Download Annual Report 2006 - Foskor

MISSION• We accept our responsibility towards all stakeholders inclusiveof the communities in which we conduct our business.• Our primary business is the beneficiation of phosphate rockconcentrate for the production of phosphoric acid and phosphate-based fertilisers, which are sold into the international anddomestic markets.• Our secondary business activities include:– The production of electrofused zirconia from zircon sand; and– The recovery of low concentrates of copper sulphide minerals.• The Group is committed to:– Competitive, reliable, effective production and marketing;– Striving for excellence as the benchmark of all our endeavours;– Providing an environment conducive to personal developmentand participation by all employees;– Complying with the spirit of the transformation process withinthe framework of legislative measures;– Maintaining the highest ethical, professional, quality and losscontrol standards; and– Continuing to be environmentally responsible.VISIONTo create, maintain and enhance a financially viable, performance-driven business, capable of delivering sustained superior financialand social returns to our shareholders.PROFILEThe Foskor Group is a well-established South African group ofcompanies. The Group has grown from a single phosphate miningoperation since 1951 to become one of the world’s largest, mostdynamic phosphate and phosphoric acid producers.The Group’s recent emergence as a world leader has been basedon various strategic initiatives, including:• Strategic capital investment to ensure a sustainableinfrastructure;• An emphasis on inter-group synergies to ensure shareholdervalue maximisation; and• A focus on expanding the core value-adding operations of theGroup.The Group has three major operating entities:• A phosphate rock mine and beneficiation plant situated inPhalaborwa;• A phosphoric acid plant situated in Richards Bay; and• A sulphuric acid plant situated in Richards Bay.A secondary activity – and valuable source of revenue – is theproduction of electrofused zirconia from zircon sand. The recoveryof copper sulphide mineral found in the phosphate ore alsocontributes to the Group’s income, while magnetite recovered fromthe foskorite ore is stockpiled as a possible future source of ironand titanium.

TABLE OF CONTENTSDirectors and Management 02Chairman’s Review 04Chief Executive Officer’s Review 06Chief Financial Officer’s Review 10Corporate Review 12Annual Financial StatementsDirectors’ Declaration 15Auditors’ Report 16Report of the Directors 17Balance Sheet 20Income Statement 21Statement of Changes in Equity 22Cash Flow Statement 23Principal Accounting Policies 24Notes to the Financial Statements 34Five-year Review 54Notice to Members/Administrators 57Administration 58

DIRECTORS AND MANAGEMENTList of Directors, Committees and Management as at the end of the 12 month financialperiod ended on 31 March 2006:BOARD OF DIRECTORSMs M NhlanhlaInsertMs LBR MthembuInsert(Sitting from left to right) Ms Z Monnakgotla (Member); Mr LL van Niekerk (Chairman); Mr MA Pitse (CEO)(Standing from left to right) Ms RK Morathi (Deputy Chairman); Dr DS Phaho (Member); Mr PJ Ledger (Member);Mr G van Wyk (Member); Mr A Vellayan (Member)BOARD AUDIT & RISK COMMITTEEMr G van WykChairmanMr MA PitseCEOMs RK MorathiMemberMs LBR Mthembu MemberMs M NhlanhlaMemberBOARD TECHNICAL COMMITTEEMr PJ LedgerChairmanMr MA PitseCEOMs Z Monnakgotla MemberDr DS PhahoMemberBOARD HUMAN RESOURCES COMMITTEEMs RK MorathiChairmanMr MA PitseCEOMr LL van Niekerk MemberMr G van WykMemberMr A VellayanMember2

EXECUTIVE MANAGEMENT(Sitting from left to right)Ms AUS KhanyileMr TJ KoekemoerMr MA PitseMr J VaidhyanathanCompany Secretary:B.ProcChief Financial Officer:B.Com (Hons) CA (SA) AEPPresident & CEO:B.Compt (Hons), MBL, CA (SA)Vice President:AcidB.E. (Mech)(Standing from left to right)Mr F van der SchyffMr CFH SchmidtMr G SkhosanaMr ND NaidooGeneral Manager:Rock & CopperB.Sc (Mech. Eng), MBA, GCCMines & WorksGeneral Manager:ZirconiaB.ScVice President:Sales & MarketingB.Com, MDPD, ASMPDVice President:Human ResourcesB.Sc (Chem Eng), MBL,Global EDPMr JW HornChief Operating Officer:B-Eng, Pr-Eng, MSAIIE,(Hons) BB & A, MBAMr H MalhotraVice President:Procurement & LogisticsB.Sc, M.Tech (Mech Eng)3

CHAIRMAN’S REVIEWOur focus is ongrowth – not onlygrowth of agriculturalproducts, but alsogrowth for ourselvesand our country.The year under review can only be described asa turbulent one, characterised by a mixture ofhighs and lows, opportunities and challenges.The Board however has to recognise that theGroup has had a major turnaround towardsprofitability with the breakeven exchange ratebeing improved from circa R8,90 in 2003 tocirca R6 to the US dollar.The Board and Management deeply regretthe death of Mr Xulu, a contractor at ourRichards Bay operation, who suffered a fatalaccident when he fell approximately 25 metresthrough the roof of the rock store to his death.Condolences were passed on to his employer,family and loved ones.It is also unfortunate that the efforts towardsproving that Foskor is a responsible corporatecitizen with regard to safety, health and theenvironment are not bearing fruit and nottranslating into results. The Richards BayPlant, had eight disabling incidents concerningown employees. A fire destroyed the mainsulphur feed conveyor and two reportableenvironmental incidents occurred at the plantin Richards Bay. Environmental gas emissionpermit requirements have been met 99,93% ofthe time, which is the best performance for theGroup in recent history.The Phalaborwa operation again excelled inthe safety, health and environmental arena withonly five disabling injuries for the period and adisabling injury frequency rate of 0,23 which isworld class. The Phalaborwa operations wereawarded OSHAS 18000 on their first attemptand retained their ISO 9001 and ISO 14001certification.Safety and environmental compliance will receiveincreased focus in order for the Group to achievethe targets set in the mission statement.During the year, the shareholder, the IndustrialDevelopment Corporation (IDC), diluted itsshareholding by selling 2,5% to CoromandelFertilisers Limited (CFL), an Indian company.Further, Foskor and CFL entered into a BusinessAssistance Agreement (BAA) with the objectiveof transferring technical, operational and otherskills and know-how to Foskor and improving theprofitability. Through this, CFL could – over threeyears, of which the first year is the year underreview – increase its shareholding to circa 16%.The first year of the involvement of CFL, theStrategic Equity Partner, has come to an end. Theinvolvement of CFL has resulted in the RichardsBay operation achieving record production levelsof 625 532 tons compared to a previous recordof 575 000 tons of P 2O 5in 2004.The Foskor strategic intent, direction andperformance against strategic targets have beenreviewed by the Board. The vision and missionwas confirmed and new strategic initiatives havebeen identified for executive management toachieve for the new year and in the medium term.The Board is confident that by achieving theseobjectives, the Foskor Group would realise itsvision of becoming a financially viable business,delivering superior financial and social returnsto all stakeholders.FINANCIAL PERFORMANCEGroup revenue increased by 43% (annualised)to R2.6bn in 2006.The Group achieved a major turnaround inprofitability of R552m, from a net loss aftertax of R477m in 2005 to a net profit after taxof R75m for the current year.The Group had a positive free cash flowamounting to R95m. This was the first positivefree cash flow in at least ten years. This,combined with a positive bank balance in excessof R400m and unutilised banking facilities inexcess of R300m, puts the Group in a soundfinancial position.Due to continuously declining feed gradesas a result of the depletion of above groundreserves, the Phalaborwa division marginallyproduced less phosphate rock than budget.A strategic project was initiated in order tofind a cost effective replacement for this feedconstituting about 40% of the productioncapacity. The Pyroxenite Expansion Project(PEP) will investigate alternative options ofexploiting the South Pyroxenite reserve in orderto maintain or even increase production levels ofphosphate rock at Phalaborwa for the next 50years. The Extension Eight plant performanceimproved towards the latter half of the year.The bottleneck hampering performance tocapacity is still the dry mill. A project has beenlaunched to eliminate this constraint, ensuringmaximal benefits from the flotation capacity inthe plant. Production costs are under control,4

however, due to the igneous nature of the oresource, compared to sedimentary types of rock,the plant remains in the top 10th percentile interms of cost of production of rock phosphateproducers in the world. The challenge is tofind niche, high value markets for this superiorquality rock phosphate.The investment of some four years ago ofexpanding the installed capacity at RichardsBay to circa 750 000 tons of P 2O 5, is now,with the assistance of CFL, starting to payoff. Production levels of phosphoric acid wererestricted by unforeseen shutdowns as well aslogistical constraints in getting the phosphaterock from Phalaborwa to Richards Bay. Year onyear the production cost per ton of phosphoricacid was well controlled, partly due to thevolume effect, but was negatively impactedby, predominantly, increased maintenance.The Foskor Group is now looking forward toextracting maximum value from the expansionand capturing market share by producing atcapacity within the near future.The increased capacity utilisation of theRichards Bay plant culminated in an increasein phosphoric acid sales into India and granularfertiliser sales locally.One local converter of phosphate rock has shutdown its operation, which led to a reduction ofphosphate rock sales into the domestic market.As a further result of the increased rockrequirements of the Richards Bay plant, exportsto Japan were limited.Trading conditions into India will remaintight, specifically as a result of difficult pricenegotiations and the Indian government’sproposed amended pricing policies.The Group expects that sales tonnages andprices of phosphoric acid, granular fertiliserand phosphate rock will continue to increase inthe future leading to improved profitability.The objective is to further diversify the marketsand become less reliant on the Indian consumergroups.The market for the procurement of strategicraw materials remained at high levels andwill continue to be a key driver for the Group.Sulphur and ammonia markets are watchedclosely in order to ensure the best deals forFoskor. The increased focus and participationof our suppliers are beginning to pay off and thepositive impact on production costs can be seenin the operations.Foskor, as a strategic investment of the IDC,has an obligation to the government to be afrontrunner and role model with respect to thepromotion of Broad Based Black EconomicEmpowerment (BBBEE). Direct purchasesfrom BBBEE suppliers have reached 40% ofdiscretionary procurement for the whole Group,which placed orders to the value of R270mwith SMMEs (small, medium and microenterprises) and true black empowered andowned companies. This will continue to increasethrough the focused efforts and dedicationof Foskor management, enabling the realempowerment of the black community into themainstream economy of our country.The Foskor Human Capital is and will remainof strategic and vital importance to the successof the Group.The Foskor Group has adopted and implementeda formal Employment Equity Policyrecognising the importance of changing thecompany’s demographic profile, in line with thedemographics of the areas in which it operates, tocreate a diverse and skilled employee workforce.These targets have been incorporated into theperformance management targets of top andsenior management. Attracting and retainingHistorically Disadvantaged South Africans(HDSAs) to Phalaborwa continues to be a majorchallenge. The national shortage of artisansis also now having an impact on the Group’sability to attract and retain skilled artisans andthis is one area where the achievement of the settargets is proving extremely challenging. Labourrelations throughout the Group continued toflourish without any industrial action takingplace during the period under review.Foskor’s dual strategic approach of dealingwith the impacts and seriousness of the HIV/AIDS pandemic includes both preventativeprogrammes, such as education and awareness,and support programmes, which include theprovision of anti-retroviral treatment andnutritional supplements. These efforts towardscombating this challenge and managing theimpacts thereof in the workplace will remainhigh on the corporate agenda for the Group.A revised health care policy, with a changein medical aid service provider for the lowerincome groups, was approved and implementedduring the year under review. All employees nowhave the option to belong to one of the medicalaid schemes utilised by the company.In conclusion, I would like to acknowledge theefforts of the executive team, employees andcontractors and express the Board’s sincerethanks and appreciation for their commitmentand achievements during the year. At the sametime I wish to assure them of the continuedsupport of the Board for their efforts, becausewe all believe in the sustainable future of Foskor.I would also like to express my appreciation tomy colleagues on the Board for their wisdom andcounsel. As with 2005, this certainly has beenanother challenging year but I look forward withconfidence to improved performance during thenext financial year.5

CHIEF EXECUTIVE OFFICER’S REVIEWWe takephosphaterock fromthe earth.OVERVIEWThe challenges Foskor faced in the 2005/2006financial year were many and varied and anotherinteresting year was experienced, leading to theGroup being on the brink of a major turnaround.The challenge in respect of proving our safetyand environmental responsibility persisted at theRichards Bay plant. Unfortunately, on 3 February2006, Mr Xulu from a contracting firm lost hislife when he fell approximately 25 metres fromthe rock store roof. Further to this, the operationhad eight disabling incidents concerning ownemployees. A fire destroyed the main sulphur feedconveyor on 3 March 2006 and two reportableenvironmental incidents occurred at the plantin Richards Bay: the first was an ammonia leakin June 2005 and the second a sulphur trioxideemission from Sulphuric Acid Plant A inNovember 2005.The first year of the involvement of the StrategicEquity Partner, Coromandel Fertilisers Limited(CFL) from India, has drawn to a close. TheBusiness Assistance Agreement (BAA) with CFLhas culminated in the Richards Bay operationachieving record production levels.The Foskor Board and Executive Managementhave again reviewed the Foskor strategic directionand identified the strategic key initiatives that arenecessary for the short and medium term in orderto achieve the corporate vision and mission.FINANCIAL PERFORMANCEGroup revenue increased by R768m or 43%,from R1806m (annualised) in 2005, to R2574min 2006. Approximately 40% of the increasein revenue originates from a tolling agreementbetween Foskor and Sasol Nitro for themanufacture of phosphoric acid and deflorinatedacid. A 33% increase in volume of phosphoricacid sales from Richards Bay and price increasesapproaching 10%, made up the balance.Coromandel Fertilisers Limited (CFL), to providetechnical, operational, maintenance, purchasingand business assistance to Foskor. The underlyingprinciple of the BAA is to remunerate CFL forits efforts to improve Foskor’s Earnings beforeInterest and Tax(es) (EBIT) over and abovethe ongoing initiatives of Foskor. CFL is also acustomer of Foskor and the majority shareholderof Godavari Fertilisers and Chemicals (GFCL) ofIndia, in which Foskor has a 5% shareholding.Remuneration in terms of the BAA agreementis discussed in the Directors’ Report elsewhere.The real financial benefits cannot be measured atthis stage with sufficient reliability, although theimpact can be felt at the operational level.The financial remuneration payable to CFL islimited to a maximum of R300m and will beutilised to purchase further equity in Foskor ifand when audited at the end of the measurementperiod.PRODUCTION AND OPERATIONSThe Phalaborwa division produced 2.528m tons ofphosphate rock, which is 6, 2% below budget. Oremined was on budget. Waste removal was 6.7mtons, which was 2.9% below the budget. Accidentdamage to a large haul truck, which reducedthe fleet size by 8.3% for a part of the year,substantial downtime on the Extension Eight millat the beginning of the year, and lower recoverieson two of the streams were the major contributingfactors to these variances. This improved towardsthe latter half of the financial year. Costs have beenwell contained and ended on 4.7% below budget(11.5% below budget including copper credits).Extension Eight has achieved the best performanceto date and is performing as well as can be expected,but the Loesche mill remains a bottleneck in theproduction stream. Extension Eight ended the year10.4% below budget, but in the past three monthsit has achieved 3.0% above budget. A project hasbeen launched to evaluate de-bottlenecking theExtension Eight production stream.The Group achieved a major turnaround inprofitability of R552m, from a net loss after taxof R477m in 2005 to a net profit after tax ofR75m for the year under review.BUSINESS ASSISTANCE AGREEMENTIn February 2005, Foskor entered into a BAA withProduction cost of phosphate rock was wellcontrolled. The negative effect of lower thanbudgeted production was offset mainly by thehigh copper price reflected in the copper credits,but also by strict cost control and further costreduction initiatives that has been successfullyimplemented during the year.6

The remaining Foskor ore reserves are summarisedin the following table together with the calculatedlife at the current consumption rate.In-houseOre Expected ClassificationIdentity MT Life Resource ReserveNorth Measured ProvenPyroxenite 531 +40 years Resource Reserves+7 years Measured ProvenArea 9 70 * Resource ReservesMarginal 12 months Measured Provendumps 6 ** Resource ReservesPMCActiveTailings +11 years Measured ProvenDams 160 *** Resource ReservesSouth Measured ProvenPyroxenite 1650 +50 years Resource ReservesTable 1: Foskor Reserves and ResourcesPMC – Palaborwa Mining CompanyMT – million metric tons* 4 years at increased rate to replace Marginaldumps** at January 2006*** Full feasibility completedThe above ground ore reserves known asFoskorite (Area 9 and Marginal), previouslymined and stockpiled will be depleted by theend of 2009. Foskor has embarked on a projectknown as Pyroxenite Expansion Project (PEP)to replace the Foskorite ore with Pyroxenite oreto be sourced from the new South Pyroxeniteopen pit. The feasibility and technical cost studyphase of the project has already been approvedand will be completed by March 2007. Thisstudy will form the basis on which a decisionon the implementation of the project will bemade. The implementation of the PEP is thenplanned to start in April 2007 and be completedby December 2009. Indications at this stage arethat the South Pyroxenite pit has phosphate richore reserves sufficient to sustain Foskor for thenext 50+ years.All the applicable mineral rights applications havebeen lodged with the Department of Minerals andEnergy. Some of these have been finalised, and areply is being awaited on the rest.The production in Richards Bay was 626k tonsof phosphoric acid against a previous best of575k and a capacity of 750k tons. Sulphuricacid production, was 1 771k tons, which was 6%below budget. At the beginning of the financialyear, after the shutdown, all the sulphuricacid plants experienced teething problems.Production in the latter part of the year wasrestricted by the poor availability of rockphosphate from Phalaborwa due to logisticalconstraints. Production was further hamperedby the fire incident in the sulphur conveyor.Lower production in granular fertilisers wasmainly due to lower off take in the market andmaintenance and operational problems in theplant.Cost of production of phosphoric acid wasadversely affected by unexpected expenditure dueto increased maintenance and a backlog paymentfor gypsum disposal to sea as well as the shutdownsand other accidents and incidents. Year on yearthe production cost per ton of phosphoric acid waswell controlled, partly due to the volume effect.The demurrage per ton was also drastically reducedby 30% compared to previous years, due to quickturnaround of the ships and increased transfer ofacid as the export pipeline was replaced in time.MARKETING AND SALESThe overall sales of phosphoric acid and granularfertilisers were significantly up, compared tothe previous financial year. This is mainly as aresult of an improvement in the production ofphosphoric acid.Total sales of phosphate rock to the localmarket, excluding inter-company sales, werebelow those of the previous financial year asa result of logistical limitations as well as areduction in the demand in the local market.Only circa 140 000 tons of phosphate rock wereexported to the Japanese market.Total export of phosphoric acid to India wasaround 12% above budget and total granularfertiliser sales were 41% below budget; thegranular fertiliser sales were negatively impactedby the production problems experienced atthe Richards Bay plant as well as by marketconditions.It is expected that the new negotiations for thephosphoric acid selling price into India will againprove to be difficult. At the time of writing thisreport, new selling prices of phosphoric acid forthe period April 2006 to March 2007 were notyet finalised.The Group expects that sales tonnages andprices on phosphoric acid, granular fertiliser andphosphate rock will continue to increase in thefuture.SAFETY, HEALTH, ENVIRONMENT ANDQUALITY (SHEQ)The Rock and Copper division achieved 1.6 millionfatality-free shifts and 2.6 million man-hourswithout a disabling injury during this period, butthe latter has been reduced to 0.8 million manhourswithout a disabling injury due to an injuryduring December 2005.Both the Rock and Copper as well as the Zirconiadivisions based in Phalaborwa, had successfulintegrated SHEQ audits, achieving OHSAS18000, ISO 9001 and ISO 14001 certificationover and above being awarded the DEKRA 5Shields award for safety, health, environmentand quality management for integrated SHEQsystems.In accordance with the water permit issued bythe Department of Water Affairs and Forestry(DWAF), Phalaborwa operations have successfullyoperated the collection points around thetailings dams and not discharged any water intothe Selati River during the year under review.The Richards Bay plant has embarked on theimplementation of the Process Safety ManagementSystem (PSMS), which is mandatory in the USAfor hazardous installations.The fatality in February 2006 of a contractorwho was working on the roof of the phosphaterock store is regrettable. However, negligence onthe part of the deceased for not adhering to thesafety measures was found to be the cause of theaccident.All plants in Richards Bay outperformed thepermit emission requirements, with the SulphuricAcid Plant achieving its highest compliance recordof all time of 99.93%. Complaints to the RichardsBay Clean Air Association reduced from 50% to30% for the year under review.Two reportable environmental incidents occurredat the plant in Richards Bay. The first was anammonia leak in June 2005 and the second asulphur trioxide emission from Sulphuric AcidPlant A in November 2005.The Phosphoric Acid production facility maintainedits ISO 9001 accreditation for quality.A fire occurred in March 2006, at the SulphurTransfer Tower and associated conveyor belt.7

CHIEF EXECUTIVE OFFICER’S REVIEWWe enrich ourphosphate rockwith the additionof sulphur.The cause of the fire was attributed to friction andhigh dust content from the sulphur received fromthe Middle East. The structures were subsequentlyrepaired and put to use.Post the financial year closure, on 7 May 2006, atransformer at the old phosphoric acid plant caughtfire, causing substantial damage to electrical cables;and Business Interruption is estimated to be as muchas 50 days.It is clear that safety and environmental complianceand responsibility should remain the key focus areafor the Richards Bay operation for the year tocome.MINE CLOSURE COST PROVISIONThe Group is aware of the increasing emphasison environmental accounting and accountability.Management is continually assessing and monitoringthe various environmental issues facing the Group.Based on a Mine Rehabilitation and Closure CostAssessment done by African EPA during 2005,the contingent liability has been recognised for theissuing of guarantees to the Department of Mineralsand Energy in terms of Regulation 54(2) of theRegulations promulgated in terms of the Mineralsand Petroleum Resources Department Act, 2003(Act 28 of 2004). The recommended mine closurecost at this stage (ignoring salvage value) is R223m.A commitment has been made to the Department ofEnvironmental Affairs with respect to the phased indelivery of guarantees. The value of the Trust as at31 March 2006 amounts to R41.2m.PROCUREMENT AND LOGISTICSDuring the first quarter of the year the internationalsulphur market was high but during the latter period,sulphur prices softened, which had a positive impacton the final product costing. Due to high productionthe volume of usage in the Richards Bay divisionwas higher by 9% than for the previous 12 monthperiod.high production of phosphoric acid at the RichardsBay plant.Once again, the focus of procurement has beenon promotion of Black Economic Empowerment(BBBEE). During the year under review, directpurchases from BBBEE suppliers have reached40% of discretionary procurement for the wholeGroup (excluding reagents and strategic rawmaterials on total purchases). The total spend wasR677m and the BBBEE spend came to R270m. Thisachievement is attributable to clear dedication ofFoskor management to ensuring black participationin the main supply chain of Foskor.OUR HUMAN CAPITALEMPLOYMENT EQUITYIn line with the Employment Equity Act the FoskorGroup has adopted a formal Employment EquityPolicy. The policy recognises the importance ofchanging the company’s demographic profile,in line with the demographics of the areas inwhich it operates, to create a diverse and skilledemployee workforce. Employment Equity targetsset by Employment Equity and Skills DevelopmentCommittees consisting of Management, OrganisedLabour, Women and Disabled Employeesrepresentatives are approved by the Boardof Directors. These targets form part of theperformance management targets of top and seniormanagement. Although the planned employmentequity targets, for the Group as a whole, for theyear under review, were substantially met, it isproving a major challenge to attract HistoricallyDisadvantaged South Africans (HDSAs) toPhalaborwa and to retain them. The shortage ofartisans in the country is also having an impacton the Group’s ability to attract and retain skilledartisans and this is one area where the achievementof the set targets is proving extremely challenging.This was somewhat alleviated by the developmentof in-house talent in line with the Section 28 artisantraining programme.During the period under review ammonia marketswere stable and quite high. Procurement of ammoniawas carried out on annual contract from Sabic andat the time when rates were on a downward trend.During the period under review, 40 000 tons ofammonia were purchased, which is more or less thesame as that of the previous 12 month period.Total shipments of Rock to Richards Bay were 10%higher than for the previous financial year due toSKILLS DEVELOPMENTThe Workplace Skills Plan and annual trainingreports for the operations in Phalaborwa andthe plant in Richards Bay are set, monitored andapproved by the two Employment Equity and SkillsDevelopment Committees respectively and thensubmitted to the relevant Sector Education andTraining Authority (SETA) – which in this caseis the Mining Qualifications Authority (MQA) orthe Chemical Industries Education and Training8

Authority (CHIETA) and the Department ofLabour. Foskor has received refund grants inexcess of 60% of the skills levies paid.employees is currently under investigation. Thepost-retirement health care and pension benefitsare also under review.safety and environmental compliance in RichardsBay will also assist in making the next year one tobe excited about.The Adult Basic Education and Training (ABET)programme is substantially complete in RichardsBay, with the Phalaborwa operation makingsubstantial progress in the period under review.The transfer of skills forms part of the BAA withCFL. Two batches of employees from RichardsBay were sent to India for training at CFL’soperations. A number of specialists were alsobrought from India to train Foskor employeesidentified for succession planning.INDUSTRIAL RELATIONSLabour relations throughout the Group continuedto flourish, without any industrial action takingplace during the period under review.HIV/AIDSThe challenges associated with the impact of HIV/AIDS on Foskor are being addressed. Althoughdifficult to quantify, due to the confidentialityassociated with the disease, the effects includeabsenteeism, reduced productivity, employeesbeing unable to perform their normal duties, lossof personnel and increased direct and indirectcosts. Foskor’s dual strategy approach includespreventative programmes such as education andawareness as well as support programmes, whichinclude the provision of anti-retroviral treatmentand nutritional supplements. A learnershipprogramme has also been started with theintention of having skills ready for replacement ofemployees lost to the pandemic.EMPLOYEE BENEFITSIt remains the objective of the Group to provideaffordable, effective and sustainable healthcare to all employees and their dependents inan equitable manner. It is for this reason thata revised health care policy, with a change inmedical aid service provider for the lower incomegroups, was approved by the Foskor Board andimplemented during the year under review. Allemployees are entitled to belong to a medical aidscheme of their choice from among those utilisedby the company.The Group operates a variety of Pension,Provident and Retirement funds together withDeath and Disability Insurance benefits. A processto integrate the various funds and benefits for allREMUNERATIONThe Group has a Board Human ResourcesCommittee, consisting of the CEO and nonexecutivedirectors, which is chaired by a nonexecutivedirector. Its specific terms of referenceinclude consideration and recommendation tothe Board on matters relating to general staffpolicy, remuneration, profit bonuses, executiveremuneration, directors’ remuneration and fees,service contracts and Group retirement and healthcare benefits.The Board Human Resources Committee wasalso, during the period under review, activelyinvolved in addressing the post retirement pensionand medical aid liabilities.The Company also has a Group RemunerationCommittee that, amongst other things, addressesequity in terms of salary and wages across theGroup.DIRECTORS’ REMUNERATIONThe Board Human Resources Committee considersthe remuneration of all directors and executives.The financial statements accompanying this reportreflect the directors’ earnings and other benefits.OUTLOOK FOR 2006/2007The main challenges for the Group will remain theconversion of our efforts in the arena of safety andenvironmental responsibility into results. Anotherfocus area will be the achievement of operationaltargets and specifically the containment ofproduction costs. A slight shift in focus will alsobe towards the mining operation, specifically theconversion of mineral rights and the PyroxeniteExpansion and Ore Replacement Project.The Group will continue to be faced with challengesin the market with the pricing of phosphoricacid into India and the phosphate rock into thedomestic market. Further challenges are alsoexpected with the supply of raw materials, morespecifically sulphur. Economic stability in SouthAfrica and a more consistent exchange rate arepredicted, which will certainly assist the businessmodel.The continued support from our partner, CFL, interms of increased production, improvement ofThe proposed acquisition of the Phalaborwa Worksof Sasol Nitro (‘FEDMIS”) was opposed by theCompetitions Commission and was scheduled tobe defended before the Competitions Tribunal on8 May 2006. This trial has been delayed, however,due to alternatives that are being investigated withSasol and third parties.ACKNOWLEDGEMENTOn behalf of executive management, I wishto express sincere thanks and appreciation toFoskor’s shareholders, our Board of Directors,our employees and our contractors – for theircommitment and support during a year that wasfull of challenges.I am convinced that Foskor now has the team,plant and strategy in place to deliver on our visionof maximising shareholder value in a safe andresponsible manner according to sound corporategovernance principles. With the support of thecapable and motivated team we now have in placeI am looking forward to taking on the challengesof the year ahead.IN APPRECIATIONMy sincere appreciation to Mr LL van Niekerk,outgoing Chairman of the board of directors of theGroup for the significant role he played in turningthis orginisation around.9

CHIEF FINANCIAL OFFICER’S REVIEWThe main drivers influencing the period’s results are tabled below.Key Drivers 2006 2005 2005 2004 VariancePeriod months 12 Annualised 9 12 2006/2005Exchange Rate – R/$ average 6,37 6,17 6,17 6,83 0,20 3%Revenue – R'm 2 574 1 806 1 354 2 051 769 43%Volume – Sales– Phosphoric Acid (P 2O 5) – 000’ tons 581 437 328 435 144 33%– Granular – 000’ tons 177 173 130 296 4 2%– Phosphate Rock – 000’ tons 2 605 2 575 1 931 3 016 30 1%Volume – Production– P 2O 5– 000’ tons 626 541 406 575 85 16%– Phosphate Rock – 000’ tons 2 528 2 791 2 093 2 642 (263) (9)%Prices – Sales (average)– P 2O 5– CFR Price – $/t 440 399 399 356 41 10%– Phosphate Rock – FOR Price – $/t 59 54 54 43,3 5 9%Prices – Raw material cost– Sulphur – delivered – Price – $/t 85 86 86 80 (1) (1)%We use ourphosphate rockto producephosphoric acid.REVENUEGroup revenue increased by R768m or 43% fromR1,806m (annualised) in 2005 to R2574m in2006. The major contributors to the change inrevenue were:• The 3% weakening of the South African Randagainst the US Dollar (US$) from an averageof R6.17/$ during 2005 to R6.37/$ during2006. The positive impact of this change onrevenue exceeds R80m.• The selling prices for both phosphate rock andphosphoric acid are determined in the worldmarket in US Dollar terms. Approximately75% of revenue is derived from exports andmore than 95% of total revenue is based ondollar denominated prices.• Sales volume of phosphoric acid increased by33% from 437k tons (annualised) to 581ktons. All phosphoric sales are exported, mainlyto India. The positive impact of this additionalvolume on revenue has been R366m.• The average CFR price of phosphoric acidincreased by $46/t or 12% from $399/tduring the year to March 2005 to an averageof $440/t ($445/t at year end). The positiveimpact of this price variance has been R152m.• Sales volumes of granular fertiliser increased by2% from 173k tons (annualised) to 177k tons.The positive impact of this on revenue has beenR48m from both price and volume increase.• Phosphate rock sales increased marginally by1% from 2575k (annualised) tons to 2605ktons. More than 75% of the sales are exportedor sold to our Richards Bay plant with thebalance being sold to the local market.• The average FOR price of phosphate rockincreased by 9% from $54/t to $59/t.TOLLING ARRANGEMENT WITH SASOLNITRO• The tolling agreement came into effect as from1 September 2005 whereby Foskor suppliesthe raw materials to Sasol Nitro and sells thefinished goods to the local market. For thisservice, Foskor pays Sasol Nitro a monthlyfixed fee as well as variable charges per productproduced.• The production outputs from Sasol Tollinghas been 113k tons of phosphoric acid, whichincluded 27k tons used to produce def acid.• Sales volumes of phosphoric acid were 82k tonsand 26k tons of def acid. Sulphuric acid salesamounted to 59k tons. All sales were made inthe local market.• The revenue generated from Sasol Tolling salesamounted to R320m.PRODUCTION• Production of phosphoric acid increased by 85ktons or 16%, from 541k tons (annualised) to626k tons. This improvement was achieved withthe assistance from staff seconded to Foskoras per the Business Assistance Agreement(BAA) between Foskor and CoromandelFertilisers Limited (CFL) of India. Productionof granulation increased by 29k tons or 18%,from 161k tons (annualised) to 190k tons.• Production of phosphate rock declined by 9%or 263k tons, from 2791k tons (annualised) to2528k tons. The major reasons for this declineare that Foskorite ore reserves are diminishingrapidly and come to its end in about three yearstime; most of the higher quality ore has alreadybeen processed. Declining grades on the oneFoskorite stream and operational challenges(mineralogical) on the other Foskorite streamhave resulted in lower product output. In10

addition, maintenance problems on ExtensionEight, including a fan bearing failure, reducedthe product output.OPERATING PROFITThe Group achieved a major turnaround inprofitability of R456m – from an operating lossof R420m in 2005 to an operating profit of R36mfor the current year. Before taking into accountthe impairment of R300m in the previous year,the operating profit improved by R156m.The major contributors to the year on year changeinclude:• The weakening of the Rand against the US$resulted in an additional operating profit ofcirca R50m.• The increase in production of phosphoric acidin Richard Bay resulted in an increase in profitof circa R48m.• Increase in sales prices of phosphoric acid of10% from $399/t to an average of $440/tand the increase in local phosphate rock pricesfrom $54/t to $59/t, better efficiencies and thecurtailment in the increase in Rand based costshave assisted in the turnaround.• While the breakeven for the Group was morethan R8/$ two years ago, it has reduced tocirca R6/$.• The effect of changes in the exchangerate is material for the Group. At currentproduction levels and cost structures theeffect of a R1 change in the exchange rate(from say R6/$ to R7/$) has a R250m effectat the operating profit level.• The post retirement medical aid liabilityincreased by R65m, from R136m in theprevious year to R201m during the currentyear. This increase is partly due to a catch-up.• Distribution cost increased by 25% or R111m,from R428m annualised (R321m for 9 months)to R533m. The major part of the increase relatesto the export of phosphoric acid from RichardsBay to India, which increased with 37% orR77m from R204m, (annualised from R153mfor nine months), to R281m. The Dollar ratepaid on exports for the current year on averageamounted to $74.79 as compared to last year’saverage of $68.22. Most of the shipments in thecurrent year were shipped to the east coast; theDollar cost per ton is on average $10 more thanthe west coast.IMPAIRMENTThe balance sheet values of Foskor’s assets havebeen assessed in accordance with InternationalAccounting Standards (IAS) 36 (AC128) onImpairment of Assets, which requires that eachoperating unit, as well as the Group as a whole, bemeasured. Unlike the previous year, in which theRichards Bay plant was impaired with R300m, noadditional or reversal of impairment is requiredas at year end.ADOPTING OF INTERNATIONAL REPORTINGSTANDARDS (IFRS)In respect of property, plant and equipment(PPE) the company has elected to use the fairvalue exemption allowed under IFRS, deemingthe depreciated cost of an asset to be its fairvalue. A revaluation carried out by independentvaluators indicated that the fair values exceed thenet carrying values as follows:• the Phalaborwa plant’s fair value exceeds thecarrying value of R738m by almost R500m;and• the Richards Bay plant’s fair value exceeds thecarrying value of R842m, after the previousyear’s impairment of R300m, by just overR200m.A full impairment test was performed, the resultof which was to then impair the said R700mexcess in full, to arrive at a more acceptablecarrying value currently disclosed in the AnnualFinancial Statements.By not adjusting for the excess value of justover R700m and after revisiting the residualvalues and the remaining useful lives of assets,the depreciation charge had to be reduced. Thecharge for the previous nine month period had tobe reduced by R44m, from R115m to R71m. Thecharge for the current year amounts to R94mand is R59m lower than the R153m, based onthe previous accounting policy.WORKING CAPITALA negative cash flow resulting from workingcapital outflow amounted to R86m. The majorcontributors are:• A negative contribution of R140.6m fromreceivables, which increased from R444.3m in2005 to R584.9m in 2006. The major reasonfor this relates to additional debtors amountingto R144m as a result of the Sasol Nitro tollingagreement.• A negative contribution of R58.6m frominventory, which increased from R470.4m toR529m due to:– Inventory relating to the tolling arrangementwith Sasol Nitro amounting to R49m.– Logistical constraints relating to thetransport of rock from Phalaborwa toRichards Bay and limited storage facilitiesat Richards Bay had a negative impact onsupplying rock to the Richards Bay plantand the export of rock. Phosphate rockamounting to 44k tons had to be importedto satisfy the demand for rock at theRichards Bay plant. Phosphate rock stocklevels decreased marginally from 399ktons in March 2005 to 365k tons in March2006 against a target of 200k tons.– The rock inventory at Richards Baydecreased from 27.2k tons to 1.4k tons.– Sulphur inventory decreased from 25.6k tonsto 10.5k tons.– Phosphoric acid inventory decreased by14.4k tons, from 56.7k tons to 42.3k tons.– Granular inventory increased by 6k tons,from 20k tons to 26k tons.• A positive impact from accounts payable andprovisions, which increased by R84.3m andR28.9m respectively.FREE CASH FLOWThe free cash flow (defined as the net of cash flowfrom operating activities and net cash used ininvesting activities) amounts to R95.1m. This wasthe first positive free cash flow over at least theprior 10 years. (Also refer to Five-Year Reviewat the back of the notes to the Annual FinancialStatements.)CAPITAL AND RELATED EXPENDITURECapital expenditure incurred by the Group duringthe period amounted to R105m (nine months2005: R133m or R92m before capitalisingfinance lease of R41.5m due to early adoption ofIFRIC4).The capital expenditure approximates to 68%of the depreciation of R153m before the IFRSadjustment referred to above, or 110% of thedepreciation of R95m after the IFRS adjustment.Repairs and maintenance of R258m are on a parwith those of previous years: i.e. R185m for thenine month period ending March 2005, R265mduring 2004 and R250m during 2003.FINANCING STRUCTURE OF THE GROUPThe Group had a positive bank balance of R427m(2005: R335m) at year end with no InterestBearing Debt.The R1 450m loan from the Industrial DevelopmentCorporation (IDC) is:• Subordinated in favour of all other loans andcreditors;• Non-interest-bearing; and• Fixed, with no repayment terms.Unutilised interest bearing facilities at year endamounted to R328m.11

CORPORATE REVIEWBOARD AND BOARD SUB-COMMITTEESAll directors have unlimited access to the adviceand services of the Group Secretary, who isresponsible to the Board for ensuring that Boardprocedures are followed.and non-quantifiable risks (e.g. reputation).5. Risk management is a process that iscontinual and evolving in nature so that itremains dynamic and relevant to the businessas business changes over time.Our phosphate rockis returned to theearth in the form offertilizer.The Board has established the following subcommitteesto assist in the discharge of itsduties:• Human Resources• Technical• Audit & RiskThe Board Audit & Risk Committee comprisesfour non-executive directors and the President/CEO. The Chief Financial Officer andrepresentatives from the external auditors,internal auditors and management attend themeetings of the Committee.The Committee is authorised by the Board toaccess any internal audit report and financialinformation and can instruct the managementof Foskor, the internal auditors or the externalauditors to conduct any investigation or studyas it deems necessary. Both the internal andexternal auditors have unrestricted access tothe Committee, which meets at least once everyquarter. The Board Audit & Risk Committeeoperates in accordance with a formalised BoardAudit & Risk Committee Charter.Management has reviewed the Annual FinancialStatements with the Board Audit & RiskCommittee and the external auditors. The qualityand appropriateness of the accounting policieswere fully discussed with the external auditors.The Board Audit & Risk Committee considersthe Annual Financial Statements of Foskor(Pty) Limited and its subsidiaries to be a fairrepresentation of its financial position, resultsof operations and cash flow information for theyear ended 31 March 2006.RISK MANAGEMENTFoskor’s risk management philosophy is:1. Risk management does not equate to riskavoidance.2. To create and enhance shareholder value, riskhas to be borne.3. We do not seek to avoid risk but to understandit properly, manage it effectively and evaluateit in the context of the reward that is beingearned.4. Equal attention is paid to both quantifiableLike all commodity exporters, the Group isvulnerable to the exchange rate. Its effortsto reduce its vulnerability are affected by thecurrent high cost of strategic raw materials,which increases logistical and operationscosts. The recent restructuring and operationalcontinuous improvement efforts are utilised tomanage this risk.The system of risk management and internalcontrol is intertwined with the company’soperating activities to provide assurance thatenterprise-wide policies and procedures are inplace to address all forms of risk identified asinherent to the company’s activities. We followa combined assurance concept to manageenterprise-wide risk.In 2001 Foskor introduced an integrated riskmanagement system in order to comply withgood corporate governance in line with King2 Commission recommendations. This systemhas been continuously upgraded and in 2006Foskor intends to intensify its risk managementefforts by streamlining the risk methodology andtraining all staff in its proper implementation.In the new financial year Foskor intends utilisingproactive data analysis tools to better managethe fraud risks from a prevention, detection andresponse perspective. This will help to identifyfraud red flags, hidden or masked relationships,and fraud control weaknesses.INTERNAL CONTROL AND INTERNALAUDITTo meet its responsibility with respect to providingreliable and accurate financial information, theGroup maintains financial and operating systemsof internal control. These controls are designedto provide reasonable assurance regarding theachievement of organisational objectives withrespect to:• the effectiveness and efficiency of operations;• the safeguarding of the company’s assets(including assets);• compliance with applicable laws, regulationsand supervisory requirements;12

• supporting business sustainability under normalas well as adverse operating conditions;• the reliability of reporting; and• behaving responsibly towards all stakeholders.In accordance with recommended corporategovernance practice, it is the policy of Foskor (Pty)Limited to maintain a centralised independentinternal audit function, titled Foskor Group AuditServices (FGAS).The role of this function is to assist the BoardAudit & Risk Committee of the Board of Directors,as well as management personnel at all levels,in the effective exercise of their responsibilitiesthrough the provision of analyses, appraisals,recommendations, counsel, and informationconcerning the activities reviewed, and bypromoting effective control at reasonable cost.The internal audit function is thus responsible forproviding independent assurance to the BoardAudit & Risk Committee regarding the effectivemanagement of all risks, which may impact theachievement of the business objectives.The scope of the work of FGAS is to determinewhether Foskor’s network of risk management,control and governance processes, as designedand represented, is adequate and functioning in amanner to ensure:• Risks are appropriately identified andmanaged.• Interaction with the various governance groupswithin the company occurs as appropriate.• Significant financial, managerial and operatinginformation is accurate, reliable and timely.• Employee’s actions are in compliance withpolicies, standards, procedures and applicablelaws and regulations.• Resources are acquired economically, usedeffectively, and adequately protected.• Programmes, plans and objectives areachieved.• Quality and continuous improvement arefostered in the organisation control process.• Significant legislative or regulatory issuesimpacting on the company are recognised andaddressed appropriately.Based on its assessment, as well as internal andexternal audit, the Group believes that, as at 31March 2006, its system of internal control metthe criteria for effective internal control.CODE OF ETHICSFoskor (Pty) Ltd is committed to organisationalintegrity and sound business ethics as set out inthe codes of corporate governance best practices.Foskor (Pty) Ltd has adopted a Code of Ethics,which incorporates the Group’s operating, financialand behavioural policies in a set of integratedvalues and standards required of employees intheir interaction with one and another and withall stakeholders. The code is distributed to allemployees of the Group.An ethics hotline facility exists to enable staffto report unethical behaviour anonymously. Thishotline is the responsibility of FGAS, whichensures that all unethical behaviour is adequatelyinvestigated and feedback is provided timeously tothe business. A comprehensive fraud report is alsoprovided to the Board Audit & Risk Committee forreview and approval.In the new financial year, Foskor intends:• Measuring the ethical climate within the Groupby means of an integrity thermometer;• Revising and consolidating the existing Ethicspolicy, Code of Ethics and related material;and• Launching and rolling out a revised ethicspolicy together with the ethics awarenessprogrammes.STAKEHOLDER COMMUNICATION ANDEMPLOYEE PARTICIPATIONThe CEO continues his monthly feedback sessionsto the general workforce. The purpose of thefeedback sessions is to share information, sourcethe views and inputs of employees and providefeedback on company performance and futurestrategies.In the new year, the Group engaged the servicesof a Public Relations company, Burns, to improvethe overall image of the Group and generalcommunication to both internal and externalstakeholders.13

We take from the earth,and we put back into theearth. We ensure growthand sustenance for SouthAfrica and the rest of theworld. Our phosphate rockmakes plants grow, helpsagriculture, feeds ourcountry, feeds the world.14

DIRECTORS’ DECLARATIONDIRECTORS’ RESPONSIBILITY FORTHE FINANCIAL STATEMENTSTo the members of Foskor (Pty) LimitedThe directors are responsible for monitoring the preparation and theintegrity of the financial statements and related information includedin this Report.In order for the Board to discharge its responsibilities, managementhas developed and continues to maintain a system of internal control.The Board has ultimate responsibility for the system of internal controland reviews its operation primarily through the audit committee andindirectly through other risk-monitoring committees.Foskor endorses the Code of Corporate Practices and Conduct ascontained in the King Report on Corporate Governance and adheresto the Code in all material respects.The directors believe that the Group will be a going concern in the yearahead. For this reason they continue to adopt the going concern basisin preparing the Group financial statements. The financial statementsfor the 12 month period ended 31 March 2006 set out on pages 17to 53 were approved by the Board of Directors on 19 June 2006 andare signed on its behalf byAdequate accounting records and an effective system of internalcontrols are maintained to provide reasonable assurance that assetsare safeguarded and that transactions are executed in accordancewith policies and procedures.MA PitsePresident and Chief Executive OfficerLL Van NiekerkChairmanAs part of the system of internal control the internal audit functionconducts operational, financial and specific audits and co-ordinatesaudit coverage with the external auditors. The external auditors areresponsible for reporting on the financial statements.The financial statements are prepared in accordance with InternationalFinancial Reporting Standards and incorporate responsible disclosurein line with the accounting philosophy of the Group. The financialstatements are based on appropriate accounting policies consistentlyapplied and supported by reasonable and prudent judgements andestimates.CERTIFICATE BY COMPANY SECRETARYI hereby certify that the company has lodged with the registrar allsuch returns as required in terms of the Companies Act of 1973 asamended.AUS KhanyileSecretary15

AUDITORS’ REPORTIndependent auditors’ report to the members of Foskor (Proprietary)LimitedWe have audited the annual financial statements and group annualfinancial statements of Foskor (Proprietary) Limited set out on pages17 to 53 for the year ended 31 March 2006. These financial statementsare the responsibility of the company’s directors. Our responsibility is toexpress an opinion on these financial statements based on our audit.We conducted our audit in accordance with International Standards onAuditing. Those Standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion.In our opinion, the financial statements present fairly, in all materialrespects, the financial position of the company and of the group at31 March 2006, and the results of their operations and cash flowsfor the year then ended in accordance with International FinancialReporting Standards and in the manner required by the CompaniesAct of South Africa.PRICEWATERHOUSECOOPERS INCRegistered Auditors19 June 2006SunninghillNGUBANE & CO INCRegistered Auditors19 June 2006Durban16

REPORT OF THE DIRECTORSFor the 12 Month period ended 31 March 2006The directors have pleasure in submitting their report and the AnnualFinancial Statements of the company and the Group for the 12 monthperiod ended 31 March 2006.The term Group, in the context of the financial statements, refers to thecompany and its subsidiaries.NATURE OF BUSINESSThe core business of the Group is the manufacture and supply ofinternational standard merchant grade phosphoric acid and relatedgranular fertiliser products at the Richards Bay plant. All the phosphoricacid is exported and the granular sales are divided between exports andlocal markets.More than 75% of the phosphate rock concentrate produced at thePhalaborwa mine is transported to the Richards Bay plant for theproduction of phosphoric acid. The balance of the phosphate rock issold in local markets and exported mainly to Japan and the Far East.Export prices are generally, on a net back basis, after distributioncosts, 15% to 20% more profitable than local salesFINANCIAL RESULTSExports contribute to more than 75% of the Group’s revenue andlocal sales are based on US Dollar denominated prices. The volatilityexperienced by the Rand on the foreign exchange market continues tohave a detrimental effect on the financial results for the period. Theaverage R/$ exchange rate for 2006 was R6.37/$ compared to theprevious period’s R6.17/$.Group revenue increased by R768m or 43%, from R1 806m (annualised)in 2005 to R2 574m in 2006.The Group achieved a major turnaround in profitability of R456m, froman operating loss of R420m in 2005 to an operating profit of R36m forthe current year. Before taking into account the impairment of R300min the previous period, the operating profit improved by R156m.The net profit for the year increased by R552m from the previous year’s netloss of R477m to a net profit for the current year amounting to R75m.The activities of the Group fall into four principal classes of business,and the estimated proportion of net operating income attributable tothese classes is further explained in the annual report.SHARE CAPITALThe authorised capital remained unchanged during this period at:• 8 100 000 ordinary shares of R1 each; and• 23 500 000 new class ‘B’ ordinary shares of R1 each.During April 2005, Foskor issued the following shares to CoromandelFertilisers Limited (CFL):• 23 500 000 ‘B’ shares of R1 each with a share premium of R0.5821per share; and• 199 590 ordinary shares of R1 each with a share premium ofR0.60586.The issued ordinary share capital increases from 7 784 000 shares ofR1 each to 7 983 590 shares of R1 each. The shareholding in Foskoris as follows:• 97.5% of the shares are held by the Industrial DevelopmentCorporation (IDC) of South Africa Limited;• 2.5% of the shares are held by CFL, an Indian based company.The directors are authorised, until the next annual general meeting, toissue unissued ordinary shares.SUBSIDIARIESDetails of the subsidiaries and associates of the company are set out inNote 7 to the Annual Financial Statements.ENVIRONMENTAL ACCOUNTINGThe Group is aware of the increasing emphasis on environmentalaccounting and accountability. Management is continually assessingand monitoring the various environmental issues facing the Group.Based on a Mine Rehabilitation and Closure Cost Assessment done byAfrican EPA during 2005:Net shortfall at this stage R ‘000- Recommended mine closure cost 223,410- Estimated salvage value at this stage 204,967- Closure deficit at this stage 18,443- Contingencies 46,915- Net shortfall before realising assets held inEnvironmental Trust 65,358A contingent liability has been recognised for the issuing of guaranteesto the Department of Minerals and Energy as follows (refer Note 20 tothe Annual Financial Statements): R ‘000- Recommended mine closure cost at thisstage (ignoring salvage value) 223,410- Less assets held by the Environmental Trust(refer note below) 41,223- Shortfall 182,187- Guarantee to be issued July 2006 50,000- Guarantee to be issued July 2007 50,000- Guarantee to be issued July 2009 (estimated at betweenR82m and R100m)The total environmental rehabilitation liability has been estimated atR152.4 million after taking into account the following (refer Note 25to the Annual Financial Statements): R ‘000- The closure cost of the mine 223 410- Contingencies 20 000- The weighted average cost of capital 12.1%- Estimated escalation per annum 4.8%- Costs discounted to present value 7.3%The value of the Trust amounting to R41.2m is offset against theliability of R152.4m leaving a net figure of R111.2 m on the BalanceSheet (refer Note 25 to the Annual Financial Statements).FOSKOR REHABILITATION TRUST (PHALABORWA MINE)Details of contributions to the Trust are as follows (refer Note 25 to theAnnual Financial Statements):June 1995 R 4 500 000June 1996 R 5 894 000June 1997 R 1 217 000June 1998 R 1 160 000June 1999 R 500 000June 2000 R 496 083June 2004 R 3 000 000March 2006 R 8 000 000R 24 767 083The current market value of the assets in the Trust is R41.233 million,which is regarded as adequate at this point when considering theremaining life of the Phalaborwa mine.BUSINESS ASSISTANCE AGREEMENT – CONTINGENTLIABILITY (refer Note 20 to the Annual Financial Statements)Foskor entered into a Business Assistance Agreement (BAA) withCoromandel Fertilisers Limited (CFL) in February 2005 to provide17

REPORT OF THE DIRECTORStechnical, operational, maintenance, purchasing and business assistanceto Foskor. The underlying principle of the BAA is to remunerate CFLfor its efforts to improve Foskor’s Earnings Before Interest and Tax(EBIT) over and above the ongoing initiatives of Foskor. CFL isalso a customer of Foskor and the majority shareholder of GodavariFertilisers and Chemicals (GFCL) of India, in which Foskor has a 5%shareholding.Remuneration in terms of the BAA agreement is based on theimprovement of the EBIT as calculated during the measurement periodof 1 April 2007 through to 31 March 2008 against that of the baseperiod of 1 January through to 31 March 2005, annualised. The EBITwill be adjusted for any improvement outside of CFL’s contribution.These adjustments include: exchange rate movements, selling pricemovements, raw material price movements, abnormal items such asinsurance claims, and Foskor’s own continuous improvement benefitsequivalent to 7.5% of the cost of production.The remuneration payable to CFL is limited to a maximum of R300mand will be utilised to purchase further equity in Foskor – a minimum of7.5% shareholding if sufficient remuneration were earned after taxes,thus giving CFL a 10% stake in Foskor (2.5% currently). CFL canincrease the shareholding to a maximum of 16.5%, based on earningsafter taxes.The liability cannot be measured with sufficient reliability at this stageand is therefore not recognised. The liability can only be measured afterthe 12 month period ending March 2008.INSURANCE AND RISK MANAGEMENTThe Group’s philosophy is to manage its risks in order to protect itsassets and earnings against unacceptable financial loss and to avoidlegal liabilities. In this regard, possible catastrophic type risks areinsured at a relatively advantageous cost with satisfactory cover whilenon-catastrophic type risks are self-insured. The management of riskis further supported by the Group’s health and safety programmes, andmaintenance of the ISO 9002 (quality) and ISO 14001 (environmental)standards. Foskor was the first mining company in South Africa toreceive the latter accreditation.Fixed assets are insured at current replacement value, which has beenestimated by an external valuator.Risk surveys and assessments are an integral part of the Group’srisk management policy and are performed on an integrated Grouprisk management system. Risks identified during these surveys areeliminated, reduced or transferred to the insurers.EMPLOYMENT EQUITYThe Group supports employment equity and the development andpromotion of previously disadvantaged employees and complies with therequirements of the promulgated Employment Equity Act. The Groupbelieves in developing and promoting people from within the company.Training and development programmes are in place to ensure that everyemployee will have the opportunity to enhance his or her potential. TheGroup also adheres to the requirements of the Skills Development Actand sees this as yet another opportunity to develop employees.EVENTS AFTER BALANCE SHEET DATEPost the financial year closure, on 7 May 2006, a transformer at the oldphosphoric acid plant in Richards Bay caught fire, causing substantialdamage to electrical cables; Business Interruption is estimated to be asmuch as 50 days.The financial impact of Business Interruption for 47 days will be around56 000 tons of P 2O 5, of which the first 14 days will be excluded as perthe terms of the Business Interruption Insurance Policy.It is envisaged that production for the year to March 2007 will, despitethis incident, exceed the previous year’s production of 625k tons.The financial impact of repair of equipment is estimated to be betweenR20m and R25m, of which R5m is to be excluded as excess under theinsurance claim and the balance would be claimed under the MachineryBreakdown Policy.The anticipated net negative impact for the 2006/7 year will be lessthan R20m.Refer commentary under the directorate paragraph below, regardingthe resignation of the chairman of the board of directors of the Groupsubsequent to year end.DIRECTORATEDuring the period under review, the following changes in the directorateoccurred:Resignations: 22 June 2005Mr HN GiyoseMr F VenterAppointments: 22 June 2005Mr PJ LedgerMs RK MorathiMr A VellayanMs M NhlanhlaMs Z MonnakgotlaMs LBR MthembuAppointments: 12 July 2005Dr DS PhahoSubsequent to year end on the 19 June 2006, the Chairman Mr LL vanNiekerk, resigned as Chairman and Director of the Group.Mr MG Qhena, Chief Executive Officer of the Industrial DevelopmentCorporation, was appointed as the Chairman of the board of directorsof the Group effective from 19 June 2006.Other than the employment contract of the Chief Executive Officer,there were no contracts during or at the end of the financial periodin which any directors of the company were materially interested. Noservice contracts exist between the company and any of its non-executivedirectors having notice period exceeding one month, or providing forcompensation and benefits in excess of one month’s salary.MINE, HEALTH AND SAFETY ACTThe Group’s statistical report on health and safety, prepared in termsof the Mine, Health and Safety Act, 1996, was submitted to the MineInspector and is available on request from the company.18

FINANCIALS19

BALANCE SHEETas at 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 NOTES 2006 2005 2006 2005ASSETSProperty, plant and equipment 5 1,678,998 1,403,844 1,680,601 1,698,547Ore stockpiling 50,677 65,619 50,677 65,619Intangible assets 6 27,438 29,871 27,438 29,919Investments in subsidiaries 7 83,083 83,083 – –Loans to subsidiaries 7 6,988 7,436 – –Investment in joint venture 8 25 25 25 25Available for sale investments 9 59,561 40,818 59,561 40,933Non-current receivables 10 – 306,357 – 1,066Non-current assets 1,906,770 1,937,053 1,818,302 1,836,109Inventory 11 528,917 468,935 529,004 470,404Ore stockpile short-term 12,818 12,134 12,818 12,134Prepaid taxation 3,100 1,131 3,905 3,880Receivables and prepayments 12 580,259 448,268 584,914 444,270Bank and cash balances 423,570 333,245 427,359 335,244Current assets 1,548,664 1,263,713 1,558,000 1,265,932Total assets 3,455,434 3,200,766 3,376,302 3,102,041EQUITY AND LIABILITIESShare capital 13 45,284 7,784 45,284 7,784Retained earnings 313,858 233,958 994,063 919,188Fair value reserve (13,766) (18,223) (13,766) (18,223)Shareholders’ equity 345,376 223,519 1,025,581 908,749Shareholders’ loan 14 1,450,000 1,450,000 1,450,000 1,450,000Total shareholders’ interest 1,795,376 1,673,519 2,475,581 2,358,749Non-interest-bearing borrowings 15 12,800 12,800 12,800 12,800Finance lease liability 16 34,167 36,989 34,167 36,989Environmental rehabilitation liability 25 152,442 152,442 152,442 152,442Loans from subsidiaries 7 761,631 810,684 – –Post-employment liability 24 201,739 136,375 201,739 136,375Deferred tax liabilities 17 – – – –Non-current liabilities 1,162,779 1,149,290 401,148 338,606Trade and other payables 18 448,940 358,400 449,811 365,471Provisions 19 45,516 16,538 45,516 16,538Finance lease liability 16 2,823 3,019 2,823 3,019Current tax liability – – 1,423 19,658Current liabilities 497,279 377,957 499,573 404,686Total equity and liabilities 3,455,434 3,200,766 3,376,302 3,102,04120

INCOME STATEMENTSfor the year ended 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 NOTES 2006 2005 2006 2005Revenue 2,574,291 1,542,751 2,574,375 1,354,385Cost of sales (1,819,483) (1,351,204) (1,819,483) (1,058,151)Gross profit 754,808 191,547 754,892 296,234Other operating income 26,622 29,603 24,337 28,664Distribution costs (537,409) (325,627) (533,322) (321,776)Impairment of property, plant and equipment – (300,000) – (300,000)Other operating costs (124,621) (101,082) (126,538) (105,978)Premium on post-employment liability (83,278) (17,059) (83,278) (17,059)Operating profit/(loss) 1 36,122 (522,618) 36,091 (419,915)Net finance income/(costs) 2 27,560 19,318 27,777 (2,082)Net foreign exchange gain/(losses) 3 11,619 (5,386) 11,633 (5,484)Investment income 4,591 173,235 – –Share of the results of Joint Venture – 338 – 338Profit /(loss) before taxation 79,892 (335,113) 75,501 (427,143)Taxation 4 8 4,115 (626) (50,530)Net profit/(loss) for the year 79,900 (330,998) 74,875 (477,673)21

STATEMENT OF CHANGES IN EQUITYfor the year ended 31 March 2006Share Retained Fair valuecapital earnings reserve TotalR’000 R’000 R’000 R’000GROUPBalance at 1 July 2004 7,784 1,352,547 (22,918) 1,337,413Net income recognised directly to equity – 44,314 – 44,314Net loss for the nine months period – (477,673) – (477,673)Net fair value gain:Available for sale investments – – 4,695 4,695Balance at 31 March 2005 7,784 919,188 (18,223) 908,749Ordinary shares issued during the year 23,700 – – 23,700Share premium 13,800 13,800Net profit for the year – 74,875 – 74,875Net fair value gain:Available for sale investments – – 4,457 4,457Balance at 31 March 2006 45,284 994,063 (13,766) 1,025,581COMPANYBalance at 1 July 2004 7,784 524,176 (22,918) 509,042Net income recognised directly to equity – 40,780 40,780Net loss for the nine months period – (330,998) – (330,998)Net fair value gain:Available for sale investments – – 4,695 4,695Balance at 31 March 2005 7,784 233,958 (18,223) 223,519Ordinary shares issued during the year 23,700 – – 23,700Share premium 13,800 – – 13,800Net profit for year – 79,900 – 79,900Net fair value gain:Available for sale investments – – 4,457 4,457Balance at 31 March 2006 45,284 313,858 (13,766) 345,37622

CASH FLOW STATEMENTfor the year ended 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 NOTE 2006 2005 2006 2005CASH FLOWS FROM OPERATINGACTIVITIESCash generated from/(applied to) operations 26 124,679 (85,825) 111,483 35,709Net finance income/(costs) 27,560 19,318 27,777 (2,082)Net foreign exchange gains/(losses) 11,619 (5,386) 11,633 (5,484)Dividend received 4,591 173,235 – –Taxation (1,961) 4,075 (18,886) (37,600)Net cash generated from/(used in)operating activities 166,488 105,417 132,007 (9,457)CASH FLOW FROM INVESTINGACTIVITIESAdditions to property, plant and equipment (105,240) (126,529) (105,247) (133,420)Acquisition of computer software – (490) – (490)Proceeds on disposal of property, plant and equipment 37,807 11,533 37,807 11,533Movements in loans to subsidiaries (48,605) (117,562) – –Investment by Coromandel Fertilisers Limited 37,500 – 37,500 –Disposal of unlisted investments – – – 403Contribution made to environmental rehabilitation trust (8,000) – (8,000) –Repayment of non-current receivables 13,393 1,012 1,066 3,420Investment in joint venture – 412 – 412Net cash used in investing activities (73,145) (231,624) (36,874) (118,142)CASH FLOW FROM FINANCINGACTIVITIES(Decrease)/increase in finance lease liability (2,822) 40,008 (2,822) 40,008Decrease in current portion of financelease liability (196) – (196) –Decrease in interest-bearing borrowings – (397,062) – (397,062)Decrease in current portion of interestbearingborrowings – (95,767) – (95,767)Increase in shareholders’ loans – 905,745 – 905,745Net cash (used in)/generated fromfinancing activities (3,018) 452,924 (3,018) 452,924NET INCREASE IN CASHAND CASH EQUIVALENTS 90,325 326,717 92,115 325,325CASH AND CASH EQUIVALENTS ATBEGINNING OF YEAR 333,245 6,528 335,244 9,919CASH AT BANK AND IN HAND ATEND OF YEAR 423,570 333,245 427,359 335,244CASH AT BANK AND IN HAND 423,570 333,245 427,359 335,244BANK OVERDRAFT – – – –23

PRINCIPAL ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of theseconsolidated financial statements are set out below. These policies havebeen consistently applied to all the years presented, unless otherwisestated.1. BASIS OF PREPARATIONThe consolidated financial statements of the Foskor Group havebeen prepared in accordance with the International FinancialReporting Standards (‘IFRS’ or ‘IFRSs’) historical cost conventionas modified by the revaluation of land and buildings, available-forsaleinvestment securities, and financial assets and liabilities heldfor trading.The preparation of financial statements in conformity with IFRSrequires the use of certain accounting estimates and assumptionsthat affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of thefinancial statements, and the reported amounts of revenue andexpenses during the reporting period based on management’sbest knowledge of current events and actions. Actual results mayultimately differ from these estimates.2. CONSOLIDATIONInvestment in subsidiariesSubsidiaries, which are those entities (including Special PurposeEntities) in which the Group has an interest of more than one half ofthe voting rights or otherwise has power to govern the financial andoperating policies, are consolidated. The Group Annual FinancialStatements incorporate the assets, liabilities and results of theoperations of the company and all of its subsidiaries. The resultsof subsidiaries acquired or disposed off during a financial year areincluded from the effective date of acquisition or to the effectivedate of disposal, as appropriate.The assets and liabilities acquired are assessed and included inthe balance sheet at their estimated fair value to the Group. Anydifference between net asset value and the purchase price of asubsidiary is treated in accordance with the Group’s accountingpolicy for goodwill.The majority of subsidiaries have financial years ending 31 Marchand are consolidated to that date. Where relevant, adjustments aremade to update results and balances to 31 March, using unauditedmanagement information.Significant inter-company transactions, balances and unrealisedgains on transactions between Group companies are eliminated;unrealised losses are also eliminated unless cost cannot berecovered. Where necessary, accounting policies of subsidiarieshave been changed to ensure consistency with the policies adoptedby the Group.Joint venturesThe Group’s interest in jointly controlled entities is accounted for bythe equity method of accounting. Under this method the company’sshare of the post-acquisition profits or losses of joint ventures isrecognised in the income statement, and its share of post-acquisitionmovements in reserves is recognised in reserves. The cumulativepost-acquisition movements are adjusted against the cost of theinvestment.At each balance sheet date the Group assesses whether there is anyindication of impairment. If such indications exist an analysis isperformed to assess whether the carrying amount of goodwill is fullyrecoverable. A write down is made if the carrying amount exceedsthe recoverable amount.Transactions and minority interestsThe Group applies a policy of treating transactions with minorityinterests as transactions with parties external to the Group. Disposalsto minority interests result in gains and losses for the Group that arerecorded in the income statement. Purchases from minority interestsresult in goodwill, being the difference between any considerationpaid and the relevant share acquired of the carrying value of netassets of the subsidiary.3. SEGMENT REPORTINGA business segment is a group of assets and operations engagedin providing products or services that are subject to risks andreturns that are different from those of other business segments. Ageographical segment is engaged in providing products or serviceswithin a particular economic environment that are subject to risksand returns that are different from those of segments operating inother economic environments.4. PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment are stated at historical cost lessdepreciation. Historical cost includes expenditure that is directlyattributable to the acquisition of the items.Subsequent costs are included in the asset’s carrying amount orrecognised as a separate asset, as appropriate, only when it isprobable that future economic benefits associated with the item willflow to the Group and the cost of the item can be measured reliably.All other repairs and maintenance are charged to the incomestatement during the financial period in which they are incurred.DepreciationLand with mineral rights and capital work in progressLand with mineral rights and capital work in progress is stated atcost and is not depreciated.Property, plant and equipment (PPE)Property, plant and equipment, except for land which is notdepreciated, are depreciated on the straight line method to estimatedresidual values as follows:Building and structures 30 – 50 yearsVehicles4 – 5 yearsHeavy plant and machinery 10 – 20 yearsEquipment8 – 10 yearsComputer equipment3 – 5 yearsRehabilitation project 10 – 20 yearsFactory equipment4 – 5 yearsCapital insurance spares 10 – 16 yearsIntangibles3 yearsThe assets’ residual values and useful lives are reviewed, andadjusted if appropriate, at each balance sheet date.Gains and losses on disposals are determined by comparing proceedswith carrying amount. These are included in the income statement.An asset’s carrying amount is written down immediately to itsrecoverable amount if the asset’s carrying amount is greater thanits estimated recoverable amount.Certain direct costs incurred on major projects during the period ofdevelopment or construction are capitalised.Interest costs on borrowings to finance the construction of property,plant and equipment are capitalised, during the period of time thatis required to complete and prepare the asset for its intended use.Other borrowing costs are expensed.24

Repairs and maintenanceRepairs and maintenance are charged to the income statementduring the financial period in which they are incurred. The cost ofmajor renovations is included in the carrying amount of the assetwhen it is probable that future economic benefits in excess of theoriginally assessed standard of performance of the existing assetwill flow to the Group. Major renovations are depreciated over theremaining useful life of the related asset.Geological exploration costs are written off as incurred.5. INTANGIBLE ASSETSGoodwillGoodwill, acquired in a business combination is initially measuredat cost, being the excess of the cost of the business combinationover the interest of Foskor (Pty) Limited in the net fair value of theidentifiable assets, liabilities and contingent liabilities.Any excess over net fair value of identifiable assets, liabilities andcontingent liabilities arising on acquisition is recognised directlyin the income statement. Separately recognised goodwill is testedannually for impairment and is carried at cost less accumulatedimpairment losses.Mining assetThe mining asset is depreciated over the estimated remaining lifeof the mine.Computer softwareAcquired computer software is capitalised on the basis of costsincurred to acquire and bring to use the specific software. Thesecosts are amortised over their estimated useful lives of three years.6. IMPAIRMENT OF ASSETSThe carrying amounts of the Group’s assets, investment property,inventories and deferred tax assets, are reviewed at each balancesheet date to determine whether there is any indication of impairment,other than that of a temporary nature. If any such indication exists,the asset’s recoverable amount is estimated.An impairment loss is recognised whenever the carrying amount ofan asset or its cash-generating unit exceeds its recoverable amount.Financial assets carried at amortised costA financial asset or group of financial assets is impaired andimpairment losses are incurred only if there is objective evidenceof impairment as a result of one or more events that have occurredafter the initial recognition of the asset (a loss event) and that lossevent has an impact on the expected future cash flows of the financialasset or group of financial assets that can be reliably estimated.Impairment losses are recognised in the income statement.The Group first assesses whether objective evidence of impairmentexists individually for financial assets, referred to as specificimpairment. The amount of specific impairments raised is the amountneeded to reduce the carrying value of the asset to the expectedultimate fair value less cost to sell, taking into consideration thefinancial status of the underlying client and any security in place forthe recoverability of the financial asset. If the Group determines thatno evidence of specific impairment exists, it includes the asset in aportfolio of financial assets with similar credit risk characteristicsand collectively assesses them for impairment.The recoverable amount of the assets is calculated as the presentvalue of estimated future cash flows, discounted at the originaleffective interest rate.If an impairment loss decreases due to an event occurring subsequently,then the previously recognised impairment loss is reversed throughthe income statement with a corresponding increase in the carryingamount of the underlying asset. The reversal is limited to an amountthat does not state the asset at more than what its amortised costwould have been in the absence of impairment.Available-for-sale assetThe basis for any impairment loss for an available-for-sale assetis its fair value. Any previous net upward revaluation in equity inrespect of the asset is reversed first. Additional write-down below theinitial amount recognised for the asset is recorded as an impairmentloss in profit or loss.Impairment losses on available-for-sale equity instruments are notreversed through profit or loss. Any increase in the fair value, afteran impairment loss has been recognised, is treated as a revaluationand is recognised directly in equity.Impairment losses on available-for-sale debt instruments arereversed through profit or loss if there is any evidence that theincrease in fair value is due to an invent that occurred after theimpairment loss was recognised.Cash-generating unitsFor an asset whose cash flow is largely dependent on that of otherassets, the recoverable amount is determined for the cash-generatingunit to which the asset belongs.Impairment losses recognised in respect of cash-generating units areallocated first to reduce the net book value of any goodwill allocatedto cash-generating units and then, to reduce the net book value ofthe other assets in the unit on a pro rata basis. Impairment lossesare recognised in the income statement.GoodwillThe recoverable amount for goodwill is estimated at each balancesheet date. Impairment losses are recognised in the incomestatement.Impairment losses relating to goodwill are not reversed.Other non-financial assetsThe recoverable amount of other non-financial assets is the higherof its fair value less cost to sell and its value in use. Fair valueless cost to sell is the amount obtainable from the sale of an assetor cash-generating unit in an arm’s length transaction betweenknowledgeable, willing parties, less the costs of disposal. Inassessing value in use, the expected future cash flows from the assetare discounted to their present value using a pre-tax discount ratethat reflects current market assessments of the time value of moneyand the risks specific to the asset.Impairment losses are recognised in the income statement.The recoverable amount for assets that have an indefinite useful lifeis estimated at each balance sheet date.An impairment loss is reversed only to the extent that the asset’scarrying amount does not exceed the carrying amount that wouldhave been determined, net of depreciation or amortisation, if noimpairment loss had been recognised7. LEASESThe Group is the lesseeLeases of property, plant and equipment where the Group has substantiallyall the risks and rewards of ownership are classified asfinance leases.25

PRINCIPAL ACCOUNTING POLICIESAssets held under finance lease agreements are capitalised. Suchassets are depreciated in terms of the accounting policy on property,plant vehicles and equipment stated above. Finance leases arecapitalised at the inception of the lease at the lower of the fair valueof the leased property or the present value of the minimum futurelease payments. Lease finance charges are allocated to accountingperiods over the duration of the leases by the effective rate method,which reflects the extent and cost of the lease finance utilised in eachaccounting period.All other leases are treated as operating leases and the relevantlease payments (net of any incentives received from the lessor) arecharged to income on a straight line basis over the lease term.The Group is the lessorAssets subject to finance lease agreement are treated as receivables.Finance income is allocated to accounting periods over the durationof the leases by the effective interest rate method, which reflects theextent and cost of lease finance income earned in each accountingperiod.All other leases are treated as operating leases and the relevantrental incomes are recognised in income on a straight line basis overthe lease term.8. ORE STOCKPILINGOre stockpiles consist of ore bought from the neighbouring PhalaborwaMining Company and is stockpiled on Foskor’s property.Ore stockpiles are valued at the lower of cost and net realisablevalue. Cost includes expenditure incurred in the mining and stockpilingof ore for use in future production.9. INVENTORIESSpares and consumablesSpares and consumable are valued at the lower of cost and netrealisable value, on a weighted average method.The cost of inventories comprises all costs of purchase, conversionand other costs in bringing the inventories to the present locationand condition.Obsolete, redundant and slow moving items of spares and consumablestores are identified on a regular basis and written down to theireconomic or realisable value.Net realisable value is the estimated selling price in the ordinarycourse of business, less the costs of completion and sellingexpenses.Raw materials and finished goodsRaw materials and finished goods consisting of phosphate rock,phosphoric acid and other minerals are valued at the lower of eithercost of production and net realisable value.Cost of production is calculated on a standard cost basis, whichapproximates the actual cost and includes the production overheads.Production overheads are allocated on the basis of normalcapacity.The valuation of inventory held by agents or in transit includesforwarding costs, where applicable.Net realisable value is the estimated selling price in the ordinarycourse of business, less the costs of completion and sellingexpenses.10. TRADE AND OTHER RECEIVABLESTrade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interestmethod, less provision for impairment. A provision for impairmentof trade receivables is established when there is objective evidencethat the Group will not be able to collect all amounts due accordingto the original terms of receivables. The amount of the provision isthe difference between the asset’s carrying amount and the presentvalue of estimated future cash flows, discounted at the effective interestrate. The amount of the provision is recognised in the incomestatement.11. PROVISIONSA provision is recognised when it is probable that the Group willsettle an existing legal or constructive obligation from past eventsresulting in an outflow of resources embodying economic benefits,and when a reliable estimate of the obligation can be made. Wherethe effects of discounting are material, provisions are measured attheir present values.Staff costs in respect of annual and long service leave are accruedfor in the period in which services were rendered by employees.12. PENSION LIABILITYThe Group operates a defined benefit and contribution plan, the assetsof which are held in separate trustee-administered funds. Theschemes are generally funded through payments to insurance companiesor trustee-administered funds as determined by periodic actuarialvaluations. A defined benefit plan is a pension plan that definesan amount of pension benefit to be provided, usually as a function ofone or more factors such as age, years of service or compensation.A defined contribution plan is a pension plan under which the Grouppays fixed contributions into a separate entity (a fund) and will haveno legal or constructive obligations to pay further contributions ifthe fund does not hold sufficient assets to pay all employees benefitsrelating to employee service in the current and previous periods.The liability in respect of defined benefit pension plans is the presentvalue of the defined benefit obligation at the balance sheet dateminus the fair value of plan assets, together with adjustments foractuarial gains/losses and past service cost. The defined benefit obligationis calculated once every three years by independent actuariesusing the projected unit credit method. The present value of thedefined benefit obligation is determined by the estimated future cashoutflows using interest rates of government securities which haveterms to maturity approximating the terms of the related liability.Actuarial gains and losses arising from experience adjustments andthe effects of changes in actuarial assumptions to the defined benefitplans are recognised fully in income statement in the current year.Past-service costs are recognised immediately in income, unless thechanges to pension plan are conditional on the employees remainingin service for a specified period of time (the vesting period). In thiscase, the past-service costs are amortised on a straight-line basisover the vesting period.For defined contribution plans, the company pays contributions topublicly or privately administered pension insurance plans on a mandatory,contractual or voluntary basis. Once the contributions havebeen paid, the company has no further payment obligations. Theregular contributions constitute net periodic costs for the year inwhich they are due and as such are included in staff costs.13. OTHER POST-EMPLOYMENT LIABILITYThe Group provides post-employment healthcare benefits to its retireeswho were employed by the company on or before 1 July 1995.The same benefits are provided to a specific group of employeesemployed before 1 July 1996. The entitlement to post-employmenthealth care benefits is based on the employee remaining in service upto retirement age. The expected costs of these benefits are accruedover the period of employment, using the projected unit of credit26

method. Valuations of these obligations are carried out every thirdyear by independent qualified actuaries.Actuarial gains and losses arising from experience adjustments andthe effects of changes in actuarial assumptions to the defined benefitplans are recognised fully in the income statement as earned inthe current year. Actuarial gains and losses arising from experienceadjustments, changes in actuarial assumptions and amendments topension plans are charged or credited to income over the averageremaining service lives of the related employees.14. DEFERRED TAXATIONDeferred income tax and deferred capital gains tax are accountedfor on the comprehensive basis, using the liability method for alltemporary differences arising between the net book value of assetsand liabilities in the financial statements and the corresponding taxbases used in the computation of taxable income. Deferred tax liabilitiesare recognised for all taxable temporary differences anddeferred tax assets are recognised to the extent that it is probablethat future taxable profit will be available against which unused taxdeductions can be utilised.Deferred tax assets and liabilities are not recognised if the temporarydifferences arise from goodwill or from the initial recognition (otherthan in a business combination) of other assets and liabilities in atransaction that affects neither taxable income nor accounting income.Substantially enacted tax rates are used to determine deferred incometax and deferred capital gains tax. Deferred tax is charged orcredited in the income statement, except when it relates to itemscredited or charged directly to equity, in which case the deferred taxis also recognised in equity.15. FOREIGN CURRENCIESForeign currency translationThe Group’s presentation currency is South African Rands. Thefunctional currency of the Group’s operation is the currency of theprimary economic environment in which each operation has its mainactivities.Foreign currency transactionsTransactions in foreign currencies are translated into SouthAfrican Rands at the foreign exchange rate ruling at the date of thetransaction.Monetary assets and liabilities denominated in foreign currenciesat the balance sheet date have been translated into South AfricanRands at the rates ruling at that date.Foreign exchange differences arising on translation are recognisedin the income statements.16. REVENUERevenue represents the gross income from sales of phosphate rock,phosphoric acid, granular fertiliser, zircon sand and other mineralsand excludes value added tax.Sales between Group companies are eliminated on consolidation.Revenue from the sales of goods is recognised when significant risksand rewards of the goods are transferred to the buyer.Interest income is recognised on a time proportion basis using theeffective interest method.Royalty income is recognised on an accruals basis in accordancewith the substance of the relevant agreements.Dividends are recognised when the right to receive payments isestablished.17. FINANCIAL INSTRUMENTSFinancial instruments consist mainly of loans and advances, listedand unlisted investments, cash and cash equivalents, trade and otherreceivables, loans (long and short term), and trade and other payables.The Group classifies its financial assets into the following categories– based on the purpose when the asset was acquired, which,with the exception of those held at fair value through profit or loss,is reassessed on an annual basis:• Financial asset or financial liability through profit or loss –instruments that meet either of the following conditions:– Held for trading;– Have a quoted market price in an active market; or– Whose fair value can be reliably measured otherwise; or– Are used to match investment contract liabilities or assetsheld at fair value; or– Performance of instruments is evaluated on a fair value basisin accordance with a documented risk management strategy.• Held-to-maturity investments – assets with fixed or determinablepayments and fixed maturity that the Group has the intentand ability to hold to maturity.• Loans and receivables – assets with fixed or determinable paymentsthat are not quoted in an active market other than thosethat the Group intends to sell in the near future;• Available-for-sale financial assets – assets that are not:– Held for trading purposes;– Loans and receivables;– Held-to-maturity investments; or– Financial assets at fair value through profit or loss.Initial and subsequent measurement• Financial asset or financial liability through profit or loss:– Initial measurement is at fair value at trade date.– Subsequent measurement is at fair value with gains orlosses from fair value adjustments recognized in the incomestatement.• Held-to-maturity investments and loans and receivables:– Initial measurement is at fair value at trade date includingtransaction costs directly attributable to acquisition.– Subsequent measurement is at amortised cost, using effectiveinterest method with changes in fair value recognised in profitand loss.• Available-for-sale financial assets:– Initial measurement is at fair value at trade date.– Subsequent measurement is at fair value with gains or lossesfrom fair value adjustments recognised in equity except forimpairment losses and foreign exchange gains and losses thatare recognised in the income statement.• Other liabilities:– Initial measurement is at fair value net of transaction costsdirectly attributable to acquisition of funds.– Subsequent measurement is at amortized cost, using effectiveinterest method with changes in fair value recognised in profitand loss.* Any instrument that does not have a quoted market price in anactive market and whose fair value cannot be reliably measured, isstated at its cost, including transaction costs, less impairment.Recognition and De-recognitionFinancial instruments are recognised when the company becomesparty to the contractual provisions of the instruments.Financial assets are de-recognised when the contractual rights of theasset or of receiving cash flows have been transferred and substantiallyall risks and rewards of ownership have also been transferred.Financial liabilities are de-recognised when, and only when, it isextinguished, that is, when the obligation specified in the contract iseither discharged, cancelled, or expired.27

PRINCIPAL ACCOUNTING POLICIESHedge AccountingThe following hedge relationship is applied:• Cash flow hedge – a hedge of the exposure to variability in cashflows that is attributable to a particular risk associated with arecognised asset or liability or a highly probable forecast transactionand that could affect profit or loss.• Fair value hedge – a hedge of exposure to changes in fair valueof a recognised asset or liability or an unrecognised firm commitment,or an identified portion of such an asset, liability or firmcommitment, that is attributable to a particular risk and couldaffect profit or loss.There is no initial measurement of the hedging instrument.If the hedge meets the conditions to qualify for hedge accounting,cash flow hedge is subsequently accounted for at fair value with effectiveportion of changes recognised in equity and ineffective portionto the income statement.Fair value hedge of the hedging instrument is subsequently accountedfor at fair value with changes in fair value recognised in the incomestatement.Fair value hedge of the hedged item is subsequently accounted for atfair value in respect of the hedged risk, and any adjustments to thecarrying amount are recognised in the income statement.Hedge accounting is discontinued prospectively if any one of thefollowing occurs;• The hedging instrument expires or is sold, terminated orexercised;• The forecast transaction is no longer expected to occur;• The hedge no longer meets the conditions for hedge accounting;and• The company revokes the designation.18. ENVIRONMENTAL OBLIGATIONSLong-term environmental obligations are based on the Group’senvironmental management plans, in compliance with currentenvironmental and regulatory requirements.Full provision is made based on the net present value of the estimatedcost of restoring the environmental disturbance that has occurred upto the balance sheet date. Increases due to additional environmentaldisturbances are capitalised and amortised over the remaining lifeof the mine.Annual increases in the provision relating to change in the netpresent value of the provision and inflationary increases are shownseparately in the income statement.The estimated costs of rehabilitation are reviewed on a three yearlybasis, and adjusted as appropriate for changes in legislation ortechnology. Cost estimates are not reduced by the potential proceedsfrom the sale of assets, or from planned clean up at closure, in viewof the uncertainty of estimating the potential future proceeds.Contributions are made to a dedicated Rehabilitation Trust Fund tofund the estimated cost of rehabilitation during and at the end of thelife of the mine.19. DIVIDENDSDividends are recorded in the Group’s financial statements in theperiod in which they are approved by the Group’s shareholders.20. CASH AND CASH EQUIVALENTSCash and cash equivalents are defined as cash on hand, deposits heldon call with banks and short term liquid investments with insignificantinterest rate risk and original maturities of three months or less.Cash and cash equivalents are measured at fair value based on therelevant exchange rate at balance sheet date.21. BORROWINGSBorrowings are recognised initially at fair value, net of transactioncosts incurred. Borrowings are subsequently stated at amortisedcost; any difference between the proceeds (net of transactioncosts) and the redemption value is recognised in the incomestatement over the period of the borrowings using the effectiveinterest method.Borrowings are classified as current liabilities unless the Grouphas an unconditional right to defer settlement of the liability for atleast 12 months after the balance sheet date.22. PRESENTATIONWhere necessary, comparative figures have been adjusted to conformto changes in presentation in the current year.23. TRANSITION TO IFRS23.1 Basis of transition to IFRSApplication of IFRS 1The Group’s financial statements for the year ended 31March 2006 will be the first Annual Financial Statementsthat comply with IFRS. As described in Note 1, the Grouphas applied IFRS 1 in preparing these consolidated AnnualFinancial Statements.Foskor’s transition date is 1 July 2004. The Group preparedits opening IFRS balance sheet at that date. The reportingdate of these consolidated Annual Financial Statements is31 March 2006. The Group’s IFRS adoption date is 1 April2005.In preparing these consolidated Annual Financial Statementsin accordance with IFRS 1, the Group has applied themandatory exception and some of the optional exemptionsfrom full retrospective application of IFRS.Early adoption of IFRIC 4IFRIC 4, determining whether an Arrangement contains aLease, is effective for annual periods commencing on or after01 January 2006, and has been early adopted by the Group.The early application of this Interpretation by the Groupresulted in the recognition of a finance lease asset and liabilityrelating to the pipeline currently in use at Foskor RichardsBay. More detail on the financial impact of this finance leaseis included in Note 16 to the financial statements.23.1.2 Exemption from full retrospective application – elected bythe GroupBusiness combinations exemptionThe Group has applied the business combination exemptionin IFRS 1. It has not restated combinations that took placeprior to the transition date (1 July 2004) and therefore thecarrying amount of goodwill of the opening IFRS balancesheet is the carrying amount of goodwill under previous SAGAAP, after adjustments necessary to reflect any impairmentlosses in respect of goodwill at the date of transition.Fair value deemed cost exemptionThe Group has elected to use the exemption available in IFRS1, First Time Adoption of International Financial ReportingStandards, to measure items of Property, Plant and Equipmentat the date of transition (01 July 2004) to IFRS, deeming thedepreciated cost of an asset to be its fair value. The applicationof this exception is detailed in Note 23.2.228

23.2 RECONCILIATIONS BETWEEN IFRS AND SA GAAPThe following reconciliations provide quantification of the effect of the transition to IFRS. The first reconciliation providesan overview of the impact on equity of the transition at 1 July 2004, 31 March 2005 and 31 March 2006. The followingfive reconciliations provide details of the impact of the transition on:– equity at 31 March 2005 (Note 23.2.2 )– net income 31 March 2005 (Note 23.2.3)– equity at 31 March 2006 (Note 23.2.4)– net income 31 March 2006 (Note 23.2.5)– cash flow 31 March 2006 (Note 23.2.6)23.2.1 Summary of equityR’000 31-Mar-05 Note 31-Mar-06 NoteTotal equity under SA GAAP 864,435 23.2.2 922,024 23.2.4Restatement of accumulated depreciationdepreciation to reflect PPE’s useful livesrather than their tax lives. 44,314 23.2.2 102,617 23.2.4Recognition of finance lease againstPPE using guidance set out in IFRIC 4. – 23.2.2 940 23.2.4Total equity under IFRS 908,749 1,025,58123.2.2 Reconciliation of equityas at 31 March 2005Effect oftransitionR’000 Note SA GAAP to IFRS IFRSASSETSProperty, plant and equipment 23.2.2.1 1,614,225 84,322 1,698,547Ore stockpiling 65,619 – 65,619Intangible assets 29,919 – 29,919Investment in joint venture 25 – 25Available for sale investments 40,933 – 40,933Non–current receivables 1,066 – 1,066Non–current assets 1,751,787 84,322 1,836,109Inventory 470,404 – 470,404Ore stockpile short-term 12,134 – 12,134Prepaid taxation 3,880 – 3,880Receivables and prepayments 444,270 – 444,270Bank and cash balances 335,244 – 335,244Current assets 1,265,932 – 1,265,932Total assets 3,017,719 84,322 3,102,041EQUITY AND LIABILITIESShare capital 7,784 – 7,784Retained earnings 23.2.2.3 874,874 44,314 919,188Fair value reserve (18,223) – (18,223)Shareholders’ equity 864,435 44,314 908,749Shareholders’ loan 1,450,000 – 1,450,000Total shareholders’ interest 2,314,435 44,314 2,358,749Non–interest–bearing borrowings 12,800 – 12,800Finance lease liability 23.2.2.2 – 36,989 36,989Environmental rehabilitation liability 152,442 – 152,442Post–employment liability 136,375 – 136,375Deferred tax liabilities – – –Non–current liabilities 301,617 36,989 338,606Trade and other payables 365,471 – 365,471Provisions 16,538 – 16,538Finance lease liability 23.2.2.2 – 3,019 3,019Current tax liability 19,658 – 19,658Current liabilities 401,667 3,019 404,686Total equity and liabilities 3,017,719 84,322 3,102,04129

PRINCIPAL ACCOUNTING POLICIESExplanation of the effect of the transition to IFRSThe following explains the material adjustments to the balance sheet and income statement.23.2.2.1 Property, plant and equipment R’000Recognition of assets leased under finance lease 40,008Restatement of accumulated depreciation to reflect PPE’s useful lives rather than tax lives. 44,314Total impact – increase in PPE 84,322The assets that are leased under finance lease are treated as purchased and recognisedunder IFRS.Management has applied historical costs as deemed cost exemption in respect of property,plant and equipment. PPE’s residual values and remaining useful lives have been revised toreflect PPE’s lives rather than tax lives.23.2.2.2 Finance lease liability R’000Recognition of finance lease liability in respect of assets under finance lease 36,989Short term portion of the finance lease liability 3,019Total impact – increase 40,00823.2.2.3 Retained earningsThe cumulated effect of all the above adjustments has resulted in an increase in retainedearnings at 31 March 2005 of R44,314.23.2.3 RECONCILIATION OF NET LOSSfor the nine months ended 31 March 2005Effect oftransitionR’000 Note SA GAAP to IFRS IFRSRevenue 1,354,385 – 1,354,385Cost of sales 23.2.3.1 (1,062,598) 4,447 (1,058,151)Gross profit 291,787 4,447 296,234Other operating income 28 664 28,664Distribution costs (321,776) – (321,776)Impairment of property, plant and equipment (300,000) – (300,000)Other operating costs (105,978) – (105,978)Premium on post-employment liability (17,059) – (17,059)Operating loss (424,362) 4,447 (419,915)Net finance income/(costs) 23.2.3.2 2,365 (4,447) (2,082)Net foreign exchange losses (5,484) – (5,484)Share of the results of Joint Venture 338 – 338Loss before taxation (427,143) – (427,143)Taxation (50,530) – (50,530)Net loss for the period (477,673) – (477,673)23.2.3.1 Cost of sales R’000Adjustment to cost of sales relating to the purchase of assets under finance lease 4,447Total impact – decrease in cost of sales 4,447The adjustment to cost of sales reflects the effect of finance lease liability that was excludedfrom consolidation under SA GAAP.23.2.3.2 Finance costs R’000Adjustment to finance costs relating to the purchase of assets under finance lease (4,447)Total impact –increase in finance costs (4,447)The adjustment to finance costs reflect the effect of finance lease liability that was excludedfrom consolidation under SA GAAP.30

23.2.4 RECONCILIATION OF EQUITYas at 31 March 2006Effect oftransitionR’000 Note SA GAAP to IFRS IFRSASSETSProperty, plant and equipment 23.2.4.1 1,540,054 140,547 1,680,601Ore stockpiling 50,677 – 50,677Intangible assets 27,438 – 27,438Investment in joint venture 25 – 25Available for sale investments 59,561 – 59,561Non–current assets 1,677,755 140,547 1,818,302Inventory 529,004 – 529,004Ore stockpile short-term 12,818 – 12,818Prepaid taxation 3,905 – 3,905Receivables and prepayments 584,914 – 584,914Bank and cash balances 427,359 – 427,359Current assets 1,558,000 – 1,558,000Total assets 3,235,755 140,547 3,376,302EQUITY AND LIABILITIESShare capital 45,284 – 45,284Retained earnings 23.2.4.3 890,506 103,557 994,063Fair value reserve (13,766) – (13,766)Shareholders’ equity 922,024 103,557 1,025,581Shareholders’ loan 1,450,000 – 1,450,000Total shareholders’ interest 2,372,024 103,557 2,475,581Non–interest–bearing borrowings 12,800 – 12,800Finance lease liability 23.2.4.2 – 34,167 34,167Environmental rehabilitation liability 152,442 – 152,442Post–employment liability 201,739 – 201,739Deferred tax liabilities – – –Non–current liabilities 366,981 34,167 401,148Trade and other payables 449,811 – 449,811Provisions 45,516 – 45,516Finance lease liability 23.2.4.2 – 2,823 2,823Current tax liability 1,423 – 1,423Current liabilities 496,750 2,823 499,573Total equity and liabilities 3,235,755 140,547 3,376,30223.2.4.1 Property, plant and equipment R’000Recognition of assets leased under finance lease 37,930Restatement of accumulated depreciation to reflect PPE’s useful lives rather than tax lives. 102,617Total impact – increase in PPE 140,547The assets that are leased under finance lease are treated as purchased and recognisedunder IFRS.Management has applied historical costs as deemed cost exemption in respect of property,plant and equipment. PPE’s residual values and remaining useful lives have been revised toreflect PPE’s lives rather than tax lives.31

PRINCIPAL ACCOUNTING POLICIES23.2.4.2 Finance lease liability R’000Recognition of finance lease liability in respect of assets under finance lease 34,167Short term portion of the finance lease liability 2,823Total impact – increase in finance lease 36,99023.2.4.3 Retained earningsThe cumulated effect of all the above adjustments has resulted in an increase in retainedearnings at 31 March 2006 of R103,557.23.2.5 RECONCILIATION OF NET PROFITfor the year ended 31 March 2006Effect oftransitionR’000 Note SA GAAP to IFRS IFRSRevenue 2,574,375 – 2,574,375Cost of sales (1,884,535) 65,052 (1,819,483)Gross profit 689,840 65,052 754,892Other operating income 24,337 – 24,337Distribution costs (533,322) – (533,322)Other operating costs (126,538) – (126,538)Premium on post-employment liability (83,278) – (83,278)Operating profit/(loss) (28,961) 65,052 36,091Net finance income/(costs) 33,586 (5,809) 27,777Net foreign exchange gain 11,633 – 11,633Profit before taxation 16,258 59,243 75,501Taxation (626) – (626)Net profit for the year 15,632 59,243 74,875The nature of the adjustments from SA GAAP to IFRS at 31 March 2006 is similar to the adjustments fromSA GAAP to IFRS at 31 March 2005. There is no additional adjustments required during this period. Theseadjustments relate to cost of sales and finance costs (see 23.2.5.1 and 23.2.5.2 below).23.2.5.1 Cost of sales R’000Adjustment to cost of sales relating to the purchase of assets under finance lease 6,749Restatement of accumulated depreciation to reflect PPE’s useful lives rather than tax lives. 58,303Total impact – decrease in cost of sales 65,052The adjustment to cost of sales reflects the effect of finance lease liability that was excludedfrom consolidation under SA GAAP and revision of residual values and remaining use livesto reflect PPE’s useful lives rather than tax lives.23.2.5.2 Finance costs R’000Adjustment to finance costs relating to the purchase of assets under finance lease (5,809)Total impact –increase in finance costs (5,809)The adjustment to finance costs reflects the effect of finance lease liability that was excludedfrom consolidation under SA GAAP.32

23.2.6 CASH FLOW STATEMENTfor the year ended 31 March 2006Effect oftransitionR’000 Note SA GAAP to IFRS IFRSCASH FLOWS FROM OPERATING ACTIVITIESCash generated from operations 102,656 8,827 111,483Net finance income/(costs) 33,586 (5,809) 27,777Net foreign exchange gains 11,633 – 11,633Taxation (18,886) – (18,886)Net cash flows from operating activities 128,989 3,018 132,007CASH FLOW FROM INVESTING ACTIVITIESAdditions to property, plant and equipment (105,247) – (105,247)Proceeds on disposal of property, plant and equipment 37,807 – 37,807Investment by Coromandel Fertilisers Limited 37,500 – 37,500Contribution made to environmental rehabilitation trust (8,000) – (8,000)Repayment of non–current receivables 1,066 – 1,066Net cash used in investing activities (36,874) – (36,874)CASH FLOW FROM FINANCING ACTIVITIESDecrease in finance lease liability – (2,822) (2,822)Decrease in current portion of finance lease liability – (196) (196)Net cash used in financing activities – (3,018) (3,018)NET INCREASE IN CASH AND 92,115 – 92,115CASH EQUIVALENTSCASH AND CASH EQUIVALENTS AT 335,244 – 335,244BEGINNING OF YEARCASH AT BANK AND IN HAND AT 427,359 – 427,359END OF YEARCASH AT BANK AND IN HAND 427,359 – 427,359There was no effect on the cash flow statement for the year ended 31 March 2006.33

INCOME NOTES TO STATEMENTTHE FINANCIAL STATEMENTSfor the year ended 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 20051 OPERATING PROFIT/(LOSS)Operating profit/(loss) is arrived at before netfinancing costs, net foreign exchange(losses)/gains and taxation after takinginto account:IncomeProfit on disposal of property, plantand equipment 9,434 9,528 9,434 9,419Investment income 4,591 173,235 – –– Dividends received – Subsidiary 4,591 173,235 – –ExpenditureAmortisation of intangible assets 2,433 1,823 2,433 1,823– Software 664 496 664 496– Mining asset 1,769 1,327 1,769 1,327Impairment of goodwill – – 48 146Auditors’ remuneration 1,846 2,435 1,946 2,460– Audit fee 839 1,328 939 1,353– Other services 782 816 782 816– Expenses 225 291 225 291Depreciation 93,889 61,139 94,032 70,149– Buildings and houses 13,192 9,873 13,209 9,885– Plant, vehicles and equipment 80,697 51,266 80,823 60,264Operating lease charges 5,176 7,043 5,176 7,152– Property rentals 763 512 763 567– Equipment 4,413 6,531 4,413 6,585Repairs and maintenance 257,619 179,636 257,635 185,085Increase in the environmental rehabilitationliability – 4,930 – 4,930Doubtful debts provided for 468 2,507 468 3,020Staff costs 400,432 241,741 401,373 247,061– Salaries and wages 289,810 205,220 290,751 210,540– Pension costs: Defined contribution plans 27,003 19,204 27,003 19,204– Pension costs: Defined benefit plans (Note 24) 342 258 342 258– Increase in post-employment medical liability 65,364 25,961 65,364 25,961– Reduction in pension fund liability – (8,902) – (8,902)– Additional contributions made to pension fund 5,613 – 5,613 –– Provision for contribution to pension fund 12,300 – 12,300 –34

NOTES BALANCE TO SHEET THE FINANCIAL STATEMENTSfor the year ended 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 20052 NET FINANCE INCOME/(COSTS)Interest expenses- Interest paid to banks (9,345) (16,709) (9,345) (16,709)Rehabilitation- Rehabilitation liability growth – (6,637) – (6,637)Interest income 30,494 39,815 30,711 18,415- Interest received from banks 18,451 22,845 18,668 1,445- Interest received from customers 12,043 16,970 12,043 16,970Rehabilitation– Rehabilitation Trust growth 6,411 2,849 6,411 2,849Net finance income/(costs) 27,560 19,318 27,777 (2,082)3 NET FOREIGN EXCHANGE GAINS/(LOSSES)Foreign transaction loss– Foreign exchange transaction loss (10,433) (25,405) (10,434) (25,299)Foreign transaction gain– Foreign exchange transaction gains 22,052 20,019 22,067 19,815Net foreign exchange gains/(losses) 11,619 (5,386) 11,633 (5,484)4 TAXATIONCompositionSouth African normal income taxNormal tax (8) (4,115) 416 50,530– Current year – – 58 26,881– Adjustment previous year (8) (4,115) 358 23,649STC – adjustment prior years – – 218 –Deferred tax – – (8) –– Current – – – –– Adjustment previous year – – (8) –– Rate change – Last year of tax holiday – – – –Total taxation as per income statement (8) (4,115) 626 50,530Reconciliation of tax rateStandard tax rate 29.00% 30.00% 29.00% 30.00%Permanent differences (5.69)% 15.26% (6.80)% 11.97%STC adjustment previous year – – 1.27% –Adjustment previous year (0.04)% 1.23% 2.03% (5.54)%Deferred tax asset not recognised (23.31)% (45.26)% (21.86)% (48.26)%Effective rate (0.04)% 1.23% 3.64% (11.83)%35

INCOME NOTES TO STATEMENTTHE FINANCIAL STATEMENTSfor the year ended 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 20055 PROPERTY, PLANT AND EQUIPMENTAt costLand and buildings 338,228 338,340 339,766 339,878Plant, equipment and vehicles 2,689,069 2,304,193 2,689,918 2,636,999Capital work in progress 79,634 63,816 79,634 63,8163,106,931 2,706,349 3,109,318 3,040,693Accumulated depreciationLand and buildings 96,161 83,722 96,286 83,831Plant, equipment and vehicles 1,331,772 1,218,783 1,332,431 1,258,3151,427,933 1,302,505 1,428,717 1,342,146Net carrying amountLand and buildings 242,067 254,618 243,480 256,047Plant, equipment and vehicles 1,357,297 1,085,410 1,357,487 1,378,684Capital work in progress 79,634 63,816 79,634 63,816Net carrying amount 1,678,998 1,403,844 1,680,601 1,698,547Property, plant and equipment includes thefollowing amounts where Foskor (Pty) Ltdis a lessee under a finance lease.Cost – capitalised finance lease 41,567 41,567 41,567 41,567Accumulated depreciation (3,637) (1,559) (3,637) (1,559)Net book value 37,930 40,008 37,930 40,008Details of land and buildings are available forinspection at the registered office of thecompany.36

NOTES BALANCE TO SHEET THE FINANCIAL STATEMENTSfor the year ended 31 March 2006Plant,CapitalLand and equipments work inR’000 buildings and vehicles progress Total5 PROPERTY, PLANT AND EQUIPMENT (continued)for the year ended 31 March 2006Movement in carrying value for the yearCompanyOpening balance 254,618 1,085,411 63,815 1,403,844Additions 4,226 85,195 15,891 105,240Depreciation (13,192) (80,697) – (93,889)Disposals (3,585) (25,576) – (29,161)Transfers – 292,964 – 292,964Closing balance 242,067 1,357,297 79,634 1,678,998GroupOpening balance 256,048 1,378,684 63,815 1,698,547Additions 4,226 85,202 15,891 105,247Depreciation (13,209) (80,823) – (94,032)Disposals (3,585) (25,576) – (29,161)Transfers – – – –Closing balance 243,480 1,357,487 79,634 1,680,6019 Months ended 31 March 2005Movement in carrying value for the yearCompanyOpening balance 246,185 1,355,743 66,068 1,667,996Additions 1,594 124,163 772 126,529Impairment of assets – (300,000) – (300,000)Depreciation (9,873) (51,266) – (61,139)Disposals (1,876) (130) – (2,006)Transfers 18,588 (43,099) (3,025) (27,536)Closing balance 254,618 1,085,411 63,815 1,403,844GroupOpening balance 247,627 1,623,695 66,068 1,937,390Additions 1,594 131,054 772 133,420Impairment of assets – (300,000) – (300,000)Depreciation (9,885) (60,264) – (70,149)Disposals (1,876) (238) – (2,114)Transfers 18,588 (15,563) (3,025) –Closing balance 256,048 1,378,684 63,815 1,698,54737

INCOME NOTES TO STATEMENTTHE FINANCIAL STATEMENTSfor the year ended 31 March 2006Mining ComputerR’000 Goodwill Asset software Total6 INTANGIBLE ASSETSfor the year ended 31 March 2006Movement in carrying amountCompanyOpening carrying amount – 28,753 1,118 29,871Additions – – – –Amortisation charge – (1,769) (664) (2,433)Closing carrying amount – 26,984 454 27,438GroupOpening carrying amount 48 28,753 1,118 29,919Additions – – – –Impairment (48) – – (48)Amortisation charge impairment – (1,769) (664) (2,433)Closing carrying amount – 26,984 454 27,4389 Months ended 31 March 2005Movement in carrying amountCompanyOpening carrying amount – 30,080 1,124 31,204Additions – – 490 490Amortisation charge – (1,327) (496) (1,823)Closing carrying amount – 28,753 1,118 29,871GroupOpening carrying amount 194 30,080 1,124 31,398Additions – – 490 490Impairment (146) – – (146)Amortisation charge – (1,327) (496) (1,823)Closing carrying amount 48 28,753 1,118 29,919COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 2005At costGoodwill – – 973 973Mining asset 109,832 109,832 109,832 109,832Computer software 1,992 1,992 1,992 1,992111,824 111,824 112,797 112,797Accumulated armotisation/impairmentGoodwill – – 973 925Mining asset 82,848 81,079 82,848 81,079Computer software 1,538 874 1,538 87484,386 81,953 85,359 82,878Net carrying amountGoodwill – – – 48Mining asset 26,984 28,753 26,984 28,753Computer software 454 1,118 454 1,118Net carrying amount 27,438 29,871 27,438 29,91938

NOTES BALANCE TO SHEET THE FINANCIAL STATEMENTSfor the year ended 31 March 2006Issued ordinaryshares and proportion Shares at cost Indebtedness12 months 9 months 12 months 9 monthsended ended ended endedMarch March March March2006 2005 2006 2005Number % R’000 R’000 R’000 R’0007 INTERESTS IN SUBSIDIARIESAND LOANSInter Minerals SA (Pty) Ltd(South Africa) 22,000 100% 22 22 (77,399) (77,420)Indian Ocean Fertilizer (Pty) Ltd(South Africa) – – – – (546,399) (552,617)Inter Minerals Holdings AG(Switzerland) 10,000 100% 10 10 (10) (10)Verstan Holdings Company Ltd (BV.I) 5,000 100% 5 5 (55) (55)Phosphate Suppliers South Africa(Pty) Ltd (South Africa) 100 100% – – – (5,947)Richards Bay Sulphuric Acid (Pty)Ltd (South Africa) 83,000,000 100% 83,000 83,000 (137,768) (174,635)Loans from subsidiaries 83,037 83,037 (761,631) (810,684)Phosfert Marine (Pty) Ltd(South Africa) 40,000 100% 40 40 2,234 1,697Phosphate Shipping (Pty) Ltd(South Africa) 1,000 100% 1 1 2,413 1,130Foshulp (Pty) Ltd(South Africa) 5,000 100% 5 5 612 2,730Foskor Development Trust (South Africa) – 150IOF Property Trust (South Africa) 1,089 1,089Phosphate Club (South Africa) 640 640Loans to subsidiaries 46 46 6,988 7,436Total shares at cost/(Net loans owing) 83,083 83,083 (754,643) (803,248)COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 20058 INVESTMENT IN JOINT VENTUREFoskor Limited has a 50% interest in a jointventure, Palfos Aviation (Pty) Ltd.The company’s major asset, an aircraft,was sold in June 2004.Palfos Aviation (Pty) Ltd (South Africa)Opening carrying amount 25 437 25 437Investment 25 437 25 437Loan – – – –Share of current year’s results – 275 – 275Movement on loan account – – – –Reversal of impairment of the investment – 63 – 63Disposal of interest in joint venture – (750) – (750)Net share of joint venture 25 25 25 25Directors’ valuation of shares 25 25 25 25The investment consists of 12 500 shares of R2 each, being 50% of the authorised and issued share capital.39

INCOME NOTES TO STATEMENTTHE FINANCIAL STATEMENTSfor the year ended 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 20059 AVAILABLE FOR SALE INVESTMENTSListed sharesInvestment in Godavari Fertilizers &Chemicals Ltd (India) 18,328 13,871 18,328 13,871Other – – – 115Assest held for environmental rehabilitation(refer to Note 25) 41,233 26,947 41,233 26,94759,561 40,818 59,561 40,93310 NON-CURRENT RECEIVABLESFinance lease – Gross investment – 599,455 – –Unearned finance income – (284,614) – –– 314,841 – –Loans to employees in accordance withhousing and other loan schemes – – 647 2,670Total non-current receivables – 314,841 647 2,670Current portion (Note 12) – (8,484) (647) (1,604)Long-term portion of non-current receivables – 306,357 – 1,066Future repayments of employee loansNot later than one year – – 647 1,604Later than one year and not later than five years – – – 1,066Later than five years – – – –– – 647 2,670The employee loans are classified as originatedby the entity and are carried at amortised cost.These loans bear interest at rates that varybetween prime and 1% above prime.Finance lease receivablesGross receivables from finance leaseNot later than one year – 33,303 – –Later than one year and not later than five years – 166,515 – –Later than five years – 396,856 – –– 596,674 – –Unearned future finance income on finance lease – (310,456) – –Non–current receivables – 286,218 – –Net investment in finance leaseNot later than one year – 6,385 – –Later than one year and not later than five years – 42,788 – –Later than five years – 237,045 – –– 286,218 – –The finance lease was between Foskor (Proprietary) Limited and its wholly owned subsidiary, Richards Bay Sulphuric Acid(Proprietary) Limited.40

NOTES BALANCE TO SHEET THE FINANCIAL STATEMENTSfor the year ended 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 200511 INVENTORYSpares and consumables stores 136,658 122,569 136,658 122,569Phosphate rock 81,678 83,815 81,678 85,197Raw material 124,036 78,971 124,036 78,971Finished goods 177,595 173,855 177,595 173,855Work in progress 7,778 5,407 7,865 5,494Other minerals 1,172 4,318 1,172 4,318528,917 468,935 529,004 470,40412 RECEIVABLES AND PREPAYMENTSGross trade receivables 497,041 382,429 500,961 385,760Provision for doubtful debts 468 2,507 468 3,020Net trade receivables 496,573 379,922 500,493 382,740FEC assets 344 703 344 703Finance lease – 8,484 – –Employee loans (Note 10) – – 647 1,604SARS: VAT 49,962 25,307 49,962 25,307Prepaid insurance 10,711 10,690 10,711 10,690Other receivables 22,669 23,162 22,757 23,226580,259 448,268 584,914 444,27013 SHARE CAPITALAuthorised8 100 000 ordinary shares of R1 each 8,100 8,100 8,100 8,10023 500 000 class “B” shares of R1 each 23,500 – 23,500 –Total authorised share capital 31,600 8,100 31,600 8,100Issued7 983 590 ordinary shares of R1 each 7,984 7,784 7,984 7,784During the year the company issued199 590 ordinary shares of R1 each ata share premium of R0.60586 per share.During the year the company issued23 500 000 new class “B” shares of R1 eachat a share premium of R0.5821 per share. 23,500 – 23,500 –Share premium 13,800 – 13,800 –Total share capital 45,284 7,784 45,284 7,78414 SHAREHOLDER’S LOANIndustrial Development Corporation ofSouth Africa Ltd 1,450,000 1,450,000 1,450,000 1,450,000The loan is unsecured and interest-free withno repayment terms. It is contractuallysubordinated in favour of all other loansand creditors.41

INCOME NOTES TO STATEMENTTHE FINANCIAL STATEMENTSfor the year ended 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 200515 NON-INTEREST-BEARING BORROWINGSNon-interest bearing borrowings are carriedat cost.BHP Billiton South Africa Ltd 12,800 12,800 12,800 12,800The loan is unsecured and interest-free withno repayment terms.12,800 12,800 12,800 12,80016 FINANCE LEASE LIABILITYFinance lease liability – minimum lease paymentsNot later than one year 8,590 8,827 8,590 8,827Later than one year and not later than five years 30,839 32,593 30,839 32,593Later than five years 49,717 56,553 49,717 56,55389,146 97,973 89,146 97,973Future finance charges on finance lease (52,156) (57,965) (52,156) (57,965)Present value of finance lease liability 36,990 40,008 36,990 40,008Less current portion 2,823 3,019 2,823 3,019Long-term portion of finance lease liability 34,167 36,989 34,167 36,989Present value of finance lease liabilityis as follows:Not later than one year 2,823 3,019 2,823 3,019Later than one year and not later than five years 12,075 12,088 12,075 12,088Later than five years 22,092 24,901 22,092 24,90136,990 40,008 36,990 40,008The finance lease is between Foskor (Pty) Ltdand Mhlathuze Water Board.The lease liability is effectively secured as therights to the leased asset revert back to thelessor in the event of default.42

NOTES BALANCE TO SHEET THE FINANCIAL STATEMENTSfor the year ended 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 200517 DEFERRED TAXATIONMining fixed assets 181,929 169,470 181,929 169,470Other fixed assets 118,872 48,054 118,872 48,054Leased assets 273 28,152 273 20,529Research and development project (874) (904) (874) (904)Post-employment benefits (62,071) (42,832) (62,071) (42,833)Other provisions (21,818) (23,611) (21,818) (23,611)Net Mining rehabilitation (32,251) (37,648) (32,251) (37,648)Ore stockpiling 18,414 23,326 18,414 23,326Prepaid expenses 4 4 4 4Revaluation investment 1,996 2,734 1,996 2,734Tax loss limited to net deferred tax liability (204,474) (166,745) (204,474) (159,121)The total calculated tax loss of the companyamounts to R1.5 billion (Group: R1.5 billion).The deferred tax asset relating to the tax lossamounting to R437 million was limited to thenet deferred tax liability of the company ofR204 million (Group: R204 million).– – – –18 TRADE AND OTHER PAYABLESTrade payables 300,876 203,981 301,483 208,051Accruals 84,427 96,785 84,690 99,788Leave 20,266 20,646 20,266 20,64613th Cheque 3,573 3,550 3,573 3,550Payables 39,798 33,438 39,799 33,436448,940 358,400 449,811 365,47119 PROVISIONSBonus 32,651 13,436 32,651 13,436Social responsibility – 2,335 – 2,335Provision for bursaries 565 767 565 767Pension fund 12,300 – 12,300 –Total provisions 45,516 16,538 45,516 16,538Movement in the provisionsOpening amount 16,538 20,140 16,538 20,140Aditional provisions 45,516 16,538 45,516 16,538Utilised during the year (16,538) (20,140) (16,538) (20,140)Closing amount 45,516 16,538 45,516 16,53843

INCOME NOTES TO STATEMENTTHE FINANCIAL STATEMENTSfor the year ended 31 March 2006COMPANYGROUPR’000 2006 2005 2006 200520 CONTINGENT LIABILITIES ANDGUARANTEESContingent liabilitiesListed below are all the claims against theFoskor Group. Management are, however,of the opinion that these claims will besuccessfully defended.G Marais 26 000 26 000 26 000 26 000Insimbi Engineering 1 070 1 070 1 070 1 070Loesche (refer to Guarantees below) – 15 000 – 15 000PCL USD’000 USD 414 USD 414 USD 414 USD 414Stolt Infra USD’000 – USD 506 – USD 506ICEC Limited USD’000 – USD 312 – USD 312Guarantee in respect of Environmental LiabilityIn terms of Regulation 54(2) of the Regulationspromulgated in terms of the Minerals andPetroleum Resources Department Act 2003,Foskor is required to arrange certainguarantees in respect of the followingrehabilitation liability.– Recommended mine closure costs at this stage 223,410 – 223,410 –– Less assets held in the Trust (Note 25) 41,233 – 41,233 –– Deficit 182,177 – 182,177 –A verbal agreement has been reached with theDepartment of Mineral and Energy that theguarantees in respect of above deficit be putin place as follows:– R50 million on 31 July 2006,– R50 million on 31 July 2007; and– The remaining deficit on 31 July 2009(estimated to be circa R100m)Other GuaranteesGuarantees issued by Foskor Ltd and FoskorGroup to various beneficiaries amount toR26 million. See details below:DetailsBeneficiarySecurity against Loesch – settled Weber Wentzel Bowens Attorneys – 14,893Electricity Eskom 5,191 5,191Water and electricity supply Richards Bay T.L.C 11,924 6,604Rail transport of phosphate rock and granular Transnet 7,300 13,100Various ZAR-denominated guarantees Various 1,669 5,282Total 26,084 45,070The case relating to Loesche claim as stated above was settled on 13 May 2005 for an amount of R1 million plus legal costs.Contingent liabilitiesFoskor has entered into Business Assistance Agreement (BAA) with Coromandel Fertilizer Limited to provide technical, operational,maintenance, purchasing and business assistance to Foskor. The underlying principle of the BAA is to remunerate C F Lfor its efforts to improve Foskor’s EBIT over and above the continuous initiatives of Foskor. The potential liability can only bemeasured after the year ending March 2008 and is limited to R300 million. Refer to Directors Report.44

NOTES BALANCE TO SHEET THE FINANCIAL STATEMENTSFoskor GroupCOMPANYGROUPR’000 2006 2005 2006 200521 COMMITMENTSCapital commitmentsAuthorised and contracted for 160 1,036 160 1,036Authorised but not contracted for 83,200 63,958 83,200 63,958Total capital commitments 83,360 64,994 83,360 64,994To be expended:– Within one year 83,360 64,994 83,360 64,994– After one year – – – –83,360 64,994 83,360 64,994This expenditure will be financed from internallygenerated funds and available credit facilities.The future minimum lease payments undernon-cancellable leases are as follows:Payable no later than one year 4,869 3,420 4,869 3,420Payable later than one year 1,460 3,906 1,460 3,9066,329 7,326 6,329 7,32622 BORROWING FACILITIESUndrawn borrowing facilities and guaranteesRand-denominated facilitiesNon-interest bearingTotal facility 1,450,000 1,450,000 1,450,000 1,450,000Utilised (1,450,000) (1,450,000) (1,450,000) (1,450,000)Available – – – –The above facility from the IDC (shareholder)has been subordinated in favour ofother creditors.Interest-bearing facilitiesTotal facility 328,850 265,000 328,850 265,000Utilised – – – –Available 328,850 265,000 328,850 265,000GuaranteesTotal facility 118,593 33,552 118,593 33,552Utilised 26,084 26,743 26,084 26,743Available 92,509 6,809 92,509 6,80945

INCOME NOTES TO STATEMENTTHE FINANCIAL STATEMENTSfor the year ended 31 March 200623 FINANCIAL INSTRUMENTSExposure to currency, interest and credit risk arises in the normal course of the Group’s business. The Group’s objective in usingfinancial instruments is to reduce uncertainty over future cash flows arising from the movement in currency and interest rates.While these financial instruments are subject to the risk of market rates changing subsequent to acquisition, such changes wouldgenerally be offset by opposite effect on the items being hedged.Foreign currency risk managementThe Group undertakes certain purchase and sales transactions denominated in foreign currency and hence exposure to exchangerate fluctuations arises. The currencies giving rise to currency risk, in which the Group primarily deals, are United States Dollars,Euro and British Pound.Certain of these foreign-denominated transactions are covered via forward exchange contracts. The Group has entered into certainforward exchange contracts, which relate to specific items on the balance sheet. These contracts were entered into to cover firmforeign commitments not yet due and export earnings of which the proceeds are not yet receivable.COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 2005Details of the contracts are as follows:Forward exchange contracts:ImportsUnited States Dollars – 164 – 164Rand equivalent – 962 – 962Average exchange rate – 5.87 – 5.87ExportsUnited States Dollars 35,450 33,500 35,450 33,500Rand equivalent 222,266 208,248 222,266 208,248Average exchange rate 6.27 6.22 6.27 6.22Interest rate riskAs part of an ongoing restructuring of the borrowing mix and interest rate characteristics of borrowings, the Group restructuresfunding of operating capital as it sees fit. Where applicable, use may be made of currency and interest rate swaps as well as normalforward cover of foreign interest payments.Credit risk managementCredit risk primarily relates to the exposure on cash and cash equivalents, investments, trade receivables and long-term financialderivative positions. The Group limits its counter party exposure arising from the money market and derivative instruments bydealing only with well-established financial institutions of high credit standing. The granting of credit is controlled by well-establishedcriteria, which are reviewed and updated on an ongoing basis.Liquidity risk managementLiquidity risk arises from existing commitments associated with the industry and the requirements to raise funds in order to meetthese commitments.The Group manages liquidity by monitoring forecasted cash flows and ensuring that adequate unutilised borrowing facilities aremaintained. For further details, refer to the borrowing note (Note 22).46

NOTES BALANCE TO SHEET THE FINANCIAL STATEMENTSfor the year ended 31 March 20060 – 12 1 – 2 3 – 5 beyondR’000 months years years 5 years TotalFinancial assetsDerivative instruments 1,148 – – – 1,148Financial liabilitiesDerivative instruments 804 – – – 804Fair valueThe fair value of financial instruments is substantially identical to the carrying values reflected in the balance sheet.COMPANY AND GROUP12 months 9 monthsendedendedMarchMarchR’000 2006 200524 POST-EMPLOYMENT LIABILITYAmounts recognised in the balance sheetPension schemes – –Post-employment medical benefits 201,739 136,375201,739 136,37524.1 Pension obligations (as per AC116)The Group has established a Post-employment pension scheme covering allemployees. The pension fund is final salary fully funded. The assets of the fundare held in an independent trustee-administered fund, administered in terms ofthe Pension Funds Act of 1956, as amended. The fund is valued every threeyears using the projected unit credit method. The actuarial valuation forpurposes of AC116 was performed on 31 December 2005.The amounts recognised in the balance sheet are as follows:Present value of funded obligations 236,924 235,799Fair value of plan assets (270,049) (237,906)(33,125) (2,107)Unrecognised actuarial (losses)/gains 33,125 2,107Unrecognised past service cost – –Liability in the balance sheet – –The amounts recognised in the income statement are as follows:Current service cost 366 725Interest cost 18,191 20,256Expected return on assets (15,730) (16,894)Net actual gain recognised during the year – –Past service costs 1,116 1,123Total included in staff costs 3,943 5,210Movement in the liability recognised in the balance sheetAt beginning of year – –Contributions paid (3,943) (5,210)Other expenses included in staff costs 3,943 5,210Balance at the end of the year – –The principal actuarial assumptions used for accounting purposes were:– Discount rate 7.50% 8.00%– Expected return on plan assets 7.00% 7.00%– Future salary increases 4.00% 4.50%– Future pension increases 2.00% 2.50%47

INCOME NOTES TO STATEMENTTHE FINANCIAL STATEMENTSfor the year ended 31 March 2006COMPANY AND GROUP12 months 9 monthsendedendedMarchMarchR’000 2006 200524.2 Post-employment medical benefitsThe Group operates a post-employment medical benefit scheme, which is heldin an independent trustee-administered fund. The liability is valued every threeyears using the projected unit credit method. The latest full actuarial valuationwas performed on 01 February 2006.The amounts recognised in the balance sheet are as follows:Present value of unfunded obligationsDiscovery Health members 201,739 77,142Thebemed members – 59,233Present value of unfunded obligations 201,739 136,375The amounts recognised in the income statement are as follows:Current service cost 5,571 4,046Interest cost 11,719 6,208Total included in staff costs 17,290 10,254Movement in the liability recognised in the balance sheet:At beginning of year 136,375 110,414Contributions paid (6,376) (4,079)Other expenses 71,740 30,040Balance at the end of the year 201,739 136,375The principal actuarial assumptions used for accounting purposes were:– Expected investment return 7.2% 7.2%– General inflation 4.4% 3.4%– Medical inflation 5.9% 6.4%48

NOTES BALANCE TO SHEET THE FINANCIAL STATEMENTSfor the year ended 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 200525 ENVIRONMENTAL REHABILITATIONLIABILITYFoskor (Pty) Ltd continuously contributesto the Rehabilitation Trust to ensure thatadequate funds are available to pay for mineclosure and reclamation costs. The Trust isregarded as a Special Purpose Entity and istherefore consolidated as part of Foskor (Pty)Ltd figures. This note compares the net presentvalue of the rehabilitation liability to the assetsheld by the Trust.Environmental rehabilitation liabilityBalance at beginning of year 152,442 147,512 152,442 147,512Rehabilitation liability growth – 4,930 – 4,930Balance at end of year 152,442 152,442 152,442 152,442Rehabilitation TrustBalance at beginning of year 26,947 24,096 26,947 24,096Restated opening balance 26,947 24,096 26,947 24,096Fair valuation of investments 6,262 2,849 6,262 2,849Profit for the year 24 2 24 2Investments held by the Trust (refer to Note 9) 33,233 26,947 33,233 26,947Cash contribution made to the Trust 8,000 – 8,000 –Total assets held by the Trust 41,233 26,947 41,233 26,947Unfunded portion of rehabilitation liability 111,209 125,495 111,209 125,495The directors are aware of the estimated cost of rehabilitation and are satisfied that adequate provision is being made to meetthis obligation.A contingent liability has been recognised for the issuing of guarantees to the Department of Mineral and Energy. (Refer to theDirectors report and Note 20 of this annual financial statements).49

NOTES INCOME TO STATEMENTTHE FINANCIAL STATEMENTSfor the year ended 31 March 2006COMPANYGROUP12 months 9 months 12 months 9 monthsended ended ended endedMarch March March MarchR’000 2006 2005 2006 200526 CASH GENERATED FROM /(APPLIED TO)OPERATIONSReconciliation of profit for the year:Operating profit/(loss) for the year 36,122 (522,618) 36,091 (419,915)Adjustments for:Depreciation 93,889 61,139 94,032 70,149Fair value gain resulting from first timeadoption of IFRS – 40,780 – 44,314Amortisation of intangible assets 2,433 1,823 2,433 1,823Impairment of goodwill – – 48 146Impairment of property, plant and equipment – 300,000 – 300,000Increase in investments charged directly to equity 4,457 4,695 4,457 4,695Profit on sale of property, plant and equipment (9,434) (9,528) (9,434) (9,419)Increase in investments available for sale (10,743) (10,546) (10,628) (10,546)Profit on disposal of joint venture assets – 338 – 338Growth in environmental rehabilitation – 4,930 – 4,930Growth in retirement benefit obligation 65,364 17,059 65,364 17,059Decrease in ore stockpiling 14,258 8,088 14,258 8,088Write off of assets 788 – 788 –Operating profit/(loss) before workingcapital changes 197,134 (103,840) 197,409 11,662Increase in inventory (59,982) (17,530) (58,599) (17,329)(Increase)/Decrease in accounts receivable (131,992) 9,357 (140,645) 12,465Increase in accounts payable 90,541 25,475 84,340 28,198Increase in provisions 28,978 713 28,978 713Cash generated from/(applied to) operations 124,679 (85,825) 111,483 35,70927 RELATED PARTY TRANSACTIONSDirectors’ emolumentsThe following table records the emoluments payable to the directors during the year:27.1 NON - EXECUTIVE DIRECTORS’ REMUNERATIONFees for Fees forservices as services asdirectors directors2006 2005LL van Niekerk 281,893 159,833RK Morathi 94,120 –A Vellayan 90,180 –Z Monnakgotla 90,180 –M Nhlanhla 85,120 –P Ledger 84,000 –LBR Mthembu 80,060 24,000DS Phaho 85,120 –K Ngqula – 56,000F Venter – resigned on 22/06/2005 34,500 45,000G van Wyk 132,300 64,500HN Giyose – resigned on 22/06/2005 18,500 55,500WM Ndodana 8,000 24,0001,083,973 428,88350

NOTES BALANCE TO SHEET THE FINANCIAL STATEMENTSfor the year ended 31 March 2006PaymentsContributionsfor con-to medicalversionaid, pension,Termi- to fixed Perfor- lifeBasic nation term mance insurance Expensedsalary benefit contracts* Bonuses ** & UIF allowances Total27.2 RELATED PARTY TRANSACTIONSEXECUTIVE DIRECTORS’ ANDEXECUTIVE MEMBERS’REMUNERATION – FOSKOR12 Months ended 31 March 2006MA Pitse *** 1,524,219 – 1,307,170 182,606 270,962 151,051 3,436,008CAP Galego– resigned on 31/10/2005 **** 537,205 2,457,222 – 110,133 94,029 – 3,198,589TJ Koekemoer ***** 810,695 – – 99,915 182,463 83,146 1,176,219JW Horn– appointed on 01/10/2005 631,727 – – – 18,273 – 650,000Jay Vaidhyanathan– appointed on 01/04/2005 700,003 – – – 99,277 – 799,280H Malhotra– appointed on 05/09/2005 418,290 – – – 48,377 – 466,667EV Krishnan– resigned on 05/09/2005 298,778 – – – 34,555 – 333,333H Mhlongo– resigned on 11/04/2005 58,671 2,452,773 – – 4,323 – 2,515,767G Skhosana 773,917 – – 89,762 127,555 76,200 1,067,434ND Naidoo 712,678 – – 87,766 160,425 – 960,869M Leseilane– resigned on 31/03/2005 181,993 – – – – – 181,9936,648,176 4,909,995 1,307,170 570,182 1,040,239 310,397 14,786,1599 Months ended 31 March 2005MA Pitse 1,091,233 – 2,614,341 205,081 187,697 32,160 4,130,512CAP Galego 669,657 – – 97,140 118,051 85,299 970,147TJ Koekemoer 600,548 – – 95,028 135,178 – 830,754H Mhlongo 533,270 – – 90,713 141,422 – 765,405G Skhosana 543,635 – – 77,771 93,976 – 715,382M Leseilane 452,961 – – 77,140 134,539 – 664,640JW Horn – resigned on 28/02/2005 404,577 – – 72,420 105,040 – 582,037ND Naidoo 446,990 – – 69,559 103,706 – 620,2554,742,871 – 2,614,341 784,852 1,019,609 117,459 9,279,132* Represents amounts paid to executive member for migrating from permanent employment contracts to fixed term contracts.** Represents amounts payable to executive members for achieving certain objectives that are aligned to the corporate objectives(targets). These objectives are approved by Board at the beginning of each period. The amount paid is based on the corporate,team and individual performance.*** Executive director**** Resigned as a director on 31/07/2004 and resigned as Executive member on 31/10/2005.***** Resigned as a director on 31/07/2004.Terms ofReceicing of Purchase of Outstanding outstandingservices goods balances balances 200627.3 RELATED PARTY TRANSACTIONSIndustrial Development Corporation 1,450,000,000 1,450,000,000Eskom Limited – 86,737,831 – 86,737,831Transnet Limited 311,190,440 – 20,061,729 30 days 331,252,169South African Airways (Pty) Limited 2,737,816 – – 2,737,816Telkom Limited 2,689,740 – – 2,689,740SA Post Office Limited 60,673 – – 60,673316,678,669 86,737,831 1,470,061,729 – 1,873,478,229Industrial Development Corporation 1,450,000,000 1,450,000,000Eskom Limited – 67,411,590 – 67,411,590Transnet Limited 187,449,576 – 20,091,068 30 days 207,540,644South African Airways (Pty) Limited 1,767,615 – – 1,767,615Telkom Limited 2,083,774 – – 2,083,774SA Post Office Limited 42,863 – – 42,8632005191,343,828 67,411,590 1,470,091,068 – 1,728,846,48651

NOTES INCOME TO STATEMENTTHE FINANCIAL STATEMENTSfor the year ended 31 March 2006Phosphate Copper Zirconia Phosphoric Phosphoric Unallocated Totalrock acid acid (Other)R’m R’m R’m R’m R’m R’m R’m200628 SEGMENTAL REPORTINGBusiness segmentationRevenue– External 169 46 88 1,951 320 – 2,574– Internal – Group 1,078 – – – – – 1,078Total 1,247 46 88 1,951 320 – 3,652Operating income/(loss) 299 41 4 (253) 26 (81) 36Assets 1,163 – 75 1,492 190 456 3,376Liabilities 515 – 3 348 26 9 901Capital expenditure 58 – 3 44 – – 105Depreciation 38 – 2 54 – – 94Inter–segment transfers between the operations take placeat market related prices.Geographical segmentationRevenue– South Africa 94 33 4 223 320 – 674– India – – 10 1,490 – – 1,500– Netherlands – – – 111 – – 111– Japan 75 – – – – – 75– Argentina – – – 44 – – 44– Zambia – – – 36 – – 36– Pakistan – – – 31 – – 31– United Kingdom – – 30 – – – 30– Other countries – 13 44 16 – – 73Net revenue 169 46 88 1,951 320 – 2,574Segment revenue represents the gross income directly and reasonably allocated to segments. These sales are made on acommercial basis.Segment operating profit/(loss) equals segment revenue less segment expenses, which include costs of sales and other operatingcosts. Segment expenses represent direct or reasonably allocated expenses on a segment basis. Segment expenses excludeinterest and investment income.Segment assets and liabilities include directly and reasonably allocated operating assets, investments and liabilities. Giventhe concentration of assets and liabilities within the Republic of South Africa, it is not meaningful to allocate such elementson a geographical basis.52

BALANCE NOTES TO SHEET THE FINANCIAL STATEMENTSfor the year ended 31 March 2006Phosphate Copper Zirconia Phosphoric Phosphoric Unallocated Totalrock acid acid (Other)R’m R’m R’m R’m R’m R’m R’m200528 SEGMENTAL REPORTINGBusiness segmentationRevenue– External 278 21 56 997 – 2 1,354– Internal – Group 518 – – – – – 518Total 796 21 56 997 – 2 1,872Operating profit/(loss) 152 19 (6) (526) – (59) (420)Assets 999 – 61 1,703 – 339 3,102Liabilities 462 – 2 274 – 5 743Capital expenditure 61 – 2 70 – – 133Depreciation 29 – 1 40 – – 70Inter–segment transfers between the operations take placeat market related prices.Geographical segmentationRevenue– South Africa 193 21 2 90 – 2 308– India – – 5 766 – – 771– Netherlands – – – 12 – – 12– Japan 61 – – – – – 61– Zambia – – – 39 – – 39– United Kingdom – – 18 – – – 18– Other countries 24 – 31 90 – – 145Net revenue 278 21 56 997 – 2 1,354Segment revenue represents the gross income directly and reasonably allocated to segments. These sales are made on acommercial basis.Segment operating profit/(loss) equals segment revenue less segment expenses, which include costs of sales and other operatingcosts. Segment expenses represent direct or reasonably allocated expenses on a segment basis. Segment expenses excludeinterest and investment income.Segment assets and liabilities include directly and reasonably allocated operating assets, investments and liabilities. Given theconcentration of assets and liabilities within the Republic of South Africa, it is not meaningful to allocate such elements on ageographical basis.53

FIVE YEAR REVIEWFoskor GroupAnnualised 9 Months2006 2005 2005 2004 2003 2002KEY DRIVERSAverage exchange rate R/$ 6.37 6.17 6.83 8.98 9.97P205 CFR price ($/ton) 440 399 356 334 338P205 CFR price (R/ton) 2,806 2,461 2,315 2,999 3,370Sulphur FOB price ($/ton) 65 63 59 40 20Sulphur CFR price ($/ton) 85 86 81 53 32Sulphur CFR price (R/ton) 573 574 592 477 314Ammonia CFR price ($/ton) 320 298 241 175 136Rock FOR sales price ($/ton) 59 54 43 39 38Rock sales price (R/ton) 376 324 372 354 379P205 - Production volume(‘000 ton) 626 542 406 575 404 404P205 - Sales volume (‘000 ton) 581 437 328 435 307 320Granular - Production volume(‘000 ton) 190 161 121 297 187 170Granular - Sales volume (‘000 ton) 177 174 130 296 148 169Rock production volume (‘000 ton) 2,528 2,791 2,093 2,642 2,773 2,885Rock sales volume (‘000 ton) 2,606 2,575 1,931 3,017 2,736 2,706INCOME STATEMENT (R million)Revenue 2,574 1,806 1,354 2,051 1,972 2,245Operating profit/(loss) 36 (420) (228) 147 505Net finance expenses and foreigngains/(losses) 39 (8) (99) (223) 31Profit/(loss) before tax 76 (427) (328) (76) 535Taxation (1) (51) 129 72 (173)Net proft/(loss) 75 (478) (198) (3) 362Major cost items (R million)Number of employees (at year end) 1,783 1760 1707 2034 2072Staff costs 401 329 247 331 296 263Repairs and maintenance 258 247 185 265 250 160Depreciation 94 93 70 147 136 88Capex 105 164 133 290 250 822- Normal capital expenditure 123 92- Finance lease 41 41PROFITABILITY RATIOSOperating income to revenue (%) 1% (31)% (11)% 7% 23%Pre-tax margin (%) 3% (32)% (16)% (4)% 24%Revenue per employee (R’000) - p.a. 1,444 1026 770 1201 970 108354

FIVE YEAR REVIEWFoskor GroupAnnualised 9 Months2006 2005 2005 2004 2003 2002BALANCE SHEETProperty, plant and equipment 1,681 1,699 1,967 1,831 1,724Non-current assets 138 138 111 132 112Current assets 1,558 1,266 948 1,159 1,378Total assets 3,376 3,102 3,026 3,121 3,214Non current liabilities 401 338 677 1,082 1,004Current liabilities 500 405 468 481 643Total liabilities 901 743 1,145 1,563 1,647Net assets 2,476 2,359 1,882 1,559 1,567Shareholders’ equity 1,026 909 1,338 1,559 1,567Shareholders’ loan- Non-interest bearing 1,450 1,450 544 – –Total shareholders’ interest 2,476 2,359 1,882 1,559 1,567Interest-bearing debt (net of cash) – – 483 582 389RatiosDebt/equity ratio (%)(debt net of cash) 0% 0% 26% 46% 42%Current assets to current liabilities(ratio) 3.1 3.1 2.0 2.4 2.1CASH FLOW STATEMENTOperating profit/(loss)before workingcapital changes 197 12 (109) 278 605Working capital changes (86) 24 119 119 (154)Cash generated from operations 111 36 11 397 451Net cash inflow/(outflow) fromoperating activities 132 (9) (62) 52 240Net cash (outflow) frominvesting activities (37) (118) (283) (244) (563)Free cash inflow/(outflow) 95 (127) (345) (193) (322)55

FIVE YEAR REVIEWFoskor Group3,0Rock production volume’000 ton650P 2 0 5 - Production Volume’000 ton2,52,02,8852,7732,6422,7912,5285505755426261,54501,00,53504044040,02502002 2003 2004 2005 20062002 2003 2004 2005 2006(2005 – Annualised) (2005 – Annualised)62Rock FOR Sales Price$/ton10,6Average Exchange RateR/$58545054599,99,28,59,978,98467,842437,138343038392002 2003 2004 2005 20066,45,75,06,836,176,372002 2003 2004 2005 200690Sulphur CFR Price$/ton600Sulphur CFR PriceR/ton758186855005925745736047745534003032300314152002002 2003 2004 2005 2006 2002 2003 2004 2005 2006450P 2 0 5 CFR Price$/ton3,5P 2 0 5 CFR PriceR/ton4003503002503383343563994402,02002 2003 2004 2005 2006 2002 2003 2004 2005 20063,02,53,3702,9992,3152,4612,80656

NOTICE TO MEMBERS/ADMINISTRATIONFoskor GroupFOSKOR (PTY) LIMITEDREG. NO. 1951/002918/07NOTICE IS HEREBY GIVEN that the fifty-fifth Annual GeneralMeeting of the members of the above company will be held at B317,IDC, 19 Fredman Drive, Sandton, South Africa on Monday, 19 June2006 at 13:00 for the following purposes:1 To receive and consider the Annual Financial Statements for theyear ended 31 March 2006, including the Directors’ Report andthe report of the Auditors thereon.2 To authorise the Directors to fix the Auditors’ remuneration for thepast year.3 Re-appoint Directors4 Re-appoint Auditors5 To transact any other business as may be transacted at the annualgeneral meeting.A member entitled to attend and vote at the meeting is entitled toappoint one or more proxies to attend and vote in his stead. A proxyneed not be a member of the Company.Proxy form should be forwarded to reach the registered office of theCompany not less than 48 hours before the time for the holding of themeeting.By Order of the BoardAUS KhanyileCompany SecretaryRegistered OfficeFoskor (Pty) Ltd18 Thornhill Office Park94 Bekker RoadMIDRAND168229 May 200657

ADMINISTRATIONSECRETARY AND REGISTERED OFFICEAUS Khanyile18 Thornhill Office Park,94 Bekker RoadMidrand1682Telephone: (011) 347 0600.Telefax: (011) 347 0640e-mail: amaguguk@foskor.co.zaAUDITORSPRICEWATERHOUSECOOPERS PricewaterhouseCoopers Inc INCChartered Accountants (SA)Registered Accountants and and Auditors Auditors(Registration no 1998/012055/21)Chartered Accountants (SA)PretoriaREGISTRATION NUMBER1951 002918 07WEBSITE ADDRESShttp://www.foskor.co.zaNGUBANE & CO INCRegistered Accountants and AuditorsChartered Accountants (SA)Durban58