| Thu 25 Aug 2011, 7:05 | | OPT - Optimum Coal Holdings Ltd - Reviewed provisional group financial results |
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OPT
OPT
OPT - Optimum Coal Holdings Ltd - Reviewed provisional group financial results
for the year ended 30 June 2011
Optimum Coal Holdings Ltd
(Registration number: 2006/007799/06)
Share code: OPT ISIN: ZAE000144663
("Optimum Coal" or the "Group" or the "Company")
REVIEWED PROVISIONAL GROUP FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE 2011
- Improvement in safety statistics. No fatal accidents during the past 18 months
- Revenue increased by 57% to R5 289 million
- EBITDA generated of R1 200 million
- Profit generated of R460 million
- Group run-of-mine coal production up 21% to 17,1 million tons
- Group saleable coal production up 26% to 13,6 million tons and export coal
production up 28% to 6,8 million tons
- Optimum Collieries management team restructured and Kwagga North opencast
extension project on track
- Acquisition agreements signed for the TNC and Remhoogte prospecting rights
- Cash on hand of R567 million and net debt of R77 million as at 30 June 2011.
- Special dividend of R75.5 million declared (30cps)
Where applicable comparisons refer to the year ended 30 June 2010.
Mike Teke, CEO of Optimum Coal: "Notwithstanding various production challenges
at Optimum Collieries during the year, production at Koornfontein Mines has
exceeded our expectations and I am happy with the Group`s overall performance.
Our advanced life extension projects, together with the acquisition of the TNC
and Remhoogte prospecting rights and a newly structured operational management
team provide a solid platform for responsible and sustainable growth over the
medium to long-term."
Consolidated statement of comprehensive income:
Audited
Reviewed Reclassified
30 June 30 June
2011 2010
for the year ended R`000 R`000
Revenue 5 289 394 3 359 324
Mining and related expenses 4 089 082 3 193 238
Mining costs 3 397 419 2 590 109
Logistics costs 670 754 531 575
Stock movement (97 869) (49 271)
Other costs 118 779 120 825
EBITDA(1) 1 200 312 166 086
Other expenses 767 332 527 695
Depreciation and amortisation 667 965 502 143
Share-based payment expense 3 595 3 863
Other expenses 95 772 21 689
Other income 361 497 773 881
Bargain purchase gain - 14 734
Environmental provision movements 287 062 575 653
Gain from business acquisition achieved - 95 359
in stages
Profit on disposal of available-for- - 88 135
sale financial assets
Profit on disposal of platinum assets 74 435 -
EBIT 794 478 412 272
Net finance cost (141 836) (119 350)
Finance expenses (84 942) (96 589)
Unwinding of environmental provision (161 439) (129 462)
Finance income 104 545 106 701
Share of profit from associate - 2 506
Profit before income tax expense 652 641 295 428
Income tax expense (193 065) (65 773)
Profit for the year 459 577 229 655
Other comprehensive income
Fair value gain on available-for-sale 193 400 208 942
financial assets
Fair value gain on available-for-sale - (88 135)
financial assets transferred to profit
or loss on disposal
Income tax on other comprehensive (28 894) (16 913)
income
Other comprehensive income for the year 164 506 103 894
net of income tax
Total comprehensive income for the year 624 083 333 549
Profit attributable to:
Equity holders of the parent 459 577 215 499
Non-controlling interest - 14 156
459 577 229 655
Total comprehensive income attributable
to:
Equity holders of the parent 624 083 319 393
Non-controlling interest - 14 156
Total comprehensive income for the year 624 083 333 549
(1)The statement of comprehensive
income has been reclassified to better
enable the user to assess the
underlying performance of the Group.
The re-classification has resulted in a
revision of EBITDA generated in the
prior year to R166 million from R144
million as previously disclosed. EBITDA
is defined as earnings before interest,
taxation, depreciation, amortisation,
environmental provision movements and
is adjusted to exclude the impact of
once-off, non-cash items.
Weighted average number of ordinary
shares
Shares in issue (000)
Total shares in issue at beginning of 251 786 200 000
the year
Issued during the year - 15 566
Total shares in issue at end of the 251 786 215 566
year
Effect of own shares held (52 000) (52 000)
Weighted average number of ordinary 199 786 163 566
shares at end of the year(2)
Earnings per share (IFRS) (cents)
Basic earnings per share 230,03 131,75
Diluted earnings per share 227,58 127,68
Headline earnings per share 203,82 28,92
Diluted headline earnings per share 201,42 25,08
(2)52 000 000 shares collectively owned
by the Employee, Community and
Executive Share Incentive Trusts are
deemed to be under the control of the
Company and are therefore excluded from
the calculation of the shares
outstanding for IFRS purposes.
Normalised earnings per share (cents)
Normalised earnings per share(3) 182,53 99,97
Normalised headline earnings per 161,73 21,94
share(3)
(3)Normalised EPS and HEPS are based on
the total weighted average number of
shares outstanding during the year and
are calculated before adjustment for
the 52 000 000 shares collectively
owned by the Employee, Community and
Executive Share Incentive Trusts per
IFRS purposes indicated above.
Reconciliation of headline earnings
Reviewed Audited
30 June 30 June
2011 2010
for the year ended R`000 R`000
Profit attributable to equity holders 459 577 215 499
of the Company
Adjust for:
Loss on disposal of plant and equipment 16 178 24 566
Profit on disposal of platinum assets (74 435) -
Gain from business acquisition achieved - (95 359)
in stages
Profit on disposal of available-for- - (88 135)
sale financial assets
Bargain purchase gain - (14 734)
Tax effects of the above adjustments 5 891 5 460
407 211 47 297
Consolidated statement of financial position
Reviewed Audited
30 June 30 June
2011 2010
as at R`000 R`000
Assets
Property, plant and equipment 6 356 174 6 375 205
Intangible assets 879 671 938 106
Restricted rehabilitation investments 1 276 196 1 183 942
Available-for-sale financial assets 1 466 043 1 272 643
Deferred taxation 10 649 5 436
Investments in equity-accounted - 1 203
investees
Long-term receivable - 42 160
Non-current assets 9 988 734 9 818 695
Inventories 489 686 391 817
Trade and other receivables 343 108 257 054
Taxation 6 222 5 798
Cash and cash equivalents 566 501 750 536
Disposal group held for sale 67 891 -
Current assets 1 473 408 1 405 205
Total assets 11 462 142 11 223 900
Equity and liabilities
Equity
Share capital and premium 2 519 850 2 519 850
Available-for-sale fair value reserve 329 724 165 218
Share-based payment reserve 818 058 818 058
Treasury share reserve * *
Retained earnings 3 168 003 2 708 426
Discount on acquisition of non- 56 045 56 045
controlling interest
Non-controlling interest * *
Total equity attributable to equity 6 891 680 6 267 597
holders of the Company
Loans and borrowings 498 265 90 284
Finance lease liability 100 682 233 665
Share appreciation rights liability 15 979 12 384
Environmental liability provision 1 773 663 1 899 286
Post retirement medical benefit 1 716 1 941
Deferred taxation 1 332 501 1 287 726
Non-current liabilities 3 722 806 3 525 286
Loans and borrowings 150 000 729 681
Finance lease liability 85 364 46 804
Trade and other payables 609 970 611 026
Taxation 2 322 43 506
Current liabilities 847 656 1 431 017
Total equity and liabilities 11 462 142 11 223 900
*Nominal amount
Consolidated statement of cash flow
Reviewed Audited
30 June 30 June
2011 2010
for the year ended R`000 R`000
CASH FLOWS FROM OPERATING ACTIVITIES
EBIT 794 478 412 272
Share-based payment expense 3 595 3 863
Gain from step-up acquisition - (95 359)
Profit on disposal of shares - (88 135)
Loss on sale of property, plant and 16 178 24 565
equipment
Depreciation and amortisation 667 965 502 144
Decrease in the post-retirement medical (225) (609)
benefit
Decrease in provision for rehabilitation (287 062) (575 653)
Utilisation of restricted investment - 172 013
Rehabilitation expenditure - (129 307)
Non-cash operating expense 5 139 4 187
Bargain purchase gain - (14 734)
Profit on disposal of platinum shares (74 435)
Change in working capital (184 979) (221 875)
Cash generated/(utilised) by operations 940 653 (6 628)
Interest received 9 089 35 765
Interest paid (84 942) (96 479)
Taxation paid (224 005) (69 253)
Net cash flows from operating activities 640 795 (136 595)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and (681 431) (881 568)
equipment
Proceeds from sale of property, plant and 12 596 2 595
equipment
Capitalised exploration costs (10 872) (9 604)
Acquisition of subsidiary, net of cash - (196 494)
acquired
Disposal of available-for-sale financial - 227 776
assets
Disposal of platinum assets 75 638 -
Long-term loan provided - (42 160)
Long-term loan repaid 45 362 -
Net cash outflows from investing activities (558 707) (899 455)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital - 1 669 850
Acquisition of non-controlling interest - (691 751)
Borrowings raised - 688 307
Repayment of borrowings (171 700) (180 535)
Finance lease liability repayment (94 423) (101 717)
Net cash (outflows)/inflows from financing (266 123) 1 384 154
activities
Net (decrease)/increase in cash and cash (184 035) 348 104
equivalents
Cash and cash equivalents at the beginning 750 536 402 432
of the year
Cash and cash equivalents at the end of the 566 501 750 536
year
Operating segments
Group
After the acquisition of Koornfontein Mines the Group reassessed its reportable
segments. The Group now has three reportable segments as described below, which
are the Group`s strategic business units. The business units are managed
separately because of their different business strategies. The following summary
describes the operations in each of the Group`s reportable segments:
Optimum Coal Mine includes the operating results of Optimum Collieries as
well as its fellow subsidiary and associated RBCT export logistics company,
Optimum Coal Terminal (Pty) Ltd. The results of these two companies are
consolidated for operating segment purposes and inter-company transactions
between the two entities are therefore eliminated.
Koornfontein Mines includes the operating results of Koornfontein Mines
as well as logistics costs associated with the exportation of Koornfontein coal
through RBCT. Koornfontein Mines was acquired on 1 March 2010 and provided 4
months of attributable profits to the Group during the year ended 30 June 2010.
Coal exploration includes the costs of exploration in various subsidiary
companies.
Information regarding the results of each reportable segment is included below.
The basis of measurement of reportable segment items are in terms of IFRS.
Performance is measured based on segment EBITDA. These measures are used as
management believes that such information is the most relevant in evaluating
the results of certain segments operating within these industries and for
comparability. Inter-segment pricing is determined on an arm`s length basis.
Previous reported segment information has been restated accordingly as
required by IFRS 8.
Information about reportable segments
Koorn-
Optimum fontein Coal ex-
Coal Mine Mines ploration Total
30 June 2011 R`000 R`000 R`000 R`000
Revenue 3 886 031 1 403 363 - 5 289 394
Export revenue 3 306 080 1 219 134 - 4 525 214
Inland revenue 48 373 36 696 - 85 069
Eskom revenue 531 579 147 533 - 679 112
Mining and 3 197 127 847 624 5 872 4 050 624
related expenses
Mining costs 2 670 871 720 675 5 872 3 397 419
Net logistics 494 356 176 399 - 670 754
costs
Stock movement (46 700) (51 170) - (97 869)
Other costs 78 600 1 720 - 80 320
Segment EBITDA 688 904 555 739 (5 872) 1 238 771
Other corporate 38 459
costs
EBITDA 1 200 312
Capital 566 023 115 408 10 872 692 303
expenditure
Reportable 6 492 523 1 529 046 953 043 8 974 612
segment assets
Other corporate 3 874 128
assets
Elimination of (1 386 598)
inter-segment
assets
Consolidated 11 462 142
total assets
Reportable 4 453 945 494 649 113 824 5 062 418
segment
liabilities
Other corporate 364 226
liabilities
Elimination of (856 180)
inter-segment
liabilities
Consolidated 4 570 464
total liabilities
Koorn-
fontein
Optimum Coal ex-
Coal Mine Mines1 ploration Total
30 June 2010 R`000 R`000 R`000 R`000
Revenue 2 936 464 422 860 - 3 359 324
Export revenue 2 510 609 289 277 - 2 799 886
Inland revenue 28 817 1 719 - 30 536
Eskom revenue 397 037 131 864 - 528 901
Mining and 3 018 517 152 237 - 3 170 754
related expenses
Mining costs 2 457 897 132 212 - 2 590 109
Net Logistics 480 001 51 574 - 531 575
costs
Stock movement (17 722) (31 549) - (49 271)
Other costs 98 341 - - 98 341
Segment EBITDA (82 053) 270 623 - 188 570
Other corporate 22 484
costs
EBITDA 166 086
Capital 848 184 33 384 9 604 891 172
expenditure
Reportable 6 119 633 2 763 204 1 191 918 10 074 755
segment assets
Other corporate 2 984 013
assets
Elimination of (1 834 868)
inter-segment
assets
Consolidated 11 223 900
total assets
Reportable 4 236 888 979 777 1 159 283 6 375 948
segment
liabilities
Other corporate 415 224
liabilities
Elimination of (1 834 869)
inter-segment
liabilities
Consolidated 4 956 303
total liabilities
(1)Koornfontein Mines was acquired on 1 March 2010 and provided
four months of attributable profits to the Group during the year
ended 30 June 2010.
Consolidated statement of changes in equity
Available- Share
for-sale based
for the year ended Share Share fair value payment
30 June 2011 (R`000) capital premium reserve reserve
Balance at beginning 1 2 519 849 165 218 818 058
of year
Total comprehensive - - 164 506 -
income for the year
Profit for the year
Net change in fair 164 506
value of available-
for-sale financial
assets
1 2 519 849 329 724 818 058
Transactions with
owners, recorded
directly in equity
Issue of shares - - - -
Non-controlling - - - -
interest as a result
of business
combination
Acquisition of non- - - - -
controlling interest
Balance at end of 1 2 519 849 329 724 818 058
year
*Nominal amount
Consolidated statement of changes in equity (continued)
Discount
on acquisi-
Treasury tion of non-
for the year ended share Retained controlling
30 June 2011 (R`000) reserve earnings interest Total
Balance at beginning * 2 708 426 56 045 6 267 597
of year
Total comprehensive - 459 577 - 624 083
income for the year
Profit for the year 459 577 459 577
Net change in fair 164 506
value of available-
for-sale financial
assets
* 3 168 003 56 045 6 891 680
Transactions with
owners, recorded
directly in equity
Issue of shares - - - -
Non-controlling - - - -
interest as a result
of business
combination
Acquisition of non- - - - -
controlling interest
Balance at end of * 3 168 003 56 045 6 891 680
year
*Nominal amount
Consolidated statement of changes in equity (continued)
Reviewed Audited
Non- Total Total
for the year ended controlling equity equity
30 June 2011 (R`000) interest 2011 2010
Balance at beginning of year * 6 267 597 4 203 194
Total comprehensive income * 624 083 333 549
for the year
Profit for the year * 459 577 229 655
Net change in fair value of 164 506 103 894
available-for-sale financial
assets
* 6 891 680 4 536 743
Transactions with owners,
recorded directly in equity
Issue of shares - - 1 673 907
Non-controlling interest as - - 733 640
a result of business
combination
Acquisition of non- - - (676 693)
controlling interest
Balance at end of year * 6 891 680 6 267 597
*Nominal amount
Commentary
Group financial highlights
During FY2011 we produced 13,6 million tons of saleable coal, generated revenue
of R5,3 billion, EBITDA of R1,2 billion and attributable earnings of R460
million. This is a significant improvement from FY2010 during which we produced
10,8 million tons of saleable coal, generated revenue of R3,4 billion, EBITDA of
R166 million and attributable earnings of R229 million.
During the year, our EBITDA increased by R1,03 billion from R166 million to
R1,2 billion primarily as a result of 26% increase in coal sales volumes and a
25% increase in the net received Rand export coal price year on year. Higher
profitability resulted in the generation of R941 million in cash from our
operations, an increase of R948 million on the R7 million cash utilised by
our operations last year.
Our EPS and HEPS, for IFRS and JSE purposes, have increased by 75% and 605%
to 230,03 cps and 203,82 cps respectively, from 131,75 cps and 28,92 cps in the
prior year.
From a commercial point of view, we feel that it is also useful and appropriate
to disclose Normalised EPS and HEPS. Normalised EPS and HEPS are calculated
using IFRS earnings, however they are calculated based on the total number
of issued shares outstanding during the year, ignoring the IFRS accounting
impacts of the consolidation of the Employee, Community and Executive Share
Incentive Trusts. The consolidation of these trusts in terms of IFRS results
in a deemed reduction in the issued share capital of 52 million shares.
Calculated on this basis, Normalised EPS and HEPS have increased by 83% and 637%
to 182,53 cps and 161,73 cps respectively, from 99,97 cps and 21,94 cps in the
prior year.Our statement of financial position remains strong, with low gearing
at 8,6%, cash on hand of R567 million and net debt of R77 million as at 30 June
2011.
Strategic review and objectives
Our vision is to become the country`s benchmark South African owned and
controlled coal mining and exploration group. We have three current strategies
to achieve this vision: Improving operational stability and efficiencies,
optimising our portfolio to deliver responsible growth and leveraging our
position as a leading BEE coal company.
Improving operational stability and efficiencies requires that we continue to
deliver increasing tonnages in a safe manner at competitive unit cost. To
complement Optimum Collieries, Koornfontein Mines is now fully integrated into
the group and consequently, we have mature and diversified operations and
therefore have the ability to better manage overall operational and production
risk as and when this arises. Furthermore, our diversification has resulted in
us having a wider platform of opencast and underground coal mining skills to
ensure the delivery of operational targets.
From a growth perspective our focus is to leverage brown-fields synergies to
enhance the benefit of capital effective, incremental growth at attractive
margins. The acquisition of the TNC Prospecting Rights during the year is
aligned with this strategy enabling us to further optimise our coal portfolio.
We have increased our in-sourced and out-sourced project capabilities to ensure
we get further traction on overall group project development.
From a BEE perspective, we remain ca. 60% black owned as at date of writing,
with a substantial broad based component owned by the Employee and Community
Trusts which collectively own 19,8% of Optimum Coal on an unencumbered basis.
We believe that this level of BEE equity participation is unique across the
South African coal sector and remains well ahead of minimum black-owned equity
targets.
As the fourth largest coal exporter out of Richards Bay Coal Terminal where
we own 8,44 million tons per annum of export entitlement, we have the ability
to export coal efficiently providing us with direct exposure to international
thermal coal markets. We continue to evaluate further opportunities to increase
our access and exposure to international coal markets.
Critical to the success of our business is our ability to ensure the
transportation of export coal to RBCT. TFR`s general railings performance to
RBCT during the year under review has been disappointing. In line with the
rest of the export coal industry, we were affected by the 20 day TFR rail
maintenance shutdown in June 2011, and have consequently built up 503kt of
on-mine export stock at year end. TFR railings have now normalised and our
on-mine export stocks are reducing. With TFR`s expansion program approved
and underway, and with the 26% increase in rail rate to RBCT implemented from
April 2011, an improvement in TFR`s railings performance is expected in the
coming year.
Safety
Zero Harm to anyone at our operations is the top priority for us and we continue
to work diligently to ensure that our operations are safe at all times. Our
various safety initiatives implemented during the period have raised safety
awareness across our group operations and we are pleased to report no fatal
accidents during the past 18 months. Furthermore, our safety rates continue
to improve as compared to industry benchmarks.
Operational review
Optimum Coal is a diversified coal operator of significant scale with
two wholly-owned, mature mining operations Optimum Collieries and
Koornfontein Mines, both located in the Mpumalanga area of South
Africa.
Optimum Collieries
Optimum Collieries is the third largest opencast coal mine in South Africa and
comprises three opencast mines and one underground mine, with estimated coal
resources of 699,2 million tons and an estimated reserve base of 230,1 million
tons of run-of-mine coal, of which 157,4 million tons are classified as saleable
as at 30 June 2011. A total of 10,39 million tons of saleable coal was produced
at Optimum Collieries during the year, with a total of 4,90 million tons of
saleable export coal and 5,49 million tons of Eskom sales tons produced.
Production at Optimum Collieries is up 6,8% on the previous year`s performance,
from 13 077 Mt to 13 966 Mt. Although improved on the prior year, general
production performance at Optimum Collieries was disappointing. The departure
of Henry White, the former chief operating officer of Optimum Coal, has resulted
in a restructuring of the Optimum Collieries` management team and a renewed
focus on productivity initiatives including the effectiveness of coal exposure,
extraction methodologies applied on mine as well as overall yield achieved.
Senior management has undertaken a series of road shows as part of this
productivity initiative, using the opportunity to uncover the key issues
identified by staff as hampering productivity. This campaign is ongoing and
is starting to deliver results.
Production at the Boschmanspoort underground section has normalised after
experiencing various challenging conditions during the first half of the year.
The critical Kwagga North extension project is on track, on time and within
budget and will ensure the delivery of increased run-of-mine tonnages. We are
already `coaling` from the Kwagga North extension section and expect to move
first coal across our overland transport infrastructure early in the 2012
calendar year. Additional in-fill drilling has been performed in the Kwagga
section to further improve overall short-term geological confidence.
From a water management point of view, R50 million has been invested in the
installation of pumps and pipelines to manage water drainage more effectively,
a direct response to the fact that the previous year`s production was
significantly hampered by unusually high rainfall. The new system ensured
ongoing production during the year`s wettest periods.
Optimum Collieries` supplies coal to both export and local thermal coal
customers. The majority of export quality coal is sold to BHP Billiton Energy
Coal South Africa Limited ("BECSA") at RBCT under a long-term coal purchase
agreement. Additionally, Optimum Collieries has a contract to supply 5 500 000
tons per annum to Eskom`s Hendrina Power Station until December 2018. This
contract was subject to arbitration during the year under review. The
arbitration has been resolved by settlement and Optimum Collieries will
continue to supply the committed annual volume to Hendrina for the remaining
duration of the agreement, under new pricing and penalty arrangements.
Project work on the Pullenshope underground section as well as Schoonoord
brown-field project is being expedited as we foresee additional near term
opportunities in these coal blocks.
During the year under review, Optimum Collieries` cost per saleable ton
increased by 0,1% to R259,88 from R259,68 in the prior year. Mining cost
inflation increases were offset through a 6,7% increase in run-of-mine
volumes mined during the year and consequent increase in saleable production.
During the year under review, capital expenditure of R566 million was spent
at Optimum Collieries comprising R270 million development capital and R293
million sustaining capital.
Notwithstanding that Optimum Collieries has a rapid coal loading facility,
railings to RBCT totalling 4,7Mt were 2,2% higher than the 4,6Mt railed the
previous year. Actual railings performance was lower than anticipated,
partly due to the 20 day rail maintenance shutdown in May and June 2011.
At year end, 262kt of export stock was available on-mine for railing to RBCT.
In November 2009, Optimum Collieries entered into a fixed pricing
contract with BECSA for 1,02Mt of coal to be delivered evenly during
the calendar 2011 year at a price of $87/t. This was implemented as a
debt requirement upon the re-financing of the Optimum Collieries debt
facility at that time. At 30 June 2011, we had delivered 50% of the
committed volume under this fixed price contract and will deliver to
BECSA the balance of the committed volume of 85kt per month between
July 2011 and December 2011 at a fixed price of $87/t.
Koornfontein Mines
Koornfontein Mines is a large underground mine with estimated coal resources
of 224,1 million tons and an estimated reserve base of 63,3 million tons
of run-of-mine coal, of which 29,4 million tons were classified as saleable
as at 30 June 2011. A total of 3,18 million tons of saleable coal was produced
during the year, with a total of 1,87 million tons of saleable export coal
and 1,30 million tons of Eskom saleable tons produced.
Koornfontein Mines performed exceptionally during the year under review and
surpassed operational targets across the board. The Gloria 2 seam currently
being mined is washed for both a primary export and a middlings product.
Exportable product is marketed by Mercuria Energy to international thermal
coal markets and to high quality domestic users, whilst the middlings are
sold to the lower quality inland markets on short-term contracts. Additionally,
discard is reclaimed from previously mined dumps and beneficiated into a
middlings product for sale to the lower quality inland markets.
It is expected that the Gloria 2 seam will be mined at current run rates until
ca. FY2015 where after the TNC Prospecting Rights will be developed to extend
Koornfontein`s high quality, export life. The TNC Prospecting Rights have been
acquired during the year under review for a consideration of R420 million. The
price is payable in cash to the seller, Umcebo Mining (Pty) Ltd, upon completion
of the transaction which is expected to occur during FY2012. The TNC reserve is
located approximately 10km from Koornfontein Mines and has an in-situ coal
resource of some 120 million tons of thermal coal, of which the Company believes
over 35 million tons are extractable as run-of-mine tonnage. In order to
maximise the value of the resource, the Company plans to construct an overland
conveyor from the TNC Prospecting Rights area to Koornfontein Mines, utilising
Koornfontein`s processing plants to wash the coal and its rapid load-out
infrastructure to load trains efficiently. The TNC Prospecting Rights area will
likely be mined by opencast methods, and is expected to be developed for first
coal in FY2015. Development of the TNC reserve will enable Koornfontein to
continue to produce high value saleable export coal for an additional period of
12 years at the current 1,5 million ton per annum rate. Additionally, over and
above the export product, this resource is expected to yield a middlings product
of 500kt per annum of thermal coal within Eskom quality specifications.
The life extension of the Gloria 2 seam operation and the acquisition of the TNC
Prospecting Rights has enabled the deferral of the lower quality 4 seam project.
Feasibility work continues on this additional brown-fields extension opportunity
at Koornfontein Mines, however development of this opportunity will, in all
probability, depend on securing a profitable off-take with Eskom for the
product. The 4 seam project has the ability to deliver to Eskom up to 27,1Mt of
saleable product over a 14 year life of mine period.
During the year under review, Koornfontein Mines` cost per saleable ton
increased by 10% to R211,50 from R192,10 in the prior year. Notwithstanding this
increase which was driven by an increase in ROM volume mined and cost inflation
experienced during the year, Koornfontein remains a very competitive and low
cost producer. Capital expenditure of R115 million was spent at Koornfontein
Mines comprising R93 million development capital and R22 million sustaining
capital.
Koornfontein Mines has one of the most efficient rapid load-outs in the export
coal industry. Railings to RBCT totalling 1,7Mt were equal to the previous
year`s railings. Notwithstanding general TFR underperformance during the year,
Koornfontein Mines maintained an excellent RBCT railing tempo and still has
substantial underutilised loading capacity. At year end, 241kt of export stock
was available on-mine for railing to RBCT.
Environmental matters
Both Optimum Collieries and Koornfontein Mines have fully cash funded closure
cost liabilities for Department of Mineral Resources ("DMR") purposes. R1,28
billion has been set aside for ground and water management rehabilitation
requirements at our operations. This amount is carried as a restricted
investment on our statement of financial position. The group`s overall
environmental liability provision, which includes the present value of net water
treatment costs associated with mine water treatment, has reduced by R126
million to R1,77 billion from R1,89 billion as at the end of the prior year. The
net R126 million reduction in environmental liability is shown through the
statement of comprehensive income as the net of a R287 million environmental
liability movement reduced by a R161 million unwinding of the discount
associated with the present valuation of the liability. This reduction is
consistent with increased confidence on water treatment parameters given that
the Optimum Collieries water treatment plant is commissioned and is supplying
water to the Steve Tswhethe Local Municipality under a 5 year contractual
arrangement.
Green-fields growth projects
During the year under review, R10,8 million was spent on the group`s
green-fields exploration projects. The Overvaal and Vlakfontein projects
provide the group with substantial additional growth optionality. Feasibility
work continues on these projects and stakeholder engagement is underway. A
mining licence has been applied for on the Vlakfontein project and a mining
licence application will be submitted for development of the Overvaal project
before December 2011. The actual timing of these green-field developments will
depend on their group ranking, availability of capital, access to export rail
and entitlement and/or Eskom off-take arrangements. The board is in the process
of disposing the Mpefu resource which does not currently rank as a near term
priority from a coal growth perspective.
Our development strategy is to deliver incremental coal volume growth to both
export and the local markets in a capital and margin efficient manner. Projects
will continuously be evaluated and the board will continue to adopt a robust and
prudent approach to project approvals to ensure that shareholder value is
maximised and project risk is suitably addressed.
Acquisitions
Optimum Coal signed an agreement on 21 April 2011 with Umcebo Mining (Pty) Ltd
to acquire two prospecting rights ("the TNC Prospecting Rights") for a cash
consideration of R420 million. This agreement is subject only to regulatory
consents from the DMR for the renewal and transfer of ownership of the TNC
Prospecting Rights to Optimum Coal. The effective date of the transaction will
be upon the fulfilment of these conditions precedent.
After year-end on 18 August 2011, Optimum Coal signed an agreement with BECSA to
acquire two prospecting rights ("the Remhoogte Prospecting Rights") for a cash
consideration of R235 million. This agreement is subject to various conditions
precedent including regulatory consents from the DMR for the transfer of
ownership of the Remhoogte Prospecting Rights to Optimum Coal. The effective
date of the transaction will be upon the fulfilment of these conditions
precedent.
Disposals
During the year, Optimum Coal disposed of its 26% interest in and loan account
claims against Afarak Platinum Holdings (Pty) Ltd for a total purchase
consideration of R121 million consisting of R76 million proceeds and a repayment
of loan receivable of R45 million. The sale resulted in a profit of R74 million.
Debt
The group has achieved all requisite debt covenants during the year under review
and consequently, outstanding loans and borrowings have been re-classified into
appropriate non-current and current liability categories.
The group is currently re-financing its debt facilities and is in the process of
evaluating debt proposals received from various lenders. The implementation of a
new corporate debt facility will materially increase the group`s ability to
utilise debt for general corporate purposes including capital expenditure,
working capital requirements and acquisitions. The nature and salient terms of
the new corporate debt facility will be announced once agreements with appointed
lenders are concluded.
Outlook
Richards Bay coal prices remain strong around $118/t currently, and have traded
in a very narrow range over the last few months. Notwithstanding that thermal
coal demand is now chiefly driven out of the Asia pacific region, European
pricing remains a very relevant pricing point for the sea borne thermal coal
market as Europe accounts for approximately 21% of total seaborne thermal coal
demand. Whilst there are concerns about the strength of economic activity in
Europe, the loss of nuclear capacity in Germany and Japan is likely to be price
supportive for thermal coal notwithstanding current economic conditions. Chinese
coal burn is expected to be strong year on year, even in an industrial slowdown
scenario. India remains a material net importer of thermal coal, and is expected
to import at least 80Mt in the 2012 year.
Locally, Eskom`s return-to-service programme, in addition to its capital growth
projects, bode well for domestic coal suppliers. The country`s current power
generating capacity of 40 000 MW is planned to increase to 80 000 MW by 2025.
This alone is expected to underpin an increasing demand for coal from local
suppliers.
While there has been growing attention to the development of renewable energy
sources in South Africa, with Eskom itself aiming to reduce its reliance on coal
to 70% of the total energy mix by 2025, we believe that coal-fired energy
generation will remain central to South Africa`s energy needs for the
foreseeable future. This is supported by the World Bank`s recognition that
coal-fired power stations are the only power source large enough to meet the
country`s growing energy needs. We therefore expect the domestic coal market to
remain strong with robust demand.
We are well placed to benefit from compelling dynamics of the international and
local coal markets.
Operationally the group is well positioned to deliver production targets for the
coming FY2012 year. Optimum Collieries has stabilised and with improved tonnage
run rates from Boschmanspoort and the Kwagga North extension tracking as
expected, we expect to produce approximately 5,3 Mt - 5.5 Mt of export saleable
coal and 5,5Mt of Eskom saleable coal in FY2012 from this operation.
Koornfontein Mines is again expected to produce steadily, and our expectation is
to produce 1,7Mt of export saleable coal and 1Mt of Eskom quality coal from this
operation during the FY2012 year.
Board and Corporate Governance
Optimum Coal Holdings Limited is fully compliant with the King III Code of Good
Governance in terms of the board of directors. Mr. H White resigned as a
director of the board on 30 April 2011.
Declaration of a special dividend
Notice is hereby given that the board of directors has declared a special
dividend of 30 cents per share, payable to ordinary shareholders on Monday, 31
October 2011, subject to approval by the Exchange Control Department of the
South African Reserve Bank.
The special dividend represents the pre-tax profit made on the sale of our
Platinum prospecting rights which the Board wishes to return to the companies`
shareholders.
The last date to trade "cum" dividend in order to participate in the dividend
will be Friday, 21 October 2011. The ordinary shares of the Company will
commence trading "ex" dividend from the commencement of business on Monday, 24
October 2011 and the record date will be Friday, 28 October 2011.
Share certificates may not be dematerialised or rematerialised between Monday,
24 October 2011, and Friday, 28 October 2011.
A further announcement regarding the receipt of SARB approval will be made by no
later than 14 October 2011.
Basis of preparation
These provisional condensed consolidated financial statements are prepared in
accordance with the recognition and measurement requirements of International
Financial Reporting Standards and AC 500 series as issued by the APB and have
been presented in accordance with the presentation and disclosure requirements
of IAS 34.
The same accounting policies and methods of computation were followed in these
financial statements as compared with the consolidated annual financial
statements for the year ended 30 June 2010.
Review conclusion
These provisional condensed consolidated financial statements have been reviewed
by the Company`s auditors, KPMG Inc. Their unmodified review report is available
for inspection at the Company`s registered office.
Forward looking information
Certain statements in this press release may constitute forward-looking
information within the meaning of securities laws. In some cases, forward
looking information can be identified by the use of such terms such as "may",
"will", "should", "expect", "believe", "plan", "scheduled", "intend",
"estimate", "forecast", "predict", "potential", "continue", "anticipate" or
other similar expressions concerning matters that are not historical facts.
Forward looking information may relate to management`s future outlook and
anticipated events or results, and may include statements or information
regarding the future plans or prospects of the Company.
You should not place undue importance on forward looking information and should
not rely upon this information as of any other date. The Company undertakes no
obligation to update publicly or release any revisions of these forward looking
statements to reflect events or circumstances after the date of this document or
to reflect the occurrence of unanticipated events except where required by
applicable laws.
On behalf of the board
Bobby Godsell Mike Teke
Chairman Chief Executive Officer
Johannesburg
25 August 2011
Optimum Coal Holdings Ltd
First Floor, Marlborough Gate, Hyde Lane, Hyde Park, Sandton 2196. PO Box 411333
Craighall 2024
Tel: +27 (0) 11 325 0403 Fax: +27 (0) 11 325 0392
Directors
Non-executive Independent Chairman: Bobby Godsell
Executive Directors: Mike Teke, Douglas Gain, Non-executive Directors: Tom
Borman, Peter Gain, Eliphus Monkoe, Dr Mlungisi Kwini Non-executive Independent
Directors: Nomavuso Mnxasana, Loutjie Smit, Lulu Letlape, Deon Dhlomo, Paul
Nkuna
Company Secretary: Anlia Swart-Larmigny
Sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
www.optimumcoal.com
Date: 25/08/2011 07:05:39 Produced by the JSE SENS Department.
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