Press release on Petmin's Condensed Consolidated Preliminary Financial Report for the year ended 30 June 2016
Monday, 5 September 2016
Petmin delivers another steady performance
| ||Revenue R1,283 billion (2015 R1,274 billion) |
| ||Dividend declared of five cents per share on 2 Sept 2016 (8 Sept 2015: five cents). Dividends declared for seven years in a row |
| || Healthy balance sheet with R174m cash on hand (2015: R237 million) with unutilised facilities of R330 million (2015: R140 million) |
| ||Net gearing 7.66% (2015: 12.66%). |
| ||Like for Like Eps 26.15 cents up 7% from 24.43 cents (2015) |
| ||Consistent performance at Somkhele anthracite |
| || 1,236m saleable tonnes of anthracite produced (2015: 1,335m) |
| ||1,122m tonnes of anthracite sold (2015: 1,222m). |
| ||349k tonnes of saleable energy coal produced (2015: 368k tonnes) |
| ||442k tonnes of energy coal sold (2015: 352k tonnes) |
| || Mining right awarded over the remaining Somkhele mining areas |
| ||Tendele BBBEE deal implemented |
| ||Final draft BFS received for NAIC and project economics remain robust |
Petmin maintained a steady performance in the year to end-June 2016 as it delivered on key local commitments and made progress on its North American industrial project.
Petmin’s CEO – Jan du Preez said “The steady performance of Somkhele is a result of the combined efforts of the management team, our employees and the local community working together to ensure a stable and profitable environment.”
Bradley Doig, executive director said “The draft BFS for the NAIC project has been received and is being reviewed in detail by management. The project remains economically robust.”
Profit from operating activities increased by 6% to R230 million from R217 million and normalised earnings increased 7% to 26.15 cents per share (2015: 24.43 cents).
Group capital expenditure, excluding pre-stripping, increased by R24m to R52m (2015: R28m) as Somkhele spent R31 million on development of the new KwaQubuka open pit mining area.
Petmin invested a further $4 million in its North Atlantic Iron Corporation industrial project to take its NAIC shareholding to 40%.
On 2 September 2016, Petmin declared a dividend of five cents per share (8 September 2015: five cents) in line with its approved dividend policy and the dividend will be paid to all shareholders on 24 October 2016.
During the year to end-June 2016, Petmin acquired 13,484,787 (2015: 28,496,778) of its own shares at an average acquisition price of R1.32 per share (2015: R1.53); for a total investment of R18 million (2015: R44 million).
At 30 June 2016 the company held 46,292,981 of its own shares in treasury stock, representing 8.02% of the total issued shares.
During the year to end-June 2016, Somkhele produced 1,236m saleable tonnes of anthracite (2015: 1,335m) and sold 1,122m tonnes (2015: 1,222m). The mine produced 349k tonnes of saleable energy coal (2015: 368k tonnes) and sold 442k tonnes (2015: 352k tonnes).
Anthracite production was slightly down by 7% due to a minor geological disturbance encountered in one of the three mining areas (as reported in the Interim Results, published on 7 March 2016) while production from plant 3 was restricted during the first half of FY16 to conserve process water as the impact of the drought in KwaZulu-Natal resulted in low water levels in mine storage dams.
Rains in the second half and mitigating actions by management resulted in an improved water balance, and there is sufficient process water at full production for the foreseeable future.
Production costs per tonne were well controlled in the year ended 30 June 2016, increasing by 9% from 2015. Increased state royalty payments contributed 3% of the 9%.
Average prices for inland sales were 5% down from 2015. Average Rand prices achieved on the export market increased by 16% from 2015, largely as a result of the weaker Rand. The average dollar price of export sales decreased by 14% compared to 2015.
The average at-mine-gate selling price of energy coal increased by 38% in 2016 with continued strong demand for this product.
Tendele was notified by the Department of Mineral Resources (DMR) in a letter dated 31 May 2016 that it had been awarded the mining right for Somkhele Areas 4 and 5, which means Tendele now has all the required mining rights for the life of its mining operations.
Anthracite production at Somkhele is expected to increase by 4% and sales volumes are expected to increase by 20% as a result of sales of inventory built up in 2016. Production cost per tonne is expected to increase by approximately 6% over costs for the year to June 2016.
Local demand is expected to increase 7% and local prices are expected to increase 3% over those achieved in 2016 and we are running at maximum capacity in the local market across the product suite.
Petmin expects the average export price in Rands for the year ahead to be 2% higher than in 2016, with a 5% reduction in the average dollar price of exports being offset by a forecast weaker Rand. We expect dollar prices for exports in the six months to 31 December 2016 to reduce by 19%, due to one-off sales from stockpiles while prices for the 6 months to June 17 are expected to be 9% higher than 2016, in line with current increases in global coal prices.
Energy coal production is expected to increase by 20% from 2016, with sales volumes expected to increase by 9%. At-mine-gate energy coal sales prices are expected to increase by 20% from 2016.
Capital expenditure to June 2017 is expected to be approximately R50 million, with approximately half on a planned expansion to increase throughput capacity in the third wash plant, and for the development and relocation costs to open up new mining areas. Saleable production from plant 3 will increase by 430 000 tonnes over the next 5 years with an increase of circa 70 000 tonnes to June 2017.
In terms of sales to June 2017, we are fully committed in respect of Anthracite and Energy coal. Total committed sales volumes of anthracite and energy coal to June 2017 are 1 460 000 tonnes and 453 000 tonnes respectively. In terms of export sales and opening Dollar debtors, we have hedged $34 million of sales protecting R15.50 to the dollar with balance of $42m unhedged and we will actively look to hedge a further $20m.
Somkhele: BBBEE transaction
The Tendele BBBEE transaction was implemented during the period under review, in terms of which the children of the local community and employees now hold a 20% equity stake in the Somkhele mine.
Somkhele: legal dispute with customer
As described in more detail in Note 15 of Petmin’s December 2015 Interim Financial Statements published on SENS on Monday 7 March 2016, Petmin’s subsidiary, Tendele Coal Mining Proprietary Limited, withdrew from the arbitration with its customer and has sought declaratory relief from the High Court that the contract concerned is void or voidable.
As stated at the time, “This course of action has been taken due to information recently coming to Tendele’s and Petmin’s attention during the course of the arbitration proceedings which is being considered and dealt with by Petmin”.
Tendele’s legal advisors have filed a High Court action to declare the contract void or voidable. It is anticipated that a court date will be set for early 2017 to commence arguments on this action.
Additionally, the first court hearings for the High Court application to have the arbitration award made an order of court are anticipated for early 2017.
Tendele and its legal advisors believe that the prospect of success in the High Court to declare the contract void or voidable is good. No liability will be recorded in relation to the award made by the arbitrator.
North Atlantic Iron Corporation
During the year ended 30 June 2016, Petmin invested an additional R55m (2015: R29m) in its North Atlantic Iron Corporation (NAIC) industrial project.
Petmin now holds 40% of the equity in NAIC (2015: 35%), having completed its stepped-investment programme totalling US$25 million.
Subsequent to 30 June 2016, the final draft bankable feasibility study for NAIC, prepared by Tenova, has been received and is being reviewed by management. The project economics remain robust. Debt and equity funding for the plant construction will commence once the BFS is concluded.
Petmin has approved an additional $4 million equity investment into NAIC subject to certain conditions, including finalisation of a detailed budget for the next 12 months, a pro-rata contribution by its investment partner on the same terms, appointment of full-time executives with responsibility for project fund raising and development, and appointment of a NAIC board of directors. We hope to have final sign off of the BFS by end September 2016 and thereafter NAIC will commence the capital raising programme. We anticipate environmental approval by Q1/2 2017 with construction commencing in the spring of 2018.
The Veremo project is an iron ore to pig iron project in South Africa in which Petmin has a 25% shareholding. As previously disclosed, Petmin has decided to impair its investments in the Veremo project in full, totalling R115m.
This is due to the continued lack of acceptable progress in discussions with the majority shareholders of Veremo on how best to take the project forward, continued downward pressure on iron ore prices, and the fact the mining right awarded in January 2014 has still not been executed.
The impairment in no way detracts from Petmin’s continuing arbitration procedures and court application for the payment of the guaranteed distributions of R195 million due to it by Framework Investments and/or Kermas Limited.
Renewal of cautionary announcement On 8 August 2016, Petmin announced the renewal of the Cautionary Announcement dated 24 June 2016, in which shareholders were advised that negotiations are in progress, and which if successfully concluded may have a material effect on the price of the Company’s securities. Accordingly, shareholders are advised to continue exercising caution when dealing in the Company’s securities until a full announcement is made
Petmin: Bradley Doig
+27 11 706 1644
Jonathon Rees (Media, communication and investor relations)
+27 76 185 1827