Avmin – Results for the six months ended 31 December 2001

28 February 2002

Headline earnings for the remaining half of the year, ending 30.6. 2002, from the South African operations are expected to comfortably exceed those of the last six months if the SA rand/US dollar exchange rate & commodity prices remain at current levels.

Significant features:

Good contribution from Assmang
Ferro-chrome expansion commissioned on schedule
Avgold’s Target mine commissioned ahead of schedule
R1,5 bn write-down taken on Chambishi Metals
Iscor shareholding sold
Despite achieving good profitability in most of the Company’s operations, Anglovaal Mining Limited’s (Avmin) headline earnings were detrimentally affected by the significant operating loss incurred at Chambishi Metal plc (Chambishi). This was further exacerbated by the decision to no longer account for exchange gains on the United States dollar advances made to Chambishi via the income statement and, in addition, corporate interest received reduced significantly as a result of lower average cash balances for the period due to investments in Iscor limited (Iscor) and Avgold Limited (Avgold) as well as loans to Chambishi.

Overall, Avmin’s headline earnings for the six months ended 31 December 2001 decreased to R31 million compared with R134 million in the six months ended 31 December 2000. In terms of headline earnings this equates to 28 cents (124 cents) per share.

Avmin CEO, Rick Menell, commented: “the contributions to earnings by the South African operations improved primarily as a result of the weaker SA rand/US dollar exchange rate. However, the Chambishi cobalt and copper operation in Zambia experienced significant technical difficulties as well as an unexpectedly large decline in the cobalt price, which reduced from US$10/lb to US$7/lb over the reporting period”.

These two factors were the main reason for the decision on 29 January 2002 to partially write-down the investment in Chambishi by approximately R1,5 billion. The residual value of approximately R800 million, or US$70 million, is deemed reasonable and has been endorsed by the Company’s independent auditors.

Following a decision to boost the Group’s liquidity an agreement was entered into in terms of which Avmin sold its entire Iscor shareholding to Stimela Mining Limited (Stimela) and entered into a joint venture with Stimela to pursue opportunities in iron ore. Stimela also granted Avmin a call option on between 10 and 25 per cent of Stimela’s shares in Kumba Resources Limited. It was announced on 16 January 2002 that an agreement had been concluded in terms of which Avmin had sold this option right to Stimela. The joint venture, formed between Avmin and Stimela, remains intact.

Menell continued: “Avmin also made various other disposals during the period, which included half of the Company’s shareholding in Assore Limited, about 2,5 million shares, for R95 million. Assore is Avmin’s partner in Assmang Limited (Assmang). Avmin also sold 28 million Avgold shares, which raised R139 million. The Company’s holding in Avgold is now 56 per cent”.

Ferrous metals
Avmin’s 50,3 per cent held manganese, chrome and iron ore producer, Assmang, increased headline earnings by 14 per cent from R106 million to R121 million for the six months. This was mainly as a result of the weaker SA rand/US dollar exchange rate as the majority of Assmang’s products are sold in US dollars.

Sales volumes of manganese ore were unchanged at 0,6 million tons and iron ore sales, following the commissioning of the jig plant at the end of the last financial year, rose 22 per cent to 2,2 million tons (1,8 million tons). Sales of ferro-manganese were slightly lower at 82 400 tons (85 700 tons), while ferro-chrome sales increased significantly to 88 900 tons (44 700 tons).

During the period under review, Assmang’s capital expenditure to maintain and improve operations amounted to R186 million (R229 million). This expenditure was incurred on Assmang’s new chrome furnace and the new shaft at its existing manganese mine.

The Nkomati nickel mine, 75 per cent owned by Avmin, has had another pleasing half year. Ore milled was slightly lower at 135 000 tons (137 000 tons), which produced 23 700 tons (21 400 tons) of concentrates with average grades of 9,34 per cent (10,43 per cent) for nickel and 6,81 per cent (6,40 per cent) for copper. The nickel feed grade was lower compared to the corresponding period. Sales achieved were 1 880 tons (2 290 tons) of nickel, 1 380 tons (1 280 tons) of copper, 26 tons (31 tons) of cobalt and 16 900 ounces (18 670 ounces) of Platinum Group Metals (PGMs). The mine remains cost competitive with a nickel production cost, net of by-product credits, of US$0,58/lb, while the average nickel price achieved over the period amounted to US$2,40/lb (US$3,56/lb). Nkomati’s profit before taxation decreased to R109 million (R137 million). During the review period, R14 million was expended on capital projects.

Menell added: “the feasibility study on the major expansion at Nkomati will be presented to the joint venture partners this quarter. The partners will then assess the project, its funding and project release date”.

Cobalt and copper
Chambishi, owned 90 per cent by Avmin, has experienced a difficult half-year as a result of the receipt of substandard concentrates with a lower percentage of contained metal. The plant treated a total of 64 500 tons (43 200 tons) of concentrates during the period. The existing refinery produced an unchanged 1 500 tons of cobalt of which 300 tons were for Chambishi’s own account. It also produced 6 400 tons (5 840 tons) of copper of which 240 tons was Chambishi’s own material. The average cobalt price received was significantly down on the last six months at US$8,00/lb (US$11,50/lb). In addition, operating costs for Chambishi’s new smelter and downstream facilities have been included from 1 November 2001. This all resulted in Chambishi reporting an operating loss of R69 million (R21 million � loss) for the six months.

Various technical difficulties at the new Chambishi expansion project have caused a serious delay in bringing the plant to full production. The furnace at this new plant had to be shut down for the second time during the calendar year 2001 in order to replace a small section of the refractory brick lining. The furnace is in the process of being re-commissioned at present and it will have to be shut down in August/September 2002 to install a redesigned cooling system.

The reduced output prior to the refurbishment in August/September 2002 from this plant coupled with the lower than planned prevailing cobalt price, will result in a negative contribution from Chambishi towards Avmin’s earnings for the financial year.

The capital investment to date in Chambishi was US$266 million.

US$24 million capital expenditure was incurred during the half year to 31 December 2001.

Precious metals
Avmin’s 56 per cent held gold producer, Avgold, increased revenue to R128 million (R105 million), while costs and expenses were higher at R114 million (R96 million). This led to an improved operating profit of R14 million (R9 million). After investment income, the headline earnings rose to R15 million (R12 million). Capital expenditure rose significantly to R369 million, from R267 million, as Target started building-up to its full production level. This includes an amount of R113 million of capitalised exchange losses on the US dollar borrowings related to Target.

ETC’s total milled tonnages rose to 169 800 tonnes (144 600 tonnes), at the mine’s full capacity; the average yield was lower at 8,47g/t (9,90g/t), which resulted in gold sales being only slightly higher at 1 438kg (1 432kg). Cash costs increased to R68 140/kg (R57 911/kg), but in dollar terms reduced to US$233/oz (US$249/oz).

The Target mine’s completion test for full production capacity from underground, being 3 500 tons hoisted on five consecutive days, was achieved on 19 December 2001: two months ahead of schedule. The commissioning of the new metallurgical plant has been completed and full performance testing is underway. The three massive stopes, required to achieve the planned stoping tonnage, were brought into production during the last quarter of 2001 and work on the remaining underground infrastructure and facilities is progressing satisfactorily.

The exploration drilling programme in the northern Free State, immediately north of the Target mine � within the Paradise area � is continuing. The drilling of the two boreholes, ERO 5 and ERO 6, are ahead of schedule. Both holes have now confirmed the position of the EA Zone and deflections are being drilled to explore the extent of the reef package. It is anticipated that the first set of results will be available early in the next financial year.

Avmin’s 55 per cent held PGM company, Two Rivers Platinum (Pty) Limited (Two Rivers), is continuing its exploration drilling programme on the PGM property recently acquired from Assmang. Impala Platinum Holdings Limited (Implats) owns the balance of Two Rivers. Seven exploration drill rigs are operating on the property and assay results are expected by the end of the financial year. A bulk sample was removed for assessment purposes during January 2002. A full feasibility study is being undertaken in tandem with the drilling programme and, when completed, will be submitted to the Two Rivers board. This is expected to occur during the first half of the next financial year. Pending the outcome of the study, a decision could be made to proceed with a mine capable of producing between 160-170 000 ounces of PGMs annually. The estimated total capital expenditure for the new mine will be approximately R500 million. The mine will produce a concentrate that will be sent to Implats’ refinery to generate the finished product.

Prospects for the remainder of the year
Headline earnings for the remaining half of the year, ending 30 June 2002, from the South African operations are expected to comfortably exceed those of the last six months provided the SA rand/US dollar exchange rate and commodity prices are maintained at current levels. In addition, earnings over this period will benefit from good cost containment at all operations. However, these positive effects will not offset the expected loss from Chambishi. Therefore, the Board remains of the opinion that Avmin’s headline earnings for the full year, which excludes the Chambishi write-down and the profit on the sales of investments, will be significantly lower than the 2001 financial year.

Julian Gwillim
General Manager, Investor Relations