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ARM mulling ‘very exciting’ growth opportunities – Motsepe

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ARM mulling ‘very exciting’ growth opportunities – Motsepe

Photo by Creamer Media Chief Photographer Dylan Slater
African Rainbow Minerals executive chairperson Patrice Motsepe (right) with Mining Weekly Online's Martin Creamer at Friday's presentation of results
Photo by Creamer Media Chief Photographer Dylan Slater
African Rainbow Minerals executive chairperson Patrice Motsepe.

7th September 2018

By: Martin Creamer
Creamer Media Editor

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JOHANNESBURG (miningweekly.com) – Diversified mining company African Rainbow Minerals (ARM) is right now looking at some very exciting growth opportunities, its executive chairperson Patrice Motsepe said on Friday.

After announcing the delivery of 51% higher headline earnings of R4 814-million in the 12 months to June 30 accompanied by a hefty R1.7-billion cumulative dividend payout, Motsepe said during question time that the strength of the company’s balance sheet placed it in a favourable position to take advantage of opportunities that are value accretive.

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The market capitalisation as at June 30 was R23.97-billion.

Motsepe described the need for ongoing domestic and global investment in the South African mining industry and the South African economy as being “critically important” and said he would like to add three more 'confidences' to the key issue of investor confidence, which needed to be repeatedly underscored.

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He said the second critically important confidence is the confidence of the poor in the future of the country and the third the confidence of black and white South Africans in the future.

“Every single one of us must feel that this is the best place in the world to live,” he said.

He emphasised his own personal confidence the South Africa’s future  and singled out his partners, which include Anglo American Platinum, Assore, Impala Platinum, Norilsk Africa, Glencore, Vale and Zambian Consolidated Copper Mines, for special praise in the light of their contributions to the success of ARM.

“South Africa has got world-class corporate management and world-class companies and we’ve got to continue to create value for our shareholders and as companies and as a country, remain globally competitive,” he said, emphasising the determination of ARM to continue to be able to fund its growth from its own internal financial resources.

“I’ve got a world-class South African management team that’s fully integrated and fully representative of all languages and colours. The confidence in South Africa of hard working black and white South Africans is not unfounded,” he said.

As at June 30, the company’s cash and cash equivalents from continuing operations amounted to R3 291-million, well up on the R1 488-million of the corresponding period last year. In addition is attributable cash and cash equivalents held at ARM Ferrous of R2 507-million.

Cash generated from operations increased by R323-million to R1 934-million and cash dividends received from the Assmang joint venture amounted to R3 000-million.

Cash spent on capital expenditure increased by R201-million to R1 150-million (FY2017: R949-million).

Attributable capital expenditure at the Assmang joint venture increased to R1 474-million.

Headline earnings from the manganese division were 64% higher on 18% higher manganese ore prices and 20% higher manganese alloy prices.

“We don’t have a single operation that is loss-making,” Motsepe said.

Displayed during the presentation was a slide that showed the Cato Ridge ferromanganese plant on the high-cost side of the cost curve, which Mining Weekly Online suggested at question time would be worsened by the planned imposition next year of carbon tax, despite the new Integrated Resource Plan (IRP) largely taking away the need for a carbon tax.

In response to Mining Weekly Online asking whether corporate South Africa would be pleading for a moratorium on the imposition of carbon tax, Motsepe said that between now and a few months after the elections, the country needed to ensure that it ran globally successful companies against the background of countries in other mining jurisdictions taking decisions to avoid the imposition of carbon tax.

“In whatever humble way we can, we have to engage and say the things that are correct even though they may not be popular. We saw the problems coming at us many, many years ago and we took steps. My confidence is based on the exceptional people that South Africa has and that I’m privileged to interact with. I’m comfortable that South Africa will do the right things and reap the benefits, not in the short term, but in the long term,” he said.

Because of the high electricity tariffs imposed by State power utility, ARM invested in the Sakura Ferroalloys plant in Malaysia, which has performed spectacularly well. But the casualty was the ferromanganese smelting facility at Machadodorp in Mpumalanga, which is on care and maintenance.

The imposition of a carbon tax on January 1 next year could mean that the Cato Ridge ferromanganese plant would go the same way as Machadodorp and the export of more jobs from South Africa, even though the general consensus is that the need for a carbon tax has declined significantly in the light of the IRP, which draws on the introduction of renewable energy generation that will result in the carbon intensity of Eskom declining significantly in the next ten to 15 years.

Manganese ore and manganese alloy played a major role in boosting ARM’s earnings in the 12 months to June, when earnings from the manganese division were 64% higher, helped by 20% higher alloy prices.

Despite achieving record iron-ore sales volumes, the iron-ore division's headline earnings were 24% lower at R1 672-million on lower realised export iron-ore prices.

ARM Platinum's headline earnings increased by 20% to R420-million as Modikwa mine went from a headline loss of R66-million to headline earnings of R105-million on an improved three-year concentrate agreement with Anglo American Platinum.

Two Rivers platinum mine’s lower headline earnings of R306-million were negatively affected by a decrease in the mine's head grade. Nkomati nickel mine reported an R82-million headline earnings drop to R9-million on grade issues. An amendment to the mine's concentrate offtake agreement, concluded with Metals Trade Overseas AG, improves offtake for the mine. Nkomati was also impacted by a lower chrome contribution as the mine's average dollar price for chrome fell by 50%.

All three ARM Platinum operations faced grade decline in the financial year under review. A number of interventions are being implemented to address this. Modikwa is introducing stope width control measures particularly in the South 1 and South 2 shafts to reduce dilution and improve the grade. The mine head grade is expected to return to normalised levels in the next financial year. At Two Rivers mine, the levels of split reef being mined is expected to reduce in 2020 when mining in the Tamboti area begin. Nkomati’s grade is expected to improve from 2021 as more ore on the Western section of the opencast mine is mined.

ARM Coal headline earnings were R1 485-million, taking in the impact of R1 210-million as a result of debt restructuring with Glencore.

The headline loss from Goedgevonden coal mine was R30-million, while PCB operations contributed higher headline earnings of R256-million, both excluding the impact of the debt restructuring.

ARM reported that a regrettable accident occurred at Modikwa, when two employees were exposed to irrespirable atmosphere underground last October, with Fabian Majoro succumbing to his injuries at the scene and Daniel Ntlangoe recovering in hospital.

Earlier this year, a bus carrying Modikwa employees was attacked and set alight, with six people fatally injured in the incident.

In March, Raymond Anak Edmund Samaie, a production shift manager, suffered a fatal injury while he was assisting to unblock a section of a gas cleaning plant at Sakura Ferroalloys in Malaysia, and Bonga Lingeni, a grader operator, was fatally injured in January at the Tweefontein coal mine, which forms part of the PCB operations.

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