Confident about the future of our business

“The ARM management team continues to deliver outstanding results. We are confident about the long-term future of the minerals we mine, despite current volatility and are continuing with our aggressive growth strategy.”

Patrice Motsepe
Executive Chairman

Salient features of the provisional results

• Headline earnings increased by 94% to R3.32 billion (F2010: R1.71 billion). The headline earnings per share were 1 559 cents compared to 807 cents in F2010.
• Dividend increases substantially by 125% to 450 cents per share (F2010: 200 cents per share).
• Cash generated by operations increased by 72% to R5.9 billion from R3.4 billion in F2010.
• Robust balance sheet with net cash (excluding partner loans) of R2 594 million (F2010: R1 811 million).
• Attributable headline earnings from iron ore increased 224% to R2.3 billion.
• Increase in production volumes in the ARM Ferrous Division as well as at the Nkomati Nickel and Goedgevonden Coal operations.
• Unit operating costs well controlled at the manganese ore, ferrochrome, Two Rivers and Modikwa platinum operations.
• Good progress in growth projects:
  • Khumani Iron Ore Expansion Project from 10 to 16 million tonnes per annum ahead of schedule and well within budget.
  • Nkomati Nickel Mine expansion commissioned, plant recoveries lower than anticipated due to oxidised ore.
  • The Goedgevonden Coal Mine at full production.
  • Konkola North Copper Project progresses on budget and on schedule to produce first copper in December 2012.

ARM today announced a significant improvement in earnings for the financial year ended 30 June 2011. During this period headline earnings increased 94% to R3 319 million or 1 559 cents per share. The increase in earnings was driven mainly by improved dollar commodity prices, especially for iron ore; the positive impact of these increased prices was however reduced by the strengthening of the Rand against the US Dollar.

Building on the successful completion of the company’s 2 X 2010 growth strategy to double production between 2005 and 2010, ARM continues with its aggressive growth strategy with four major growth projects namely the Khumani Iron Ore Expansion Project, the Nkomati Large Scale Nickel Expansion, the Goedgevonden (GGV) Coal Mine and the Konkola North Copper Project.

The Khumani Iron Ore Expansion Project which will increase production from 10 to 16 million tonnes per annum, 2 million tonnes of which is for local sales, continues ahead of schedule and is well within budget.

The GGV Coal Mine achieved full production on a monthly basis in November 2010. Export sales from GGV were however negatively affected by challenges within Transnet Freight Rail (TFR). Local sales to Eskom were also affected by logistical constraints both by rail and road.

At the Nkomati Nickel Mine the 250 thousand tonnes per month (ktpm) Chromotitic Peridotite Mineralised Zone (PCMZ) concentrator plant was commissioned on time and within budget in October 2010 and continues to ramp-up.

Development of the Konkola North Copper Project is progressing on time and within budget with approximately 82% of the authorised US$391 million (in July 2010 terms) already contracted for.

Solid cost control

ARM continues to pursue its strategic objective to have all operations positioned below the 50th percentile of the respective commodities’ global unit cost curves by the year 2012 (2014 and 2015 targeted for the Nkomati Nickel Mine and the Konkola North Copper Mine respectively). In F2011 ARM achieved unit cost reductions at its manganese ore and chrome alloy operations. Single digit unit cost increases were achieved at the Modikwa Platinum Mine on a Rand per tonne milled and at Two Rivers Platinum Mine on a Rand per PGM ounce basis. As at 30 June 2011 ARM is well on track to meet its cost positioning target for all its operations with the exception of the chrome alloy operations. As such ARM is in the process of reducing its chrome alloy production and has successfully completed the conversion of one chrome alloy furnace at Machadodorp Works into a ferromanganese furnace and plans to convert two additional furnaces within the next 15 months. This conversion strategy will ensure improved cost positioning for the Machadodorp Works.

Changes to ARM Exploration Division

ARM is conscious of the need to ensure continued growth beyond the ore bodies that currently comprise its portfolio and as such has implemented changes to the corporate structure to further strengthen the ARM Exploration Division. Effective from 1 July 2011, the copper exploration assets that previously formed part of ARM Exploration, including a 30% shareholding in the Kalumines Copper Project and a 50% shareholding in the Lusaka & Kabwe Project, will be moved into the ARM Copper Division. This change will allow the ARM Exploration Division to sharpen its focus on identifying and assessing quality business opportunities in Sub-Saharan Africa. A highly skilled and experienced exploration team has been established and will be under the leadership of Mr Jan Steenkamp (who is also currently the Chief Executive of ARM Ferrous).

Work in ARM Exploration is already under way and in July 2011 ARM signed an agreement with Rovuma Resources, a Mozambican exploration company, to explore for manganese ore, nickel, PGMs and base metals in Mozambique. In terms of the agreement ARM will fund ongoing exploration at an estimated cost of US$7 million per annum and will have exclusive rights to exercise options to purchase prospecting/ mining rights to the resources.

CEO succession

After a comprehensive search process ARM announced on 23 June 2011 the appointment of Mr Michael (Mike) Schmidt, a senior executive in the ARM Platinum Division, as the CEO designate from 1 September 2011. To ensure an efficient transition period Mr Mike Schmidt will work with the incumbent CEO, Mr Andre Wilkens, for a period of six months and then take over from 1 March 2012.

Changes to resources and reserves

Please note the following material changes to the mineral resources and reserves relative to the resources and reserves disclosed in the Integrated Annual Report in 2010 as follows:

• Two Rivers Merensky reef Indicated Resource tonnage increased by 105% due to the re-evaluation of the full Merensky reef. Previously only a top cut of 120 centimetres had been reported.
• An increase of 79% in Measured and Indicated Resource tonnage for Gloria Mine (Black Rock Mine Operations) lower seam due to in-fill drilling which increased the resource confidence and resulted in the movement of resources from the Inferred category.

Financial commentary

Headline earnings for the year to 30 June 2011 at R3 319 million were 94% or R1 605 million higher than the prior year headline earnings (F2010: R1 714 million).

Sales for the year increased by 35% to R14.9 billion (F2010: R11.0 billion). The average gross profit margin of 40% (F2010: 32%) is substantially higher than the previous year largely due to increased US Dollar commodity prices for most commodities.

The F2011 average Rand/US Dollar of R6.99/US$ is 7.9% lower than the average of R7.59/US$ for F2010. For reporting purposes the closing exchange rate was R6.76/US$ (F2010: R7.67/US$).

ARM’s earnings before interest, tax, depreciation and amortisation (EBITDA) excluding exceptional items and income from associates were R6.4 billion, which represents an increase of 65% or R2.5 billion over F2010.

ARM’s basic earnings for F2011 approximate the reported headline earnings as exceptional items amounted to an R8 million loss for the year (F2010: R98 million gain).

The net cash position at 30 June 2011 amounts to R599 million and is an improvement of R906 million relative to the net debt position of R307 million at 30 June 2010.

The consolidated ARM total assets of R32.3 billion (F2010: R28.2 billion) include the mark-to-market valuation of ARM’s investment in Harmony of R5.7 billion based on a share price of R89.95 per share (F2010: R81.40 per share).

Safety

ARM accomplished a notable improvement in its safety performance during the financial year. The number of lost-time injuries (LTIs) was reduced from 165 in F2010 to 109 in F2011. The lost-time injury frequency rate (LTIFR) calculated on 200 000 man hours worked was 0.43 compared with 0.77 in the previous financial year.

Regrettably, a fatality occurred at Machadodorp Works during the year. On 2 February 2011 Mr. Solomon Vusi Sindane, a trainee crane operator was fatally injured at furnace No. 2. ARM together with its Board of Directors would like to extend our sincerest condolences to Mr. Sindane’s family, friends and colleagues for their loss.

Achievements

• Modikwa Platinum Mine achieved 8 000 000 fatality-free shifts on 21 June 2011, and has been awarded the Department of Mineral Resources (DMR) Safety Achievement Flag for Platinum Mines.
• Beeshoek Iron Ore Mine recorded 8 000 fatality-free production shifts in the DMR (Northern Cape) safety competition. During the third quarter, Beeshoek also achieved 12 months without a lost-time injury.
• On 11 November 2010, Two Rivers Platinum Mine completed 2 000 000 fatality-free shifts.
• Khumani Iron Ore Mine achieved its first 1 000 000 fatality-free shifts in November 2010 and was awarded the St Barbara floating trophy.
• Black Rock Manganese Mine achieved 1 000 000 fatality-free shifts during the fourth quarter.

Outlook

The past financial year has seen a continuing recovery in commodity markets across most of ARM’s commodities. Prices for manganese ore have however fallen during the past six months and remain subdued largely due to increased inventories.

The past quarter has once again seen increased uncertainty and thus short-term volatility around sovereign debt issues in Europe and the United States. In particular the United States debt ceiling issue which was resolved shortly before key deadlines has brought that economy’s recovery into sharp focus.

ARM nevertheless expects most commodity prices to remain robust over the medium term supported by demand from China, India and other emerging economies. In addition it is likely that supply constraints from producers will also bolster prices.

Over the past three years ARM has spent R9.5 billion on capital expenditure and did not curtail any growth projects during the economic crisis of 2008. As ARM is confident about the future an attributable capital spend of more than R10 billion is planned over the next three years to June 2014. This amount is expected to be largely funded from operating cash flows and existing funding resources.

Dividends

The Board is pleased to declare a significantly increased fifth annual dividend of 450 cents per share. The amount to be paid will be approximately R960 million. This dividend represents a 125% increase compared to the F2010 dividend of 200 cents per share and is consistent with ARM’s commitment to return cash to shareholders while simultaneously maintaining the ability to fund growth of the company in the future.

The Integrated Annual Report 2011 containing a detailed review of the operations of the Company together with the audited financial statements will be posted to shareholders in October 2011.

For more information please contact:

Jongisa Klaas
Head of Investor Relations and Corporate Development
Office: +27(0) 11 779 1507
Cell: 082 562 5288
E-mail: jongisa.klaas@arm.co.za