| Mon 30 Jul 2007, 9:00 | | PAM - Palabora - Unaudited Interim Report: Six Mon |
|
PAM
PAM
PAM - Palabora - Unaudited Interim Report: Six Months Ended 30 June 2007
Palabora Mining
Company Limited and its Subsidiaries
(Incorporated in the Republic of South Africa)
(Reg. No. 1956/002134/06)
JSE Code: PAM ISIN: ZAE000005245
("Group" or "Palabora" or "the Company")
Unaudited Interim Report for the six months ended 30 June 2007
COMMENTARY
Overview
Commenting on the first half results, Keith Marshall, the Group`s Managing
Director stated: "We are pleased to report another set of strong financial
results. Palabora`s underground operational performance continues to exceed
design capacity. Our other products; vermiculite and magnetite showed steady
improvements, logistical constraints notwithstanding.
"The underground operation achieved a record production during this period,
with an average daily tonnage of ore hoisted at 33 054 tonnes exceeding design
capacity of 30 000 tonnes per day (tpd).
"As stated previously, we shall continue to execute our growth strategy by
operating in a responsible and safe manner to take advantage of the current
resources boom as we supplement the underground production with surface
stockpile materials in the copper business to optimally benefit from the
favourable commodity prices."
The safety performance was on par with the comparable period of the first half
of year 2006. Safety remains a high priority for both management and
employees.
Various programs are in place to improve and enhance the safety performance of
the business.
Group financial results
30 June 30 June 31 December
For the period ended 2007 2006 2006
Net profit for the period R382 million R258 million R467 million
Basic earnings per share 791 cents 869 cents 1 291 cents
Profit from continuing
operations before interest
and tax (EBIT) R691 million R574 million R1 172 million
Net profit
The net profit for the six months ended 30 June 2007 increased from R258
million in the comparable period in 2006 to R382 million, or 791 cents per
diluted share compared with a profit of R258 million, or 565 cents per share
for the comparable period in 2006. The basic earnings per share reduced from
earnings of 869 cents per share to earnings of 791 cents per share. The number
of issued shares increased substantially due to the debentures that were
converted into shares during 2006.
Sales of products increased by R1 078 million (53%) to R3 113 million largely
as a result of the following:
- Higher realised prices of copper of R225 million, higher realised prices for
magnetite and vermiculite (+R16 million and +R12 million respectively), and a
weakening US$/Rand exchange rate of 7.17 in 2007 compared with 6.27 for the
comparable period in 2006 (+R319 million).
- Higher sales revenues were explained by higher volumes of copper sales
(excluding revert and concentrate sales); 45 784 tonnes compared with 39 057
tonnes for the first six months in 2006 (+R311 million) and higher volumes of
magnetite sales; 586 thousand tonnes compared with 465 thousand tonnes (+R31
million) in 2006.
The Group achieved an average realised selling price (post hedge) for copper
rod and cathode of R39 182 (2006: R37 218) and R35 585 (2006: R31 771)
respectively. In the period under review, a total of 45 784 tonnes finished
copper metal was sold, compared with 39 057 tonnes in the first six months of
2006. Reverts and concentrate sales contributed an additional 11 750 tonnes of
contained copper (2006: 12 527 tonnes).
The increase in revenue was partially offset by realised hedging losses
resulting from the swap settlement of 22 thousand (2006: 22 thousand) tonnes
of copper ((-R592 million) 2006: (-R305 million)).
Total Group cost of sales increased by R528 million, from R994 million in the
first six months of 2006 to R1 522 million for the comparable period under
review, representing an increase of 53 % from the previous period. However, as
a percentage of sales the ratio of cost of sales to revenue remained constant
at 49% compared with the first half of year 2006. This cost of sales included
R252 million from revaluation of stockpiles in 2006. The increase in cost of
sales was as follows:
- The LME copper price impact on purchased concentrate of R66 million higher
than the comparable period under review in 2006. Copper concentrate purchases
increased from 11.6 thousand tonnes in 2006 to 14.1 thousand tonnes in 2007
(R92 million);
- Concentrator costs increased by R28 million mainly due to the processing of
Palabora marginal ore during the first half of 2007;
- Underground costs were higher by R12 million (excluding labour costs) than
the comparable period due to costs associated with the reclamation of Palabora
marginal ore stockpiles for re-processing;
- Mine-wide payroll costs of R62 million due to an increase in employees, the
annual salary increase, and bonus payments compared with the first half of
2006;
- Costs of major consumables increased during the first half of 2007 by R20
million;
- An increase in the professional services cost during the first half of 2007
of R14 million;
- The effect of the revaluation of revert stock in the prior period (R252
million) had an impact when some of the stock was sold during the current
period.
Consistent with our earlier comment in the 2006 annual report about investing
prudently to ensure value creation, we remain diligent in managing our costs.
The Group achieved a gross profit from continuing operations for the first
half of 2007 of R999 million, from a gross profit of R736 million for the
comparable period in 2006.
The Group`s profit from continuing operations before interest and tax (EBIT)
was R691 million, an improvement of R117 million, compared with R574 million
in the first half of 2006.
- Finance revenue increased by R25 million to R35 million (2006: R9 million)
as a result of the interest earned.
- The decrease in finance costs of R171 million was due to lower foreign
exchange losses on the loans of R133 million, and lower interest cost
primarily as a result of the debentures that were all either converted or
redeemed in the previous financial year.
- An increase of R45 million in the selling and distribution costs and R20
million in administration expenses. The increase in the selling and
distribution costs from R117 million in 2006 to R162 million for 2007 is
mainly attributable to the cost incurred for the export of copper and
magnetite.
- Tax expenses for the six months ended 30 June 2007 totalled R218 million
compared with R5 million for the same period in 2006. The half year on half
year increase of R213 million results from a R211 million in deferred tax
representing an increase in taxable temporary differences (deferred tax
liability) and R2 million increase in current tax due to higher taxable
profits in the subsidiaries (see notes 4 and 8).
Cash flow
Cash and cash equivalents at 30 June 2007 were R1 006 million compared with
R401 million at 30 June 2006.
For the six months ended 30 June 2007, the Group generated a net cash inflow
of R335 million compared with a net cash inflow of R199 million for the
comparable period in 2006.
Cash from operations of R801 million (2006: R341 million) was generated mainly
as a result of a significant increase in realised (pre-hedge) copper rod and
cathode prices (2007: 308.8; 2006: 273 Usc/lb) and the sale of surface
stockpile material of 11 750 tonnes of copper (2006: 12 527).
The Group spent R56 million on investing activities. Capital investment of R64
million was primarily spent underground (R28 million) and concentrator (R24
million). The expenditure relates mainly to new underground mobile equipment,
the refurbishing of the grinding circuit, and the South Paddock tailings dam.
The net cash outflow was offset by other investing activities of R8 million.
The cash outflow from financing activities increased from R59 million to R410
million as a result of the repayment of the principal and mandatory prepayment
of the term facility agreement of R134 million, the principal repayment on the
Rio Tinto unsecured loan of R263 million, and the full settlement of the
finance leases of R12 million.
Loan covenants
As part of the refinancing agreement, the Company is required to meet certain
covenants. On 31 May 2007, the Company issued a Loan Compliance Certificate to
the Lenders of the Senior Term Facility Agreement showing no defaults.
Net Debt
Net debt decreased from R2 096 million in June 2006 to R283 million in 2007.
Total borrowings decreased by R1 209 million from R2 497 million at 30 June
2006 to R1 288 million in 2007.
Total borrowings decreased by R386 million from 31 December 2006. This was as
a result of:
- repayment and amortisation of the Tranche A and B of the Term Facility for a
total amount of R135 million;
- principal repayment of the Rio Tinto unsecured loan in the amount of R263
million;
- settlement of the finance lease liability of R12 million;
- offset by a foreign exchange loss of R24 million in the rand value of US$
denominated debt due to the weakening of the Rand by 12 cents (from 6.98 to
7.10).
Cash balances increased by R605 million to R1 006 million.
Hedging
The hedge book as at 30 June 2007 was 168,246 tonnes of copper for a total
amount of R2 967 million spread over 6.25 years. The mark-to-market loss of
the hedge position decreased by R1 467 million (from R4 257 million at 30 June
2006 to R2 790 million at 30 June 2007). The settlement of 22,321 tonnes of
copper commodity swap for the first half of 2007 resulted in a hedging loss of
R592 million.
Mark-to-market entries on the hedge, together with the related deferred tax
asset were recognised directly in equity. The realised hedge losses are offset
against revenue in the income statement. Management decided to use market
estimates (refer to significant estimates in the basis of preparation and
accounting policy section) as proxies for valuation instead of bank models for
the latter part of the hedge book. The 2006 half year reported combined hedge
book would have been significantly lower had the same valuation estimates been
applied.
Magnetite
Palabora has entered into an agreement with Minmetals for the supply of
Magnetite. This was part of management`s decision to build the business using
"current production." Subsequently, magnetite production has been in line with
the increase in sales volumes for both coal washery and export grades.
However, rail logistics to both ports of Richards Bay and Maputo have to be
monitored closely to ensure exporting the requisite tonnes of magnetite.
BEE (Black Economic Empowerment)
The work on the BEE front continues. Palabora is commited to BEE and towards
that end it anticipates completing the BEE transaction as required by law.
Pension Fund Surplus
Preliminary financial statements were finalised and submitted to the Financial
Services Board (FSB) on 5 April 2007 for approval. The liquidator has also
submitted his Schedule K summary on the said financials to the FSB. This
process is expected to be completed in 2007 and distribution to be commenced
thereafter.
Only after the FSB approval has been obtained can the liquidator release the
employer`s share of the surplus in the Fund, approximately R186 million,
before tax and including accrued interest.
Declaration of Dividend
No dividend was proposed to the shareholder for the first half of 2007 as the
Company continues to improve the balance sheet through degearing.
Corporate Governance
On 1 February 2007 Mr. M.R. Maruma resigned as director and Mr. G.M. Negota
was elected as chairman of the Board. With effect from 7 May 2007, Ms. Shelley
Thomas was elected as an independent non-executive director. We thank Mr.
Maruma for his valuable contributions to Palabora.
Appreciation
We would like to congratulate the employees of Palabora for their outstanding
contributions to the viability of the Company. We thank all stakeholders for
their continued support.
G M Negota K Marshall
Chairman Managing Director
26 July 2007
Unaudited Group Results
Abridged income statement
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Note R`000 R`000 R`000
Continuing operations
Sales of products 3 113 074 2 034 761 5 014 200
Hedged loss realised (592 047) (304 814) (1 032 321)
Revenue 2 521 027 1 729 947 3 981 879
Cost of sales (1 521 811) (993 852) (2 362 149)
Gross Profit 999 216 736 095 1 619 730
Other income 3 14 278 96 750 101 582
Selling and
distribution costs (162 311) (117 029) (267 526)
Administration expenses (160 559) (140 641) (279 033)
Other expenses (106) (1 340) (3 025)
Profit from continuing
operations before tax
and net finance costs 690 518 573 835 1 171 728
Finance revenue 34 719 9 466 30 591
Finance costs (125 274) (295 938) (440 761)
Profit before tax 599 963 287 363 761 558
Income tax expense 4 (217 617) (5 424) (278 054)
Profit from continuing
operations 382 346 281 939 483 504
Discontinued operation
Net loss associated
with discontinued
operation - (23 969) (16 158)
Net profit for the period 382 346 257 970 467 346
Allocated as follows:
Equity holders of parent 382 346 257 970 467 346
Earnings/(Loss) per
share (cents):
- Basic earnings/(loss)
per share, total
operations 5 791c 869c 1 291c
- Basic earnings/(loss)
per share, continuing
operations 5 791c 950c 1 336c
- Basic earnings/(loss)
per share, discontinued
operations 5 - (80)c (45)c
- Diluted
earnings/(loss) per
share, total operations 5 791c 565c 1 291c
- Diluted
earnings/(loss)per
share, continuing
operations 5 791c 610c 1 336c
- Diluted
earnings/(loss) per
share, discontinued
operations 5 - (44)c (45)c
- Headline
earnings/(loss) per
share 6 790c 938c 1 329c
Balance sheet
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Note R`000 R`000 R`000
Assets
Non-current assets
Property, plant and
equipment 1 888 256 2 018 269 1 970 944
Intangible assets - 5 024 325
Available-for-sale
financial asset 304 908 228 926 275 571
Deferred tax asset 8 907 088 487 796 440
3 100 252 2 252 706 3 043 280
Current assets
Stores 68 030 52 787 65 433
Product inventories 652 029 760 601 768 753
Trade and other
receivables 774 685 550 582 615 242
Current income tax
asset - 875 4 498
Cash and cash
equivalents 1 005 529 400 795 670 336
2 500 273 1 765 640 2 124 262
Total assets 5 600 525 4 018 346 5 167 542
Shareholders` equity
and Liabilities
Capital and reserves
Share capital and
premium 9 629 551 81 196 629 551
Other reserves (1 639 581) (4 080 779) (1 446 951)
Retained earnings 952 192 360 470 569 846
Total shareholders`
equity (57 838) (3 639 113) (247 554)
Non-current liabilities
Long-term borrowings 10 1 030 043 1 870 362 1 489 470
Derivative financial
instrument 11 1 368 305 2 954 753 1 410 363
Provisions:
-Close-down and
restoration costs 318 064 269 573 314 408
-Post retirement
medical benefits 125 645 106 978 121 772
Deferred tax
liabilities 8 469 768 - 259 293
3 311 825 5 201 666 3 595 306
Current liabilities
Trade and other
payables 587 508 469 987 496 331
Derivative financial
instrument 11 1 421 696 1 302 556 1 042 969
Provisions 34 007 34 780 37 364
Current portion of
long-term borrowings 10 258 323 626 766 185 254
Current tax liabilities 457 - 2 807
Group companies -
related parties 44 547 21 704 55 065
2 346 538 2 455 793 1 819 790
Total liabilities 5 658 363 7 657 459 5 415 096
Total equity and
liabilities 5 600 525 4 018 346 5 167 542
Statement of recognised income and expenditure
Six months Six months Year
ended ended ended
30 June 30 June 31 December
for the six months ended 2007 2006 2006
30 June 2007 R`000 R`000 R`000
Available-for-sale investments:
-Valuation gains taken to equity 29 349 18 486 62 871
Exchange differences on
translation of foreign
operations 4 174 20 999 22 928
Cash flow hedges:
-Losses taken to equity (928 848) (3 741 363) (2 664 895)
-Transferred to profit or loss
for the period 592 047 304 814 1 032 321
Actuarial losses on defined
benefit plans - - (12 901)
Tax on items taken directly to
or transferred
from equity 110 648 - 796 440
Net income recognised directly
in equity (192 630) (3 397 064) (763 236)
Net profit for the period 382 346 257 970 467 346
Total recognised income and
expenses for the period 189 716 (3 139 094) (295 890)
Attributable to:
Equity holders of the parent: 189 716 (3 139 094) (295 890)
Summarised cash flow statement
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
R`000 R`000 R`000
Cash flows from operating
activities 800 978 341 332 946 060
Cash generated from operations 812 133 396 081 1 192 212
Interest paid (33 051) (51 901) (251 607)
Interest received 26 890 - 14 158
Income tax paid (4 994) (2 848) (8 703)
Cash flows from investing
activities (56 055) (83 551) (127 576)
Purchases of property, plant and
equipment (64 320) (96 887) (144 160)
Proceeds on disposal of property,
plant and equipment 436 3 756 5 257
Amounts invested in
Rehabilitation Fund - - (2 259)
Other investing activities 7 829 9 580 13 586
Cash flows from financing
activities (409 730) (59 265) (350 427)
Payment of finance lease liability (12 145) - (1 202)
Long term loans repaid (397 585) (59 265) (349 225)
Increase in cash and cash
equivalents 335 193 198 516 468 057
At beginning of period 670 336 202 279 202 279
At end of period 1 005 529 400 795 670 336
1. CORPORATE INFORMATION
The consolidated financial statements of Palabora for the six months ended 30
June 2007 were authorised for issue in accordance with a resolution of the
Board of Directors passed on 26 July 2007.
The Group is a limited liability company incorporated and domiciled in South
Africa. The address of its registered office is 1 Copper Road, Phalaborwa,
1389. The Group has its primary listing on the JSE Limited. The principal
activities of the Group are described in Note 7.
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
Basis of preparation
The interim financial report for the six months ended 30 June 2007 has been
prepared in accordance with International Accounting Standard (IAS) 34
(Interim Reporting).
The interim financial report does not include all the information and
disclosures required in the annual financial statements, and should be read in
conjunction with the Group`s annual financial statements as at 31 December
2006.
Significant accounting policies
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group`s annual financial statements for the year ended 31
December 2006, except for the adoption of the following amendments mandatory
for annual periods beginning on or after 1 January 2007:
? IFRS 7, Financial Instruments: Disclosures, and a complementary amendment to
IAS 1, Presentation of Financial Statements - Capital Disclosures (effective
from 1 January 2007) - IFRS 7 introduces new disclosures to improve the
information about financial instruments. It requires the disclosure of
qualitative and quantitative information about exposure to risks arising from
financial instruments, including specified minimum disclosures about credit
risk, liquidity risk and market risk, including sensitivity analysis to market
risk. It replaces IAS 30, Disclosures in the Financial Statements of Banks and
Similar Financial Institutions, and disclosure requirements in IAS 32,
Financial Instruments: Disclosure and Presentation. It is applicable to all
entities that report under IFRS. The amendment to IAS 1 introduces disclosures
about the level of an entity`s capital and how it manages capital. The Group
assessed the impact of IFRS 7 and the amendment to IAS 1 and concluded that
the main additional disclosures will be the sensitivity analysis to market
risk and the capital disclosures required by the amendment of IAS 1. The Group
will apply IFRS 7 and the amendment to IAS 1 from annual periods beginning 1
January 2007, and the disclosures will effectively be seen in the annual
report of the financial year ended 31 December 2007.
Presentational changes
The format of the statement of changes in equity has been changed to a
statement of recognised income and expenditure, as mentioned in the annual
report of 31 December 2006.
Changes in estimates
Mark-to-market valuation of the hedge book
In the annual report for the year ended 31 December 2006 it was reported that
a review of the mark-to-market method was applied to valuing the hedge that
resulted in a change of estimate. The change originated primarily as a result
of quoted LME prices not exceeding 27 months. Management used market estimates
as proxies for valuation beyond 27 months, rather than bank models as was
previously the practice. This valuation method was applied in the period ended
30 June 2007 and for the year ended 31 December 2006, but was not followed for
the period ended 30 June 2006.
Provision for Close-down and Restoration cost
Changes in the measurement of the close-down and restoration cost liability
that result from changes in the estimated timing or amount of the outflow of
resources embodying economic benefits required to settle the obligation, or a
change in the discount rate, are adjusted for in the cost of the related asset
in terms of IFRIC1. The provision for close-down and restoration costs was
impacted by the following movements during the six months ended 30 June 2007:
- Decrease of R9 million due to an expected later start of the closure program
as a result of the revised life-of-mine;
- Finance charges through the income statement resulted in an increase of R13
million in the provision.
Depreciation of assets by units-of-production method
The Group complies with revised IAS 16 which requires that every business
performs an assessment of the useful lives of its assets at the end of each
financial year and adjusts depreciation charges accordingly. The re-
assessment of the life-of-mine finalised at the start of the 2007 year
impacted the useful lives of assets being depreciated under the life-of-mine
method and the effects of changes in estimated life were applied prospectively
over the remaining life of the asset.
3. OTHER INCOME
The following items of an unusual nature have been included in other income
for the interim period:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
R`000 R`000 R`000
Insurance pay-out 1 - 35 371 35 371
Severance cost excluded from
close-down
and restoration costs provision 2 - 53 658 53 658
Profit on sale of property, plant
and equipment 447 3 584 3 631
Reversal of provision for
Donation to
Palabora Foundation 3 6 555 - -
Notes:
1. 2006: R35 million insurance payout as a result of a claim on the ground
subsidence of the open pit.
2. 2006: R54 million resulting from a change in the basis of accounting for
closure costs as explained in the 2006 annual financial statements.
3. 2007: Per an executive committee decision, the previous decision of 2002
was rescinded, resulting in a reversal of the provision for the donation to
the Palabora Foundation. These funds will be rechannelled towards a community
related project.
4. TAX
The effective tax rate increased from 1.90% at 30 June 2006 to 36.27% at 30
June 2007.
Deferred tax movements not recognised through the income statement, but
through equity totalled R110 million for the six months ended 30 June 2007
(2006: R nil). This is related to the mark-to-market entries on the hedge book
that is recognised directly in equity. The recognition criteria for this
deferred tax asset was only met in the latter part of 2006, therefore the
comparative figure for 30 June 2006 is R nil.
The major components of income tax expense in the consolidated income
statement are:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
R`000 R`000 R`000
Current income tax
Non-mining income tax charge :
South African (2 344) (2 715) (11 995)
Current income tax charge :
Foreign (4 790) (2 813) (6 387)
Deferred income tax
Relating to origination and
reversal of temporary
differences :
-South African (210 483) - (259 672)
-Foreign - 104 -
Income tax expense reported in
the consolidated
income statement (217 617) (5 424) (278 054)
Tax rate reconciliation: % % %
Current standard statutory rate 29.00 29.00 29.00
Adjusted for:
- Estimated State share (after
tax) rate 4.92 3.60 3.60
- Dividend income (affected
foreign dividend income) - (0.07) -
- Disallowable expenditure
(permanent
difference)/ deductible temporary
differences for which no
deferred income tax asset
was recognised 0.26 (26.27) 1.40
- Tax rate differential of
foreign subsidiaries (0.33) 0.80 (0.20)
- Movement in capital 0.85 (16.44) (4.10)
- Actuarial loss amortisation 0.01 - (4.70)
- Adjustment to the basis for
provision from cost
to market value 1.43 - 12.40
- Other 0.13 11.28 (0.90)
Effective tax rate 36.27 1.90 36.50
5. EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing net profit for the
period attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year.
Basic profit per share of the Group for the interim period is based on the net
profit of R382 million (June 2006: R258 million) divided by the total number
of weighted average shares in issue during the period of 48,337,497 (June
2006: 29,677,112).
The Groups convertible redeemable debentures were all either converted or
redeemed in the 2006 financial year and therefore the Group had no dilutive
instruments during the current period. For the period ended 30 June 2006 the
dilutive earnings per share were based on basic dilutive earnings of R306
million divided by the adjusted number of weighted average shares during the
period of 54,178,122.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
R`000 R`000 R`000
Reconciliation of net profit for
earnings per share
Net profit attributable to equity
holders from
continuing operations 382 346 281 939 483 504
Loss attributable to equity
holders from
discontinued operations - (23 969) (16 158)
Net profit attributable to equity
holders of parent 382 346 257 970 467 346
Interest on convertible
redeemable debentures - 48 379 -
Net profit attributable to
ordinary shareholders
from diluted earnings per share 382 346 306 349 467 346
Reconciliation of weighted
average number
of ordinary shares
Weighted average number of
ordinary shares
for basic earnings per share 48 337 29 677 36 188
Effect of dilution : Convertible
redeemable debentures - 24 501 -
Adjusted weighted average number
of ordinary shares 48 337 54 178 36 188
6. RECONCILIATION OF HEADLINE EARNINGS PER SHARE
Taxation
Profit/(Loss) and lease Profit/(Loss)
before tax consideration after tax
R`000 R`000 R`000
Six months ended 30 June 2007
Profit per income
statement 599 963 (217 617) 382 346
Profit on disposal of
fixed assets (447) 146 (301)
Headline profit 599 516 (217 471) 382 045
Six months ended 30 June 2006
Profit per income
statement 263 394 (5 424) 257 970
Profit on disposal of
fixed assets (3 584) - (3 584)
Impairment charges - ZBS 23 969 - 23 969
Headline profit 283 779 (5 424) 278 355
Year ended 31 December 2006
Profit per income
statement 737 589 (270 243) 467 346
Profit on disposal of
fixed assets (3 631) 1 183 (2 448)
Impairment charges - ZBS 23 969 (7 811) 16 158
Headline profit 757 927 (276 871) 481 056
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
R`000 R`000 R`000
Headline earnings per share
(cents) 790 938 1 329
7. SEGMENT REPORTING
The Group`s primary reporting segment is its business segments and secondary
format is its geographical segments. The operating businesses are organised
and managed separately according to the nature of the products and services
provided, with each segment representing a strategic business unit that offers
different products and serves different markets. From a business segment point
of view, the only significant segments are copper, industrial minerals, and
by-products. Transfer prices between business segments are set on an arm`s
length basis in a manner similar to transactions with third parties.
Business Segment
The following tables present revenue and profit information regarding the
Group`s business segments for the periods ended 30 June 2007 and 2006
respectively. The primary product of the Group is copper, which is mined and
beneficiated in Phalaborwa. By-products include magnetite, nickel sulphate,
anode slimes, and sulphuric acid. The Industrial Minerals division produce and
markets vermiculite.
Period ended 30 June 2007
Industrial By-
Copper Minerals Products Total
R`000 R`000 R`000 R`000
Revenue
Sales to external
customers - continuing
operations 2 083 508 149 972 287 547 2 521 027
Inter-segment sales - - - -
Segment Revenue 2 083 508 149 972 287 547 2 521 027
Results
Segment Results -
continuing operations 535 831 36 767 123 431 696 029
Segment Results -
discontinued operations - - - -
Unallocated expenditure (5 511)
Profit from operations
before tax and
finance costs 690 518
Net finance costs (90 555)
Profit before income tax 599 963
Income tax expense (217 617)
Profit for the period 382 346
Period ended 30 June 2006
Industrial By-
Copper Minerals Products Total
R`000 R`000 R`000 R`000
Revenue
Sales to external
customers - continuing
operations 1 395 300 166 611 168 036 1 729 947
Inter-segment sales - - - -
Segment Revenue 1 395 300 166 611 168 036 1 729 947
Results
Segment Results -
continuing operations 409 840 12 589 69 020 491 449
Segment Results -
discontinued operations - (23 969) - (23 969)
Unallocated income 82 386
Profit from operations
before tax and
finance costs 549 866
Net finance costs (286 472)
Profit before income tax 263 394
Income tax expense (5 424)
Profit for the period 257 970
8. DEFERRED TAX
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred income taxes relate to the same fiscal authority. The
offset amounts are as follows:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
R`000 R`000 R`000
Deferred tax assets:
- Deferred tax asset to be
recovered after more
than 12 months 399 719 487 419 480
- Deferred tax asset to be
recovered within
12 months 507 369 - 458 270
907 088 487 877 750
Deferred tax liabilities:
- Deferred tax liability to be
recovered after more
than 12 months (453 067) - (232 290)
- Deferred tax liability to be
recovered within
12 months (16 701) - (108 313)
(469 768) - (340 603)
Net deferred tax asset 437 320 487 537 147
Deferred income taxes are
calculated at the tax rates
prevailing in the different
fiscal authorities where
the asset or liability originates.
The gross movement on the
deferred income tax
account is as follows:
Beginning of period 537 147 3 446 3 446
Exchange adjustment on
translation of foreign
subsidiaries 8 - -
Tax charged to equity 110 648 - 796 440
Income statement charge (210 483) (2 959) (262 739)
Net deferred tax asset at the end
of the period 437 320 487 537 147
Deferred taxation relating to
temporary differences
is made up as follows:
Assets
Derivatives 907 088 487 796 440
907 088 487 796 440
Liabilities
Property, plant and equipment (541 510) (73 199) (340 603)
Provisions 56 008 109 960 62 075
Other 15 734 (424) 19 235
Deductible temporary differences
for which no deferred income tax
asset was recognized - (36 337) -
(469 768) - (259 293)
Net deferred tax asset 437 320 487 537 147
Included in the balance sheet as
follows:
Deferred tax asset 907 088 487 796 440
Deferred tax liability (469 768) - (259 293)
Net deferred tax asset 437 320 487 537 147
Deferred income tax assets are recognised to the extent that future taxable
benefits are generated against which the deferred tax asset can be realised.
At 30 June 2007 the Company had an unredeemed capital expenditure balance of
R146 million. (2006: R1 535 million).
9. SHARE CAPITAL AND PREMIUM
Share Share
capital premium Total
R`000 R`000 R`000
Balance at 1 January 2006 29 562 36 724 66 286
Conversion of debentures 497 14 413 14 910
Balance at 30 June 2006 30 059 51 137 81 196
Balance at 1 July 2006 30 059 51 137 81 196
Conversion of debentures 18 278 530 077 548 355
Balance at 31 December 2006 48 337 581 214 629 551
Balance at 1 January 2007 48 337 581 214 629 551
Conversion of debentures - - -
Balance at 30 June 2007 48 337 581 214 629 551
There were no movements in the capital for the six months ended 30 June 2007.
For the six months ended 30 June 2006 the issued share capital increased by
R0.5 million and the share premium by R14.4 million due to the conversion of
14,910 debentures of R1 000 each.
10. NET DEBT
Six months
ended
30 June
Effective 2007
Description of loan interest rate % Maturity R`000
Non-current
Senior Term Facility Libor+2.3%/ 30.06.13 379 236
Jibar+2.65%
Finance lease liability Prime -1.85% -
Convertible debentures Jibar+5% 16.09.06 -
Rio Tinto unsecured loan Libor+5% 484 063
Rio Tinto secured loan Libor+5% 166 744
1 030 043
Current
Convertible debentures Jibar+5% 16.09.06 -
Senior Term Facility Libor+2.3% 30.06.13 157 696
Jibar+2.65%
Revolving credit facility Libor+2.3% 100 627
Jibar+2.65%
Finance lease liability Libor+2.38% -
258 323
Total borrowings 1 288 366
Cash and cash equivalents (1 005 529)
Net debt 282 837
Total equity (57 838)
Six months Year
ended ended
30 June 31 December
Effective 2006 2006
Description of loan interest rate % R`000 R`000
Non-current
Senior Term Facility Libor+2.3%/ 536 459 583 954
Jibar+2.65%
Finance lease liability Prime -1.85% - 8 715
Convertible debentures Jibar+5% 418 340 -
Rio Tinto unsecured loan Libor+5% 748 126 732 795
Rio Tinto secured loan Libor+5% 167 437 164 006
1 870 362 1 489 470
Current
Convertible debentures Jibar+5% 378 820 -
Senior Term Facility Libor+2.3% 147 098 82 070
Jibar+2.65%
Revolving credit facility Libor+2.3% 100 848 99 754
Jibar+2.65%
Finance lease liability Libor+2.38% - 3 430
626 766 185 254
Total borrowings 2 497 128 1 674 724
Cash and cash equivalents (400 795) (670 336)
Net debt 2 096 333 1 004 388
Total equity (3 639 113) (247 554)
The terms of repayments are consistent with the information disclosed in the
December 2006 annual financial statements.
Senior term facility agreement
Total principal repayments of R134 million were made on the senior term
facility during the six months ended 30 June 2007. This is made up of R47
million paid in accordance with the repayment schedule plus a mandatory
prepayment of R87 million of the term facility outstanding amount applied in
inverse order of maturity. The mandatory pre-payment resulted from the
restricted payment that was made to Rio Tinto Finance plc and represented 33%
of the rand equivalent of the restricted payment as required by the facility
agreement.
Rio Tinto unsecured loan
In February 2007, the Group made restricted payments as defined in the senior
term facility agreement to Rio Tinto Finance plc. Payment of the sum equal to
the US dollar equivalent of R263 million (US$36.7 million) was allocated
entirely to the repayment of the principal under the unsecured loan agreement,
which bears interest at LIBOR plus 5%.
Finance lease liability
The Group settled the total outstanding balances of the two lease agreements
with Wesbank that commenced in August 2006 for the acquisition of two loaders
for the underground operations. The liability was derecognised in accordance
with IAS 39 - Financial instruments: recognition and measurement`s
requirements for the extinguishment of debt.
Other movements from December 2006 include the revaluation of the US$
denominated debts for a total amount of R24 million exchange loss due to the
weakening of the US$: Rand exchange rate.
11. DERIVATIVE FINANCIAL INSTRUMENTS
At 30 June 2007, the Group held a commodity swap contract designated as a
hedge of expected future sales under which the Group receives a fixed price in
Rand in relation to a monthly notional quantity of copper sales as detailed
below and pays a floating price based on the arithmetic average (mean) of the
US$ LME Cash Settlement Price. The net receipt/payment is converted to Rand at
the average US$/Rand exchange rate for the calculation period. The cash flows
paid under the terms of the hedging instrument are designed to reduce
variability in the Rand proceeds of the copper sales as set out in the table
below.
The cashflow hedges of the expected future sales were assessed to be highly
effective and as at 30 June 2007 a net unrealised loss of R2 790 million (June
2006: R4 257 million), with a related deferred tax benefit of R907 million
(June 2006: nil), was included in equity in respect of these contracts.
The London Metal Exchange (LME) US$ price of copper increased in the period.
This resulted in an increase for the six months ended 30 June 2007 of R337
million from the balance at 31 December 2006 of R2 453 million to a balance of
R2 790 million on the swap liability included under other reserves.
The combined hedged book amounts to 168,246 tonnes of copper for a total
amount of R2 967 million as at 30 June 2007 spread over 6.25 years. The terms
of the contracts are as follows:
Derivative financial instrument: table of terms
Average Hedged Mark to market
Maturity Quantity hedged price value loss/(gain)
Year (t) ZAR/t R`000 R`000
2007 22 700 20 993 476 527 728 677
2008 41 801 20 521 857 801 1 226 972
2009 22 265 15 739 350 426 541 474
2010 22 188 15 739 349 217 77 952
2011 21 825 15 739 343 499 72 156
2012 21 137 15 739 332 667 77 868
2013 16 330 15 739 256 997 64 902
Total 168 246 2 967 134 2 790 001
Less:
Non-Current
portion 1 368 305
Current portion 1 421 696
12. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The principal financial risks arising from the Group`s activities are those
related to commodity price risk, currency risk, interest rate risk, credit
risk, and liquidity risk. While the facility agreement with the senior lenders
restricts the Group`s ability to manage its risks by using other financial
instruments, it performs holistic risk assessment to ensure that no new and
unprofitable risks are introduced into the system.
Foreign currency risk
The Group operates internationally and is exposed to foreign exchange risk
arising from various currency exposures, primarily with respect to the US
dollar and the UK pound sterling.
Approximately 77% of the Group`s existing debt is denominated in US$ for a
total amount of US$139 million. As a result of the significant US$ denominated
borrowings, the Group`s balance sheet can be affected significantly by
movements in the US$/ Rand exchange rates.
The following table sets out the carrying amount, by maturity, of the Group`s
financial assets and liabilities that are exposed to currency risk:
< 1 year 1 - 5 years > 5 years Total
`000 `000 `000 `000
Accounts receivable
British Pounds (GBP) 2 597 - - 2 597
US Dollar (US$) 33 926 - - 33 926
Accounts payable
British Pounds (GBP) (2 180) - - (2 180)
US Dollar (US$) (4 651) - - (4 651)
Long term loans
US Dollar (US$) (19 221) (28 070) (91 721) (139 012)
Interest rate
The Group`s income and operating cash flows are substantially independent of
changes in market interest rates. The Group`s cash flow interest rate risk
arises from its long and short-term borrowings subject to LIBOR or JIBAR.
The following tables sets out the carrying amount, by maturity, of the Group`s
financial assets and liabilities that are exposed to interest rate risk:
Within 1-2 2-3 3-4
1 year years years years
R`000 R`000 R`000 R`000
Period ended
30 June 2007
Floating rates
Revolving credit facility 100 627 - - -
Senior Term Facility 157 696 78 840 94 614 110 388
Rio Tinto unsecured loan - - - -
Rio Tinto secured loan - - - -
Total 258 323 78 840 94 614 110 388
Year ended
31 December 2006
Floating rates
Revolving credit facility 99 754 - - -
Senior Term Facility 82 070 195 407 78 163 109 428
Rio Tinto unsecured loan - - - -
Rio Tinto secured loan - - - -
Total 181 824 195 407 78 163 109 428
4-5 More than
years 5 years Total
R`000 R`000 R`000
Period ended
30 June 2007
Floating rates
Revolving credit facility - - 100 627
Senior Term Facility 95 394 - 536 932
Rio Tinto unsecured loan - 484 063 484 063
Rio Tinto secured loan - 166 744 166 744
Total 95 394 650 807 1 288 366
Year ended
31 December 2006
Floating rates
Revolving credit facility - - 99 754
Senior Term Facility 109 428 91 528 666 024
Rio Tinto unsecured loan - 732 795 732 795
Rio Tinto secured loan - 164 006 164 006
Total 109 428 988 329 1 662 579
13. COMMITMENTS
Commitments contracted for at balance sheet date were R87 million (30 June
2006: R37 million). Capital expenditure that were approved by the board, but
not contracted for at 30 June 2007 amounts to R164 million (30 June 2006:
R95 million).
14. POST BALANCE SHEET EVENTS
Restricted payments
The Group anticipates making a restricted payment in August 2007, as
defined in the senior term facility agreement, to Rio Tinto Finance plc. The
amount of the payment is currently being determined. An amount equal to 33 per
cent of the rand equivalent of the restricted payment will be applied and
transferred to a mandatory pre-payment bank account as is required by the
senior facility agreement. The lenders are authorised to apply any amount in
the mandatory pre-payment bank account on each term facility repayment date in
the pre-payment of the term facility outstanding and in inverse order of
maturity. Reduction of debt improves profit performance as it reduces interest
cost and exchange rate fluctuations.
15. GROUP SELECTED STATISTICS
Six months
ended
30 June
2007
Revenue
Copper (net of hedge) R` million 2,084
By-products R` million 288
Vermiculite R` million 150
Net profit before tax R` million 600
Copper
Ore hoisted millions of tonnes 5.98
Average copper grade % Cu 0.716
Copper in concentrates produced `000 of tonnes 34.9
Cathode produced `000 of tonnes 43.7
Average copper price realised USc/lb 308.8
LME Copper Price USc/lb 306.5
Average rand/dollar exchange rate R/US$ 7.17
Average copper price realised
(post hedge) R/tonne 39,182
Net cash cost R/tonne 16,328
Copper Rod
Unit selling price pre hedge USc/lb 318.4
Unit selling price post hedge USc/lb 248.0
Sales tonnes 30,749
Cathode
Unit selling price pre hedge
(local) USc/lb 292.5
selling price post hedge (local) USc/lb 227.8
Sales (local) tonnes 7,309
Unit selling price pre hedge (export) USc/lb 286.0
Unit selling price post hedge (export) USc/lb 222.7
Sales (export) tonnes 7,726
Vermiculite
Vermiculite sold tonnes 85,499
Average vermiculite prices realised R/tonne 1,754
Operational cash cost R/tonne 421.6
Magnetite
Magnetite sold tonnes 585,851
Average magnetite prices realised R/tonne 256
Imported concentrate
Volumes Tonnes copper 10,077
Cost R` million 468.7
Unit purchased price R/tonne of copper 46,506
Marginal ore concentrate
Volumes Tonnes copper 3,039
Cost R` million 97.7
Unit purchased price R/tonne of copper 32,141
Six months
ended
30 June
2006
Revenue
Copper (net of hedge) R` million 1,369
By-products R` million 206
Vermiculite R` million 129
Net profit before tax R` million 263
Copper
Ore hoisted millions of tonnes 5.42
Average copper grade % Cu 0.710
Copper in concentrates produced `000 of tonnes 28.5
Cathode produced `000 of tonnes 36.2
Average copper price realised USc/lb 273.7
LME Copper Price USc/lb 275.6
Average rand/dollar exchange rate R/US$ 6.27
Average copper price realised
(post hedge) R/tonne 37,218
Net cash cost R/tonne 17,537
Copper Rod
Unit selling price pre hedge USc/lb 269.1
Unit selling price post hedge USc/lb 220.8
Sales tonnes 34,487
Cathode
Unit selling price pre hedge
(local) USc/lb 268.3
selling price post hedge (local) USc/lb 220.2
Sales (local) tonnes 2,870
Unit selling price pre hedge (export) USc/lb 377.0
Unit selling price post hedge (export) USc/lb 309.8
Sales (export) tonnes 1,700
Vermiculite
Vermiculite sold tonnes 90,768
Average vermiculite prices realised R/tonne 1,418
Operational cash cost R/tonne 423.6
Magnetite
Magnetite sold tonnes 465,022
Average magnetite prices realised R/tonne 193
Imported concentrate
Volumes Tonnes copper 7,152
Cost R` million 283.6
Unit purchased price R/tonne of copper 39,657
Marginal ore concentrate
Volumes Tonnes copper 4,411
Cost R` million 111.9
Unit purchased price R/tonne of copper 25,370
Year
ended
31 December
2006
Revenue
Copper (net of hedge) R` million 3,256
By-products R` million 370
Vermiculite R` million 356
Net profit before tax R` million 738
Copper
Ore hoisted millions of tonnes 10.82
Average copper grade % Cu 0.714
Copper in concentrates produced `000 of tonnes 59.7
Cathode produced `000 of tonnes 81.2
Average copper price realised USc/lb 316.5
LME Copper Price USc/lb 302.8
Average rand/dollar exchange rate R/US$ 6.77
Average copper price realised
(post hedge) R/tonne 47,237
Net cash cost R/tonne 16,863
Copper Rod
Unit selling price pre hedge USc/lb 316.2
Unit selling price post hedge USc/lb 240.1
Sales tonnes 72,590
Cathode
Unit selling price pre hedge
(local) USc/lb 312.1Unit
selling price post hedge (local) USc/lb 237.0
Sales (local) tonnes 6,695
Unit selling price pre hedge (export) USc/lb 345.0
Unit selling price post hedge (export) USc/lb 261.8
Sales (export) tonnes 1,701
Vermiculite
Vermiculite sold tonnes 181,422
Average vermiculite prices realised R/tonne 1,547
Operational cash cost R/tonne 401.6
Magnetite
Magnetite sold tonnes 1,021,887
Average magnetite prices realised R/tonne 215
Imported concentrate
Volumes Tonnes copper 16,625
Cost R` million 753.6
Unit purchased price R/tonne of copper 45,328
Marginal ore concentrate
Volumes Tonnes copper 16,625
Cost R` million 753.6
Unit purchased price R/tonne of copper 45,328
15. GROUP SELECTED STATISTICS (continued)
Six months
ended
30 June
2007
Cash flow
Cash from operations R` million 801.0
Cash in bank R` million 1,005.5
Costs
Production cost (excluding
concentrate purchases) R` million 812.2
Cost of sales R` million 1,521.8
Capital expenditure and commitments
Capital expenditure R` million 64
Approved expenditure at end
of each period R` million 164
Contracts placed at end of each period R` million 87
Investments
Fair value of unlisted investments R` million 305
Share capital
Authorised ordinary shares of R1 each R`000 100,000
Issued ordinary shares of R1 each R`000 48,337
Net asset value per share R/share (1.20)
Six months
ended
30 June
2006
Cash flow
Cash from operations R` million 341.3
Cash in bank R` million 400.8
Costs
Production cost (excluding
concentrate purchases) R` million 693.7
Cost of sales R` million 993.9
Capital expenditure and commitments
Capital expenditure R` million 97
Approved expenditure at end
of each period R` million 95
Contracts placed at end of each period R` million 37
Investments
Fair value of unlisted investments R` million 229
Share capital
Authorised ordinary shares of R1 each R`000 100,000
Issued ordinary shares of R1 each R`000 30,059
Net asset value per share R/share (121.07)
Year
ended
31 December
2006
Cash flow
Cash from operations R` million 946.1
Cash in bank R` million 670.3
Costs
Production cost (excluding
concentrate purchases) R` million 1,400.5
Cost of sales R` million 2,362.1
Capital expenditure and commitments
Capital expenditure R` million 144
Approved expenditure at end
of each period R` million 194
Contracts placed at end of each period R` million 33
Investments
Fair value of unlisted investments R` million 276
Share capital
Authorised ordinary shares of R1 each R`000 100,000
Issued ordinary shares of R1 each R`000 48,337
Net asset value per share R/share (5.12)
Directors:
G M Negota (Chairman), K Marshall* (Managing Director), C A Asubonten ***,
C J Latcham**, J C Posthumus (Alt: F B Weldon), S Thomas, J S Yuen-Goh**,
C N Zungu
*British **Australian ***American
Company secretary:
K N Mathole
Transfer Secretaries: Registered Office:
Computershare Investor Services 2004 (Pty) Ltd 1 Copper Road
70 Marshall Street Phalaborwa
Johannesburg 2001 1389
Postal Address: Postal Address:
PO Box 61051 PO Box 65
Marshalltown 2107 Phalaborwa 1390
These results are also available on our website at:
www.palabora.co.za
Date: 30/07/2007 09:00:01 Produced by the JSE SENS Department.
