JOHANNESBURG (miningweekly.com) – Base mineral and metals mining company Assore, which released financial results for the 12 months to June 30 on Wednesday, reported 11.7% lower headline earnings to R1.7-billion for the financial year.

The Johannesburg Stock Exchange-listed company, chaired by Des Sacco, reported a poor ongoing outlook for iron-ore and manganese prices but an uptick in chrome-ore prices, which coincides with the company’s acquisition of African Rainbow Minerals’ (ARM's) 50% interest in the Dwarsrivier chrome mine in Mpumalanga.

The group has embarked on cost-saving programmes owing to what it describes as "the increased costs of operating in South Africa".

Its principal investment is a 50% interest in Assmang, which it controls jointly with Patrice Motsepe's ARM.

Assmang mines iron-ore from opencast operations at the Khumani mine, near Kathu, and the Beeshoek mine, outside Postmasburg; manganese ore at the Nchwaning and Gloria mines, in the Northern Cape; manganese alloys at the Cato Ridge Works in KwaZulu-Natal and the Machadodorp Works in Mpumalanga; and chrome-ore at the Dwarsrivier underground mine in Mpumalanga’s Steelpoort Valley.

Although prices improved during the second half of the financial year, the company reported ongoing challenging economic conditions, with continued oversupply in the iron-ore and manganese-ore markets.

Despite this, it sold record volumes of iron-ore and chrome ores for the second consecutive year, taking the level of second-half profitability up to the level of the previous financial year.

In its outlook statement, Assore painted a bleak picture of China’s economic slowdown impacting globally across a range of indicators and contributing to the increased volatility in financial markets, sluggish growth in global trade and the lower commodity prices of the last two years.

Moreover, recent iron-ore price increases had attracted additional supply from higher cost producers, which would add to the already oversupplied iron-ore market.

“Prices are therefore expected to remain under pressure and it is unlikely that the current price levels will be maintained,” the company said.

Oversupply of mostly medium-grade manganese ores continued to cause volatility in prices for manganese ores, but with manganese alloy prices poised to recover slightly off their low base.

Consolidation in the South African ferrochrome industry, stable levels of supply from chrome-ore miners and global inventory shortages had combined with increased stainless steel production in China to lift chrome-ore prices to an average $150/t for 44% grade concentrate.

Moreover, chrome ore in Chinese ports had fallen to a ten-year low, pointing to the chrome-ore market remaining strong.

Against that background of higher South African electricity and labour costs, Assore embarked on the Sakura Ferroalloys joint venture (JV) between associate company Assmang, Japanese trading giant Sumitomo Corporation and Taiwanese firm China Steel Corporation.

In May, the JV hot commissioned the first of two 81 MVA furnaces, at its manganese alloy smelting facility, in Sarawak, Malaysia.

The second furnace will produce 70 000 t of silico manganese a year. This furnace is due to be commissioned in September and reach full production capacity in early 2017, at a within-budget capital cost of R328-million.

IMPAIRMENT CHARGES

During the year, a review of the continued commercial viability of Furnace 6 at Assmang's Cato Ridge Works was undertaken and it was decided to cease production of high-carbon ferromanganese from this furnace, resulting in an impairment charge of R333-million. Assets at Machadodorp Works, with a net book value of R72-million, were also written down, as an impairment charge.

In addition, the group has assumed impairment charges of R96-million from the assessment of the recoverability of the remaining assets at Rustenburg Minerals at R41-million and the reduction in the value of the group's share portfolio at R30-million.

The total impairment charge recognised amounts to R299-million.

SALES VOLUMES

For the second consecutive financial year, Assmang achieved record sales volumes of iron and chrome ores due to increased production at Khumani and Dwarsrivier, combined with the use of additional port and rail capacities.

The initial impact of the expansion project at Assmang's Black Rock mines, combined with increased rail capacity, realised additional sales tonnages of manganese ore, but sales volumes of ferromanganese were depressed owing to lower levels of global crude steel production.

EXPANSION

The expansion and sustainability project at Assmang's Black Rock mines continues, with most aspects of the project remaining on schedule.

Once completed, this will enable Assmang's manganese division to produce at a rate of more than four-million tonnes of manganese products a year, from the end of 2017.

Assmang spent R1.7-billion on the project this financial year, with R2.1-billion remaining to be spent.

Assmang's capital expenditure for the year amounted to R3-billion, which was down on last year’s R3.8-billion.

DIVIDENDS

A final dividend of 500c a share, up on last year’s 300c a share, was declared, taking the total dividend for the year of 700c a share, up on last year’s 600c a share.