ARM executives see effects of new Transnet team, but a recovery is far off

SA mining companies do not expect huge improvements in railed volumes of bulk commodities such as iron ore, manganese and coal in the short term. Still, the executives of diversified miner African Rainbow Minerals (ARM) said that since new leadership took over at state-owned logistics company Transnet last year things had started to improve.

ARM executive chair Patrice Motsepe said the group was pleased with the permanent appointment of Transnet veteran Michelle Phillips as CEO in February. Since Phillips was appointed in an acting capacity after the departure of Portia Derby and other executives in September and the beginning of October 2023 there had been positive changes at Transnet, he added.

“It just emphasises what we have been repeating: you have to employ the smartest and brightest people to run [state-owned enterprises]. Meritocracy is non-negotiable,” Motsepe told investors on Friday. “Transnet is very important to the whole mining industry, and we are pleased with the progress we are seeing.”

Andre Joubert, CEO of ARM Ferrous, said the “level of transparency has been much improved” at Transnet.

“But we realise that the state of Transnet is not what it used to be and it will take a lot of work, effort and money to get Transnet bulk lines back to delivering on their nameplate capacity. This will not happen in a week — even with the best management team,” Joubert said.

The logistics crisis and a downturn in platinum group metal (PGM) and coal prices were some of the main challenges the miner faced during the first half of its 2024 financial year.

ARM reported a 43% decline in headline earnings for the six months ended December as lower commodity prices took their toll.

Earnings down

Headline earnings decreased to R2.96bn, or R15.07 per share, from R5.17bn, or R26.39 per share, a year ago.

Headline earnings for ARM’s platinum business plunged 121% and coal fell 85% as dollar-based PGM prices dropped 40% on average and export coal prices fell about 50%.

Export sales volumes for coal increased 18% compared with the same period last year, largely due to an increase in trucking of coal to compensate for the decline in Transnet Freight Rail (TFR) performance.

Given the sharp decrease in coal prices ARM had halted trucking, said Thando Mkatshana, CEO of the group’s coal business.

“The cost of rail is R250 per tonne and trucking comes at R1,000 premium per tonne. At the current coal prices we have stopped trucking and focus only on rail. We are seeing an improvement in rail volumes. It is still early, but we are encouraged by those improvements,” he said.

The decline in the average dollar 6E PGM basket price and lower thermal coal prices were partially offset by a weaker average rand-dollar exchange rate and a 23% increase in realised export iron ore prices, it said.

The company said on Friday that iron ore export sales volumes were 6% higher at 6-million tonnes compared with a year ago, as the comparative period was affected by industrial action at Transnet.

But Joubert said ARM did not expect the improvement to be sustained because “there will be more time out on that line to fix it properly so that we can have a long-term sustainable improved performance”.

He said while ARM expected to improve export sales from 12-million tonnes in the previous year to 12.8-million tonnes in the current year, the long-term forecast was for 12.5-million tonnes over the next three to five years while Transnet made repairs to the line.

Request deferred

The nameplate capacity of the iron ore line is 60-million tonnes a year, but Joubert said it was expected to perform at about 87% of that while extensive maintenance work was carried out.

ARM said it continued to be confident about the long-term profitability of the Bokoni platinum mine. The definitive feasibility study for the phased development of Bokoni was advanced to a bankable feasibility study level. Due to depressed commodity prices and uncertain immediate outlook, the feasibility project approval request had been deferred.

“The immediate priority will be to conserve cash while ramping up production on a phased basis, from the installed capacity of 60,000 tonnes per month by leveraging and enhancing existing infrastructure,” it said.

Bokoni Mine reported a headline loss of R341m for the first half, driven mainly by the mine ramping up to its first PGM ounce production and only four months of the first half of the 2023 financial year being included. The first PGM ounce production was achieved in November 2023.

ARM bought Bokoni from the joint partnership between Anglo American Platinum and Atlatsa Resources Corporation in 2022 in a R3.5bn cash transaction that ARM hoped would scale up its PGM portfolio.

The mine, located on land owned by the Baroka ba Nkwana, spans more than 20,000ha in the Eastern Bushveld in Limpopo, a mining area containing big deposits of platinum, chromium and vanadium.

The group declared an interim dividend of R6 per share, down from R14 a year ago. With Jacqueline Mackenzie

Update: March 10 2024
This story contains new comment from ARM on the situation at Transnet.

erasmusd@businesslive.co.za