“Lucky” Assore churns record profits and doubles its dividend

Assore shares rose 3.8% to reach R274,62 in trading on the JSE today after the release of record results for the year to end-June from which the group has doubled its total dividend for year to R14 a share.

Record attributable earnings of R5bn (year to end-June 2016 – R1.7bn) are thanks to record sales volumes of iron and chrome ore which also benefitted from sharp price recoveries for both commodities .

Assore also cleaned up on its purchase of full control of the Dwarsrivier chrome mine from partner ARM. That sale was concluded in time for Assore to ride a surge in chrome ore prices from around $150/t in July last year to a peak above $400/t in November. Chrome prices stayed at that level until April this year before dropping sharply back to the $150/t level.

Dwarsrivier pushed up its production 12% over 2016 levels and, according to Assore CEO Charles Walters, “after capital expenditure of R141m – mostly on replacement items – the mine generated in excess of R900m in cash giving effect to a payback period of less than a year for the group’s investment to acquire full control of Dwarsrivier.”

Asked if Assore management had seen the recovery in the chrome market coming Walters told Miningmx, “ no, we did not anticipate anything like that happening. We just got lucky. It was a fortuitous deal in that our chairman Des Sacco has always liked the chrome business. “

The 2017 financial year also saw a surge in the Chinese prices for 62% fine iron ore from $50/t in June 2016 to above $90/t by March this year from where they fell back to around $55/t by June this year.

Assore gets a “cherry on top” of that price because 55% of its iron ore exports are in the form of “lumpy” ore which attracts a “lump premium” in addition  to the fines price. That premium sat above $10/t for much of the year to end-June but then collapsed to below $2/t in May this year before taking off and rocketing back to current levels above $14/t.

Looking at the year ahead Walters sounded conservative pointing to the likely impact of additional iron ore supply from Australia and Brazil which “is expected to have a detrimental effect on prices which are likely to decline to levels approximating $50/t by the end of the calendar year.”

Yet, with chrome ore prices recovering to levels above $200/t and iron ore prices now back above $70/t with the lump premium north of $14/t , it could be asked whether he’s being a bit too conservative in his predictions?

Walters replied,” it’s possible I am being cautious but it’s important to note the volatility in these markets and the questions of whether China can sustain its current level of economic growth and what the Australian iron ore suppliers might do.”

He highlighted one fundamentally important change in Assore’s situation following the latest results which is the far more balanced nature of the group and commented, “we are no longer just an iron ore business.”

In financial 2017 Assore got 43% (previous year – 92%) of its attributable earnings from iron ore while 21% ( 5%) came from chrome ore and 26% ( 8%) came from manganese.