JSE-listed African Rainbow Minerals (ARM) recorded a mixed set of results across its operations for the six months ended December 31, 2021, with headline earnings for the period having decreased by 27% year-on-year to R3.70-billion, or R18.87 apiece.

An interim dividend of R12 apiece has been declared. The amount to be paid is about R2.69-billion.

ARM Ferrous’ headline earnings decreased by 18% year-on-year to R2.43-billion, mainly owing to lower headline earnings in the iron-ore division, owing to a decrease in dollar prices.

The lower iron-ore earnings were partially offset by improved headline earnings in the manganese division.

ARM Platinum’s headline earnings also decreased, by 38%, to R1.25-billion, largely owing to negative mark-to-market adjustments related to the receivables balance as at June 30, 2021, following a decrease in rhodium and palladium prices in the first three months of the period.

The Modikwa platinum mine delivered a 29% increase in headline earnings to R594-million as the mine increased production volumes by 37% and reduced production unit costs by 13%.

The Two Rivers platinum mine, in Limpopo, recorded a decrease in headline earnings to R725-million mainly owing to a R669-million negative mark-to-market adjustment, a 3% decrease in production volumes and a 16% increase in production unit costs.

ARM Coal’s headline earnings increased by R573-million to R351-million, mainly owing to higher export thermal coal prices.

ARM executive chairperson Dr Patrice Motsepe says that despite this strong performance, ARM still remains committed to the just transition from coal to renewable energy. However, he notes that coal will still continue to be an important part of the economy while this transition is undertaken. During this period, ARM will continue to play its role in ensuring that it aligns to global commitments, Motsepe emphasises.

ARM’s basic earnings for the interim period were R3.89-billion, and included an attributable impairment reversal of R239-million on the investment in the Participative Coal Business (PCB).

Net cash improved by R2.85-billion to R11.06-billion as at December 31.

Cash generated from operations increased by R2.80-billion to R4.83-billion, after a reduction in working capital requirements of R1.04-billion, mainly owing to a decrease in trade receivables.

Borrowings of R68-million were repaid during the period, resulting in gross debt of R1.03-billion at period-end.

The group net asset value per share increased by 2% to R183.32 apiece.

INVESTMENTS

ARM says its robust cash balance positions it well to invest in its operations and to opportunistically pursue value-enhancing growth, while continuing to pay dividends to shareholders.

A sale and purchase agreement was signed, subject to the fulfilment of certain conditions precedent, for the acquisition of the remaining shares in the Bokoni Platinum mine from Anglo American Platinum and Atlatsa Resources, for a consideration of R3.50-billion, payable in cash.

Motsepe informs that the transaction is slated for completion during the year.

The Bokoni mine has the second-largest platinum group metals (PGMs) resource in South Africa.

Motsepe says that Bokoni is part of ARM’s short-, medium- and long-term growth strategy.

The acquisition gives ARM an opportunity to develop the mine’s large, high-grade resource which will enable it to scale its PGMs portfolio. The was placed on care and maintenance in October 2017 owing mainly to adverse market conditions.

ARM is developing a new mine plan for Bokoni and is concurrently evaluating early mining opportunities to capitalise on the current strong PGMs basket price.

The focus for the next 12 months will be to finalise a definitive feasibility study and, in parallel, obtain all the requisite mining approvals and fulfil all conditions precedent, which would enable ARM to begin mining operations in 2023.

Steady-state is expected to be achieved from 2028 onwards.

Moreover, ARM says it continues to invest in its existing operations with segmental capital expenditure of R1.93-billion for the period.

SAFETY

ARM highlights an improved safety performance despite the challenges presented by Covid-19.

The group lost time injury frequency rate per 200 000 man-hours improved to 0.36, while the total recordable injury frequency rate improved to 0.67.

At period end, Black Rock Mine had achieved 9.9-million fatality-free shifts and, on February 14, the mine reached a milestone of ten-million fatality-free shifts.

However, ARM says a colleague, Jacob Puleng Leshaba, was fatally injured in a fall-of-ground incident at the Two Rivers mine’s north decline on September 1, 2021.

OUTLOOK

Commodity prices were subject to significant volatility in the six months under review.

However, the 2022 calendar year is expected to have a more balanced iron-ore market and is then expected to move into surplus from 2023 onwards. This could place downward pressure on iron-ore prices.

ARM's iron-ore operations remain well-positioned as the global move to reduce carbon emissions in the steel industry has resulted in greater demand for high-quality lumpy iron-ore products, it points out.

In PGMs, although the semi-conductor chip shortage has dampened autocatalyst demand in the short term, tightening emission standards and the role of PGMs in clean mobility, particularly through hydrogen technology, are expected to be positive for PGMs demand.

ARM believes the medium- to long-term fundamentals of PGMs are robust as supply remains constrained and demand is supported, with this confidence underpinned by its acquisition of Bokoni.

The success of ARM's operations is heavily reliant on the efficient provision of utilities and logistics infrastructure within South Africa, it notes.

While there are numerous challenges in reliable supply of power, water security and performance on logistics channels, ARM says it remains fully committed to working with government and all stakeholders to find sustainable solutions that benefit the mining sector and the country.

These and other input cost escalations are expected to continue putting pressure on unit costs across the South African mining industry. ARM is implementing various efficiency improvements and cost-containment initiatives at its operations to mitigate against above inflation unit cost increases.