Palabora Final Results
Rio Tinto PLC
24 January 2003
Palabora Mining Company
Preliminary report for the year ended 31 December 2002
Abridged income statement 2002 2001
R'000 R'000
Revenue 2 121 307 1 985 038
Operating costs 1 586 598 1 461 140
Depreciation 133 187 163 535
Operating profit 401 522 360 363
Interest received 5 495 4 001
Interest payable (31 283) (31 436)
Foreign exchange gains 27 306 38 361
Increase in provisions (40 976) (31 910)
Profit before taxation 362 064 339 379
Taxation 105 211 119 546
Current 25 010 36 432
Deferred tax 80 201 83 114
Profit after taxation 256 853 219 833
Notes:
1. Accounting Policies
The preliminary consolidated financial statements are prepared on the historical
cost basis. Accounting principles and policies used in preparing this report
comply with South African Statements of Generally Accepted Accounting Practice
and are consistent with the accounting policies applied in the previous year.
Where necessary, comparative figures have been adjusted to conform with changes
in presentation in the current year.
2. Audit Review
The year-end financial results have been reviewed in terms of Rule 3.23 of the
listing requirements of the JSE Securities Exchange SA by the company's
auditors, PricewaterhouseCoopers. This review opinion is available on request
from the Company Secretary.
3. Long-term loan
Year Year
2002 2001
Long term loan 1 082 331 1 393 218
Current portion (355 450) (1 823)
726 881 1 391 395
The company has arranged a long-term loan with a group of national and
international banks for an unsecured facility agreement of US$125 million. The
facility consists of a US$90 million tranche and a Rand tranche of R283 million.
This facility, which is being used for the underground mine development and the
repayment of other short-term loans, is repayable in six equal half yearly
instalments starting on 11 June 2003 and the interest rate is based on Libor/
Jibor + 1,5% - see Commentary.
Summarised cash flow 2002 2001
R'000 R'000
Cash flow from operating activities 588 917 771 378
Cash flow from investing activities (741 996) (800 407)
Replacement of mining assets (195 323) (108 242)
Development expenditure (570 075) (687 679)
Other investing activities 23 402 (4 486)
Cash flow from financing activities 18 416 461
Long-term loans raised 18 1 032 575
Long and short-term loans re-paid - (599 125)
Dividends paid - (16 989)
Net (decrease)/increase in cash and cash equivalents
(153 061) 387 432
Cash and cash equivalents at beginning of period (199 736) (587 168)
Cash and cash equivalents at end of period (352 797) (199 736)
Share Capital Other Distributable Total
& Premium Reserves Reserves
R'000 R'000 R'000 R'000
Statement of changes in equity for the year ended 31 December 2002
Balance 1 January 2002 28 891 174 642 1 589 200 1 792 733
Net gains and losses not recognised in
income statement:
Currency translation difference - (40 398) - (40 398)
Net profit for the period - - 256 853 256 853
Balance 31 December 2002 28 891 134 244 1 846 053 2 009 188
Comparative statement of changes in equity for the year ended 31 December 2001
Balance 1 January 2001 28 891 109 419 1 386 356 1 524 666
Net gains and losses not recognised in
income statement:
Currency translation difference - 65 223 - 65 223
Net profit for the period - - 219 833 219 833
Dividends - - (16 989) (16 989)
Balance 31 December 2001 28 891 174 642 1 589 200 1 792 733
Abridged balance sheet 2002 2001
R'000 R'000
Employment of capital
Current assets:
Stores 47 737 46 976
Production inventories 254 607 240 368
Accounts receivable 282 456 398 699
Taxation 3 030 1 417
Cash and cash equivalents 39 019 66 475
626 849 753 935
Mining assets 4 284 701 3 959 841
Deferred expenditure - 6 534
Investment - (unlisted) 54 971 47 915
Total assets 4 966 521 4 768 225
Liabilities and shareholders' equity
Current liabilities:
Accounts payable 217 900 165 821
Provisions 39 227 29 781
Current portion of long term loans 355 450 1 823
Taxation 7 403 10 593
Group companies - related parties 8 214 13 568
Bank overdraft 391 816 266 211
1 020 010 487 797
Provision for close down costs and restoration costs 185 147 162 877
Provision for post retirement medical benefits 159 760 148 803
Deferred taxation 865 535 784 620
Long-term loans 726 881 1 391 395
Total liabilities 2 957 333 2 975 492
Total shareholders' equity 2 009 188 1 792 733
Total equity and liabilities 4 966 521 4 768 225
4. Headline Earnings Per Share
The calculation of headline earnings per share is derived from consolidated net
profit after taxation of R256.9 million (2001: R219.8 million) adjusted for any
non-operational losses / gains, divided by the number of shares in issue.
The only adjustment made to consolidated net profit after taxation is the
elimination of post taxation profit on disposal of fixed assets and subsidiaries
of R19.4 million (2001: R0.4 million). This adjustment resulted in headline
earnings of R237.5 million (2001: R219.5 million).
5. Holding Company
The immediate holding company is Palabora Holdings Limited and the ultimate
holding company is Rio Tinto plc, which is incorporated in the United Kingdom.
Selected Statistics 2002 2001
Production and sales
Ore mined surface (millions of tons) 6,7 12,9
Ore mined underground (millions of tons) 3,3 1,0
Copper in concentrate (thousands of tons) 52,2 78,4
Cathode produced (thousands of tons) 81,6 86,9
Cathode sold (thousands of tons) 83,4 95,9
Contained copper sold (thousands of tons) 84,3 100,2
Vermiculite sold (thousands of tons) 190 186
ZBS sold (thousands of tons) 1,1 1,0
Average rand/dollar exchange rate 10,54 8,54
Average copper price realised per ton (ZAR) 17 355 14 006
Cash cost per ton - delivered (ZAR) 14 476 8 928
Average copper price realised (usc/lb) 74,7 74,4
Average vermiculite price realised per ton (ZAR) 1 911 1 571
Average ZBS price realised per ton (ZAR) 10 104 17 338
All tons are metric tons
Capital expenditure (R millions) 695 702
Capital commitments (R millions)
Approved expenditure at end of each period 381 844
Contracts placed at end of each period 293 402
Share capital
Ordinary shares of R1 each (thousands) - authorised 28 500 28 500
Ordinary shares of R1 each (thousands) - issued 28 316 28 316
The directors are authorised to issue unissued
Shares until the next annual general meeting
Investments - (r thousands)
Fair value of investments 86 902 81 857
Interest capitalized (R thousands) 70 796 53 927
Dividends paid (R thousands)
2001 total dividend 60 cents per share - 16 989
Earnings per share, based on the net profit after tax 907c 776c
Headline earnings per share, based on the net profit 839c 775c
After tax adjusted for non-operational gains/losses
Net asset value per share R70,96 R63,31
Segmental reporting
Copper Industrial minerals Other Total
R'000 R'000 R'000 R'000
31.12.02 31.12.01 31.12.02 31.12.01 31.12.02 31.12.01 31.12.02 31.12.01
Profit and loss
Revenues 1 459 146 1 378 247 535 249 503 663 126 912 103 128 2 121 307 1 985 038
Cost and expenses 1 156 909 1 167 593 457 495 374 464 105 381 82 618 1 719 785 1 624 675
Operating profit 302 237 210 654 77 754 129 199 21 531 20 510 401 522 360 363
Finance cost (39 458) (20 984)
Profit before tax 362 064 339 379
Taxation 105 211 119 546
Net income for the year 256 853 219 833
The basis of allocation of overhead costs was revised during 2002 to reflect profit by product more accurately. 2001
comparatives have been restated in order to provide a fair comparison.
The segmental split on a geographical basis is based on the country in which the order is received.
South Africa America United kingdom Singapore Total
R'000 R'000 R'000 R'000 R'000
31.12.02 31.12.01 31.12.02 31.12.01 31.12.02 31.12.01 31.12.02 31.12.01 31.12.02 31.12.01
Profit
and
loss
Revenues 1 632 754 1 486 238 280 917 208 222 207 636 223 044 - 67 534 2 121 307 1 985 038
Cost 1 344 112 1 250 938 255 506 187 418 159 625 165 168 - 42 135 1 759 243 1 645 659
and
expenses
Operating 288 642 235 300 25 411 20 804 48 011 57 876 - 25 399 362 064 339 379
profit
before
tax
Taxation 80 945 88 313 9 206 7 387 15 060 18 325 - 5 521 105 211 119 546
Net 207 697 146 987 16 205 13 417 32 951 39 551 - 19 878 256 853 219 833
income
for the
year
Commentary
Group profit for the year was R257 million, up 17% on the R220 million achieved
in 2001. The increase can largely be attributed to the decrease in the value of
the Rand in 2002.
Group operating expenditure increased by R125 million mainly due to the
increased imports of copper concentrates (R91 million), open pit contract mining
costs (R88 million) and the cost of pension fund contributions arising from a
change in pension fund legislation (R30 million). These additional costs were
partly offset by the realization of cost savings from the Total Operating
Performance (TOP) programme.
As expected, 2002 was a year of significant transition for Palabora Mining
Company. The planned closure of the open pit for large-scale mining took place
as scheduled on 30 April 2002. Smaller scale contract mining of the open pit
ramps began in May. This has been a great success with mining rates being in
excess of those forecast.
The underground mine did not achieve its targeted full production rate of 30 000
tons of ore per day by the end of 2002. Production increased during the year
from a monthly average of 4 700 tons per day in January to 13 500 tons per day
in December.
Production rates have been constrained primarily by the poor availability of
secondary breaking equipment. This is required to handle oversize material
reporting to the drawbells from the cave. Operating plans to improve production
rates are currently being implemented, including the increase in size of the
secondary breaking fleet and changes to operating methods. It is anticipated
that the target of 30 000 tons per day will be achieved in the third quarter of
2003.
As regards the development of the mine, the ore handling system, with a capacity
of 30 000 tons per day, is in place. More specifically, the undercut progressed
well and according to plan. The third crusher was commissioned on schedule and
construction of the fourth and last crusher commenced according to plan. This
will be commissioned in April 2003. 113 drawbells were completed and handed
over to operations by the end of 2002 against a target of 120 drawbells.
The delayed ramp up of the underground mine resulted in production of new copper
in concentrate of 52 197 tons, down 33 % on the 78 381 tons achieved in 2001.
Reduced new copper in concentrate production was supplemented by the processing
of smelter secondaries and low-grade concentrate stockpiles. These sources
provided an additional 12 170 tons of copper in concentrate. Total production
of copper in concentrate was 64 367 tons (2001: 82 243 tons). Imported
concentrate and stock-piled concentrates and scrap copper were also processed as
feed to the smelter, as well as stockpiled concentrate. As a result of this,
refined copper production was 81 392 tons, 6% lower than 2001 production of 86
848 tons.
Industrial Minerals profits are lower than those for 2001 following the closure
of the zirconia plant in August 2001. The upgraded ZBS plant was commissioned
in the second half of 2002. Commissioning of the plant was delayed following a
fire in January 2002. As a result, production of ZBS was limited to 501 tons in
2002 (2001: 1 229 tons). Production of ZBS within customer specifications is
being achieved on a consistent basis from the refurbished plant. Average sales
prices achieved for ZBS in 2002 were low due to the sale of stockpiled low-grade
material. Production of vermiculite improved significantly in 2002 as a result
of improved plant recoveries.
During 2001, Palabora embarked on a number of business improvement initiatives
in order to retain its position as a small-scale world-class mining company.
Good progress was made with these projects in 2002, resulting in improved
process and equipment efficiencies and reduced operating costs. A successful
redeployment programme was undertaken in the first half of 2002 to ensure that
employees working in the open pit were redeployed elsewhere in the company
wherever possible. A number of redundant assets from the open pit operations
were sold during 2002, generating cash income of R19 million.
The Group's net debt decreased by R158 million during the year. Consolidated
net debt was R1 435 million at 31 December 2002. This was largely due to
exchange gains on the US$90 million loan facility due to the strengthening of
the Rand between the start and end of 2002. The company will be paying the
first half yearly instalment of its long-term loan facility of US$15 million and
R47 million on 11 June 2003. As a consequence of the strengthening of the South
African Rand in late 2002, coupled with the delay in ramp up of underground mine
production, the cash flow in the latter part of 2002 was below plan. Management
is taking the necessary action to ensure that adequate funding is available. It
is unlikely that dividend payments will recommence within the next two years.
Palabora's safety performance has deteriorated. The lost time injury frequency
rate (LTIFR) for the year was 0,46 (2001: 0,27) arising from 26 lost time
injuries. Of the 26 lost injuries 17 occurred in the underground mine.
Contractors accounted for 65% of the lost time injuries.
There was an increase in raw water consumption with an average of 43,5 Ml/day
for 2002, compared with 36,6 Ml /day for 2001. This increase is largely due to
the low rainfall for the calendar year of 154mm against the annual average of
527mm.
Palabora, through the Palabora Foundation, has a long-term commitment to develop
and maintain sound relations with neighbouring communities through a number of
programmes targeting education, community services, skills development and
healthcare.
The company bid farewell to Wells Ntuli upon his retirement at year-end. We
would like to take this opportunity of thanking Mr Ntuli for his valued
contribution during the 11 years he was a director of the company. Josh
Sachikonye will act as Chairman until a successor is appointed later this year.
For further information, please contact:
LONDON AUSTRALIA
Media Relations Media Relations
Hugh Leggatt Ian Head
+ 44 (0) 20 7753 2273 +61 (0) 3 9283 3620
Investor Relations Investor Relations
Peter Cunningham Dave Skinner
+ 44 (0) 20 7753 2401 +61 (0) 3 9283 3628
Richard Brimelow Daphne Morros
+ 44 (0) 20 7753 2326 +61 (0) 3 9283 3639
Website: www.riotinto.com
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