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PAM
PAM
PAM - Palabora - Unaudited Interim Report and Dividend Announcement for the
Six Months Ended 30 June 2009
Palabora Mining Company Limited
(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")
Unaudited Interim Report and Dividend Announcement for the Six Months Ended 30
June 2009
HIGHLIGHTS
- Dividend declared of R1.65 per share;
- Magnetite sales increased by 47%;
- Net cash increased by R401 million;
- No outstanding long-term debt.
COMMENTARY
Overview
In this tough business environment where economic indicators have been
trending downwards, Palabora ended the first half with net earnings of R141
million; 70% lower than net earnings for the same period a year ago. Cash
reserves increased by R141 million during the period under review. A dividend
of R1,65 per share was declared by the Board of Directors of Palabora (the
Board).
Palabora`s copper production was in line with production in 2008.
A record 1 163 912 tonnes of magnetite was sold; 47% more than in 2008.
On safety, the Company made significant improvements in its statistics
year-on-year. Unfortunately, there was one fatality during this period.
Efforts have been re-doubled to ensure that Palabora remains a safe operation.
While challenges abound on the operations and the economic fronts, the Company
has enough cash reserves to weather this tough business climate.
Group financial results
30 June 30 June 31 December
For the period ended 2009 2008 2008
Net profit for the R141 million R464 million R720 million
period
Basic earnings per 291 cents 961 cents 1 489 cents
share
Earnings before R565 million R852 million R1 305 million
interest, tax
depreciation and
amortisation (EBITDA)
Headline earnings R141 million R466 million R722 million
Headline earnings per 291 cents 965 cents 1 493 cents
share
Net cash (excluding R783 million R381 million R555 million
hedge)
Dividends per share R1,65 - R0,82
(declared)
Net profit
The net profit for the six months ended 30 June 2009 decreased from R464
million in the comparable period in 2008 to R141 million. The basic earnings
per share decreased from earnings of 961 cents per share to earnings of 291
cents per share.
Sales of products decreased by R687 million (21%) to R2 569 million largely as
a result of the following:
- Lower realised prices of copper of R1 574 million, lower realised prices for
slimes and nickel (R32 million and R4,7 million respectively) (refer to note
16);
- Lower volumes of copper sales (including revert and concentrate sales);
42 044 tonnes compared with 44 667 tonnes for the first six months in 2008
(R98 million); and
- Lower vermiculite sales: 92 thousand tonnes compared with 102 thousand
tonnes in 2008 (R26 million).
These decreases were offset by:
- Higher magnetite and vermiculite sales prices (R150 million and R8 million
respectively). Magnetite prices have increased due to changes in terms of sale
from FOB to CFI/CFR for exported magnetite;
- Higher volumes of magnetite sales; 1 164 thousand tonnes compared with 793
thousand tonnes (+R204 million) in 2008; and
- The weakening of the recorded average Rand/US$ exchange rate from 7,65 for
the comparable period in 2008 to 9,31 in 2009 (+R671 million).
The Group achieved an average realised selling price (post hedge) for copper
rod and cathode of R32 402 (2008: R41 363) and R32 401 (2008: R40 522)
respectively.
The revenue was further impacted by realised hedging losses resulting from the
swap settlement of 11 thousand (2008: 23 thousand) tonnes of copper ((-R213
million) 2008: (-R886 million)).
Total Group cost of sales increased by R99 million, from R1 326 million in the
first six months of 2008 to R1 425 million for the comparable period under
review, representing an increase of 7% from the previous period. The ratio of
cost of sales to revenue increased from 41% to 55% in 2009. As a result of
worsening market conditions, Palabora has initiated a labour freeze policy
(except in critical areas with prior approval) in order to reduce operating
costs. Discretionary spending has been curtailed. The following factors
contributed to the increase in cost of sales:
- Employee costs increased by R35 million. Although a hiring freeze of non-
critical positions was imposed, the annual salary increase and retention
strategies introduced during the previous financial year impacted on the
costs;
- The depreciation expense increased by R55 million compared with the 2008
half year due to capital additions during the second half of 2008;
- Increase in coal expenditure of R20 million as a result of increased coal
prices (R12 million) and increased consumption (R8 million);
- Electricity costs increased by R16 million from R56 million in 2008 to R72
million in 2009 as a result of increased tariffs as well as increased
consumption mainly due to processing of Foskor marginal ore;
- Changes in inventory of finished goods and work in progress of R224 million
as a result of an additional 967 tonnes of copper rod being sold than
produced. Stock levels were built up in December 2008 to meet customer demand
during the furnace shutdown. Low grade copper concentrate was sold during the
first half of 2009 towards improving the working capital.
The increase was offset by the following decreases:
- Copper concentrate purchases decreased from 5,8 thousand tonnes in 2008 to
5,3 thousand tonnes in 2009 (R14 million), and the LME copper price impact on
purchased concentrate of R190 million lower than the comparable period under
review in 2008;
- Credit for processing Foskor Marginal ore of R52 million to compensate
Palabora for the additional costs incurred to process the marginal ore. Foskor
Marginal ore was not processed in the first half of 2008.
The Group achieved a gross profit during the period of R931 million (first
half of 2008: R1 044 million).
EBITDA were R565 million compared with R852 million for the comparable period
in 2008.
Selling and distribution costs increased by R258 million and administration
costs decreased by R22 million. The increase in the selling and distribution
costs from R233 million in 2008 to R491 million for 2009 is mainly as a result
of higher magnetite volumes sold, the change in magnetite shipping terms from
FOB to CFI/CFR and increased freight and railage to port rates.
The Group`s profit before interest and tax was R280 million compared with R623
million in the first half of 2008, a decrease of R343 million.
The increase in net finance costs of R68 million was due to higher foreign
exchange losses on revaluations of financial instruments.
The effective tax rate increased from 24,0% in June 2008 to 29,9% in June 2009
mainly as a result of the once-off impact of the statutory rate reduction in
the beginning of 2008 (See notes 5 & 9).
Cash flow
For the six months ended 30 June 2009, the Group recorded a net cash inflow of
R141 million compared with a net cash outflow of R291 million for the
comparable period in 2008, mainly due to lower dividend and tax payments,
decrease in investing activities due to the postponement of non-critical
capital projects until market conditions improve, and lower repayments on
borrowings.
Cash generated from operations during the period totalled R389 million. After
funding the dividend payment of R40 million, tax payments of R71 million,
capital expenditure of R61 million and repayment of borrowings of R80 million,
the closing cash position was R888 million (compared with R550 million at June
2008).
Capital investment of R60 million was primarily spent on upgrading the
operations; the underground mine (R32 million), the concentrator (R20 million)
and the smelter (R4 million). The expenditure related mainly to development of
the Western Extension, winder rope replacements and the continued construction
of the South Paddock tailings dams. As a precautionary measure against the
prevailing market conditions, development capital has temporarily been put on
hold. The amounts incurred on these projects relate to prior committed orders
that would have been uneconomical to cancel. The net cash outflow was offset
by other investing activities of R10 million.
The R80 million used in financing activities was for the final repayment of
the senior term facility.
Net cash
Net cash increased from R381 million in June 2008 to a net cash balance of
R783 million in 2009 as a result of emphasis on preserving cash through
dedicated focus on the working capital management and efficiency programme.
Black Economic Empowerment (BEE)
On 30 April, 2009 Palabora signed and submitted a Transaction Framework
Agreement (TFA) bearing the signatures of its Broad Based BEE (BBBEE) partners
to the Department of Minerals and Energy (DME) in Polokwane. The structure is
projected to be operational in the beginning of 2010.
Pension fund surplus
On 2 July 2009 the Board of Appeal of the Financial Services Board (FSB)
dismissed the lodged appeal to block the distribution of the pension fund
surplus. Following the dismissal, the FSB instructed the Liquidator (Alexander
Forbes) on 13 July 2009 to proceed with the liquidation. The employer`s share
of the surplus in the Fund is estimated at approximately R230 million before
tax and including accrued interest.
Declaration of dividend
An interim cash dividend of R1,65 per share has been declared in respect of
the half-year ended 30 June 2009. Any final dividend in respect of the full-
financial year will depend on the global market conditions.
Payment in South African Rand will be made on Monday, 7 September 2009 to
shareholders recorded in the register of Palabora Mining Company on 4
September 2009. The last day to trade to qualify for the dividend will be
Friday, 28 August 2009 and the shares will trade ex-dividend from Monday, 31
August 2009. Share certificates may not be dematerialised or rematerialised
between Monday, 31 August 2009 and Friday, 4 September 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.
The final dividend relating to the 2008 financial year of R40 million was paid
during the period (2008: R150 million relating to the 2007 financial year).
Corporate governance
Mr George Negota resigned as an independent non-executive director and
Chairman of the Board, with effect from 24 March 2009. Mr Negota is leading a
consortium of entrepreneurs (the consortium) to acquire an equity interest not
exceeding 6% in a newly formed, special purpose subsidiary of Palabora, which
subsidiary will acquire all or an appropriate part of Palabora`s business
under the potential BBBEE transaction (the Transaction). It is presently
envisaged that 26% of the equity in the said subsidiary will be held by a
combination of (i) the consortium, (ii) Palabora employees and (iii) a trust
established for the communities of the Ba-Phalaborwa area, with the remaining
74% held by Palabora. Due to the potential conflict of interest, Mr Negota was
recused from Board discussions relating to the Transaction at the Board
meeting held on 23 February 2009.
With effect from 24 March 2009, Mr Clifford Zungu was appointed as interim
Chairman of the Board. Mr Zungu has been an independent non-executive director
of Palabora since April 2002 and also held the chairmanship during the 2006
financial year, until Mr Negota was appointed Chairman.
With effect from 1 April 2009, Mr Philip Robinson and Mr Coen Louwarts were
appointed as alternate directors to Ms Kay Priestly and Mr Clive Latcham
respectively.
Appreciation
Once again we offer our thanks and appreciation to all stakeholders for their
continued assistance in Palabora`s quest to deliver value.
C Zungu MD Gili CA Asubonten
Chairman Managing Finance 30 July 2009
Director Director
CORPORATE INFORMATION
This condensed consolidated interim financial information of Palabora for the
six months ended 30 June 2009 were authorised for issue in accordance with a
resolution of the Board passed on 30 July 2009.
The Group is incorporated and domiciled in South Africa. The Group has its
primary listing on the JSE Limited. The principal activities of the Group are
described in Note 8.
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
Basis of preparation
This condensed consolidated interim financial information for the six months
ended 30 June 2009 has been prepared in accordance with International
Accounting Standard (IAS) 34, `Interim reporting` and has not been reviewed or
reported on by the Company`s auditors.
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
2008, which have been prepared in accordance with IFRSs.
Significant accounting policies
Except as described below, the accounting policies applied 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 2008.
The following new standards and amendments to standards are mandatory for the
first time for the financial year beginning 1 January 2009.
- IAS 1 (revised), `Presentation of financial statements`. The revised
standard prohibits the presentation of items of income and expenses (that is
`non-owner changes in equity`) in the statement of changes in equity,
requiring `non-owner changes in equity` to be presented separately from owner
changes in equity. All `non-owner changes in equity` are required to be shown
in a performance statement.
Entities can choose whether to present one performance statement (the
statement of comprehensive income) or two statements (the income statement and
statement of comprehensive income).
The Group has elected to present two statements: an income statement and a
statement of comprehensive income. The interim financial statements have been
prepared under the revised disclosure requirements.
- IFRS 8, `Operating segments`. IFRS 8 replaces IAS 14, `Segment
reporting`. It requires a `management approach` under which segment
information is presented on the same basis as that used for internal
reporting purposes. This has resulted in an increase in the number of
reportable segments presented, as the previously reported Copper by-
products segment has been split into By-products: Magnetite, and By-
products: Other segments.
Operating segments are reported in a manner consistent with the internal
reporting provided to the executive directors. The chief operating
decision-maker has been identified as the executive directors, assisted
by the general managers.
- IFRS 7 (amendment), `Amendments to IFRS 7 - Financial Instruments
disclosures: Improving disclosures about financial instruments`. The
improved disclosures will effectively be seen in the annual report of the
financial year ended 31 December 2009.
- Annual improvement project: May 2008. Various changes to the different
standards, will only impact on disclosures in the annual report of the
financial year ended 31 December 2009.
The following new standards, amendments to standards and interpretations are
mandatory for the first time for the financial year beginning 1 January 2009,
but are not currently relevant for the Group.
- IAS 23 (amendment), `Borrowing costs - Revised`.
- IFRS 2 (amendment), `Amendment to IFRS 2 Share-based payment: Vesting
conditions and cancellations`.
- IAS 32 and IAS 1 (amendment), `Amendment to IAS 32 Financial instruments:
Presentation and IAS 1 Presentation of financial statements - Puttable
Financial Instruments and Obligations Arising on Liquidation`.
- IFRS 1 and IAS 27 (amendment), `Amendment to IFRS 1 First-time adoption
of International Financial Reporting Standards and IAS 27 Consolidated
and separate Financial Statements: Cost of an Investment in a Subsidiary,
Jointly Controlled Entity or Associate`.
- IFRIC 13, `Customer loyalty programmes`.
- IFRIC 15, `Agreements for the construction of real estate`.
- IFRIC 16, `Hedges of a net investment in a foreign operation`.
Presentational changes
Key management, as referred to in IAS 24, Related party disclosures, has been
identified as the executive directors. Disclosures were updated to reflect
this.
2. PROFIT BEFORE TAX AND NET FINANCE COSTS
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
R`000 R`000 R`000
Profit before tax and net
finance costs is stated
after charging:
Depreciation of property, (283 625) (229 018) (469 068)
plant and equipment
Amortisation of intangible (678) - (551)
assets
Employee benefit expense (376 139) (341 518) (704 510)
3. FINANCE COSTS
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
R`000 R`000 R`000
Net exchange losses on 93 558 - -
financial instruments
Interest on bank loans 27 193 17 515 31 791
Environmental 19 088 13 521 26 899
rehabilitation interest
Exchange loss on foreign - 46 916 67 594
debt
139 839 77 952 126 284
4. FINANCE INCOME
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
R`000 R`000 R`000
Dividends received on 21 033 - 2 909
available-for-sale asset
Interest from banks 18 697 23 071 45 361
Interest earned on pension 11 794 11 047 23 802
surplus fund
Exchange gain on foreign 6 382 - -
debt
Interest on available-for- 2 557 - 3 279
sale asset
Interest on accounts 169 17 427
receivable balances
Net exchange gains on - 32 602 42 942
financial instruments
Other - 73 2 449
60 632 66 810 121 169
5. TAXATION
The effective tax rate increased from 24,0% at 30 June 2008 to 29,9% at 30
June 2009.
Deferred tax movements not recognised through the income statement, but
through equity totalled R123 million for the six months ended 30 June 2009
(2008: R452 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:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
R`000 R`000 R`000
Current income tax
- South African
- Mining tax: current (116 047) (189 915) (284 847)
period
- Mining tax: prior period - 4 267 4 267
- Non-mining tax: (4 066) (3 371) (8 784)
current period
- Non-mining tax: prior 356 - (2 040)
period
- Foreign
- Current (5 547) (13 235) (19 657)
Deferred income tax
Relating to origination and
reversal of temporary
differences:
- South African 65 562 55 347 200 456
- Foreign (132) - 64
Income tax expense reported (59 874) (146 907) (110 541)
in the consolidated income
statement
Tax rate reconciliation:
% % %
Current standard statutory 28,0 28,0 28,0
rate
Adjusted for:
- Estimated state share 3,6 3,6 3,6
(after tax) rate
- Actual state share and (3,1) 1,3 (0,4)
state share deduction on
mining tax
- Tax legislation change - - - (13,4)
deferred tax on state share
not recognised as a result
of the Royalty Act#
- Statutory rate change - - (5,3) (3,9)
from 29% to 28%
- Dividend income (3,5) (1,5) (1,4)
- Disallowable expenditure 1,6 0,1 0,1
- Deferred tax on 2,2 - (1,6)
unutilised STC credits
- Tax rate differential of (0,5) (0,3) 2,0
foreign subsidiaries
- Prior year under - 0,1 0,2
provision
- Other 1,6 (2,0) 0,1
Effective tax rate 29,9 24,0 13,3
# December 2008:
The decrease in the effective tax rate is due to the reversal of deferred tax
provision on state share of the profit/lease area as a result of the
introduction of the Mineral and Petroleum Resources Act 28 effective 1 May
2009. Subsequent to the 2008 financial year-end, the implementation of the Act
was postponed by almost a year from May 2009 to March 2010.
6. EARNINGS PER SHARE
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
R`000 R`000 R`000
Reconciliation of net
profit for earnings per
share
Net profit attributable to 140 594 464 463 719 539
equity holders from
continuing operations
Net profit attributable to 140 594 464 463 719 539
ordinary shareholders from
basic and diluted earnings
per share
Reconciliation of weighted
average number of ordinary
shares
Weighted average number of 48 337 48 337 48 337
ordinary shares
7. RECONCILIATION OF HEADLINE EARNINGS PER SHARE
Taxation
Profit and lease Profit
before tax consideration after tax
R`000 R`000 R`000
Six months ended 30 June
2009
Profit per income 200 468 (59 874) 140 594
statement
Profit on disposal of (35) 10 (25)
property, plant and
equipment
Headline profit for six 200 433 (59 864) 140 569
months ended 30 June 2009
Six months ended 30 June
2008
Profit per income 611 370 (146 907) 464 463
statement
Loss on disposal of 2 529 (608) 1 921
property, plant and
equipment
Headline profit for six 613 899 (147 515) 466 384
months ended 30 June 2008
Year ended 31 December
2008
Profit per income 830 080 (110 541) 719 539
statement
Loss on disposal of 2 208 (294) 1 914
property, plant and
equipment
Headline profit for year 832 288 (110 835) 721 453
ended 31 December 2008
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
R`000 R`000 R`000
Headline earnings per 291 965 1 493
share (cents)
8. SEGMENT REPORTING
For management purposes, the Group is organised into operating segments based
on the nature of the products and services provided, and has four reportable
operating segments as follows:
- Copper - produces and markets refined copper.
- By-products: Magnetite - markets processed current arisings and built-up
stockpiles of magnetite, a by-product from the copper mining process.
- By-products: Other - includes anode slimes, sulphuric acid and nickel
sulphate.
- Industrial Minerals - produces and markets vermiculite.
Management monitors the operating results of its operating segments separately
for the purpose of making decisions about resource allocation and performance
assessment. Segment performance is evaluated based on operating profit or loss
which in certain respects, as explained in the table below, is measured
differently from operating profit or loss in the consolidated financial
statements. Group financing (including finance costs and finance income) and
income taxes are managed on a group basis and are not allocated to operating
segments.
Transfer prices between operating segments are set on an arm`s length basis in
a manner similar to transactions with third parties.
Period ended 30 June 2009
By- By-
Industrial products: products:
Copper Minerals Magnetite Other Total
R`000 R`000 R`000 R`000 R`000
Revenue
Sales to 1 357 604 232 419 639 914 126 604 2 356 541
external
operations
Segment 1 357 604 232 419 639 914 126 604 2 356 541
revenue
Results
Segment (86 730) 46 718 217 176 104 114 281 278
results
Unallocated (1 603)
expenditure
Profit from 279 675
operations
before tax
and finance
costs
Net finance (79 207)
costs
Profit 200 468
before
income tax
Income tax (59 874)
expense
Profit for 140 594
the period
Period ended 30 June 2008
By- By-
Industrial products: products:
Copper Minerals Magnetite Other Total
R`000 R`000 R`000 R`000 R`000
Revenue
Sales to 1 801 165 208 333 238 165 122 679 2 370 342
external
customers
Segment 1 801 165 208 333 238 165 122 679 2 370 342
revenue
Results
Segment 412 049 30 227 78 013 106 853 627 142
results
Unallocated - - - - (4 630)
expenditure
Profit from 622 512
operations
before tax
and finance
costs
Net finance (11 142)
costs
Profit 611 370
before
income tax
Income tax (146 907)
expense
Profit for 464 463
the period
9. DEFERRED TAX
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
R`000 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.
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 (371 786) 116 619 116 619
Exchange adjustment on - 111 -
translation of foreign
subsidiaries
Tax charged to equity 123 087 451 772 (688 925)
Income statement charge 65 429 55 347 200 520
Net deferred tax (183 270) 623 849 (371 786)
(liability)/asset at the end
of the period
Deferred taxation relating to
temporary differences is made
up as follows:
Assets
Provisions 84 881 82 192 86 387
Derivatives 605 417 1 635 587 482 330
STC credits 8 597 - 12 561
Other 4 006 (5 291) 10 768
702 901 1 712 488 592 046
Liabilities
Property, plant and (886 171) (1 088 639) (1 071 245)
equipment
Change in tax legislation - - 107 413
(886 171) (1 088 639) (963 832)
Net deferred tax (183 270) 623 849 (371 786)
(liability)/asset
Included in the balance sheet
as follows:
Deferred tax asset 614 014 1 635 588 494 891
Deferred tax liability (797 284) (1 011 739) (866 677)
Net deferred tax (183 270) 623 849 (371 786)
(liability)/asset
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 2009 the Company had no unredeemed capital (2008: R nil).
10. NET CASH
Six months
Effective ended
interest 30 June
Description of loan rate Maturity 2009
% R`000
Non-current
Senior term facility Libor+2.0%/
Jibar+2.35% 30.06.2009 -
-
Current
Senior term facility Libor+2.0%/
Jibar+2.35% 30.06.2009 -
Revolving credit facility Libor+2.0%/
Jibar+2.35% 105 664
105 664
Total borrowings 105 664
Cash and cash equivalents (888 312)
Net cash (782 648)
Total equity 2 310 471
Total capital employed 1 527 823
Gearing (0,51)
Six
months Year
ended ended
30 31 December
June
Description of loan 2008 2008
R`000 R`000
Non-current
Senior term facility
3 051 -
3 051 -
Current
Senior term facility
59 108 74 351
Revolving credit facility
106 445 117 664
165 553 192 015
Total borrowings 168 604 192 015
Cash and cash equivalents (549 868) (747 014)
Net cash (381 264) (554 999)
Total equity 39 396 2 672 026
Total capital employed (341 868) 2 117 027
Gearing 1,12 (0,26)
Approximately 55% of the Group`s existing borrowings is denominated in US$ for
a total amount of US$7,5 million. The terms of repayments are consistent with
the information disclosed in the December 2008 annual financial statements.
Net cash consists of borrowings and cash and cash equivalents. It is
calculated consistently year on year.
Senior term facility agreement
Total principal repayments of R80 million were made on the senior term
facility during the six months ended 30 June 2009. This was for the final and
complete settlement of the senior term facility balance.
Loan covenants
No defaults were declared.
11. DERIVATIVE FINANCIAL INSTRUMENTS
At 30 June 2009, the Group held a commodity swap contract designated as a
hedge of expected future sales under which the Group receives a fixed price in
Rand in relation to a monthly notional quantity of copper sales as detailed
below and pays a floating price based on the arithmetic average (mean) of the
US$ 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.
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. As at 30 June 2009 the cashflow
hedges of the expected future sales were assessed to be highly effective and
R1 million over-hedged ineffectiveness was recognised in the income statement.
The combined hedged book amounts to 92 711 tonnes of copper for a total amount
of R2 225 million as at 30 June 2009 spread over 4,25 years.
The terms of the contracts are as follows:
Derivative financial instrument: table of terms
30 June 2009
Mark to
Average market
Maturity Quantity hedged price Hedged value loss/(gain)
Year (t) ZAR/t R`000 R`000
2009 11 231 15 739 176 765 258 341
2010 22 188 15 739 349 219 521 141
2011 21 825 15 739 343 500 519 655
2012 21 137 15 739 332 668 501 624
2013 16 330 15 739 256 998 381 778
Total of 92 711 1 459 150 2 182 539
derivative
financial
instrument
Unamortised 42 371
component of
non-
observable
inception
gain
Total 2 224 910
Less: Non- 1 666 906
current
portion of
derivative
financial
instrument
Less: Non- 32 002
current
portion of
unamortised
component of
non-
observable
inception
gain
Total 526 002
current
portion
Current 515 633
portion of
derivative
financial
instrument
Current 10 369
portion of
unamortised
component of
non-
observable
inception
gain
31 December
2008
Average Mark to
market
Maturity Quantity hedged price Hedged value loss/(gain)
Year (t) ZAR/t R`000 R`000
2009 22 265 15 739 350 427 310 964
2010 22 188 15 739 349 219 336 128
2011 21 825 15 739 343 500 350 372
2012 21 137 15 739 332 668 355 761
2013 16 330 15 739 256 998 283 808
Total of 103 745 1 632 812 1 637 033
derivative
financial
instrument
Unamortised 47 521
component of
non-
observable
inception
gain
Total 1 684 554
Less: Non- 1 326 070
current
portion of
derivative
financial
instrument
Less: Non- 37 136
current
portion of
unamortised
component of
non-
observable
inception
gain
Total 321 348
current
portion
Current 310 963
portion of
derivative
financial
instrument
Current 10 385
portion of
unamortised
component of
non-
observable
inception
gain
12. RELATED PARTY TRANSACTIONS
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
R`000 R`000 R`000
The following transactions
were carried out with
related parties:
Recovery of travel and staff 804 3 552 3 695
costs
Purchases of goods and 190 345 59 235 196 901
services
Key management compensation 3 041 3 485 7 250
(executive directors)
The increase in purchased goods and services is due to the increased use of
Rio Tinto Shipping to accommodate the increased magnetite tonnages shipped.
13. COMMITMENTS
Commitments contracted for at balance sheet date were R60 million (31 December
2008: R86 million). Capital expenditure that was approved by the Board, but
not contracted for at 30 June 2009 amounts to R174 million (31 December 2008:
R179 million).
14. CONTINGENT LIABILITIES
Various CCMA and labour cases are in progress. The potential exposure is
approximately R34 million (2008: R34 million).
15. POST BALANCE SHEET EVENTS
Dividend declaration
The board declared a dividend of R1.65 per share on 30 July 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.
16. GROUP SELECTED STATISTICS
Six months Six months Year
ended ended ended
30 June 30 June 31
December
2009 2008 2008
Revenue
Copper (net of hedge) R`million 1 358 1 801 3 166
Industrial minerals R`million 232 208 411
Magnetite R`million 640 238 790
Other products R`million 127 123 237
Net profit before tax R`million 200 611 830
Copper
Ore hoisted millions of 5,97 5,73 11,76
tonnes
Average copper grade % Cu 0,661 0,717 0,699
Copper in `000 of 37,8 31,1 63,9
concentrates produced tonnes
Cathode produced `000 of 40,5 39,8 75,9
tonnes
Average copper price USc/lb 182,7 361,8 316,6
realised
LME Copper Price USc/lb 183,5 368,3 315,5
Average sales R/US$ 9,31 7,65 8,88
rand/dollar exchange
rate realised
Spot rand/dollar R/US$ 7,77 7,87 9,37
exchange rate
Average copper price R/tonne 36 991 61 041 57 675
realised (pre hedge)
Average copper price R/tonne 31 729 41 363 42 005
realised (post hedge)
Net cash cost R/tonne 19 129 20 916 18 198
Copper rod
Unit selling price USc/lb 182,7 365,6 337,5
pre hedge
Unit selling price USc/lb 157,9 245,9 222,0
post hedge
Sales tonnes 25 809 29 550 51 954
Cathode
Unit selling price USc/lb 172,83 328,0 319,5
pre hedge (local)
Unit selling price USc/lb 149,32 220,6 211,1
post hedge (local)
Sales (local) tonnes 11 117 9 576 15 989
Unit selling price USc/lb 218,0 388,4 169,0
pre hedge (export)
Unit selling price USc/lb 188,5 261,2 111,3
post hedge (export)
Sales (export) tonnes 3 106 501 7 651
Vermiculite
Vermiculite sold tonnes 92 042 101 917 188 825
Average vermiculite R/tonne 2 521 1 599 2 094
prices realised
Operational cash cost R/tonne 674,3 553,2 596,4
Magnetite
Magnetite sold tonnes 1 163 912 793 140 1 898 859
Average magnetite R/tonne 550 300 416
prices realised
Anode slimes
Anode slimes sold tonnes 54 48 105
Average anode slimes R/tonne 1 799 669 2 057 525 1 412 871
prices realised
Nickel sulphate
Nickel sulphate sold tonnes 232 68 173
Average nickel R/tonne 24 951 78 177 45 503
sulphate prices
realised
Sulphuric acid
Sulphuric acid sold tonnes 56 651 62 963 109 178
Average sulphuric R/tonne 404 341 747
acid prices realised
Imported concentrate
Volumes Tonnes copper 3 209 5 803 13 562
Cost R`million 93 357,5 708
Unit purchased price R/tonne of 28 910 61 613 52 220
copper
Marginal ore
concentrate
Volumes Tonnes copper 2 098 - 1 834
Cost R`million 60,5 - 68,3
Unit purchased price R/tonne of 28 848 - 37 271
copper
Cash flow
Cash from operating R`million 273 100 485
activities
Cash in bank R`million 888 550 747
Costs
Production cost R`million 846 642 2 091
(excluding
concentrate
purchases)
Cost of sales R`million 1 425 1 326 2 761
Capital expenditure
and commitments
Capital expenditure R`million 60 127 313
Approved expenditure R`million 174 265 179
at end of each period
Contracts placed at R`million 60 126 86
end of each period
Investments
Fair value of R`million 316 307 314
unlisted investments
Share capital
Authorised ordinary R`000 100 000 100 000 100 000
shares of R1 each
Issued ordinary R`000 48 337 48 337 48 337
shares of R1 each
Net asset value per R/share 47,80 0,82 55,28
share
UNAUDITED INTERIM CONDENSED GROUP RESULTS
INTERIM CONSOLIDATED INCOME STATEMENT
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
Note R`000 R`000 R`000
Sale of products 2 569 469 3 256 786 6 183 013
Hedge loss realised (212 928) (886 444) (1 578 433)
Revenue 2 356 541 2 370 342 4 604 580
Cost of sales (1 425 097) (1 325 975) (2 760 701)
Gross profit 931 444 1 044 367 1 843 879
Other income 20 358 19 340 16 781
Exploration cost (20) (3 269) (3 283)
Selling and (490 664) (233 203) (586 595)
distribution costs
Administration (177 478) (199 855) (403 734)
expenses
Other expenses (3 965) (4 868) (31 853)
Profit before tax 2 279 675 622 512 835 195
and net finance
costs
Finance costs 3 (139 839) (77 952) (126 284)
Finance income 4 60 632 66 810 121 169
Profit before tax 200 468 611 370 830 080
Income tax expense 5 (59 874) (146 907) (110 541)
Net profit for the 140 594 464 463 719 539
period
Allocated as
follows:
Equity holders of 140 594 464 463 719 539
parent
Earnings per share
(cents):
- Basic and diluted 6 291 961 1 489
earnings per share
(cents)
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
Note R`000 R`000 R`000
Net profit for the 140 594 464 463 719 539
period
Other comprehensive
(loss)/income:
Available-for-sale
investments:
- Valuation loss on (21 809) (5 878) (11 811)
available-for-sale
asset
Exchange (19 665) 8 368 14 919
differences on
translation of
foreign operations
Cash flow hedges:
- Valuation (758 433) (2 474 584) 276 040
(losses)/gains
- Hedge loss 212 928 886 444 1 578 433
realised for the
period
- Hedge 1 311 9 411 86 741
ineffectiveness
Income tax on cash 9 123 087 451 772 (688 925)
flow hedges
Actuarial losses on - - (2 491)
defined benefit
plans
Other comprehensive (462 581) (1 124 467) 1 252 906
(loss)/income for
the period, net of
tax
Total comprehensive (321 987) (660 004) 1 972 445
income for the
period
Attributable to:
Equity holders of (321 987) (660 004) 1 972 445
the parent:
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at As at
30 June 30 June 31 December
2009 2008 2008
Note R`000 R`000 R`000
Assets
Non-current assets 4 124 206 5 413 898 4 226 751
Property, plant and 3 189 385 3 471 412 3 413 767
equipment
Intangible assets 5 037 - 4 105
Available-for-sale 315 770 306 898 313 988
financial assets
Deferred tax asset 9 614 014 1 635 588 494 891
Current assets 2 537 297 2 139 513 2 357 953
Stores 113 610 95 410 115 416
Product inventories 693 352 672 428 837 059
Trade and other 842 023 821 807 658 464
receivables
Cash and cash 10 888 312 549 868 747 014
equivalents
Total assets 6 661 503 7 553 411 6 584 704
Shareholders` equity
and liabilities
Capital and reserves
Share capital and 629 551 629 551 629 551
premium
Other reserves (1 386 491) (3 303 774) (923 910)
Retained earnings 3 067 411 2 713 619 2 966 385
Total shareholders` 2 310 471 39 396 2 672 026
equity
Non-current 3 066 026 5 311 437 2 775 816
liabilities
Long-term borrowings 10 - 3 051 -
Derivative financial 11 1 698 908 3 770 558 1 363 206
instrument
Provisions:
- Close-down and 411 485 376 394 391 330
restoration costs
- Post retirement 158 349 149 695 154 603
medical benefits
Deferred tax 9 797 284 1 011 739 866 677
liabilities
Current liabilities 1 285 006 2 202 578 1 136 862
Trade and other 415 757 479 245 451 771
payables
Derivative financial 11 526 002 1 411 090 321 348
instrument
Current portion of 10 105 664 165 553 192 015
long-term borrowings
Current tax 111 219 58 810 56 862
liabilities
Group companies - 126 364 87 880 114 866
related parties
Total liabilities 4 351 032 7 514 015 3 912 678
Total equity and 6 661 503 7 553 411 6 584 704
liabilities
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Retained
capital premium earnings
R`000 R`000 R`000
Balance at 48 337 581 214 2 398 853
1 January 2008
Net profit for the period - - 464 463
Other comprehensive
(loss)/income:
Revaluation of - - -
available-for-sale
investments
Currency translation - - -
differences
Net loss on cash flow - - -
hedges
Hedge loss recycled to - - -
profit and loss
Over hedged - - -
ineffectiveness
Tax on items directly - - -
taken to equity
Total comprehensive - - 464 463
income/(loss) for the
period
Unclaimed dividends - - 149
Dividends paid - - (149 846)
Balance at 30 June 2008 48 337 581 214 2 713 619
Net profit for the period - - 255 076
Other comprehensive
(loss)/income:
Revaluation of - - -
available-for-sale
investments
Currency translation - - -
differences
Net profit on cash flow - - -
hedges
Hedge loss recycled to - - -
profit and loss
Over hedged - - -
ineffectiveness
Tax on items directly - - -
taken to equity
Actuarial loss on - - (2 491)
defined benefit plans
Total comprehensive - - 252 585
income for the period
Unclaimed dividends and - - 181
other
Balance at 31 December 48 337 581 214 2 966 385
2008
Net profit for the period - - 140 594
Other comprehensive
(loss)/income:
Revaluation of - - -
available-for-sale
investments
Currency translation - - -
differences
Net loss on cash flow - - -
hedges
Over hedged - - -
ineffectiveness
Hedge loss recycled to - - -
profit and loss
Tax on items directly - - -
taken to equity
Total comprehensive - - 140 594
income/(loss) for the
period
Dividends paid - - (39 637)
Unclaimed dividends and - - 69
other
Balance at 30 June 2009 48 337 581 214 3 067 411
Other
reserves Total
R`000 R`000
Balance at (2 179 307) 849 097
1 January 2008
Net profit for the period - 464 463
Other comprehensive
(loss)/income:
Revaluation of (5 878) (5 879)
available-for-sale
investments
Currency translation 8 368 8 368
differences
Net loss on cash flow (2 474 584) (2 474 584)
hedges
Hedge loss recycled to 886 444 886 444
profit and loss
Over hedged 9 411 9 411
ineffectiveness
Tax on items directly 451 772 451 772
taken to equity
Total comprehensive (1 124 467) (660 004)
income/(loss) for the
period
Unclaimed dividends - 149
Dividends paid - (149 846)
Balance at 30 June 2008 (3 303 774) 39 396
Net profit for the period - 255 076
Other comprehensive
(loss)/income:
Revaluation of (5 933) (5 933)
available-for-sale
investments
Currency translation 6 551 6 551
differences
Net profit on cash flow 2 750 624 2 750 624
hedges
Hedge loss recycled to 691 989 691 989
profit and loss
Over hedged 77 330 77 330
ineffectiveness
Tax on items directly (1 140 697) (1 140 697)
taken to equity
Actuarial loss on - (2 491)
defined benefit plans
Total comprehensive 2 379 864 2 632 449
income for the period
Unclaimed dividends and - 181
other
Balance at 31 December (923 910) 2 672 026
2008
Net profit for the period - 140 594
Other comprehensive
(loss)/income:
Revaluation of (21 809) (21 809)
available-for-sale
investments
Currency translation (19 665) (19 665)
differences
Net loss on cash flow (758 433) (758 433)
hedges
Over hedged 1 311 1 311
ineffectiveness
Hedge loss recycled to 212 928 212 928
profit and loss
Tax on items directly 123 087 123 087
taken to equity
Total comprehensive (462 581) (321 987)
income/(loss) for the
period
Dividends paid - (39 637)
Unclaimed dividends and - 69
other
Balance at 30 June 2009 (1 386 491) 2 310 471
INTERIM CONSOLIDATED CASH FLOW STATEMENT
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
R`000 R`000 R`000
Cash flows from operating 272 478 99 903 484 801
activities
Cash generated from 388 796 517 907 949 194
operations
Interest paid (27 193) (17 515) (31 791)
Interest received 21 423 12 501 91 180
Dividend paid (39 602) (149 698) (149 846)
Income tax paid (70 946) (263 292) (373 936)
Cash flows from investing (51 211) (116 732) (295 418)
activities
Purchases of property, plant (58 874) (127 094) (308 262)
and equipment
Additions to intangible (1 609) (200) (4 656)
assets
Proceeds on disposal of 35 239 1 256
property, plant and
equipment
Amounts invested in (23 590) - (10 467)
rehabilitation fund
Interest received 11 794 - 23 802
Dividends received 21 033 10 323 2 909
Cash flows from financing (79 969) (274 413) (283 479)
activities
Long-term borrowings repaid (79 969) (274 413) (283 479)
Increase/(decrease) in cash 141 298 (291 242) (94 096)
and cash equivalents
At beginning of period 747 014 841 110 841 110
At end of period 888 312 549 868 747 014
FURTHER CAUTIONARY ANNOUNCEMENT
Further to the cautionary announcements dated 17 November 2008, 6 January
2009, 17 February 2009, 31 March 2009, 18 May 2009 and 30 June 2009,
shareholders are advised that the negotiations regarding a potential BBBEE
transaction involving all or an appropriate part of the Company`s business are
still in progress which, if successfully concluded, may have a material effect
on the price of the Company`s shares.
Accordingly shareholders are advised to continue exercising caution when
dealing in the Company`s shares until such time as a full announcement is
published.
Phalaborwa
4 August 2009
Directors:
CN Zungu (Chairman), MD Gili1 (Managing Director)
CA Asubonten1 (Finance Director), LW Kirsner (alt. C Louwarts)
JC Posthumus, S Thomas, KS Priestly1 (alt. PJ Robinson)
1American 2Australian
Company secretary:
KN Mathole
Sponsor:
Barnard Jacobs Mellet Corporate Finance (Pty) Ltd
Transfer Secretaries:
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Registered Office:
1 Copper Road, Phalaborwa, 1389
PO Box 65, Phalaborwa, 1390
The full report is available on our website at: www.palabora.com
Date: 04/08/2009 16:45:19 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
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employees and agents accept no liability for (or in respect of) any direct,
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