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Palabora Mining - Interim Report For The Six Months Ended 30 June 2003
Release Date: 31/07/2003 10:58:21 Code(s): PAM
Palabora Mining - Interim Report For The Six Months Ended 30 June 2003
Palabora Mining
Company Limited and its Subsidiaries
(Incorporated in the Republic of South Africa)
(Reg. No. 1956/002134/06)
JSE Code: PAM
ISIN: ZAE 000005243)
INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 2003
COMMENTARY
The board of directors is pleased to announce the appointment of Rufus Maruma as
Chairman of Palabora Mining Company with immediate effect. Mr Maruma has been an
independent non-executive director since April 1999. He is a leading
environmental and waste management expert and is chairman and a director of a
number of other companies.
The first half of 2003 has seen a continuation of the transition from an open
pit to an underground mining operation. Production rates from the underground
mine have increased as a result of a number of initiatives undertaken during the
period. It is anticipated that the target of 30 000 tons of ore per day ("tpd")
will be achieved before the end of 2003. Production of refined copper was
supplemented by the ongoing ramp scavenging operation in the open pit and
imported copper concentrate.
Demand for vermiculite was constrained in the United States and efforts were
made to develop new markets.
The board of directors has approved a refinancing programme for Palabora that
will provide a more stable financial platform during this period of change.
Palabora will raise approximately R849 million (before expenses) by issuing
floating rate partially subordinated unsecured redeemable convertible debentures
by way of a rights issue to shareholders. Subject to certain approvals, the
refinancing will be underwritten by Rio Tinto and Anglo American. It is
anticipated that this programme will be completed before the end of the third
quarter. Full details were provided in a press release issued on 29 July 2003.
Seven lost time injuries were reported during the first half of 2003, an
improvement on the 11 lost time injuries reported in the first half of 2002.
This reflects the commitment of all employees to the elimination of all
injuries.
Group financial results
Group profit for the first half of 2003 was R40 million, R126 million below the
R166 million achieved in the first half of 2002 and R51 million below the R91
million profit in the second half of 2002.
The Rand copper price achieved for the first half of 2002 was R14 366/ton
against R18 187/ton for the equivalent period in 2002 although copper prices
strengthened in US dollar terms.
Sales volumes of copper were 39 400 tonnes in the first half of 2003, 8,5% below
the total copper sales volume of 43 100 in the first six months of last year.
Copper sales were limited by reduced production. Vermiculite sales were 92 000
tonnes in the first half, slightly higher than the comparative period. Overall,
lower sales volumes reduced profit by R8 million compared to the same period in
2002. The strengthening of the Rand, from R11,0/US$ in the first half of 2002 to
R8,1/$ in the comparable period of 2003, has resulted in a R136 million decrease
in profit for the period.
Total group operating expenditure decreased by R51 million, from R719 million in
the first six months of 2002 to R668 million this year. This reduction is in
part due to reduced sales volumes. Underlying cost savings of approximately R46
million were achieved against the comparative period.
Net interest expense increased due to the increased net debt of the Group.
Earnings will be adversely impacted in the second half of 2003 and in future as
a result of the commencement of depreciation of the underground capital costs,
the cessation of capitalisation of interest once the underground mine reaches
commercial levels of production and the current strength of the Rand.
Cash flow
Despite the strengthening of the Rand and low sales volumes, Palabora achieved a
net cash inflow from operating activities of R84 million.
Palabora commenced repayment of its medium term loan facility in June 2003 when
the first repayment of US$15 million and R47 million was made, a total repayment
of R168 million. This and other expenditure was funded by drawdowns on the Rio
Tinto loan facility of $40 million (R310 million) during the period.
Balance sheet
Net debt increased by R82 million to R1 517 million during the six month period.
This was due to ongoing capital expenditure on the underground project exceeding
operating cash income, partly offset by a reduction in the Rand equivalent of
US$ debt due to the strengthening of the Rand. Expenditure on the underground
project will be largely completed by the end of 2003.
The ratio of current assets to current liabilities decreased to 0,46 at 30 June
2003. This will improve significantly as a consequence of the proposed
refinancing.
Copper operations
The underground mine made progress towards the full production target of 30 000
tpd. In February 2003, the underground operations team identified a number of
phases of work required to achieve 30 000 tpd. These included increasing the
secondary breaking fleet size, improving maintenance practices and improving
operating efficiencies. An integrated improvement action plan is currently being
implemented to achieve the targets identified.
Since the initiation of this integrated improvement action plan a number of
milestones have been achieved. These include a production record of 24 410 tons
in a single day and a monthly average production rate of 16 300 tpd in June.
Further work is ongoing in order to reach the target level of 30 000 tpd during
2003, once the mine is fully developed.
The development of the underground mine project is approaching completion. A
total of 109 993 square metres have been undercut to date. A total of 131
drawbells are now in production. The successful commissioning of the fourth
crusher took place during the period. Development of the final cross cuts has
been slowed somewhat due to ground conditions.
The ramp scavenging operation in the open pit has been a great success and has
been extended to October 2003. Production rates of 15 300 tpd were achieved on
average during the first half of 2003, providing a valuable supplement to
underground ore.
As a result of the delayed ramp up of the underground mine, production of copper
in concentrate was limited to 23 600 tons, a decrease of 18% compared with the
same period in 2002. Processing of smelter secondaries, low grade concentrate
stockpiles and imported concentrate continued to supplement supply to the
smelter. 13 000 tons of imported copper in concentrate were processed during the
period. Production of copper cathode decreased from 38 100 tons to 35 100 tons
in line with reduced supply of anode.
The weighted average unit cost of copper cathode delivered to customers was R12
306 per ton. This was 16% higher than the R10 613 achieved for the equivalent
period in 2002 but 15% lower than the average for the whole of 2002. These
changes reflect the increased cost of mining, due to closure of the open pit and
the high unit costs currently being incurred for ramp scavenging and underground
mining.
Industrial Minerals operations
Production of saleable vermiculite improved as a result of improved recovery in
the entire plant. Vermiculite operations are focussed on production in line with
market demand in order to minimise cost and maximise recovery of the most
profitable grades. Work continued to identify markets for ZBS and eliminate
impurities in the final product.
M R Maruma D S Sadler
Chairman Managing Director 31 July 2003
Directors:
M R Maruma (Chairman), J H K Sachikonye(3) (Deputy Chairman), D S Sadler(2)
(Managing Director), D A Farnaby, O L Groeneveld(2), M D Humphries, S Langa, G M
Negota, J E Rickus(1) (Alt. W R J Ranson(2)), J C M van Gaalen(4) (Alt: B K
Wood), R M Whyte(1) (Alt: F B Weldon), C N Zungu
(1) British (2) Australian (3) Zimbabwean (4) Dutch
Transfer Secretaries: Registered Office:
Computershare Limited 1 Copper Road
Ground Floor, 70 Marshall Street Phalaborwa
Johannesburg 2001 1389
Postal Address: Postal Address:
P O Box 1053 P O Box 65
Johannesburg 2000 Phalaborwa 1390
www.palabora.com
These results are also
available on our website at:
www.palabora.co.za
UNAUDITED GROUP RESULTS
Abridged income statement
Six months Six months Year
30.6.03 30.6.02 2002
R000 R000 R000
Revenue 823 169 1 088 140 2 122 307
Operating costs 668 012 718 961 1 586 598
Depreciation 40 294 93 730 133 187
Operating profit 114 863 275 449 401 522
Interest received - 992 5 495
Interest payable (36 786) (14 093) (31 283)
Foreign exchange gains/(losses) (14 894) (15 067) 27 306
Amortisation of discount (14 484) (8 076) (40 976)
related to provisions
Profit before taxation 48 699 239 205 362 064
Taxation 8 423 73 675 105 211
Current 8 888 7 001 25 010
Deferred tax (465) 66 674 80 201
Profit after taxation 40 276 165 530 256 853
Earnings per share 142c 585c 907c
Fully diluted earnings per 142c 585c 907c
share
Headline earnings per share (b) 71c 585c 839c
Notes:
1. Accounting principles
During the period, Palabora adopted the provisions of AC133, "Financial
Instruments: Recognition and Measurement". As a consequence, unlisted
investments are now stated in the balance sheet at fair market value. Unrealised
gains and losses are recognised through the statement of changes in equity. All
other accounting policies used in the preparation of the interim report are
consistent with those used in the audited financial statements for the year
ended 31 December 2002. The interim report has been prepared in accordance with
South African Statements of Generally Accepted Accounting Practice, including
accounting standard AC127, "Interim Reports".
2. Net debt (R000) 30.06.03 31.12.02
Current portion of long term loan 319 605 355 450
Non-current portion of long term loan 491 950 726 881
Total long term loan 811 555 1 082 331
Short term loan - Rio Tinto Finance plc 297 440 -
Bank overdrafts 436 880 391 816
Cash and cash equivalents (28 880) (39 019)
Net debt 1 516 995 1 435 128
In 2001 the company arranged an unsecured long term loan with a group of
domestic and international banks. The facility consisted of a US$90 million
tranche and a Rand tranche of R283 million. The loan is repayable in six equal
half yearly instalments of US$15 million and R47 million. The first repayment
was made in June 2003. The interest rate is Libor/Jibor plus 1,5%. During the
first half of 2003, Rio Tinto, the company"s major shareholder, agreed to
provide a short term facility of up to US$50 million at an interest rate of
Libor plus 5%. US$40 million had been drawn at 30 June 2003. This loan will be
repaid from the proceeds of the rights offer of debentures.
3. Holding company
The immediate holding company is Palabora Holdings Limited. The ultimate holding
company is Rio Tinto plc which is incorporated in the United Kingdom.
Summarised cash flow
Six months Six months Year
30.6.03 30.6.02 2002
R000 R000 R000
Cash flow from operating 84 484 389 452 588 917
activities
Cash flow from investing (281 733) (353 611) (741 996)
activities
Replacement of mining assets (63 601) (62 824) (195 323)
Development expenditure (219 375) (291 993) (570 075)
Other investing activities 1 243 1 206 23 402
Cash flow from financing 142 046 1 373 18
activities
Long and short term loans 310 396 - 18
raised
Long and short term loans (168 350) - -
repaid
Other financing activities - 1 373 -
Net (increase)/decrease in net (55 203) 37 214 (153 061)
overdrafts
Net overdrafts at beginning of (352 797) (199 736) (199 736)
period
Net overdrafts at end of period (408 000) (162 522) (352 797)
Statement of changes in equity for the six months ended 30 June 2003
Share
Capital & Other Distributable
Premium Reserves Reserves Total
R000 R000 R000 R000
Balance 1 January 28 891 134 244 1 846 053 2 009 188
2003
Currency - (15 473) - (15 473)
translation
difference
Net profit for the - - 40 276 40 276
period
Revaluation of - 40 251 - 40 251
investments
Other movements - 169 - 169
Balance 30 June 28 891 159 191 1 886 329 2 074 411
2003
Statement of
changes in equity
for the six months
ended 30 June 2002
Balance 1 January 28 891 174 642 1 589 200 1 792 733
2002
Currency - (19 321) - (19 321)
translation
difference
Net profit for the - - 165 530 165 530
period
Revaluation of - - - -
investments
Other movements - - - -
Balance 30 June 28 891 155 321 1 754 730 1 938 942
2002
Balance sheet as at
30.6.03 31.12.02
R000 R000
Employment of capital
Current assets:
Stores 53 813 47 737
Product inventories 271 072 254 607
Accounts receivable 278 432 282 456
Taxation 17 3 030
Cash & cash equivalents 28 880 39 019
632 214 626 849
Mining assets 4 444 108 4 284 701
Deferred expenditure - -
Investments - (unlisted) 95 222 54 971
Total assets 5 171 544 4 966 521
Liabilities and shareholders" equity
Current liabilities:
Accounts payable 275 961 217 900
Provisions 24 077 39 227
Current portion of long-term loans 319 605 355 450
Taxation 6 018 7 403
Group companies - related parties 16 352 8 214
Short term loan - Rio Tinto Finance plc 297 440 -
Bank overdraft 436 880 391 816
1 376 333 1 020 010
Provision for close-down and restoration 199 632 185 147
costs
Provision for post-retirement medical 165 952 159 760
benefits
Deferred taxation 863 266 865 535
Long-term loans 491 950 726 881
Total liabilities 3 097 133 2 957 333
Total shareholders" equity 2 074 411 2 009 188
Total equity and liabilities 5 171 544 4 966 521
Selected statistics
Six months Six months Year
All tons are metric tons 30.6.03 30.6.02 2002
Production and sales
Ore mined (millions of tons) 3,1 3,4 6,7
- Surface
- Underground 2,3 1,2 3,3
Copper in concentrate produced 23,6 28,8 52,2
(thousands of tons)
Cathode produced (thousands of 35,1 38,1 81,6
tons)
Cathode sold (thousands of tons) 39,4 42,0 83,4
Contained copper sold (thousands 39,4 43,1 84,3
of tons)
Vermiculite sold (thousands of 92 90 190
tons)
ZBS sold (thousands of tons) 0,6 0,8 1,1
Average copper price realised 81,0 75,0 74,7
(US/1b)
Average rand/dollar exchange rate 8,07 11,00 10,54
Average copper price realised per 14 366 18 187 17 355
ton (ZAR)
Cash Cost per ton - delivered 12 306 10 613 14 476
(ZAR)
Average vermiculite prices per ton 1 548 1 981 1 911
(ZAR)
Average ZBS prices realised per 10 078 7 263 10 104
ton (ZAR)
Capital expenditure
Capital expenditure (R million) 283 354 695
Approved expenditure at end of 323 694 381
each period (R million)
Contracts placed at end of each 235 397 293
period (R million)
Interest capitalised (R million) 33,7 33,0 70,8
Exchange gain capitalised (R 116 162 302
million)
Investments
Fair value of unlisted investments 95 222 81 923 96 140
(R thousands)
Share capital (a)
Ordinary shares of R1 each 28 500 28 500 28 500
(thousands) - Authorised
Ordinary shares of R1 each 28 316 28 316 28 316
(thousands) - Issued
Dividends paid (R thousands) - - -
Net asset value per share R73,26 R68,47 R70,96
(a) The directors are authorised to issue unissued shares until the next annual
general meeting. On 16 July 2003 shareholders approved a special resolution to
increase the authorised share capital of the company to 100 000 000 ordinary
shares of R1 each and an ordinary resolution placing the newly issued shares
under the control of the directors.
(b) The calculation of headline earnings per share is derived from consolidated
net profit after taxation of R40,3 million adjusted for any non-operational
losses or gains, divided by the number of shares in issue. 2003 half year
earnings have been adjusted for the post tax impact of profit on disposal of
fixed assets (R0,7 million) and the release of certain provisions (R19,4
million). Headline earnings for the six months ended 30 June 2003 are R20,1
million.
SEGMENTAL REPORTING
Copper Industrial
Minerals
R000 R000
30.6.03 30.6.02 30.6.03 30.6.02
Profit and Loss
Revenues 567 150 774 509 203 398 250 726
Cost and expenses 519 065 575 168 167 344 218 126
Operating profit 48 085 199 341 36 054 32 600
Finance cost
Profit before tax
Taxation
Net income for the six months
Other Total
R000 R000
30.6.03 30.6.02 30.6.03 30.6.02
Profit and Loss
Revenues 52 621 62 905 823 169 1 088 140
Cost and expenses 21 897 19 397 708 306 812 691
Operating profit 30 724 43 508 114 863 275 449
Finance cost 66 164 36 244
Profit before tax 48 699 239 205
Taxation 8 423 73 675
Net income for the six months 40 276 165 530
The segmental split on a geographical basis is based on the country in which the
order is received.
South Africa America
R000 R000
30.6.03 30.6.02 30.6.03 30.6.02
Profit and Loss
Revenues 642 154 850 674 96 430 126 720
Cost and expenses 627 193 641 321 88 887 118 148
Operating profit before tax 14 961 209 353 7 543 8 572
Taxation (2 278) 63 675 2 898 3 262
Net income for the six months 17 239 145 6798 4 645 5 310
United Kingdom Total
R000 R000
30.6.03 30.6.02 30.6.03 30.6.02
Profit and Loss
Revenues 84 585 110 746 823 169 1 088 140
Cost and expenses 58 390 89 466 774 470 848 935
Operating profit before tax 26 195 21 280 48 699 239 205
Taxation 7 804 6 738 8 423 73 675
Net income for the six months 18 391 14 542 40 276 165 530
Date: 31/07/2003 10:58:38 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
