Assore books R71m write-down on iron ore

[miningmx.com] – ASSORE, a holding company which is in joint venture with African Rainbow Minerals (ARM) in iron ore producer, Assmang, has written down its investment by R71m following a 38% decline in the price of the mineral.

It added that interim headline earnings for the six months ended December 31 could be as much as 44.6% lower, a decline of R442m owing to poor trading conditions. The average price for its grade of iron ore price had fallen to $51 per tonne.

“The impact of these lower prices on earnings has been partly offset by a weaker Rand/USD exchange rate during the current period, which on average, was 25% weaker than the previous period,” it said in a statement to the JSE.

Attributable earnings were anticipated to fall to between R455m, a decline of 51.3%, and R557m (-40,4%) compared to R935m recorded in the first half of the previous
financial year, the company said.

Assore added that it had received ministerial consent for the R450m purchase of the Dwarsrivier chrome mine from ARM first announced in June. Assore already holds 50% in Dwarsrivier through Assmang.

“Completion of the transaction is expected to occur once the remaining CPs [conditions precedent] have been addressed,” it said.

In terms of that agreement, Assore will refund capital investment in the operation made by ARM from July 2004 to the time of transaction completion up to a maximum of R800m.

The prospects for iron ore in the current year are unfavourable, according to a report by Bank of American Merrill Lynch which forecast that the iron ore price was set to average lower in 2016 compared to 2015.

“We forecast iron ore prices at $45/t (real) in 2016, capped at $55/t in the long term as demand matures and plentiful supply of low cost brownfield tonnes remain,” it said in a report dated November 24.

The iron ore produced by Assmang is a niche, fines product that generally commands a market premium, but BoA Merrill Lynch said that new low cost, high quality production was due to come on steam this year and in 2017.

“Based on our estimates, approximately 58 million tonnes a year (58mtpa) new production will come online in 2016 and a further 71mtpa in 2017 – these tonnes are expected to be low cost, high quality ores,” it said.

Chinese demand for iron ore was forecast to fall 2.5% and 2.1% – down by 23mt and 21mt – in 2016 and 2017 respectively, the bank said.