| Wed 1 Feb 2006, 17:11 | | Palabora Mining Company Limited and its Subsidiari |
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PAM
PAM
Palabora Mining Company Limited and its Subsidiaries - Reviewed preliminary
results - year ended 31 December 2005
Palabora Mining Company Limited and its Subsidiaries
(Incorporated in the Republic of South Africa)
(Reg. No. 1956/002134/06)
JSE Code: PAM ISIN: ZAE000005245
("the Group" or "Palabora" or "the Company")
REVIEWED PRELIMINARY RESULTS - 31 DECEMBER 2005
COMMENTARY:
Overview:
Palabora, situated in the Ba-Phalaborwa area of Limpopo,
operates South Africa"s largest copper mine. After 40 years of mining from a
large, open-pit operation, the ore is now extracted in an underground operation
located immediately below the open pit. Overall copper production is
supplemented by imported copper concentrates from Zambia.
The company has benefited from the buoyant commodities cycle during a period
where the management focus has been to improve long term production performance
at acceptable cost levels. A major achievement in the year was the conclusion
of a debt restructuring programme that now allows the operation more
flexibility to make strategic improvements as opposed to short term decisions
in a cash constrained environment. The latter part of the year was hampered by
unofficial industrial action and the root cause of this issue has been
identified and eradicated.
In 2005, safety deteriorated as 22 Lost Time Injuries (2004: 14) were
recorded. This increase in lost time injuries is unacceptable and Palabora
management are committed to improving the safety performance.
The Company has continued to make good progress in consolidating the
underground production performance. In the year, 10,034 thousand tonnes were
hoisted at an average rate of 27,489 tonnes per day (2004: 23,608) representing
a 16% year-on-year improvement. The copper grade averaged 0.72% (2004: 0.74%)
and the reduction was a direct result of draw sequencing necessitating the
extraction of low grade material from the western side of the cave. New monthly
and daily records of 992,162 and 42,495 tonnes respectively, were achieved in
the second quarter of 2005.
Downstream from the mine, concentrator recoveries from underground ore fell
slightly to 87.2% (2004: 87.6%), due to higher tonnages milled through
conventional single stage flotation sections. Smelter and refinery performance
improved in the year, mainly due to increased copper units available from the
underground mine and improved concentrate grades, as well as improved operating
practices. However, smelter performance was constrained by the condition of the
reverberatory furnace during the last quarter of 2005. Total copper production
for the year was 80.3 thousand tonnes compared to the prior year production of
67.5 thousand tonnes. Sources of copper were 50.3 thousand tonnes (2004: 43.2)
from underground operations and 30 thousand tonnes (2004: 24.3) from imported
concentrates.
The mine copper reserves have been reduced by waste material introduced into
the bottom of the pit by the cave induced surface subsidence. Managing
Director, Keith Marshall, said "The lost reserves will affect the latter
stages of the mine life. Of course the economic parameters used to exclude
material from the reserves may well have changed by this time".
The Group operates a Vermiculite mining operation that has seen year-on-year
increases in production of 8.7% from 193 thousand tonnes in 2004 to 210
thousand tonnes in 2005. Overall production was 2% above plan although large,
medium and fine grades were below target for the year. The production of these
coarser grades has improved marginally in quarter four following a change to
mine sequencing than sales. The improved recoveries were achieved across the
plant following initiatives implemented during 2004 and modifications to the
final product conveying system in 2005. Even though we"ve been short of sales
for some grades, profitability has been in line with expectations.
Shareholders are advised that, although the reported headline loss for the year
is lower than that of the previous year, this is impacted by the recognition in
2004 of exceptional gains relating to the employer"s share of the pension fund
surplus and book credits arising from an actuarial valuation of post retirement
medical benefits that were recognised in headline earnings. (Note 7) The
exclusion of these exceptional gains in 2004 highlights the marked operational
improvement in 2005 with a headline loss per share of 339 cents compared to a
comparative number of 1,013 cents per share in 2004.
Improved operational performance is further demonstrated by the year-on-year
movement in operating cash flow being a generation of R17.6 million in 2005
(2004: usage R119 million).
Group financial results:
Group operating profit from continuing operations (before taxation and net
finance costs) for the year is R274 million compared to a prior year loss
(including an impairment adjustment of R2,342 million) of R2,346 million.
Total revenue increased by R430 million (22%) to R2,365 million mainly from the
copper and magnetite business, R316 million and R70 million respectively.
The increase in copper revenue is due mainly to higher realised copper prices
(+R473 million); with offsets from a stronger average US$/Rand exchange rate
(2005: 6.37; 2004: 6.46) (-R21 million), lower volumes of copper sales (-R89
million) and realised hedging losses (-R47 million).
Total Group cost of sales decreased by 11% to R1,721 million (R1,932 million
2004) despite higher maintenance charges (+R24 million), insurance cost
increases (+R25 million) and employee related cost (+R76 million due to a book
credit of R66 million recognised in 2004 relative to an actuarial valuation on
post retirement medical benefit obligations). Conversely, the reductions in the
cost of sales are from:
* an increase in product inventories of R200 million - anode build up, to
reduce the effect on sales during a major smelter refurbishment scheduled for
February 2006;
* no cathode purchases in 2005 representing a decrease of R223 million;
* a decrease of R48 million in depreciation following the impairment of the
copper business in December 2004.
The net cash cost of copper, excluding the impact of purchased concentrate and
net finance costs decreased to R14,367 per tonne in 2005 from R16,458 per tonne
in 2004 reflecting the improvement in underground production volumes.
The purchase of copper concentrates to supplement underground ore amounted to
copper equivalent of 32.7 thousand tonnes (31.1: 2004). The purchase of copper
concentrates increased by R75 million.
Cost of purchased cathode decreased by R223 million as the purchase of copper
cathode was not repeated.
Operating profit before taxation and net finance costs, adjusted for the
impairment recognised last year, improved by R278 million compared to 2004. This
is largely attributed to higher revenues of R430 million and lower cost of sales
of R211 million offset by prior years exceptional gains of R332 million (pension
fund surplus and actuarial valuation of post retirement medical benefit).
Other factors that contributed to the decrease in the net loss after taxation
from continuing operations to R87 million (2004: R1,626 million) are:
This decrease is mainly attributable to:
* Impairment (after taxation) of R2,342 million recognised in 2004;
* unrealised exchange loss on current loans of R102 million (2004: R122 million
exchange gain) due to a 12 % depreciation of the Rand in 2005 compared to a 15
% appreciation in the previous comparative period;
* higher interest paid of R242 million (2004: R185 million) due to a net
increase in borrowings and costs associated with refinancing the Group"s debt
of R2,420 million.
Market demand for copper in both rod and cathode form continues to be high at
record prices. The Group achieved an average selling price for copper of
R24,120 (R23,594 after hedging effect)per tonne or USc/lb 172 (USc/lb 168 after
hedging effect) for the year, compared to R18,586 per tonne or
USc/lb 131 in 2004. In the period under review, a total of 78,654 tonnes of
copper were sold, compared to 82,200 tonnes in 2004, of which 11,800 tonnes
related to sales of purchased cathode.
Refinancing
On 21 September 2005, the Group concluded its debt restructuring program.
Existing debt was replaced by a senior loan of R1,280 million from South
African and international banks and certain shareholder debt was subordinated.
The resultant debt profile for the Group was re-established on a more
sustainable repayment basis. The senior loan is 50% in Rand and 50% in US
dollar over a term of 8 years.
As part of the refinancing agreement, the Group entered into a hedge agreement
to minimize fluctuations in Rand sales revenue caused by movements in (i) US$
copper prices, and (ii) the US$/Rand exchange rate movements. The Group has
hedged the first 62.5% of its planned copper sales from underground production
between October 2005 and September 2008, and the first 30% of its planned
sales from underground production between October 2008 and September 2013.
Refer to Note12 for the mark-to-market impact of these hedge contracts at year-
end.
The senior loan is secured by a first charge over all immovable property and
equipment via a sequence of notarial bonds.
Copper ore reserves
The progressive cave induced surface subsidence has introduced a considerable
amount of waste material into the bottom of the open pit. This waste material
has in all likelihood, sterilized some ore reserves located in the side
walls of the open pit which were scheduled to be extracted during the latter
stages of the mine life. This is not expected to impact mine production in the
near term but may reduce the life of the mine. It is envisaged
that 75.9 million tones of undiluted reserve have been sterilized. The total
proven and probable ore reserve remaining as of 31 December 2005 were 142
millions tones at an average grade of 0.70 % copper (2004: 185 million tones).
Magnetite
Shareholders are referred to a press announcement made on 21 December 2004,
wherein the Group reported it"s intention to sell its magnetite stock piles.
After several months of a tender process and negotiations, the bidders for the
stock pile were unable to meet all the conditions of the tender and accordingly
the Board has decided to terminate the tender process. Palabora will continue
to build the magnetite business using "current arisings" and is evaluating
several options for the longer term.
Convertible Debentures
On 21 September 2005, the Group announced on SENS that debenture holders may
convert their debentures into ordinary shares in Palabora, provided the
relevant notice period of not less than 42 calendar days and not more than 60
calendar days was given and that a conversion was at least 15 days prior to the
final maturity date (i.e. 18 September 2006). As at 31 December 2005, 37,395
debentures had been converted resulting in the issue of 1,246,500 new ordinary
shares. As a result, Palabora"s issued ordinary shares of R1 each have
increased to 29,562,000.
Pension Fund Surplus
On 1 July 2005, the Financial Services Board (FSB) approved the appointment of
a liquidator to the Palabora Mining Pension Fund ("the Fund"). The external
auditors are currently finalising the audit of the financial statements of the
Fund for the financial periods ended 28 February and 1 July 2005 respectively.
Thereafter the liquidator will submit the liquidation accounts to the FSB for
approval.
Only after the FSB approval has been obtained can the liquidator release the
employer"s share of the surplus in the Fund, estimated at approximately R165
million, before tax and excluding accrued interest. The liquidator estimates
that the surplus portion could be released in the second quarter of 2006.
Corporate Governance
On 21 April 2005, the Chairman of the Board declared his interest in
participating as Palabora"s Black Economic Empowerment (BEE) partner. His
participation on the Board was sterilized on the basis of potential conflict of
interest and he temporarily stepped down as Chairman. Mrs D Farnaby was
appointed Deputy Chairman during the second half of the year. With effect from
1 August 2005, Mr. J Rickus resigned from the Board and was replaced by Mr. C
Latcham. Mr. J Sachikonye and Mrs. D Farnaby resigned from the Board effective
18 November 2005. Both Mr Rickus and Mr Sachikonye were directors nominated by
the major shareholder, Rio Tinto. Mr. C Zungu has been appointed as acting
Chairman with effect from 1 February 2006.
Cash flow:
The summarised consolidated cash flow statement illustrates that there was a
positive net increase in cash and cash equivalents for the year ended 31
December 2005 of R555 million (2004: +R19 million).
Operating activities
Cash generated from operations was derived from the loss before taxation of R87
million as set out in the income statement, adjusted for changes in working
capital and non-cash items. The most significant non-cash items are
depreciation of mining assets and unrealized exchange gains and losses on
outstanding loans. Cash generated from operations of R256 million was reduced
by net interest paid of R228 million and mining and normal taxes of R10
million.
Net cash inflow from operating activities was R18 million in 2005 compared to
a net outflow of R119 million in 2004. The increase was mainly the result of
the reduction of the volumes of cathode purchases in 2005 (-R223 million)
compensated by the improvement of the underground production.
Investing activities
This increase in the cash flows from operating activities has been added to by
a decrease in the amount of cash used for investing activities of R115 million
(2004: R219 million) and is mainly attributable to a lower investment in
capital projects of R108 million of which R66 million relates to underground
operations.
Financing activities
The net cash inflow from financing activities increased to R653 million compared
to an inflow of R357 million in 2004:
* Proceeds from borrowings during 2005 amounted to R927 million, which included
R877 million raised through a term facility entered into by the Group on 21
September 2005 (see note 14) and additional borrowings of R51 million on a Rio
Tinto Loan secured on the magnetite business.
* Repayment of borrowings including the settlement of the previous Medium Term
Facility and the unsecured loan from Daiichi Kigenso Kagaku Kogyo, amounted to
R298 million.
Income statement - year ended 31 December 2005
Group
Reviewed
2005 2004
Note R"000 R"000
Continuing operations
Sales of products 2 364 608 1 935 223
Revenue 2 364 608 1 935 223
Cost of Sales (1 721 050) (1 932 178)
Gross Profit 643 558 3 045
Other Income 12 842 269 837
Selling and Distribution Costs (156 518) (101 342)
Administration expenses (222 299) (157 530)
Impairment of copper stream assets - (2 341 752)
Other expenses (3 270) (17 925)
Profit / (Loss) from continuing
operations before
tax and net finance costs 274 313 (2 345 667)
Finance cost - Net (355 032) (69 509)
Finance costs (370,841) (197 804)
Finance income 15 809 128 295
Loss before tax (80 719) (2 415 176)
Income tax expense (6 693) 788 977
Loss for the period from continued
operations (87 412) (1 626 199)
Discontinued operation
Loss from discontinued operation 9 (5 818) (105,917)
Loss for the period (93 230) (1 732 116)
Loss per share (cents) :
- Basic, for total operations 6 (328)c (6,117)c
- Basic, for continuing operations 6 (307)c (5,743)c
- Basic, for discontinued operations 6 (21)c (374)c
- Diluted, for total operations 6 (328)c (6,117)c
- Diluted, for continuing operations 6 (307)c (5,743)c
- Diluted, for discontinued operations 6 (21)c (374)c
Total number of shares in issue ("000) 29,562 28,316
Weighted average issued shares ("000) 28,450 28,316
Company
Reviewed
2005 2004
R"000 R"000
Continuing operations
Sales of products 2 285 281 1 797 101
Revenue 2 285 281 1 797 101
Cost of Sales (1 682 862) (1 856 577)
Gross Profit / (Loss) 602 419 (59 476)
Other Income 19 891 306 411
Selling and Distribution Costs (130 128) (77 358)
Administration expenses (223 776) (157 530)
Impairment of copper stream assets - (2 341 752)
Other expenses (2 393) (19 183)
Profit / (Loss) from continuing operations
before
tax and net finance costs 266 013 (2 348 888)
Finance cost - Net (356 240) (67 719)
Finance costs (370 841) (197 783)
Finance income 14 601 130 064
Loss before tax (90 227) (2 416 607)
Income tax expense (1 581) 801 552
Loss for the period from continued operations (91 808) (1 615 055)
Discontinued operation
Loss from discontinued operation (5,818) (105,917)
Loss for the period (97 626) (1 720 972)
Balance sheet - as at 31 December 2005
Group
Reviewed
2005 2004
Note R"000 R"000
Assets
Non-current assets
Property, plant and equipment 2 012 469 2 088 485
Intangible assets 9 722 18,756
Subsidiaries and joint venture - -
Investments 210 499 174 568
Deferred taxation asset 3 446 2,741
2 236 136 2 284 550
Current assets
Stores 51 769 58 625
Product inventories 594 983 395 298
Trade and other receivables 362 413 359 040
Taxation 492 1 400
Cash and cash equivalents 202 279 16 580
1 211 936 830 943
Non-current assets classified as held for
sale 9 24 860 -
1 236 796 830 943
Total assets 3 472 932 3 115 493
Shareholders" equity and Liabilities
Capital and reserves
Share capital and premium 66 286 28 891
Other reserves (683 715) 79 046
Retained (loss) / earnings 102 500 195 730
Total shareholders" equity (514 929) 303 667
Non-current liabilities
Long term loans 1 640 786 11 280
Derivative financial instrument 537 549 -
Provisions :
- Close-down and restoration costs 264 636 219 548
- Post retirement medical benefits 103 899 99 072
Deferred taxation liability - -
2 546 870 329 900
Current liabilities
Trade and other payables 320 826 273 078
Derivative financial instrument 283 209 -
Provisions 32 246 31 300
Current portion of long-term loans 779 660 1 793 885
Taxation - 4 137
Group companies - related parties 25 050 9 881
Bank overdraft - 369 645
1 440 991 2 481 926
Total liabilities 3 987 861 2 811 826
Total equity and liabilities 3 472 932 3 115 493
Company
Reviewed
2005 2004
R"000 R"000
Assets
Non-current assets
Property, plant and equipment 2 012 319 2 088 326
Intangible assets 9 722 18,756
Subsidiaries and joint venture 24,467 11 317
Investments 210 499 174 568
Deferred taxation asset - -
2 257 007 2 292 967
Current assets
Stores 51 769 58 625
Product inventories 542 184 373 024
Trade and other receivables 313 497 307 356
Taxation 1 430 1 400
Cash and cash equivalents 188 658 -
1 097 538 740 405
Non-current assets classified as held for
sale 9 24 860 -
1 122 398 740 405
Total assets 3 379 405 3 033 372
Shareholders" equity and Liabilities
Capital and reserves
Share capital and premium 66 286 28 891
Other reserves (677 150) 88 563
Retained (loss) / earnings 14 644 112 270
Total shareholders" equity (596 220) 229 724
Non-current liabilities
Long term loans 1 640 786 11 280
Derivative financial instrument 537 549 -
Provisions :
- Close-down and restoration costs 264 636 219 548
- Post retirement medical benefits 103 899 99 072
Deferred taxation liability - -
2 546 870 329 900
Current liabilities
Trade and other payables 308 811 266 614
Derivative financial instrument 283 209 -
Provisions 32 121 31 300
Current portion of long-term loans 779 660 1 793 885
Taxation - -
Group companies - related parties 24 954 9 746
Bank overdraft - 372 203
1 428 755 2 473 748
Total liabilities 3 975 625 2 803 648
Total equity and liabilities 3 379 405 3 033 372
Summarised cash flow for the year ended 31 December 2005
Group
Reviewed
2005 2004
R"000 R"000
Cash generated from / (utilised in) operating
activities 17,596 (119,180)
Loss before taxation (86,537) (2,521,093)
Adjustments for non-cash items 262,448 2,594,443
Increase in working capital (147,688) (177,855)
Taxation paid (10,627) (14,677)
Other operating activities - 2
Cash utilised in investing activities (114,928) (219,073)
Replacement of mining assets (108,038) (141,110)
Development expenditure - (104,613)
Other investing activities (6,890) 26,650
Cash flow from financing activities 652,676 357,246
Long and short-term loans raised 927,189 681,187
Long and short-term loans repaid (274,513) (323,941)
Net increase in cash and cash equivalents 555,344 18,993
Cash and cash equivalents at beginning of year (353,065) (372,058)
Cash and cash equivalents at end of year 202,279 (353,065)
Company
Reviewed
2005 2004
R"000 R"000
Cash generated from / (utilised in) operating
activities 29,012 (150,273)
Loss before taxation (96,045) (2,522,524)
Adjustments for non-cash items 259,267 2,604,239
Increase in working capital (125,499) (195,575)
Taxation paid (1,611) -
Other operating activities 7,100 36,413
Cash utilised in investing activities (120,827) (190,516)
Replacement of mining assets (107,888) (141,110)
Development expenditure - (104,613)
Other investing activities (12,940) 55,207
Cash flow from financing activities 652,676 357,246
Long and short-term loans raised 927,189 681,187
Long and short-term loans repaid (274,513) (323,941)
Net increase in cash and cash equivalents 560,861 16,457
Cash and cash equivalents at beginning of year (372,203) (388,660)
Cash and cash equivalents at end of year 188,658 (372,203)
Statement of changes in equity for the year ended 31 December 2005
GROUP
Share Share Distributable
Capital Premium Reserves
R"000 R"000 R"000
Balance at 1 January 2004
- as previously reported 28,316 575 1,811,361
Effect of adopting IFRS1 (4.2.1) - - 116,485
Balance at 1 January 2004 (Restated) 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 - - -
Conversion of debentures 1,246 36,149 -
Fair value adjustment on financial
liability - - -
Net loss for the year - - (93,230)
Balance at 31 December 2005 29,562 36,724 102,500
Currency
Translation Other
Reserves Reserves Total
R"000 R"000
Balance at 1 January 2004
- as previously reported 116,485 60,980 2,017,717
Effect of adopting IFRS1 (4.2.1) (116,485)
Balance at 1 January 2004
(Restated) - 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 - 55,043 55,043
Currency translation differences 2,953 - 2,953
Conversion of debentures - - 37,395
Fair value adjustment on
financial liability - (820,757) (820,757)
Net loss for the year - - (93,230)
Balance at 31 December 2005 (6,564) (677,151) (514,929)
Statement of changes in equity for the year ended 31 December 2005
COMPANY
Share Share Distributable
Capital Premium Reserves
Balance at 1 January 2004
- as previously reported 28,316 575 1,833,242
Revaluation of investments - - -
Other movements - - -
Net loss for the year - - (1,720,972)
Balance at 31 December 2004 28,316 575 112,270
Balance at 1 January 2005
- as previously reported 28,316 575 112,270
Revaluation of investments - - -
Conversion of Debentures 1,246 36,149 -
Net loss on cash flow hedge - - -
Other movements - - -
Net loss for the year - - (97,626)
Balance at 31 December 2005 29,562 36,724 14,644
Currency
Translation Other
Reserves Reserves Total
Balance at 1 January 2004
- as previously reported - 60,980 1,923,113
Revaluation of investments - 27,583 27,583
Other movements - - -
Net loss for the year - - (1,720,972)
Balance at 31 December 2004 - 88,563 229,724
Balance at 1 January 2005
- as previously reported - 88,563 229,724
Revaluation of investments - 55,044 55,044
Conversion of Debentures - - 37,395
Net loss on cash flow hedge - (820,757) (820,757)
Other movements - - -
Net loss for the year - - (97,626)
Balance at 31 December 2005 - (677,150) (596,220)
NOTES TO THE FINANCIAL STATEMENTS
1. INTRODUCTION
For the year ended 31 December 2004, the Group prepared its financial
statements under South African Statements of Generally
Accepted Accounting Practice ("SA GAAP") as effective at that date. In
accordance with the JSE 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). Palabora has prepared consolidated financial statements for the year
ended 31 December 2005 on the basis of the Standards and Interpretations within
IFRS.
It is noted that IFRS is currently being applied in a large number of countries
for the first time. Due to the number of new and revised Standards included
within IFRS, there is not yet a significant body of established practice on
which to draw in forming opinions regarding interpretation and application.
Accordingly, practice is continuing to evolve.
2. CORPORATE INFORMATION
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 preliminary consolidated financial statements of the Group for the year
ended 31 December 2005 were authorised for issue in accordance with the
approval of the Board of Directors on 31 January 2006.
The principal activities of the Group are described in note 8 (Segment
Reporting).
3. SELECTED SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
applied to all the years presented, unless otherwise stated.
3.1 Audit Review
The year end financial results have been reviewed in terms of paragraph 3.18
(c) of the Listings Requirements of the JSE by the Group"s auditor,
PricewaterhouseCoopers Inc. The unqualified review opinion is available on
request from the Company Secretary.
3.2 Basis of preparation
This preliminary report complies with IAS34. Except as described below, the
financial statements for the year ended 31 December 2005 have been prepared on
the basis of all IFRS Standards and Interpretations effective at 31 December
2005 and in certain instances where statements were early adopted.
The 2004 comparative financial information has also been prepared on this
basis, with the exception of certain standards, details of which are given
below, for which comparative information has not been restated.
The accounting policies applied in the presentation of consolidated financial
statements 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 and as described below with the adoption
of IFRS.
IFRS 1, First-time Adoption on International Financial Reporting Standards,
has been applied in preparing these financial statements. The consolidated
financial statements as at 31 December 2005 have been prepared in accordance
with International Accounting Standard (IAS) 34 (Interim Reporting)
3.3 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 31 December 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 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.
3.4 Presentational Changes:
The formats of the balance sheet, income statement, statement of changes in
equity and cash flow statement have been modified. The format of the income
statement has been changed from classification of expense by nature to
classification by function as management believe that this classification
provides more useful information to the users of the financial statements. An
exception to this format is the separate disclosure of the impairment, which is
by nature rather than function. Management believe that the significance of
this amount requires it to be separately disclosed. 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.
3.5 Derivative financial instruments and hedge accounting
The Group uses commodity swap contracts under which it receives a fixed price
in Rand in relation to a monthly notional quantity of copper, and pays a
floating price based on the US$ LME Cash Settlement Price. The net
receipt/payment is converted to Rand at the average US$/Rand.
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured at the fair value.
The fair value of the swap contracts is calculated by reference to current
forward exchange rates and the forward market rate (NPV) method for contracts
with similar maturity profiles and instruments. The method of recognizing the
resulting gain or loss depends on whether the derivative is designated as a
hedging instrument, and if so, the nature of the item being hedged.
The Group documents at the inception of the transaction, the relationship
between hedging instruments and hedged items, as well as its risk management
objective and strategy for undertaking various hedge transactions. The Group
also documents its assessment, both at hedge inception and on an ongoing basis,
of whether the derivatives that are used in the hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The Group designates its commodity swap contracts as hedges of highly probable
forecast transactions (cash flow hedges). The effective portions of changes in
the fair value of derivatives that are designated and qualify as cash flow
hedges are recognised in equity. The gain or loss relating to the ineffective
portion is recognised immediately in the income statement. Amounts accumulated
in equity are recycled in the income statement in the periods when the hedged
item will affect profit or loss (for instance, when the forecast sale that is
being hedged takes place).
Derivatives that do not qualify for hedge accounting are marked to market at
the balance sheet date giving rise to charges or credits to the income
statement in periods before the transaction against which the derivative is
held as an economic hedge is recognised.
Derivatives embedded in other financial instruments or other host contracts are
treated as separate derivatives when their risks and characteristics are not
closely related to their host contracts.
4. RECONCILIATIONS BETWEEN SA GAAP AND IFRS REPORTED FIGURES:
Due to the harmonization program adopted by the 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 to IFRS did
not result in substantial changes to the Group accounting policy.
4.1 Reconciliation of profit or loss
The adoption of IFRS did not result in significant changes to the Group"s
accounting policies commencing from transition date (1 January 2004) to the
current preliminary report date (31 December 2005). A reconciliation
of profit and loss under SA GAAP to IFRS is therefore not deemed necessary.
4.2 Reconciliation of changes in shareholders equity:
Share Share Retained
capital premium earnings
R"000 R"000 R"000
Balance at 1 January 2004
- as previously reported 28 316 575 1 811 361
Effect of adopting IFRS1 (4.2.1) - - 116 485
Balance at 1 January 2004 (Restated) 28 316 575 1 927 846
Balance at 31 December 2004 28 316 575 195 730
Balance at 31 December 2004 (Restated) 28 316 575 195 730
Foreign
currency
translation Other
reserve reserves Total
R"000 R"000 R"000
Balance at 1 January 2004
- as previously reported 116 485 60 980 2 017 717
Effect of adopting IFRS1 (4.2.1) (116 485) - -
Balance at 1 January 2004 (Restated) - 60 980 2 017 717
Balance at 31 December 2004 (9 517) 88 563 303 667
Balance at 31 December 2004
(Restated) (9 517) 88 563 303 667
4.2.1 Cumulative Foreign Currency Translation Reserve Adjustment
The Group"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. The
re-assessment of the useful lives of certain components of the underground
mining assets resulted in an additional depreciation charge of R78 million in
the income statement for the current period.
5.2 Inventory
Product inventory has been valued at the lower of cost and net realizable
value. The cost of product inventory includes 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 R12
million.
5.3 Intangible assets separately classified
Separate computer software and related licenses for a net book value of R8
million previously classified in tangible assets have been reclassified a part
of intangible assets. There is no effect on the income statements.
6. LOSS PER SHARE
Basic loss per share amounts are calculated by dividing net profit for the year
attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during the year.
Basic loss per share of the Group for the year is based on the net loss of R 93
million (2004: net loss of 1,732 million) divided by the total number of
weighted average shares in issue during the period of 28,450,400 (2004:
28,315,500). The following reflects the income and share data used in the basic
earnings per share computations:
Group
2005 2004
R"000 R"000
Reconciliation of net loss for earnings per Share
Net loss attributable to equity holders from
continuing operations (87,412) (1,626,199)
Loss attributable to equity holders from
discontinued operations (5,818) (105,917)
Net loss attributable to equity holders of parent (93,230) (1,732,116)
Reconciliation of weighted average number of
ordinary shares
Weighted average number of ordinary shares for
basic earnings per share 28,450 28,316
Adjusted weighted average number of ordinary shares 28,450 28,316
Basic loss per share(cents), for total operations (328) (6,117)
Basic loss per share(cents), for continuing
operations (307) (5,743)
Basic loss per share(cents), for discontinued
operations (21) (374)
Diluted loss per share (cents), for total
operations (328) (6,117)
Diluted loss per share (cents), for continuing
operations (307) (5,743)
Diluted loss per share (cents), for discontinued
operations (21) (374)
Headline loss per share (cents) (339) (231)
Headline loss per share (cents), taking into (339) (1,013)
account the commentary to note 7.
The impact of the Group"s convertible debentures on earnings per share is
anti-dilutive.
7. RECONCILIATION OF HEADLINE LOSS
Group
2005 2004
R"000 R"000
Loss after tax per the income statement (93,230) (1,732,116)
(Loss) / Profit on disposal of fixed assets (4,014) 46,567
Profit on ZBS sale 685 -
Impairment charges :
- Copper stream - 1,615,324
- ZBS plant - 4,901
Headline loss (96,559) (65,324)
Included in the headline loss for 2004 are a credit of R266 million for the
recognition of pension fund surplus and a R67 million credit as a release of
excess provisions for post retirement medical benefits. The exclusion of these
amounts would have resulted in a headline loss of R287 million for 2004, and a
headline loss per share of 1,013 cents.
8. SEGMENT REPORTING
The Group"s primary reporting segment is its business segment and its secondary
format is by 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.
Business Segment
The following tables present revenue and profit information and certain asset
and liability information regarding the Group"s business segments for the
year ended 31 December 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.
Year ended 31 December 2005
Copper Industrial Copper By
Minerals Products
Revenue
Sales to external customers 1,855,734 302,574 206,300
Segment Revenue 1,855,734 302,574 206,300
Results
Segment Results 99,881 66,421 72,755
Unallocated expenses
Loss from operations before
tax and finance costs
Net finance costs
Loss before income tax
Income tax expense
Net loss for the period
Discontinued Total
operation
Revenue
Sales to external customers - 2,364,608
Inter-segment sales - -
Segment Revenue - 2,364,608
Results
Segment Results (5,818) 233,239
Unallocated expenses 35,256
Loss from operations before
tax and finance costs 268,495
Net finance costs (355,032)
Loss before income tax (86,537)
Income tax expense (6,693)
Net loss for the period (93,230)
Year ended 31 December 2004
Copper Industrial Copper By
Minerals Products
Revenue
Sales to external customers 1,547,513 315,172 107,946
Segment Revenue 1,547,513 315,172 107,946
Results
Segment Results (120,238) (290) 57,120
Impairment on copper stream
Unallocated expenses and
provisions
Loss from operations before
tax and finance costs
Net finance costs
Loss before income tax
Income tax income
Net loss for the period
Discontinued
operation Total
Revenue
Sales to external customers - 1,970,631
Segment Revenue - 1,970,631
Results
Segment Results (105,917) (169,325)
Impairment on copper stream (2,341,752)
Unallocated expenses and
provisions 174,827
Loss from operations before
