ARM pays dividend, may expand Modikwa
David McKay
Posted: Mon, 03 Sep 2007
miningmx.com
[miningmx.com] -- AFRICAN Rainbow Minerals (ARM), the R24.6bn black-controlled company led by Patrice Motsepe, announced it would pay a dividend of 150 South African cents/share as its platinum division made its first major contribution to group earnings.
The dividend, equal to a payout of R315m and issued just over three years after ARM was created in its current form, is rare among South Africa’s empowerment companies, many of which are loaded with heavy debt. ARM said net debt increased R600m in the 2007 financial year ended June compared to the 2006 financial year, but net gearing was “at a reasonable level” of 17%.
“Although substantial capital will be expended for ongoing growth, the board believes that ARM’s net debt position is at an appropriate level, as sufficient cash flow and facilities exist to fund developing projects,” it said in its year-end notes.
Speaking at the presentation to analysts and media, Motsepe said: "You can't claim to be a competitive business unless you pay a dividend." He said ARM would continue to pay dividends. "The danger with a dividend is not to declare one, but that we continue to pay them," Motsepe said. "It's important we share our confidence with shareholders."
Cash on hand was just over R1bn as of end-June which compares to R439m in cash at the close of the 2006 financial year. ARM has a number of capital projects on its books which it estimates will cost it R5bn in the 2008 financial year alone.
These include the expansion of its Nkomati Nickel plant, the Goedgevonden coal project with Xstrata and the Khumani iron ore project.
ARM reported a 158% increase in headline share earnings of 580 South African cents/share or R1.2bn from R462m previously. A 12.5% weaker rand/dollar exchange rate helped earnings along, while ferrous metals production was higher in a strong metals market. But the driver was increased production from platinum, the first time the precious metal has signficantly made its presence felt in ARM’s earnings.
The platinum division comprised a third of total headline earnings with a R461m contribution compared to a R42m contribution in the 2006 financial year. It was only outshone by a doubling in contribution from ferrous metals (chrome, iron ore and manganese) to R665m, the business on which ARM has been traditionally based.
ARM’s coal interests, held through a 20.2% stake in the Xstrata Coal South African partnership, with the UK-listed diversified miner, Xstrata plc, delivered a R268m cash operating profit in the 2007 financial year. Accounting rules, related to interest ARM notionally carries in respect of a loan from Xstrata, meant headline earnings from coal attributable to ARM was R1m.
The Modikwe mine, held in joint venture with Anglo Platinum, benefited from changes to its mining method, while the Two Rivers mine, held in partnership with Impala Platinum, recorded its first major platinum output with some 180,000 oz produced. Platinum was also produced at the Nkomati Nickel joint venture with Norilsk Nickel as a by-product.
ARM said it was considering increasing production at Modikwe. “A scoping study has been inititated which will investigate a modular production increase,” ARM said in its commentary to its results. It gave no further details.
However, the decline in the share price of Harmony Gold, in which ARM owns about 16%, lopped R2.25bn off the value of ARM’s investment in the gold company.
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ARM said it remained confident in Harmony despite the recent resignation of Bernard Swanepoel, its former CEO amid runaway costs and lower production. “With a clear focus on future improvements in production and costs, management believes significant value can be unlocked in Harmony,” ARM said.
Commenting on future prospects, ARM said it would consider other joint ventures and acquisitions. “ARM will continue to look at appropriate acquisitive value adding opportunities which are fairly priced,” it said.
"Our market capitalisation puts us in a position where we can talk to potential parties that could benefit shareholders," said Motsepe.
ARM CEO, Andre Wilkens, told Miningmx on August 27 the group was considering investing in Harmony’s gold/copper project, Golpu/Wafi in Papua New Guinea, |
