[miningmx.com] – AFRICAN Rainbow Minerals (ARM) pared profit expectations of its iron ore production saying that although there had been an “over-reaction” in the price correction, investors should prepare for lower returns.
“Earnings from iron ore will be solid, but not at the record levels to which we have been accustomed to over the years,” said Andre Joubert, CEO of ARM Ferrous.
The division contributed R3.7bn to ARM’s full-year headline earnings of R4.1bn in the 2014 financial year, a 17% improvement year-on-year. Of this, roughly 80% is comprised of profits from ARM’s iron ore mines.
The price of iron ore has contracted heavily in the last 12 months falling from record levels of $140/t to below $90/t recently – a development that Glencore CEO, Ivan Glasenberg said this week was almost entirely owing to over-supply of the metal.
Said Joubert: “The iron ore price is certainly under pressure. Demand is strong still, but a vast supply is coming in from Australia”. He added that Australian exporters were delivering iron ore at between $30 to $40/t.
“We have taken this into plan and we know what’s coming our way,” he said, adding that ARM could still attract a premium price for the quality of its iron ore.
“The benefit is that we have got very good grades and lumpy material – which is used as a blend – and of late there is a lumpy premium coming through.
“We won’t see record prices of $140/t, but the market is over-correcting to the negative side. We normally see an over-correction, and towards the end of the year pricing will come back to level of $90-odd level,” he said.
“Our margin is still pretty helpful. Earnings from iron ore will be solid but not at record levels,” he said.
However, there was bad news for ARM’s ferro-manganese operations were further reductions were in the offing.
“Now we are just running the most efficient smelters [of ferromanganese]. We have taken two units off and put them under one management team, but we are looking at further rationalisation that can be achieved. We will do that towards the end of the year,” he said.
The R48bn diversified miner converted its ferrochrome smelters to ferro-manganese production in the previous financial year as the cost of electricity and demand made the assets unviable.
Despite this, unit costs at the group’s manganese alloy division still rose 12% year-on-year although there were heftier unit cost increases in manganese ore and the group’s coal division.
