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PAM
PAM
PAM - Palabora - Reviewed Preliminary Results And Dividend Announcement for
the year ended 31 December 2008
Palabora Mining Company Limited and its Subsidiaries
(a member of the Rio Tinto Group)
(Incorporated in the Republic of South Africa)
(Reg. No. 1956/002134/06)
JSE code: PAM ISIN: ZAE000005245
("Group" or "Palabora" or "the company")
Reviewed Preliminary Results And Dividend Announcement
for the year ended 31 December 2008
COMMENTARY
Overview
Palabora ended the 2008 financial year with a net profit of R720 million.
Excluding the impact of the impairment reversal in 2007, 2008 results were on
par with those of the 2007 financial year. Matthew Gili, the Group`s MD
commented on the results as follows: "We have managed to produce results
consistent with 2007`s results. Our strong cash balance and consistent
operational performance will bode well in these challenging times."
Management continues to be committed to safety, as we have re-pledged ourselves
to working in a safe environment by increasing management visibility and
engaging the work force about personal responsibility towards safety.
Production at the underground mine of 32 232 tonnes per day remained at similar
levels as in 2007 (32 453 tonnes per day). Concentrator production benefited
from reclaims and transfers from pond stocks, and the smelter recovered to
almost plan levels following planned and unplanned outages. Performance of the
new nickel sulphate refining plant which commenced in the later part of the year
was encouraging. Magnetite production increased almost 50%, compared with the
previous year.
We continued to improve our processes and sought optimal ways of operating
efficiently by eliminating waste and containing cost pressures.
Having paid off debts of R283 million in 2008, we have a much improved balance
sheet.
Taking into account the near term capital requirements and current market
conditions, the Board declared a dividend of R0.82 per share on 29 January 2009.
Going forward, dividend declarations will be considered on a quarterly basis.
Group financial results
31 December 31 December
For the year ended 2008 2007
Net profit for the year (excluding
impairment reversal) R720 million R722 million
Basic earnings per share(excluding
impairment reversal) 1 489 cents 1 493 cents
Profit from operations before
interest, tax,
depreciation and amortisation (EBITDA)
(excluding impairment reversal) R1 305 million R1 489 million
Headline earnings R721,5 million R720,8 million
Headline earnings per share 1 493 cents 1 491 cents
Net cash (excluding hedge) R555 million R433 million
Dividend per share
(declared) R0,82 R3,10
Net profit
The net profit for the year decreased marginally from R722 million in the
previous year (excluding impairment reversal) to R720 million, or 1 489 cents
per share compared with 1 493 cents per share in 2007. Headline earnings per
share improved from 1 491 cents in 2007 to 1 493 cents per share in 2008.
The Group achieved a gross profit from operations during 2008 of
R1 844 million, compared with a gross profit of R1 865 million in 2007.
Sales increased by R5 million to R6 183 million largely as a result of the
following:
- A weakening in the average Rand/US$ exchange rate of 8,26 in 2008 compared
with 7,05 in 2007 (+R1 048 million);
- Higher realised magnetite prices (+R133 million) of R416 per tonne compared
with R270 per tonne in 2007; and higher volumes sold (+R234 million), 1 899
thousand tonnes compared with 1 337 thousand tonnes in 2007;
- Vermiculite`s higher realised prices of R2 094 per tonne compared with R1 732
per tonne in 2007 resulted in an increase of R27 million, and higher volumes
sold of 188 825 tonnes in 2008 compared with 181 254 in 2007, an increase of R16
million; and
- Other by-products contributed R52 million as a result of higher realised
prices.
These increases were offset by:
- Lower volumes of finished copper metal sales (excluding revert and
concentrate sales), 75 594 compared with 92 846 tonnes in 2007 (-R1 082
million) and lower volumes of other by-products sales (R112 million);
- Reverts and concentrate sales contributed an additional 9 500 tonnes of
copper (2007: 11 629 tonnes). The lower volumes sold resulted in a decrease in
the sales of products of R201 million; and
- Lower realised prices of copper (-R109 million).
The Group achieved an average realised selling price per tonne(post hedge) for
copper rod and cathode of R40 433 (2007: R39 829) and R32 264 (2007: R36 080)
respectively.
The increase in revenue was partially offset by the realised hedging losses
resulting from the swap settlement of 41 801 tonnes of copper (R1 578 million).
Total Group cost of sales decreased by R233 million, from R2 994 million in
2007 to R2 761 million in 2008, representing a decrease of 8% from the previous
year. The ratio of cost of sales to revenue reduced from 48,5% to 44,6% in
2008. The decrease in cost of sales resulted mainly from:
- A reduction in purchased copper concentrate expenditure by R351 million due to
lower volumes being purchased during 2008 of 15 396 tonnes compared with 22 361
tonnes in 2007. This was partially offset by the higher LME copper price (+R118
million); and
- The effect of the revaluation of revert stock in 2007 which had an impact
when the stock was sold (-R252 million) had no effect in the current year
under review.
The decrease was offset by:
- An increase in the depreciation charge of R183 million mainly due to the
impairment reversal in the previous year;
- Higher personnel costs of R120 million due to the introduction of an
additional housing allowance for employees, a retention bonus scheme, an
increase in the number of employees and the annual salary increase;
- An increase in consumable prices, fuel and other energy contributed
R89 million; and
- Mobile fleet maintenance and higher steel prices increased the maintenance
expense by R34 million.
Earnings before interest, tax, depreciation and amortisation (EBITDA) were
R1 305 million compared with R1 489 million in 2007 (excluding impairment
reversal).
Selling and distribution costs increased by R230 million while administration
costs increased by R81 million. The increase in the selling and distribution
costs from R356 million in 2007 to R586 million for 2008 is mainly due to
increased magnetite volumes sold of 1 899 thousand tonnes in 2008 (2007: 1 337
thousand tonnes) and increased freight and railage rates.
Factors that contributed to the net profit before taxation of R830 million
included a decrease of R98 million in net finance costs. This was due to lower
interest costs primarily as a result of the debt repayments made in 2008 and
foreign exchange profits of R25 million in 2008 compared with foreign exchange
losses of R31 million in 2007.
Tax expense decreased by R818 million for the year, from R928 million in 2007
to R111 million in 2008. Year- on -year deferred tax decreased by R996 million
(debit of R796 million in 2007 to a credit of R200 million in 2008) as a result
of the impairment reversal in 2007 and temporary differences reversing in 2008.
This was offset by a R178 million increase in current tax due to higher taxable
profits. The effective tax rate changed from 33,3% at 31 December 2007 to 13,3%
at 31 December 2008. The lower effective tax rate is mainly due to the reversal
of deferred tax provision on state share of profit/lease area as a result of the
introduction of the Mineral and Petroleum Resources Royalty Act 28 of 2008
effective 1 May 2009 as well as a decrease in the statutory rate from 29% to
28%.
Cash flow
Cash and cash equivalents were R747 million in 2008 compared with R841 million
in 2007.
For the year ended 31 December 2008, the Group had a net cash outflow of
R94 million compared with a net cash inflow of R171 million for 2007.
Cash from operating activities decreased by R1 119 million to R485 million in
2008 (2007: R1 604 million) due to:
A decrease in cash generated from operations of R783 million explained by:
- A decrease in the adjusted for non-cash items before tax and finance costs
profit of R118 million; and
A decrease of R666 million as a result of the increase in 2008 of R406 million
in working capital, mostly in work-in-progress inventory, compared with a R260
decrease in working capital in 2007;
- An increase in tax payments of R362 million;
- Dividend payments of R150 million in 2008; and
- An increase in interest received and lower interest paid of R178 million.
The Group spent R295 million on investing activities. Capital investment of
R313 million (2007: R182 million) was primarily spent on the underground (R118
million), concentrator (R63 million) and vermiculite operations (R20 million).
These expenditures related mainly to new underground mobile equipment, western
extension development, the refurbishing of the grinding circuit and the South
and East paddock tailing dams. The net cash outflow was offset by the proceeds
received from the sale of property, plant and equipment and other investing
activities in the amount of R18 million.
The cash outflow from financing activities of R283 million (2007: R1 267
million) was due to principal repayments and mandatory prepayments of the senior
term facility.
Net cash
Net cash, excluding the hedge, increased from R433 million in 2007 to R555
million in 2008 due to the following:
- Total borrowings decreased by R216 million to R192 million in 2008 from R408
million in 2007; and
- Cash balances decreased by R94 million to R747 million in 2008.
Approximately sixty eight percent of the Group`s total borrowings were
denominated in US$ for a total amount of US$14 million.
Ore reserves
The total Proven Ore Reserves remaining as at 31 December 2008 were 90,95
million tonnes ore (2007: 104 million tonnes) at 0,62% (2007: 0,62%) copper
content.
Black Economic Empowerment (BEE)
Palabora has entered into discussions regarding a potential broad based BEE
transaction involving all or an appropriate part of its business (the
Transaction).
The Transaction in broad terms involves an internal leveraged structure
pursuant to which the Black Economic Empowerment shareholders will acquire an
equity interest not exceeding 26% in a newly formed, special purpose subsidiary
of Palabora, which subsidiary will acquire all or an appropriate part of
Palabora`s business. The Transaction therefore does not envisage a change in
the existing share capital or shareholders of Palabora Mining Company Limited.
Pension fund surplus
The Company and its legal representatives are in discussions with the Financial
Services Board (FSB) regarding this matter.
Only after the Registrar`s approval has been obtained, can the Liquidator
release the employer`s share of the surplus in the Fund. This is estimated at
approximately R219 million before tax and including accrued interest.
Dividend
Payment in South African Rand will be made on Monday, 9 March 2009 to
shareholders recorded in the register of Palabora Mining Company on 6 March
2009. The last day to trade to qualify for the dividend will be Friday, 27
February 2009 and the shares will trade ex-dividend from Monday, 2 March 2009.
Share certificates may not be dematerialised or rematerialised between Monday, 2
March 2009 and Friday, 6 March 2009 both days inclusive.
This financial report does not reflect this dividend payable, which will be
recognised in shareholders` equity as an appropriation of retained earnings in
the year ending 31 December 2009.
Corporate governance
On 29 February 2008, Mr Keith Marshall resigned as the Managing Director at
Palabora after four successful and productive years to head up Ivanhoe Mining
Company as the Managing Director of the Oyu Tolgoi project in Mongolia.
Mr Matthew Gili was appointed the Managing Director at Palabora with effect from
1 March 2008. Mr Gili was formerly the general manager of operations,
responsible for the underground and concentrator operations. Mr Gili has been a
key member of the Palabora team for the last three years and contributed
significantly to the greatly improved operational and safety performance.
On 31 March 2008, Mrs Jo- Ann Goh resigned as non- executive director at
Palabora. Mrs Goh was appointed to the role of general manager commercial
within the Rio Tinto Copper projects team effective 1 February 2008. She was
replaced by Mr Philip Robinson as non-executive director on 1 April 2008. During
November 2008, Rio Tinto reorganised its Copper and Diamond group. Due to the
reorganisation, Mr Robinson moved to the Business Development unit, and Ms Kay
Priestly was appointed Chief Financial Officer - Copper and Diamond group
effective 1 November 2008. As a result, Mr Robinson resigned from the Board of
Palabora on 31 December 2008. With effect from 1 January 2009, Ms K Priestly was
appointed as a non- executive director of Palabora. Ms. Priestly is a certified
public accountant and a member of the American Institute of Certified Public
Accountants. She graduated Summa Cum Laude from Louisiana State University with
a Bachelor of Science degree in accounting.
Appreciation
Once again, we are thankful for the dedication of our employees and other
stakeholders who continue to play a significant role in the delivery of the
company`s strategic and operational plans.
G M Negota M D Gili C A Asubonten
Chairman Managing Director Finance Director
2 February 2009
CORPORATE INFORMATION
The preliminary condensed consolidated financial statements of Palabora for the
year ended 31 December 2008 were authorised for issue in accordance with a
resolution of the Board of Directors passed on 29 January 2009.
The Group is 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.
BASIS OF PREPARATION AND ACCOUNTING POLICIES
Audit review
The year end financial results have been reviewed in terms of paragraph 3.22 of
the Listings Requirements of the JSE by the group`s auditor,
PricewaterhouseCoopers Inc. The unqualified review opinion is available on
request from the Company secretary.
Basis of preparation
The preliminary condensed consolidated financial statements of the Group for the
year ended 31 December 2008 have been prepared in accordance with International
Accounting Standard (IAS) 34 (Interim Reporting).
The preliminary 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
2007.
Significant accounting policies
The accounting policies applied in the presentation of the preliminary report
are consistent with those applied for the year ended 31 December 2007. The
Group applied all the relevant new and revised standards and interpretations
that were in issue and effective for the year ended 31 December 2008. This had
no impact on the financial statements of the Group.
Changes in estimates
Post retirement medical liability
The cost of post employment medical benefits is determined using actuarial
valuations. The actuarial valuation involves making assumptions about discount
rates, mortality rates and income at retirement. Due to the long term nature of
these plans, such estimates are subject to significant uncertainty. The net
employee liability at 3 1 December 2008 is valued at R155 million compared with
R146 million at 31 December 2007. The main assumptions are summarised below:
Valuation date 31 December 2008 31 December 2007
Discount rate 9.00% p.a. 8.50% p.a.
Health care
cost inflation 7.50% p.a. 7.25% p.a.
CPI inflation 5.50% p.a. 5.25% p.a.
Expected
retirement age 58 58
Full
Eligibility age 53 53
Membership
discontinued at
retirement 0% 0%
Post -
retirement
mortality PA(90) ultimate table rated PA(90) ultimate table rated
down 2 years with a 1% down 2 years with a 1%
improvement p.a. from 2006 improvement p.a. from 2006
Withdrawal table 0 -% - 15% (Unisex) 0 -% - 15% (Unisex)
Provision for Close-down and Restoration cost
The provision for close - down and restoration costs was impacted by the
following movements during the year ended 31 December 2008:
- A R16,5 million increase due to a revised present closure obligation;
- A decrease in the discount rate from 2,4% to 2,1%, and in the long- term
inflation rate from 6,3% to 5,5% resulted in a R14,9 million decrease in the
provision;
- Finance charges (unwind of discount) through the income statement resulted in
an increase of R27 million in the provision.
IMPAIRMENT REVERSAL
Year ended Year ended
31 December 31 December
2008 2007
R`000 R`000
Impairment reversal - 1 690 156
2007: In 2004 financial year, the company recognised an impairment loss of R2
342 million before tax. A review of long- term assets is carried out at each
reporting date where there is an indication that an impairment loss may no
longer exist or may have decreased. Following this review, management believed
that the carrying value of the Company`s assets is not aligned with its
recoverable value. As a result, the maximum allowable impairment reversal of R1
690 million was recognised.
EXPLORATION COST
Year ended Year ended
31 December 31 December
2008 2007
R`000 R`000
Exploration cost 3 283 3 257
The exploration costs refer to expenditure incurred on the Lift II pre-
feasibility drilling. The area known as Lift II is the copper mineralisation
area below the current footprint. This area is very large and requires
considerable diamond drilling to confirm its tonnage and grade. The Lift II
area has the potential to add at least ten years to the life of mine.
OTHER EXPENSES
The following items of an unusual nature have been included in other expenses
for the year:
Year ended Year ended
31 December 31 December
2008 2007
R`000 R`000
Net hedge ineffectiveness # 22 587 -
Loss on disposal of property, plant and equipment 2 208 -
#2008: A hedge is considered to be highly effective if the results of the
retrospective and prospective effectiveness tests are within the range of 80% -
125%. Even if the effectiveness calculation falls within the 80% - 125% range,
an ineffectiveness portion may arise if the change in the hedging instrument
exceeds the change in the hedged item (over- hedge). The ineffective portion of
the change in the fair value of the hedging instrument is recognised directly
in the income statement.
PROFIT FROM CONTINUING OPERATIONS BEFORE TAX AND NET FINANCE COSTS
Year ended Year ended
31 December 31 December
2008 2007
R`000 R`000
Included are:
Depreciation of property, plant and equipment (469 068) (286 698)
Amortisation of intangible assets (551) (325)
TAXATION
The effective tax rate decreased from 33,3% at 31 December 2007 to 13,3% at 31
December 2008.
Deferred tax movements not recognised through the income statement, but through
equity totalled R689 million for the year ended 31 December 2008 (2007: (R375
million)). This is related to the mark - to- market entries on the hedge book
that is recognised directly in equity.
The major components of income tax expense in the consolidated income
statement are:
Year ended Year ended
31 December 31 December
2008 2007
R`000 R`000
Current income tax
- South African
- Mining tax (282 620) (116 771)
- Non-mining tax (8 784) (5 342)
- Foreign
- Current (19 593) (10 719)
Deferred income tax
Relating to origination and reversal of
temporary differences:
- South African 200 456 (795 57 0)
- Foreign - -
Income tax expense reported in the consolidated
income statement (110 541) (928 402)
Tax rate reconciliation:
EARNINGS PER SHARE
Year ended Year ended
31 December 31 December
2008 2007
R`000 R`000
Reconciliation of net profit for earnings per
share
Net profit attributable to equity holders from
continuing operations 719 539 1 860 913
Net profit attributable to ordinary
shareholders from basic and
diluted earnings per share 719 539 1 860 913
Reconciliation of weighted average number of
ordinary shares
Weighted average number of ordinary shares for
basic and diluted earnings per share 48 337 48 337
RECONCILIATION OF HEADLINE EARNINGS
Taxation
Profit and lease Profit
before tax consideration after tax
R`000 R`000 R`000
Year ended 31 December 2008
Net profit per income
statement 830 080 (110 541) 719 539
Loss on disposal of property,
plant & equipment 2 208 (294) (1 914)
Headline profit 832 288 (110 835) 721 453
Year ended 31 December 2007
Net profit per income
statement 2 789 315 (928 402) 1 860 913
Profit on disposal of
property, plant and equipment (1 205) 393 (812)
Impairment reversal (1 690 156) 550 896 (1 139 260)
Headline profit 1 097 854 (377 113) 720 841
Year ended Year ended
31 December 31 December
2008 2007
Headline earnings per share 1 493 cents 1 491 cents
DEFERRED TAX
Year ended Year ended
31 December 31 December
2008 2007
R`000 R`000
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:
Deferred tax assets:
- Deferred tax asset to be recovered after more
than 12 months 352 578 781 375
- Deferred tax asset to be recovered within 12
months 142 313 389 880
494 891 1 171 255
Deferred tax liabilities:
- Deferred tax liability to be recovered after
more than 12 months (970 096) (1 086 224)
- Deferred tax liability to be recovered within
12 months 103 419 31 588
(866 677) (1 054 636)
Net deferred tax (liability)/asset (371 786) 116 619
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 116 619 537 147
Tax charged to equity (688 925) 374 815
Income statement charge 200 520 (795 343)
Net deferred tax (liability)/asset at the end
of the year (371 786) 116 619
Deferred taxation relating to temporary
differences is made up as follows:
Assets
Provisions 86 387 75 822
Derivatives 489 800 1 171 254
Other 15 859 8 673
592 046 1 255 749
Liabilities
Property, plant and equipment (1 071 245) (1 139 130)
Change in tax legislation 107 413 -
(963 832) (1 139 130)
Net deferred tax (liability)/asset (371 786) 116 619
Included in the balance sheet as follows:
Deferred tax asset 494 891 1 171 255
Deferred tax liability (866 677) (1 054 636)
Net deferred tax (liability)/asset (371 786) 116 619
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 31 December 2008 the company had no unredeemed capital expenditure (2007:
nil).
SHARE CAPITAL, SHARE PREMIUM AND OTHER RESERVES
Share Share Retained
capital premium earnings
R`000 R`000 R`000
Balance at 1 January 2006 48 337 581 214 596 846
Fair value on available for
sale investments - - -
Currency translation differences and
other - - -
Unclaimed dividends - - -
Net loss on cash flow hedges - - -
Hedge loss recycled to profit and loss - - -
Tax on items directly taken to equity - - -
Actuarial loss on defined benefit plans - - -
Net profit for the year - - 1 860 913
Balance at 31 December 2007 48 337 581 214 2 430 759
Fair value on available for sale
investments - - -
Currency translation differences and
other - - -
Unclaimed dividends - - -
Net loss on cash flow hedges - - -
Hedge loss recycled to profit and loss - - -
Tax on items directly taken to equity - - -
Dividends paid - - (149 846)
Actuarial loss on defined benefit plans - - -
Net profit for the year - - 719 539
Balance at 31 December 2008 48 337 581 214 3 000 452
Other Total
R`000 R`000
Balance at 1 January 2006 (1 446 951) (247 554)
Fair value on available for
sale investments 36 480 36 480
Currency translation differences and other (5 701) (5 701)
Unclaimed dividends (184) (184)
Net loss on cash flow hedges (2 470 676) (2 470 676)
Hedge loss recycled to profit and loss 1 319 825 1 319 825
Tax on items directly taken to equity 374 815 374 815
Actuarial loss on defined benefit plans (18 821) (18 821)
Net profit for the year - 1 860 913
Balance at 31 December 2007 (2 211 213) 849 097
Fair value on available for sale investments (11 811) (11 811)
Currency translation differences and other 14 919 14 919
Unclaimed dividends 330 330
Net loss on cash flow hedges 315 886 315 8 86
Hedge loss recycled to profit and loss 1 625 328 1 625 328
Tax on items directly taken to equity (688 925) (688 925)
Dividends paid - (149 846)
Actuarial loss on defined benefit plans (2 491) (2 491)
Net profit for the year - 719 539
Balance at 31 December 2008 (957 977) 2 672 026
NET CASH
Effective
interest
rate % Maturity
Non- current
Senior term facility Libor+2.0%/Jibar+2.65% 30.06.2009
Rio tinto secured loan Libor+5%
Current
Senior term facility Libor+2.0%/Jibar+2.65% 30.06.2009
Revolving credit facility Libor+2.0%/Jibar+2.65%
Total borrowings
Cash and cash equivalents
Excess cash
2008 2007
R`000 R`000
Non- current
Senior term facility - (141 049)
Rio Tinto secured loan - (52 769)
Current
Senior term facility (74 351) (115 668)
Revolving credit facility (117 664) (98 414)
(192 015) (214 082)
Total borrowings (192 015) (407 90 0)
Cash and cash equivalents 747 014 841 110
Excess cash 554 999 433 210
Net cash consists of borrowings and cash and cash equivalents. It is calculated
consistently year to year.
Approximately 68% of the Group`s existing borrowings is denominated in US$ for
a total amount of US$14 million. The terms of repayments are consistent with
the information disclosed in the December 2007 annual financial statements,
except for the maturity date of the senior term facility that is brought
forward due to the mandatory prepayments made during the year under review.
Senior term facility agreement
Total principal repayments of R227 million were made on the senior term
facility during the year. This included R92 million paid in accordance with the
repayment schedule plus mandatory prepayments of R135 million. The mandatory
pre-payments resulted from the restricted payment that was made to Rio Tinto
Finance plc (R85 million prepayment) and the dividend payment made in March
2008 (R50 million prepayment).
The December scheduled payments were not made due to delays in obtaining South
African Reserve Bank approval. The payment was released on 21 January 2008.
No defaults were declared.
Rio Tinto secured loan
In January 2008, the Group made restricted payments as defined in the senior
term facility agreement to Rio Tinto Finance plc. Payment in the Rand
equivalent of US$7,8 million was allocated entirely to the repayment and
settlement of the principal under the secured loan agreement.
DERIVATIVE FINANCIAL INSTRUMENTS
At 31 December 2008, the Group held a commodity swap contract designated as a
hedge of expected future sales under which the Group receives a fixed price in
Rand in relation to a monthly notional quantity of copper sales as detailed
below and pays a floating price based on the arithmetic average (mean) of the
US$ LME Cash Settlement Price. The net receipt/payment is converted to Rand at
the average Rand/US$ 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.
As at 31 December 2008 the cashflow hedges of the expected future sales were
assessed to be highly effective and R22 million over- hedged ineffectiveness
was recognised in the income statement.
The combined hedged book amounts to 103 745 tonnes of copper for a total amount
of R1 633 million as at 31 December 2008 spread over 4,75 years. The mark- to -
market revaluation of the hedge book resulted in a R1 920 million decrease
(from R3 604 million at 31 December 2007 to R1 684 million) in the hedge
liability. The terms of the contracts are as follows:
Derivative financial instrument: table of terms
2008 Average
hedge Hedged Derivative
Maturity Quantity price value liability
Year (t) ZAR/t R`000 R`000
2009 22 265 15 739 350 427 321 348
2010 22 188 15 739 349 219 346 476
2011 21 825 15 739 343 500 360 538
2012 21 137 15 739 332 668 365 591
2013 16 330 15 739 256 998 290 601
Total 103 745 1 632 812 1 684 554
Less: Non - current
portion 1 363 206
Current portion 321 348
Derivative financial instrument: table of terms
2007 Average
hedge Hedged Derivative
Maturity Quantity price value liability
Year (t) ZAR/t R`000 R`000
2008 41 801 20 521 857 801 1 039 561
2009 22 265 15 739 350 427 321 348
2010 22 188 15 739 349 219 346 476
2011 21 825 15 739 343 500 360 538
2012 21 137 15 739 332 668 365 591
2013 16 330 15 739 256 998 290 601
Total 145 546 2 490 613 3 604 323
Less: Non - current
portion 2 564 762
Current portion 1 039 561
The hedge comprise of two tranches:
Part I: From the date of the agreement until 30 September 2008: 62.5% of
Monthly Production.
Part II: From 01 October 2008 to 30 September 2013: 30% of Monthly Production.
SEGMENT REPORTING
Industrial
Copper Minerals
Year ended 31 December 2008 R`000 R`000
Segment revenue 3 165 891 411 484
Segment profit 218 657 56 559
Unallocated profit before tax and
finance costs
Profit from operation before tax and
finance costs
Net finance costs
Income tax expense
Net profit for the year
Year ended 31 December 2007
Segment revenue 3 920 511 313 882
Segment profit 2 515 511 55 027
Unallocated profit before tax and
finance costs
Profit from operation before tax and
finance costs
Net finance costs
Income tax expense
Net profit for the year
Copper
By-products Total
Year ended 31 December 2008 R`000 R`000
Segment revenue 1 027 205 4 604 580
Segment profit 534 295 809 511
Unallocated profit before tax and
finance costs 25 683
Profit from operation before tax and
finance costs 835 195
N et finance costs (5 115)
Income tax expense (110 541)
Net profit for the year 719 539
Year ended 31 December 2007
Segment revenue 623 736 4 858 129
Segment results 276 476 2 847 014
Unallocated profit before tax and
finance costs 45 232
Profit from operation before tax and
finance costs 2 892 246
Net finance costs (102 931)
Income tax expense (928 402)
Net profit for the year 1 860 913
COMMITMENTS
Commitments contracted for at balance sheet date were R86 million (2007: R86
million). Capital expenditure that was approved by the board, but not
contracted for at 31 December 2008 amounts to R179 million (2007: R303 million).
CONTINGENT LIABILITIES
Various legal matters, including labour cases before the CCMA are in progress.
The potential exposure is approximately R34 million.
POST BALANCE SHEET EVENTS
Senior term loan facility repayment
On 21 January 2009 the South African Reserve bank granted approval for the full
repayment of the senior term facility. The loan was fully settled on this
date.
Dividend declaration
The board declared a dividend of R0,82 per share on 29 January 2009. This
financial report does not reflect this dividend payable, which will be
recognised in shareholders` equity as an appropriation of retained earnings in
the year ending 31 December 2009.
GROUP SELECTED STATISTICS
2008 2007
Revenue
Copper (including hedge) R` million 3 166 3 921
By-products R` million 1 027 624
Vermiculite R` million 411 314
Net profit before tax R` million 830 2 789
Copper
Ore hoisted millions of 11,76 11,84
tonnes
Average copper grade % Cu 0,699 0,705
Copper in concentrates `000 of tonnes 63,9 65,7
produced
Cathode produced `000 of tonnes 75,9 91,7
Average copper price USc/lb 316,6 332,6
realised
LME Copper Price USc/lb 315,5 322,1
Average rand/dollar R/US$ 8,26 7,05
exchange rate
Average copper price R/tonne 57 675 51 706
realised
Net cash cost R/tonne 18 198 15 952
Copper rod
Unit selling price pre USc/lb 337,5 342,5
hedge
Unit selling price post USc/lb 222,0 256,2
hedge
Sales tonnes 51 954 64 468
Cathode
Unit selling price pre USc/lb 319,5 319,9
hedge (local)
Unit selling price post USc/lb 211,1 239,3
hedge (local)
Sales (local) tonnes 15 989 13 148
Unit selling price pre USc/lb 169,0 302,0
hedge (export)
Unit selling price post USc/lb 111,3 225,9
hedge (export)
Sales (export) tonnes 7 651 15 230
Vermiculite
Vermiculite sold tonnes 188 825 181 254
Average vermiculite prices R/tonne 2 094 1 732
realised
Operational cash cost R/tonne 596,4 469,5
Magnetite
Magnetite sold tonnes 1 898 1 337
859 007
Average magnetite prices R/tonne 416 270
realised
Imported concentrate
Volumes Tonnes copper 13 562 19 322
Cost R` million 708 920
Unit purchased price R/tonne of 52 220 46 860
copper
Marginal ore concentrate
Volumes Tonnes copper 1 834 3 039
Cost R` million 68 71
Unit purchased price R/tonne of 37 271 32 141
copper
Costs
Production cost (excluding R` million 2 090,6 1 753,9
concentrate purchases)
Cost of sales R` million 2 760,6 2 996,8
Capital expenditure and
commitments
Capital expenditure R` million 313 181
Approved expenditure at R` million 179 303
end of each period
Contracts placed at end of R` million 86 86
each period
Investments
Fair value of unlisted R` million 314 312
investments
Share capital
Authorised ordinary shares R`000 100 000 100 000
of R1 each
Issued ordinary shares of R`000 48 337 48 337
R1 each
Net asset value per share R/share 55,28 17,57
Employees
Number of employees 2 191 2 110
Group results
Balance sheet
as at 31 December 2008
Group
Reviewed Audited
31 December 31 December
2008 2007
R`000 R`000
Assets
Non-current assets 4 226 751 5 059 788
Property, plant and equipment 3 413 767 3 576 481
Intangible assets 4 105 -
Available for sale financial asset 313 988 312 052
Deferred tax asset 494 891 1 171 255
Current assets 2 357 953 2 122 651
Stores 115 416 80 576
Product inventories 837 059 573 524
Trade and other receivables 658 464 627 441
Cash and cash equivalents 747 014 841 110
Total assets 6 584 704 7 182 439
Shareholders` equity and liabilities
Capital and reserves
Share capital and premium 629 551 629 551
Other reserves (957 977) (2 211 213)
Retained earnings 3 000 452 2 430 759
Total shareholders` equity 2 672 026 849 097
Non-current liabilities 2 775 816 4 321 770
Long-term borrowings - 193 818
Derivative financial instrument 1 363 206 2 564 762
Provisions:
- Close-down and restoration costs 391 330 362 873
- Post retirement medical benefits 154 603 145 681
Deferred tax liability 866 677 1 054 636
Current liabilities 1 136 862 2 011 572
Trade and other payables 451 771 555 777
Derivative financial instrument 321 348 1 039 561
Current portion of long- term borrowings 192 015 214 082
Current taxation liabilities 56 862 119 737
Group companies - related parties 114 866 82 415
Total liabilities 3 912 678 6 333 342
Total equity and liabilities 6 584 704 7 182 439
Income statement
for the year ended 31 December 2008
Group
Reviewed Audited
31 December 31 December
2008 2007
R`000 R`000
Continuing operation
Sale of products 6183 013 6177 954
Hedged loss realised (1578 433) (1319 825)
Revenue 4604 580 4858 129
Cost of sales (2760 701) (2993 587)
Gross profit 1843 879 1864 542
Other income 16 781 21 290
Impairment reversal - 1 690 156
Exploration cost (3 283) (3 257)
Selling and distribution costs (586 595) (356 493)
Administration expenses (403 734) (322 358)
Other expenses (31 853) (1 634)
Profit from continuing operations
before tax and net
finance costs 835 195 2 892 246
Finance costs - net (5 115) (102 931)
Finance cost (126 284) (172 028)
Finance income 121 169 69 097
Profit before tax 830 080 2 789 315
Income tax expense (110 541) (928 402)
Net profit for the year 719 539 1 860 913
Allocated as follows:
Equity holders of parent 719 539 1 860 913
Earnings per share (cents)
- Basic earnings per share (cents) 1 489 3 805
- Diluted earnings per share (cents) 1 489 3 805
Statement of recognised income and expenditure
for the year ended 31 December 2008
Group
Reviewed Audited
31 December 31 December
2008 2007
R`000 R`000
Available-for -sale investments:
- Valuation gains taken to equity (11 811) 36 480
Exchange differences on translation
of foreign operations 14 919 (5 701)
Unclaimed dividend 330 (184)
Cash flow hedges:
- Profit/(Losses) taken to equity 315 886 (2 470 676)
- Transferred to profit or
loss for the year 1 625 328 1 319 825
Actuarial losses on defined
benefit plans (2 491) (18 821)
Dividends paid (149 846) -
Tax on items taken directly to or
transferred from equity (688 925) 374 815
Net profit/(loss) recognised
directly in equity 1 103 390 (764 262)
Profit for the year 719 539 1 860 913
Total recognised income and expenses
for the year 1 822 929 1 096 651
Attributable to:
Equity holders of the parent 1 822 929 1 096 651
Summarised cash flow statement
for the year ended 31 December 2008
Group
Reviewed Audited
31 December 31 December
2008 2007
R`000 R`000
Cash flows from operating activities 484 801 1 604 265
Cash generated from operating activities 949 194 1 733 032
Interest paid (31 791) (172 028)
Interest received 91 179 54 891
Dividends paid (149 846) -
Taxation paid (373 935) (11 630)
Cash flows from investing activities (295 418) (166 991)
Replacement of property,
plant and equipment (312 918) (182 407)
Proceeds on disposal of property,
plant and equipment 1 256 1 210
Amounts invested in
rehabilitation fund (10 467) -
Interest received 23 802 14 206
Dividends received 2 909 -
Cash flows from financing activities (283 479) (1 266 500)
Payment of finance lease - (12 145)
Long-term borrowings repaid (283 479) (1 254 355)
(Decrease)/increase in cash and
cash equivalents (94 096) 170 774
At beginning of year 841 110 670 336
At end of year 747 014 841 110
The full report is available on our website at:
www.palabora.com
Date: 02/02/2009 11:55:03 Produced by the JSE SENS Department.
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