TIDMPTMN
RNS Number : 1160Z
Petmin Limited
04 March 2013
Petmin Limited
(Incorporated in the Republic of South Africa)
(Registration number 1972/001062/06)
JSE code: PET
AIM code: PTMN
ISIN: ZAE000076014
("Petmin" or "the Group")
4 March 2013
Press Release Petmin Ltd interim financial results for the six
months ended 31 December 2012
PETMIN OVERCOMES END-2012 CHALLENGES AND TARGETS INCREASED
PRODUCTION AND REVENUE
Financial highlights
Ø Net cash flow from operations R161m despite difficult
conditions
Ø Like for like profit after tax down 16% to R30m (2011:
R36m)
Ø Shareholding in NAIC increased to 22.5% following significant
project progress
Ø New R325m banking facilities secured
Ø R238m (2011: R273m) invested in local and international growth
and diversification
Ø R280m cash received for sale of SamQuarz silica operation
Operational highlights
Ø Extension to mining licence at Somkhele metallurgical
anthracite mine
Ø Updated resource statement for North Atlantic Iron Corporation
(NAIC)
Highlights for the period after 31 December 2012
Ø Third Somkhele plant commissioned in February 2013
Ø Greater control of Somkhele costs and productivity from JV
with mining contractor
Ø New stockpile policy to enable continued operations at
Somkhele during excess rainfall
Ø First smelt test completed and significant progress as NAIC
advances towards preliminary economic assessment (PEA)
JSE and AIM-listed Petmin has reported profit after tax down 36%
to R30m (2011: R47m) for the six months to 31 December 2012
following a quarter of production losses caused by excessive rain
and the effect of an unprotected strike at its Somkhele
metallurgical anthracite mine in KwaZulu-Natal.
Petmin generated R161m of cash (2011: R200m) in the period under
review. Profit after tax was down 16% on a like for like basis from
ongoing operations (2011: R36m), taking account of the sale of the
SamQuarz silica operation in June 2012 for R281.1m. Earnings per
share from continuing operations were down 16% at R5.22 (2011:
R6.18).
Excess rain prevented the loading and delivery of 192,000 tonnes
of exposed coal to the Somkhele wash plants.
Petmin invested R238m (2011: R273m) in the period under review
to deliver on its growth and diversification strategy, including
R29m to take its share in NAIC to 22.5%.
Sales volumes and prices at Somkhele were maintained as demand
remained steady and deliveries to customers were made from
stockpiles.
During the six months to 31 December 2012, the impact of the
second wash plant enabled Somkhele to increase production by 44% to
293 765 tonnes (2011: 203 425 tonnes) of saleable anthracite, and
tonnes sold increased by 63% to 370 562 tonnes (2011: 227 041
tonnes), with some sales from stockpile.
Although production increased by 44%, infrastructure and staff
levels were geared for a 100% increase, which negatively affected
profit margins.
The Somkhele mine has increased its ROM stockpile to 100 000
tonnes outside the pit and at the plant head, enabling the mine to
cope with further extreme weather conditions.
Petmin expects production from Somkhele to increase
significantly in the six months ending 30 June 2013, with the
anthracite market showing reasonable demand at prices better than
the previous six months. After continued heavy rains in
January2013, Somkhele operated at budgeted production levels in
February 2013 and management is confident recent challenges have
been largely overcome.
"The fundamentals of the Somkhele operation remain strong
despite short-term weather and labour challenges," said Petmin
executive chairman Ian Cockerill. "We have overcome these
challenges and are well positioned to increase production and sales
to budgeted levels during the next six months."
The third processing plant at Somkhele is being commissioned and
in February 2013 started producing coal for the energy market.
Somkhele has a new five-year take-or-pay agreement to supply 25 000
tonnes per month of energy product, starting in Q1 2013 at R170 per
tonne and escalating annually.
Subsequent to 31 December 2012, Petmin's wholly-owned operator
of Somkhele, Tendele Coal Mining, signed a 50/50 joint venture
agreement (JV) with its mining contractor Sandton Plant Hire (SPH).
The JV has joint management and enables Tendele to improve
productivity and efficiency. It standardises labour practices on
the mine and gives Tendele responsibility for all Somkhele human
resources in the JV.
During the six months ended 31 December 2012, Petmin received
R280m cash for the sale of its SamQuarz silica operation.
Cancellation of R82m BEE surety
In January 2010, Petmin shareholders approved an R82m surety by
Petmin on behalf of Petmin's primary BEE partner, Dark Capital
(Pty) Ltd. The surety has been withdrawn with effect from 24 August
2012 following Dark Capital's payment in full of its R65m debt to
the Standard Bank of South Africa.
Banking facilities secured
During the period under review, the Group signed term loan
facilities with Standard Bank, its bankers since inception,
securing, in addition to the existing R100m overdraft facilities,
new medium-term debt facilities of R 225m (Facility A) and a R100m
(Facility B) revolving credit facility. At 31 December 2012, Petmin
had drawn R150m against the medium-term and revolving credit
facilities.
Operations update
Somkhele metallurgical anthracite
Production at Somkhele in the six months ended 31 December 2012
was severely constrained by an unprotected strike by contractor
employees and unusually high rainfall which prevented the delivery
of coal from the open pits to the wash plants.
A total of 42 production days were lost, leading to a shortfall
of 255,000 run-of-mine (ROM) tonnes or 107,100 saleable tonnes. By
end-December 2012, Somkhele had 192,000 tonnes of exposed coal that
could not be delivered due to the heavy rainfall. By February 2013,
Tendele had secured access to this coal and the mine was operating
at budgeted levels.
The Somkhele mine has increased its ROM stockpile to 100 000
tonnes outside the pit and at the plant head, enabling the mine to
cope with further extreme weather conditions.
In the six months ended 31 December 2012, Somkhele maintained
its expected sales volumes and prices as demand remained steady and
deliveries were made from stockpiles on hand. Production increased
by 44% to 293 765 tonnes (2011: 203 425 tonnes) of saleable
anthracite in the six months to 31 December 2012 and tonnes sold
increased by 63% to 370 562 tonnes (2011: 227 041 tonnes).
Two years of significant capital investment in Somkhele is
largely complete and the mine is geared to annually produce some
1.2 million tonnes of anthracite and 480 000 tonnes of energy
product from the third plant, which started production in February
2013 and is expected to be at planned capacity in March 2013.
Somkhele secured a new five-year take-or-pay agreement to supply 25
000 tonnes per month of product into the energy market commencing
in Q1 2013 at R170 per tonne, escalating annually.
Investment at Somkhele included R115m on pre-stripping the open
pits, with R45m on the third wash-plant and R8m on back-up power
for the second plant. A further R10m was invested in exploration to
expand Somkhele reserves, and R6m for development of the Luhlanga
mining area.
During the period under review a new order mining right was
obtained for the Luhlanga area. Once the Luhlanga is in production
(expected April 2013), Somkhele will operate in four different pit
areas, providing flexibility to blend production for improved
quality and reducing the risk of production delays.
With productivity improving and an anthracite market showing
reasonable demand at prices better than during the previous six
months, Petmin expects production from Somkhele to increase
significantly in the six months ending 30 June 2013.
Petmin anticipates selling approximately 876 000 (previous
estimate 900 000 tonnes) of metallurgical anthracite during the
financial year ending 30 June 2013, with margins recovering as
production increases to budgeted levels.
Capital expenditure (excluding pre-strip) at Somkhele in the six
months to 30 June 2013 is expected to be approximately R26m as the
third plant and exploration programmes are finalised. Somkhele
expects development cost of the pits (or pre-stripping) to be
approximately R24m in the six months to June 2013.
Joint venture agreement - mining contractor
Subsequent to 31 December 2012, Tendele finalized a 50/50 joint
venture (JV) agreement with Sandton Plant Hire (Pty) Ltd (SPH), the
mining contractor at Tendele since inception. A joint management
team has been established and the JV will give Tendele more control
over productivity and efficiency in mining processes. Tendele has
also assumed responsibility for all human resources functions of
the JV, ensuring that labour practices are standardised on the
Somkhele mine.
Mining costs amount to some 67% of all cash operating costs at
Somkhele. Tendele will take a share of margins in the JV, which
utilises plant and machinery to the value of R276m. Tendele intends
to provide a guarantee limited to R100m to ABSA, the lenders to the
JV.
Upon signature of the JV agreement, Petmin paid R62m on loan
account for its share of the JV funding requirements.
Projects update
North Atlantic Iron Corporation (NAIC) - iron sands to pig iron
in Canada
During the period under review, Petmin invested an additional
US$4.5m to take its stake in NAIC to 22.5%. Petmin has joint
management control over the project, with a total investment in
NAIC to date of US$11m. Petmin has an option to acquire up to 40%
of NAIC for a total of US$25m and an additional option on a further
9.9% at a market-related price.
A pilot mineral processing plant was commissioned alongside the
NAIC resource in Goose Bay, Labrador, producing its first
concentrate during August 2012. The initial concentrate test
results are encouraging and in line with management
expectations.
NAIC currently has an inferred resource of 594m tonnes of iron
sands at 9.53 wt %, of which 37.46% is FE2O3, from which NAIC
produces a 54% Fe concentrate, a quality feed-stock for high-purity
pig iron production. An updated NI43-101 compliant statement
published by SRK Consulting in February 2013 confirms an indicated
resource of 334m tonnes with a further 260m tonnes in the inferred
category. The tonnage has not been discounted for containing clay.
The resource statement is based on just 3% of NAIC's 450km(2)
claim.
NAIC will run series of smelt tests at a facility in Forks,
Pennsylvania, to prove the scalability of pig iron production using
the NAIC concentrate. Cold commissioning of the furnaces in Forks
Pennsylvania commenced on 18 February 2013 and the first smelt test
was completed on 26 February. The process will be signed off by
independent experts during Q2 2013 and results of the smelt test
will be published in early April 2013. The NI43 -101 compliant
Preliminary Economic Assessment (PEA) which has been underway for
the past 12 months is expected to be published before the end of Q4
2013. The PEA covers all aspects of the project including geology,
hydrology, environmental, concentration, smelting, site selection
and infrastructure requirements.
Petmin has budgeted to spend an additional US$6m in the six
months ending 30 June 2013 to increase its stake to 30% in this
potentially world-class pig-iron project. Petmin remains fully
committed to this project and the significant opportunity which it
presents to the company.
The selection of a site for pig iron production has the most
significant impact on the economics of the project. Among factors
being considered are proximity to markets, access to a port with
reasonable shipping time to Goose Bay, and the availability and
price of power. These input factors contribute to approximately 60%
of the cost of pig iron production. Nine sites in the US and Canada
have been asked to submit proposals for evaluation during March
2013. Power utility Nalcor has confirmed that electricity will be
available for the NAIC concentration plan at a cost of
4.8c/kwh.
A review of the relevant environmental regulatory process is
complete and NAIC met in January 2013 with senior environmental
officials for Newfoundland and Labrador. Canadian regulators
require environmental registration shortly after the conclusion of
the PEA. Environmental approval can be expected about a year after
registration.
The PEA will include details of the mining process,
concentration plant and transport of concentrate, smelter plant,
and port infrastructure. NAIC is considering two production models
- either 25 million tonnes of iron sands per annum to produce up to
1.25 million tonnes per annum of concentrate and 500-600,000 tonnes
of pig iron; or 37.5 million tonnes of iron sands for up to 1.875
million tonnes of concentrate and 800,000 tonnes of pig iron.
Mining methods under consideration include dry mining, dredge
mining and bucket wheel excavators.
Petmin has significantly increased its operational involvement
in NAIC during the past six months and this will continue.
Early stage capital expenditure estimates for development of the
NAIC project are in the region of $575m. Management expects this
figure to reduce as more detail is received on each of the project
work streams.
Veremo iron ore project in Mpumalanga
In the six months ended 31 December 2012, additional information
in support of the application for a mining right was provided to
the Department of Mineral Resources, and the outcome of the
application is awaited. Kermas has signed an agreement with a
Chinese international plant construction company, MCC International
Incorporation Limited, to complete a detailed bankable feasibility
study on Veremo before the end of Q2 2013. Petmin continues to work
with Kermas, the ultimate controlling shareholder in Veremo, to
ensure the maximum extraction of value from the project.
Iron Bird Resources Plc - iron ore in Liberia
As previously announced, Petmin and its joint venture partners
are considering their options to either merge with a larger iron
ore company or to sell the investment in the Mt Ginka iron ore
project in northern Liberia.
Red Crescent Resources Limited (RCR)
In the six months ended 31 December 2012, Petmin invested
C$325,000 (2011: C$3 055 000) to acquire 6.5 million shares in RCR
together with 6.5 million share warrants that provide the holder
with the right to acquire RCR shares for 7 Canadian cents per share
for three years. The investment maintains Petmin's shareholding in
RCR at approximately 10% following a private placement by RCR to
recapitalise the business and to settle debt.
Following the restructuring of its board and senior management,
RCR has made good operational progress on its Hakkari Zinc Project
and has commenced production and sales of direct shippable ore.
ENDS
Investors and analysts are invited to join a teleconference and
Q&A with management at 11h00 South African time on Monday 4
March 2013. A playback facility will be available after the call.
Dial-in details below.
Country Access Number
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South Africa (Toll-Free) 0 800 200 648
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South Africa - Cape Town 021 819 0900
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South Africa - Durban 031 812 7600
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South Africa - Johannesburg 011 535 3600
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South Africa - Johannesburg Alternate 010 201 6800
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UK (Toll-Free) 0808 162 4061
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UK Emergency Only (Toll-Free) 0 800 917 7042
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Other Countries (Intl Toll) +27 11 535 3600
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Other Countries - Alternate +27 10 201 6616
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Playback Access Numbers
PLAYBACK CODE - 23446#
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Country Access Number
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Other Countries (Intl Toll) +27 11 305 2030
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South Africa (Telkom) 011 305 2030
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UK (Toll-Free) 0 808 234 6771
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Enquiries:
Petmin
Bradley Doig
+27 11 706 1644
Media
Jonathon Rees
+27 76 185 1827
Sponsor and Corporate Advisor (JSE)
River Group
Andrew Lianos
+27 834 408 365
Nominated Adviser and Broker (AIM)
Macquarie Capital (Europe) Limited
Steve Baldwin
+44 20 3037 2362
Nicholas Harland
+44 20 3037 2369
River Group
Johannesburg
4 March 2013
This information is provided by RNS
The company news service from the London Stock Exchange
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