Interim results for the six months ended 31 December 2010
28 February 2011
“ARM’s growth projects are delivering into much improved global commodity markets while our financial position remains robust”.
ARM Executive Chairman
Salient features of the interim results
- Headline earnings increased 244% to R1 562 million from R454 million for the corresponding six months ended 31 December 2009, driven mainly by significantly improved dollar commodity prices. The headline earnings per share were 734 cents per share compared to 214 cents per share for the corresponding period last year.
- Significant increases in sales volumes achieved in nickel, copper and cobalt (from Nkomati Nickel Mine) as well as platinum group metals, chrome ore and ferrochrome.
- Continued focus on unit cost reduction and increased sales volumes resulted in a decrease in unit costs at Nkomati Nickel Mine, Goedgevonden Coal Mine and at the ferrochrome operations.
- Robust financial position maintained with cash and cash equivalents at R2.3 billion and net debt to equity of 6%.
- Aggressive growth continues with production ramp-up at the Goedgevonden Coal Mine, the Nkomati Nickel Large Scale Expansion Project and the Khumani Iron Ore Expansion.
- Commissioning of the new 250 thousand tonnes ore per month nickel concentrator two months ahead of schedule and within budget.
- Development of the Konkola North Copper Project commenced with US$236 million of the capital expenditure already contracted for as at 31 December 2010.
ARM is pleased to announce significantly improved results for the six months ended 31 December 2010. Headline earnings of R1 562 million were achieved during the period representing an increase of 244% when compared to the corresponding six months ended 31 December 2009. This significant increase in earnings was driven mainly by a notable improvement in conditions in the commodity markets. The positive impact of increased dollar commodity prices was however negatively impacted by the strengthening of the Rand against the US Dollar from an average of R7.65/US$ to R7.10/US$.
Key operational contributors to the improvement in ARM’s earnings include:
- 367% increase in export thermal coal sales volumes from the Goedgevonden Coal Mine to 1.4 million tonnes
- 116% increase in chrome ore sales volumes (Assmang only) to 214 thousand tonnes
- 56% increase in copper sales volumes from Nkomati Nickel Mine to 2 885 tonnes
- 41% increase in contained nickel sales volumes to 5 321 tonnes
- 38% increase in cobalt sales volumes from Nkomati Nickel Mine to 321 tonnes
- 21% increase in ferrochrome sales volumes to 91 thousand tonnes
- 2% increase in Platinum Group Metals (PGM) sales volumes to 384 657 ounces
Although sales volumes for iron ore, manganese ore and ferromanganese were lower, production of these commodities increased during the period under review. Iron ore production increased by 10%, while sales were lower as a result of derailments on the Saldanha rail line. Manganese ore production increased 43% to meet sales volumes whilst production of ferromanganese increased with the successful conversion of the ferrochrome furnace to ferromanganese production. Sales and production volumes from the PCB coal operations decreased.
To meet increasing demand for commodities, ARM continues with the aggressive development of its projects with the ramp-up of the Khumani Iron Ore Expansion, the Nkomati Large Scale Expansion, the Goedgevonden Coal Mine, and the commencement of the Konkola North Copper Project.
ARM Ferrous was the largest contributor to the improved earnings with headline earnings increasing 316% to R1 256 million. The contribution of iron ore increased 357% whilst manganese’s contribution was 139% higher than the corresponding period last year.
The ramp-up of the expanded Nkomati Nickel Mine made a significant impact on the results of ARM Platinum with headline earnings for the nickel mine increasing 272% as a result of increased sales volumes of nickel and by-products as well as increased prices realised for those commodities. A higher realised basket price at Two Rivers and Modikwa platinum mines contributed to the increase in ARM Platinum headline earnings.
ARM Coal experienced a challenging six months impacted by lower export and domestic coal sales volumes at the Participating Coal Business (PCB). The PCB operations are currently undergoing a transition converting from predominantly underground mining to lower cost opencast mines. The changes being implemented to achieve this transition impacted the PCB operations in the period under review as the transition is taking longer than anticipated. The transition once completed is expected to have a positive effect on the PCB operations as they move down the cost curve. The ramp-up of the Goedgevonden Coal Mine had a positive impact on the ARM Coal results as export sales volumes increased from 0.3 million to 1.4 million tonnes and Eskom sales volumes from 0.1 million to 1.2 million tonnes.
Aggressive growth continues
Production ramp-up targets were achieved at the Goedgevonden Coal Mine with all modules of the coal processing and handling plant now operational. Saleable production at Goedgevonden thus increased 314% in the six months.
At the Nkomati Nickel Mine production ramp-up of the 375 000tonnes per month (ktpm) Main Mineralised Zone (MMZ) plant was completed successfully with design capacity (on a monthly basis) achieved in October 2010. The upgrade of the 100 ktpmChromotiticPeridotiteMineralised Zone (PCMZ) plant to 250 ktpm commenced in July 2010 and hot commissioning was achieved two months ahead of schedule at the end of October 2010.
The expansion of the Khumani Iron Ore Mine to 16 million tonnes per annum (mtpa) iron ore (of which 14 mtpa is for export) continues to progress well ahead of schedule and within budget. Full production is expected in the 2013 financial year and has been planned to coincide with the expansion of the Saldanha Export Channel from 47 mtpa to 60 mtpa.
The Konkola North Copper project was released for approval by ARM and Vale S.A. in August 2010 and the official ground-breaking ceremony was held on 14 October 2010. The release and development of this project represents a significant milestone for ARM as it will add a major copper producer to the ARM portfolio (Nkomati Nickel Mine produced 2 885 tonnes of copper during 1H F2011) and is ARM’s first operation outside South Africa. Work on the project continues on schedule with US$236 million of the projected US$380 million (in July 2010 terms) capital expenditure already contracted for as at 31 December 2010.
ARM’s consolidated net debt to equity percentage remained low at 6% thereby reflecting significant capacity to continue with its growth strategy.
Headline earnings for the six-month period to 31 December 2010 of R1 562 million were R1 108 million higher than the corresponding period’s headline earnings (1H F2010: R454 million).
Sales for the reporting period were R6.7 billion (1H F2010: R4.2 billion). The average gross profit margin of 41% is substantially higher than the corresponding period last year (1H F2010: 26.5%), largely due to increased realised US Dollar commodity prices, especially for iron ore.
The 1H F2011 average Rand/US Dollar of R7.10/US$ is 7.2% stronger than the corresponding period average of R7.65/US$. The closing exchange rate of R6.60/US$ impacted negatively on mark-to-market adjustments at the period end.
ARM’s earnings before interest, tax, depreciation and amortisation (EBITDA) excluding exceptional items and loss from associate were R3 103 million, which represents an increase of 157% or R1 894 million over that achieved for 1H F2010.
ARM’s earnings for 1H F2011 are marginally less than headline earnings, as exceptional items amounted to only R4 million for the period.
The Lost Time Injury Frequency Rate (LTIFR) for the six months improved to 0.42 per 200 000 man hours from 0.84. This represents a LTIFR improvement of 49%. We are proud and honoured to report that no fatal incident occurred at any of our operations during the period under review.
- Modikwa Platinum Mine achieved 7 000 000 consecutive fatality-free man shifts worked on 21 September 2010, an exceptional achievement in the industry. Modikwa also operated fatality-free for four calendar years at the end of December 2010.
- The Two Rivers Platinum Mine reached a milestone of 2 000 000 fatality-free man shifts on 11 November 2010.
- Khumani Iron Ore Mine achieved its first 1 000 000 fatality-free man shifts at the end of November 2010.
- Beeshoek Iron Ore Mine achieved 8 000 fatality-free production shifts in the Northern Cape Department of Minerals and Resources (�DMR�) safety competition, as well as 1.8 million fatality-free shifts in ARM’s internal St Barbara competition.
- Nkomati achieved 1.4 million fatality-free shifts in ARM’s internal St Barbara competition.
- Khumani Iron Ore was the winner of the ARM �Excellence in Safety� internal competition for the 2010 financial year, with Cato Ridge the runner-up.
Andr� Wilkens, CEO said: �ARM maintains a positive outlook on commodity markets and with the ramp up of the Khumani Iron Ore Expansion, the Goedgevonden Coal Mine and the Nkomati Nickel Expansion coinciding with significant improvement in the commodity markets, the Company is well positioned to take advantage of the upswing in commodity demand.
“ARM is delivering into improved commodity markets product from long life, low cost mines (all below the 50th percentile) with the majority of the capital expenditure already spent, indicating low capital risk. The Konkola North Copper Project is also expected to deliver into strong copper markets from 2013 onwards.
“ARM continues to pursue aggressive growth and is supported by a robust financial position with a strong cash position and low gearing, permitting opportunity to pursue further growth currently under consideration”.