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ARM earnings up, dividend declared

ARM executive chairperson Dr Patrice Motsepe

ARM executive chairperson Dr Patrice Motsepe

Photo by Creamer Media

31st August 2020

By: Martin Creamer

Creamer Media Editor

     

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JOHANNESBURG (miningweekly.com) –  The headline earnings of diversified mining company African Rainbow Minerals (ARM) increased by 6% to R5 534-million for the financial year to June 30. A final dividend of R7 a share is declared, in addition to the interim dividend of R5 a share, taking the total dividend for the 2020 financial year to R12 a share.

The net cash position of ARM, headed by executive chairperson Dr Patrice Motsepe, improved to R3 790-million, compared with the R2 601-million at the end of the 2019 financial year.

Segmental earnings before interest, taxes, depreciation and amortisation (Ebitda) increased by 18% to R11 009-million and basic earnings were R3 965-million or R20.42 a share. These include an attributable after-tax impairment of the ARM Coal assets of R1 524-million, including attributable impairments of R1 070-million of the Nkomati Mine and R507-million of Sakura Ferroalloys assets.

ARM Platinum headline earnings soared to R1 142-million, compared with last financial year’s R112-million.

Production volumes, sales volumes and unit costs were impacted by the Covid-19 national lockdown and restrictions, and strict protocols to prevent spread of Covid are ongoing across all operations, ARM stated in a stock exchange news service announcement.

The company's net asset value a share increased by 13% to R143.65 a share.

HEADLINE EARNINGS

With Covid presenting second-half challenges, ARM’s diversified portfolio of commodities again stood it in good stead to be able to report a 6% increase in headline earnings with higher platinum group metals (PGMs) and iron-ore prices more than offsetting the negative impact of lower manganese ore, manganese alloys and thermal coal prices.

The weaker rand against the dollar also contributed positively to headline earnings, the company stated.

The average realised rand weakened by 11% to R15.68 to the dollar, with the closing exchange rate at R17.36 to the dollar.

Attributable headline earnings for ARM Ferrous were 10% lower at R4 479-million as a 9% increase in headline earnings in the iron-ore division was more than offset by a 48% decrease in the manganese division headline earnings.

Despite lower iron-ore sales volumes, mainly as a result of the lockdown, profitability in the iron-ore division improved, driven by higher rand export iron-ore prices. In contrast, average realised rand manganese ore prices were 22% lower which, coupled with a 6% decrease in manganese ore sales volumes, significantly impacted the manganese divisions headline earnings. At the manganese ore operations, on-mine unit production costs decreased by 2% in the reporting period.

ARM Platinum’s attributable headline earnings increased by R1 030-million, with the Two Rivers and Modikwa mines benefitting from a 6%, 54% and 144% increase in average realised platinum, palladium and rhodium prices. Modikwa further benefited from its almost 1:1 platinum to palladium ratio.

Headline earnings at the PGM operations were impacted by penalty and treatment charges of R303-million for Two Rivers and R11-million for Modikwa.

Production and sales volumes at both PGM operations were lower owing to first-half grade challenges and second-half lockdown. Unit cost increases at both operations were above inflation mainly owing to the decline in volumes.

Nkomati Mine reported an attributable headline loss of R704-million. Scaling down of the Nkomati Mine in preparation for care and maintenance is progressing with the mine now expected to cease production in February next year.

Owing to Nkomati Mine approaching the end of its economic life, provisions in the mine's attributable headline earnings for the year included:

  • a provision relating to an increase in rehabilitation and decommissioning obligations of R384-million;
  • a provision relating to a diesel tax rebate currently under dispute with the South African Revenue Services of R131-million;
  • a provision for restructuring costs of R77-million;
  • an inventory write-down of R76-million; and
  • off-take penalties for out of specification concentrate of R99-million.

ARM Coal’s attributable headline loss of R2-million includes remeasurement gains of R485-million on partner loans. Excluding the remeasurement gains, the ARM Coal headline loss was R487-million as a result of the sharp decline in export thermal coal prices, lower sales volumes, owing to weather-related mining challenges, and above-inflation unit cost increases.

The Machadodorp Works headline loss was R163-million as research into the development of more energy efficient smelting technology progressed. Expenditure at Machadodorp Works was curtailed to conserve cash in light of Covid-related uncertainty.

ARM Corporate and other headline losses were R85-million compared with R257-million in 2019. The reduced loss was mainly owing to an increase in re-measurement gains of R108-million, and higher interest received of R62-million.

CASH FLOW

Cash generated from operations increased by R1 743-million to R3 866-million after a R1 189-million increase in working capital requirements, mainly owing to an increase in debtors at the PGM operations.

Dividends received from the Assmang joint venture were R3 750-million. The board approved a share buyback in which R57-million was spent acquiring 623 000 ARM shares at an average price of R90.86 a share.

Borrowings of R264-million were repaid in the period, reducing gross debt to R1 925-million. The broad-based economic empowerment trust fully repaid its loan with Nedbank in October 2019. Segmental capital expenditure was R3 506-million and included R394-million of capitalised waste stripping at the iron-ore operations.

NO FATALITIES IN SECOND HALF

While there were no fatalities in the second half of the 2020 financial year, as reported in the first half, three colleagues were fatally injured in separate accidents at the Two Rivers, Nkomati and Tweefontein mines. The group lost-time injury frequency rate (LTIFR) per 200 000 man-hours increased marginally to 0.45 from 0.42 last year and there were 86 lost-time injuries (LTIs) reported compared with 90 in the 2019 financial year. Of these, 63 were reportable injuries.

Mining Weekly can report that safety achievements in the 12 months to June 30 include:

  • Beeshoek mine’s 18 000 fatality-free production shifts on August 16 last year, an accomplishment that has taken 16 years and 5 months to achieve. On 9 September 2019 the mine recorded 365 successive days without an LTI;
  • Khumani mine’s three-million fatality-free shifts on November 29 last year;
  • Black Rock mine’s eight-million fatality-free shifts on  March 11, which was a first for ARM Ferrous and took 11 years and two months to achieve. The mine also improved its LTIFR by 21% year-on-year; and
  • Modikwa mine’s one-million fatality-free shifts on January 6, 2020.

LTIs and the LTIFR are presented on a 100% basis and are reported for those operations where ARM has direct or joint management and exclude the ARM Coal, Sakura and Harmony operations.

Edited by Creamer Media Reporter

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