Petmin up as market shakes off write-downs

[miningmx.com] – SHARES in Petmin, a producer of anthracite and thermal coal from facilities in KwaZulu-Natal province, were 14% higher in Johannesburg after the company paid a 3 cents per share dividend.

This was despite posting an increase in the full-year headline earnings loss per share when non-cash items were included of which the largest was a R181m write-down on its pig iron project Veremo near Stofberg in Mpumalanga province.

Veremo is the subject of litigation with Petmin’s partner Kermas over the disputed payment of R65m per year for three years between February 2013 and February 2015 with the total write-down on Petmin’s books now at R381m.

Petmin is currently paying for a number of missteps in a diversification strategy launched just as the commodity market went into a major sell-off.

For instance, it has written down a proposed investment in a Guinea iron ore venture through Iron Bird Resources by R19m amid difficult conditions in the sector, whilst it also carried the value of its investment in Red Crescent Resources (RCR), a base metals exploration prospect in Turkey, to nil following RCR’s liquidation.

The outcome was a loss per share for the year ended June 30 increasing 7% year-on-year to 20.70 cents. Stripping out the non-recurring, non-cash costs, however, normalised earnings were up 24% from its 2013 financial year.

This was despite weaker market conditions for metallurgical coal produced by the KwaZulu-Natal aset, Somkhele which is Petmin’s only operating asset. It increased anthracite output 37% to just over 1.1 million tonnes (mt) while thermal coal output was just under 150,000 tonnes from 25,000 tonnes previously.

The increased tonnages and consequent higher sales volumes from Somkhele offset deteriorating prices for both types of coal with mine gate export anthracite prices declining by 27% year-on-year.

Share earnings would have been 13 cents higher had anthracite coal prices stayed static from one year to next, said Petmin CEO, Jan de Preez in a conference call today. However, the company was focusing on further reducing costs at Somkhele.

“These are things we can control,” said De Preez although he added that the easy cost saving items had been tackled.

“We’ve reached a stage in which low hanging fruit on cost improvements at Somkhele have been taken,” said De Preez, who added however that Petmin would now turn its attention to lowering mining costs.

Commenting on the Veremo pig iron project, Petmin’s new business director, Bradley Doig, said the firm was hopeful of developing the project notwithstanding the dispute with Kermas which owns 75% of the project.

“We have a dispute with the shareholder regarding a financial transaction when we took a stake in the business. We are vigorously pursuing a claim. Other than that the project is viable and we are looking to develop it with the partner despite the difference of opinion,” said Doig.

There was no significant update on plans to unbundle Petmin’s increased stake – now 40% – in the pig iron development company, North Atlantic Iron Corporation (NAIC) which is still set fair for mid-2015.

The transaction will see Petmin exchange its equity in NAIC for R300m in return for equity in Muskrat Minerals Inc. which will list on a major North American stock exchange and take a secondary listing on the JSE.

These shares would be unbundled to shareholders at an estimated value of about 50 cents per Petmin share, Doig said.