Assore R9bn cash pile “not a lot of money” as holds back from bonus payout ahead of reinvestment

Charles Walters, CEO, Assore

ASSORE is “looking at different options” for its R9bn cash pile, but CEO, Charles Walters, rules out the possibility of paying out a special dividend.

“R9bn is not a lot of dollars when you are looking at procuring mining assets,” he said on Thursday. “We will continue to build it up.” He said Assore was investing in its existing assets and looking at others that would augment its current marketing and mining capabilities.

Assore, which is generally a generous dividend payer, declared a record dividend of R24 a share for the year to June, representing a juicy 7.5% yield on its current share price of R318. Headline earnings rose 25% to R61.87 a share compared with last year, reflecting the surge in iron ore prices, an 8% increase in sales of manganese ore, elevated manganese prices and a 10% weakening in the average rand/dollar exchange rate.

The group’s profits for the year to June show the benefits of China’s continuing demand for iron ore and manganese to supply crude steel manufacturing, as well as the decision several years ago by Assore and its joint venture partner in Assmang, African Rainbow Minerals (ARM), to invest in expanding output.

Most of the capex of R6.9bn that Assmang allocated to expanding the Black Rock manganese complex and 25% of the R2.7bn for the modernisation of Gloria mine has been spent to date.

Assore’s share in Assmang contributed R5bn of its headline earnings of R6.4bn. The average iron ore price (62% ‘fines’ grade) rose to $80/ton from $69/ton in the 12-month period. Manganese ore prices remained high, with an average index price of $6.68/dmtu (44% content). Assore said fundamental changes have occurred in the Chinese ferro-alloy industry, with growing silico-manganese production which requires greater manganese ore content, coupled with reduced Chinese production of manganese ore.

The global market for manganese alloys remains oversupplied and pricing is weak, requiring an impairment to Assmang’s 54.36% stake in the Sakura ferro-alloys smelter in Malaysia, on which Assore’s share was R507m. Although there is land around Sakura that would permit future expansions, this is not being considered under present market conditions, Walters said.

The contribution from Assore’s wholly-owned Dwarsrivier chrome mine fell to R516m from R875m, reflecting lower chrome prices and the effects of a strike in March. The average chrome index price (44% content) dropped to $187/ton from $224/ton in 2018. Assore said the effect of the US/China trade war on consumer confidence was affecting demand for stainless steel in China, although there was an increase in global stainless steel production.

Iron ore prices have cooled in the last couple of weeks and most analysts predict a slowing of global growth in the next few years, which would affect demand for crude steel. But stimulus measures in China, including a new round of infrastructure projects, could support demand for Assore’s products in the short term. Walters said the outlook for the group’s commodities is positive in the longer term as the global 1.5 billion ton steel industry will continue to require inputs.

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