ARM trims capex

African Rainbow Minerals will spend R500 million less than anticipated on its projects in the new year as commodity prices stay low.

Johannesburg - African Rainbow Minerals will continue to review its operations and cut back on capex as commodity prices globally come under increasing pressure, the company said on Friday.

In its results for the year to June, the diversified miner notes it needs to make sure it is invested in commodities that have attractive long-term fundamentals and are positioned below the 50th percentile of the global commodity cost curve.

ARM mines and beneficiates iron ore, manganese ore and alloys, chrome ore and alloys, platinum group metals, copper, nickel and coal and also has an investment in gold through its shareholding in Harmony.

However, gold and platinum prices have been coming off sharply in recent months and are now hovering around multi-year lows. The lower price of these commodities has caused several mining companies to say they may have no choice but to cut jobs, while government has reacted with a bid to reach an accord between miners and unions in an attempt to save a sector that was once the bedrock of SA’s economy.

In the year to June, ARM saw its headline earnings slump 58 percent to R1.7 billion as sales declines 7 percent to R9.26 billion and it experienced a “significant decline” in commodity prices, which was partially offset by the weaker rand.

Cutting costs

Despite the slump, ARM declared its ninth annual dividend, which came in at R3.50 compared to R6 a year ago.

The miner’s basic earnings earnings dropped from R3.3 billion to R104 million because of special items, it says. These relate to a mark-to-market loss of R534 million on its investment in Harmony as well as smelter, plant and feasibility study impairments in ARM Ferrous of R292 million after tax and an attributable impairment of the Lubambe copper mine assets of R784 million.

ARM adds it managed to contain unit cost increases at either inflation level or lower, although above inflation cost escalations (especially for electricity and labour) resulted in the manganese alloy operations being positioned on the high end of the global cost curve and being unprofitable.

After ARM and Assore completed an extensive review on the long-term profitability of these operations, they decided to place all the furnaces at the Machadodorp Works and three furnaces at Cato Ridge Works on care and maintenance.

The company is also close to selling its 50 percent stake in Dwarsrivier Mine to Assore for R450 million.

During the year R400 million was spent on acquiring Tamboti Platinum, a company holding a mining right over property adjacent to its Two Rivers Mine asset.

ARM says its planned capex has been reviewed to trim spending without compromising the long-term sustainability of its operations It will spend R500 million less than expected in the 2016 year, taking spending to R2.4 billion.

During the year, the group spent R400 million more in capex than in 2014, taking total spend to R3.3 billion as a result of increased waste stripping costs at Nkomati Mine and expenditure on upgrading infrastructure at the Black Rock and Modikwa operations.

The miner ended the period with cash on hand of R2.26 billion, which excludes the attributable cash and cash equivalents held at ARM Ferrous (50 percent of Assmang) of R2.47 billion.

Its gross debt is R3.8 billion and it has a revolving credit facility of R2.25 billion.

IOL