African Rainbow Minerals (ARM) trebled headline earnings to R3.2bn in the year to June and more than doubled its dividend to a record 650c a share based on financial and operating improvements across the board but there’s trouble ahead for the Nkomati nickel mine.
Chairman Patrice Motsepe attributed his group’s performance to higher US dollar prices realised for all the commodities in ARM’s portfolio while the group’s “cost containment initiatives yielded good results.”
He also pointed out that ARM’s net debt position had dropped to R1.3bn at end-June from R4.2 bn at end-June 2016 but added “ARM and Glencore Operations South Africa are in discussions concerning the restructuring of the ARM Coal partner loans to improve ARM’s debt obligations in terms of these loans.”
ARM Coal and Nkomati made substantial contributions to group earnings with ARM Coal reporting headline earnings of R82m (previous financial year – R297m loss) while Nkomati made headline earnings of R91m ( R244m loss)
But the improvement at Nkomati was mainly the result of an accounting adjustment with the company reporting “an attributable mark-to-market adjustment of R78m (2016 – R242m negative adjustment) resulting from increased nickel and pgm (platinum group metal) prices since the date on which the sales were recognized.”
Operationally, Nkomati did not do well with tonnes milled dropping 9% to 7.49mt while nickel units produced fell 26% to 15,875t (21,592t). ARM took a R734m impairment against Nkomati in its interim results for the financial year to end-June.
According to Motsepe, Nkomati is “entering a challenging period for the next three years which is expected to negatively impact volumes, operating and capital costs. ……these operational challenges coupled with a subdued short-term outlook for nickel and chrome prices are expected to negatively impact the mine’s future cash flows.”
He added, “ARM is engaging our partner on the best way forward for the mine and various options are being considered.”
