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PAM
PAM
PAM - Palabora - Unaudited interim report and dividend announcement for the
six months ended 30 June 2010
Palabora Mining Company Limited
and its Subsidiaries
(a member of the Rio Tinto Group)
(Incorporated in the Republic of South Africa)
(Registration Number: 1956/002134/06)
JSE Code: PAM & ISIN: ZAE000005245
("Group" or "Palabora" or "Company")
UNAUDITED INTERIM REPORT AND DIVIDEND ANNOUNCEMENT for the six months ended 30
June 2010
COMMENTARY
Group financial highlights
Six months ended Six months ended
30 June 30 June
2010 2009
Net profit for the period R306 million R141 million
Basic earnings per share 632 cents 291 cents
Earnings before interest, tax, R668 million R585 million
depreciation and amortisation
(EBITDA)
Headline earnings R304 million R141 million
Headline earnings per share 630 cents 291 cents
Net cash (excluding hedge) R986 million R783 million
Dividends per share (declared) 207 cents 165 cents
Overview
Mr Tony Lennox, Managing Director remarked, "I am pleased to report Palabora
is continuing to improve its performance in a challenging economic environment
and we remain cautiously optimistic about the outlook for the second half of
2010 as we watch China, the United States and Europe address economic issues
that will impact the demand and pricing for resources in the near term".
The Company earned a net profit of R306 million or 632 cents per share for the
period ending 30 June 2010 as compared to R141 million or 291 cents per share
for the period ending 30 June 2009. This increase of 117% in net profit was
directly related to firming copper and magnetite prices as compared to the
same period in 2009. While magnetite sales volumes increased by 17% from 1,2
million in 2009 to 1,4 million tonnes in 2010, sales were impacted by a rail
workers` strike in June.
Reflecting on the recent Transnet Limited strike, Mr Lennox said, "Palabora
experienced an impact to our magnetite shipments and sales in June as a result
of the Transnet rail workers` strike which reduced shipments by approximately
120 000 tonnes or half of our usual monthly deliveries".
Mr Lennox also commented, "I am pleased to report that Palabora signed Broad
Based Black Economic Empowerment ("BBBEE") agreements with our new partners
and the agreements were lodged with the Department of Mineral Resources
("DMR") on 2 July 2010. In addition, the Company signed an agreement with Iron
Mineral Beneficiation Services (Proprietary) Limited ("IMBS") and Industrial
Development Corporation of South Africa Limited ("IDC") for the study of a low
cost iron-making facility in the Ba-Phalaborwa area to manufacture 500 000
tonnes of iron annually. Finally, the Board of Directors ("the Board")
approved funding for the construction of a return airway ventilation system as
an initial step that is required for the development of the second underground
phase".
Safety
Consistent with our well established culture, safety is a core value and we
strive for an injury free workplace which remains our highest priority. The 12
month progressive lost time injury frequency rate ("LTIFR") increased slightly
from 0,32% to 0,34%. We will continue to work with every employee and
contractor to improve the Company`s overall safety performance.
Production
Dry ore hoisted declined 6% to 5,5 million tonnes for the period ending 30
June 2010 from 5,9 million tonnes for the period ending 30 June 2009 as a
result of winder breakdowns and low availability of load-haul-dump units
("LHDs"). Both the north and south winder drums are scheduled for replacement
in early 2011. Preventative maintenance is ongoing to minimise disruptions on
production.
These production challenges and an increase in concentrate in process combined
to cause a 17% decrease in concentrate production with 120 kilo tonnes ("kt")
produced for the period ending 30 June 2010 compared with 143kt for the period
ending 30 June 2009. The increase in concentrate in process was in the form of
thickener inventory as a result of processing increased slag tonnage and an
increase in the fineness and moisture in the feed which reduced filter plant
throughput. The copper concentrate from toll milling declined 90% and thus
contributed further to reduced concentrate production.
The smelter experienced operational challenges resulting in a decline in anode
production of 31% to 27kt for the period ending 30 June 2010 from 39kt for the
period ending 30 June 2009. Consequently, cathode produced declined to 26kt
from 41kt and copper rod production declined 44% to 14kt from 25kt for the
period ending 30 June 2010 and 2009 respectively. The smelter suffered from
low feed rates at the reverbratory furnace as a result of downtime at the
furnace bath and maintenance and replacement of overhead cranes. The furnace
and cranes returned to full operations during the second quarter following the
engagement of the Rio Tinto Group engineers and external consultants and a
reorganisation of the smelter management team. Smelter operations are
projected to return to normal levels by the last quarter of 2010.
Tonnage sales
Sales were broadly in line with production for the period ending 30 June 2010
compared to the same period in 2009, as summarised in the table below. Higher
concentrate, reverts and cropped bar sales for the period ending 30 June 2010
as compared to the period ending 30 June 2009 are due to the production
challenges experienced in the smelter and rod mill plant.
Six months ended Six months ended
30 June 2010 (kt) 30 June 2009 (kt) % change
Copper rod 18,81 25,8 (27)
Cathode 6,2 13,1 (53)
Copper in concentrate 5,1 2,0 155
Reverts and cropped bars 4,1 1,1 273
Total copper 34,2 42,0 (19)
Magnetite 1 366 1 164 17
1 Includes 4.9kt of purchased rod to meet contractual commitments.
Turnover
Gross revenue increased 30% to R3,3 billion for the period ending 30 June 2010
from R2,6 billion for the comparative period in 2009. Net revenue, which
includes the impact of the copper hedging programme, increased 24% to R2,9
billion for the period ending 30 June 2010 from R2,4 billion for the
comparative period in 2009. Increases in revenue were a direct result of
firming commodity prices and increased magnetite sales volumes. Magnetite
sales totalled R1,2 billion on 1,4 million tonnes for the period ending 30
June 2010 and R640 million on 1,2 million tonnes for the comparative period in
2009. Income from copper rod purchases to meet contracted sales contributed
R290 million to total turnover.
The hedge loss realised increased to R420 million for the period ending 30
June 2010 from R213 million for the comparative period in 2009 due to higher
copper prices. The copper price averaged 324 USc/Ib for the period ending 30
June 2010 compared to 184 USc/Ib for the comparative period in 2009. Magnetite
prices (Fe 65%) averaged US$114 per tonne for the period ending 30 June 2010
compared to US$73 per tonne for the period ending 30 June 2009.
Cost of sales
Cost of sales increased by 6% to R1,5 billion for the period ending 30 June
2010 from R1,4 billion for the comparative period in 2009 due to supplementary
product purchases and operational issues at the smelter. In total 9,7kt of
copper (mainly blister, rod and cathode) totalling R536 million was purchased
compared to 5,3kt of copper concentrate purchases totalling R153 million in
2009. Remedial measures were implemented at the smelter during the second
quarter and it is anticipated that normal operational capacity will be
restored later in 2010.
Selling and administration expenses
Selling expenses increased by 46% to R718 million in the period ending 30 June
2010 from R491 million during the comparative period in 2009 due to the
increase in magnetite sales volume. Selling expenses for rail, shipping and
port increased by R258 million to R643 million for the period ending 30 June
2010 from R385 million for the period ending 30 June 2009.
Administration expenses increased by R39 million from R177 million for the
comparative period in 2009 to R216 million for the period ending 30 June 2010
mainly due to BBBEE transaction and smelter turnaround related costs.
Working capital
Higher magnetite prices saw trade debtors and other receivables increase by
32% to R829 million at 30 June 2010 compared to R626 million at 31 December
2009. Product inventories increased by 45% to R894 million at 30 June 2010
compared to R619 million at 31 December 2009 mainly due to higher cathode
stocks (R122 million) which have since been converted to rod, sold and
delivered to customers and copper in process (R134 million).
The Company paid a dividend of R300 million in respect of the year ended 31
December 2009. Income tax paid for the six months ended 30 June 2010 amounted
to R301 million compared to R71 million for the comparative period in 2009 and
the first royalty payment to the amount of R51 million, as per the
requirements of the Mineral and Petroleum Resources Royalty Act Act (No. 28 of
2008), was paid during the period ending 30 June 2010. These payments
contributed to the decrease in the cash and cash equivalents from R1,4 billion
as at 31 December 2009 to R1,1 billion as at 30 June 2010.
Broad Based Black Economic Empowerment
Palabora concluded a BBBEE transaction with its new Black Economic Empowerment
("BEE") partners on 10 June 2010. The Company worked closely with the partners
to create a new company, Palabora Copper (Proprietary) Limited, which will
acquire and own the assets of Palabora of which 26% will be owned by our BEE
partners. The agreements were lodged with the Department of Mineral Resources
on 2 July 2010, for final approval.
Declaration of dividend
An interim cash dividend of 207 cents per share has been declared in respect
of the half-year ended 30 June 2010.
Payment in South African Rand will be made on Monday, 6 September 2010 to
shareholders recorded in the register of Palabora Mining Company as at 3
September 2010. The last day to trade to qualify for the dividend will be
Friday, 27 August 2010 and the shares will trade ex-dividend from Monday, 30
August 2010. Share certificates may not be dematerialised or rematerialised
between Monday, 30 August 2010 and Friday, 3 September 2010, both days
inclusive.
This interim 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 2010.
The final dividend relating to the 2009 financial year of R300 million was
paid during the period ending 30 June 2010 (30 June 2009: R40 million
relating to the 2008 financial year).
Corporate governance
Ms Kay S Priestly resigned as a non-executive director of the Board, with
effect from 31 May 2010. With effect from 1 June 2010, Ms Jo-Ann Yuen was
appointed as non-executive director of the Board.
Ms Shelly Thomas and Mr Charles Asubonten retired as directors of the Company
at the annual general meeting held on 8 June 2010, with effect from 9 June
2010.
On 1 July 2010, Mr Matthew Gili resigned as the Managing Director at Palabora
after five and a half successful and productive years with the Company,
including three as Managing Director. Mr Gili has accepted a new role at the
Rio Tinto managed Oyu Tolgoi project in Mongolia.
Mr Anthony (Tony) W Lennox was appointed the Managing Director at Palabora,
with effect from 12 July 2010. Mr Lennox was General Manager of Rio Tinto
Energy`s Kestrel coal in Queensland, Australia. Prior to joining Rio Tinto
four years ago, he held senior management roles with BHP Billiton, including
Corporate Vice President Health, Safety & Environmental and President of the
Cannington mining operation. Mr Lennox has extensive experience in the mining
industry. He is a mining engineer and holds a Bachelor of Engineering (Hons)
Degree from the University of New South Wales.
Appreciation
We extend our sincere gratitude to our valued customers, the Board, staff and
the Ba-Phalaborwa community for their continued support and dedication.
Mr Clifford Zungu added, "We want to thank Matt Gili for his leadership of
Palabora during turbulent economic times over the past three years and for
leading the transformation and empowerment efforts. During his time as
Managing Director he restructured the senior management team and positioned
Palabora for continued growth and expansion. The Board thanks Matt and wishes
him well in his new role".
CN Zungu AW Lennox MB Snyder
Chairman Managing Director Interim Chief Financial Officer
5 August 2010
NOTES TO THE INTERIM CONDENSED GROUP RESULTS
1. CORPORATE INFORMATION
Palabora and its subsidiaries (collectively, "the Group") extracts and
beneficiates copper, magnetite and vermiculite from its mines in the Limpopo
Province, South Africa. It is the primary aim of the Group, a member of the
worldwide Rio Tinto Group, to achieve excellence in all aspects of its
activities and to develop the Group`s resources and assets in a socially and
environmentally responsible way for the maximum benefit of its shareholders,
employees, customers and the community in which it operates. It is the Group`s
firm belief that efficient and profitable operations go hand-in-hand with high
quality products and comprehensive and effective safety, health and
environmental protection programmes.
The Group is incorporated and domiciled in South Africa and has its primary
listing on the JSE Limited ("JSE"). The address of its registered office is 1
Copper Road, Phalaborwa 1389.
This condensed consolidated interim financial information of the Group for the
six months ended 30 June 2010 was authorised for issue in accordance with a
resolution of the Board passed on 5 August 2010.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This condensed consolidated interim financial information for the six months
ended 30 June 2010 has been prepared in accordance with International
Accounting Standard ("IAS") 34, Interim reporting, as well as with Schedule 4
of the South African Companies Act, No. 61 of 1973 and the disclosure
requirements of the JSE Listings Requirements.
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 for the year ending
31 December 2009.
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 2009.
The following new standards and amendments to standards are mandatory for the
first time for the financial year beginning 1 January 2010:
- International Financial Reporting Standards ("IFRS") 1 (Amendment), First
time adoption of IFRS (effective for financial periods beginning on or after 1
January 2010) - Amendment relating to oil and gas assets and determining
whether an arrangement contains a lease;
- IFRS 2 (Amendment), Share based payments (effective for financial periods
beginning on or after 1 January 2010) - Amendment relating to group cash-
settled share based payment transactions - clarity of the definition of the
term "Group" and where in a group share based payments must be accounted for;
- IFRS 3, Business combinations (effective for financial periods beginning on
or after 1 July 2009) - This comprehensive revision in IFRS 3 will have an
impact on future acquisitions, for example transaction costs cannot be seen as
part of the purchase consideration;
- IAS 27 (Amendment), Consolidated and separate financial statements
(effective for financial periods beginning on or after 1 July 2009) -
Consequential amendments from changes to IFRS 3, Business combinations and
measurements of subsidiaries held for sale in separate financial statements;
- IAS 39 (Amendment), Eligible hedged items (effective for financial periods
beginning on or after 1 July 2009) - Clarifies the principles relating to
hedged risk of portions of cash flows;
- Improvements to IFRSs 2009 - Improvements to IFRS is a collection of
amendments to International Financial Reporting Standards (IFRSs). These
amendments are the result of conclusions the Board reached on proposals made
in its annual improvements project;
- AC 504, IAS 19 (AC 116), The limit on a defined benefit asset, minimum
funding requirements and their interaction in the South African pension fund
environment (effective for financial periods beginning on or after 1 April
2009) - The South African Interpretation has been issued to provide guidance
on the application of IFRIC 14: IAS 19, The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction, in South Africa in
relation to defined benefit pension obligations (governed by the Pension Funds
Act, 1956 ("the Act") within the scope of IAS 19 (AC 116), Employee benefits;
- IFRIC 18, Transfers of assets from customers (effective for financial
periods beginning on or after 1 July 2009) - This interpretation provides
guidance on how to account for items of property, plant and equipment received
from customers, or cash that is received and used to acquire or construct
specific assets;
- Improvements to IFRSs 2008 - IFRS 5, Non-current assets held for sale and
discontinued operations - Plan to sell the controlling interest in a
subsidiary (effective for financial periods beginning on or after 1 July 2009)
- This improvement clarifies that assets and liabilities of a subsidiary
should be classified as held for sale if the parent is committed to a plan
involving loss of control of the subsidiary, regardless of whether the entity
will retain a non-controlling interest after the sale; and
- `Additional exemptions for first-time adopters` (Amendment to IFRS 1) was
issued in July 2009. The amendments are required to be applied for annual
periods beginning on or after 1 January 2010. This is not relevant to the
Group, as it is an existing IFRS preparer.
The following new standards, amendments to standards and interpretations are
mandatory for the first time for the financial year beginning 1 January 2010,
but are not currently relevant for the Group:
- IFRS 1 (Amendment), First time adoption of IFRS, and IAS 27, Consolidated
and separate financial statements;
- IFRS 1 (Amendment), First time adoption of IFRS;
- IFRIC 16, Hedges of a net investment in a foreign operation; and
- IFRIC 17, Distribution of non-cash assets to owners.
3. PRESENTATION CHANGES
The following presentational changes were made for improved classification
purposes:
3.1 Provisions - Statement of financial position
The retirement benefits obligation has been separated between the current and
the non-current portion as per the requirements of IAS 37, Provisions,
contingent liabilities and contingent assets.
3.2 Income statement
Dividends received on the available-for-sale asset of R21 million, which was
presented as part of "Finance income" in the period ended 30 June 2009, were
reclassified and reflected as part of "Other income" on the income statement
in line with IAS 18, Revenue recognition. This resulted in a change in
previous reported amounts on the face of the income statement as follows:
As currently As previously
reported reported
R`000 R`000
For the period ended 30 June 2009
Other income 41 391 20 358
Profit before tax and net finance costs 300 708 279 675
Net finance income/(cost) (100 240) (79 207)
Finance income 39 599 60 632
3.3 Statement of cash flows
The effects of the exchange rate changes on the balance of cash flow held in
foreign currencies is now separately disclosed from the net
increase/(decrease) in cash and cash equivalents as per IAS7, Statement of
cash flows requirement.
The presentation change only affects the statement of cash flows for the
previous six months ended, as follows:
Six months ended
30 June 2009
R`000
Cash generated from operations - as previously 388 796
reported
Effects of exchange rate change on the balance of 73 319
cash held in foreign currencies
Cash generated from operations - restated 462 115
Net cash generated from operating activities - as 272 478
previously reported
Effects of exchange rate change on the balance of 73 319
cash held in foreign currencies
Net cash generated from operating activities - 345 797
restated
Net increase/(decrease) in cash and cash equivalents 141 298
- as previously reported
Effects of exchange rate change on the balance of 73 319
cash held in foreign currencies
Net increase/(decrease) in cash and cash equivalents 214 617
- restated
4. OTHER OPERATING COST
Six months ended Six months ended
30 June 2010 30 June 2009
R`000 R`000
Mineral and petroleum resources (55 473) -
royalty
5. PROFIT BEFORE TAX AND NET FINANCE COSTS
Six months ended Six months ended
30 June 2010 30 June 2009
R`000 R`000
Profit before tax and net finance
costs is stated after charging:
Depreciation of property, plant and (234 171) (283 625)
equipment
Amortisation of intangible assets (846) (678)
Employee benefit expense (405 911) (376 139)
6. NET FINANCE INCOME/(COST)
Six months ended Six months ended
30 June 2010 30 June 2009
R`000 R`000
Finance cost (30 249) (139 839)
Interest expense on borrowings (2 928) (27 193)
Unwinding of discount on close down (19 504) (19 088)
and restoration obligation
Net foreign exchange loss on (7 817) (93 558)
operating activities
Finance income 35 953 39 599
Interest income on short-term bank 11 447 18 697
deposits
Interest income on pension surplus - 11 794
fund
Interest income on available-for- 2 023 2 557
sale asset
Interest income on account 134 169
receivable balances
Net foreign exchange gain on 22 349 6 382
financing activities
Net finance income/(cost) 5 704 (100 240)
7. INCOME TAX EXPENSE
The major components of income tax
expense are:
Six months ended Six months ended
30 June 2010 30 June 2009
R`000 R`000
Normal income tax (171 619) (125 304)
- South African
- Mining tax: current period (166 039) (116 047)
- Mining tax: prior period 1 285 -
- Non-mining tax: current period (566) (4 066)
- Non-mining tax: prior period - 356
- Foreign
- Current period (6 299) (5 547)
Secondary tax on companies (29 349) -
Deferred income tax 67 864 65 430
- South African 67 849 65 562
- Foreign 15 (132)
Income tax expense reported in the (133 104) (59 874)
income statement
The tax rate reconciliation is as
follows:
% %
Current standard rate 28,0 28,0
Adjusted for:
- Estimated state share (after tax) - 3,6
rate
- Actual state share and state 0,6 (3,1)
share deduction on mining tax
- Dividend income (0,1) (3,5)
- Disallowable expenditure 0,5 1,6
- Secondary tax on companies 7,0 -
- Deferred tax on unutilised STC - 2,2
credits
- Tax rate differential of foreign - (0,5)
subsidiaries
- Prior year over provision (1,8) -
- Other (3,9) 1,6
Effective tax rate 30,3 29,9
8. EARNINGS PER SHARE
Basic and diluted
Basic earnings per share are calculated by dividing the profit attributable to
equity holders of the parent by the weighted average number of ordinary shares
in issue during the year. The basic and diluted earnings per share values are
the same as the Group has no outstanding dilutive potential ordinary shares.
Six months ended Six months ended
30 June 2010 30 June 2009
R`000 R`000
Reconciliation of net profit for
earnings per share
Net profit attributable to equity 305 507 140 594
holders of parent
Reconciliation of weighted average
number of ordinary shares
Weighted average number of ordinary 48 337 48 337
shares of basic and diluted earnings
per share
Earnings per share (cents) 632 291
9. HEADLINE EARNINGS PER SHARE
Profit Profit
before Tax after
tax expense tax
R`000 R`000 R`000
Six months ended 30 June
2010
Profit per income 438 611 (133 104) 305 507
statement
Profit on disposal of (1 735) 527 (1 208)
property,plant and
equipment
Headline profit for six 436 876 (132 577) 304 299
months ended 30 June 2010
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 Six months ended
30 June 2010 30 June 2009
R`000 R`000
Headline earnings per 630 291
share (cents)
10. DEFERRED INCOME TAX
Six months ended Year ended
30 June 2010 31 December 2009
R`000 R`000
At beginning of period 129 910 (371 786)
Tax charged to income statement 67 864 93 136
Tax charged to statement of other (215 595) 408 560
comprehensive income
At end of period (17 821) 129 910
Deferred income tax assets arising
from:
Provisions 90 206 77 625
Other financial liabilities 682 365 896 740
STC credits - 622
Other temporary differences 514 -
773 085 974 987
Deferred income tax liabilities
arising from:
Property, plant and equipment (779 989) (834 203)
Change in tax legislation - -
Available-for-sale investment (5 797) (4 578)
Other (5 120) (6 296)
(790 906) (845 077)
Net deferred income tax (17 821) 129 910
(liability)/asset
Comprising:
Deferred income tax asset 682 365 897 362
Deferred income tax liability (700 186) (767 452)
(17 821) 129 910
11. OTHER FINANCIAL LIABILITIES
Derivative financial instruments - Cash flow hedges
At 30 June 2010, the Group held a commodity swap contract designated as hedges
of expected future sales to local customers 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 US$ LME Cash Settlement Price, converted to rand at the average SA
rand/US dollar 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 30 June 2010 the cash flow hedges of the expected future sales were
assessed to be highly effective and the ineffective portion of R2 million was
recognised directly under "Other income" in the income statement.
Table of terms: 30 June 2010
Average hedged Hedged Mark to market
Maturity Quantity price value loss/(gain)
Year (t) ZAR/t R`000 R`000
2010 11 153 15 739 175 537 380 006
2011 21 825 15 739 343 504 762 600
2012 21 137 15 739 332 675 735 798
2013 16 330 15 739 257 018 550 511
70 445 1 108 734 2 428 915
Unamortised 14 487
component of non-
observable inception
gain
Total of derivative 2 443 402
financial instrument
Non-current
Derivative financial 1 667 464
instrument
Unamortised -
component of non-
observable inception
gains
Total non-current 1 667 464
portion
Current
Derivative financial 761 451
instrument
Unamortised 14 487
component of non-
observable inception
gain
Total current 775 938
portion
Total of derivative 2 443 402
financial instrument
Table of terms: 31 December 2009
Average hedged Hedged Mark to market
Maturity Quantity price value loss/(gain)
Year (t) ZAR/t R`000 R`000
2010 22 188 15 739 349 217 862 803
2011 21 825 15 739 343 504 867 077
2012 21 137 15 739 332 675 832 824
2013 16 330 15 739 257 018 627 851
81 480 1 282 414 3 190 555
Unamortised 21 747
component of non-
observable
inception gain
Total of derivative 3 212 302
financial
instrument
Non-current
Derivative 2 327 751
financial
instrument
Unamortised 7 148
component of non-
observable
inception gains
Total non-current 2 334 899
portion
Current
Derivative 862 804
financial
instrument
Unamortised 14 599
component of non-
observable
inception gain
Total current 877 403
portion
Total of derivative 3 212 302
financial
instrument
12. BORROWINGS AND NET (CASH)/DEBT
Effective Six months ended Year ended
interest 30 June 2010 31 December 2009
rate
Description of Currency % R`000 R`000
loan
Current
Revolving credit ZAR Jibar+2,35 47 500 47 500
facility -
Tranche A
Revolving credit USD Libor+2,0 57 192 55 371
facility -
Tranche B
Total borrowings 104 692 102 871
Cash and cash (1 090 736) (1 394 990)
equivalents
Net (cash)/debt (986 044) (1 292 119)
Total equity 2 237 968 1 679 580
Total capital 1 251 924 387 461
employed
Gearing (0,79) (3,33)
Approximately 55% of the Group`s existing borrowings is denominated in US
dollar for a total amount of US$7,5 million. The terms of repayments are
consistent with the information disclosed in the December 2009 annual
financial statements.
Net cash consists of borrowings and cash and cash equivalents. It is
calculated consistently year on year.
No payment defaults were declared.
13. DIVIDENDS PAID
The following dividends were
declared and paid:
Six months ended Year ended
30 June 2010 31 December 2009
R`000 R`000
Previous year final dividend:
620 cents per qualifying ordinary 299 693 39 637
share (2009: 82 cents)
Interim dividend:
165 cents per qualifying ordinary - 79 757
share
Total dividends paid 299 693 119 394
After the respective reporting dates
the following dividends were
proposed by the directors. The
dividend declared is recognised in
the period that it is paid.
Six months ended Year ended
30 June 2010 31 December 2009
R`000 R`000
Dividends declared:
207 cents per qualifying ordinary 100 058 299 693
share (30 June 2009: 165 cents; 31
December 2009: 620 cents)
Secondary tax on companies due on 10 001 29 349
closing date of dividend cycle
14. OPERATING SEGMENTS
Management has determined the operating segments based on the reports reviewed
by the strategic steering committee that are used to make strategic decisions.
The committee considers the business from a product perspective. The products
are divided in the following segments:
- Copper - produces and markets refined copper;
- Joint-product: Magnetite - markets processed current arisings and built-up
stockpiles of magnetite, a joint-product from the copper mining process;
- By-products: Other - includes anode slimes, sulphuric acid and nickel
sulphate; and
- Industrial minerals - produces and markets vermiculite.
The segment information provided to management for the reportable segments for
the period ended 30 June 2010 is as follows:
Joint- By-
product: products: Industrial
Copper Magnetite Other minerals Total
R`000 R`000 R`000 R`000 R`000
Period ended 30
June 2010
External
customers
revenue
Sales from 1 874 053 1 170 428 102 381 185 602 3 332 464
products
Hedge loss (419 618) - - - (419 618)
realised
Reportable 1 454 435 1 170 428 102 381 185 602 2 912 846
segment revenue
Reportable 234 048 309 230 94 979 4 818 643 075
segment
operating
profit before
depreciation
Depreciation (213 953) (216) (2 880) (4 853) (221 902)
Reportable 20 095 309 014 92 099 (35) 421 173
segment
operating
profit
Period ended 30
June 2009
External
customers
revenue
Sales from 1 570 532 639 914 126 604 232 419 2 569 469
products
Hedge loss (212 928) - - - (212 928)
realised
Reportable 1 357 604 639 914 126 604 232 419 2 356 541
segment revenue
Reportable 174 886 217 441 107 634 51 676 551 637
segment
operating
profit before
depreciation
Depreciation (261 616) (265) (3 520) (4 958) (270 359)
Reportable (86 730) 217 176 104 114 46 718 281 278
segment
operating
profit
Reconciliation of reportable segment operating profit to profit after tax:
Six months ended Six months ended
30 June 2010 30 June 2009
R`000 R`000
Reportable segment operating profit 421 173 281 278
Unallocated amounts:
- Administration income not 24 849 33 374
allocated to segments
- Depreciation and amortisation of (13 115) (13 944)
tangible and intangible assets
- Net finance income/(cost) 5 704 (100 240)
Profit from operations before tax 438 611 200 468
Income tax expense (133 104) (59 874)
Profit after tax 305 507 140 594
15. RELATED PARTY TRANSACTIONS
Six months ended Six months ended
30 June 2010 30 June 2009
R`000 R`000
The following transactions were
carried out with related parties:
Recovery of travel and staff costs 1 775 804
Purchases of goods and services 315 670 190 345
Key management compensation 7 927 3 041
(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.
16. COMMITMENTS
Commitments contracted for at reporting date were R74 million (31 December
2009: R93 million). Capital expenditure that was approved by the Board, but
not contracted for at 30 June 2010, amounts to R307 million (31 December 2009:
R135 million).
17. CONTINGENT LIABILITIES
Legal matters
Various legal matters, including labour cases before the CCMA, are in
progress. The potential exposure is approximately R23 million.
Land claims
Presently four land claims have been filed regarding the government owned
property that Palabora uses for its mining operations. The four tribes have
joined together and are represented by one legal advisor. Clarifications of
the claims and Palabora`s defences are being pursued through legal channels.
18. EVENTS AFTER REPORTING DATE
Dividend declaration
The Board declared a dividend of R207 per share on 5 August 2010. 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 2010.
19. GROUP SELECTED STATISTICS
Six months ended Six months
ended
30 June 2010 30 June 2009
Revenue
Copper (net of hedge) R`million 1 454 1 358
Industrial minerals R`million 186 232
Magnetite R`million 1 170 640
Other products R`million 102 127
Net profit before tax R`million 439 200
Copper
Dry ore hoisted millions of 5,47 5,85
tonnes
Average copper grade % Cu 0,650 0,661
Copper in `000 of tonnes 36,4 37,8
concentrates produced
Cathode produced `000 of tonnes 25,8 40,5
Average copper price USc/lb 331,1 182,7
realised
LME Copper Price USc/lb 324,0 183,5
Average sales R/US$ 7,52 9,31
rand/dollar exchange
rate realised
Spot rand/dollar R/US$ 7,64 7,77
exchange rate
Average copper price R/tonne 54 919 36 991
realised (pre hedge)
Average copper price R/tonne 42 570 31 729
realised (post hedge)
Copper Rod
Unit selling price USc/lb 342 182
pre hedge
Unit selling price USc/lb 265 158
post hedge
Sales tonnes 18 770 25 809
Cathode
Unit selling price USc/lb 316 173
pre hedge (local)
Unit selling price USc/lb 253 149
post hedge (local)
Sales (local) tonnes 6 213 11 117
Unit selling price USc/lb N/A 218
pre hedge (export)
Unit selling price USc/lb N/A 189
post hedge (export)
Sales (export) tonnes - 3 106
Vermiculite
Vermiculite sold tonnes 85 249 92 042
Average vermiculite R/tonne 2 177 2 521
prices realised
Operational cash cost R/tonne 752 674
Magnetite
Magnetite sold tonnes 1 365 997 1 163 912
Average magnetite R/tonne 857 550
prices realised
Anode slimes
Anode slimes sold tonnes 43 54
Average anode slimes R/tonne 2 260 510 1 799 669
prices realised
Nickel sulphate
Nickel sulphate sold tonnes 127 232
Average nickel R/tonne 28 815 24 951
sulphate prices
realised
Sulphuric acid
Sulphuric acid sold tonnes 20 243 56 651
Average sulphuric R/tonne 97 404
acid prices realised
Imported concentrate
Volumes Tonnes copper - 3 209
Cost R`million 2 93
Unit purchased price R/tonne of copper - 28 910
Marginal ore
concentrate purchased
Volumes Tonnes copper 800 2 098
Cost R`million 30 61
Unit purchased price R/tonne of copper 37 705 28 848
Imported blister
Volumes Tonnes copper 2 149 -
Cost R`million 119 -
Unit purchased price R/tonne of copper 55 248 -
Imported cathode
Volumes Tonnes copper 1 800 -
Cost R`million 96 -
Unit purchased price R/tonne of copper 53 353 -
Imported rod
Volumes Tonnes copper 4 913 -
Cost R`million 289 -
Unit purchased price R/tonne of copper 58 887 -
Cash flow
Cash from operating R`million (280) 346
activities
Cash in bank R`million 1 091 888
Costs
Production cost R`million 1 040 846
(excluding
concentrate
purchases)
Cost of sales R`million 1 504 1 425
Capital expenditure
and commitments
Capital expenditure R`million 53 60
Approved expenditure R`million 166 174
at end of each period
Contracts placed at R`million 74 60
end of each period
Investments
Fair value of R`million 368 316
unlisted investments
Share capital
Authorised ordinary 000`s 100 000 100 000
shares of R1 each
Issued ordinary 000`s 48 337 48 337
shares of R1 each
Net asset value per R/share 46,30 47,80
ordinary share
Interim consolidated income statement
Six months Six months
ended ended
30 June 30 June
2010 2009
Note R`000 R`000
Sale of products 3 332 464 2 569 469
Hedge loss realised (419 618) (212 928)
Revenue 2 912 846 2 356 541
Cost of sales (1 504 403) (1 425 097)
Gross profit 1 408 443 931 444
Selling and distribution costs (718 443) (490 664)
Administration expenses (216 008) (177 478)
Other operating costs 4 (55 473) -
Other income 16 181 41 391
Exploration costs - (20)
Impairment loss - -
Other expenses (1 793) (3 965)
Profit before net finance cost and tax 5 432 907 300 708
Net finance income/(cost) 6 5 704 (100 240)
Finance cost 6 (30 249) (139 839)
Finance income 6 35 953 39 599
Profit before tax 438 611 200 468
Income tax expense 7 (133 104) (59 874)
Profit for the period 305 507 140 594
Profit attributable to:
Equity holders of the parent 305 507 140 594
Earnings per share attributable to the
equity holders of the parent
(expressed in cents per share)
- Basic and diluted earnings per 8 632 291
share (cents)
- Headline earnings per share (cents) 9 630 291
Interim consolidated statement of comprehensive income
Six months Six months
ended ended
30 June 30 June
2010 2009
Note R`000 R`000
Profit for the period 305 507 140 594
Other comprehensive income/(loss):
Available-for-sale investments:
- Valuation gains/(losses) arising 4 355 (21 809)
during the period
Exchange differences on translation of 293 (19 665)
foreign operations
Cash flow hedges:
- Profit/(loss) taken to equity 342 023 (758 433)
- Transferred to profit or loss for 419 618 212 928
the period
- Hedge ineffectiveness 1 852 1 311
Income tax relating to components of 10 (215 595) 123 087
other comprehensive income
Other comprehensive income/(loss) for 552 546 (462 581)
the period, net of income tax
Total comprehensive income/(loss) for 858 053 (321 987)
the period
Total comprehensive income/(loss)
attributable to:
Equity holders of the parent 858 053 (321 987)
Interim consolidated statement of financial position
As at As at
30 June 30 June
2010 2009
Note R`000 R`000
Assets
Non-current assets 3 860 696 4 252 699
Property, plant and equipment 2 806 372 2 990 083
Intangible assets 4 026 4 871
Other financial assets 367 933 360 383
Deferred income tax assets 10 682 365 897 362
Current assets 2 925 266 2 755 215
Stores inventories 110 715 115 226
Product inventories 894 373 618 713
Trade and other receivables 829 442 626 286
Cash and cash equivalents 1 090 736 1 394 990
Total assets 6 785 962 7 007 914
Equity
Equity attributable to owners
of parent
Share capital and premium 629 551 629 551
Other reserves (1 597 496) (2 150 042)
Retained earnings 3 205 913 3 200 071
Total equity 2 237 968 1 679 580
Liabilities
Non-current liabilities 2 974 582 3 684 367
Other financial liabilities 11 1 667 464 2 334 899
Close down and restoration 452 029 432 526
obligation
Retirement benefits obligation 154 903 149 490
Deferred income tax 10 700 186 767 452
liabilities
Current liabilities 1 573 412 1 643 967
Other financial liabilities 11 775 938 877 403
Retirement benefits obligation 7 844 7 844
Borrowings 12 104 692 102 871
Trade and other payables 481 654 426 833
Related party payables 181 223 162 226
Current income tax liabilities 22 061 66 790
Total liabilities 4 547 994 5 328 334
Total equity and liabilities 6 785 962 7 007 914
Interim consolidated cash flow statement
Six months Six months
ended ended
30 June 30 June
2010 2009
R`000 R`000
Cash flows from operating activities (279 800) 345 797
Cash generated from operations 310 387 462 115
Pension fund surplus received - -
Interest paid (2 928) (27 193)
Interest received 13 604 21 423
Dividend paid (299 693) (39 602)
Income tax paid (301 170) (70 946)
Cash flows from investing activities (51 202) (51 211)
Acquisition of property, plant and equipment (53 308) (58 874)
Acquisition to intangible assets - (1 609)
Proceeds on disposal of property, plant and 2 900 35
equipment
Amounts invested in available-for-sale (3 193) (23 590)
investment
Interest received - 11 794
Dividends received 2 399 21 033
Cash flows from financing activities - (79 969)
Borrowings repaid - (79 969)
Net (decrease)/increase in cash and cash (331 002) 214 617
equivalents
Cash and cash equivalents at beginning of 1 394 990 747 014
year
Effects of exchange rate changes on the 26 748 (73 319)
balance of cash held in foreign currencies
Cash and cash equivalents at end of year 1 090 736 888 312
Interim consolidated statement of changes in equity
Share Share Other Retained Total
capital premium reserves earnings equity
R`000 R`000 R`000 R`000 R`000
Balance at 1 48 337 581 214 (923 910) 2 966 385 2 672 026
January 2009
Total - - (1 160 249) 287 110 (873 139)
comprehensive
loss for the
period
Dividends paid - - - (119 394) (119 394)
Unclaimed - - (1 248) 1 335 87
dividends and
other
Transfer of - - (64 635) 64 635 -
deferred tax on
items included in
other reserves
Balance at 31 48 337 581 214 (2 150 042) 3 200 071 1 679 580
December 2009
Total - - 552 546 305 507 858 053
comprehensive
income for the
period
Dividends paid - - - (299 693) (299 693)
Unclaimed - - - 28 28
dividends
Balance at 30 48 337 581 214 (1 597 496) 3 205 913 2 237 968
June 2010
Directors:
CN Zungu (Chairman)
AW Lennox (Managing Director)
LW Kirsner (alt. C Louwarts#)
WJ Abel
JS Yuen
F du Plessis
MR Abrahams
*Executive Director
Australian
#Dutch
Company secretary:
KN Mathole
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: 05/08/2010 16:24:01 Produced by the JSE SENS Department.
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