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Volumes, dollar prices keep rand at bay for divi-hoisting Assore

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Volumes, dollar prices keep rand at bay for divi-hoisting Assore

Assore CEO Charles Walters
Photo by Duane Daws
Assore CEO Charles Walters

21st February 2018

By: Martin Creamer
Creamer Media Editor

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JOHANNESBURG (miningweekly.com) - Improved volumes and better dollar prices proved sufficient for mining holding company Assore to keep rand strength at bay in posting strong headline earnings growth and a sharp interim dividend increase.

The company's half-year results were highlighted by a 12% rise in headline earnings, a sizeable 67% dividend boost and an outstanding safety performance in the six months to December 31.

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By close of business, its share price was up 11.74% to R328.63 a share on the Johannesburg Securities Exchange.

"We've enjoyed good commodity prices and we've managed to increase the volumes at all operations, and that's fed through to strong cash generation as well as good profit performance," Assore CEO Charles Walters told Mining Weekly Online in an interview.

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The Chinese steel industry in particular and synchronised global growth underpinned commodity prices in the period and although demand looks set to continue to support commodity prices going forward, currency strength could pose a significant challenge in the months ahead, Walters cautioned.

The higher headline earnings of R2.4-billion were made up of 21.7%-higher headline earnings from Assmang and 9.3%-lower headline earnings of R701.8-million from the rest of the group's operations.

The group's major interests consist of 100% ownership of Dwarsrivier and 50% ownership of Assmang, which is controlled jointly with African Rainbow Minerals, led Patrice Motsepe.

Even though demand for chrome ore remained healthy, prices in the six months to December 31 were lower than in 2016, when extremely low chrome inventories and higher levels of stainless steel production in China caused the price to spike through the $400/t level. These inventories normalised to a level of 2.3-million tonnes for the current period, which brought about lower prices.

However, strong demand for high-grade iron-ores, including "lumpy" iron-ore, attracted price premiums and a major plus was that half of Assmang's iron-ore was sold into the market as "lumpy" grade material.

STRONG MANGANESE DEMAND

Walters told Mining Weekly Online that demand for manganese ore remained strong, driven by weaker than expected Chinese domestic manganese ore production, increased crude steel production and much higher Chinese electrolytic manganese metal production, which was providing support for strong but stable prices.

The alloy market remained tight as growth in supply was not sufficient to offset the increases in demand. These conditions resulted in alloy prices across the grades being maintained at the higher levels.

SALES VOLUMES

Increased iron-ore sales volumes were realised in both export and local markets, with sales volumes of manganese ore well above the levels of the previous period, mainly on resolved logistics issues.

Railage availability was also higher on increased export capacity through the Port of Saldanha, which was met by increased production from Nchwaning II shaft at Assmang's Black Rock manganese mines.

Production at Sakura Ferroalloys in Malaysia exceeded capacity, resulting in higher sales volumes of manganese alloys. Continued strong demand for chrome ore and improved production levels at Dwarsrivier enabled the group to achieve record sales volumes of chrome ore.

CAPITAL EXPENDITURE

Capital expenditure in Assmang was consistent with that of the previous period, at R1.2-billion, with roughly half of this amount spent in Assmang's iron-ore division. A further R285-million was spent in its manganese division on the manganese expansion project, which stood at 83.6% completion at year-end. The project is expected to be completed in 2020, at which stage an overall manganese capacity of four-million tonnes will be available from the Black Rock mines. Dwarsrivier spent R130-million on mainly sustainability and compliance items. Exploration and related activities continue in IronRidge Resources, a London Aim-quoted company in which the group holds 29.5%.

OUTLOOK

World economic growth is forecast to be stronger in 2018 than last year at 3.7%. It is also expected that improved economic growth levels will be realised in all major areas in the world, and not merely in the East, as has been the case in recent years.

As a result, strong demand for the group's products is anticipated in the short term and prices are expected to remain within relatively stable ranges. It is also expected that Chinese environmental policies should continue to support demand for the group's high-quality products.

However, the relatively higher current price levels for iron and manganese ores might, the company cautioned, attract additional supply into these markets and, depending on economic growth levels, might put pressure on price levels in the medium term.

Based on the level of earnings for the period, the board declared an interim dividend of 1 000c a share, compared with last year's 600c a share.

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