PAM - Palabora Mining - Reviewed Provisional Results And Dividend Announcement
PAM
PAM
PAM - Palabora Mining - Reviewed Provisional Results And Dividend Announcement
For The Year Ended 31 December 2009
Palabora Mining
Company Limited and its Subsidiaries
(a member of the Rio Tinto Group)
(Incorporated in the Republic of South Africa)
(Reg. No. 1956/002134/06)
JSE Code: PAM ISIN: ZAE000005245
("Group" or "Palabora" or "the Company")
REVIEWED PROVISIONAL RESULTS AND DIVIDEND ANNOUNCEMENT for the year ended 31
December 2009
COMMENTARY
Overview
Commenting on the full year results for Palabora, Managing Director Matthew
Gili said, "Palabora`s profit in 2009 is pleasing in light of the global
financial crisis."
"Gross revenue was lower in 2009 compared with 2008 because of a 37% decrease
in copper prices which was partially offset by a 35% increase in magnetite
sales over 2008 and a 42% increase in magnetite pricing. In addition, net
revenue was positively impacted by the reduction in hedge related costs.
Mr. Gili said repairs and maintenance in several mine production centers along
with an increase in purchased cathode lead to higher cost of sales and
increased production and sales of magnetite lead to an increase in selling and
distribution costs.
"We remain cautiously optimistic markets will continue to strengthen in 2010,
with demand for Copper and Magnetite remaining buoyant," Mr. Gili said.
The senior term facility was settled in 2009 with the final repayment of R80
million. The Company has outstanding debt totaling R102 million on its
revolving credit facility.
A contractor at Palabora lost his life during 2009. Palabora is saddened by
the
fatality and management continues to focus its efforts to ensure a safe
working environment by increasing management visibility and continued
engagement and education of the work force about accepting personal
responsibility towards safety.
The Board declared a dividend of R6.20 per share.
Group financial results
Reviewed Audited
For the year ended 31 December 31 December
2009 2008
Net profit for the year R284 million R720 million
Basic earnings per share 587 cents 1 489 cents
Earnings before interest, income tax,
depreciation and
amortisation (EBITDA) R1 128 million R1 308 million
Headline earnings (note 8) R289 million R721 million
Headline earnings per share 598 cents 1 493 cents
Net cash (excluding hedge) (note 12) R1 292 million R555 million
Dividend per share (declared) R6.20 R0.82
Net profit
The net profit for the year decreased from R720 million in 2008 to R284
million in 2009, or 1 489 cents per share in 2008 compared with 587 cents per
share for 2009. Headline earnings per share also decreased from 1 493 cents
per share in 2008 to 598 cents per share in 2009.
Sales revenue
Sales of products decreased by R352 million (6%) to R5 831 million in 2009,
mainly as a result of the following:
* Lower average copper prices realised which resulted in a decrease of R1 320
million in sales (the realised average copper price was 231 USc/lb in 2009
compared with 317 USc/lb in 2008);
* A decrease of 26% in other by-products sales of R62 million from R238
million
in 2008 to R176 million in 2009, mainly due to reduced industrial demand for
sulphuric acid; and
* A decline of R13 million in sales due to vermiculite sales volumes
decreasing
by 3% from 188 825 tonnes in 2008 to 183 264 tonnes in 2009;
The decreases were partially offset by:
* An increase in sales of R395 million as a result of higher magnetite sales
volumes. In 2009 magnetite sold were 2 569 thousand tonnes, a 35% increase
compared with 1 899 thousand tonnes in 2008;
* Higher magnetite and vermiculite prices increased sales by R319 million and
R24 million respectively. Magnetite prices increased due to changes in terms
of
sale from Freight-on-Board (FOB) to Cost-Freight-Insurance (CFI)/Cost-Freight-
Rail (CFR) for exported magnetite;
* Higher realised copper premiums increased revenue by R145 million;
* A marginal increase in cathode and copper rod sales volumes from 75 594
tonnes in 2008 to 76 673 tonnes in 2009 contributed an additional R83 million
in revenue; and
* The weakening of the average Rand/US$ exchange rate for the year from 8.26
in
2008 to 8.33 in 2009 increased sales by R77 million.
Product sales as a % of total sales 2009 2008
Copper 64% 78%
Industrial minerals (vermiculite) 7% 6%
Magnetite 26% 12%
Other by-products 3% 4%
Total 100% 100%
The Group achieved an average realised selling price (post hedge) for copper
rod and cathode of R36 307 per tonne(2008: R40 426) and R44 249 per
tonne(2008: R40 433)respectively.
The sales was further positively impacted by lower realised hedging losses
resulting from the contractual reduction in the swap settlement terms from 42
thousand tonnes of copper in 2008 to 22 thousand tonnes in 2009. This
resulted in a R1 031 million reduction in swap settlement costs in 2009.
Production and sales volumes
Copper cathode produced for sale decreased 9% from 75.9 thousand tonnes in
2008 to 69.4 thousand
tonnes in 2009. Copper sales volumes increased 2.3%
from 85 thousand tonnes in 2008 to 87 thousand tonnes in 2009. Magnetite sales
volumes increased 35% from 1 898 thousand tonnes in 2008 to 2 568 thousand
tonnes in 2009. Acid sales volumes decreased 22% from 109 thousand tonnes in
2008 to 85 thousand tonnes in 2009.
Cost of sales
The Group has adopted a robust cost containment and cash flow preservation
strategy in response to the world economic recession. Discretionary spending
was curtailed and new labour recruits restricted to critical areas only.
The total Group cost of sales increased by 13%, from R2 761 million in 2008 to
R3 106 million in 2009. The increase in cost of sales was largely impacted by:
* An increase in cathodes purchased. In light of production difficulties faced
during the second half of the year, 7 085 tonnes
of cathodes were purchased at
a cost of R343 million, of which 6 231 tonnes were converted into rod and 854
tonnes were sold directly. In 2008 Palabora purchased 753 tonnes of copper
cathode at a cost of R49 million.
* Increased plant maintenance costs. Plant breakdown-related expenses
increased
repairs and maintenance costs by 8% to R645 million in 2009 compared with R595
million in 2008. This was as a result of smelter breakdowns, failure on one of
the auto mill motors and a breakdown of the north winder drum;
* Employee costs increased by R84 million, an increase of 12%. Although a
hiring freeze of non-critical positions was imposed, the annual salary
increase and retention strategies introduced during the previous financial
year impacted on the costs;
* Depreciation expense (a non-cash charge) increased by R81 million compared
with the 2008 year, representing a 17% increase from R470 million in 2008 to
R551 million in 2009. This is attributed to the additions during the second
half of 2008 and during the current year, as well as an escalated depreciation
factor based on the lower copper yield as was assessed in the annual ore
reserve statement at the end of the previous financial year;
* Increases in power tariffs. The 27% tariff increase by Eskom in July 2009
increased costs by R38 million.
Changes in inventory of finished goods and work in progress of R210 million in
2009, compared with a credit of R240 million in 2008, resulted in an increase
of R450 million in cost of sales.
The Group saved R509 million on supplementary copper concentrate purchases due
to the lower copper
prices paid in addition to the 44% reduction in volumes
purchased of 8 569 tonnes in 2009 compared with 15 396 tonnes in 2008.
Earnings before interest, income tax, depreciation and amortisation (EBITDA)
The Group achieved earnings before interest, income tax expense, depreciation
and amortisation (EBITDA) of R1 128 million in 2009 compared with R1 308
million in 2008. EBITDA is calculated by adding depreciation and amortisation
charges (refer to note 4) to the profit before net finance costs and tax as
reported on the face of the income statement.
Selling and distribution costs
Selling and distribution costs increased by R599 million. The increase in the
selling and distribution costs from R587 million in 2008 to R1 185 million for
2009 is mainly as a result of higher magnetite volumes sold, the change in
magnetite shipping terms from FOB to CFI/CFR
and increased freight and
railage-to-port rates. Administration costs increased by R44 million.
Earnings before Interest and taxes (EBIT)
The Group`s profit before interest and tax was R577 million compared with R838
million in 2008, a decrease of R261 million.
Finance costs
Net finance cost increased by R116 million due to higher foreign exchange
losses on revaluations of financial instruments.
Income taxes
The effective tax rate increased from 13.3% to 37.3% in 2009 mainly as a
result
of the tax legislation changes (Royalty Act) that impacted the recognition of
deferred tax on the State share in 2008. See notes 6 & 10.
Cash flow
For the year ended 31 December 2009, the Group recorded net cash inflows of
R745 million compared with net cash outflows of R175 million in 2008, mainly
due to lower dividend and tax payments, pension fund surplus received,
decrease
in investing activities due to the postponement of non-critical capital
projects until market conditions improve, and lower repayments on borrowings.
Cash generated from operations during the year totalled R1 073 million. After
receiving the pension surplus of R241 million, tax payments of R253 million,
funding the dividend payments of R119 million, net investing activities of
R111
million, repayment of borrowings of R80 million, net interest payments of R6
million and
excluding exchange losses of R97 million, the closing cash
position
was R1 395 million (compared with R747 million in 2008).
Capital investment of R132 million was primarily spent on the underground mine
(R65 million), concentrator (R24 million) and the smelter (R26 million). The
main capital costs spent in 2009 for the underground mine relate to committed
development costs of the Western Extension (R27 million), replacement of 4
LHD`s (R15 million) and winder costs (R14 million). The concentrators main
capital projects for 2009 consisted of the construction of the south paddock
tailings dams (R10 million), re- medial work at the dams (R6 million) and
improvements to the Magnetite load out and booster station (R5 million),
whilst
the smelter`s capital costs consisted
of statutory replacements of waste heat
boilers one and two. The net cash outflow was offset by other investing
activities of R22 million.
The R80 million used in financing activities was for the final repayment of
the
senior term facility.
Net cash
Net cash increased from R555 million in 2008 to R1 292 million in 2009 as a
result of an increased emphasis on preserving cash through dedicated focus on
the working capital management and efficiency programme. Palabora finally
received the employer`s portion of the pension fund surplus in October 2009,
amounting to R241 milllion.
Black Economic Empowerment (BEE)
It is presently envisaged that 26% of a newly formed, special purpose
subsidiary of Palabora, which subsidiary will acquire all or an appropriate
part of Palabora`s business under the potential broad based BEE transaction
("the transaction"), will be held by a combination of(i) the consortium, (ii)
Palabora employees and (iii) a trust established forthe communities of the Ba-
Phalaborwa area, with the remaining 74% held by Palabora. Mr. George Negota is
leading a consortium of entrepreneurs ("the consortium") to acquire an equity
interest not exceeding 6%. Due to the potential conflict of interest, Mr.
Negota was recused from Board discussions relating to the Transaction at the
Board meeting held on 23 February 2009, and resigned from the Board with
effect from 24 March 2009.
On 30 April 2009, Palabora signed and submitted a Transaction Framework
Agreement
(TFA) bearing the signatures of its Broad Based Black Economic
Empowerment (BBBEE) partners to the Department of Minerals and Resources (DMR)
in Polokwane. The negotiations to finalise terms of the agreement have entered
final stages and the new structure is projected to be concluded during 2010.
Declaration of dividend
A cash dividend of R6.20 per share has been declared. Payment in South African
Rand will be made on Monday, 8 March 2010 to shareholders recorded in the
register of Palabora on 5 March 2010. The last day to trade to
qualify for the dividend will be Friday, 26 February 2010 and the shares will
trade ex-dividend from Monday, 1 March 2010. Share certificates may not be
dematerialised or rematerialised between Monday, 1 March 2010 and Friday, 5
March 2010, both days inclusive.
This financial report does not
reflect this dividend payable, which will be
recognised in shareholders` equity as an appropriation of retained earnings in
the year ending 31 December 2010. Refer to note 14 for details on the
dividends paid during the year.
Corporate Governance
Mr. George Negota resigned as a non-executive director and Chairman of the
Board, with effect from 24 March 2009 (see BEE).
With effect from 24 March 2009, Mr. Clifford Zungu has been appointed as
interim Chairman of the Board. Mr. Zungu has been an independent non-executive
director of Palabora since April 2002 and held the chairmanship during the
2006 financial year.
Mr. Clive Latcham resigned as a non-executive director of the Board, with
effect from 31 July 2009. With effect from 1 August 2009,
Mr. Lindsay
Kirsner was appointed as a non-executive director of the Board. Mr. Kirsner
has in excess of 19 years mining industry experience in a range of roles in
mineral exploration, business development, resource development and
projects. Mr. Kirsner holds a science degree (geology & chemistry) and an
MBA, both from the University of Melbourne and has been with the Rio Tinto
Group since 2000. Presently, he holds the role of Mining Executive, Copper.
Mr. Philip J. Robinson resigned as an alternate non-executive director of the
Board, with effect from 18 September 2009. With effect from 21 September
2009, Mrs Jo-Ann S. Yuen was appointed as an alternate non-executive
director. Jo-Ann is Australian and was based in Rio Tinto`s London office
from 2003 to March 2008 and has been based in North America since April
2008. She is currently the Chief Adviser Finance to Rio Tinto Copper group
and
previously the Chief Financial Officer of Rio Tinto copper projects. Jo-
Ann is a chartered accountant with a master of business administration from
the
University of Western Australia, together with a diploma in applied finance
from the Securities Institute of Australia.
At 31 December 2009 the Palabora Board was constituted as follows:
DIRECTORS ALTERNATE DIRECTORS
1. Clifford N. Zungu (Chairman) -
2. Matthew D. Gili (Managing Director)*+ -
3. Charles A. Asubonten (Chief Financial Officer)*+ -
4. Shelley Thomas -
5. Johan C. Posthumus -
6. Kay S. Priestly+
Jo-Ann S. Yuen
7. Lindsay W. Kirsner Coen H. Louwarts#
* Executive Directors +American Australian # Dutch
The following changes occurred since 31 December 2009:
Mr. Charles A. Asubonten`s secondment contract as Chief Financial Officer from
Rio Tinto to the Company ended on 31 December 2009. Charles remains a board
member until further notice. With effect from 1 January 2010, Mr. Marshall
Bruce Snyder has been appointed in the interim as acting Chief Financial
Officer whilst a comprehensive recruitment process for a suitable candidate
is undertaken. Bruce is American and was based in Rio Tinto`s Salt Lake
City office from 2002. He is currently a Business Development Executive for
Rio Tinto in the Copper Group. He has had previous Finance, Accounting,
Treasury and
Investor relations roles with several New York Stock Exchange publicly held
real estate operating companies. Bruce holds BBA Accounting and MBA Finance
and Investment degrees from the George Washington University.
During his tenure Charles Asubonten focused on value and risk management in
improving the balance sheet of Palabora. He was instrumental in the initial
structuring of a Black Economic Empowerment transaction to fit the economics
of Palabora, surrounding communities, and the employees.
Commenting on Charles` tenure as CFO, Clifford Zungu, Chairman of the board
stated: "Charles leaves behind an improved balance sheet with an enhanced cash
position and we appreciate his efforts."
With effect from 11 January 2010, Mr. Ray Abrahams and Ms Francine Ann du
Plessis were appointed as Independent Non Executive Directors. Mr. Abrahams
joins
the Company with significant practical experience in operations, design,
construction, maintenance and projects within the mechanical engineering
fields of opencast mining, petrochemical, utilities and manufacturing
industries. Mr. Abrahams is a member of several professional organizations
including the Institute of Directors, Engineering Council of South Africa,
Black Management Forum and Future Leaders Forum. He holds a BSc (Mech Eng)
from Wits University, He is a registered professional engineer and also holds
Government Certificates of Competency in Mining and Factories from the
Departments of Labor and Minerals and Energy respectively. Ms. Du Plessis
joins the Company with extensive experience as a Director. She has held
several positions as director as well as
serving on Board committees in many listed and non listed companies including
SAA (Pty) Ltd, KWV Limited,
Sanlam Limited, Naspers Limited. She was admitted
as an Advocate of the High Court of South Africa (Cape Town) in 1994 and she
was a Senior Lecturer at the University of Stellenboch, Department of
Accounting Faculty of Commerce and Department of Commercial Law, Faculty of
Law
in 1985 to 1993. Ms. Du Plessis is a qualified Chartered Accountant and holds
B
Comm (Hons) (Taxation), LLB, and B Comm (Law) degrees from the University of
Stellenbosch.
Appreciation
Once again we offer our thanks and appreciation to all stakeholders for their
continued assistance in Palabora`s quest to deliver value.
C Zungu MD Gili MB
Snyder
Chairman Managing Director Chief Financial Officer
(Acting)
8 February 2010
REVIEWED PROVISIONAL
CONDENSED GROUP RESULTS
CONDENSED CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2009
Reviewed Audited
31 December 31 December
2009 2008
Note R`000 R`000
Sales of products 5 830 552 6 183 013
Hedge loss realised
(546 677) (1 578 433)
Revenue 5 283 875 4 604 580
Cost of sales (3 105 894) (2 760 701)
Gross Profit 2 177 981 1 843 879
Other income 70 569 83 844
Exploration cost 2 (17 866) (3 283)
Impairment loss 3 (8 830) -
Selling and distribution costs (1 185 195) (586 595)
Administration expenses (447 708) (403 734)
Other expenses (11 930) (96 007)
Profit before net finance costs and tax 4 577 021 838 104
Finance costs - Net 5 (123 671) (8 024)
Finance cost (189 743) (126
284)
Finance income 66 072 118 260
Profit before income tax 453 350 830 080
Income tax expense 6 (169 513) (110 541)
Profit for the year 283 837 719 539
Profit attributable to:
Equity holders of parent 283 837 719 539
Earnings per share from continuing
operations attributable to the
equity holders of the company during
the year (expressed in cents per share):
- Basic and diluted earnings per share 7 587c 1 489c
The notes on pages 11 to 23 are an integral part of these provisional
condensed
group results.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2009
Reviewed Audited
31 December 31 December
2009 2008
Note R`000 R`000
Profit for the year 283 837 719 539
Other comprehensive (loss) / income:
Available-for-sale investments:
- Valuation gain / (loss) taken to equity 16 348 (11 811)
Exchange differences on translation of
foreign operations
(35 749) 14 919
Cash flow hedges:
- (Loss) / profit arising during the year (2 100 197) 276 040
- Hedge ineffectiveness 2 840 86 741
- Transferred to profit or loss for the year 546 677 1 578 433
Actuarial gain / (loss) on defined
benefit plans 4 546 (2 491)
Income tax relating to components of other
comprehensive income 6 408 559 (688 925)
Other comprehensive (loss) / income
for the year, net of tax (1 156 976) 1 252 906
Total comprehensive (loss) / income
for the year
(873 139) 1 972 445
Total comprehensive (loss) / income
attributable to:
Equity holders of the parent (873 139) 1 972 445
The notes on pages 11 to 23 are an integral part of these provisional
condensed
group results.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2009
Reviewed Audited
31 December 31 December
2009 2008
Note R`000 R`000
Assets
Non-current assets 4 252 699 4 226 751
Property, plant and equipment 9 2 990 083 3 413 767
Intangible assets 4 871 4 105
Other financial assets 360 383 313 988
Deferred income tax asset 10 897 362 494 891
Current assets 2 755 215 2 357 953
Stores 115 226 115 416
Product inventories 618 713 837 059
Trade and other receivables 626 286 658 464
Cash and cash equivalents 12 1 394 990 747 014
Total assets 7 007 914 6 584 704
Equity
Equity attributable to owners of parent
