with BETS is accounted for in accordance with IAS

Employee Benefits

(profit sharing arrangement) as the ownership of the shares does

not

ultimately pass to the employees. The employees are entitled to participate in

20%

of the dividends accruing to the

10%

shareholding in Blanket Mine if they are employed at the date of such distribution. To the extent that

80%

of the attributable dividends exceed the balance on the BETS facilitation loan they will accrue to the employees at the date of such declaration.

The Employee Trust and BETS are entities effectively controlled and consolidated by Blanket Mine. Accordingly, the shares held by BETS are effectively treated as treasury shares in Blanket Mine and

NCI is recognised.

Amendments to the facilitation and advanced dividend loan agreements

Interest modification

June 23, 2017,

the Group, Blanket Mine and the Indigenous Shareholders of Blanket Mine reached agreement to change the interest terms of the facilitation and advanced dividend loan agreements. The agreements changed the interest rate from the previously agreed

month LIBOR +

10%

to the lower of a fixed

7.25%

per annum, payable quarterly or

80%

of the Blanket Mine dividend in the quarter. The modification was considered beneficial to the Indigenous Shareholders and gave rise to an equity-settled share-based expense of

$806

June 23, 2017

when all parties reached agreement to modify the interest charged. It was agreed that the interest change was to be applied to the facilitation and advanced dividend loan balances from

January 1, 2017.

The assumptions and methodologies used to quantify the equity-settled share-based payment expense relating to the beneficial interest modification are detailed in note

26.1.

Dividend and interest moratorium

Blanket Mine suspended dividend payments from

January 1, 2015

until

August 1, 2016

to facilitate capital expenditure on the Blanket Mine investment programme. As a result the repayments of facilitation loans by the Indigenous Shareholders were also suspended. A moratorium was placed on the interest of the facilitation and advanced dividend loans until such time as dividends resumed. Due to the suspension of dividends and the moratorium on interest,

repayments were made or interest accumulated from

December 31, 2014

until

July 31, 2016.

The dividends and interest resumed on

August 1, 2016,

when Blanket Mine declared a dividend. The amendment was

not

considered beneficial to the Indigenous shareholders.

Blanket Mine’s indigenisation shareholding percentages and facilitation loan balances
										Balance of facilitation loan #
$ 000's	Shareholding			NCI Recognised			NCI subject to facilitation loan			Dec, 31, 2018		Dec, 31 2017
NIEEF		16	%		3.2	%		12.8	%		11,876		11,879
Fremiro		15	%		3.0	%		12.0	%		11,466		11,504
Community Trust		10	%		10.0	%		—			—		—
BETS		10	%		—	*		—	*		7,644		7,669
		51	%		16.2	%		24.8	%		30,986		31,052

The balance on the facilitation loans is reconciled as follows:

Balance at January 1, 2017	31,460
Interest accrued	1,136
Dividends used to repay loans	(1,544	)
Balance at December 31, 2017	31,052
Interest accrued	2,173
Dividends used to repay loans	(2,239	)
Balance at December 31, 2018	30,986

* The shares held by BETS are effectively treated as treasury shares (see above). The BETS facilitation loan earnings are accounted for under

IAS19

Employee Benefits

as an employee charge under Production cost

# Facilitation loans are accounted for as equity instruments and are accordingly

not

recognised as loans receivable.

Advance dividends

In anticipation of completion of the underlying subscription agreements, Blanket Mine agreed to an advance dividend arrangements with NIEEF and the Community Trust as follows:

Advances made to the Community Trust against their right to receive dividends declared by Blanket Mine on their shareholding as follows:

million payment on or before

September 30, 2012;

million payment on or before

February 28, 2013;

and

million payment on or before

April 30, 2013.

These advance payments were debited to a loan account bearing interest at a rate at the lower of a fixed

7.25%

per annum, payable quarterly or the Blanket Mine dividend in the quarter to the advanced dividend loan holder. The loan is repayable by way of set off of future dividends on the Blanket Mine shares owed by the Community Trust. Advances made to NIEEF as an advanced dividend loan before

2013

has been settled through Blanket Mine dividend repayments in fiscal

2014.

The advance dividend payments were recognised as distributions to shareholders and they are classified as equity instruments. The loans arising are

not

recognised as loans receivable, because repayment is by way of uncertain future dividends.

The movement in the advance dividend loan to the Community trust is reconciled as follows:

	Total

Balance at January 1, 2017		3,000
Interest accrued		104
Dividends used to repay advance dividends		(500	)
Balance at December 31, 2017		2,604
Interest accrued		174
Dividends used to repay advance dividends		(725	)
Balance at December 31, 2018		2,053