Pressure on ARM Zambia division
Cato Ridge ferromanganese smelter under review too
African Rainbow Minerals (ARM) is dragging all its divisions down the cost curve, but its troublesome copper business in Zambia may not stay in the company if it underdelivers on company expectations.
Another business that was coming under review is the Cato Ridge ferromanganese smelter in KwaZulu-Natal after ARM and its Chinese and Japanese partners commissioned a two-furnace ferromanganese smelter in Malaysia, which had low electricity costs and a long-term power supply agreement, said CEO Mike Schmidt.
An announcement on Cato Ridge would be made before the end of 2017.
Chunky impairments of ARM’s nickel and platinum mines masked what was a strong interim financial performance from the diversified mining company, with its ferrous division benefiting from higher iron ore and manganese prices, and its Two Rivers platinum operation standout performers.
"Iron ore was the star performer," said Schmidt, adding the mines, equally shared with Assore in a company called Assmang, were targeting 17-million tonnes for the year to June.
ARM, chaired by billionaire Patrice Motsepe whose family trust is a significant shareholder of the company, reported a R734m post-tax impairment of the Modikwa platinum mine and a R711m impairment of its Nkomati nickel operation. These impairments contributed to ARM reporting a R283m loss for the six months to December compared with a R1.3bn loss a year earlier.
However, profit before tax and special items nearly doubled to R1.5bn from R769m the year before. Headline earnings increased to R1.7bn from R507m before, with ARM attributing the strong increase to its ferrous division and its Two Rivers platinum operation.
The R23bn company’s shares shot up 11.5% to R105.27.
Motsepe pointed out the difficulties for mining companies in engaging political parties and communities, which had high expectations for shares, dividend flows, jobs and senior positions in mining companies as well as supply contracts.
"You’ve got to build credibility and trust [with communities], saying, hey, listen, if we don’t work together and make this mine successful we are going to close this mine. Then there are others who are misleading them for political reasons and say let them close the mine and we’ll run it ourselves. They can’t even fasten their shoelaces, those political people," he said.
The coal division and Nkomati swung to profit from losses a year earlier. ARM cautioned that Nkomati was heading for a difficult three-year period in which output would decline. The copper division narrowed its headline loss to R178m from R275m as a result of a restructuring exercise.