PETMIN said it would begin sourcing funding for its $250m pig iron project which is held in its 40%-owned North Atlantic Iron Corporation (NAIC) in the fourth quarter once it had completed a bankable feasibility study.
Commenting in its full-year results announcement, in which earnings were hit hard by the R115m write-down of its investment in Veremo, an iron ore project, Petmin also said it hoped to approve an equity investment of R57.5m in NAIC as well as appoint executives to develop the project, to be sited in North America.
“The bankable feasibility study at NAIC prepared by Tenova/Tecint is in draft form and is expected to be finalised in the next month,” the company said. “Debt and equity funding for the plant construction will commence once the BFS is concluded,” it added. Headquartered in Italy, Tenova is a technologies, products and engineering services company.
Feasibility studies had been underway on the project for several years until the collapse in the iron ore price. A proposal to list NAIC in North American, with a secondary Johannesburg listing, which would then be unbundled to Petmin shareholders, was also put on the back-burner.
Bradley Doig, Petmin’s commercial director, said in March this year that the company would look to debt fund about 70% of the project. “We think we can do that with a solid project,” he said.
Introducing a second revenue stream into Petmin’s business would help take the pressure from Somkhele, its anthracite mine situated in KwaZulu-Natal province.
Production of saleable anthracite was 7% lower at some 2.8 million tonnes in the year ended June 30 owing to a geological problem at the mine whilst efforts to conserve water following a drought in the region also affected capacity at one of Somkhele’s wash plants.
In addition, average prices for inland sales of anthracite were 5% lower year-on-year. Export sales were assisted by rand weakness against the dollar which helped offset a 14% decline in average dollar prices for anthracite.
Despite these headwinds, Somkhele contributed towards slightly higher revenue for the year of R1.28bn compared to R1.27bn. Mining costs were relatively well maintained but a decision to write down Veremo led to a mere R11m profit for the year against R125m previously. Petmin’s normalised profit was R139.7m compared to R132.9m in the 2015 financial year.
Petmin previously wrote down Veremo, which is based in Mpumalanga province, for R181m in 2014 taking the total write-down of the project at that time to R381m.
The project is the subject of long-standing litigation between Petmin and its one-time partner Kermas over the disputed payment of R65m per year for three years between February 2013 and February 2015. The claim is now R195m.
Commenting on prospects for its 2017 financial year, Petmin said anthracite production would increase 4% whilst sales would improve a fifth after it had placed an inventory build up in 2016.
Average dollar prices for its exports in the six months ended December would, however, fall 19% from those achieved in 2016, the company said. But it expected “an upward trend” in pricing in the second half of the 2017 financial year.
