| Thu 29 Jul 2004, 9:39 | | UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED |
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PALABORA - UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2004
PALABORA MINING COMPANY LIMITED AND ITS SUBSIDIARIES
(Incorporated in the Republic of South Africa)
(Reg. No. 1956/002134/06)
JSE Code: PAM ISIN: ZAE000005245
(`Group` or `Palabora` or `the Company`)
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2004
COMMENTARY
Overview
The Company achieved 2,26 million lost time injury free hours. Five lost time
injuries were reported during the first half of 2004, an improvement of seven
over the first half of 2003. The focus and the commitment to safety remains a
high priority for both management and employees.
The construction of the block-cave underground mine is nearing completion with
two crosscuts still under construction and all 166 drawbells now complete. The
underground operation has been faced with a host of unscheduled development and
production stoppages over the last six months, namely (i) slowdown of the
development of the production footprint due to seismic activity; (ii)
rehabilitation of critical areas of the footprint due to premature wear and
tear; (iii) installation of an enhanced water management system, (iv) increasing
the mobile equipment fleet size to address secondary breaking issues and yield
profiles; and (v) flooding of the underground mine halting production for 10
days. Despite the effort to address these issues, the Company continued its
focus on cave management and recent results are becoming more encouraging as
more fine material has started to be drawn into the drawpoints. Cave induced
surface cracking has occurred outside the predicted zone of subsidence. The
effect of the subsidence continues to be monitored and plans to establish an
exclusion zone are being prepared.
In the period, 3,7 million tonnes of ore were hoisted at an average rate of
20,567 tonnes per day and 30,000 tonnes per day was exceeded on five occasions,
of which two were during the first half of 2004. An average copper grade of
0,75% has been attained in the period and production of refined copper from
Palabora feedstock was supplemented by imported copper concentrates.
Vermiculite production was in line with market demand. Recoveries across the
plant have increased from a planned 57% to 66% whilst plant feed has also been
reduced in line with the higher recovery.
The Company has embarked on a strategic review of the business, to reduce its
operating cost base to a level that is sustainable in the medium to long term
given the ongoing strength of the Rand and outlook for commodity prices.
Group financial results
The Group incurred a loss of R158 million for the first half of 2004, R198
million below the R40 million profit achieved in the first half of 2003 and R123
million above the R35 million loss incurred in the second half of 2003. As
discussed above earnings have been adversely impacted in the first half of 2004
as a result of (a) production shortfalls from the underground mine, (b) higher
levels of imported concentrates to supplement the underground feedstock, and (c)
associated depreciation charge and the cessation of capitalisation of interest
from October 2003.
An amount of R10,3 million before tax was also charged against income to reduce
the carrying amount of the ZBS plant to its fair market value.
Demand for rod and cathode remains high from the market and copper revenues
continue to increase due to higher realised copper prices. The Company achieved
a copper price of R18 805 per tonne for the first half of 2004, compared to R14
366 per tonne for the equivalent period in 2003. In the period, 42 630 tonnes of
total copper was sold, compared to total copper sales of 39 477 tonnes in the
first six months of last year. The increased copper sales volumes boosted
revenue by R74 million compared to the same period last year. External factors
contribute a further net increase in copper revenues of R138 million, due to the
54% increase in copper price over the comparable period last year more than
offsetting the strengthening Rand.
Vermiculite sales volumes decreased by 8%, and were 88 285 tonnes in the first
half, compared to 95 995 tonnes in the comparative period.
The net cash cost of copper, including the impact of purchased concentrates, was
R21 264 per tonne. This was 73% higher than the R12 306 achieved for the
equivalent period last year. These changes reflect the increased cost of
underground mining, following the closure of the open pit in November 2003, and
the delayed ramp up in production levels. Imports accounted for a total of 51
thousand tonnes, 45,3 thousand tonnes of concentrate and 5,7 thousand tonnes of
cathode, at a cost of R487 million for the period.
Cash flow
Increased debt levels and the cessation of the capitalisation of the interest
charge contributed to the increased finance charge. This was partially offset by
currency gains on repaying debt facilities with a stronger Rand. To date no
funds have been drawn from the increase in facility extended by Rio Tinto (see
note 2). Development expenditure is reducing significantly as the underground
project nears completion.
Balance sheet
Net debt increased by R209 million to R2 029 million during the current period.
Expenditure on the underground project will be mostly complete by the third
quarter of 2004. Compared to the previous year, product inventories and accounts
payable increased due to a shipment of nine thousand tonnes of imported
concentrate arriving at the end of June 2004.
Industrial Minerals operations
Vermiculite production during the quarter was 51,500 tonnes, in line with market
demand. Optimisation of the `mine-to-customer ` process has been reviewed and
implementation of improvements is currently underway. Overall vermiculite
production is marginally ahead of sales for the quarter.
Discontinued operations
On 22 April 2004, the Board approved the closure of the Zirconium Basic Sulphate
plant (ZBS), allowing the Company to focus on its core business of mining and
processing copper and vermiculite. Subsequent to this decision, the Board
received a lease and purchase proposal from Southern Ionics Incorporated (SII)
of Mississippi in the USA, which was approved by the Board of Directors on 08
June 2004. SII is to notify Palabora on or before 30 September 2005 of its
intention to purchase the plant. To date no contractual commitment has been
incurred by either party.
Further announcements
Palfos Aviation (Pty) Ltd, in which Palabora holds a 50% stake, sold its major
asset, an aircraft, on 15 June 2004.
Approval for the distribution of the pension fund surplus was received from the
Financial Services Board at the end of June 2004. Work on the distribution
process has commenced. Palabora is entitled to receive part of the surplus
distribution but no account of this is given in the interim financial
statements since the process is still being finalised with the authorities.
R M Maruma K Marshall
Chairman Managing Director
28 July 2004
UNAUDITED GROUP RESULTS
Abridged income statement
Six months Six months Year
30.6.04 30.6.03 2003
R000 R000 R000
Revenue 1 031 700 823 169 1 554 727
Continued operations 996 309 774 618 1 466 824
Discontinued operations 35 391 48 551 87 903
Operating costs (1 036 208) (668 012) (1 402 594)
Depreciation (146 335) (40 294) (126 413)
Impairment (10 340) - -
Operating (loss)/profit (161 183) 114 863 25 720
Interest received 37 - 215
Interest payable (89 813) (36 786) (93 003)
Foreign exchange gains/(losses) 32 571 (14 894) 14 366
Provisions (17 874) (14 484) (30 495)
(Loss)/profit before taxation (236 263) 48 699 (83 197)
Continued operations (179 523) 64 895 (35 709)
Discontinued operations (56 740) (16 196) (47 488)
Taxation 78 522 (8 423) 48 505
Current (7 404) (8 888) (17 871)
Deferred tax 85 926 465 66 376
(Loss)/profit after taxation (157 741) 40 276 (34 692)
(Loss)/earnings per share (557)c 142c (123)c
Fully diluted (loss)/earnings per
share (557)c 142c (123)c
Headline (loss)/earnings
per share (a) (535)c 71c (221)c
Balance sheet at
Six months Six months Year
30.6.04 30.6.03 2003
R000 R000 R000
Employment of capital
Current assets
Stores 67 033 53 813 59 322
Product Inventories 441 574 271 072 374 940
Accounts Receivable 259 521 278 432 220 725
Taxation 1 400 17 1 400
Cash and cash equivalents 19 570 28 880 16 602
789 098 632 214 672 989
Mining assets 4 539 675 4 444 108 4 575 661
Investments - (unlisted) (b) 119 901 95 222 118 043
Total assets 5 448 674 5 171 544 5 366 693
Liabilities and shareholders` equity
Current liabilities
Accounts payable 388 851 275 961 298 279
Provisions 37 142 24 077 26 799
Current portion of long-term loans 282 487 319 605 294 212
Taxation 4 426 6 018 6 220
Group companies - related parties 14 360 16 352 13 243
Short-term loan
- Rio Tinto Finance plc 328 388 297 440 -
Bank overdraft 436 597 436 880 388 660
Non-current liabilities 1 492 251 1 376 333 1 027 413
Provision for close-down
and restoration costs 204 833 199 632 196 817
Provision for post-retirement
medical benefits 178 743 165 952 172 209
Deferred taxation 712 919 863 266 798 830
Long-term loans 1 001 350 491 950 1 153 707
Total liabilities 3 590 096 3 097 133 3 348 976
Total shareholders` equity 1 858 578 2 074 411 2 017 717
Total equity and liabilities 5 448 674 5 171 544 5 366 693
Summarised cash flow
Six months Six months Year
30.6.04 30.6.03 2003
R000 R000 R000
Cash (utilised in)/ generated
From operating activities (131 112) 84 484 (4 467)
Cash utilised in
investing activities (110 987) (281 733) (555 508)
Replacement of mining assets (41 660) (63 601) (118 142)
Development expenditure (86 212) (219 375) (450 601)
Other investing activities 16 885 1 243 13 235
Cash flow from financing activities 197 130 142 046 540 714
Long and short-term loans raised 342 977 310 396 1 268 629
Long and short-term loans repaid (145 847) (168 350) (727 915)
Net increase in overdrafts (44 969) (55 203) (19 261)
Cash and cash equivalents
at beginning of period (372 058) (352 797) (352 797)
Cash and cash equivalents
at end of period (417 027) (408 000) (372 058)
Notes:
1. Accounting principles
The 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 2003. 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) Six months Six months Year
30.6.04 30.6.03 2003
R000 R000 R000
Current portion of long-term loan 282 487 319 605 294 212
Non-current portion of long-term loan 1 001 350 491 950 1 153 707
Total long-term loan 1 283 837 811 555 1 447 919
Short-term loan - Rio Tinto Finance
plc 328 388 297 440 -
Bank overdrafts 436 597 436 880 388 660
Cash and cash equivalents (19 570) (28 880) (16 602)
Net debt 2 029 252 1 516 995 1 819 977
Long-term loans comprise:
(i) US$2.5 million from Daiichi Kigenso Kagaku Kogyo Co Limited in Japan;
Unsecured loan obtained in 2001. Capital and interest repayable in 24 half
yearly instalments of approximately US$135,000, commenced on 30 June 2003.
Interest rate is based on six-month LIBOR rate plus 2,38%.
(ii) R849 million unsecured redeemable convertible debentures;
Issued in September 2003. Interest rate fixed for six-month intervals at JIBAR
plus 5%, payable semi-annually in arrears in March and September of each year.
(iii) US$90 million tranche and Rand tranche of R283 million;
Unsecured loan facility with a group of domestic and international banks issued
June 2003. Repayable in six equal half yearly instalments of US$15 million and
R47 million respectively, with the third repayment effected in June 2004. This
facility is interest bearing at 1,5% above LIBOR for US$ tranche and JIBOR for
Rand tranche.
Unsecured short-term facility of US$65 million provided in January 2004 by major
shareholder, Rio Tinto, was amended in June 2004 to increase the facility, part
working capital funding and part guarantee, to US$130 million.
Interest bearing at LIBOR plus 5% and is repayable on or before 31 July 2005.
Overdraft facilities are bilateral, unsecured and uncommitted to the extent of
R344 million and with R256 million being committed. These facilities are
provided by a number of South African and international banks.
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.
UNAUDITED GROUP RESULTS
Statement of changes in equity
for the six months ended 30 June 2004
Share Distri-
capital and Other butable
premium reserves reserves Total
R000 R000 R000 R000
Balance 1 January 2004 28 891 177 465 1 811 361 2 017 717
Currency translation
difference - (1 583) - (1 583)
Net loss for the period - - (157 741) (157 741)
Other movements - 185 - 185
Balance 30 June 2004 28 891 176 067 1 653 620 1 858 578
Statement of changes in equity
for the six months ended 30 June 2003
Share Distri-
capital and Other butable
premium reserves reserves Total
R000 R000 R000 R000
Balance 1 January 2003 28 891 134 244 1 846 053 2 009 188
Currency translation
difference - (15 473) - (15 473)
Net profit for the period - - 40 276 40 276
Revaluation of investments - 40 251 - 40 251
Other movements - 169 - 169
Balance 30 June 2003 28 891 159 191 1 886 329 2 074 411
Selected statistics
Six months Six months Year
All tons are metric tonnes 30.6.04 30.6.03 2003
Production and sales
Underground mine development
Development (% complete) 98% 84% 90%
Undercut (% complete) 100% 91% 99%
Drawbells (% complete) 100% 79% 89%
Cross cuts (% complete) (c) 90% 75% 84%
Surface mining
Ore mined (millions of tonnes) (d) 0,2 3,1 5,5
Underground mining
Ore hoisted (millions of tonnes) 3,7 2,3 6,0
Average copper grade (% Cu) 0,751 (e) (e)
Copper in concentrate produced
(thousands of tonnes) 20,6 23,6 52,4
Cathode produced
(thousands of tonnes) 35,1 35,1 73,4
Cathode sold (thousands of tonnes) 42,6 39,4 76,6
Contained copper sold
(thousands of tonnes) 42,6 39,4 77,1
Vermiculite sold (thousands of tonnes) 92 92 174
ZBS sold (thousands of tonnes) 0,1 0,6 1,1
Average copper price realised (USc/lb) 124,8 81,0 84,5
Average rand/dollar exchange rate 6,73 8,07 7,56
Average copper price realised
per tonne (ZAR) 18 805 14 366 14 084
Net cash cost per tonne (ZAR) (f) 21 264 12 306 15 223
Average vermiculite prices
realised per tonne (ZAR) 1 424 1 548 1 429
Average ZBS prices realised
per tonne (ZAR) 10 102 10 078 7 251
Capital expenditure and commitments
Capital expenditure (R million) 128 286 518
Approved expenditure at end
of each period (R million) 112 323 277
Contracts placed at end of
each period (R million) 110 235 185
Interest capitalised (R million) - 34 53
Exchange gain capitalised (R million) - 116 149
Share capital
Ordinary shares of R1 each (thousands)
- Authorised 100 000 28 500 100 000
Ordinary shares of R1 each
(thousands) - Issued 28 316 28 316 28 316
Net asset value per share R65,64 R73,26 R71,24
(a) The calculation of headline earnings per share is derived from consolidated
net loss after taxation of R157,7 million adjusted for any non-operational
losses or gains, divided by the number of shares in issue.
2004 half year earnings have been adjusted for the post tax impact of profit on
disposal of fixed assets (R0,5 million), which is mainly the profit realised on
the sale of the aircraft, the major asset in Palfos Aviation (Pty) Ltd and
impairment of ZBS plant net of taxation (R6,9 million). Headline losses for the
six months ended 30 June 2004 are R151,4 million.
(b) Unlisted investments are stated in the balance sheet at fair market value.
Unrealised gains and losses are recognised through the statement of changes in
equity.
(c) The decision to proceed with the development of the 20th crosscut and an
additional eight drawpoints deferred the completion of the final drawbells and
development from April 2004 to end June 2004.
(d) Relates to the milling of low- grade oxide ore stockpiles, which has been
discontinued.
(e) Commercial levels of production not yet attained / Underground mine still
under construction.
(f) Includes all cash costs, by-product credits and interest.
Reconciliation of headline (loss)/earnings
Profit before taxation
30.6.04 30.6.03 2003
R000 R000 R000
Earnings per the financial statements (236 263) 48 699 (83 197)
Profit on disposal of fixed assets (759) (1 101) (12 777)
Provision for donation:
Palabora Foundation - (19 400) (19 400)
Impairment of ZBS 10 340 - -
Headline (loss)/earnings (226 681) 28 198 (115 374)
Taxation and lease consideration
30.6.04 30.6.03 2003
R000 R000 R000
Earnings per the financial statements 78 522 (8 423) 48 505
Profit on disposal of fixed assets 254 369 4 285
Provision for donation:
Palabora Foundation - - -
Impairment of ZBS (3 468) - -
Headline (loss)/earnings 75 308 (8 054) 52 790
Profit after taxation
30.6.04 30.6.03 2003
R000 R000 R000
Earnings per the financial statements (157 741) 40 276 (34 692)
Profit on disposal of fixed assets (504) (732) (8 492)
Provision for donation:
Palabora Foundation - (19 400) (19 400)
Impairment of ZBS 6 872 - -
Headline (loss)/earnings (151 373) 20 144 (62 584)
SEGMENTAL REPORTING
Copper Industrial Minerals
R000 R000
30.6.04 30.6.03 30.6.04 30.6.03
Profit and loss
Revenue 801 146 567 150 166 315 203 398
Continued operations 801 146 567 150 130 924 154 847
Discontinued
operations - - 35 391 48 551
Cost and expenses (956 417) (519 065) (179 959) (167 344)
Impairment of ZBS
plant - - (10 340) -
Operating
(loss)/profit (155 271) 48 085 (13 644) 36 054
Net interest paid
Other costs and
provisions
Profit before taxation
Continued operations
Discontinued
operations
Taxation
Net (loss)/profit for
the period
Other Total
R000 R000
30.6.04 30.6.03 30.6.04 30.6.03
Profit and loss
Revenue 64 239 52 621 1 031 700 823 169
Continued operations 64 239 52 621 996 309 774 618
Discontinued
operations - - 35 391 48 551
Cost and expenses (46 168) (21 897) (1 182 544) (708 306)
Impairment of ZBS
plant - - (10 340) -
Operating
(loss)/profit 18 071 30 724 (150 844) 114 863
Net interest paid (89 776) (36 924)
Other costs and
provisions 14 697 (29 240)
Profit before taxation (236 263) 48 699
Continued operations (179 523) 64 895
Discontinued
operations (56 740) (16 196)
Taxation 78 522 (8 423)
Net (loss)/profit for
the period (157 741) 40 276
The segmental split on a geographical basis is based on the country in
which the order is received.
South Africa America
R000 R000
30.6.04 30.6.03 30.6.04 30.6.03
Profit and loss
Revenues 881 245 642 154 67 132 96 430
Continued operations 879 032 639 614 33 954 50 419
Discontinued
operations 2 213 2 540 33 178 46 011
Cost and expenses (1 128 888) (627 193) (65 417) (88 887)
Impairment of ZBS
plant (10 340) - - -
Operating profit
before taxation (257 983) 14 961 1 715 7 543
Continued operations (200 151) 32 628 623 6 072
Discontinued
operations (57 832) (17 667) 1 092 1 471
Taxation 85 772 2 278 (652) (2 898)
Net (loss)/profit
for the period (172 211) 17 239 1 063 4 645
United Kingdom Total
R000 R000
30.6.04 30.6.03 30.6.04 30.6.03
Profit and loss
Revenues 83 323 84 585 1 031 700 823 169
Continued operations 83 323 84 585 996 309 774 618
Discontinued
operations - - 35 391 48 551
Cost and expenses (63 318) (58 390) (1 257 623) (774 470)
Impairment of ZBS
plant - - (10 340) -
Operating profit
before taxation 20 005 26 195 (236 263) 48 699
Continued operations 20 005 26 195 (179 523) 64 895
Discontinued
operations - - (56 740) (16 196)
Taxation (6 598) (7 803) 78 522 (8 423)
Net (loss)/profit
for the period 13 407 18 392 (157 741) 40 276
Directors:
M R Maruma (Chairman), J H K Sachikonye*** (Deputy Chairman),
K Marshall* (Managing Director), S M Din*, D A Farnaby, O L Groeneveld**,
G M Negota, J C Posthumus (Alt. B K Wood), W R J Ranson
(appointed 28 July 2004), J E Rickus*, R M Whyte* (Alt: F B Weldon), C N Zungu
Company secretary:
E B R Hone
*British **Australian ***Zimbabwean
Transfer Secretaries: Registered Office:
Computershare Investor Services 2004 (Pty) Ltd 1 Copper Road
70 Marshall Street Phalaborwa
Johannesburg 2001 1389
Postal Address: Postal Address:
PO Box 61051 PO Box 65
Marshalltown 2107 Phalaborwa 1390
These results are also available on our website at: www.palabora.co.za
Date: 29/07/2004 08:59:41 AM Produced by the JSE SENS Department
