Avmin – Report for the year ended 30 June 2001

Highlights:
Comparable year-on-year headline earnings rose 102% to r281M
Strong performances from Nkomati and Assmang
Earnings turnaround at Avgold
Significant stake in Iscor acquired
During the year under review, considerable effort was directed at value for its ensuring that Avmin is well positioned to achieve maximum value for its shareholders. This is being achieved by bringing to fruition various capital growth projects and implementing the current strategy of being a mining company focused on ferrous, precious and base metals.

Headline earnings for the year ended 30 June 2001 totaled R281 million (30 June 2000: R486 million), which equated to 259 cents (455 cents) per share. The previous year’s headline earnings included a contribution to Avmin of R347 million by way of diamond royalty income from The Saturn Partnership, which was sold to De Beers Consolidated Mines Limited during the late part of fiscal 2000. Excluding diamond royalty income, headline earnings rose by 102 per cent.

Costs were well contained throughout the Company’s operating entities. Sales were higher in all sectors of the business with the exception of precious metals, which were lower as a result of the disposal, in the previous financial year, of the Hartebeestfontein gold mine. The pleasing bottom line result was achieved in a period of intensive capital investment and capacity building.

Results for the operations are reflected below:
Ferrous Metals
Assmang Limited’s (Assmang) – 50 per cent owned by Avmin – total headline earnings rose 83 per cent to R231 million (R127 million). The results benefited from the weaker rand, better efficiencies at all operations and well–controlled operating costs. Manganese sales rose to 979 000 tons (926 000 tons) and iron ore sales were 145 000 tons higher at 4,3 million tons. The manganese alloy operations sold 193 000 tons (206 000 tons), inclusive of refined ferro–manganese, and despite weak market conditions chrome alloy sales were slightly higher at 125 000 tons (114 000 tons). Chrome ore production from the newly commissioned Dwarsrivier chrome mine, which totaled 254 000 tons, was delivered to Assmang’s chrome alloy operation.

Capital expenditure rose to R626 million (R407 million), which was spent on Assmang’s major projects that all remained on or ahead of schedule and costs being within budget.

The iron ore jig plant at the Beeshoek mine was commissioned, the chrome smelter expansion at Assmang’s chrome alloys plant will be commissioned this calendar year, and the new shaft complex at the Nchwaning manganese mine remains on schedule for commissioning in 2003.

Precious Metals
Major progress was made during the year at Avgold Limited (Avgold) – 61 per cent owned by Avmin – with the implementation of a revised Target mine plan, the conclusion of equity and loan financing agreements, clearer definition of the Target North/Paradise potential and the turnaround of ETC.

Avgold’s headline earnings amounted to R39 million (R32 million – loss). A revitalised ETC achieved earnings of R32 million (R31 million – loss). Consistent mining tonnages and an improved Biox plant performance produced 2 800kg or 91 400oz (2 300kg or 73 200oz) of gold at a cash cost of R58 700/kg or US$241/oz (R58 100/kg or US$286/oz). The cash operating costs by year–end had reduced to below US$220 an ounce of gold.

The Target mine remains on schedule to reach full production during the first quarter calendar 2002 and it is within budget. The production from Target during the latter part of this financial year will see the return of significant operating profits for Avgold.

The formation of Two Rivers Platinum (Proprietary) Limited, following the acquisition, for R551 million, of platinum group metal (PGM) rights from Assmang during the year, achieved an Avmin objective of entering the PGM market. Impala Platinum Holdings Limited (Implats) is a 45 per cent partner in this venture, with Avmin holding the balance. Implats is the ideal partner for Avmin, given its PGM expertise, processing knowledge and infrastructure. Subject to the Competition Commission approval, an exploratory drilling programme and detailed mine designs will be undertaken over the succeeding twelve months. A post feasibility study decision could result in a new mine with an annual run–of–mine output of some 1,4 million tons, producing between 160 000 and 170 000 ounces of PGM’s a year, over a life of approximately 20 years. It is estimated that the capital cost for the new mine will be between R500 and R700 million.

Nickel
Earnings from the Nkomati mine – 75 per cent owned by Avmin – of R173 million (R144 million were very pleasing. Nkomati’s total profit before tax rose significantly to R249 million (R207 million). Mining and mill tonnage increased, but a slightly reduced nickel grade led to sales being constant at 4 000 tons. Costs were well controlled and favourable prices were achieved, particularly from the byproduct PGMs. The PGM and other by–product benefits to Nkomati enabled the mine to produce nickel, net of by–products, at minus US$0,82/lb for the year (minus US$0,01/lb).

The Nkomati expansion study will be completed and decisions taken by the two joint venture partners in the coming year. It is expected that this study will recommend the expansion of nickel output to approximately 17 500 tons of refined nickel a year and over 80 000 ounces of PGMs.

Copper/Cobalt
Chambishi Metals Plc’s (Chambishi) – 90 per cent owned by Avmin–loss of R64 million (R21 million –loss) reflects an unsatisfactory year from both an operating and a project perspective. The current cobalt tolling operation suffered from poor availability and quality of both concentrate feed and pyrite from contract suppliers. These problems were resolved by year–end. Production achieved was 2 700 tons (1 900 tons) of cobalt, of which 500 tons was for Chambishi’s own account. Copper production was 10 000 tons (7 700 tons), of which 400 tons was for Chambishi’s own account.

The new smelter, built to treat the slag material, was commissioned earlier this year. Initial commissioning was interrupted by a water leak from the copper coolers that resulted in the necessity to re–brick the furnace. Commissioning of the furnace resumed in the first quarter of the new financial year and full production is expected in early 2002.

Acquisition of Iscor shares
During the middle of the financial year, Avmin acquired 35 million shares in Iscor Limited for a cash consideration of R494 million. The Company continues to evaluate its best option with respect to this asset, which has shown considerable appreciation.

Dividend
The directors have resolved that in view of the Company’s substantial capital expenditure programme and certain bank covenants, no final dividend will be paid for the year ended 30 June 2001.

The year ahead
The Company is expecting a year of weakness in the economies of Japan, Europe and the United States of America and accordingly the prices for commodities that Avmin produces will either remain under pressure or will not be materially different for the coming year. It is therefore anticipated that this year’s results are not expected to show an improvement over those for 2001.

This year Avmin will be undertaking significant development expenditure as the Target mine and the Chambishi smelter and refinery build up to full production. The new platinum acquisition and the Nkomati mine expansion will be evaluated and within the Assmang group, the new chrome alloy smelter and pelletising plant will be fully commissioned and the Nchwaning shaft complex will be further developed.

Directorate and Management
During the year, Messrs D N Murray and R Oron were welcomed to the board. Subsequent to the year–end Messrs B Frank and N Livnat were appointed non–executive directors. Mr Murray was also appointed as chief operating officer and the subsequent reshaping of the Company impacted on the operational structure, which has now been split into four business units each headed by a senior vice president.

Julian Gwillim
General Manager, Investor Relations