Unaudited Results for the half-year ended 31.12.04
African Rainbow Minerals Limited
(formerly Anglovaal Mining Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1933/004580/06)
JSE Share code: ARI and LSE Share code: AGM
ISIN: ZAE000054045
('ARM' or 'Group')
UNAUDITED RESULTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2004
HIGHLIGHTS
> REVENUE INCREASED BY 54% FROM R1,6 BILLION TO R2,4 BILLION
> PROFIT FROM OPERATIONS INCREASED 400% FROM R125 MILLION TO R626 MILLION
> HEADLINE EARNINGS INCREASED FROM A LOSS OF R1 MILLION TO A PROFIT
OF R20 MILLION
> CASH GENERATED FROM OPERATIONS UP 278% FROM R161 MILLION TO R608 MILLION
> STRATEGIC ALLIANCE FORMED WITH LIONORE AT NKOMATI
> ELIMINATION OF CROSS SHAREHOLDING BEING FINALISED
COMMENTARY
ARM has delivered exceptional basic and headline earnings as well as robust
cash flows for the half-year ended 31 December 2004, notwithstanding a strong
Rand environment. Furthermore, the growth strategy is well on track with a
number of initiatives advanced:
- The manganese shaft at Nchwaning and the construction of an underground
chrome mine at Dwarsriver are progressing well;
- ARM has secured a world-class partner in LionOre Mining International Limited
(LionOre) for the Nkomati nickel mine (Nkomati) and both companies will now
work closely to optimise the expansion study and project release;
- The Two Rivers platinum project is awaiting final approval;
- The Modikwa platinum mine (Modikwa) is well on-track to reach full
production;
and
- A feasibility study to assess a large new iron ore mine at the Bruce, King
and Mokaning properties in the Northern Cape is well underway.
Following Harmony Gold Mining Company Limited's ('Harmony') intended disposal
of
its ARM shares, the objective of removing the ARM cross shareholding will be
achieved.
RESULTS REVIEW
Profits from operations increased substantially, for the period ended 31
December 2004, to R626 million (R125 million). The improvement can primarily be
attributed to significant increases in sales volumes of manganese as well as
higher commodity prices for manganese and nickel, notwithstanding the strong
Rand.
The higher operating profits were partially offset by losses of R138 million
from Harmony, which after taxation and finance costs, resulted in basic
earnings of R240 million (R1 million-loss) and headline earnings of R20 million
(R1 million-loss).
ARM's investment in Harmony reduced from 20% to 16% on 30 November 2004 when
Harmony increased its issued share capital. ARM equity accounted its Harmony
investment up to that date, whereafter Harmony is treated as an investment and
not as an associated company.
Cash generated from operations increased from R161 million to R608 million and
was used primarily to fund capital expenditure and to repay borrowings. The
total short- and long-term borrowings reduced from R1,8 billion on 30 June 2004
to R1,6 billion on 31 December 2004. ARM's net debt to equity ratio remained at
19%.
Review of operations
ARM Ferrous
Assmang: Headline earnings for the period increased substantially over that of
last year's corresponding six months to R353 million (R4 million). The increase
in headline earnings can be attributed to positive market conditions over the
past six months, mainly in terms of manganese alloys prices, significant
increase in sales volumes of manganese ore, and to continuing cost saving
exercises at the operations.
Assmang's turnover for the half-year increased by 42% to R1,9 billion (R1,3
billion) with increases being delivered by all three divisions within Assmang:
ASSMANG: Iron ore Manganese Chrome
SEGMENTAL division division division Total
INFORMATION Rm Rm Rm Rm
Half-year to 31 December
2004*
Revenue 317 1 112 458 1 887
Contribution to Assmang
headline earnings 7 333 13 353
Half-year to 31 December
2003*
Revenue 298 633 402 1 333
Contribution to Assmang
headline earnings 14 52 (62) 4
*Unaudited
Sales volumes for the period under review are detailed in the table below:
Assmang Six months ended
Volume 31 December
2004 2003 Increase/
(tons) (tons) (decrease)
Manganese ore* 767 986 662 867 16%
Iron ore 2 540 595 2 493 824 2%
Manganese alloys 105 272 113 452 (7%)
Charge chrome 104 371 126 860 (18%)
*Excluding inter-Group sales to the Cato Ridge Works ARM Platinum
Modikwa: Build-up to full production remains on-track for mid-2005. As the mine
is in a commissioning phase, figures are compared to the immediately preceding
six months as opposed to the comparative period in the previous year. Lower
grade development ore was not treated and this led to a higher head grade and
increased the cash cost per ton milled. Various initiatives are being
implemented on the mine to ensure that volumes are increased to reduce the cash
cost per ton to the planned R300/ton at full production.
Modikwa Six months ended
(100% basis) 31 December 30 June
2004 2004 Increase/
(tons) (tons) (decrease)
Tons milled million 1,14 1,23 (8%)
tons
Head grade (4E) g/t 4.35 3.85 13%
Platinum in
concentrate ounces 60 000 57 700 4%
Cash cost R/ton 373 327 14%
Capital expenditure Rm 54,2 34,2 58%
Nkomati: The mine has had an excellent performance over the last six months.
Nickel sales were lower as a result of a delayed shipment to a Canadian
customer, but due to the strong nickel price and exceptional improvement in
cash costs, the contribution to earnings was higher at R103 million (R77
million).
Nkomati Six months ended
31 December 31 December
2004 2003 Increase/
(tons) (tons) (decrease)
Tons milled tons 184 000 169 000 9%
Nickel head grade (4E) % 1.94 1.94 -
Concentrate sales tons 32 384 28 700 13%
Nickel sales tons 2 272 2 440 (7%)
PGM sales ounces 21 457 19 800 8%
On mine cash costs R/ton 333 354 6%
Cash costs (net of US$/lb 0,95 1,15 17%
by-products)
Nickel prices receivedUS$/ 6,34 4,94 28%
lb
Review of projects
Two Rivers: The Two Rivers project has concluded a successful trail mining
-program that has substantively validated geological and mining feasibility
-parameters. As a result of this program, the orebody has been exposed to such
an extent that it has improved confidence levels and effectively enhanced the
project from `greenfields' status to a `brownfields' development. ARM is now in
the process of finalising project approvals. Two Rivers' capital cost will be
approximately R1,2 billion and is estimated to have a life of mine of 20 years
at an underground production rate of 2,2 million run-of-mine tons a year. Main
metal annual sales for the new mine are planned at 120 000oz of platinum, 80
000oz of palladium and about 30 000oz of rhodium.
The necessary environmental and mining authorisations have all been approved by
the Department of Minerals and Energy.
Nkomati expansion: ARM has announced, with effect from 1 January 2005, the
formation of a 50:50 unincorporated joint venture with LionOre at Nkomati in a
transaction valued at US$48,5 million (approximately ZAR290 million). LionOre,
a major producer of nickel globally, is the owner of the Activox technology,
which is being considered for the Nkomati expansion project. ARM and LionOre
will utilise their joint skills and experience to review and improve on the
technical and economical feasibility of the expansion. The preparation of a
trial mining pit has commenced at Nkomati to extract a bulk sample for delivery
in April 2005 to LionOre's Botswana operations for metallurgical testing. This
transaction is subject to certain conditions that remain to be fulfilled,
including approval in terms of the South African Competitions Act and South
African Exchange Control Regulations.
ARM Exploration: The board has approved the appointment of advisors to embark
on a process of restructuring and repositioning ARM's attractive exploration
portfolio for development and growth. This includes projects in Namibia, Zambia
(copper, cobalt, zinc and nickel) and in the Democratic Republic of Congo
(copper and cobalt). These range from early stage exploration phase programs
through to projects in feasibility stage. The review process will be completed
by mid-2005.
HARMONY
ARM supports the offer that has been submitted by Harmony to acquire Gold
Fields Limited. Arm's 16% interest in Harmony is treated as an investment from
December 2004. For the five months to December 2004, on an equity accounted
basis, Harmony made a loss of R138 million.
DIVIDENDS
ARM has very exciting capital projects and has decided not to pay dividends for
the half-year, but to conserve its current cash liquidity.
DIRECTORATE
During the last six months, Mr AJ Wilkens was appointed chief executive officer
and elected to the board and Mr WM Gule was appointed an executive director.
REVIEW FOR THE REMAINDER OF THE YEAR
Most commodity prices are expected to remain at similar, or slightly stronger,
levels in United States Dollar terms for the remainder of the year, while the
United States Dollar: South African Rand exchange rate is not expected to be
materially different. ARM operations are now generating positive cash flows,
from operating activities, at the prevailing exchange rate. This follows a
program introduced to deliver better efficiencies and the reduction of
operating costs.
GROUP BALANCE SHEET as at 31 December 2004
Unaudited Unaudited Audited
Half-year ended Half-year ended Year ended
31 December 31 December 30 June
2004 2003 2004
Restated*
Note Rm Rm Rm
ASSETS
Non-current assets
Tangible assets 4 903 2 438 4 674
Intangible assets 6 6 5
Deferred tax assets 37 10 7
Environmental
rehabilitation trust
funds 29 22 29
Investment in associate 2 - 870 4 338
Investments 3 3 261 165 3
8 206 3 511 9 056
Current assets
Inventories 1 210 984 914
Trade and other 1 073 786 1 162
receivables
Cash and cash 225 218 328
equivalents
2 508 1 988 2 404
Total assets 10 714 5 499 11 460
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 10 6 10
Share premium 3 496 122 3 495
Other reserves (1 169) 171 (193)
Retained earnings 3 553 2 207 3 316
Shareholders' interest 5 890 2 506 6 628
in capital and reserves
Minority interest 1 494 1 155 1 326
Total shareholders' 7 384 3 661 7 954
interest
Non-current liabilities
Long-term borrowings 4 787 - 857
Deferred tax 758 542 853
liabilities
Long-term provisions 159 118 151
1 704 660 1 861
Current liabilities
Trade and other 583 403 567
payables
Provisions 36 32 41
Taxation 174 3 63
Overdrafts and 4 833 740 974
short-term borrowings
1 626 1 178 1 645
Total equity and 10 714 5 499 11 460
liabilities
*Avgold Limited treated as an associate from 1 May 2003.
GROUP INCOME STATEMENT for the half-year ended 31 December 2004
Unaudited Unaudited Audited
31 December 30 June Year ended
2004 2003 Increase/ 2004
Restated* (decrease)
Note Rm Rm % Rm
Revenue > 2 391 1 557 54 3 885
Cost of sales (1 618) (1 296) (25) (3 064)
Gross profit 773 261 196 821
Other operating 27 21 29 73
income
Other operating (167) (157) (6) (343)
expenses
Retrenchment cost (7) - - (23)
Profit from 626 125 401 528
operations
Income from 12 11 26
investments
Finance costs (98) (35) (80)
Loss from associate (138) (55) (120)
Profit before 402 46 354
taxation and
exceptional items
Exceptional items 5 284 - 1 148
- Profit on
disposal of
discontinued - - 1 057
operations
- Other exceptional 284 - 91
items
Profit before > 686 46 1 502
taxation
Taxation (285) (45) (291)
Profit after 401 1 1 211
taxation
Minority interest (161) (2) (103)
Basic earnings/ 240 (1) 1 108
(loss)
Additional
information
Headline earnings/ 20 (1) 47
(loss) >
Headline earnings/
(loss)
per share (cents) 10 (1) 37
Basic attributable
earnings/(loss)
per share (cents) 117 (1) 865
Fully diluted
attributable
earnings/(loss) per
share
(cents) 117 (1) 860
Fully diluted
headline earnings
per share (cents) 10 - 36
Number of shares in
issue at end
of period 204 391 114 128 204 208
(thousands)
Weighted average
number of shares
in issue 204 313 113 713 128 115
(thousands)
Weighted average
number of shares
used incalculating
fully diluted
earnings per share 204 619 114 583 128 876
(thousands)
Net asset value per
share
(cents) 2 882 2 196 3 246
SEGMENTAL INFORMATION
Primary segmental information
Ferrous
Gold Platinum metals
Rm Rm Rm
Half-year ended
31 December 2004 (unaudited)
Revenue - 195 1 887
Cost of sales - (246) (1 227)
Other operating income - - 8
Other operating expenses - (2) (100)
Segment result** - (53) 568
Income from investments - 1 1
Finance cost - (52) (33)
Loss from associate (138) - -
Exceptional items - other - - 8
Taxation - 25 (182)
Minority interest - 18 (179)
Contribution to earnings (138) (61) 183
Contribution to headline (144) (61) 179
earnings
Other information
Consolidated total assets 3 258 2 085 4 520
Consolidated total liabilities - 862 1 705
Capital expenditure - 107 286
Amortisation and depreciation - 31 121
Half year ended
31 December 2003 (unaudited)*
Revenue - - 1 333
Cost of sales - - (1 195)
Other operating income - - 5
Other operating expenses - - (91)
Reallocated corporate - - 32
expenditure
Segment result - - 84
Income from investments - - 1
Finance cost - - (34)
Loss from associate (55) - -
Taxation - - (15)
Minority interest - - (2)
Contribution to earnings (55) - 34
Contribution to headline (55) - 34
earnings
Other information
Consolidated total assets 871 109 3 847
Consolidated total liabilities - - 1 573
Capital and expenditure - 34 208
Amortisation and depreciation - - 81
Year ended 30 June 2004
(unaudited)
Revenue - 57 3 304
Cost of sales - (71) (2 741)
Other operating income - - 22
Other operating expenses - (1) (194)
Reallocated corporate - - 71
expenditure
Segment result - (15) 462
Income from investments - - 2
Finance cost - (16) (52)
Loss from associate (120) - -
Exceptional items - (35) -
Taxation - (1) (124)
Minority interest - 6 (109)
Contribution to earnings (120) (61) 179
Contribution to headline (137) (26) 177
earnings
Other information
Consolidated total assets 4 338 2 024 4 227
Consolidated total liabilities - 935 1 746
Capital expenditure - 92 493
Amortisation and depreciation - 9 168
*Avgold Limited treated as an associate from 1 May 2003.
Corporate
Nickel and other Total
Rm Rm Rm
Half year ended
31 December 2004 (unaudited)
Revenue 309 - 2 391
Cost of sales (145) - (1 618)
Other operating income 9 10 27
Other operating expenses (32) (40) (174)
Segment result 141 (30) 626
Income from investments 1 9 12
Finance cost - (13) (98)
Loss from associate - - (138)
Exceptional items - other - 276 284
Taxation (39) (89) (285)
Minority interest - - (161)
Contribution to earnings 103 153 240
Contribution to headline 103 (57) 20
earnings
Other information
Consolidated total assets 535 316 10 714
Consolidated total liabilities 173 590 3 330
Capital expenditure 12 36 441
Amortisation and depreciation 13 1 166
Half-year ended
31 December 2003 (unaudited)*
Revenue 224 - 1 557
Cost of sales (101) - (1 296)
Other operating income 4 12 21
Other operating expenses (15) (51) (157)
Reallocated corporate (2) (30)
expenditure
Segment result 110 (69) 125
Income from investments 1 9 11
Finance cost - (1) (35)
Loss from associate - - (55)
Taxation (34) 4 (45)
Minority interest - - (2)
Contribution to earnings 77 (57) (1)
Contribution to headline 77 (57) (1)
earnings
Other information
Consolidated total assets 250 422 5 499
Consolidated total liabilities 54 211 1 838
Capital and expenditure 5 1 248
Amortisation and depreciation 8 2 91
Year ended 30 June 2004
(unaudited)
Revenue 524 - 3 885
Cost of sales (252) - (3 064)
Other operating income 42 9 73
Other operating expenses (73) (98) (366)
Reallocated corporate (5) (66)
expenditure
Segment result 236 (155) 528
Income from investments 2 22 26
Finance cost - (12) (80)
Loss from associate - - (120)
Exceptional items - 1 183 1 148
Taxation (77) (89) (291)
Minority interest - - (103)
Contribution to earnings 161 949 1 108
Contribution to headline 161 (128) 47
earnings
Other information
Consolidated total assets 452 419 11 460
Consolidated total liabilities 206 619 3 506
Capital expenditure 9 15 609
Amortisation and depreciation 38 2 217
*Avgold Limited treated as an associate from 1 May 2003.
** Reallocation of corporate expenditure not applied to the half-year ended
31 December 2004 results.
GROUP CASH FLOW STATEMENT for the half-year ended 31 December 2004
Unaudited Audited
Half-year ended Year ended
31 December 30 June
2004 2003 Increase/ 2004
Restated* decrease
Rm Rm % Rm
CASH FLOW FROM OPERATING
ACTIVITIES
Unaudited Unaudited Audited
Half-year ended Half-year ended Year ended
31 December 31 December Increase/ 30 June
2004 2003 decrease
Rm Rm % Rm
Cash receipts 2 574 1 691 52 3 838
from customers
Cash paid to
suppliers and
employees (1 966) (1 530) 28 (3 235)
Cash generated 608 161 278 603
from operations
Interest 12 11 9 24
received
Interest paid (105) (35) 200 (70)
Dividends 19 - - 1
received
Dividends paid (13) (9) 44 (13)
to minorities
Taxation paid (55) (44) 25 (70)
Net cash inflow
from operating
activities 466 84 455 475
CASH FLOW FROM
INVESTING
ACTIVITIES
Additions to
fixed assets to
maintain (349) (248) 41 (472)
operations
Additions to
fixed assets to
expand (92) - (101)
operations
Net cash effect - - (32)
of acquisitions
Proceeds on
disposal of
fixed
assets 50 - 7
Proceeds on
disposal of
investments - - 167
Purchase of
remaining
portion of
Nkomati mine - - (260)
Net cash
(outflow)/inflow
from
investing (391) (248) 58 (691)
activities
CASH FLOW FROM
FINANCING
ACTIVITIES
Increase in 1 43 (98) 54
shareholder
funding
Funding received
from minority
shareholders 21 20 5 42
Long-term 30 - 280
borrowings
raised
Long-term (94) - (127)
borrowings
repaid
(Decrease)/
increase in
short-term
borrowings (136) 55 (347) 31
Net cash
(outflow)/inflow
from
financing (178) 118 (251) 280
activities
Net (decrease)/
increase in cash
and cash (103) (46) 124 64
equivalents
Cash and cash
equivalents at
beginning of 328 264 24 264
period
Cash and cash
equivalents at
end
of period 225 218 3 328
Cash generated
from operations
per share 298 142 110 471
(cents)
*Avgold Limited treated as an associate from 1 May 2003.
STATEMENT OF CHANGES IN EQUITY for the half-year ended 31 December 2004
Share Revaluation
capital and of Retained
premium buildings Other earnings Total
Rm Rm Rm Rm Rm
Half-year
ended 31
December
2004
(unaudited)
Balance at 30 3 505 6 (199) 3 316 6 628
June 2004
Basic - - - 240 240
earnings
Share of
associate
other
reserves - - 235 - 235
Share options 1 - - - 1
exercised
Revaluation
of listed
investments - - (1 207) - (1 207)
Other - (6) 2 (3) (7)
Balance at 31 3 506 - (1 169) 3 553 5 890
December 2004
Half-year
ended 31
December
2003
(unaudited) *
Balance at 30 85 6 212 2 208 2 511
June 2003
Loss - - - (1) (1)
Revaluation
of listed
investments - - (47) - (47)
Share options 43 - - - 43
exercised
Balance at 31 128 6 165 2 207 2 506
December 2003
Year ended 30
June 2004
(audited)
Balance at 30 85 6 212 2 208 2 511
June 2003
Basic - - - 1 108 1 108
earnings
Investment - - (133) - (133)
sold
Revaluation
of listed
investments - - (45) - (45)
Share options 54 - - - 54
exercised
Shares issued
for
acquisitions 3 366 - - - 3 366
Share of
associate
other
reserves - - (235) - (235)
Other - - 2 - 2
Balance at 30 3 505 6 (199) 3 316 6 628
June 2004
*Avgold Limited treated as an associate from 1 May 2003.
NOTES TO THE FINANCIAL STATEMENTS for the half-year ended 31 December 2004
Unaudited
Half-year Audited
ended Year
31 December ended
2004 2003 30 June
Restated* 2004
Rm Rm Rm
1. BASIS OF PREPARATION
The financial information for the
half-year ended 31 December 2004 has
been
prepared adopting the same accounting
policies
used in the most recent annual financial
statements which are in accordance with
South African Statements of Generally
Accepted Accounting Practice and
International Financial Reporting
Standards.
These condensed financial statements are
prepared in accordance with AC 127
- interim reporting, and are prepared on
the historical cost basis, except for
the measurement at fair value of certain
investments and certain fixed assets and
loans receivable and payable.
2. INVESTMENT IN ASSOCIATE
Opening balance 4 338 925 925
Movement for the period (138) (55) 3 413
Transfer to investments 4 200 - -
Closing balance - 870 4,338
The investment in Avgold was treated as
an associate from 1 May 2003 to 30 April
2004 being
the date it was sold to Harmony. The
investment in Harmony has been accounted
for as an associate
from the date of acquisition to 30
November 2004 which was the date when
the
ARM interest
diluted to 16,2% following the new share
issue by Harmony to certain Gold Fields
shareholders.
- 3. INVESTMENTS
Listed
Original cost 3 34 3
Transfer from associates 4 200 - -
Revaluation (1 207) 131 -
Realisation of unrealised profit on sale
of Avgold 265 - -
Total carrying amount of investments 3 261 165 3
4. BORROWINGS
Long-term borrowings are held as
follows:
- African Rainbow Minerals Limited 212 - 215
- Assmang Limited 14 - 14
- ARM Platinum (Proprietary) Limited 561 - 628
787 - 857
Overdrafts and short-term borrowings are
held as follows:
- African Rainbow Minerals Limited 109 - 76
- Assmang Limited 567 740 737
- ARM Platinum (Proprietary) Limited 157 - 161
833 740 974
Total borrowings 1 620 740 1 831
Interest of R1 million was capitalised
for the half-year ended
31 December 2004 (2003: R7 million).
Interest of R18 million was capitalised
for the year ended 30 June 2004.
5. EXCEPTIONAL ITEMS
Surplus on disposal of Avgold Limited
shares - - 1 075
Realisation of unrealised profit on sale
of Avgold 265 - -
Profit on sale of fixed assets 13 - -
Surplus on disposal of Assore Limited
shares - - 135
Other 6 - (62)
Exceptional items as per income 284 - 1 148
statement
Taxation (66) (4) (106)
Minority interest (4) - (3)
Profit on sale of fixed assets - - 5
Profit on sale of fixed assets in
associate 6 4 9
Dilution in associate - - 8
Net exceptional items 220 - 1 061
6. HEADLINE EARNINGS
Basic earnings/(loss) per income 240 (1) 1 108
statement
Surplus on disposal of Avgold Limited
shares - - (1 075)
Surplus on disposal of Assore Limited
shares - - (135)
Other (6) - 62
Profit on sale of fixed assets (13) - (5)
Profit on sale of fixed assets in
associate (6) (4) (9)
Realisation of unrealised profit on sale
of Avgold (265) - -
Dilution in associate - - (8)
(50) (5) (62)
Taxation 66 4 106
Minority interest 4 - 3
Headline earnings/(loss) 20 (1) 47
7. COMMITMENTS AND CONTINGENT
LIABILITIES
Commitments in respect of future capital
expenditure, which will be funded from
cash generated
and available borrowing resources are
summarised below:
Approved by directors
- contracted for 160 160 115
- not contracted for 326 283 330
Total commitments 486 443 445
Contingent liabilities
Shareholders are advised that there have been no significant changes to the
contingent liabilities of the Group as disclosed in the June 2004 annual
report.
Avgold Limited treated as an associate from 1 May 2003.
For and on behalf of the board
Patrice Motsepe
Executive chairman
Andre Wilkens
Chief executive officer
Sandton
14 February 2005
Directors: PT Motsepe (Executive chairman), RP Menell (Deputy chairman)*,
AJ Wilkens (Chief executive officer), F Abbott, Dr MMM Bakane-Tuoane**,
WM Gule, MW King**, AK Maditsi**, PJ Manda**, JR McAlpine**, Dr PS Sibisi**,
Dr RV Simelane**, MV Sisulu**, ZB Swanepoel*
(*Non-executive, **Independent non-executive).
Group company secretary: RH Phillips
Issued by sponsor: Deutsche Securities (SA) (Proprietary) Limited
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