Final Results

ANGLOVAAL MINING LIMITED 27 August 1999 Report for the year ended 30 June 1999 Avmin Anglovaal Mining Limited ('the Company') (formerly Anglovaal Limited) Registration number 05/04580/06 (Incorporated in the Republic of South Africa) 56 Main Street, Johannesburg, 2001, South Africa PO Box 62379, Marshalltown, South Africa, 2107 . . . a year of highlights * Group structure simplified * Earnings total R522 million * Headline earnings total R290 million * Earnings per share amount to 562 cents * Headline earnings per share amount to 312 cents * Non-core operating assets sold * Operating focus now on ferrous metals, base metals and gold * Significant assets acquired in ferrous and base metals divisions * Reduced income from Saturn . . . financial highlights 30 June 1999 Actual Profit before taxation and exceptional items (Rm) 575 Earnings (Rm) 522 Headline earnings (Rm) 290 Earnings per share (cents) 562 Headline earnings per share (cents) 312 Contribution to headline earnings Year ended 30 June 1999 Rm % Diamonds 260 57 Ferrous metals 150 33 Base metals 41 9 Gold 4 1 ---------------------- 455 100 Less: Exploration 52 Net interest paid 28 Discontinued operations (losses) 18 Retrenchment and other Group expenses 67 165 ------------- Headline earnings 290 Headline earnings per share (cents) 312 Add: Exceptional items 232 Total earnings 522 ------------- Group income statement Audited (Note 1) Actual Pro forma 30 June 1999 30 June 1998 Note Rm Rm Revenue 2 489 2 539 Cost of sales 1 673 1 754 ----------------------------------- Gross profit 816 785 Other operating income 126 119 Other operating expenses 296 373 Report for the year ended 30 June 1999 ----------------------------------- Profit from operations 646 531 Income from investments 54 132 Finance costs 125 117 ----------------------------------- Profit before exceptional items 575 546 Exceptional items 208 (462) ----------------------------------- Profit before taxation 783 84 Taxation 147 200 ----------------------------------- Profit after taxation 636 (116) Income from associates 2 4 (37) ----------------------------------- Net profit 640 (153) Minority interest 118 89 ----------------------------------- Earnings 522 (242) Ordinary dividends 7 5 137 Dividends in specie 3 3 025 - ----------------------------------- Net loss (2 578) (379) Transfers from non-distributable reserves 693 (8) ----------------------------------- Net loss transferred to distributable reserves (1 885) (387) Headline earnings (R millions) 290 Earnings per share (cents) 562 Headline earnings per share (cents) 312 Proposed dividend per share (cents) 70 Number of shares in issue at end of year (thousands) 106 200 Weighted average number of shares in issue (thousands) 92 894 Notes: 1. The pro forma income statement reflects the position that would have prevailed had the comprehensive corporate restructuring of the Anglovaal Group been effected as at 1 July 1997. 2. Avgold Limited only became a subsidiary during June 1999 and has as a result been equity accounted for the full year in the income statement but consolidated for balance sheet purposes. 3. As part of the group restructuring the industrial interests were unbundled by way of a dividend in specie. Group balance sheet Audited At 30 June 1999 Rm Assets Non-current assets Fixed and tangible assets 3 058 Investments 16 ------- 3 074 Current assets Inventories 672 Trade and other receivables 665 Taxation 5 Deposits and cash 436 ------- 1 778 ------- Total assets 4 852 ------- Equity and liabilities Capital and reserves Ordinary share capital 5 Preference share capital 4 Share premium 1 602 Non-distributable reserves 98 Distributable reserves 291 ------- Shareholders' interest in capital and reserves 2 000 Minority interest 1 124 ------- Total shareholders' interest 3 124 Non-current liabilities Long-term borrowings 389 Deferred taxation 142 Long-term provisions 187 ------- 718 Current liabilities Trade and other payables 592 Taxation 58 Shareholders proposed dividend 19 Treasury liabilities 13 Overdrafts and short-term borrowings 328 ------ 1 010 ------ Total equity and liabilities 4 852 Review for the year ended 30 June 1999 On behalf of the Board it is a privilege to report back to all stakeholders following an active year. . . . a year of change The Company's profile was altered during the year following a restructuring programme that resulted in the ultimate holding company and all the industrial assets being unbundled. Two classes of shares were consolidated into one and all the assets of Avmin Limited were transferred into the Company. Another benefit resulting from the restructuring was an increase in the Company's interest in The Saturn Partnership (Saturn), the important diamond investment, by nearly 30 per cent to 87,5 per cent. . . . a stronger focus on performing assets The Company, which changed its name to Anglovaal Mining Limited (Avmin) on 1 January 1999, now has an exclusive focus on the business of mining and mineral-related activities. Apart from the major diamond investment, this focus is concentrated in three core areas of operation: ferrous metals, base metals and gold. The Company also pursued its objective of disposing of non-core operating assets and non-strategic investments during the year. The investment holding portfolio of various listed shares was disposed of and the coal and industrial minerals businesses were sold. Total receipts from these sales exceeded R600 million. During the second half of the year, Avmin issued 15 287 352 new ordinary shares. Of these shares 6 147 908 were exchanged with various international investors and institutions for 67 626 990 Avgold Limited (Avgold) shares, 9 091 200 shares were issued for cash and 48 244 shares were issued to share incentive scheme members. The exchange for Avgold shares resulted in Avmin increasing its Avgold holding to 60,1 per cent. . . . further acquisitions add strength In other developments during the year, the Company acquired major new assets in its base and ferrous metals businesses. In September 1998, a significant cobalt and copper operation was acquired on the Zambian Copperbelt and The Associated Manganese Mines of South Africa Limited (Assmang) purchased the high-quality Dwarsrivier chrome deposit. . . . all resulting in higher earnings As a result of a lower rand/US dollar exchange rate, important contributions from the diamond investment and the ferrous metal division, well contained costs and the curtailment of some exploration, the Group's earnings for the year ended 30 June 1999 amounted to R522 million (30 June 1998: R242 million - pro-forma loss). This relates to earnings per share of 562 cents. On a headline basis, which excludes the surplus on the sale of assets and investments, earnings amounted to R290 million, which relates to headline earnings per share of 312 cents. Exceptional items, mainly the surplus on the sale of assets and investments, generated R208 million and taxation decreased to R147 million, while profit after taxation amounted to R636 million. . . . diamonds remain an important contributor During the year under review, Saturn, which is now held 87,5 per cent by Avmin and which receives 50 per cent of the profits of the Venetia diamond mine through payments made every six months, contributed R260 million (R276 million - pro-forma) to the Company. The first payment was received in August 1998 and amounted to R144 million, while the year's second payment was received in February 1999 and totaled R119 million. Towards the end of June 1999, Avmin drew shareholders' attention to an announcement by De Beers Consolidated Mines Limited (De Beers) published on 22 June 1999 regarding first-half sales by the Central Selling Organisation. This statement included a cautionary announcement that delays in the delivery of certain goods from De Beers' South African mines, following disputes between De Beers and the Government diamond valuator (GDV) over valuation, would have a negative impact on the combined Diamond Account for the first half. As a result, De Beers announced that diamonds sold by Venetia would be affected by these delays. De Beers has informed the Company that the August royalty payment by Venetia to Saturn in respect of the six month royalty period ending on 30 June 1999, would be materially adversely affected. De Beers has not, as yet, informed the Company of final resolution to its dispute with the GDV and, as such, shareholders must remain aware that the total earnings of the Company for the six month period ending 31 December 1999 are likely to be materially adversely affected. It is still expected, and as indicated by De Beers, that any shortfall in the royalty paid in the first half will be recouped in the second half of the year and earnings for the year ending 30 June 2000 may not be affected by this dispute. . . . ferrous metals deliver strong earnings growth The contribution to the Company during the year made by Assmang, Avmin's 50,2 per cent held ferrous metals subsidiary, was exceptionally pleasing, despite sales of manganese ore reducing slightly to 1 475 000 tons (1 501 000 tons) and sales of iron ore declining to 3 981 000 tons (5 124 000 tons) in line with lower Asian consumption. Earnings rose 61 per cent to R237 million (R147 million), which was attributable mainly to a 9,6 per cent increase in turnover and the implementation of stringent cost control programmes at both the mines and the works. Profit before taxation and State's share of profit totaled R349 million (R234 million). Feralloys Limited, a wholly owned subsidiary of Assmang, increased its profit after taxation by 131 per cent to R56 million (R24 million). Sales of ferromanganese increased to 176 000 tons (153 000 tons), but sales of ferrochrome were lower at 112 000 tons (151 000 tons). During the year under review, the southern extension of the Beeshoek iron ore mine was commissioned, which is intended to boost iron ore exports to 5,5 million tons by the year 2001. Shortly after the end of the year, Assmang announced that it would proceed with various large projects within its chrome and manganese businesses. The projects, estimated at a capital cost of about R1 billion over a four year period and to be self-funded by Assmang, include the establishment of an open cast chrome mine and beneficiation plant on the Dwarsrivier property, as well as the upgrading of three furnaces at Feralloys' ferrochrome division, and the establishment of a new shaft system to the west of the current Nchwaning high grade manganese mine. . . . a growing base metals sector Avmin added substance to its base metals division during the year when it acquired a 90 per cent interest in Chambishi Metals plc during September 1998. Chambishi Metals purchased the Chambishi cobalt and acid plants and the Nkana Slag Dumps, a high grade on-surface cobalt and copper resource, from Zambia Consolidated Copper Mines Limited (ZCCM) on the Zambian Copperbelt for US$50 million. The existing cobalt and acid plants continued to toll treat material for other Copperbelt operators during the ten months of the year that the company owned these assets. The rehabilitation, modernisation and technological upgrading of the plant, which has cost approximately US$7 million, has resulted in improved recoveries with the product produced now comparing favourably with the world's best. As a result of these improvements, an operating profit of R48 million was reported. The plant produced 1 844 tons of cobalt and 8 658 tons of copper during the year and interest in Chambishi Metals as a toll treatment facility from other operators is growing. Work has also commenced to expand and further upgrade the plant, at an approximate cost of US$100 million, to allow Chambishi Metals to start treating the Nkana Slag Dumps. The Company has mandated Rand Merchant Bank to provide a seven year US$70 million corporate/project finance facility to Chambishi Metals for this project. The surface dumps contain a resource estimated at 20 million tons and the average yield is 0,76 per cent cobalt and 1,06 per cent copper. The annual cobalt metal output from the new facility is forecast at 4 200 tons, processing a maximum 385 000 tons of slag material at an average grade of 1,32 per cent cobalt over a five year period starting in October 2000. Thereafter, the average grade reduces to 0,72 per cent cobalt and a decision is still to be made on the installation of a second furnace to maintain the 4 200 tons a year product level by processing a maximum 780 000 tons a year of slag material for about 20 years. The Company's 75 per cent held Nkomati mine, the South African-based producer of nickel, cobalt, copper and platinum group metals (PGM's), had an exceptionally pleasing year. Revenue rose to R142 million (R106 million) and operating profit increased substantially to R28 million (R12 million). The mine milled 188 481 tons of ore, producing 38 567 tons of concentrate with an average nickel grade of 10,05 per cent, which was some 32 per cent higher than planned. The mine remained at the lower-end of the cost quartile of international producers with a benchmark direct cost to produce nickel of US$0,84/lb, net of by-product credits. During the year, the PGM credits remained an important contributor following strong metal prices received. Avmin's base metal division is continuing with a final feasibility to assess the potential on an expansion of mining operations to include portions of the large lower-grade reserve base. This study includes investigations into alternative downstream technologies and open-cast operations. . . . gold division prepares for low cost, high quality asset focus Avgold, in which the Company now holds a 60,1 per cent interest, has experienced a significant year towards achieving its vision of becoming a high quality and low cost gold producer. An important development occurred shortly after the end of the financial year when an unconditional agreement was signed with Durban Roodepoort Deep, Limited (DRD) for the sale of its Hartebeestfontein (Harties) mine as a going concern to Buffelsfontein Gold Mines Limited, a wholly owned subsidiary of DRD. The Harties divestment realises R295 million for Avgold; R45 million cash and R250 million from the necessary close-out of the hedge book related to Harties' portion of gold production. Avgold has also retained certain mining equipment and other assets, mainly refrigeration plants and winding equipment that have an estimated replacement value of R50 million, for use at its Target mine. Avgold will now be able to focus additional management and operational resources on the Target and ETC mines. Both Target, which has started producing its first gold, and ETC meet the objectives of the Company's overall vision and any future development and operating decisions will be based on achieving these criteria. Avgold turned a loss of R74 million reported at 30 June 1998 into earnings of R9 million at 30 June 1999, a turn-around of R83 million. Total ore milled declined to 6,1 million tonnes (6,8 million tonnes) and the overall yield was lower at 3,26g/t (3,86g/t). The year's average gold price received rose to R59 055/kg (R56 649/kg), largely due to all gold sales being delivered against its hedge book during the year. The cash cost improved to R49 586/kg, or US$255/oz, from R52 370/kg and Avgold sold 19 810kg, or 636 906oz (26 656kg) of gold. The majority of the underground exploration drilling at Target, and the subsequent interpretation and evaluation, has been completed. Proven and probable reserves now total two million ounces, equivalent to seven years of production at the 90 000 tonnes a month milling rate. The detailed information from the drilling has enabled the compilation of a comprehensive development and production schedule. The mine remains on schedule to reach full production by January 2002 and expects to average 10g/t over its 14-year life at a production rate of 330 000 ounces of gold a year at a projected cash cost of below US$150 an ounce of gold. Various alternatives are now being considered for the remaining R750 million funding required over the next four years for Target. Contributing to this funding will be the R250 million necessitated by the close-out of the hedge book and the R45 million proceeds from the sale of Harties. Other funding sources are being investigated together with Avmin. . . . ready for the year 2000 The Company, guided and supported by a steering committee, has considered the implications of the new millennium on electronic systems throughout the Group. The committee has sought to ascertain the exposure of the entire Group, and the adequacy of the steps taken to address possible exposures. All remedial steps considered necessary have been implemented to ensure acceptable levels of Year 2000 compliance throughout all the business operations and this exercise has progressed according to plan and on budget. Avmin's major suppliers and business partners have also been approached in an attempt to limit any material and adverse impact on the Group. . . . a more adaptable company has been built Both the external and internal restructuring initiatives have resulted in a greatly strengthened Company with excellent alignment between strategic needs and efforts required. The focusing of the business into three operational divisions and the disposal of non-strategic and non-core assets has clarified management responsibilities. The present environment in which most commodity prices seem to have levelled-out at the bottom and are showing the first signs of recovery, particularly in diamonds, copper, nickel and some of the ferrous metal products, will help in the future. An expected improvement in contributions from the diamond and base metals sectors of the business, as well as a continuation of the strategy to improve efficiencies and reduce costs at all operations, could result in an increase in earnings next year. . . . with thanks to all our stakeholders On behalf of the directors we would like to express our sincere gratitude to the members of the management board and all employees within the Anglovaal Mining Group for the dedication and devotion displayed over the last year. A strong platform has been created and we are proud of the team's results. Capitalisation share award and dividend The rationalisation of the Company and of Avmin Limited with effect from 1 January 1999 resulted in an exceptional write-off in the income statement of the Company (not on consolidation) which in turn resulted in a negative distributable reserve figure at 30 June 1999. In order to eliminate such negative balance and to provide at least sufficient distributable reserves in the Company to cover a proposed capitalisation award/dividend and contingencies, the necessary resolutions to transfer the appropriate amount from the share premium account, will be proposed at the forthcoming annual general meeting on 4 November 1999. Appropriate amendments to the Articles of Association will also be proposed. Immediately following the annual general meeting, the Board of directors intend to award capitalisation shares to members provided that members may instead elect to receive a cash dividend of 70 cents per share in respect of the financial year ended 30 June 1999 in respect of all or part of their shareholdings. Such dividend will be covered approximately four times by headline earnings. The aforementioned proposals have been effected in the annual financial statements of the Company in respect of the year ended 30 June 1999. For and on behalf of the Board K W Maxwell, Chairman R P Menell, Chief Executive Officer 27 August 1999 Directors K W Maxwell (Chairman), R P Menell (Deputy Chairman and Chief Executive Officer), D E Jowell, Dr T V Maphai, J R McAlpine, B M Menell, Dr M Z Nkosi. Management board R P Menell (CEO), D D de Beer (Finance), J J Geldenhuys (Gold), G J Robbertze (Base Metals), J C Steenkamp (Ferrous Metals). Registered address Investment and media enquiries PO Box 62379 Julian Gwillim Marshalltown, 2107 Anglovaal Mining Limited South Africa 56 Main Street Telephone (011) 634-9111 Johannesburg 2001, South Africa Telefax (011) 634-0038 Telephone (011) 634-0092 Shareholders enquiries South African London transfer secretaries transfer secretaries St James's Corporate Mercantile Registrars Limited Services Limited IRG plc 11 Diagonal Street 6 St James's Place Balfour House Johannesburg, 2001 London SW1A 1NP 390/398 High Road South Africa Telephone (0171) 499-3916 Ilford, Essex Telephone (011) 370-5000 Telefax (0171) 491-1989 IG1 1NQ Telefax (011) 370-5271 United Kingdom www.avmin.co.za

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