JOHANNESBURG (miningweekly.com) – Patrice Motsepe, chairperson of the black-controlled diversified mining company African Rainbow Minerals (ARM), on Monday urged the government to intervene seriously to establish Eskom as a competitive, cost-effective, reliable provider of electricity.

Speaking at ARM’s presentation of interim results, which saw its headline earnings plunge 56% in the six months to December 31, Motsepe said South Africa had a very serious job challenge and he had no doubt that a huge number of jobs would be created if both electricity and water were available at competitive prices.

“Eskom has let all of us down very badly,” he said, adding that ARM’s decision to place its long-standing Machadodorp ferroalloys operation on care and maintenance at the end of April was largely the result of uncompetitive electricity tariffs.

ARM CEO Mike Schmidt told the analysts and media, which included Creamer Media’s Mining Weekly Online, that the prohibitive cost of power had forced the company into closing some of the inefficient premises, including the last operating ferromanganese furnace at Machadodorp.

As a replacement to Machadodorp, the company was proceeding on schedule and on budget with its Sakura ferroalloys project in Malaysia, where steady-state production of 170 000 t manganese alloy a year was envisaged at a far more certain electricity tariff (also see attached Creamer Media TV video).

“One of the reasons why Malaysia was so attractive to us – and, of course, our number-one obligation is to South Africa for the ferromanganese smelter – is because the cost of electricity is very, very low. So, we have to continue to engage with government to make sure that we all work together to create global competitiveness and that our cost of production as businesses is lowered,” Motsepe said, adding that the company was committed to local value addition to metals and minerals through beneficiation.

“There’s a lot we do in terms of beneficiating some of the minerals we produce,” he said, but outlined that the private sector would pursue any beneficiation opportunity that made commercial sense.

He called for an appropriate beneficiation partnership between the private sector and government, with tax incentives and a longer-term perspective on the selected commodities.

“You will not have beneficiation simply because the government says you must beneficiate. If there’re good opportunities in beneficiation, the private sector will beneficiate,” he added.

ARM Ferrous CEO Andre Joubert said in response to Renaissance Capital mining analyst Johan Pretorius that even at mining and logistical cost level the Machadodorp ferromanganese operation was unable to make a profit.

The Sakura project in Malaysia would buy ore at market prices from Assmang and reduce the ore profitably.

There was a large differential between the Machadodorp cost and the future cost of Sakura.

In response to Creamer Media’s Mining Weekly Online, Joubert said that, “as we sit right here today, the cost differential between Sakura, Malaysia, and Machadodorp, South Africa, is not that huge.

“But we’ve got a contract with the Malaysian authorities for a two-and-a-half per cent annual increase in electricity cost and if you project that forward, in five year’s time and ten year’s time, and every year that goes past, Sakura just goes lower and lower on the cost curve.

“The technology that we’ve applied there also involves much bigger and more efficient furnaces than the old, small furnaces that we have in Machadodorp,” Joubert added.

JSE-listed ARM on Monday put forward a seven-point plan of reviewing all nonperforming operations, focusing on reducing capital expenditure (capex), improving operational efficiencies, reducing costs, targeting a decrease in corporate office costs, curtailing exploration expenditure and improving cash flow by optimising working capital management.

ARM and Assmang have also reached agreement on the disposal of ARM’s effective 50% interest in Assmang's Dwarsrivier chrome mine and ARM put its 56% headline earnings plunge down mainly to the fall in the prices of the iron-ore, platinum, coal, chrome, manganese alloy and other commodities it supplies, which were only partially offset in the half-year by rand weakness against the US dollar.

Modikwa platinum mine had an 11% decrease in production and a 21% increase in unit production costs and all aspects of the mine, especially costs and capex, are currently under review.

Headline earnings of R1 026-million compared with R2 341-million for the corresponding period last year and headline earnings a share of 473c were well down on the 1 084c in the prior period.

Basic earnings took a R225-million exceptional-item knock, mainly on a R222-million after-tax, mark-to-market loss on ARM’s holding in JSE-listed Harmony Gold.

Costs at the company’s iron-ore, manganese alloy, chrome and Two Rivers platinum operations were kept below inflation and coal operations achieved a production cost decrease.

Gross debt stayed at R3 920-million with ARM Ferrous debt free. Net debt was R1 944-million at end December.

Cash from nonferrous operations rose heftily to a R624-million higher R1 485-million while Assore’s dividend was held at R750-million and cash generated at ARM Platinum's operations increased to R1 323-million from R663-million.

Dividends paid to ARM shareholders in October 2014 increased to R1.3-billion from R1.1-billion before and cash capex was R707-million for the period.

Glencore’s Tweefontein Optimisation Project ramp-up gave ARM Coal a cash operating profit boost while the ramp-up of production at the Lubambe copper mine was slower than planned, rising to 12 563 t from 10 567 t,

ARM's acquisition for R400-million of the Tamboti Platinum mining right puts an additional 30 years life on Two Rivers platinum through the addition of portions of the Buffelshoek, Kalkfontein and Tweefontein farms into the Two Rivers mining area.

ARM’s modernisation of the Black Rock iron-ore mine project it has with Assore, in the Northern Cape, is targeting increased production from the Seam Two resource.

The project is expected to align cost increases with inflation by establishment of key underground and surface infrastructure, eliminating inefficient material handling and increasing saleable production capacity.

Nkomati’s on-mine cash cost a tonne milled increased below inflation at 3%. C1 unit cash cost net of by-products, however, increased by 15% as a result of a reduction in grade consistent with the mine plan.

Among ARM’s other main partners are Anglo American Platinum, Impala Platinum Holdings, Norilsk Nickel Africa, Vale and Zambian Consolidated Copper Mines.