| Fri 29 Jul 2005, 18:19 | | Palabora - Unaudited Interim Report For The Six Mo |
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Palabora Mining Company Limited
and its Subsidiaries
Incorporated in the Republic in South Africa
Registration No. 1956/002134/06
Share code: PAM ISIN: ZAE000005245
("Group" or "Palabora" or "the Company")
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2005
COMMENTARY:
Overview:
Keith Marshall, the Group's Managing Director commented on the results for the
first half of 2005, stating "I am pleased with the operational improvement in
the business, particularly towards the end of the first half. Mine production
has exceeded design capacity since early May and this has resulted in an
increase in recoverable copper produced by underground operations of 28% from
the same period last year. This has lead to an operating profit of R98 million.
However, I am disappointed by the continued losses in net income, and that
these losses have increased from 2004. While most of this was attributed to
foreign exchange movements against US dollar denominated debt and a loss in tax
credits, Palabora is making an active effort to improve net income and return
to positive earnings".
Ten lost time injuries occurred during the first half of the year. Safety
remains a high priority for both Management and employees and various programs
are in place to further improve the safety performance of the business.
During the period under review the Group continued to make good progress on
consolidating the underground's production performance. In the period, 4,955
million tonnes were hoisted at an average rate of 27,380 tonnes per day (20,567
in 2004) and represented a 33% improvement over the comparative period last
year. An average copper grade of 0.71% (0.75% in 2004) has been attained in the
period 5.6% lower than the comparative period in 2004. Recoverable copper
produced from underground operations increased from 23,132 tonnes to 29,610
tonnes, or 28%. Since much of this increase came towards the end of the first
half, increased metal sales will not occur until the second half.
None-the-less, refined copper production in the first half of 2005 was better
than 2004 due to increased production throughputs.
Vermiculite production increased steadily to 101,7 from 89,9 million tonnes and
represents a 13% improvement for the comparative period. Production continued
to improve due to the recent review of the mining sequence to enhance
recoveries of coarser grades. The improved recoveries achieved across the plant
were maintained in the second half of 2005 and will remain as the target for
the remainder of the year. Market demand for the coarser grades continues to
grow in all market segments and places pressure on supply chain stocks.
Group financial results:
The Group achieved an operating profit from continuing operations for the first
half of 2005 of R98 million, from a loss of R104 million for the comparable
period in 2004.
Revenue increased slightly by 1.1% to R1,043 million largely as a result of
higher realized copper prices (+ R174 million) partially offset by a stronger
US$/Rand exchange rate of 6.21 in 2005 compared to 6.69 for the comparable
period in 2004 (- R62 million) and lower volumes of copper sales (- R93
million).
Total Group operating expenditure decreased by R156 million, from R1,101
million in the first six months of 2004 to R944 million for the comparative
period under review, representing a decrease of 14 % from the previous period
partly offset by higher maintenance costs. This reduction is mainly due to:
- lower volumes of purchased concentrates from 17.3 kt in 2004 to 14.6 kt in
2005 representing a decrease of R103 million as a result of improved production
from the underground;
- no cathode purchases in 2005 representing a decrease of R115 million;
- reduced payroll costs of R16 million due to the restructuring of the business
undertaken in 2004, and;
- a positive net impact of R11 million due to changes in accounting estimates
related to the allocation of production overheads to product inventories.
Operating profits improved to R203 million, from a loss of R104 million in the
first half of 2004 to a profit of R98 million in the first half of 2005. This
is attributed to higher revenues of R46 million, lower operating costs of R105
million, and lower depreciation of R51 million (related to the December 2004
impairment).
Net loss after taxation from continuing operations declined to R211 million
(2004: R157 million) mainly explained by:
- higher interest paid of R120 million (2004: R90 million) on the existing
facilities due to borrowings (R400 million);
- Unrealised exchange losses on existing loans of R169 million (2004: R33
million exchange gain) due to an 18% depreciation of the Rand in 2005 compared
to a 6%
appreciation in the previous comparative period.
- Increased tax provision of R83 million due to the exhaustion of tax credits
in 2004.
Demand for rod and cathode continued to be high from the market and copper
revenue continued to increase due to higher realised copper prices. The Group
achieved a copper price of R21,357 per tonne for the first half of 2005,
compared to R18,805 per tonne for the equivalent period in 2004. In the period
under review, a total of 38,443 tonnes of copper was sold, compared to 42,630
tonnes in the first six months of last year.
The net cash cost of copper, excluding the impact of purchased concentrate, was
R16 363 per tonne compared to the previous period of R16 680 per tonne.
Cash flow:
The summarised consolidated cash flow statement illustrates that there was a
positive net increase in cash and cash equivalents for the six month ended
30 June 2005 of R50 million (2004: R45 million). The increase in cash inflow in
comparison to the previous period is mainly due to the reduction of the
volumes of purchased concentrates (R103 million), no cathode purchases in 2005
(2004: R115 million) and reduced payroll costs.
This increase in the cash flows from operating activities has been offset by an
increase in the amount of cash used for investing activities of R70 million
(2004: R111 million) mainly attributable to investment in capital projects of
R48 million of which R35 million relates to underground operations.
There was also a net increase in cash flows from financing activities mainly
due to proceeds from borrowings of R48 million and partial principal repayment
on the unsecured loan of US$ 89,224 from Daiichi Kigenso Kagaku Kogyo.
Refinancing:
The Group is pursuing a refinancing programme to establish a new senior loan of
R1.2 to R1.5 billion on a project finance basis, repayable over an eight-year
period. This loan will be used to replace the current external debt and part
replaces the shareholder debt facilities. On 1 June 2005, the Group mandated
two banks (one domestic and the other international) to arrange, participate
in and underwrite the replacement debt. The process is at an advanced stage
and the Group intends to close the new facilities as soon as the conditions
precedents are met.
The Management believes this facility will put the Group in a position to
continue meeting its obligations and fund its ongoing operations.
ABRIDGED INCOME STATEMENT
Six months Six months Year
ended ended ended
30 June 2005 30 June 2004 31 December 2004
Note R'000 R'000 R'000
Continuing
operations
Revenue
Sales of
products 1 043 010 996 309 1 970 631
Operating costs (944 565) (1 100 752) (2 139 956)
Operating
profit/(loss) 98 445 (104 443) (169 325)
Foreign
exchange
(losses)/gains (169 498) 32 571 127 612
Fair value
adjustment - - (7 374)
Impairment of
copper stream - - (2 341 752)
Movement in
provisions (18 716) (17 874) 54 590
Loss from
continuing
operations
before tax
and finance
costs (89 769) (89 746) (2 336 249)
Finance costs (120 330) (89 813) (184 942)
Finance income 6 830 37 99
Loss before tax (203 269) (179 522) (2 521 092)
Income tax
expense (3 930) 78 522 788 977
Loss for the
period from
continued
operations (207 199) (101 000) (1 732 115)
Discontinued
operation
Loss from
discontinued
operation 8 (4 110) (56 740) -
Loss for the
period (211 309) (157 740) (1 732 115)
Loss per share
(cents) :
- Basic 6 (746) c (557) c (6,117) c
- Diluted 6 (746) c (557) c (6,117) c
- Headline 7 (737) c (535) c (231) c
Total number
of shares in
issue ('000) (28,316) (28,316) (28,316)
Weighted
average issued
shares ('000) (28,316) (28,316) (28,316)
BALANCE SHEET Six months Six months Year
ended ended ended
30 June 2005 30 June 2004 31 December 2004
Note R'000 R'000 R'000
Assets
Non-current
assets
Property, plant
and equipment 2 073 521 4 516 399 2 088 485
Intangible assets 14 236 23 276 18 756
Investment 169 020 119 901 174 568
Deferred
taxation asset 2 793 - 2,741
2 259 570 4 659 576 2 284 550
Current assets
Stores 51 339 67 033 58 625
Product
inventories 418 016 441 574 395 298
Accounts
receivable 397 689 259 520 359 040
Taxation 1 400 1 400 1 400
Cash and cash
equivalents 11 16 433 19 570 16 580
884 877 789 097 830 943
Non-current
assets
classified as
held for sale 9 25 078 - -
909 955 789 097 830 943
Total assets 3 169 525 5 448 673 3 115 493
Shareholders'
equity and
Liabilities
Capital and
reserves
Share capital
and premium 28 891 28 891 28 891
Other reserves 108 638 59 582 79 046
Retained (loss)
/earnings (15 579) 1 770 105 195 730
Total
shareholders'
equity 121 950 1 858 578 303 667
Non-current
liabilities
Long term loans 11 12 122 1 001 350 11 280
Provisions :
- Close-down and
restoration
costs 250 557 204 833 219 548
- Post
retirement
medical benefits 101 486 178 743 99 072
Deferred
taxation
liability - 712,919 -
364 165 2 097 845 329 900
Current
liabilities
Accounts payable 311 719 388 851 273 078
Provisions 36 952 37 142 31 300
Current portion
of long-term
loans 11 2 000 874 610 875 1 793 885
Taxation 2 979 4 426 4 137
Group companies
- related
parties 10 720 14 359 9 881
Bank overdraft 11 320 166 436 597 369 645
2 683 410 1 492 250 2 481 926
Total liabilities 3 047 575 3 590 095 2 811 826
Total equity and
liabilities 3 169 525 5 448 673 3 115 493
STATEMENT OF CHANGES IN EQUITY
Retained
Share Share (loss)/
capital premium earnings
for the six months ended
30 June 2005 R'000 R'000 R'000
Balance at 1 January 2004
- as previously reported 28 316 575 1 927 846
Revaluation of investments - - -
Currency translation differences - - -
Net loss for the year - - (1 732 116)
Balance at 31 December 2004 28 316 575 195 730
Balance at 1 January 2005
- as previously reported 28 316 575 195 730
Revaluation of investments - - -
Currency translation differences - - -
Net loss for the period - - (211 309)
Balance at 30 June 2005 28 316 575 (15 579)
Foreign
currency Other Total
translation reserves
reserve
for the six months ended
30 June 2005 R'000 R'000 R'000
Balance at 1 January 2004
- as previously reported - 60 980 2 017 717
Revaluation of investments - 27 583 27 583
Currency translation differences (9 517) - (9 517)
Net loss for the year - - (1 732 116)
Balance at 31 December 2004 (9 517) 88 563 303 667
Balance at 1 January 2005
- as previously reported (9 517) 88 563 303 667
Revaluation of investments - 18 042 18 042
Currency translation differences 11 550 - 11 550
Net loss for the period - - (211 309)
Balance at 30 June 2005 2 033 106 605 121 950
Summarised cash flow statement
Six months Six months Year
ended ended ended
30 June 2005 30 June 2004 31 December 2004
R'000 R'000 R'000
Cash generated from/
(utilised in) operating
activities 71 083 (131 112) (241 876)
Profit before taxation (207 379) (236 263) (2 521 093)
Exchange rate differences 160 006 (32 824) (122 696)
Net finance cost 113 500 89 776 184 845
Other operating
activities 4 956 48 199 2 217 068
Cash utilised in
investing activities (69 576) (110 986) (219 073)
Replacement of mining
assets (48 055) (41 660) (141 110)
Development expenditure - (86 212) (104 613)
Other investing
activities (21 521) 16 886 26 650
Cash flow from financing
activities 47 825 197 130 479 942
Long and short-term
loans raised 48 420 342 977 803 883
Long and short-term
loans repaid (595) (145 847) (323 941)
Net increase/
(decrease) in cash and
cash equivalents 49 332 (44 968) 18 993
Cash and cash
equivalents at beginning
of period (353 065) (372 058) (372 058)
Cash and cash
equivalents at end of
period (303 733) (417 027) (353 065)
1. Introduction
In accordance with the JSE Limited Listing Requirements the Group is required
to prepare consolidated financial statements for accounting periods beginning
on or after 1 January 2005 in accordance with the Standards and Interpretations
included within International Financial Reporting Standards (IFRS). The Group
will consequently prepare consolidated accounts for the six months ended
30 June 2005 and subsequent reporting periods on the basis of the Standards
and Interpretations within IFRS.
As part of the Group's transition to IFRS, the Management has prepared IFRS
financial information for the six months ended 30 June 2004 and the year ended
31 December 2004. It is intended that this financial information will be
included as comparative information in the Group's half year report for the
period ending 30 June 2005 and its financial statements for the year ending
31 December 2005 respectively.
Although South African Generally Accepted Accounting Practices ("SA GAAP) has
been based on the International Accounting Standards (IAS) and in many respects
is similar to those accounting standards, they are not exact replicas of such
accounting standards. Consequently, the Group having applied SA GAAP is deemed
by IFRS 1, not to have complied with IFRS. Therefore, when preparing the
Group's consolidated financial statements for the period ending 30 June 2005,
Management has amended certain presentation to comply with IFRS. The
comparative figures in respect of 2004 were restated to reflect these
adjustments as further explained in notes 3 and 4.
The bases of preparation and accounting policies used in preparing the 30 June
2005 IFRS financial information are set out below, which describe how IFRS has
been applied under IFRS 1, including the assumptions made by the Group about
the Standards and Interpretations expected to be effective, and the policies
expected to be adopted, when the Group issues its complete set of IFRS
financial statements for the year ending 31 December 2005.
2. Corporate information
The consolidated financial statements of Palabora for the half year ended
30 June 2005 were authorised for issue in accordance with a resolution of
the Board of Directors passed on 28 July 2005.
The Group is a limited liability company incorporated and domiciled in South
Africa. The address of its registered office is 1 Copper Road, Phalaborwa,
1389. The Group has its primary listing on the JSE Limited.
The principal activities of the Group are presented in note 7.
3. Selected significant accounting policies
3.1 Basis of preparation
The consolidated financial statements of Palabora have been prepared in
accordance with IFRS issued by the International Accounting Standard Board
(IASB) and valid at the balance sheet date.
The consolidated financial statements have been prepared on an historical cost
basis, except as modified by the revaluation of available-for-sale financial
assets and financial assets and liabilities that have been measured at fair
value. The consolidated financial statements are presented in Rand and all
values are rounded to the nearest thousand (R000) except when otherwise
indicated.
The accounting policies applied in the presentation of the interim financial
report are consistent with those applied for the year ended 31 December 2004
except for the accounting treatment under IFRS5 - Non-current Assets Held for
Sale and Discontinued Operations.
IFRS 1, First-time Adoption on International Financial Reporting Standards, has
been applied in preparing these financial statements. The interim Group
financial statements at 30 June 2005 have been prepared in accordance with
International Accounting Standard (IAS) 34 (Interim Reporting).
A number of IFRS Standards and Interpretations are not yet mandatory but can be
adopted early under their respective transition arrangements. The Group early
adopted the IFRS below, which are relevant to its operations.
- IFRS 6 `Exploration for and Evaluation of Mineral Resources';
In preparing the IFRS financial information, the Group has not applied the
following pronouncements for which adoption is not mandatory:
- IFRIC4 `Determining Whether an Arrangement Contains a Lease' - mandatory
adoption year ending 31 December 2006;
- IFRIC5 `Rights to Interests arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds'- mandatory adoption annual periods
beginning on or after 1 January 2006.
The Group is currently evaluating the impact of these pronouncements and may
decide to adopt them in the year ending 31 December 2005, in which case the
2004 IFRS financial information will need to be restated. At this
preliminary stage, therefore, the full financial effect of reporting under IFRS
as it will be applied in the Group's first complete set of IFRS financial
statements for the year ending 31 December 2005 may be subject to change.
3.2 Transitional Arrangements:
The Group's transition date to IFRS is 1 January 2004. The rules for first-time
adoption of IFRS are set out in IFRS1 - First-time adoption of International
Financial Reporting Standards. In preparing the 30 June 2005 IFRS financial
information, these transition rules have been applied to the amounts reported
previously under the generally accepted accounting principles in South Africa
(SA GAAP).
IFRS 1 generally requires full retrospective applications of the standards and
interpretations in force at the first reporting date. However, IFRS 1 allows
certain exemptions in the application of particular standards to prior periods
in order to assist companies with the transition process. The Group has adopted
the following transitional arrangements:
* The Group has deemed cumulative translation differences for foreign
operations to be zero at the date of transition. Any gains and losses on
subsequent disposals of foreign operations will not therefore include
translation differences arising prior to the transition date;
* The Group has elected to adopt IAS 32 `Financial Instruments: Disclosure and
Presentation' and IAS 39 `Financial Instruments: Recognition and Measurement'
with effect from 1 January 2005, with no restatement of comparative information
for 2004;
* The Group has elected to adopt IFRS 5 `Non-current Assets Held for Sale and
Discontinued Operations' with effect from 1 January 2005, with no restatement
of comparative information for 2004.
3.3 Presentational Changes:
The formats of the balance sheet, income statement, statement of changes in
equity and cash flow statement have been modified to align them with the IFRS
formats. In addition, the Group previously disclosed computer software and
licenses within Mining Assets. Management believes that their inclusion in
intangible assets is a fairer representation of the Group's consolidated
balance sheet.
4. Reconciliations between SA GAAP and IFRS reported figures:
Due to the harmonization program adopted by SA Institute of Chartered
Accountants (SAICA) in recent years, SA GAAP has been based on the
International Accounting Standards (IAS) and in many respects is similar to
those accounting standards. However because SA GAAP has been based on IAS
rather than being exact replicas of such accounting standards, the Group having
applied SA GAAP is deemed by IFRS 1, not to have complied with IFRS. The
conversion of the Group's SA GAAP consolidated financial statements did not
result in substantial changes to the Group accounting policy.
4.1 Reconciliation of profit or loss
The early adoption of International Accounting Standards and consistent
reporting standards with SA GAAP did not result in significant changes to the
Group's accounting policies commencing from transition date 1 January 2004 to
the current interim report date of 30 June 2005. Therefore there has been no
need to provide a reconciliation of profit and loss under SA GAAP to IFRS.
4.2 Reconciliation of changes in shareholders equity:
Retained
Share Share (loss)/
capital premium earnings
R'000 R'000 R'000
Balance at 1 January 2004
- as previously reported 28 316 575 1 811 361
Foreign currency translation reserve
re-classified to retained earnings under
IFRS1 (4.2.1) - - 116 485
IFRS Balance at 1 January 2004 28 316 575 1 927 846
Balance at 31 December 2004 28 316 575 195 730
IFRS Balance at 31 December 2004 28 316 575 195 730
Foreign
currency Other Total
translation reserves
reserve
R'000 R'000 R'000
Balance at 1 January 2004
- as previously reported 116 485 60 980 2 017 717
Foreign currency translation reserve
re-classified to retained earnings under
IFRS1 (4.2.1) (116 485) - -
IFRS Balance at 1 January 2004 - 60 980 2 017 717
Balance at 31 December 2004 (9 517) 88 563 303 667
IFRS Balance at 31 December 2004 (9 517) 88 563 303 667
4.2.1 Cumulative Foreign Currency Translation Reserve Adjustment
Palabora Mining Company's accounting policy under SA GAAP is consistent with
IFRS. However, management has elected to use the exemption of setting the
previously accumulated translation adjustment to zero at transition date, 1
January 2004. This exemption has been applied to all subsidiaries, as IFRS 1
requires.
5. Changes in estimates
5.1 Property, Plant and Equipment and depreciation
The Group complies with the revised IAS 16 which requires that every business
performs an assessment of the useful lives of its assets at least at the end of
each financial year and adjusts depreciation charges accordingly. Because the
previous SA GAAP standard (AC 123) was consistent with IAS 16, the
re-assessment of the useful lives of certain components of the underground
mining assets resulted in an additional depreciation charge of R41 million in
the income statement for the current period, in compliance with IFRS 1.
5.2 Inventory
Product inventory has been valued at the lower of cost and net realizable
value, including direct costs, and an allocation of indirect costs of
production. The Group's annual review of the production overheads allocation
basis resulted in a credit to the income statement of R11 million in compliance
with IFRS 1.
5.3 Intangible assets separately classified
Separate computer software and related licenses for a net book value of
R14 million previously classified in tangible assets have been reclassified
a part of intangible assets as required by IAS 38.
There is no effect on the income statements.
6. Loss per Share
Basic loss per share of the Group for the interim period is based on the netloss
of R211 million (June 2004; net loss R158 million) divided by the total
number of weighted average shares in issue during the period of 28,315,500
(2004; 28,315,500).
The Group has no convertible non-cumulative redeemable preference shares that
will impact diluted earnings per share, thus a reconciliation between net loss
from continuing operations to net loss for diluted earnings per share has not
been performed.
7. Reconciliation of Headline Loss per Share
Six months Six months Year
ended ended ended
30 June 2005 30 June 2004 31 December 2004
R'000 R'000 R'000
Loss per income statement (207 379) (236 263) (2 521 092)
Profit on disposal of
fixed assets (111) (759) 70 067
Fair Value adjustment on
ZBS Debtor 4 914 - 7 374
Profit on ZBS sale (804)
Impairment charges :
- Copper stream - - 2 341 752
- ZBS plant - 10 340 -
(203 380) (226 682) (101 899)
Taxation and lease
consideration (5 271) 75 308 36 575
Headline loss (208 651) (151 374) (65 324)
8. Segment Reporting
The Group's primary reporting segment is its business segment and secondary
format is its geographical segment. The operating businesses are organized and
managed separately according to the nature of the products and services
provided, with each segment representing a strategic business unit that offers
different products and serves different markets.
From a business segment point of view, the only significant segments are copper
and industrial minerals mining and production. The segmental split on a
geographical basis is based on the country in which the order is received.
Total assets are presented per geographical area in which the assets are
located.
Transfer prices between business segments are set on an arm's length basis in a
manner similar to transactions with third parties. The Group's geographical
segments are determined by the location of the Group's assets and operations.
Business Segment
The following tables present revenue and profit information and certain asset
and liability information regarding the Group's business segments for the
period ended 30 June 2005.
The primary product of the Group is copper, together with by-products, which
include magnetite, nickel sulphate, anode slimes and sulphuric acid. The
Industrial Minerals division produces and markets vermiculite.
Period ended 30 June 2005
Industrial Copper By
Copper Minerals Products
Revenue
Sales to external customers 830 911 63 218 56 391
Inter-segment sales - 92 490 -
Segment Revenue 830 911 155 708 56 391
Results
Segment Results 27 912 26 823 48 624
Unallocated expenses
Loss from operations before
tax and finance costs
Net finance costs
Loss before income tax and
minority interest
Income tax expense
Net loss for the period
Assets and Liabilities
Segment assets 2 662 530 228 308 109 667
Unallocated assets
Total Assets
Segment Liabilities 2 636 991 42 085 5 735
Unallocated Liabilities
Total Liabilities
Other Segment Information
Capital expenditure:
Tangible fixed assets 42 631 313 19 140
Unallocated capital expenditure
Depreciation 76 770 2 715 3 250
Unallocated depreciation
Discontinued
operation
(Note 8) Total
Revenue
Sales to external customers - 950 520
Inter-segment sales - 92 490
Segment Revenue - 1 043 010
Results
Segment Results (4 110) 99 249
Unallocated expenses (193 128)
Loss from operations before
tax and finance costs (93 879)
Net finance costs (113 500)
Loss before income tax and
minority interest (207 379)
Income tax expense (3 930)
Net loss for the period (211 309)
Assets and Liabilities
Segment assets 25 078 3 025 583
Unallocated assets 143 942
Total Assets 3 169 525
Segment Liabilities - 2 684 811
Unallocated Liabilities 362 764
Total Liabilities 3 047 575
Other Segment Information
Capital expenditure:
Tangible fixed assets - 62 084
Unallocated capital expenditure 14 904
76 988
Depreciation - 82 735
Unallocated depreciation 12 263
94 998
Period ended 30 June 2004
Industrial Copper By
Copper Minerals Products
Revenue
Sales to external customers 801 146 94 201 64 239
Inter-segment sales - 72 114 -
Segment Revenue 801 146 166 315 64 239
Results
Segment Results (155 271) 32 756 18 071
Impairment of ZBS Plant
Unallocated expenses
Loss from operations before
tax and finance costs
Net finance costs
Loss before income tax and
minority interest
Income tax expense
Net loss for the period
Assets and Liabilities
Segment assets 4 881 174 329 791 117 809
Unallocated assets
Total Assets
Segment Liabilities 2 035 048 70 189 374 004
Unallocated Liabilities
Total Liabilities
Other Segment Information
Capital expenditure:
Tangible fixed assets 125 911 68 1 893
Depreciation 120 881 8 899 3 800
Unallocated depreciation
Discontinued
operation
(Note 8) Total
Revenue
Sales to external customers 35 391 994 977
Inter-segment sales - 72 114
Segment Revenue 35 391 1 067 091
Results
Segment Results (46 400) (150 844)
Impairment of ZBS Plant (10 340)
Unallocated expenses 14 698
Loss from operations before
(146 486)
tax and finance costs
Net finance costs (89 776)
Loss before income tax and
minority interest (236 262)
Income tax expense 78 522
Net loss for the period (157 740)
Assets and Liabilities
Segment assets - 5 328 774
Unallocated assets 119 901
Total Assets 5 448 675
Segment Liabilities - 2 479 241
Unallocated Liabilities 1 110 854
Total Liabilities 3 590 095
Other Segment Information
Capital expenditure:
Tangible fixed assets - 127 872
127 872
Depreciation - 133 580
Unallocated depreciation 12 756
146 336
Geographical Segments
The following tables present revenue, expenditure and certain asset information
regarding the group's geographical segments for the period ended 30 June 2005.
Period ended 30 June 2005
South North United
Africa America Kingdom Total
Revenue
Sales to external customers 812,129 63,153 75,237 950,519
Less: Sales attributable to
discontinued operations - - - -
Revenue from continuing
operations 812,129 63,153 75,237 950,519
Inter-segment sales 92,490 - - 92,490
Segment Revenue 904,619 63,153 75,237 1,043,009
Other Segment Information
Segment assets 3,065,544 49,123 48,623 3,163,290
Unallocated assets 6,234
Investment in associate -
Total Assets 3,169,524
Capital Expenditure -
Tangible 76,988 - - 76,988
Period ended 30 June 2004
South North United
Africa America Kingdom Total
Revenue
Sales to external customers 809,131 67,132 83,323 959,586
Less: Sales attributable to
discontinued operations - - - -
Revenue from continuing
operations 809,131 67,132 83,323 959,586
Inter-segment sales 72,114 - - 72,114
Segment Revenue 881,245 67,132 83,323 1,031,700
Other Segment Information
Segment assets 5,345,071 43,103 54,645 5,442,819
Unallocated assets 5,855
Total Assets 5,448,674
Capital Expenditure -
Tangible 127,872 - - 127,872
9. Discontinued Operations
As reported in the 31 December 2004 financial statements, the contractual
obligations relating to the sale of the ZBS plant had not been met. Consequently
the debtor previously recognised has been written off.
As a result of several parties showing interest in the plant, the executive
management of the Group is committed to a plan to sell the plant. A potential
buyer has been identified and a draft agreement is being reviewed. As at 30
June 2005, negotiations for the sale are being undertaken. Negotiations are
being pursued with one of the parties. The fair value of the expected sale
amounts to R25 million.
For this reason, as at 30 June 2005 the ZBS plant was classified as a
non-current asset held for sale at the lower of its cost price and fair value
less cost to sell.
10. Contingent Asset - Magnetite
Magnetite stockpiles are not reflected in the balance sheet of the Group in
terms of the applied accounting policies. Following the Board's decision to
pursue the sale of the magnetite iron ore stockpiles, several companies and
consortiums have expressed interest in the material. Completion is expected
prior to the end of the year. As the sale contract has not been completed and
agreed, the transaction has not been recorded in the results for the six month
ended 30 June 2005.
11. Profile of debt
Six months
Effective Maturity ended
30 June 2005
Description of loan interest rate % R'000
Non-current
Medium Term Facility Libor/Jibor + 1.5% -
Convertible debentures Jibar + 5% -
Other Facilities Libor + 2.38% 31.1.14 12 122
12 122
Current
Medium Term Facility Libor/Jibor + 1.5% 13.9.05 294 097
Convertible debentures Jibar + 5% 21.9.05 849 148
Proceeds from debentures 849 465
Debentures issue fees (317)
Rio Tinto Loan Libor + 5% 31.12.05 856 453
Other Facilities Libor + 2.38% 31.1.06 1 176
2 000 874
Total borrowings 2 012 996
Bank overdrafts On demand 320 166
Cash and cash equivalents (16 433)
Net debt 2 316 729
Total Equity 121 950
Total capital employed 2 438 679
Gearing 19.00
Net debt/total capital
employed 95%
Six months Year
ended ended
30 June 2004 31 December 2004
Description of loan R'000 R'000
Non-current
Medium Term Facility 140 958 -
Convertible debentures 847 355 -
Other Facilities 13 037 11 280
1 001 350 11 280
Current
Medium Term Facility 281 917 263 857
Convertible debentures - 847 824
Proceeds from debentures - 849 465
Debentures issue fees - (1 641)
Rio Tinto Loan 328 388 681 186
Other Facilities 570 1 018
610 875 1 793 885
Total borrowings 1 612 225 1 805 165
Bank overdrafts 436 597 369 645
Cash and cash equivalents (19 570) (16 580)
Net debt 2 029 252 2 158 230
Total Equity 1 858 578 303 667
Total capital employed 3 887 830 2 461 897
Gearing 1.09 7.11
Net debt/total capital
employed 52% 88%
The terms of repayments are consistent with information disclosed in the
December 2004 financial statements except for the medium term loan disclosed
below.
The medium term loan is syndicated with (1) eight banks and the remaining
instalments were scheduled for payment in June and December of this year. The
June 2005 payment has been deferred to September 2005, and the final instalment
for December 2005 has also been brought forward to September 2005. The basis
for the deferral is to allow The Group to finalise a new senior loan and to
repay, on first drawdown, instalments originally due in the June and December
2005.
The debentures can be redeemed in whole by The Group before 15 September 2005
or selectively converted to 33 1/3 ordinary shares per debenture, at the
holder's option, between 19 September 2005 and 18 September 2006.
Overdraft facilities are provided by (2) five banks and the loans are repayable
on
demand.
In total, bank debt accounts for 27% of the Group's net debt and 73% is
provided by bridge loans from Rio Tinto and convertible debentures.
The write-down of the copper business in 2004 significantly reduced the level
of shareholders' funds.
As a consequence, the level of the gearing in the Group dropped from 1.09 on 30
June 2004 to 7.11 and 19 respectively on 31 December 2004 and 30 June 2005.
12. Financial risk management objectives and policies
The principal financial risks arising from the Group's activities are those
related to commodity price risk, currency risk, interest rate risk, credit risk
and liquidity risk. The magnitude of this risk that has arisen over the half
year 2005 is discussed below.
The Group's principal financial instruments comprise bank loans, debentures,
cash and overdrafts. The main purpose of these financial instruments is to
raise finance for the Group's operations. The Group has various other financial
instruments such as trade debtors and trade creditors, which arise directly
from its operations.
It is currently, and has been throughout the half year, the Group's policy that
no trading in financial instruments shall be undertaken.
Foreign currency risk
In the normal course of business, the Group enters into transactions
denominated in foreign currencies (primarily with respect to the US dollar and
the British pound).
Approximately 46% of the Group's existing debt is denominated in US$ for a
global amount of US$ 160 million. As a result of the significant US$
denominated borrowings, the Group's balance sheet can be affected significantly
by movements in the US$/Rand exchange rates. The Group has not undertaken a
strategy to mitigate the effect of its structural currency exposure by
borrowing in US$.
The Group also has transactional currency exposures. Such exposure arises
mainly from sales by an operating unit in currencies other than the unit's
measurement currency. Approximately 24% of the Group's sales are denominated in
currencies other than the reporting currency of the operating unit making the
sale, whilst almost 68% of costs are denominated in the unit's reporting
currency. The Group does not use derivatives to manage this risk.
1 ABSA, Bank of Tokyo Mitsubishi, Calyon, Citibank, Industrial Bank of Japan,
Investec, RBS, Sumitomo Mitsui
2 ABSA, Citibank, FNB, Nedbank, Standard Bank
The following table sets out the carrying amount, by maturity, of the Group's
financial assets and liabilities that are exposed to currency risk:
< 1 year 1 - 5 years > 5 years Total
'000 '000 '000 '000
Non-current asset
classified as
held for sale
US Dollar (US$) 2 000 2 500 - 4 500
Accounts receivable
US Dollar (US$) 3 864 - - 3 864
British Pound (GBP) 1 872 - - 1 872
Accounts payable
US Dollar (US$) (2 880) - - (2 880)
British Pound (GBP) (213) - - (213)
Long term loans
US Dollar (US$) 158 659 1 819 - 160 477
Commodity price risk
Copper price risk arises from the risk of an adverse effect on current or
future earnings resulting from fluctuations in the price of copper. The copper
market is predominately priced in US dollars which exposes the Group to the
risk that fluctuations in the SA Rand/US dollar exchange rates may also have on
current or future earnings. At the balance sheet date, the Group had not
entered into any derivatives to manage this price risk.
Interest rate
The Group's income and operating cash flows are substantially independent of
changes in market interest rates. The Group's cash flows interest rate risk
arises from its long and short-term borrowings subject to Libor or Jibar.
Borrowings issued at variable rates expose the Group to cash flow interest rate
risk. At the balance sheet date, the Group had not entered into derivatives to
manage the interest rate risk.
The following table sets out the carrying amount, by maturity, of the Group's
financial assets and liabilities that are exposed to interest rate risk:
Floating rates
(SA Rand ZAR) < 1 year 1 - 5 years > 5 years Total
'000 '000 '000 '000
Third Party Loan 295 273 12 122 - 307 395
Related Party Loan 856 453 - - 856 453
Debentures 849 148 - - 849 148
Bank Overdraft 307 808 - - 307 808
Cash Balances (4 075) - - (4 075)
Total 2 304 607 12 122 - 2 316 729
Credit Risk
The Group trades only with recognized, creditworthy third parties. It is the
Group's policy that all customers who wish to trade on credit terms are subject
to credit verification procedures. In addition, receivable balances are
monitored on an ongoing basis with the result that the Group's exposure to bad
debts is not significant.
Due to unforeseen circumstances, one exposure has arisen in the year as a
result of the liquidation of an overseas customer. At the balance sheet date,
the loss on this contract was R3,7 million (EUR 466 337), and has been charged
to the income statement.
With respect to credit risk arising from the other financial assets of the
Group, which comprise cash and cash equivalents and available-for-sale
financial assets, the Group's exposure to credit risk arises from default of
the counter party, with a maximum exposure equal to the carrying amount of
these instruments.
There are no significant concentrations of credit risk within the Group.
Liquidity Risk
The Group's objective is to maintain a balance between continuity of funding
and flexibility through the use of bank overdrafts, bank loans and debentures.
Due to the dynamic nature of the underlying businesses, Group treasury aims to
maintain flexibility in funding by keeping committed credit lines available.
Group selected statistics
Six months Six months Year
ended ended ended
30 June 2005 30 June 2004 31 Dec. 2004
Copper
Ore hoisted (millions of tonnes) 5,0 3,7 8,6
Average copper grade (% Cu) 0.716 0.751 0.740
Copper in concentrates
produced (thousand of tonnes) 29,7 20,6 50,9
Cathode produced (thousand
of tonnes) 37,7 35,1 67,5
Cathode sold (thousand of
tonnes) 38,4 42,6 82,2
Contained copper sold
(thousand of tonnes) 38,4 42,6 82,3
Average copper price
realised (USc/lb) 156.0 124.8 130.5
Average rand/dollar exchange
rate 6.21 6.73 6.46
Average copper price
realised per tonne (ZAR 21,357 18,805 18,586
Net cash cost per tonne (ZAR) 13,352 21,264 19,576
Vermiculite
Vermiculite sold (thousand
of tonnes) 92 92 177
Average vermiculite prices
realised per tonne (ZAR) 1,375 1,424 978
ZBS
Average ZBS prices realised
per tonne (ZAR) - 10,102 6,297
ZBS sold (thousand of tonnes) - 0,1 0,6
Capital expenditure and
commitments
Capital expenditure (R million) 48 128 267
Approved expenditure at end
of each period (R million) 130 112 87
Contracts placed at end of
each period (R million) 25 110 30
Investments
Fair value of unlisted
investments (R million) 169 120 151
Share capital
Ordinary shares of R1 each
(thousand) - Authorised 100,000 100,000 100,000
Ordinary shares of R1 each
(thousand) - Issued 28,316 28,316 28,316
Net asset value per share
(R per Share) 4.31 65.64 10.72
M R Maruma K Marshall
Chairman Managing Director
29 July 2005
Directors:
M R Maruma (Chairman), J H K Sachikonye*** (Deputy Chairman), K Marshall*
(Managing Director), T Albanese****, S M Din*, D A Farnaby, G M Negota,
J C Posthumus (Alt: P A Henry), W R J Ranson**, J E Rickus*, R M Whyte*
(Alt: F B Weldon), C N Zungu
*British **Australian ***Zimbabwean ****American
Company secretary:
Keith Mathole
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 www.palabora.co.za
Date: 29/07/2005 05:35:31 PM Produced by the JSE SENS Department
