| Tue 13 Sep 2011, 8:51 | | PET - Petmin Limited - Condensed Preliminary Consolidated Financial Statements |
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PET
PET
PET - Petmin Limited - Condensed Preliminary Consolidated Financial Statements
for the year ended 30 June 2011
Petmin Limited
(Incorporated in the Republic of South Africa)
(Registration number 1972/001062/06)
"Committed to growth, dedicated to value"
JSE code: PET AIM code: PTMN
ISIN: ZAE000076014
("Petmin" or "the Group")
Condensed Preliminary Consolidated Financial Statements for the year ended 30
June 2011
Another strong operational performance
- Net cash flow from operating activities increased by 12% to R361 million from
R322 million.
- Headline earnings per share 17.50 cents, down 8% from 19.09 cents in 2010.
- Normal dividend of 4 cents per share declared (prior year : 4 cents).
- Cash on hand R269 million (2010: R283 million).
- Operations performed well despite negative effect of stronger Rand/Dollar
exchange rate.
- Interest-bearing debt to equity ratio of 11.48% (2010: 7.55%).
- Agreement for the sale of SamQuarz for R259 million concluded.
- Construction of second plant at Somkhele to more than double capacity is on
track for commissioning in early 2012.
- Business of Tomorrow strategy delivers results with investments in iron and
copper projects in Canada,
Turkey and Liberia.
Condensed Preliminary Consolidated Income Statement for the year ended 30 June
2011
Reviewed Audited
Year ended Year ended
30 June 30 June
2011 2010
R`000 R`000
Note
Revenue 471 385 334 880
Cost of sales (354 683) (217 368)
Gross profit 116 702 117 512
Operating income 7 433 9 994
Administration expenses (13 694) (14 110)
Results from operating activities 110 441 113 396
Net finance income 4 044 1 505
- Finance income 5 235 6 085
- Finance expenses (1 191) (4 580)
Share of losses of equity accounted (524) -
investees
Profit before income tax 113 961 114 901
Income tax expense (37 060) (34 764)
Profit for the year from continuing 76 901 80 137
operations
Profit for the year from discontinued
operation
net of income tax 6 24 27 580
081
Profit for the year 100 982 107 717
Earnings per share
Basic earnings per ordinary share (cents) 7 17.50 19.09
Diluted earnings per ordinary share 7 17.40 18.97
(cents)
Earnings per share from continuing
operations
Basic earnings per ordinary share (cents) 7 13.33 14.21
Diluted earnings per ordinary share 7 13.25 14.12
(cents)
Condensed Preliminary Consolidated Statement of Comprehensive Income for the
year ended 30 June 2011
Reviewed Audited
Year ended Year
ended
30 June 30 June
2011 2010
R`000 R`000
Profit for the year 100 982 107 717
Other comprehensive income
Foreign currency translation differences (319) -
Effective portion of changes in fair value of cash - 636
flow hedges
Other comprehensive income for the year
net of income tax (319) 636
Total comprehensive income for the year 100 663 108 353
Condensed Preliminary Consolidated Statement of Financial Position as at 30
June 2011
Reviewed Audited
as at
as at
30 June 30
June
2011
2010
Note
R`000 R`000
ASSETS
Non-current assets 1 130 627 984 283
Property, plant and equipment 625 038 484 215
Intangible assets 1 889 4 407
Investment in equity accounted investee 470 138 470 661
Investments 33 562 25 000
Current assets 660 139 612 054
Inventories 22 134 28 436
Trade and other receivables 117 102 688
496
Current tax assets 4 656 4 186
Cash and cash equivalents 227 792 180 031
Assets classified as held for sale 6 288 061 296 713
Total assets 1 790 766 1
596 337
EQUITY AND LIABILITIES
Ordinary share capital and reserves 1 317 1 241 421
162
Share capital 143 398 142 681
Share premium 337 807 331 337
Share option reserve 5 3 121
627
Foreign currency translation reserve (319) -
Retained earnings 830 649 764
282
Non-current liabilities 249 604 159 357
Interest-bearing loans and borrowings 96 674 42 128
Deferred tax liabilities 133 206 99 519
Environmental rehabilitation provision 19 724 17 710
Current liabilities 224 000 195 559
Trade and other payables 88 131 75 365
Current portion of non-current liabilities 23 466 14 379
Shareholders for dividend 996 -
Liabilities classified as held for sale 6 111 407 105 815
Total equity and liabilities 1 790 766 1 596
337
Condensed Preliminary Consolidated Statement of Cash Flows for the year ended 30
June 2011
Reviewed Audited
Year ended Year
ended
30 June 30 June
2011 2010
Note R`000 R`000
Cash generated by operations 142 018 149 449
Adjustments for:
- depreciation and amortisation 185 792 118 226
- fair value of derivatives included in - 636
payables/receivables
- impairment charges 3 769 4 983
- notional interest 3 187 2 733
- loss on disposal of property, plant and 10 -
equipment
- share-based payment included in 22 336 1 454
expenses
- decommissioning asset - new mining 1 008 -
areas
- management share options granted 2 532 -
Operating cash flows before changes
in working capital 360 652 277 481
(Decrease)/Increase in trade and other (14 775) 87 121
receivables
Decrease/(Increase) in inventories 834 (18 562)
Increase/(Decrease) in trade and other 13 159 (17
payables 886)
Cash generated by operations 359 870 328 154
Income tax paid (4 590) (10 010)
Finance income 7 073 9 116
Finance expenses (1 548) (4 948)
Net cash flow from operating activities 360 805 322 312
Cash flows from investing activities
Long-term rehabilitation expenditure (236) (2 140)
incurred
Investment in jointly controlled entities 8 (13 552) -
Investment in listed shares (8 216) -
Acquisition of property, plant and equipment (361 (122 825)
376)
- to expand operations (148 056) (54 855)
- to expand operations - capitalised pre- (181 (56 725)
strip 565)
- to maintain operations (31 755) (11 245)
Proceeds from sale of property, plant and 5 10
equipment
Net cash flows from investing activities (383 124 955)
375)
Cash flows from financing activities
Proceeds from specific and general share
issues
for cash during the year 29 26 640
Treasury shares acquired (15 204) (14 085)
Payment on options forfeited (55) (101)
Repayment of borrowings (22 718) (53 093)
Increase in borrowings 80 152 35 200
Dividends paid (33 617) -
Net cash flows from financing activities 8 587 (5 439)
Net increase in cash and cash equivalents (13 983) 191 918
Cash and cash equivalents at beginning of 283 014 91 096
year
Cash and cash equivalents at end of year 269 031 283 014
Condensed Preliminary Consolidated Statement of Changes in Equity for the year
ended 30 June 2011
Foreign
Share currency
Share Share translation Hedging
option Retai
ned
premium reserve reserve Total
capital reserve earni
ngs
R`000 R`000 R`000 R`000 R`000
R`000 R`000
Balance at 134 686 304 745 23 - (636) 656 1 119
1 July 2009 741 565 101
Shares
issued during
the year
- Share 9 617 37 (20 - - - 26 700
options 661 578)
exercised
Share
issue costs
capitalised
to share (60) - - - - (60)
premium -
Treasury
shares
acquired
during the (1 (12 - - - - (14
year 804) 281) 085)
Share - - (42) - - (42)
options -
forfeited
during the
year
Share- 182 1 272 - - - - 1 454
based payment
Effective - - - - 636 - 636
portion of
changes in
fair value of
cash flow
hedges
Profit for - - - - 107
the year - 107 717
717
Balance at 142 681 331 337 3 121 - - 764 1 241
30 June 2010 282 421
Shares
issued during
the year
- Share 11 43 - - - 28
options (26)
exercised
Share- 1 20 - - - 22 336
based 986 350 -
payments
Treasury (1 280) (13 923) - - - - (15 203)
shares
acquired
during the
year
Share - - 2 546 - - - 2 546
options
granted
Share - - (14) - - - (14)
options
forfeited
during the
year
Foreign - - - (319) - - (319)
currency
translation
differences
Profit for - - - - - 100 100 982
the year 982
Dividend - - - - - (34 (34 615)
paid 615)
Balance at 30 143 398 337 807 5 627 (319) - 830 1 317
June 2011 649 162
Segment reporting
Segment information is presented in the condensed preliminary consolidated
financial statements in respect of the Group`s segments.
The segment reporting format reflects the Group`s management and internal
reporting structure as reviewed by the chief operating
decision-makers.
Segment revenue represents revenue to external customers. There was no inter-
segment revenue during the year ended 30 June 2011 or the prior year. Inter-
segment pricing is determined on an arm`s length basis.
Segment results include items directly attributable to a segment as well as
those that can be allocated on a reasonable basis.
Reportable segments
The Group comprises the following main reportable segments:
- Silica mining and marketing ("Silica") - Discontinued operation;
- Anthracite mining and marketing ("Anthracite"); and
- Business of Tomorrow, which includes Petmin`s exploration and development
projects. This segment has been designated as a reportable segment in order to
achieve fairer presentation due to its significance.
Segment Report for the year ended 30 June 2011
Silica Anthracite Busines Other Eliminati Con
(Discontin s of (Corporate ons sol
ued) Tomorro office) ida
w ted
Year Year Year Year Ye Yea Year Year Year Yea Yea Yea
ar r r r r
Uni ende ende ende ende en end ended ended ende end end end
ts d d d d de ed d ed ed ed
d
of 30 30 30 30 30 30 30 30 30 30 30 30
June June June June Ju Jun June June June Jun Jun Jun
ne e e e e
mea 2011 2010 2011 2010 20 201 2011 2010 2011 201 201 201
sur 11 0 0 1 0
e
Saleab (to 1 1 524 467 - - - - - - 1 1
le nne 325 255 006 843 849 723
tonnes s) 868 559 874 402
produc
ed
Tonnes (to 1 1 579 411 - - - - - - 1 1
sold nne 248 171 087 630 828 582
s) 989 355 076 985
Segmen R`0 170 154 471 334 - - - - - - 641 489
t 00 082 474 385 880 467 354
revenu
e
Segmen (R/ R136 R131 R814 R813
t ton .18 .88 .01 .55
revenu ne)
e per
tonne
sold
Segmen
t
financ
e
expens
e)/inc
ome
Financ R`0 1 3 569 1 - - 4 666 4 408 - - 7 9
e 00 838 031 677 073 116
income
Financ R`0 (357 (368 (852 (4 - - (339) (517) - - (1 (4
e 00 ) ) ) 063) 548 948
expens ) )
e
Segmen (R/ R26. R33. R202 R292
t ton 47 05 .05 .50
Profit ne)
per
tonne
sold
- R`0 33 38 117 120 (5 - (2 (5 - - 147 153
Segmen 00 058 715 006 402 66 479) 500) 019 617
t )
result
Segmen R`0 33 38 117 120 (5 - (2 (5 - - 147 153
t 00 058 715 006 402 66 479) 500) 019 617
Profit )
/(loss
)
before
tax
Segmen R`0 (8 (11 (33 (34 - - (3 (332) - - (46 (45
t tax 00 977) 135) 599) 433) 461) 037 900
(expen ) )
se)
Segmen R`0 24 27 83 85 (5 - (5 (5 - - 100 107
t 00 081 580 407 969 66 940) 832) 982 717
Profit )
after
tax
Segmen R`0 63 21 268 81 46 - 29 547 19 - - 361 122
t 00 294 614 069 384 7 827 377 825
capita
l
expend
iture
-
combin
ed
Segmen R`0 63 21 86 24 46 - 29 547 19 - - 180 66
t 00 294 614 718 659 7 827 026 100
capita
l
expend
iture
Segmen R`0 - - 181 56 - - - - - - 181 56
t 00 351 725 351 725
capita
l
expend
iture
- pre-
strip
Segmen R`0 16 12 166 102 - - 408 293 - - 183 115
t 00 560 433 307 984 275 710
deprec
iation
-
combin
ed
Segmen R`0 16 12 9 15 - - 408 293 - - 26 28
t 00 560 433 458 288 426 014
deprec
iation
Segmen R`0 - - 156 87 - - - - - - 156 87
t 00 849 696 849 696
deprec
iation
- pre-
strip
Share
option
costs
includ
ed in
segmen
t
Profit R`0 - - - - - - 2 546 - - - 2 -
/(loss 00 546
)
before
tax
Segmen R`0 288 296 805 690 52 495 432 486 (262 (36 1 1
t 00 061 713 728 707 7 661 119 516 818) 7 790 602
assets 67 107 766 490
6 )
Segmen R`0 111 105 435 407 42 - 28 525 40 (101 (19 473 361
t 00 407 815 167 959 8 473 923) 3 604 069
liabil 178
ities )
*The open pit mining profile at Somkhele requires that overburden be removed
from the pit before coal can be extracted. This overburden removal is
capitalised to the development cost of the open pit (so called "pre-strip") and
is then expensed on a units-of-production basis as the coal is extracted from
the open pits. As disclosed last year, overburden removal volumes increased
markedly this year to ensure supply of run-of-mine coal to feed both the
existing and the second plant at Somkhele.
Notes to the Condensed Preliminary Consolidated Financial Statements
for the year ended 30 June 2011
1. Reporting entity
Petmin is a company domiciled in South Africa. The condensed preliminary
consolidated financial statements of the Group for the year ended 30 June 2011
comprise the Company and its subsidiaries (together referred to as the "Group")
and the Group`s interests in associates and jointly controlled entities.
The condensed preliminary consolidated financial statements were authorised for
issue by the directors on 12 September 2011.
2. Statement of compliance
The condensed preliminary consolidated financial statements have been prepared
in accordance with the recognition, measurement,
presentation and disclosure requirements of IAS 34 - Interim Financial
Reporting, the AC 500 Standards as published by the Accounting Practices Board
and the South African Companies Act. The condensed preliminary consolidated
financial statements do not include all of the information required for full
annual financial statements and should be read in conjunction with the
consolidated annual financial statements for the year ended 30 June 2010, which
are available upon request from the Company`s offices at 37 Peter Place,
Bryanston, Johannesburg or at www.petmin.com.
3. Significant accounting policies
The accounting policies have been applied consistently by the Group to all
periods presented in these condensed preliminary
consolidated financial statements and are consistent to those applied by the
Group in its consolidated financial statements as at and
for the year ended 30 June 2010.
Accounting for investments in joint ventures
The proportionate share of the financial results of joint ventures is
consolidated into the Group`s results from acquisition date until
disposal date.
The Group combines its share of the joint venture`s individual income and
expenses, assets and liabilities and cash flows on a line-by-
line basis with similar items in the Group`s financial statements. The Group
recognises the portion of gains and losses on the sale of
assets by the Group to the joint venture that is attributable to the other
venturers. The Group does not recognise its share of profits
or losses from the joint venture that result from the purchase of assets by the
Group from the joint venture until it resells the assets to
an independent party, except where unrealised losses provide evidence of an
impairment of the asset transferred. When the end date
of the reporting period of the parent is different to that of the joint venture,
the joint venture prepares, for consolidation purposes,
additional financial statements as of the same date as the financial statements
of the parent.
Investments in joint ventures are accounted for at cost less any accumulated
impairment losses in the separate financial statements of
Petmin.
Non-current assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, that
are expected to be recovered primarily through sale rather than through
continuing use, are classified as held for sale. Immediately before
classification as held for sale, the assets, or components of a disposal group,
are remeasured in accordance with the Group`s accounting policies. Thereafter
the assets, or disposal group, are measured at the lower of their carrying
amount and fair value less cost to sell. Any impairment loss on a disposal group
first is allocated to goodwill, and then to remaining assets and liabilities on
a pro rata basis, except that no loss is allocated to inventories, financial
assets, deferred tax assets, employee benefit assets, investment property and
biological assets, which continue to be measured in accordance with the Group`s
accounting policies. Impairment losses on initial classification as held for
sale and subsequent gains or losses on remeasurement are recognised in profit
or loss. Gains are not recognised in excess of any cumulative impairment loss.
Discontinued operations
A discontinued operation is a component of the Group`s business that represents
a separate major line of business or geographical area of operations that has
been disposed of or is held for sale, or is a subsidiary acquired exclusively
with a view to resale.
Classification as a discontinued operation occurs upon disposal or when the
operation meets the criteria to be classified as held for sale, if earlier.
When an operation is classified as a discontinued operation, the comparative
statement of comprehensive income is represented as if the operation had been
discontinued from the start of the comparative period.
New standards
A number of new standards, amendments to standards and interpretations are not
yet effective for the year ended 30 June 2011 and
have not been applied in preparing these financial statements. The Group has not
yet determined the potential effect of these standards and interpretations.
Functional and presentation currency
The condensed consolidated preliminary financial statements are presented in
Rands, which is the Company`s functional currency. All financial information
presented in Rands has been rounded to the nearest thousand.
4. Estimates and judgements
The preparation of the condensed preliminary consolidated reviewed financial
statements in conformity with IAS 34 - Interim Financial
Reporting requires management to make judgements, estimates and assumptions that
affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making the judgements about carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period of
the revision and future periods if the
revision affects both current and future periods.
The significant judgements made by management in applying the Group`s accounting
policies and the key sources of estimation
uncertainty were the same as those applied to the consolidated financial
statements as at and for the year ended 30 June 2010.
5. Review of results
The results of the Group as set out above have been reviewed by the Group`s
auditors, KPMG Inc. The unqualified review report is
available for inspection at the Group`s registered offices.
6. Discontinued operation
At a meeting of the directors of Petmin held on 29 June 2011, pursuant to the
receipt of an offer, Petmin committed to a plan to sell
its investment in SamQuarz (Pty) Limited. SamQuarz, the Silica segment, was not
classified as held for sale or a discontinued operation as at 30 June 2010 and
the comparative income statement has been represented to show the discontinued
operation separately from continuing operations. Please refer to note 11.4 for
more information on the disposal process and rationale for the sale.
Reviewed Audited
Year ended Year ended
30 June 2011 30 June
2010
R`000 R`000
Results of discontinued operation
Revenue 170 082 154 474
Cost of sales (111 289) (93 081)
Gross profit 58 793 61 393
Operating expenses (24 515) (24 242)
Administration expenses (2 701) (1 099)
Results from operating activities 31 577 36 052
Net finance income/(expense) 1 481 2 663
- Finance income 1 838 3 031
- Finance expenses (357) (368)
Profit before income tax 33 058 38 715
Income tax expense (8 977) (11 135)
Profit for the year 24 081 27 580
Earnings per share
Basic earnings per share (cents) 4.17 4.88
Diluted earnings per share (cents) 4.15 4.85
Cash flows from/(used in) discontinued operation
Net cash from operating activities 46 742 52 375
Net cash used in investing activities (62 286) (21 614)
Net cash (used in)/from financing activities (6 200) 34 980
Net cash (used in)/from discontinued operation (21 744) 65 741
7. Earnings per share
Earnings per share ("EPS") are based on the Group`s profit for the year, divided
by the weighted average number of shares in issue during the year.
Reviewed Audited
Year ended Year ended
30 June 2011 30 June 2010
Profit Number of Per Profit Number Per
for for of
the shares in share the shares share
year year in
R`000 thousands in R`000 thousa in
cents nds cents
Basic earnings per 100 982 576 908 17.50 107 564 19.09
share 717 135
Share options - 3 514 (0.10) - 3 559 (0.12)
Diluted EPS 100 982 580 422 17.40 107 567 18.97
717 694
Headline earnings per
share
Headline earnings per share
is based on the Group`s
headline earnings divided
by the weighted average
number of shares in issue
during the year.
Reconciliation between
earnings and
headline earnings per
share:
Basic EPS 100 982 576 908 17.50 107 564 19.09
717 135
Headline EPS 100 982 576 908 17.50 107 564 19.09
717 135
Share options - 3 514 (0.10) - 3 559 (0.12)
Diluted headline EPS 100 982 580 422 17.40 107 567 18.97
717 694
8. Investment in Jointly
Controlled entities
2011 2010
R`000 R`000
Investment, net of cash
received
- Investment in 9 984 -
exploration company in
Canada
- Investment in Iron 3 568 -
Bird Resources Inc.
13 552 -
Investment in exploration company in Canada
As previously announced, during the period under review, Petmin acquired a 5%
interest in an exploration company in Canada ("Exploration Co.") for an amount
of USD1.5 million. Exploration Co. is jointly controlled by Petmin and its
Canadian partners from inception. For more information, please refer to Petmin`s
reviewed results for the period ended 31 December 2010.
Investment in Hummingbird Resources Plc
As announced on 24 January 2011, Petmin entered into an agreement with
Hummingbird Resources Plc (Hummingbird: AIM: HUM) and Hummingbird`s wholly-owned
subsidiary, Iron Bird Resources Inc. ("Iron Bird"), relating to Hummingbird`s
Mount Ginka Licence for the exploration for iron ore in Liberia. Petmin has
invested USD500 000 for a 15% shareholding in Iron Bird and has agreed to invest
a further USD1 500 000 to increase its shareholding in Iron Bird to 50%.
9. Related parties
9.1 Loan to and transactions with related party
Dark Capital (Pty) Limited ("Dark Capital"), Petmin`s anchor black economic
empowerment shareholder, is a material shareholder in Petmin and is therefore a
related party as defined by section 10 of the JSE Limited Listings Requirements.
Other than as previously disclosed in the annual financial statements for the
year ended 30 June 2010, there have been no further related party transactions
with Dark Capital.
9.2 Exercise of options
As announced on 30 June 2011, the Company was informed that executive directors
exercised 5 070 250 options with an exercise price of 65 cents per share.
Additionally, 100 000 options with a strike price of 65 cents per share were
bought by the Company for 275 cents per share.
Between 1 July 2010 and 30 June 2011, the Company was informed that employees
and former employees exercised 44 750 options with an exercise price of 65 cents
per share. Additionally, 25 000 options with a strike price of 65 cents per
share were bought by the Company for 285 cents per share.
The options were awarded in terms of a share incentive scheme approved by
shareholders on 19 July 2005.
9.3 Executive remuneration and share option scheme
As previously announced, at the AGM held on 13 December 2010, shareholders
approved the terms of the new Executive Share Option Scheme, the Executive
Incentive Scheme and the subscription for 5.4 million shares at R2.84 per share
to Ian Cockerill (that has now been completed).
For more information on these items, please refer to Annexure 1 in the Petmin
Limited Annual Financial Statements for the year ended 30 June 2010.
In the eight months to 28 February 2011, P Nel was paid R1 117 846 (2010: R356
866) in consulting fees for advisory services to the Group.
9.4 Other transactions with related parties
No other related party transactions were entered into.
10. Change in directors
As previously announced during the year under review:
- Petmin has appointed two independent non-executive directors, Ms Koosum Kalyan
and Mr Millard Arnold, with effect from 1 March 2011; and
- Mr Piet Nel has taken up the position as chairman of Petmin`s Technical
Advisory Committee and announced his resignation as a director of Petmin with
effect from 28 February 2011.
11. Subsequent events
11.1 Investment in Iron Bird Resources Inc. ("Iron Bird")
On 11 July 2011, Petmin announced that it has invested a further USD1.5 million
in Iron Bird.
The investment takes Petmin`s total investment in Iron Bird to USD2 million and,
under the terms of the joint venture agreement,
Hummingbird and Petmin now each hold 50% in Iron Bird.
11.2 Investment in Red Crescent Resources Limited ("RCR")
On 11 August 2011, Petmin announced that RCR had fulfilled all conditions
precedent of the initial memorandum of understanding with Petmin and that
Petmin`s farm-in agreement had been triggered.
Under the terms of the investment agreement, which were first disclosed on 16
May 2011, Petmin would make an equity investment in RCR totalling CAD4.64
million. Petmin subscribed for and was issued 3 170 000 common shares on 24 May
2011 as part of the initial subscription. The balance was subscribed for and
issued, after which, Petmin holds approximately 9.3 million shares in RCR,
representing an approximate 10% ownership interest in RCR. Petmin will also
invest up to a maximum of CAD17 million in four conditional tranches over a
period of 3.5 years, to earn up to a 37.5% interest in the RCR-controlled joint
venture, RCR Quantum AS, which is responsible for the management and
development of the Sivas Copper project.
11.3 Investment in Joint Venture
As announced previously, Petmin has invested USD1.5 million and acquired a 5%
interest in an exploration company in Canada ("Exploration Co").
In accordance with the terms of the investment and subsequent to the initial
evaluation phase, on 26 August 2011, Petmin made an additional investment in
Exploration Co. of USD2 million for a further 5.714% interest therein.
11.4 Disposal of SamQuarz (Pty) Limited ("SamQuarz")
On 13 September Petmin announced that it has concluded an agreement to dispose
of 100% of its interest in SamQuarz to Thaba Chueu Mining (Pty) Limited for a
cash consideration of R259 million adjusted for any move in the net asset value
of SamQuarz from 30 June 2011 until conclusion of all outstanding regulatory
approvals. The sale is subject to normal warranties applicable to a transaction
of this nature.
At 30 June 2011, SamQuarz has been accounted for as a non-current asset held for
sale in terms of IFRS 5 and the comparatives have been restated accordingly.
Petmin acquired the shares and loans in SamQuarz for R85 million in September
2004, since that date Petmin has received payments of R114 million from
SamQuarz for repayment of loans and redemption of preference shares. Net cash
returns to Petmin, after taking into account the sale proceeds, have yielded an
annual, after-tax, average return to Petmin in excess of 45% per annum.
Rationale for the Sale
Petmin has a history of delivering superior returns to shareholders by cost-
effectively purchasing and developing assets and disposing of them for superior
returns, returning value to shareholders and reinvesting the gains in new
assets. Petmin acquired SamQuarz as an underperforming asset and restructured
the business into a long-term, sustainable, reliable cash-producing asset. The
cash flows from SamQuarz provided Petmin with a stable base from which to build
on its growth strategy. The disposal will provide Petmin with significant cash
resources to be deployed in accelerating the Business of Tomorrow strategy and
funding the various project development requirements in Petmin`s pipeline of
projects.
The Sale is subject to, amongst others, the following key conditions:
- by 9 December 2011, the Sale being unconditionally or conditionally approved
by the Competition Authorities in terms of the South
African Competition Act; and
- by 31 March 2012, the Sale and all agreements and transactions contemplated
having been unconditionally or conditionally approved by the South African
Minister of Minerals and Energy in terms of section 11 of the Mineral and
Petroleum Resources Development Act (MPRDA).
11.5 Appointment of director
Petmin is pleased to announce that, at a meeting held on 12 September 2011,
Petmin approved the appointment of Mr Trevor Petersen as an independent non-
executive director of Petmin and as a member of the audit and risk committee. Mr
Petersen is a Chartered Accountant and is a former Managing Partner of the Cape
Town office of audit firm PricewaterhouseCoopers ("PwC"). He also held the
position of Chairman of PwC Western Cape and is the past Chairman of the South
African Institute of Chartered Accountants. Mr Petersen has also been a member
of the University of Cape Town Council since 2002.
11.6 Declaration of dividend
On 13 September 2011, the Company announced that it had declared a dividend of 4
cents per share (prior year: 4 cents normal dividend plus 2 cents special
dividend) which is in line with the approved dividend policy. The record date
for payment of the cash dividend is 7 October2011. Please refer to the separate
notice of the declaration of dividend dated 13 September 2011 for more details.
11.7 Subsequent events
There have been no other events that have occurred subsequent to 30 June 2011
which require adjustment of, or disclosure in the financial statements or notes
thereto in accordance with IAS 10 - Events After the Reporting Date.
(i) General overview of performance
Production and sales volumes increased by 7% and 12%, respectively, in order to
ameliorate the impact of the stronger Rand and the increased mining cost due to
higher strip ratios at Somkhele. Operational costs and revenues that were under
the control of management were well controlled.
The average Rand/Dollar exchange rate for Petmin`s Dollar inflows for the year
ended 30 June 2011 was 6.60 (2010: 7.41) which reduced profit after tax by
approximately R20 million or 3.47 cents per share.
Sales tonnes were 1 828 076 (2010: 1 582 985), generating revenue of R641
million (2010: R489 million).
With the stronger Rand and the increased strip ratios at Somkhele, gross profit
margins reduced to 27% from 37%.
The Group`s operations remain strongly cash-generative, generating R361 million
in the year to 30 June 2011 (2010: R322 million).
Capital expenditure increased to R361 million (2010: R123 million) of which R182
million (2010: R57 million) was spent on pre-stripping the open pits at Somkhele
in anticipation of doubling production by the first quarter of 2012 in order to
feed the second plant. At SamQuarz, development of the open pit has progressed
well with the office move being completed and the mine now having access to
additional shallow, glass-grade silica.
In June 2011, the Group drew R80 million on loan from The Industrial Development
Corporation to part finance the construction of the
second plant at Somkhele. The loan bears interest at 6.3% per annum until 31
March 2015, whereafter the rate will be prime less 0.7%. The loan is repayable
in 48 instalments, with the first payment commencing on the earlier of 30 April
2012 or one month after the second plant is commissioned.
Petmin`s interest-bearing debt to equity ratio increased to 11.48% (2010:
7.75%).
Anthracite division
Somkhele anthracite mine and Petmin Logistics
The Anthracite division produced 524 006 tonnes (2010: 467 843 tonnes) and sold
579 087 tonnes (2010: 411 630 tonnes) of anthracite in the year to 30 June 2011.
Net profit margins of 25% (2010: 36%) were achieved in the anthracite division
during the year ended 30 June 2011. The reduction in marginswas due to the
stronger Rand which reduced revenues by approximately R28 million and due to the
increased mining cost (as previously announced in November 2010 it was
anticipated that mining costs will increase due to an increase in strip ratios
in the deeper reserves in Area 1).
The increased amount of overburden to be moved in this higher strip ratio
environment resulted in an increase in mining cost of 56% when moving from a
strip ratio of 1.7:1 in Area 2 to a strip ratio of 4:1 in Area 1. The increased
production and sales volumes combined with efficiency improvements enabled
Somkhele to curtail costs and achieve a margin of 25%.
Capital expenditure of R268 million (2010: R81) million was incurred during the
year ended 30 June 2011. R181 million (2010: R57 million) was spent on pre-
stripping the open pits in Area 1 in order to ensure that there is sufficient
coal available to feed the second plant once it is commissioned. The main focus
of the balance of the capital expenditure was the construction of the second
plant and the mineral resource exploration and evaluation drilling programme.
218 exploration and evaluation holes amounting to 29 385 metres were drilled in
the 12 months to 30 June 2011 in Somkhele`s exploration programme. The
programme aims to update Somkhele`s existing reserve and resource statement and
to identify additional mining areas within the exploration permit Areas 4 and 5.
Exploration for new blocks of coal has been aided by an aeromagnetic survey
which has been conducted over Areas 4 and 5. Core evaluation drilling of the
near-surface Emalahleni and KwaQubuka blocks is almost complete and will enable
these previously categorised inferred resources to be upgraded to measured and
indicated categories before June 2012.
The construction of the second wash plant at Somkhele is progressing well and is
expected to be commissioned during the first quarter of calendar 2012. The
original plant design to double the current production capacity (from 530 000
tonnes to 1 060 000 tonnes) has been amended to allow for a 30% increase in the
originally designed capacity with a 20% increase in the total project cost.
Total capital expenditure on the plant is now expected to increase from R120
million to R144 million, of which R80 million is funded by a loan from the IDC
and the balance funded internally by the operation`s cash flows.
During the latter half of the year to 30 June 2011, the domestic ferrochrome
market experienced a reduction in demand from the Chinese market. Despite this,
Somkhele managed to increase its sales volumes to customers in the domestic
market and has signed off-take agreements with major producers. Export sales
remained underpinned by the take or pay export contract for 200 000 tonnes per
annum until December 2013, with demand from the key Brazilian export market
remaining steady.
Silica division - SamQuarz silica mine
SamQuarz produced 1 325 868 tonnes (2010: 1 255 559 tonnes) of silica and chert
in the year ended 30 June 2011. Sales volumes increased by 7% to 1 248 989
tonnes (2009: 1 171 355 tonnes).
Glass-grade sand demand remained steady despite reduced demand from the
automotive and construction sectors in the year to 30 June 2011. Silica and
chert rock sales remained at similar levels experienced in 2010 and were
affected by the reduced demand from the construction sector, but (as experienced
by the anthracite division) remained steady from the metallurgical sector.
The Silica division`s profit before tax declined by 15% to R33 million (2010:
R39 million) as profit margins were squeezed by the effects of long-term sales
contract pricing mechanisms that do not match the inflationary increases of
mining costs. Management is negotiating contract price adjustments to reverse
this negative trend.
Capital expenditure for the year amounted to R63 million (2010: R22 million),
primarily on the development of the open pit and completion of the relocation
of the old office block to allow for access to additional, near-surface, glass-
grade ore.
Business of Tomorrow ("BOT") division
In the 12 months to 30 June 2011, Petmin has reviewed numerous expansion
opportunities and this focus on the Business of Tomorrow has resulted in three
investments:
Pig-iron - Canada
As announced previously, Petmin has invested USD1.5 million and acquired a 5%
interest in an exploration company in Canada ("Exploration Co"). In terms of the
agreement, Exploration Co. is jointly managed by Petmin and its Canadian
partners from inception.
Petmin has the option, solely at its discretion, to acquire up to 40% of
Exploration Co. for a total investment of USD25 million. The investment is made
on the condition of a properly certified SAMREC Code and CIM Standards compliant
resource statement that defines a Measured Resource of magnetite for 20 years,
based on the production of 500 000 tonnes of pig-iron per annum.
In the period under review the exploration project drilled 1 376 metres and 1
123 samples were submitted for laboratory analysis. Once the results of the
laboratory analysis are received, it is anticipated that there will be
sufficient confidence to rapidly progress this project.
Iron ore - Liberia
As announced on 24 January 2011, Petmin entered into an agreement with
Hummingbird and Hummingbird`s wholly-owned subsidiary, Iron Bird, relating to
Hummingbird`s Mount Ginka Licence for the exploration for iron ore in Liberia.
Petmin has invested USD500 000 for a 15% shareholding in Iron Bird and on 11
July 2011 invested a further USD1 500 000 to increase its shareholding in Iron
Bird to 50%.
On 27 June 2011, Hummingbird and Petmin announced that an aeromagnetic survey
over the project had proved the presence of a significant continuous magnetic
unit, interpreted as an iron formation extending along strike for approximately
20 kilometres. The unit has an at-surface width of between 150 to 250 metre and
the unit is shown to extend to approximately 1 000 metre down dip.
The deposit is located only 20 kilometres South of the Mount Nimba ridge, an
historic major iron ore mine which operated between 1964 and 1989 and has
recently been reopened by Arcelor Mittal. Approximately 15 kilometres to the
West of the Mount Ginka ridge lies the railway built to transport the Mount
Nimba iron ore to the deep water port of Buchanan. Iron Bird has commenced a
programme of mapping, trenching and drilling to obtain samples for
metallurgical test work.
Iron-ore - South Africa (Veremo project)
During the year under review, Veremo submitted a mining license application
over its project areas. An Environmental Management
Programme Report in support of this application was submitted to the Department
of Mineral Resources ("DMR") in May 2011.
Kermas Limited, the ultimate controlling shareholder of Veremo is assessing
various development options to produce some 1 million tonnes of pig iron and
potentially titanium slag and awaits the outcome of the mining license
application.
Copper - Turkey
On 16 May 2011, Petmin announced that it had entered into a transaction with Red
Crescent Resources Limited ("RCR"), a mineral
exploration and development company focused on base metals development in
Turkey and listed on the Toronto Stock Exchange in Canada (TSX: RCB), to
subscribe for shares in RCR and to subsequently invest directly in RCR`s Sivas
Copper project in central Turkey.
The Sivas Copper project will be explored and developed by RCR Quantum Mining
A.S. ("RCR Quantum"), which is 75% owned by RCR`s Turkey-based subsidiary, Red
Crescent Resources Holding A.S. ("RCRH") and 25% owned by Gensay (A Turkish-
controlled entity).
In the year ended 30 June 2011, Petmin invested CAD1 585 000 for an initial
3.45% equity holding in RCR. Petmin has invested a further CAD3 055 000 to
increase its equity holding in RCR to 10.1%. Petmin will then invest up to a
maximum of CAD17 million in the project, in four conditional tranches over a
period of 3.5 years, to earn up to a 37.5% interest in the Sivas Copper Project.
Petmin will have joint management control of RCR Quantum.
(ii) Net asset value
Petmin`s calculated net asset value ("NAV") per share amounts to 495 cents
(June 2010: 445 cents). This calculation is, inter alia, based on the sum of the
NPV of Somkhele (discounted at 10%), adding the anticipated cash (after-tax) to
be obtained from the sale of SamQuarz, adding the director`s value for Veremo,
adding the net cash in Petmin and adding, at cost, the value of the BOT
projects.
It is Petmin`s intention to provide regular feedback as to the status of the BOT
projects as the directors believe that these projects provides Petmin with
material optionality that may substantially enhance the NAV per Petmin share.
Details of the NAV calculation are disclosed on the Petmin website ("September
Analyst Presentation").
(iii) Prospects
Anthracite division
Current production and sales levels are expected to be maintained in the six
months to December 2011 with some improvement in pricing.
It is anticipated that construction and commissioning will be completed during
the first quarter of calendar 2012, whereafter the production from the second
plant should see a material increase in sales and production tonnes from the
mine. The exploration and evaluation programmeis expected to deliver an updated
SAMREC compliant report by June 2012.
Silica division
We anticipate current sales and production volumes to be maintained in the year
ahead as Petmin manages this asset until the regulatory approvals for the
disposal are received. Capital expenditure is expected to reduce to R46 million
from the R63 million spent in the year ended 30 June 2011.
Business of Tomorrow division
Bradley Doig, previously Chief Operating Officer, assumed responsibility for
the Petmin offshore expansion and Business of Tomorrow with effect from 1 July
2011 in order to rapidly progress the various projects for which Petmin has
budgeted project development investments of R86 million in the year ahead.
(iv) General
With its expansion at Somkhele and its various Business of Tomorrow projects,
Petmin is delivering on its promise of "Committed to growth, dedicated to
value".
More details on Petmin can be found on our website www.petmin.com.
By order of the Board
I D Cockerill J C du Preez
Executive Chairman Chief Executive Officer
Johannesburg Sponsor
13 September 2011 River Group
Directors: I Cockerill# (Executive Chairman) L Mogotsi (Deputy Chairman) J du
Preez (Chief Executive Officer)
B Doig B Tanner (Financial Director) M Arnold* E de V Greyling* K Kalyan* A
Martin*
T Petersen* J Strijdom* J Taylor*
*Non-executive #British American
Registered office: Parc Nouveau Third Floor Block C 225 Veale Street Brooklyn
Pretoria 0002
(PO Box 899 Groenkloof 0027)
Corporate office: 37 Peter Place Bryanston 2021 Tel: (011) 706 1644 Fax: (011)
706 1594 Website: www.petmin.co.za
Secretary and sponsor - JSE: River Group Tel: +27 (0) 12 346 8540
Nominated adviser - AIM: Numis Securities Limited Tel: +44 (0) 207 260 1000
Transfer secretaries: JSE: Computershare Investor Services (Proprietary) Limited
AIM: Computershare Investor Services PLC
Auditors: KPMG Inc.
A PDF version of these results is available on our website: www.petmin.com
Date: 13/09/2011 08:51:10 Produced by the JSE SENS Department.
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