ARM reports 6% increase in headline earnings

The financial year ended 30 June 2020 was challenging, said African Rainbow Minerals Limited, particularly in the second half of the year with the onset of COVID-19 pandemic.

In this environment the company reports a 6% increase in headline earnings to R5 534 million (F2019: R5 226 million). Its diversified portfolio of commodities again stood in good stead as higher PGM and iron ore prices more than offset the negative impact of lower manganese ore, manganese alloys and thermal coal prices.

The weaker Rand against the US Dollar also contributed positively to headline earnings. The average realised Rand weakened by 11% versus the US Dollar to R15.68/US$ compared to R14.19/US$ in F2019. For reporting purposes, the closing exchange rate was R17.36/US$ (30 June 2019: R14.09/US$).

ARM FERROUS

Attributable headline earnings for ARM Ferrous were 10% lower at R4 479 million (F2019: R4 960 million) as a 9% increase in headline earnings in the iron ore division was more than offset by a 48% decrease in the manganese division headline earnings.

Despite lower iron ore sales volumes (mainly as a result of the lockdown), profitability in the iron ore division improved driven by higher Rand export iron ore prices. In contrast, average realised Rand manganese ore prices were 22% lower which, coupled with a 6% decrease in manganese ore sales volumes, significantly impacted the manganese divisions headline earnings.

Unit costs were well controlled at the manganese ore operations with on-mine unit production costs decreasing by 2% in the reporting period.

The Machadodorp Works headline loss was R163 million as research into the development of more energy efficient smelting technology progressed. In 2H F2020 expenditure at Machadodorp Works was curtailed to conserve cash in light of uncertainty due to COVID-19.

ARM PLATINUM

ARM Platinum attributable headline earnings increased by R1 030 million to R1 142 million in F2020 from R112 million in F2019.

The Two Rivers and Modikwa mines benefitted from 6%, 54% and 144% increase in average realised platinum, palladium and rhodium prices, respectively. Modikwa Mine further benefited from its almost 1:1 platinum to palladium ratio. It should be noted that the temporary improvement in the purchase-of-concentrate agreement at Modikwa Mine expired on 31 December 2019.

Headline earnings at the PGM operations were impacted by penalty and treatment charges of R303 million and R11 million for Two Rivers and Modikwa Mine, respectively.

Production and sales volumes at both PGM operations were lower owing to grade challenges experienced in 1H F2020 and the lockdown in 2H F2020. Unit cost increases at both operations were above inflation mainly due to the decline in volumes.

Nkomati Mine reported an attributable headline loss of R704 million for F2020. Scaling down of the Nkomati Mine in preparation for care and maintenance is progressing well with the mine now expected to cease production in February 2021 (previously September 2020).

Due to Nkomati Mine approaching the end of its economic life of mine and the planned care and maintenance the following expenses and provisions were included in the mine’s F2020 attributable headline earnings:

• a provision relating to an increase in rehabilitation and decommissioning obligations of R384 million (discussed in detail on pages 12 and 13 of the full announcement).
• a provision relating to a tax diesel rebate currently under dispute with the South African Revenue Services of R131 million
• a provision for restructuring costs of R77 million
• an inventory write-down of R76 million
• off-take penalties for out of specification concentrate of R99 million

ARM COAL

ARM Coal reported an attributable headline loss of R2 million (F2019: R411 million headline earnings) which includes re-measurement gains of R485 million (F2019: R245 million) on partner loans.

Excluding the re-measurement gains, the ARM Coal headline loss was R487 million (F2019: R272 million headline earnings) as a result of the sharp decline in export thermal coal prices, lower sales volumes (owing to weather-related mining challenges) and above-inflation unit cost increases.

ARM Corporate and other headline loss was R85 million compared to R257 million in F2019. The reduced loss was mainly due to an increase in re-measurement gains of R108 million, and higher interest received of R62 million.

BASIC EARNINGS AND IMPAIRMENTS

Basic earnings were R3 965 million and include attributable impairments of the ARM Coal assets of R1 680 million before tax and R1 524 million after tax. An impairment indicator assessment was performed on Goedgevonden Mine and the PCB investment (as stand-alone and separate cash generating units).

Impairment indicators were identified (including lower expected production and above inflation unit cost increases) which resulted in attributable impairment losses (after tax) of R559 million and R1 121 million being recognised for the Goedgevonden Mine and PCB investment cash generating units, respectively.

The recoverable amounts for the Goedgevonden Mine and PCB investment cash generating units were determined based on the fair value less cost of disposal calculation performed in terms of International Financial Reporting Standards (IFRS).

CAPITAL EXPENDITURE Segmental capital expenditure was R3 506 million (F2019: R3 242 million)  and included R394 million of capitalised waste stripping at the iron ore operations (F2019: R397 million).