JOHANNESBURG (miningweekly.com) – Diversified miner African Rainbow Minerals (ARM) achieved a 13% increase in headline earning to R2.2-billion for the six months ended December 31, 2018, compared with R1.9-billion in the six months ended December 31, 2017.

The company, which is led by chairperson Patrice Motsepe and CEO Mike Schmidt, on Friday reported headline earnings a share of R11.49, compared with R10.23 in the prior comparable period.

ARM attributed the increase to improved headline earnings at the Modikwa mine, the iron-ore division and the manganese ore operations, but said this was partially offset by a headline loss at the Nkomati mine.

ARM declared an interim dividend of 400c, compared with 250c in the prior comparable period.

Basic earnings were R1.3-billion, compared with R1.7-billion in the prior period, which included an attributable impairment of the Nkomati mine assets of R892-million after tax for the reporting period.

The company managed to improve its consolidated financial position in the reporting period by R2.2-billion, to net cash of R1.1-billion, compared with net debt of R1.1-billion as at December 31, 2017.

In terms of forward-looking views, Motsepe noted that the mining industry will undoubtedly be disrupted by the Fourth Industrial Revolution (4IR) and it will not be sufficient to simply have mechanised mining operations. "Some CEOs of the largest companies in the world recognise this, but the key issue is having a responsible attitude towards technological advancement.

"There will be new jobs created, but there will also be a transitional period where we need to prepare and advance the necessary skills. In the coal mining industry, we need to make work of 4IR, especially to reduce emissions. We have a duty to workers to create jobs and provide for their transition, with no conflict between efficiency, productivity and lowering of costs."

Motsepe added that the company is continuously engaging with stakeholders to advance its technological advancement.

DIVISIONAL PERFORMANCE
Headline earnings at ARM Ferrous were 21% higher at R2.1-billion, compared with R1.7-billion in the prior comparable period. The iron-ore division delivered a 41% increase in headline earnings, as average realised dollar prices for export iron-ore increased by 15%, driven by a combination of higher fines market prices, increased lump premiums and a higher lump to fines ratio in iron-ore sales volumes.

The manganese ore operations delivered a 41% increase in headline earnings; however, a 62% decrease in headline earnings at the manganese alloy operations, mainly comprising of Cato Ridge Works and Alloys, resulted in the manganese division's overall earnings increasing by only 5%.

Meanwhile, interventions implemented at ARM Platinum’s Modikwa mine to improve the operational and financial performance of the mine are yielding results.

This, together with a higher rand basket price and an improved purchase of concentrate agreement (as concluded in the 2018 financial year for three years from January 1, 2017), contributed to the R173-million headline earnings reported by the mine, compared with R36-million in the prior comparable period.  

The Two Rivers mine continued to experience grade challenges as a result of the complexity of the orebody. This impacted both platinum group metals and chrome volumes in the six months under review.

The mine reported headline earnings of R180-million, compared with R173-million in the prior comparable period.

The Nkomati mine, however, recorded a headline loss of R186-million, mainly as a result of reduced nickel and by-product sales volumes, together with above-inflation cost increases.

ARM has completed its review of the mine's operational challenges, indicating cash support that could be required from the partners and the relatively limited, eight-year life of the openpit mine. The review indicated a decline in head grade, resulting in decreased metal output, the mine's inability to generate sufficient cash to meet operational requirements and an increase in production costs.

“We are in discussions with our partner on the future of the mine,” said ARM.

Meanwhile, headline earnings for ARM Coal were 59% lower at R65-million, compared with R160-million in the prior comparable period, and include a remeasurement loss of R206-million on the revaluation of the loans between ARM, ARM Coal and Glencore, which were restructured in the 2018 financial year.

“The coal operations delivered improved operational cash flows, which has resulted in accelerated loan repayments. The value of the restructured loans is revalued at each reporting period to reflect the net present value of the expected loan repayment profile.

“Where the repayment profile is expected to accelerate compared to expectations in the previous reporting period, a remeasurement loss is recognised,” said ARM.

OUTLOOK
ARM expects dollar commodity prices will remain well supported, despite concerns about a potential slowdown in China's growth.

China's focused legislation and environmental restrictions in addressing pollution concerns continued to drive demand in the reporting period and provided price support for the high-quality bulk metals that ARM produces.

Supply disruptions in some bulk metals are also contributing to commodity price strength in the short term.

In the medium to long term, ARM said China's shift to high-quality commodities and closure of high-cost and inefficient mines appeared to be structural and, together with reduced investment in expansionary capital across a number of commodities globally, it is expected to provide price support for the commodities that ARM produces.

“We have seen an increased level of business interruption due to community unrest in communities where our mines are located. While we have dedicated resources at executive and operational level for stakeholder engagement, along with formal communication structures with surrounding communities, we expect that there is likely to be an increase in these interruptions, which are primarily related to service delivery, as we approach national elections in May,” ARM pointed out.

The company added that mining remained a long-term capital-intensive industry and the company was committed to investing in its existing operations to grow the business and be well positioned to take advantage of ever-changing pricing cycles in the commodities that it mines.

“We continue to assess value-accretive external growth opportunities and prioritise our policy to pay dividends bi-annually in line with our communicated capital allocation framework.

“ARM's financial position remains robust, allowing ARM to take advantage of future growth opportunities and realign existing nonperforming businesses where required,” the company concluded.