| Thu 9 Feb 2012, 8:00 | | OPT - Optimum Coal Holdings Limited - Reviewed Group financial results for the |
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OPT
OPT
OPT - Optimum Coal Holdings Limited - Reviewed Group financial results for the
six months ended 31 December 2011
Optimum Coal Holdings Limited
(Registration number: 2006/007799/06)
Share code: OPT ISIN: ZAE000144663
("Optimum Coal" or the "Group" or the "Company")
REVIEWED GROUP FINANCIAL RESULTS FOR THE SIX MONTHS ENDED
31 DECEMBER 2011
Salient performance features
Where applicable comparisons refer to the prior six months reporting period to
December 2010
- Improvement in safety record with LTIFR down 36% to 0,84*
- Revenue increased by 13% to R3,04 billion
- EBITDA generated up 11% to R641 million including record
R382 million contribution from Koornfontein
- Operating cash generated up 62% to R716 million
- Group run-of mine coal production down 15% to 7,441 million tons
- Group saleable coal production down 16% to 5,921 million tons including export
coal production down 20% to 2,903 million tons
- Production and cost performance at Optimum Collieries adversely affected by
industrial action and dragline relocation
- Material improvement in TFR rail tempo to RBCT experienced during period
- Cash on hand of R458 million and net debt of R211 million as at 31 December
2011
*Lost time injury frequency rate per million man hours.
Consolidated statement of comprehensive income
Reviewed
Reviewed Reclassified(1) Audited
31 Dec 31 Dec 30 June
2011 2010 2011
for the period ended R`000 R`000 R`000
Revenue 3 038 241 2 691 217 5 289 394
Mining and related expenses (2 397 109) (2 113 440) (4 089 082)
Mining costs (1 696 724) (1 700 069) (3 397 419)
Logistics costs (416 724) (366 389) (670 754)
Stock movement (191 546) 41 576 97 869
Other costs (92 116) (88 558) (118 779)
EBITDA(1) 641 132 577 777 1 200 312
Other expenses (380 835) (328 417) (767 332)
Depreciation and amortisation (335 520) (314 130) (667 965)
Share-based payment expense (1 996) (2 450) (3 595)
Other expenses (43 319) (11 837) (95 772)
Other income 48 284 191 787 361 497
Environmental provision 48 284 191 787 287 062
movements
Profit on disposal of platinum - - 74 435
assets
EBIT 308 581 441 147 794 478
Net finance cost (97 068) (77 341) (141 836)
Finance expenses (72 214) (62 959) (84 942)
Unwinding of environmental (73 518) (81 669) (161 439)
provision
Finance income 48 665 67 287 104 545
Profit before income tax 211 513 363 806 652 641
expense
Income tax expense (63 434) (89 163) (193 065)
Profit for the period 148 079 274 643 459 577
Other comprehensive income
Fair value gain on available- 88 073 - 193 400
for-sale financial assets
Income tax on other (12 330) - (28 894)
comprehensive income
Other comprehensive income for 75 743 - 164 506
the period net of income tax
Total comprehensive income for 223 821 274 643 624 083
the period
Profit attributable to:
Equity holders of the parent 148 079 274 643 459 577
Non-controlling interest * * *
148 079 274 643 459 577
Total comprehensive income
attributable to:
Equity holders of the parent 223 821 274 643 624 083
Non-controlling interest - - -
Total comprehensive income for 223 821 274 643 624 083
the period
(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
comparative period to R578 million from R566 million as previously
disclosed and related to Other expenses. 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 251 786 251 786 251 786
beginning of the period
Total shares in issue at end 251 786 251 786 251 786
of the period
Effect of own shares held (52 000) (52 000) (52 000)
Weighted average number of 199 786 199 786 199 786
ordinary shares at end of the
period(2)
Earnings per share (IFRS)
(cents)
Basic earnings per share 74,12 137,47 230,03
Diluted earnings per share 72,15 137,02 227,58
Headline earnings per share 76,04 139,22 203,82
Diluted headline earnings per 74,15 138,76 201,42
share
(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
Group and are therefore excluded from the calculation of the shares
outstanding for IFRS purposes.
Normalised earnings per share
(cents)
Normalised earnings per 58,81 109,08 182,53
share(3)
Normalised headline earnings 60,34 110,47 161,73
per share(3)
(3)Normalised EPS and HEPS are based on the total weighted average number
of shares outstanding during the period 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.
*Nominal amount.
Reconciliation of headline earnings
Reviewed Reviewed Audited
31 Dec 31 Dec 30 June
2011 2010 2011
for the period ended R`000 R`000 R`000
Profit attributable to equity holders 148 079 274 643 459 577
of the Company
Adjust for:
Loss on disposal of plant and equipment 5 336 4 854 16 178
Profit on disposal of platinum assets - - (74 435)
Tax effects of the above adjustments (1 494) (1 359) 5 891
151 921 278 138 407 211
Consolidated statement of financial position
Reviewed Reviewed Audited
31 Dec 31 Dec 30 June
2011 2010 2011
as at R`000 R`000 R`000
Assets
Property, plant and equipment 6 595 999 6 419 886 6 356 174
Intangible assets 887 754 919 721 879 671
Restricted rehabilitation investments 1 296 660 1 232 398 1 276 196
Available-for-sale financial assets 1 554 116 1 272 642 1 466 043
Deferred taxation 15 190 5 436 10 649
Non-current assets 10 349 719 9 850 083 9 988 734
Inventories 283 624 433 393 489 686
Trade and other receivables 457 578 234 393 343 108
Taxation 4 971 5 037 6 222
Cash and cash equivalents 458 363 377 748 566 501
Disposal group held for sale 67 972 45 534 67 891
Current assets 1 272 508 1 096 105 1 473 408
Total assets 11 622 227 10 946 188 11 462 142
Equity and liabilities
Equity
Share capital and premium 2 519 850 2 519 850 2 519 850
Available-for-sale fair value reserve 405 467 165 218 329 724
Share-based payment reserve 818 058 818 058 818 058
Treasury share reserve * * *
Retained earnings 3 256 145 2 983 069 3 168 003
Discount on acquisition of non- 56 045 56 045 56 045
controlling interest
Non-controlling interest * * *
Total equity attributable to equity 7 055 565 6 542 240 6 891 680
holders of the Company
Loans and borrowings 667 726 110 000 460 565
Finance lease liability 66 172 135 446 100 682
Share appreciation rights liability 17 975 14 834 15 979
Environmental liability provision 1 798 897 1 786 264 1 773 663
Post retirement medical benefit 1 716 1 941 1 716
Deferred taxation 1 294 847 1 306 552 1 332 501
Non-current liabilities 3 847 334 3 355 038 3 685 106
Loans and borrowings 1 808 352 023 187 700
Finance lease liability 69 020 99 183 85 364
Trade and other payables 621 268 533 016 609 970
Taxation 27 233 64 690 2 322
Current liabilities 717 328 1 048 911 885 356
Total equity and liabilities 11 622 227 10 946 188 11 462 142
*Nominal amount
Consolidated statement of cash flow
Reviewed Reviewed Audited
31 Dec 31 Dec 30 June
2011 2010 2011
for the period ended R`000 R`000 R`000
CASH FLOWS FROM OPERATING ACTIVITIES
EBIT 308 581 441 147 794 478
Share-based payment expense 1 996 2 450 3 595
Loss on sale of property, plant and 14 844 4 854 16 178
equipment
Depreciation and amortisation 335 520 314 130 667 965
Decrease in the post-retirement - - (225)
medical benefit
Decrease in provision for (48 284) (216 256) (287 062)
rehabilitation
Non-cash operating expense/(income) - (6 195) 5 139
Profit on disposal of platinum shares - - (74 435)
Change in working capital 103 560 (96 926) (184 979)
Cash generated by operations 716 217 443 205 940 653
Interest received 28 201 18 881 9 089
Interest paid (72 214) (42 047) (84 942)
Taxation paid (92 914) (43 712) (224 005)
Net cash flows from operating 579 290 376 277 640 795
activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and (592 080) (354 127) (681 431)
equipment
Proceeds from sale of property, plant 373 11 049 12 596
and equipment
Capitalised exploration costs (6 199) (2 205) (10 872)
Disposal of platinum assets - - 75 638
Long-term loan repaid - - 45 362
Net cash outflows from investing (597 906) (345 283) (558 707)
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings raised 114 595 50 000 -
Repayment of borrowings (93 326) (407 942) (171 700)
Finance lease liability repayment (50 854) (45 840) (94 423)
Dividend paid (59 937) - -
Net cash (outflows)/inflows from (89 522) (403 782) (266 123)
financing activities
Net (decrease)/increase in cash and (108 135) (372 788) (184 035)
cash equivalents
Cash and cash equivalents at the 566 501 750 336 750 536
beginning of the period
Cash and cash equivalents at the end 458 363 377 748 566 501
of the period
Operating segments
Group
At the previous reporting period, 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.
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. The
reported segment information for December 2011 has been restated accordingly as
required by IFRS 8.
Information about reportable segments (Reviewed)
Optimum Koorn- Coal
Coal fontein Explora-
31 Dec 2011 Mine Mines tion Total
Reviewed R`000 R`000 R`000 R`000
Revenue 1 981 667 1 056 574 - 3 038 241
Export revenue 1 689 389 936 361 - 2 625 750
Inland revenue 26 930 55 797 - 82 727
Eskom revenue 265 348 64 416 - 329 764
Mining and related 1 717 468 674 914 1 506 2 393 888
expenses
Mining costs 1 297 998 397 220 1 506 1 696 724
Logistics costs 281 480 135 244 - 416 724
Net stock movement 92 484 99 062 - 191 546
Other costs 45 506 43 388 - 88 894
Segment EBITDA 264 199 381 660 (1 506) 644 353
Other corporate costs 3 222
EBITDA 641 132
Capital expenditure 542 125 44 715 6 199 593 038
Reportable segment assets 6 538 070 1 829 908 959 242 9 310 709
Other corporate assets 3 651 719
Elimination of inter- (1 356 712)
segment assets
Consolidated total assets 11 622 227
Reportable segment 4 682 462 555 719 122 710 5 360 891
liabilities
Other corporate 389 571
liabilities
Elimination of inter- (1 183 798)
segment liabilities
Consolidated total 4 566 662
liabilities
31 Dec 2010 Reviewed
Revenue 2 042 914 648 303 - 2 691 217
Export revenue 1 764 222 578 443 - 2 342 664
Inland revenue 15 703 9 062 - 24 765
Eskom revenue 262 989 60 798 - 323 787
Mining and related 1 714 039 395 675 - 2 109 714
expenses
Mining costs 1 364 392 335 677 - 1 700 069
Logistics costs 279 540 86 840 - 366 389
Net Stock movement (14 725) (26 852) - (41 596)
Other costs 84 832 - - 84 832
Segment EBITDA 328 875 252 628 - 581 503
Other corporate costs 3 726
EBITDA 577 777
Capital expenditure 264 194 89 933 2 205 356 332
Reportable segment assets 7 860 764 1 131 440 953 043 9 945 247
Other corporate assets 3 382 311
Elimination of inter- (2 381 370)
segment assets
Consolidated total assets 10 946 188
Reportable segment 4 939 650 554 388 121 210 5 615 248
liabilities
Other corporate 1 170 071
liabilities
Elimination of inter- 2 381 370
segment liabilities
Consolidated total 4 403 948
liabilities
Consolidated statement of changes in equity
Available- Share
Share Share for-sale based
capital premium fair value payment
reserve reserve
for the period ended
(R`000)
Balance at beginning of 1 2 519 849 329 724 818 058
period
Total comprehensive income - - 75 743 -
for the period
Profit for the period
Net change in fair value 75 743
of available-for-sale
financial assets
1 2 519 849 405 467 818 058
Transactions with owners,
recorded directly in
equity
Dividends declared
Balance at end of period 1 2 519 849 405 467 818 058
*Nominal amount
Consolidated statement of changes in equity (continued)
Discount on
acquisition
Treasury of non-
share Retained controlling
reserve earnings interest Total
for the period ended
(R`000)
Balance at beginning of * 3 168 003 56 045 6 891 680
period
Total comprehensive income - 148 079 - 223 822
for the period
Profit for the period 148 079 148 079
Net change in fair value 75 743
of available-for-sale
financial assets
* 3 316 082 56 045 7 115 502
Transactions with owners,
recorded directly in
equity
Dividends declared (59 937) (59 937)
Balance at end of period * 3 256 145 56 045 7 055 565
*Nominal amount
Consolidated statement of changes in equity (continued)
Reviewed
Non- Total
controlling equity Reviewed Audited
interest 31 Dec 31 Dec 30 June
for the period ended 2011 2010 2011
(R`000)
Balance at beginning of * 6 891 680 6 267 597 6 267 597
period
Total comprehensive income * 223 822 274 643 624 083
for the period
Profit for the period * 148 079 274 643 459 577
Net change in fair value 75 743 - 164 506
of available-for-sale
financial assets
* 7 115 502 6 542 240 6 891 680
Transactions with owners,
recorded directly in
equity
Dividends declared (59 937)
Balance at end of period * 7 055 565 6 542 240 6 891 680
*Nominal amount
Commentary
CEO comments
"Our overall results for the period have been somewhat disappointing on the back
of production challenges at Optimum Collieries which adversely affected
attributable ROM tonnage performance, export sales volumes and consequent
earnings. Optimum Collieries experienced 3 separate industrial action events
during the period which materially affected production and tonnage cost
performance. Additionally, 2 large draglines were relocated to the Kwagga North
section impacting on available digging capacity in our opencast sections. Kwagga
North now has 3 large draglines in operation and coal is being transported
across the newly constructed overland conveyor which has been successfully
commissioned. Koornfontein Mines achieved a record EBITDA contribution of R382
million during the period and continues to produce at targeted production rates.
The TNC acquisition is expected to be concluded shortly. It will ensure that
Koornfontein Mines returns to being a long life, high quality export coal
operation.
Our safety performance continues to improve and we remain well ahead of
comparable coal industry safety rates. TFR`s general railings performance to
RBCT during the period improved substantially when compared to prior periods.
This is extremely encouraging from a coal export and project development
perspective. Eskom coal demand requirements remain an important and compelling
opportunity for local coal suppliers like ourselves."
Group financial highlights
During the first six months of FY2012 ("the reporting period") we produced 5,921
million tons of saleable coal, generated revenue of R3,04 billion, EBITDA of
R641 million and attributable earnings of R148 million, compared to the six-
month period to 31 December 2010 ("the corresponding period") during which we
produced 7,033 million tons of saleable coal, generated revenue of R2,69
billion, EBITDA of R578 million and attributable earnings of R275 million.
During the reporting period, our EBITDA increased by R63 million from R578
million to R641 million primarily as a result of a 21% increase in the net
received Rand export coal price when compared to the corresponding period. This
was achieved despite a 9% decrease in coal sales volumes. We have generated R716
million in operating cash during the reporting period, an increase of 62% on the
R443 million generated in the corresponding period.
For the reporting period, our EPS and HEPS, for IFRS purposes, have decreased by
46% and 45% to 74,12 cps and 76,04 cps respectively, from 137,47 cps and 139,22
cps in the corresponding period.
From a commercial point of view, we feel that it is useful and appropriate to
disclose normalised EPS and HEPS. Normalised EPS and HEPS are calculated using
IFRS earnings, however 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 for the reporting period have decreased by 46% and 45%
to 58,81 cps and 60,34 cps respectively, from 109,08 cps and 110,47 cps in the
corresponding period.
For the reporting period, attributable profit of R148 million includes a
non-cash cost of R25 million relating to a net increase in the Group`s
environmental liability during the reporting period. This comprised a reduction
in the overall environmental liability estimate of R48 million, increased
by a R73 million non-cash finance charge relating to the unwinding of the
environmental liability discount as required by IFRS. In the corresponding
period, attributable profit generated of R275 million included a non-cash
income of R110 million relating to a net reduction in the Group`s environmental
liability during the this period. This comprised a reduction in the
environmental liability estimate of R192 million due to the successful
construction and commissioning of a water treatment plant, reduced by a R82
million non-cash finance charge relating to the unwinding of the liability
discount. These non-cash adjustments have materially impacted attributable
earnings over the reporting and corresponding periods. If ignored as
non-cash items for the calculation of attributable earnings, the revised
attributable earnings for the reporting period would have been R173 million
(versus R148 million as disclosed for IFRS purposes) and R165 million for
the corresponding period (versus R275 million disclosed for IFRS purposes).
Our statement of financial position remains strong, with low gearing at 9.5% and
net debt at R211 million as at 31 December 2011.
Strategic review and objectives
Our vision to become the country`s benchmark South African black owned and
controlled coal mining and exploration group remains core to our overall
strategy. Delivering this strategy requires the successful implementation of
three strategic objectives. Firstly, improving operational stability and
efficiencies, secondly, optimising our coal portfolio to deliver responsible
growth and thirdly, leveraging our position as a leading BEE coal company.
Improving operational stability and efficiencies requires that we deliver
increasing tonnages in a safe manner at competitive unit costs. Various
industrial action and production challenges at Optimum Collieries have precluded
us from achieving this during the reporting period, however we remain confident
with the ramp up of the Kwagga North opencast section, that life of mine unit
costs will benefit from lower strip ratio mining conditions and from large
dragline and overland infrastructure efficiencies.
From a growth perspective, our focus remains to, wherever possible, optimize
our portfolio by leveraging brown-fields synergies to secure the benefit of
capital effective, incremental growth at attractive margin. The acquisition of
the TNC Prospecting Rights is aligned with this strategy and will ensure that
Koornfontein returns to again being a long-life, high quality export coal
operation. We also have an exciting green-fields project pipeline with further
technical and feasibility work having been performed on the Vlakfontein and
Overvaal resources. Once concluded, the Remhoogte acquisition will further
bolster our growth optionality with another long-life, high quality export
coal resource.
From a BEE perspective, we remain majority black-owned and controlled 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 broad-based BEE equity participation
remains unique across the South African coal sector.
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.
Optimum Coal, through its controlled subsidiaries Optimum Coal Terminal (Pty)
Ltd ("OCT") and Koornfontein Mines ("Ktn"), owns 6.5Mtpa and 1.5Mtpa of original
shareholder entitlement respectively. This original entitlement enables the
owner to export coal beneficially for its own account.
Optimum Coal, through the same subsidiaries, also owns 361ktpa (OCT) and 83ktpa
(Ktn) in the Quattro program. The Quattro program essentially comprises 4Mtpa of
original shareholder entitlement which has been made available to junior BEE
coal exporters on a 3 year rolling basis to enable them to export coal. The
shares in Quattro are therefore owned but are not available for own use.
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 overall railings performance to
RBCT during the reporting period has materially improved on the back of
locomotive and rolling stock upgrades and replacements as well as various
successful efficiency initiatives. This is extremely encouraging and, we hope,
sustainable. Our on-mine export stocks have reduced substantially during the
reporting period from 503kt as at 30 June 2011, to 105kt at 31 December 2011.
This reflects both excellent overall railings performance and low export
saleable production, primarily from Optimum Collieries. Long term rail
contracts remain subject to negotiation and finalisation. We expect that these
contracts will still take some time to conclude.
Safety
Zero Harm to our employees, contractors and stakeholders remains a key priority
across all aspects of our business. We are proud to report a further 36%
decrease in LTIFR to 0,84 from 1,31 achieved in the previous financial year,
and a decrease of 5% in TRIFR from 3,19 to 3,01 achieved in the previous
financial year. Both these rates remain well below industry benchmarks.
These rates are calculated per million manhours worked
Operational review
Optimum Coal is a diversified coal operator of significant scale with
two wholly-owned operations, Optimum Collieries and Koornfontein Mines,
both located in the Mpumalanga area of South Africa.
Optimum Collieries
Optimum Collieries performed disappointingly during the reporting period
producing 4,4mt of saleable coal including 2,0mt of exportable product,
versus 5,4mt of saleable coal and 2,6mt of exportable product produced in
the corresponding period.
Production was principally affected by three separate industrial action
incidents during the reporting period which resulted in production being
adversely affected in various mining sections over an aggregate 64 day period.
This was extremely disappointing and has further adversely impacted the tonnage
costs at Optimum Collieries during the reporting period. All industrial action
has been resolved and we do not expect any further similar impacts in H2,
FY2012. Additionally, The Marion 2 and Marion 3 large draglines were relocated
to the Kwagga North opencast section which resulted in a reduction of digging
capacity over the 29 day and 14 day respective walking periods. These draglines
are now fully operational in the Kwagga North section.
The Eikeboom opencast and Boschmanspoort underground sections are consistently
producing ROM coal at expected target run rates. The Pullenshope opencast
section is getting substantially deeper so digging capacity has been relocated
to the Kwagga North section and planning for the Pullenshope underground section
is advancing well. First underground coal from Pullenshope is expected in
early calendar 2013.
The Kwagga North opencast extension project is the key life of mine extension
project at Optimum Collieries and will provide over 50% of the overall ROM coal
for the remaining life of mine. Three large draglines are currently exposing
coal in this opencast section and the overland conveyor infrastructure has been
successfully commissioned. Key management focus is on ensuring that best
effective mining methodology is applied in this section as Kwagga North is a key
driver of overall mine productivity and cost effectiveness.
During the reporting period under review adverse production performance has
caused Optimum Collieries` cost per saleable ton to increase by 25% in real
terms, to R328,75 from R246,41 in the corresponding period. During the period
under review, capital expenditure of R542 million was spent at Optimum
Collieries comprising R417 million development capital and R125 million
sustaining capital.
Railings to RBCT totaling 2,16mt were 19% lower than the 2,66mt railed in the
corresponding period. RBCT railings were lower than targeted primarily due to a
shortage of exportable production during the reporting period. At 31 December
2011, 27kt 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 31 December 2011, we had completed all delivery obligations under this
fixed price contract and with effect from January 2012, we again have
full exposure to the risks and rewards associated with movements in the
API 4 $ coal price.
Koornfontein Mines
Koornfontein Mines achieved all requisite targets during the reporting period,
producing 1,5mt of saleable coal including 0,9mt of exportable product,
versus 1,6mt of saleable coal and 1mt of exportable product produced in the
corresponding period. The Gloria 2 seam currently being mined is washed for
both a primary export and a middlings product. Exportable product is currently
marketed by Mercuria Energy to international thermal coal markets and to high
quality domestic users, whilst the middlings product is 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 purchase price for the TNC
Prospecting Rights is payable in cash to the seller, Umcebo Mining (Pty) Ltd,
upon completion of the transaction. Suspensive conditions in respect of
the transaction were fulfilled during January 2012, and we currently await
confirmation of registration of the deed of cession at the Mineral and
Petroleum Titles Registration Office whereupon the purchase consideration will
be settled in cash. This is expected to occur before March 2012. 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.
Feasibility work continues on the Koornfontein 4 seam brown-fields project, and
preliminary discussions have commenced with Eskom in respect of a potential
medium to long-term off-take. 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 reporting period under review, Koornfontein Mines` cost per saleable
ton increased by 16% in real terms to R256,28 from R206,71 during the
corresponding period. The increase in cost per saleable ton achieved arises
primarily from the decision to mine several areas outside the budget plan due to
excellent export prices during the reporting period and to avoid sterilising
export quality resource. Mining cost to access some of these areas was higher
than anticipated due to dykes and geological issues, and as a result, primarily
export yield of 55% was 7% lower than the 62% achieved in the comparable period.
We are confident that we will be able to improve the export yield by year end,
with consequent cost benefit, as we expect to mine better ground in the coming
six months in line with our original planning. Capital expenditure of R45
million was spent at Koornfontein Mines comprising R17 million development
capital and R28 million sustaining capital.
Railings to RBCT during the period were 1,02mt, versus 0,9mt railed in
the corresponding period. On 31 December 2011, 78kt 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. R1,3
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 increased by
R25 million to R1,80 billion from R1,77 billion as at the end of the 30 June
2011. The net R25 million increase in environmental liability is shown through
the statement of comprehensive income as the net of a R48 million environmental
liability reduction, increased by a R73 million unwinding of the discount
associated with the present valuation of the liability. The net movement in
environmental provision balance had an adverse effect of R25 million on the
attributable profit for the period ended 31 December 2011 comparing to a
positive effect of R110 million on the attributable profit for the period ended
31 December 2010.
Green-fields growth projects
During the reporting period, R6,2 million was spent on the Group`s
green-fields exploration projects. Feasibility and technical work continues on
the Vlakfontein and Overvaal resources. Mining licences have been applied
for in respect of both projects and we await the award thereof from the DMR.
Additionally, feasibility work has commenced on the Remhoogte resource although
the acquisition thereof has not yet finally concluded. Once developed,
Remhoogte is expected to be a large scale, underground mine producing 4 mt
run-of-mine product including 2,5mtpa high quality exports and 500kt middlings
product over a 16 year life of mine period. 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.
Our development objective to deliver incremental coal volume growth to both
export and the local markets in a capital and margin efficient manner remains
critical to overall Group strategy. 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. Suspensive conditions in respect of the
transaction were fulfilled during January 2012, and we currently await
confirmation of registration (from the Mineral and Petroleum Titles Registration
Office) of the deed of cession in respect of the sale of the TNC prospecting
rights whereupon the purchase consideration will be settled in cash. This is
expected to occur before March 2012.
During August 2011, Optimum Coal signed an agreement with BHP Billiton Energy
Coal South Africa to acquire two prospecting rights ("the Remhoogte Prospecting
Rights") for a cash consideration of R235 million. This agreement remains
subject to various outstanding conditions. The effective date of the transaction
will be upon the fulfilment of these conditions precedent.
Disposals
On 2 September 2011, Optimum Coal signed a sale of shares agreement with a third
party to sell a 51% interest in Optimum Mpefu Mining and Exploration (Pty) Ltd,
the 100% owner of the Mpefu project, for an amount of US$5 million. The
remaining 49% interest is subject to put and call option arrangements amongst
the parties for a further amount of US$5 million. The sale agreement remains
conditional as at 31 December 2011, and accordingly, the Mpefu interest
continues to be capitalised as a disposal group held for sale under current
assets on the statement of financial position.
Debt
During November 2011, the Group entered into a five year, R2,2 billion revolving
credit facility with a consortium of lenders comprising Rand Merchant Bank,
Standard Chartered Bank and Investec Bank Limited. As at 31 December 2011, the
Group was R670 million drawn on this debt facility.
Mineral resources and reserves
There have been no material changes to the coal reserves as disclosed in the
2011 Integrated Report.
Outlook
Thermal coal prices have recently softened to approximately $105/t out of RBCT
on the back of ongoing European recession although likely inventory re-stocking
is expected to be supportive for near term API 4 pricing. With Lunar New Year
approaching at the end of January 2012, buying interest is expected to be
somewhat muted although medium to long-term pricing will continue to depend on
economic growth developments in critical locations notably, India, China, Korea
as well as the European Union. Coal production forecasts have widely been
revised in Australia and Indonesia which will have the impact of reducing any
current oversupply. Heavy rain currently being experienced in Colombia will
further alleviate market over supply and is likely to be price supportive.
Generally inventory levels at ports has been declining suggesting the re-
stocking may have commenced, supportive for near term pricing. The API 4 $ coal
curve remains in medium to long-term contango indicating that projected seaborne
thermal coal import demand remains likely to exceed seaborne thermal coal
supply.
TFR`s rail performance to RBCT continues to demonstrate sustainable improvement
with TFR having railed an annualised =70mt over the last five months of the
calendar 2011 year. This together with the recent announcement that TFR will
further divert general freight from the RBCT line by upgrading a 146km line
section through Swaziland, is positive for the further improvement of coal
delivery tempo`s on the RBCT line. These initiatives bode well from an export
coal industry perspective and are expected to narrow the gap between RBCT
railings and nameplate exportable capacity of 91mtpa out of RBCT.
Locally, Eskom`s return-to-service programme, in addition to its capital growth
projects, continues to bode well for domestic coal suppliers, especially
empowered miners who are located close to Eskom power stations and have coal of
the requisite qualities. The country`s current power generating capacity of 40
000MW is planned to increase to 80 000 MW by 2025, and this fact alone is
expected to maintain an increasing demand for coal from local suppliers.
While there has been growing attention on 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 continue to remain the fulcrum of 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.
After a challenging and disappointing first half, production and unit cost
performance at Optimum Collieries is expected to improve in H2, FY2012 now that
the various industrial actions have been resolved, the Kwagga North section is
being mined with three large draglines and that coal is being conveyed across
the new overland infrastructure. Strategically, Optimum Collieries is coming to
the end of a R2 billion-life-of-mine recapitalisation program which has seen the
successful development of the Boschmanspoort underground section, a 15ML/day
water treatment plant and the commencement of the Kwagga North section.
Boschmanspoort is now fully operational and is delivering production at expected
run rates, whilst Kwagga North continues to ramp up as additional opencast
equipment is relocated into the reserve to exploit lower strip ratio areas. As a
result of the production challenges experienced in H1, FY2012 we have revised
downwards our guidance for export saleable production guidance from Optimum
Collieries to 4,6mt - 4,8mt for the 12 months to June 2012. Furthermore, the
fixed price contract for 1,02mt of Optimum Collieries export production during
calendar 2011 is now completed and the operation once again has full exposure to
the risks and rewards associated with market movements in the API4 $ coal price.
Koornfontein Mines is expected to continue to deliver production targets and our
production guidance remains 1,7mt of exportable product for the 12 months to
June 2012.
Potential change in control
We refer you to the joint cautionary announcement released on 16 November 2011
("Joint Cautionary Announcement"), in terms of which shareholders of Optimum
Coal ("Optimum") were advised that a consortium ("Consortium") comprising Piruto
B.V. ("Glencore"), a wholly-owned subsidiary of Glencore International AG, and
Lexshell 849 Investments (Proprietary) Limited, a company wholly-owned by Mr
Cyril Ramaphosa ("Lexshell"), had submitted a letter to the Board of Directors
of Optimum ("Board") reconfirming its interest to acquire, directly and
indirectly, the entire issued ordinary share capital of Optimum other than the
shares of certain shareholders that are restricted from selling ("Proposed
Transaction").
The Consortium has advised that, in aggregate, including both the BEE and the
non BEE shareholder transactions entered into, that it has directly and
indirectly acquired, or has entered into conditional agreements to acquire, a
total effective interest of 67,77% in the issued share capital of Optimum.
Various acquisition agreements remain conditional on the approval of the
Competition Authorities.
If the Competition Authorities approve of the various transactions with certain
shareholders, it will result in the Consortium acquiring more than 35% of the
issued share capital of Optimum. The Consortium has confirmed to Optimum that it
will, in compliance with its obligations under the Companies Act 71 of 2008, as
amended, ("Companies Act") and the Takeover Regulations, make a mandatory offer
("Mandatory Offer") to the remaining shareholders of Optimum to acquire their
shares in Optimum at not less than R38 per Optimum share. The Consortium
believes that it will preferable for the Consortium to proceed with the
Mandatory Offer as opposed to the General Offer, because the Mandatory Offer
will be unconditional and capable of immediate implementation once accepted by
an Optimum shareholder.
The Consortium has indicated that it is not able to anticipate when the approval
of the Competition Authorities will be obtained, but it does not expect that it
will be before the first quarter of 2012. The Consortium will, however,
endeavour to be in a position to make the Mandatory Offer as soon as possible
after receipt of such approval, and, in any event, within the time period set
out in the Companies Act and the Takeover Regulations. As soon as the necessary
approval is obtained and the various transactions are implemented, an
announcement will be released to shareholders regarding the Mandatory Offer,
which will include salient dates and times for the Mandatory Offer. A circular
will thereafter be dispatched to Optimum shareholders advising them of the full
terms of the Mandatory Offer, which circular will include the views of the Board
on the Mandatory Offer.
In preparation for a potential change in control, the Board has appointed a sub-
committee comprising independent and un-conflicted Board members as well as
various advisors, to address matters relating to the Proposed Transaction. This
sub-committee is chaired by Mr. Bobby Godsell.
Dividend
A special dividend of 30cps was declared subsequent to the 30 June 2011
financial year and was paid to shareholders on Monday, 31 October 2011. No
further dividend has been declared by the Board in respect of the reporting
period ended 31 December 2011.
Preparation
These condensed consolidated interim financial statements have been prepared by
Johan Ferreira, Group Financial Accountant, under the supervision of Douglas
Gain, Financial Director.
Basis of presentation
These condensed consolidated interim financial statements are prepared and
presented in accordance with International Financial Reporting Standards which
include the recognition, measurement and disclosure requirements of IAS34
Interim Reporting and the AC 500 series issued by the Accounting Practices Board
("APB") and the requirements of the Companies Act of South Africa.
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 2011.
Review opinion
These condensed consolidated interim financial statements have been reviewed by
the Company`s auditors, KPMG Inc. Their unqualified 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
9 February 2012
Illovo Boulevard North Piazza, 36 Fricker Road, Illovo, 2196, Johannesburg
PO Box 411333, Craighall, 2024
Tel: +27 (0) 11 447 3858 Fax: +27 (0) 11 447 3894
Directors:
Non-Executive Independent Chairman: Mr Bobby Godsell
Non-Executive Independent Deputy Chairman: Paul Nkuna
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
Company Secretary: Anlia Swart
Sponsor: RAND MERCHANT BANK (a division of FirstRand Bank Limited)
www.optimumcoal.com
Date: 09/02/2012 08:00:01 Produced by the JSE SENS Department.
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