Positive outlook, despite headline losses

10th December 2021 By: Darren Parker

Positive outlook, despite headline losses

STOCKPILE Production was negatively impacted by challenges at Transnet Freight Rail, giving rise to full stockpiles at both the iMpunzi and Tweefontein mines

Coal miner African Rainbow Minerals (ARM) Coal reported an increased headline loss at its coal operations for the 2021 financial year ending July 31, despite an increase in thermal coal prices and in the export of lower-grade coal on the back of reduced domestic demand.

The company reported an attributable headline loss of R250-million, which included remeasurement gains of R242-million on partner loans. Excluding these gains, the faulted this performance on lower coal sales and above-inflation unit cost increases – partially offset by higher average received coal prices.

ARM Coal was formed in July 2006 through a partnership between diversified mining company ARM and global diversified mining group Xstrata Coal South Africa – which later became Glencore.

The joint venture includes an economic interest of 20.2% in certain Glencore operations in South Africa, Participating Coal Business (PCB), and a 26% attributable beneficial interest in the Goedgevonden coal mine, in Mpumalanga. PCB comprises the Tweefontein and iMpunzi coal mining operations, also in Mpumalanga.

ARM said in its 2021 financial year-end report that the lower coal sales were attributable to major underperformance from State-owned utility Transnet Freight Rail, which it said negatively affected production.

The company’s report stated that there was a continued focus on containing unit cost escalations below inflation in the 2021 financial year at the mine, but that this was not achieved, mainly because of lower saleable production. ARM said efforts remained in place to continue focusing on containing unit cost escalations below inflation for the year ahead.

The attributable run-of-mine (RoM) production from Goedgevonden decreased by 16%, from 2.85-million tonnes in the 2020 financial year to 2.39-million tonnes in the 2021 financial year, while attributable saleable production was 1.5-million tonnes in 2021, down from 1.76-million tonnes the year prior.

On-mine unit production costs per saleable tonne rose by 17% to R506/t, compared with the previous year’s R431/t. The above-inflation increase in unit costs was attributed mainly to a 15% reduction in saleable production volumes.

Meanwhile, at PCB operations, the goal was the same as at Goedgevonden – to contain unit cost escalations below inflation – but was reportedly only partially achieved since unit costs increased in line with inflation on lower saleable production.

ARM said production at PCB operations was also negatively impacted on by challenges at Transnet, giving rise to full stockpiles at both the iMpunzi and Tweefontein mines, restricting production at each. The underperformance was exacerbated by a derailment on the coal line in April.

Inclement weather in January and February also affected RoM production.

Further, the negative impact of Covid-19 on production losses was reduced in the second half the 2021 financial year, owing to improved protocols and the management thereof.

In the second half of the financial year, production at Tweefontein was further affected by hot coal and hard digging conditions at the Klipplaat pit. The company said in its report that these conditions were expected to improve during the 2022 financial year as most of the production would come from the Makoupan pit.

A programme of redrilling and blasting hot areas, where practical, to improve digging conditions in Klipplaat, has also been implemented.

ARM’s attributable RoM production from PCB reduced by 11%, from 4.28-million tonnes in 2020 to 3.79-million tonnes in 2021.

Meanwhile, export sales volumes were 3% higher at 8-million tonnes, compared with 7.73-million tonnes in the previous year. Domestic sales volumes, however, declined from 5.74-million tonnes in the 2020 financial year to 2.9-million tonnes in the 2021 financial year, largely because of decreased sales to State-owned power utility Eskom.

However, PCB successfully commissioned a second dragline at the Tweefontein mine towards the end of 2020. The company says in its 2021 financial report that this upgrade is expected to improve production and cost management at the mine.

Prices

ARM explained in its financial report that the increase in thermal coal prices in the 2021 financial year was because of the global economic recovery after the outbreak of Covid-19 and general supply shortages.

Global coal prices were supported after China had increased its demand for non-Australian thermal coal.

Prices were further assisted by the delayed start to China’s hydrogeneration season, which, in turn, led to increased thermal power generation levels.

Moreover, the Asian liquefied natural gas (LNG) price increased to record levels, which resulted in energy production switching from LNG to coal, which further supported additional coal demand.

ARM Coal’s outlook for the 2022 financial year and beyond is positive, with a steady growth forecast in ales year-on-year to 2024.