AFRICAN Rainbow Minerals (ARM) intends carrying out further cutbacks and workforce reductions on its copper and platinum operations as depressed commodity prices dropped the group’s headline earnings by 51% to R507m in the six months to end-December.
The group has also announced a sweeping overhaul of its black economic empowerment structure – the ARM BBEE Trust – to achieve “… a permanent and sustainable funding solution for the Trust”.
The new funding structure will keep ARM’s BEE shareholding above 50% and remove the existing financial guarantees. ARM has had to provide guarantees of R850m to Nedbank because of the drop in the group’s share price which affected the financial covenants attached to the loan.
In his presentation of the group’s interim results in Johannesburg today CEO, Mike Schmidt, picked out the main problem areas as the Lubambe copper mine in Zambia and the Modikwa and Nkomati platinum mines in South Africa.
ARM was forced to take a R1.4bn impairment charge against Lubambe which was largely responsible for knocking the group’s basic earnings to a loss of R996m for the six months to end-December (previous comparable period – R801m profit).
According to Schmidt: “The Lubambe Copper Mine plan is under review to reduce cash funding requirements and preserve its resource value”. He also said the Lubambe extension project had been “put on hold until an opportune time when the copper price has recovered”.
That is despite improvements in operating costs achieved following the decision in the last quarter of ARM’s financial year to end-June to stop mining the South Limb at Lubambe and focus on the East Limb.
Section 189 notices have been issued to the workforces at the Nkomati and Modikwa mines in South Africa. Both mines are part of ARM Platinum which plunged to an overall loss of R9m for the six months (R277m profit) despite the Two Rivers mine making a profit of R155m (R176m).
ARM introduced a ‘recovery plan’ at Modikwa in July last year chopping back on R207m of planned capital and restructuring its South 1 and South 2 shaft operations.
While that has delivered some benefit in terms of lower costs and higher output Schmidt says: “To mitigate the effect of the unfavourable market conditions and ensure the long-term viability of Modikwa, the mine has initiated voluntary separation as well as a Section 189 process which will result in a reduction of labour”.
Nkomati was hammered by a 30% drop in the rand nickel price received and lost R117m (R101m profit). The mine implemented a restructuring and cash preservation plan in December which ended all incentive schemes; terminated the services of all non-core contractors; stopped all non-core operating costs and capital expenditure and cut back on waste-stripping for four months.
Said ARM chairman, Patrice Motsepe: “We have to remain a globally competitive mining company. It starts and ends there”.
He added the group is “critically reviewing non-performing operations and assessing whether these have potential to achieve improved results in future – especially those operations which are positioned above the 50th percentile of the global cost curve”.
Asked about possible merger and acquisition activity in the current business environment at a presentation to investors in Johannesburg today Schmidt said ARM has always stated it would look at and assess any opportunities that might come up but added the group would not make any premature comments on M&A developments.
But Schmidt confirmed that ARM was looking at possible developments and synergies regarding Kumba Iron Ore.
He commented: “We are aware that those assets are up for sale. Our business development group is looking at it and engaging to see if there is an opportunity. We certainly think there are synergies from an operating point of view”.
