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PAM
PAM
Palabora Mining - Unaudited Interim Report for the six months ended 30 June 2006
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 2006
COMMENTARY
Overview
Keith Marshall, the Group"s Managing Director commented on the results for the
first half of 2006, stating "We made good progress during the first half of
2006. The underground production has improved and we regularly exceeded the
design capacity of 30,000 tonnes per days (tpd). Average production for the
period was 29,930tpd which included 4 maintenance days and 9 days lost due to
shaft issues. The grade continued at 0.71% copper which was slightly
disappointing, but it is now showing signs of improvement. The smelter shutdown
and reverberatory furnace impacted production by 40 days, which made the
overall copper output remarkable."
"We are in the grip of the biggest resource boom for 25 years. We have been
focussing our attention on our internal copper inventories (concentrate and
reverb furnace reverts) as well as the low grade surface stockpiles, which were
generated during the open pit days. The viability of these resources has
changed dramatically with the increase in the copper price. We are taking the
opportunity to supplement our underground copper production with material from
these stockpiles."
There were six lost time injuries during the first half of the year, a 40%
improvement on the same period last year. Safety remains a high priority for
both Management and employees. Various programs are in place to further improve
the safety performance of the business.
Group financial results
The net income for the six months ended 30 June 2006 was R257 million, or
565 cents per diluted share compared to a loss of R211 million, or 746 cents
per share for the comparable period of 2005.The basic earnings per share
improved from a loss of 746 cents per share to a profit of 869 cents per share.
The Group profit from continuing operations before tax improved by R490 million
from a loss of R203 million in the first half of 2005 to a profit of R287
million in the first half of 2006.
The Group achieved a gross profit from continuing operations for the first half
of 2006 of R736 million, from a gross profit of R259 million for the comparable
period in 2005.
* Operating Revenues increased by R687 million (66%) to R1,730 million largely
as a result of higher realised copper prices (+R724 million), higher realised
prices for anode slimes and magnetite (R28 million and R53 million
respectively), the sales of reverts and GSP concentrate (+R120 million), higher
sales volumes (+R54 million) and a weakening US$/Rand exchange rate of 6.27 in
2006 compared to 6.21 for the comparable period under review in 2005 (+R11
million). Higher sales volumes were mainly explained by higher volumes of
copper sales; 39 thousand tonnes compared to 38 thousand tonnes for the first
six months in 2005 (+R27 million) and higher volumes of magnetite sales; 465
thousand tonnes compared to 375 thousand tonnes (+R17 million).
The increase in revenue was partially offset by realised hedging losses
resulting from the swap settlement of 22 thousand tonnes of copper (-R305
million).
* Total Group cost of sales increased by R210 million, from R783 million in the
first six months of 2005 to R993 million for the comparative period under
review, representing an increase of 27 % from the previous period primarily
resulting from the following:
- The LME copper price impact on purchased concentrate of R196 million higher
than the comparable period under review in 2005. However this was offset by a
decrease in copper concentrate purchases from 14.6 thousand tonnes in 2005 to
11.6 thousand tonnes in 2006 (R49 million);
- An increase in smelter maintenance cost of R31 million mainly due to the
smelter shutdown during the first half of 2006;
- Underground costs were higher by R40 million than the comparable period
mainly resulting from an increase in mobile equipment damages, tyre costs
(increase in tyre prices and quality issues) and mobile maintenance (high
numbers of break downs);
- Overall depreciation for the first half of 2006 was R45 million higher than
the comparable period of 2005 due to a lower mine life span and higher
production levels;
- An increase in payroll costs of R19 million due to an increase in
permanent employees and an increase in production bonus payments of R7 million
compared to the first half of 2005;
- An increase in the costs of major consumables during the first half of 2006
of R11 million.
These have been partially offset by an increase in the positive stock variation
from R18 million in 2005 to R134 million in 2006 mainly resulting from the
revaluation of the smelter revert stockpile from a net realisable value of
2 thousand ZAR/t to a historical cost of 12 thousand ZAR/t (+ R169 million).
Other factors that contributed to the net profit before taxation of
R287 million include;
- Insurance proceeds received with regard to the claim on the ground subsidence
that occurred in 2004 of R35 million;
- An adjustment for the exclusion of severance costs from the provision for
closure costs of R54 million;
- Increase of R12 million in net finance costs. Unrealised exchange losses on
current loans of R157 million (2005: R172 million exchange loss) due to a 6%
depreciation of the Rand in 2006 compared with a 12% depreciation in the
previous comparative period. This is offset by an increase in interest paid of
R4 million (2006: R124 million; 2005: R120 million);
- An increase of R62 million in the selling and distribution costs and
R23 million in administration expenses. The increase in the selling and
distribution costs from R55 million in 2005 to R117 million for 2006 is mainly
attributable to the cost incurred for the export of magnetite sales.
The net loss associated with the discontinued operations represents a write-off
of R24 million of the ZBS plant initially recognised as a non-current asset
held for sale following the Board resolution to close the plant.
When the profit for the period of R257 million (2005; loss of R211 million) is
adjusted for (i) the sale of low grade concentrate of R57 million, (ii) the
sale of GSP of R55 million, (iii) the revaluation of the revert stockpile of
R169 million, (iv) the insurance claim received of R35 million, (v) the revised
closure cost effect of R54 million, (vi) the impairment of the ZBS plant of
R24 million and the exchange losses on loans of R157 million (2005:
R157 million), the adjusted profit for the period amounts to R68 million
compared to a loss of R39 million for the previous period.
The net cash cost of copper excluding the impact of purchased concentrates and
net finance cost increased from R16,363 per tonne to R17,526 per tonne mainly
due to increased production cost and lower cathode and rod production compared
to the first half of 2005.
The Group achieved an average realised selling price (post hedge) for copper
rod and cathode of R37,218 (2005: R21,357) and R31,771 (2005: R16,960)per tonne,
respectively. In the period under review, a total of 39,057 tonnes copper was
sold, compared to 38,443 tonnes in the first six months of last year. Reverts
throughput contributed to an additional 3,039 tonnes copper in the final
concentrate produced.
Cash flow
For the six months ended 30 June 2006, the Group generated a net cash inflow of
R199 million compared to a net cash inflow of R50 million for the comparable
period in 2005.
Cash from operations totaling an inflow of R341 million (2005: R71 million) was
generated mainly as a result of a significant increase in realised
(pre-hedge) copper rod and cathode prices (2006: 273 Usc/lb, 2005: 150 USc/lb)
and the sale of low grade concentrate and reverts of 12,527 tonnes of copper
(2005:nil) as part of the focus on our internal copper inventories as well as
the low grade surface stockpiles.
A net cash outflow of R84 million was used by the Group for investing
activities (2005: R70 million) mainly attributable to investment in capital
projects of R97 million of which R32 million relates to underground and
R45 million to the smelter. The net cash outflow was offset by the proceeds
received from the sale of property, plant and equipment and other investing
activities in the amount of R13 million.
The cash flow from financing activities decreased by R59 million as a result of
the repayment of the first principal of the term facility agreement.
Convertible Debentures
On 13 July 2006, the Company announced on SENS that debenture holders had until
Friday, 21 July 2006 to issue a conversion notice to convert their debentures
into ordinary shares in the Company. Up until that date, 53,018 debentures had
been converted resulting in the issue of 1,767,267 ordinary shares and a
further 89,798 and 458,394 debentures will be converted during August and
September 2006, respectively.
In total, 601,210 debentures will be converted resulting in the issue of
20,040,337 ordinary shares. The total issued share capital of the Company will
be 48,355,837 shares of which 57% will be held by Rio Tinto, 17% by Anglo
American and 26% by the public. In compliance with the Terms and Conditions of
the Debentures, Palabora is required to redeem the remaining debentures on the
Final Maturity Date, i.e. 18 September 2006 for a total amount of R248 million.
Accordingly, the debentures will be redeemed at their principal amount (i.e.
ZAR1 000 per debenture) plus interest. A final interest payment in respect of
the remaining debentures will be calculated from 20 March 2006 to but excluding
18 September 2006.
Refinancing
As reported in the 2005 annual report, the Group concluded its debt
restructuring program on 21 September 2005. Existing debt was replaced by a
senior loan of R1,280 million from South African and international banks and
certain shareholder debt were subordinated. The resultant debt profile for the
Group was re-established on a more sustainable repayment basis.
As part of the refinancing agreement, the Company is required to meet certain
covenants. On 30 June 2006, the Company issued a Loan Compliance Certificate to
the Lenders of the Senior Term Facility Agreement showing no defaults. Further
to the reserve statement issued on SENS on 18 January, an independent
consultant was requested by the lenders to review the new ore reserve
estimates. Discussions are underway with lenders on economic assumptions
regarding the calculation of the reserve tail ratio which remains an
outstanding issue with regard to covenants.
Net Debt
Total borrowings increased by R76 million mainly as a result of an increase in
US$ denominated debt due to the weakening of the Rand by 80 bps (from 6.334 to
7.125). The effect resulted in an unrealised exchange loss of R150 million
compensated by (i) the repayment of the Tranche A and B of the Term Facility
for a total amount of R59 million and (ii) the conversion of 14,910
debentures (at a principal amount of R1 000 per debenture).
Fifty five percent of the Group"s total borrowings are denominated in US$ for a
total amount of US$ 193 million.
Cash balances increased by R199 million compared to 31 December 2005 resulting
in a total decrease in net debt of R122 million.
Hedging
The combined hedge book as at 30 June 2006 amounts to 212,716 tonnes of copper
for a total amount of R 3,901 million spread over 7.5 years. The mark-to-market
loss of the hedge position increased by R3,436 million (from R820 million to
R4,256 million). The settlement of 21,722 tonnes of copper commodity Swap for
the first half of 2006 resulted in a hedging loss of R305 million reducing the
benefit of the higher market prices.
Magnetite
Following up from the 2005 preliminary report, Palabora is continuing to build
the magnetite business using "current arisings" and is evaluating several
options for the longer term.
Pension Fund Surplus
The external auditors are in the final stages of 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.
Corporate Governance
On 28 February 2006, Mr Warrick R.J. Ranson resigned from the Board as a
non-executive director and was replaced by Mrs Jo-Ann Goh.
With effect from 30 June 2006, Mr Steven M. Din resigned as an executive
director and Chief Financial Officer and was replaced by Mr Charles A.
Asubonten. Mr Din will be taking on responsibilities as Senior Vice President
Finance for Rio Tinto Iron and Titanium based in London. Mr. Asubonten,
formerly a finance executive at DTE Energy in Detroit, USA, joins the Company
with more than 15 years of increasing accounting and financial leadership
experience from Fortune 500 companies including Ford Motor Company and the Dow
Chemical Company; preceded by big 4 public accounting/auditing experience in
the USA. He earned an MBA in finance and corporate strategy from the University
of Michigan and a BBA in accounting from North Carolina Central University. He
is a Certified Public Accountant and a Chartered Financial Analyst charter
holder.
C N Zungu K Marshall
Acting Chairman Managing Director
1 August 2006
UNAUDITED GROUP RESULTS
Abridged income statement
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
Note R"000 R"000 R"000
Continuing operations
Revenue
Sales of products 1 729 947 1 043 010 2 364 608
Cost of sales (993 852) (783 562) (1 740 171)
Gross Profit 736 095 259 448 624 437
Other income 3 96 750 14 802 23 135
Selling and distribution
costs 4 (117 029) (55 081) (156 518)
Administration expenses 5 (140 641) (118 006) (213 471)
Other expenses (1 340) (5 060) (2 585)
Finance revenue 9 466 6 830 15 809
Finance costs (295 938) (306 202) (371 526)
Profit/(loss) before
tax 287 363 (203 269) (80 719)
Income tax expense 6 (5 424) (3 930) (6 693)
Profit/(loss) from
continuing operations 281 939 (207 199) (87 412)
Discontinued operation
Net loss associated with
discontinued operation 7 (23 969) (4 110) (5 818)
Profit/(loss) for the
period 257 970 (211 309) (93 230)
Allocated as follows:
Equity holders of parent 257 970 (211 309) (93 230)
Earnings/(Loss) per
share (cents):
- Basic earnings/
(loss) per share, total
operations 8 869c (746)c (328)c
- Basic earnings/
(loss) per share,
continuing
operations 8 950c (732)c (307)c
- Basic earnings/
(loss) per share,
discontinued
operations 8 (80)c (15)c (20)c
- Diluted earnings/
(loss) per share, total
operations 8 565c (746)c (328)c
- Diluted earnings/
(loss)per share,
continuing
operations 8 610c (732)c (307)c
- Diluted earnings/
(loss) per share,
discontinued
operations 8 (44)c (15)c (20)c
- Headline earnings/
(loss) per share 8 938c (737)c (339)c
Balance sheet
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
Note R"000 R"000 R"000
Assets
Non-current assets
Property, plant and
equipment 2 018 269 2 073 521 2 012 469
Intangible assets 5 024 14 236 9 722
Available for sale
financial asset 228 926 169 020 210 499
Deferred taxation asset 487 2 793 3 446
2 252 706 2 259 570 2 236 136
Current assets
Stores 52 787 51 339 51 769
Product inventories 760 601 418 016 594 983
Trade and other
receivables 550 582 397 689 362 413
Current income tax asset 875 1 400 492
Cash and cash
equivalents 11 400 795 16 433 202 279
1 765 640 884 877 1 211 936
Non-current assets held
for sale - 25 078 24 860
1 765 640 909 955 1 236 796
4 018 346 3 169 525 3 472 932
Total assets
Shareholders" equity
and Liabilities
Capital and reserves
Share capital and
premium 12 81 196 28 891 66 286
Other reserves (4 080 779) 108 638 (683 715)
Retained earnings 360 470 (15 579) 102 500
Total shareholders"
equity (3 639 113) 121 950 (514 929)
Non-current liabilities
Long term loans 11 1 870 362 12 122 1 640 786
Derivative financial
instrument 13 2 954 753 - 537 549
Provisions:
- Close-down and
restoration costs 269 573 250 557 264 636
- Post retirement
medical benefits 106 978 101 486 103 899
5 201 666 364 165 2 546 870
Current liabilities
Trade and other payables 469 987 311 719 320 826
Derivative financial
instrument 13 1 302 556 - 283 209
Provisions 34 780 36 952 32 246
Current portion of
long-term loans 11 626 766 2 000 874 779 660
Taxation - 2 979 -
Group companies -
related parties 21 704 10 720 25 050
Bank overdraft 11 - 320 166 -
2 455 793 2 683 410 1 440 991
Total liabilities 7 657 459 3 047 575 3 987 861
Total equity and
liabilities 4 018 346 3 169 525 3 472 932
Statement of changes in equity
Retained
for the six months ended Share Share earnings/
30 June 2006 Capital premium (loss)
R"000 R"000 R"000
Balance at 1 January 2005 28 316 575 195 730
Fair value on available for sale - - -
investments
Currency translation differences - - -
Net loss for the period - - (211 309)
28 316 575 (15 579)
Balance at 30 June 2005
Fair value on available for sale - - -
investments
Currency translation differences - - -
Conversion of debentures 1 246 36 149 -
Net loss on cash flow hedges - - -
Hedge loss recycled to profit and - - -
loss
Net profit for the period - - 118 079
Balance at 31 December 2005 29 562 36 724 102 500
Fair value on available for sale - - -
investments
Currency translation differences - - -
Conversion of debentures 497 14 413 -
Net loss on cash flow hedges - - -
Hedge loss recycled to profit and - - -
loss
Net profit for the period - - 257 970
Balance at 30 June 2006 30 059 51 137 360 470
Foreign
Currency
for the six months ended Translation
30 June 2006 reserve Other Total
R"000 R"000 R"000
Balance at 1 January 2005 (9 517) 88 563 303 667
Fair value on available for sale - 18 042 18 042
investments
Currency translation differences 11 550 - 11 550
Net loss for the period - - (211 309)
2 033 106 605
Balance at 30 June 2005 121 950
Fair value on available for sale - 37 001 37 001
investments
Currency translation differences (8 597) - (8 597)
Conversion of debentures - - 37 395
Net loss on cash flow hedges - (867 518) (867 518)
Hedge loss recycled to profit
and - 46 761 46 761
loss
Net profit for the period - - 118 079
Balance at 31 December 2005 (6 564) (677 151) (514 929)
Fair value on available for sale - 18 486 18 486
investments
Currency translation differences 20 999 - 20 999
Conversion of debentures - - 14 910
Net loss on cash flow hedges - (3 741 363) (3 741 363)
Hedge loss recycled to profit
and - 304 814 304 814
loss
Net profit for the period - - 257 970
Balance at 30 June 2006 14 435 (4 095 214) (3 639 113)
Summarised cash flow statement
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
R"000 R"000 R"000
Cash flows from operating
activities 341 332 70 972 17 596
Cash generated from operations 396 081 200 519 269 908
Interest paid (51 901) (124 407) (241 685)
Income tax paid (2 848) (5 140) (10 627)
Cash flows from investing
activities (83 551) (69 465) (114 928)
Purchases of property, plant and
equipment (96 887) (48 055) (108 038)
Proceeds on disposal of property,
plant & equipment 3 756 111 3 184
Amounts invested in
Rehabilitation Fund - - (4 449)
Other investing activities 9 580 (21 521) (5 625)
Cash flows from financing
activities (59 265) 47 825 652 676
Long term loans raised - 48 420 927 189
Long term loans repaid (59 265) (595) (274 513)
Increase in cash and cash
equivalents 198 516 49 332 555 344
At beginning of period 202 279 (353 065) (353 065)
At end of period. 400 795 (303 733) 202 279
1. CORPORATE INFORMATION
The consolidated financial statements of Palabora for the six months ended 30
June 2006 were authorised for issue in accordance with a resolution of the
Board of Directors passed on 27 July 2006.
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 described in Note 10.
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
Basis of preparation
The interim financial report for the six months ended 30 June 2006 have been
prepared in accordance with International Accounting Standard (IAS) 34 (Interim
Reporting).
The interim financial report does not include all the information and
disclosures required in the annual financial statements, and should be read in
conjunction with the Group"s annual financial statements as at 31 December
2005.
Significant accounting policies
The accounting policies applied in the presentation of the interim report are
consistent with those applied for the year ended 31 December 2005, except for a
change to the detail of the basis of accounting for closure costs, as a result
of which provision is no longer made for severance costs associated with mine
closure. In addition the following have been adopted:
The adoption of IFRIC 4 `Determining whether an arrangement contains a lease".
A change to the Group"s policy on accounting for exploration and evaluation
expenditure. Previously, the Group capitalised exploration expenditure on the
acquisition of a beneficial interest or option in mineral rights. Full
provision was made for impairment unless there was a high degree of confidence
in the project"s viability and hence it was considered probable that future
economic benefits would flow to the Group. Under the Group"s revised policy,
exploration is not capitalised until the point is reached at which there is a
high degree of confidence in the project"s viability and it is considered
probable that future economic benefits will flow to the Group.
A clarification to IAS 21 relating to the treatment of exchange gains and
losses on loan balances between fellow subsidiary companies was issued in
December 2005. The clarification allows in certain circumstances, to include
such loans as part of the reporting entity"s net investment in foreign
operations.
The effect of the above adjustments is not material to Group earnings or to
shareholders" funds. As a consequence prior year information has not been
restated.
Presentational changes
The format of the income statement has been changed from classification of
expenses by nature to classification by function, as mentioned in the annual
report of 31 December 2005.
Changes in estimates
* Depreciation of assets by units-of-production method
The Group complies with 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 life-of-mine impacted the useful lives of assets being
depreciated under the life-of-mine method and resulted in an additional
depreciation charge of R12 million in the cost of sales line on the income
statement for the current period.
* Product Inventory - Smelter process products ("Reverts")
Due to changes in economic circumstances, the net realisable value of reverts
increased in the period. These stock items were previously carried at net
realisable value of R2,084 per tonne. In accordance with IAS 2, a new
assessment of net realisable value is made in each subsequent period. The
amount of the previous write-down below cost is reversed, limited to the amount
of the original write down. The closing stock of revert was consequently
revalued to a unit cost of R12,352 per tonne. This resulted in a decrease in
the cost of sales line on the income statement of R169 million.
* Provision for Close-down and Restoration cost
The provision for close-down and restoration costs was impacted by the
following movements during the period ended 30 June 2006:
- A R62 million increase due to a revised present closure obligation and an
expected earlier start of the closure program as a result of the shorter
life-of-mine 1.
- A decrease in the discount rate from 2.9% to 2.4% resulted in a R13 million
increase in the provision.
- A change in the basis of accounting for closure costs whereby provision is no
longer made for severance costs associated with mine closure, resulted in a R85
million decrease of the provision.
- Finance charges (unwind of discount) through the income statement resulted in
an increase of R15 million in the provision.
Changes in the measurement of the close-down and restoration costs liability
that results from changes in the estimated timing or amount of the outflow of
resources embodying economic benefits required to settle the obligation, or a
change in the discount rate are adjusted for in the cost of the related asset
in terms of IFRIC 1. This resulted in the capitalisation of the R62 million and
R13 million respectively as mentioned above. The adjustment for the exclusion
of the severance costs from the calculation of the obligation resulted in a R31
million decrease in the related asset.
3. OTHER INCOME
Included in other income are the following:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
R"000 R"000 R"000
Insurance pay-out 2 35 371 - -
Severance cost excluded from
close-down and restoration
costs provision 3 53 658 - -
Profit on sale of property, plant
and equipment 3 584 111 4 014
Sundry revenue
4 137 14 691 19 121
96 750 14 802 23 135
1 As was reported in the annual financial statements for the year ended
31 December 2005.
2 R35 million insurance payout as a result of a claim on the ground
subsidence of the open pit;
3 R54 million resulting from a change in the basis of accounting for closure
costs as explained above.
4. SELLING AND DISTRIBUTION COSTS
The increase in the selling and distribution costs is mainly attributable to a
24% increase in exported magnetite volumes from 375,099 tonnes for the
comparable prior period to 465,022 tonnes during the current six months ended
30 June 2006.
5. ADMINISTRATION EXPENSES
The increase in the administration expenses from the previous comparable
period is mainly explained by:
(i) R9 million increase in insurance expenses;
(ii) R2 million increase in information systems related expenses;
(iii) R3 million increase in performance bonuses; and
(iv) R8,5 million increase in repair costs, depreciation and stock write-offs.
6. TAXATION
Deferred income tax assets are recognised to the extent that future taxable
benefits are generated against which the deferred tax asset can be realised. At
30 June 2006 the Company had an unredeemed capital expenditure balance of
R1,5 billion.
7. LOSS FROM DISCONTINUED OPERATION
The loss from discontinued operations represents a write-off of R24 million on
the non-current asset held for sale for the Zirconium Basic Sulphate (ZBS)
plant as a result of the Board resolution to close the ZBS plant given risks
associated with the sale process.
8. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing net profit for the
period attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year.
Basic profit per share of the Group for the interim period is based on the net
profit of R258 million (June 2005: net loss of R 211 million) divided by the
total number of weighted average shares in issue during the period of
29,677,112 (June 2005: 28,315,500).
The Groups convertible redeemable debentures are the only dilutive instruments
during the current period.
Dilutive earnings per share are based on basic dilutive earnings (R306 million)
divided by the adjusted total number of weighted average shares in issue during
the period (54,178,122). In the previous period the debentures were not
dilutive.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
R"000 R"000 R"000
Reconciliation of net
profit/(loss) for earnings per
share
Net profit/(loss) attributable to
equity holders from continuing
operations 281 939 (207 199) (87 412)
Loss attributable to equity
holders from discontinued
operations (23 969) (4 110) (5 818)
Net profit/(loss) attributable to
equity holders of parent 257 970 (211 309) (93 230)
Interest on convertible
redeemable debentures 48 379 54 028 106 433
Net profit/(loss) attributable
to ordinary shareholders from
diluted earnings per share 306 349 (157 281) 13 203
Reconciliation of weighted
average number of ordinary shares
Weighted average number of
ordinary shares for basic
earnings
per share 29 677 28 316 28 450
Effect of dilution: Convertible
redeemable debentures 24,501 28 315 24 998
Adjusted weighted average number
of ordinary shares 54 178 56 631 53 448
Basic earnings/(loss) per share
(cents), for total operations 869 (746) (328)
Basic earnings/(loss) per share
(cents), for continuing
operations 950 (732) (307)
Basic earnings/(loss) per share
(cents), for discontinued
operations (80) (15) (20)
Diluted earnings/(loss) per
share (cents), for total
operations 565 (746) (328)
Diluted earnings/(loss) per
share (cents), for continuing
operations 610 (732) (307)
Diluted earnings/(loss) per
share (cents), for discontinued
operations (44) (15) (20)
Headline earnings/(loss) per
share (cents) 938 (737) (339)
9. RECONCILIATION OF HEADLINE EARNINGS PER SHARE
Profit/(loss) before tax
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2006 2005 2005
R"000 R"000 R"000
Profit/(loss) per
income statement 263 394 (207 379) (86 537)
Profit on disposal of
fixed assets (3 584) (111) (4 014)
Impairment charges -
ZBS 23 969 - -
Profit on ZBS sale - (804) 685
Fair value adjustment
- ZBS debtor - 4 914 -
Headline profit/(loss) 283 779 (203 380) (89 866)
Taxation and lease
consideration
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2006 2005 2005
R"000 R"000 R"000
Profit/(loss) per
income statement (5 424) (3 930) (6 693)
Profit on disposal of
fixed assets - 37 -
Impairment charges -
ZBS - -
Profit on ZBS sale - 270 -
Fair value adjustment
- ZBS debtor - (1 648) -
Headline profit/(loss) (5 424) (5 271) (6 693)
Profit/(Loss) after tax
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2006 2005 2005
R"000 R"000 R"000
Profit/ (loss) per
income statement 257 970 (211 309) (93 230)
Profit on disposal of
fixed assets (3 584) (74) (4 014)
Impairment charges -
ZBS 23 969 - -
Profit on ZBS sale - (534) 685
Fair value adjustment
- ZBS debtor - 3 266 -
Headline profit/(loss) 278 355 (208 651) (96 559)
10. SEGMENT REPORTING
The Group"s primary reporting segment is its business segment and secondary
format is its geographical segments. The operating businesses are organised 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. Transfer prices between business segments are set on an
arm"s length basis in a manner similar to transactions with third parties.
Business Segment
The following tables present revenue and profit information regarding the
Group"s business segments for the periods ended 30 June 2006 and 2005
respectively. 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 2006
Industrial Copper By-
Copper Minerals Products Total
R"000 R"000 R"000 R"000
Revenue
Sales to external
customers -
continuing operations 1 395 300 166 611 168 036 1 729 947
Inter-segment sales - - - -
Segment Revenue 1 395 300 166 611 168 036 1 729 947
Results
Segment Results -
continuing operations 409 840 12 589 69 020 491 449
Segment Results -
discontinued
operations - (23 969) - (23 969)
Unallocated income 82 386
Profit from
operations before tax
and finance costs 549 866
Net finance costs (286 472)
Profit before income
tax 263 394
Income tax expense (5 424)
Profit for the period 257 970
Period ended 30 June 2005
Industrial Copper By-
Copper Minerals Products Total
R"000 R"000 R"000 R"000
Revenue
Sales to external
customers -
continuing 830 911 63 218 56 391 950 520
operations
Inter-segment sales - 92 490 - 92 490
Segment Revenue 830 911 155 708 56 391 1 043 010
Results
Segment Results -
continuing operations 27 912 26 823 48 624 103 359
Segment Results -
discontinued
operations - (4 110) - (4 110)
Unallocated expenses (7 156)
Loss from operations
before tax and
finance costs 92 093
Net finance costs (299 472)
Loss before income tax (207 379)
Income tax expense (3 930)
Loss for the period (211 309)
11. NET DEBT
Six months
ended
Effective 30 June
interest rate % Maturity 2006
Description of loan R"000
Non-current
Senior Term Facility Libor+2.3%/ 30.06.13 536 459
Jibar+2.65%
Other Facilities Libor+2.38% 31.01.14 -
Convertible
debentures 4 Jibar+5% 418 340
Rio Tinto unsecured
loan Libor+5% 915 563
1 870 362
Current
Medium Term Facility Libor/Jibor+1.5% 13.09.05 -
Convertible
debentures 5 Jibar+5% 16.09.06 378 820
Proceeds from debentures 378 820
Debenture issue fees -
Senior Term Facility Libor+2.3%/ 30.06.13 147 098
Jibar+2.65%
Revolving credit
facility Libor+2.3%/ 100 848
Jibar+2.65%
Rio Tinto unsecured
loan Libor+5% -
Rio Tinto secured loan Libor+5% -
Other Facilities Libor+2.38% -
626 766
Total borrowings 2 497 128
Bank overdrafts -
Cash and cash
equivalents (400 795)
Net debt 2 096 333
Total equity (3 639 113)
Six months Year
ended ended
Effective 30 June 31 December
interest rate % 2005 2005
Description of loan R"000 R"000
Non-current
Senior Term Facility Libor+2.3%/ - 557 376
Jibar+2.65%
Other Facilities Libor+2.38% 12 122 -
Convertible
debentures 4 Jibar+5% - 418 340
Rio Tinto unsecured
loan Libor+5% - 665 070
12 122 1 640 786
Current
Medium Term Facility Libor/Jibor+1.5% 294 097 -
Convertible
debentures 5 Jibar+5% 849 148 393 730
Proceeds from debentures 849 465 393 730
Debenture issue fees (317) -
Senior Term Facility Libor+2.3%/ - 142 156
Jibar+2.65%
Revolving credit
facility Libor+2.3%/ - 94 925
Jibar+2.65%
Rio Tinto unsecured
loan Libor+5% 856 453 -
Rio Tinto secured
loan Libor+5% - 148 849
Other Facilities Libor+2.38% 1 176 -
2 000 874 779 660
Total borrowings 2 012 996 2 420 446
Bank overdrafts 320 166 -
Cash and cash
equivalents (16 433) (202 279)
Net debt 2 316 729 2 218 167
Total equity 121 950 (514 929)
4. Refer to note 15 on the post balance sheet events: after 30 June 2006 Rio
Tinto exercised their right to convert all 418 340 debentures held by them
into shares;
5. Refer to note 15 on the post balance sheet events: after 30 June 130 566
debentures held will be converted into shares;
The terms of repayments are consistent with the information disclosed in the
December 2005 annual financial statements.
Principal repayments of R59 million were made on the senior term facility
during the six months ended 30 June 2006. For the six months ended 30 June
2006, 14,910 debentures were converted (at a principal amount R1 000
per debenture). All other movements from December 2005 relates to the
revaluation of the US$ denominated debts for a total amount of R150 million
due to the weakening of the US$:Rand exchange rate.
12. SHARE CAPITAL AND PREMIUM
The issued share capital increased by R0,5 million and the share premium by
R14,4 million for the six months ended 30 June 2006. The share issue is due to
the conversion of 14,910 debentures of R1 000 each. All outstanding
debentures as at 18 September 2006 will be redeemed on that date.
Rio Anglo
Tinto American
Total Group Corporation Public
Share capital R"000 R"000 R"000 R"000
Original issued share capital 28 316 13 945 8 118 6 253
Debentures converted into
shares as at
31 December 2005 1 246 - - 1 246
Balance at 31 December 2005 29 562 13 945 8 118 7 499
Debentures converted into
shares
as at 30 June 2006 497 - - 497
Balance at 30 June 2006 30 059 13 945 8 118 7 996
% Shareholding - 31 December
2005 100% 47.2% 27.5% 25.3%
% Shareholding - 30 June 2006 100% 46.4% 27.0% 26.6%
Share premium
Original share premium 575 283 164 128
Debentures converted into
shares
as at 31 December 2005 36 149 - - 36 149
Balance at 31 December 2005 36 724 283 164 36 277
Debentures converted into
shares
as at 30 June 2006 14 413 - - 14 413
Balance at 30 June 2006 51 137 283 164 50 690
13. DERIVATIVE FINANCIAL INSTRUMENTS
At 30 June 2006, the Group held a commodity swap contract designated as a hedge
of expected future sales to local customers under which the Group receives a
fixed price in Rand in relation to a monthly notional quantity of copper sales
as detailed below and pays a floating price based on the arithmetic average
(mean) of the US$ LME Cash Settlement Price.
The net receipt/payment is converted to Rand at the average US$/Rand exchange
rate for the calculation period. The cash flows paid under the terms of the
hedging instrument are designed to reduce variability in the Rand proceeds of
the copper sales set out in the following table.
The combined hedged book as at 30 June 2006 amounts to 212,716 tonnes of copper
for a total amount of R3,9 billion spread over 7.5 years. The terms of the
contracts are as follows:
Average Mark
hedged Hedged to market
Maturity Quantity price value loss/(gain)
Year (t) ZAR/t R"000 R"000
2006 22 150 20 993 464 995 678 110
2007 45 021 20 993 945 116 1 188 411
2008 41 801 20 521 857 801 887 291
2009 22 265 15 739 350 426 449 527
2010 22 188 15 739 349 217 365 673
2011 21 825 15 739 343 499 295 807
2012 21 137 15 739 332 667 236 725
2013 16 329 15 739 256 997 155 765
Total 212 716 3 900 718 4 257 309
Less:
Non-Current
portion 2 954 753
Current
portion 1 302 556
The London Metal Exchange (LME) US$ price of copper increased significantly in
the period. This resulted in an increase for the six months ended 30 June 2006
of R3 436 million from the balance at 31 December 2005 of R821 million to a
balance of R4 257 million on the swap liability included under other reserves.
14. 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.
There has been no significant change to the Group"s financial risk management
objectives or policies reported in the annual financial statements for the year
ended 31 December 2005.
Foreign currency risk
In the normal course of business, the Group enter into transactions denominated
in foreign currencies (primarily with respect to the US dollar and the British
pound).
Approximately 55% of the Group"s existing debt is denominated in US$ for a
total amount of US$ 193 million. As a result of the significant US$ denominated
borrowings, the Group"s balance sheet can be affected significantly by
movements in the US$/ Rand exchange rates. The Group has not undertaken a
strategy to mitigate the effect of its structural currency exposure by
borrowings in US$.
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 36% 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.
The following table set 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
Accounts receivable
British Pounds (GBP) 2 288 - - 2 288
US Dollar (US$) 7 023 - - 7 023
Accounts payable
British Pounds (GBP) (1 451) - - (1 451)
US Dollar (US$) (4 143) - - (4 143)
Long term loans
US Dollar (US$) (14 419) (34 835) (136 981) (186 235)
Interest rate
The Group"s income and operating cash flows are substantially independent of
changes in market interest rates. The Group"s cash flow 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 tables sets out the carrying amount, by maturity, of the Group"s
financial assets and liabilities that are exposed to interest rate risk:
Within 1-2 2-3 3-4
1 year Years Years Years
R"000 R"000 R"000 R"000
Period ended
30 June 2006
Floating rates
Revolving credit
facility 100 848 - - -
Senior Term
Facility 147 098 162 137 87 879 74 253
Convertible
debentures 378 820 - - -
Rio Tinto loans - - - -
Total 626 766 162 137 87 879 74 253
Year ended
31 December
2005
Floating rates
Revolving credit
facility 94 925 - - -
Senior Term
Facility 142 112 126 984 144 560 65 762
Convertible
debentures 393 730 - - -
Rio Tinto loans 148 849 - - -
Total 779 616 126 984 144 560 65 762
4-5 More than
Years 5 Years Total
R"000 R"000 R"000
Period ended
30 June 2006
Floating rates
Revolving credit
facility - - 100 848
Senior Term
Facility 78 196 133 994 683 557
Convertible
debentures - 418 340 797 160
Rio Tinto loans - 915 563 915 563
Total 78 196 1 467 897 2 497 128
Year ended
31 December
2005
Floating rates
Revolving credit
facility - - 94 925
Senior Term
Facility 78 196 185 937 743 551
Convertible
debentures - 418 340 812 070
Rio Tinto loans - 665 070 813 919
Total 78 196 1 269 347 2 464 465
15. POST BALANCE SHEET EVENTS
Debentures
Subsequent to 30 June 2006 the following notices for the conversion of
debentures were received:
Public debenture holders - 130 566 debentures will be converted into
4 352 200 ordinary shares;
Rio Tinto debentures - 418 340 debentures will be converted into 13 944 665
ordinary shares.
This will result in the following changes in shares issued:
Rio Anglo
Tinto American
Total Group Corporation Public
Share capital R"000 R"000 R"000 R"000
Balance at 30 June 2006 30 059 13 945 8 118 7 997
Option exercised to convert
debentures into shares
as at 21 July 2006 (last day
to exercise
option to convert) 18 297 13 945 - 4 352
Balance 48 356 27 890 8 118 12 349
% Shareholding after final
conversions 100% 57.7 % 16.8% 25.5%
16. GROUP SELECTED STATISTICS
Six months Six months
ended ended
30 June 30 June
2006 2005
Revenue
Copper (including hedge) R"million 1,396 821
By-products R"million 206 67
Vermiculite R"million 129 156
Net profit/(loss) before
tax R" million 263 (207)
Copper
Ore hoisted millions of tonnes 5,42 5,0
Average copper grade % Cu 0.710 0.716
Copper in concentrates
produced "000 of tonnes 28,5 29,7
Cathode produced "000 of tonnes 36,2 37,7
Average copper price
realised USc/lb 273.7 156.0
LME Copper Price USc/lb 275.6 151.0
Average rand/dollar
exchange rate R/US$ 6.27 6.21
Average copper price
realised R/tonne 37,218 21,357
Net cash cost R/tonne 17,537 13,352
Copper Rod
Unit selling price pre
hedge USc/lb 269.1 156.1
Unit selling price post
hedge USc/lb 220.8 156.1
Sales tonnes 34,487 33,810
Cathode
Unit selling price pre
hedge (local) USc/lb 268.3 148.6
Unit selling price post
hedge (local) USc/lb 220.2 148.6
Sales (local) tonnes 2,870 2,142
Unit selling price pre
hedge (export) USc/lb 377 162
Unit selling price post
hedge (export) USc/lb 309.8 148.6
Sales (export) tonnes 1,700 2,491
Vermiculite
Vermiculite sold tonnes 90,768 91,519
Average vermiculite prices
realised R/tonne 1,418 1,375
Operational cash cost R/tonne 423.6 310.2
Magnetite
Magnetite sold tonnes 465,022 375,099
Average magnetite prices
realised R/tonne 193 52
Imported concentrate
Volumes Tonnes copper 7,152 10,721
Cost R"million 283.6 190.1
Unit purchased price R/tonne of copper 39,657 17,728
Marginal ore concentrate
Volumes Tonnes copper 4,411 3,865
Cost R"million 111.9 58.5
Unit purchased price R/tonne of copper 25,370 14,147
Cash flow
Cash from operations R"million 371.3 71.0
Cash in bank R"million 400.8 (303.7)
Costs
Production cost (excluding
concentrate purchases) R"million 693.7 401.7
Cost of sales R"million 993.9 783.6
Capital expenditure and
commitments
Capital expenditure R"million 97 48
Approved expenditure at end
of each period R"million 95 130
Contracts placed at end of
each period R"million 37 25
Investments
Fair value of unlisted
investments R"million 229 169
Share capital
Authorised ordinary shares
of
R1 each R"000 100,000 100,000
Issued ordinary shares of
R1 each R"000 30,059 28,316
Net asset value per share R/share (121.07) 4.31
16. GROUP SELECTED STATISTICS
Year
ended
31 December
2005
Revenue
Copper (including hedge) R"million 1,949
By-products R"million 232
Vermiculite R"million 277
Net profit/(loss) before tax R"million (75)
Copper
Ore hoisted millions of tonnes 10,03
Average copper grade % Cu 0.715
Copper in concentrates produced "000 of tonnes 61,2
Cathode produced "000 of tonnes 80,3
Average copper price realised USc/lb 169.5
LME Copper Price USc/lb 166.9
Average rand/dollar exchange rate R/US$ 6.37
Average copper price realised R/tonne 24,188
Net cash cost R/tonne 14,382
Copper Rod
Unit selling price pre hedge USc/lb 172.1
Unit selling price post hedge USc/lb 167.8
Sales tonnes 69,543
Cathode
Unit selling price pre hedge (local) USc/lb 168.3
Unit selling price post hedge (local) USc/lb 164.2
Sales (local) tonnes 4,089
Unit selling price pre hedge (export) USc/lb 170
Unit selling price post hedge (export) USc/lb 166.3
Sales (export) tonnes 5,021
Vermiculite
Vermiculite sold tonnes 171,097
Average vermiculite prices realised R/tonne 1,404
Operational cash cost R/tonne 325.9
Magnetite
Magnetite sold tonnes 759,203
Average magnetite prices realised R/tonne 127
Imported concentrate
Volumes Tonnes copper 24,530
Cost R" million 531.4
Unit purchased price R/tonne of copper 21,664
Marginal ore concentrate
Volumes Tonnes copper 8,121
Cost R" million 137.1
Unit purchased price R/tonne of copper 21,664
Cash flow
Cash from operations R" million 17.6
Cash in bank R" million 202.3
Costs
Production cost (excluding
concentrate purchases) R" million 874.8
Cost of sales R" million 1,740.2
Capital expenditure and commitments
Capital expenditure R" million 136
Approved expenditure at end
of each period R" million 108
Contracts placed at end of
each period R" million 27
Investments
Fair value of unlisted investments R" million 211
Share capital
Authorised ordinary shares of
R1 each R"000 100,000
Issued ordinary shares of R1 each R"000 29,562
Net asset value per share R/share (18.10)
Directors:
C N Zungu (Acting Chairman), K Marshall* (Managing Director), T Albanese**,
C J Latcham***, M R Maruma, G M Negota, J C Posthumus (Alt: P A Henry),
R M Whyte*(Alt: F B Weldon), J S Yuen-Goh***
*British **American ***Australian
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 at: www.palabora.co.za
Date: 01/08/2006 03:36:29 PM Produced by the JSE SENS Department
