ARM reports an increase of 36% in headline earnings to R462 million on the back of record product sales and higher commodity prices
31 August 2006
Headline earnings rose by 36% from R339 million to R462 million for the year ended 30 June 2006. Earnings were positively affected by Modikwa reporting its first annual profit since commissioning as well as significant price increases experienced by ARM’s nickel operations. A weaker exchange rate during May and June also had a positive impact and record product sales were achieved by the PGM, iron ore, nickel and ferromanganese operations ARM’s Ferrous operations (held through Assmang) reported lower earnings and have been accounted for on a proportionate consolidation basis from 1 March 2006. This is subsequent to the reduction of ARM’s stake from 50.35% to 50%, and following the restructuring of the shareholders’ agreement and delisting of Assmang.
The company’s total assets have increased to R14.6 billion which results from the positive mark-to-market adjustment of R3.6 billion for the investment in Harmony and the group capital expenditure for the year. Total consolidated net borrowings increased from R1.3 billion on 30 June 2005 to R1.8 billion at the current year end, retaining ARM’s net debt to equity ratio at a comfortable 17%.
In executing ARM’s organic 2 X 2010 growth programme, total consolidated capital expenditure for the year was R1.7 billion. This is largely attributable to the Two Rivers Platinum Project and is 61% higher than that of the prior year.
The Two Rivers Platinum Project was released in June 2005 and construction of the plant and mining infrastructure was completed before the 1 September 2006 target date and within budget. Andr� Wilkens, Chief Executive Officer said: “Wet commissioning of the concentrator plant at Two Rivers commenced in July of this year, followed by ore processing in August, well ahead of our target date of September”. ARM expects the Two Rivers concentrator to operate at full capacity from the last quarter of the 2006 calendar year, and the mine is expected to reach full production from underground operations in the last quarter of the 2007 calendar year.
The 8.4 Mtpa Khumani export iron ore mine on the Bruce, King and Mokaning properties, situated in the Northern Cape Province, was released for construction in February 2006. We are pleased to report that this project is progressing on schedule.
A significant exploration investment through TEAL was undertaken during the year, utilising capital that was raised at the time of listing TEAL on the TSX. ARM continued with its acquisition and diversification strategy through the formation of a major South African coal player, ARM Coal, (with Xstrata), announced in February 2006. ARM owns 51% of the issued share capital of ARM Coal. ARM Coal holds participating rights in 20% of Xstrata Coal South Africa and owns 51% of the Goedgevonden project.
Today, the company also announced that the ARM board has approved the exercise of an option held by ARM to acquire a further direct investment of 10% in Xstrata’s South African coal operations for R400 million as from 1 September 2006.
The ARM Broad-based Economic Empowerment Trust (“the ARM BBEE Trust”) has been registered and beneficiaries introduced. To date, trade unions and church groups as well as five provincial rural upliftment trusts and a women upliftment trust have been registered as beneficiaries to the ARM BBEE Trust. Apart from one unfortunate fatality at Modikwa, ARM reported various safety achievements at its operations, these include:
Black Rock, Modikwa and Cato Ridge Works achieved a million fatalityfree shifts during the period under review;
Beeshoek was awarded the 3 000 Fatality-free Shifts Award by the Mine Health and Safety Council in December 2005;
Beeshoek is the winner of the 2006 “Excellence in Safety” competition. With a Lost Day Injury Frequency Rate (LDIFR) of 1.2 lost-day cases per million man-hours worked, Beeshoek showed an impressive 70% improvement in its average LDIFR for the previous three years;
the Chrome Smelter at Machadodorp achieved its lowest LDIFR in its history.
Patrice Motsepe Executive Chairman said: “We have made significant progress in achieving a more diversified portfolio of quality, long-life mining assets. Our financial results reported today, the good progress with our ferrous and platinum projects and the formation of ARM Coal, is further testimony to the successful implementation of the strategy communicated to our shareholders”.
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