Mining division review

Francois Hay Managing director, BME

Financial performance

Financial highlights

Operational performance

Global operating environment

This year saw a significant recovery in commodity and mineral prices, resulting in a recovery in sales volumes of both explosives and chemicals used in the metallurgical extraction process. New mining operations that had been put on hold during the global recession were reassessed, and it appears that several new mines will be developed throughout Africa in the short to medium term.

Despite the recent earthquake and tsunami in Japan, the global focus on sustainable energy supply continues to ensure there will be ongoing demand for uranium. Existing uranium operations are steadily increasing output.

Local operating environment

We experienced an exceptional year with substantial growth in volumes and turnover following the fast recovery in global commodity and mineral prices and increased mining activity across all sectors.

Despite higher input prices, the surface mining sector showed good volume and turnover growth. The growth can be attributed to both an increase in supply to existing customers, including some major customers’ contract renewals, as well as being awarded a number of new contracts.

The underground mining sector has shown a positive recovery after the severe impact of the global economic downturn, and the increase in commodity prices has had a positive impact on mining activity in this sector. However, the market remains very competitive, particularly for initiating systems. As a result of numerous safety incidents, the South African underground mining sector continues to be affected by section 54 mine closures.

Both BME and Protea Mining Chemicals continued to provide strong on-site technical support to their customers. An ongoing focus on the safe and effective use of mining chemicals expanded the need to offer customers personnel training and on-site skills development. This has resulted in an increased number of training sessions being undertaken.

BME retained ISO certification across all its South African operations. We view safety as a critical aspect of our business and it remains an area of continuous focus and attention.

Tragically, an explosion at BME’s Losberg cartridge manufacturing facility resulted in three fatalities. A full investigation has been launched to determine the cause of the incident. We are cooperating fully with all relevant authorities.

Financial performance

The strong recovery in the mining commodity market has positively impacted our results. Volumes rose significantly by 13% over the previous year with turnover increasing by 18% to R2 092 million (2010: R1 776 million).

Operating profit rose 47% to R311 million (2010: R212 million). Margins have been enhanced through a differentiated supply offering and stringent cost control. The overhead increase over the prior year was largely driven by volume growth. Overheads as a percentage of revenue decreased, demonstrating our tight control over overheads and expenditure.

Outlook

We performed well this year. All indications are that the global upswing will continue into the next year and we are well positioned to take advantage of the global recovery.

The growth in African mining is expected to continue, with greater mining activity as well as increased stripping ratios as mines become deeper. The South African underground mining sector remains very competitive, particularly for initiating products. The market continues to switch from traditional “cap fuse and ignitor cord” to shocktube technology, which will change the competitive landscape and provide the Mining division with growth opportunities.

Sales of the newly developed AXXIS™ electronic delay detonators are expected to be strong as initial interest exceeded expectations.

Strategic alliances with leading local and international chemical manufacturers remain fundamental to the business growth of Protea Mining Chemicals.

Case study
A differentiated offering Protea Process® vendor management is a differentiated service and reagent supply offering. The registered process adds significant value to the customer’s operations through the supply and controlled effective use of reagents, on-site services, engineering design of chemical handling facilities, logistics and supply chain management. The offering has been sought out by leading global chemical manufacturers as an extension to their business growth aspirations. Further resource skills and on-site reagent dosing technology are being developed in line with the trend to use a smaller reagent plant footprint, in-line dosing systems and reduced water consumption. A new generation of electronic initiation This year saw the launch of BME’s new-generation electronic delay detonators (EDDs). Branded AXXIS™, the new EDDs are easy to use, accurate and robust. The use of AXXIS™ detonators in trial blasts started in August 2010, with 23 250 being fired in 84 blasts by mid-February 2011. The trials have generated considerable interest in the industry. The AXXIS™ plant in Rustenburg, North West, has been successfully commissioned and production is under way at the facility. The product is currently sold in South Africa, with international sales imminent. AXXIS™ detonators use special intelligent connectors that allow detonator interrogation during programming without powering up the detonator. This safety measure means that while people are working on the block none of the detonators are energised. The AXXIS™ system is proving popular at all sites where it is being trialed. The largest blast fired to date had 755 detonators. BME is routinely firing 400 to 600 detonator blasts for customers using AXXIS™ detonators.