ARM reports record headline earnings of R5bn for 1H F2021

Despite Covid-19-related global economic challenges and uncertainty, African Rainbow Minerals (ARM) report records headline earnings of R5 039 million for the six months ended 31 December 2020 (1H F2021).

The 134% increase in headline earnings compared to the corresponding six months ended 31 December 2019 (1H F2020) was underpinned by higher US dollar iron ore and PGM prices, coupled with increased export iron ore and manganese ore sales volumes.

The 11% weakening of the rand against the US dollar also contributed positively to headline earnings as the average realised rand versus US dollar exchange rate weakened from R14.69/US$ in 1H F2020 to R16.26/US$ in 1H F2021. For reporting purposes, the closing exchange rate was R14.65/US$ (31 December 2019: R14.00/US$).

ARM Ferrous headline earnings were 60% higher at R2 955 million (1H F2020: R1 848 million) driven by a 99% increase in headline earnings in the iron ore division. This was partially offset by a 69% decrease in headline earnings in the manganese division.

Headline earnings in the iron ore division were positively impacted by an increase in the average US dollar iron ore prices, higher export sales volumes and a weaker average exchange rate, which were partially offset by a 16% increase in unit cost of sales.

The ARM Ferrous headline earnings include an attributable R919 million positive unrealised fair value adjustment to revenue related to open iron ore sales which are expected to be realised at higher prices compared to the initial prices recorded.

Lower headline earnings in the manganese division were driven by a decrease in the average realized US dollar manganese ore and alloy prices as global manganese markets remained under pressure.

Headline earnings for the manganese ore operations were R429 million (1H F2020: R960 million) while the manganese alloys operations (including Sakura) reported an attributable headline loss of R155 million for the period (1H F2020: R80 million).

ARM Platinum attributable headline earnings increased by R1 532 million to R2 021 million (1H F2020: R489 million). The Two Rivers and Modikwa mines benefited from a 35% and 162% increase in average realised US dollar palladium and rhodium prices, respectively.

Rhodium comprised 45% and 47% of Modikwa and Two Rivers basket prices respectively.

Two Rivers Mine production volumes increased by 9% while production unit costs on a rand per 6E ounce basis were 6% lower. Modikwa Mine, on the other hand, reported a 29% decrease in production volumes owing to safety-related stoppages following the two fatal accidents (discussed above) as well as 12 days of industrial action.

Nkomati Mine reported attributable headline earnings of R280 million for the period under review (1H F2020: R211 million headline loss). Production volumes are scaling down to place the open-pit mine on care and maintenance in preparation for closure. Production is expected to cease in March 2021 (previously September 2020).

ARM Coal reported an attributable headline loss of R222 million (1H F2020: R101 million) which includes a re-measurement gain of R2 million (1H F2020: R104 million re-measurement gain) on partner loans.

The Machadodorp Works headline loss was R60 million as research into the development of energy-efficient smelting technology progressed.

Basic earnings and impairments

Basic earnings were R4 868 million (1H F2020: R2 132 million) and include an impairment of the Sakura Ferroalloys investment recognised on Assmang’s equity accounted investment of R337 million. ARM’s attributable share of the impairment loss amounted to R169 million after tax.

This impairment was largely due to:

• A decline in forecast long-term manganese alloys prices.
• Lower sales volumes at Sakura Ferroalloys compared to the prior year forecast.

Financial position

At 31 December 2020, ARM was in a net cash position of R4 812 million (30 June 2020: R3 737 million restated), an improvement of R1 075 million compared to the net cash at the end of the 2020 financial year.

Cash flow

Cash generated from operations increased by R1 105 million to R2 026 million (1H F2020: R921 million) despite a R3 587 million outflow in working capital requirements (1H F2020: R1 280 million) which was mainly due to an increase in debtors at the PGM operations and ARM Corporate, commensurate with increased sales revenue.

The dividends received from Two Rivers and Assmang amounted to R432 million and R1 500 million, respectively (1H F2020: R90 million from Two Rivers and R2 000 million from Assmang).

Borrowings of R177 million (1H F2020: R147 million) were repaid during the period, resulting in gross debt of R2 003 million as at 31 December 2020 (30 June 2020: R1 978 million restated). Modikwa Mine repaid R686 million of its partner loans.

Capital expenditure

Segmental capital expenditure was R1 877 million (1H F2020: R1 573 million) and included R271 million of capitalised waste stripping at the iron ore operations (1H F2020: R215 million). Capital expenditure by division is shown below and is discussed in detail in each division’s operational performance review.