Publications
Partners
Johannesburg - Petmin [JSE:PET] has reported earnings per share from continuing operations, excluding impairments, up 18% to 15.25 cents for the financial year ended 30 June 2013.
Profit for the year after tax, excluding a R200m impairment on the Veremo project, was down 22% to R88m. Second half profit, excluding the impairment on the Veremo project, was up 92% to R58m, after production at the Somkhele anthracite mine recovered following first half-year disruptions due to excess rain and unprotected strike action.
Petmin's operations remain strongly cash generative, generating R392m in the year to 30 June 2013. After a R200m impairment against the value of the Veremo project, a loss for the year of R112m was reported from continuing operations.
During the year under review, Petmin incurred capital expenditure of R243m in support of its growth and diversification strategy, of which R224m was spent at Somkhele.
With the significant capital investment at Somkhele largely completed, the mine is now geared to produce up to 1.2 million tonnes per annum of anthracite and 480 000 tonnes per annum of energy product.
Petmin invested a further R92m in jointly controlled entities. The investment of R43m in NAIC takes Petmin's interest at 30 June 2013 to 25.15% and provides funding for a Preliminary Economic Assessment ("PEA") and recent smelt tests which successfully produced pig iron.
A net investment of R49m in a joint venture ("JV") with the mining contractor at Somkhele provides Petmin with a 50% stake in that business.
"After a challenging first half, Petmin recovered well to post results which are pleasing under the circumstances," said Petmin chief executive Jan du Preez.
"Our Somkhele anthracite operation is now demonstrating the impact of our sustained investment and we are making good progress in our NAIC pig iron project in Canada."
Somkhele operations update Somkhele reported increased production after a full year of operations from its second wash plant, together with the commissioning of a third wash plant in February 2013 to produce energy product.
During the year ended 30 June 2013, Somkhele produced 822 431 tonnes of anthracite (2012: 637 220 tonnes) and 207 238 tonnes of energy product.
Anthracite production increased by 80% in the second half to 528 666 tonnes (first half: 293 765 tonnes) after first half production difficulties were addressed.
Net profit margins reduced to 16% (2012: 26%) for the year ended 30 June 2013 as sales price increases in a subdued market could not compensate for the increased cost of mining, increased interest charges on the new debt, the impact of an unprotected strike, and operational challenges in the first half due to excess rain.
Management continues to seek ways to reduce costs and improve productivity. The commissioning of the third plant for a total cost of R62m provides Somkhele with the capacity to produce 480 000 tonnes per annum of product as a blend for the energy market.
Tendele Coal Mining and its major customer for this product are in dispute. Tendele and its legal advisers believe the matter should be resolved in Tendele's favour and no liability has been recognised at 30 June 2013.
Petmin has engaged a number of additional customers, some of whom have taken trial shipments of its energy product and have indicated their willingness to sign off-take agreements.
Exploration and resource definition activities conducted at Somkhele during the year have borne fruit. After the granting of a new order 20-year mining right for an extension to the existing mining area, mining has commenced in the Luhlanga area.
This provides flexibility to blend production to supply improved yields and quality of product, and reduces the risk of production delays by having multiple pits in production.
In June 2013, Tendele submitted an application for a mining right over the remainder of Areas 4 and 5 at Somkhele, following an extensive drilling programme conducted over the past three years. A campaign was undertaken to stockpile an additional 100 000 run on mine (ROM) tonnes to ensure an adequate amount of available coal for the wash plants in the event of a repeat of the production difficulties incurred in the first half.
At 30 June 2013, Somkhele had 142 298 ROM tonnes on stockpile. During the year in review, Petmin's 100% owned operating company at Somkhele, Tendele, entered into a JV with mining contractor Sandton Plant Hire (SPH).
The mining JV is jointly controlled by Tendele and SPH and gives Tendele more control over production, productivity and efficiency, and ensures that human resources policies are consistent on the mine.
Outlook
The export market for anthracite remains soft with downward pressure on prices. In the domestic market, Petmin has agreed to a roll-over of prices with its major local customer.
Somkhele has budgeted to produce and sell approximately one million tonnes of anthracite and 390 000 tonnes of energy product (approximately 80% of the production capacity) for the year ending 30 June 2014.
Cost pressures remain an issue with demands from labour for increases exceeding inflation and the impact of a weaker rand on imported capital equipment, fuel and explosives.
Management is engaging with labour in an attempt to reach a workable solution for all parties in the current wage negotiations. A key focus for management in the year ahead is to drive mining efficiencies as mining represents more than 60% of the operating cost at the mine.
Profit for the year after tax, excluding a R200m impairment on the Veremo project, was down 22% to R88m. Second half profit, excluding the impairment on the Veremo project, was up 92% to R58m, after production at the Somkhele anthracite mine recovered following first half-year disruptions due to excess rain and unprotected strike action.
Petmin's operations remain strongly cash generative, generating R392m in the year to 30 June 2013. After a R200m impairment against the value of the Veremo project, a loss for the year of R112m was reported from continuing operations.
During the year under review, Petmin incurred capital expenditure of R243m in support of its growth and diversification strategy, of which R224m was spent at Somkhele.
With the significant capital investment at Somkhele largely completed, the mine is now geared to produce up to 1.2 million tonnes per annum of anthracite and 480 000 tonnes per annum of energy product.
Petmin invested a further R92m in jointly controlled entities. The investment of R43m in NAIC takes Petmin's interest at 30 June 2013 to 25.15% and provides funding for a Preliminary Economic Assessment ("PEA") and recent smelt tests which successfully produced pig iron.
A net investment of R49m in a joint venture ("JV") with the mining contractor at Somkhele provides Petmin with a 50% stake in that business.
"After a challenging first half, Petmin recovered well to post results which are pleasing under the circumstances," said Petmin chief executive Jan du Preez.
"Our Somkhele anthracite operation is now demonstrating the impact of our sustained investment and we are making good progress in our NAIC pig iron project in Canada."
Somkhele operations update Somkhele reported increased production after a full year of operations from its second wash plant, together with the commissioning of a third wash plant in February 2013 to produce energy product.
During the year ended 30 June 2013, Somkhele produced 822 431 tonnes of anthracite (2012: 637 220 tonnes) and 207 238 tonnes of energy product.
Anthracite production increased by 80% in the second half to 528 666 tonnes (first half: 293 765 tonnes) after first half production difficulties were addressed.
Net profit margins reduced to 16% (2012: 26%) for the year ended 30 June 2013 as sales price increases in a subdued market could not compensate for the increased cost of mining, increased interest charges on the new debt, the impact of an unprotected strike, and operational challenges in the first half due to excess rain.
Management continues to seek ways to reduce costs and improve productivity. The commissioning of the third plant for a total cost of R62m provides Somkhele with the capacity to produce 480 000 tonnes per annum of product as a blend for the energy market.
Tendele Coal Mining and its major customer for this product are in dispute. Tendele and its legal advisers believe the matter should be resolved in Tendele's favour and no liability has been recognised at 30 June 2013.
Petmin has engaged a number of additional customers, some of whom have taken trial shipments of its energy product and have indicated their willingness to sign off-take agreements.
Exploration and resource definition activities conducted at Somkhele during the year have borne fruit. After the granting of a new order 20-year mining right for an extension to the existing mining area, mining has commenced in the Luhlanga area.
This provides flexibility to blend production to supply improved yields and quality of product, and reduces the risk of production delays by having multiple pits in production.
In June 2013, Tendele submitted an application for a mining right over the remainder of Areas 4 and 5 at Somkhele, following an extensive drilling programme conducted over the past three years. A campaign was undertaken to stockpile an additional 100 000 run on mine (ROM) tonnes to ensure an adequate amount of available coal for the wash plants in the event of a repeat of the production difficulties incurred in the first half.
At 30 June 2013, Somkhele had 142 298 ROM tonnes on stockpile. During the year in review, Petmin's 100% owned operating company at Somkhele, Tendele, entered into a JV with mining contractor Sandton Plant Hire (SPH).
The mining JV is jointly controlled by Tendele and SPH and gives Tendele more control over production, productivity and efficiency, and ensures that human resources policies are consistent on the mine.
Outlook
The export market for anthracite remains soft with downward pressure on prices. In the domestic market, Petmin has agreed to a roll-over of prices with its major local customer.
Somkhele has budgeted to produce and sell approximately one million tonnes of anthracite and 390 000 tonnes of energy product (approximately 80% of the production capacity) for the year ending 30 June 2014.
Cost pressures remain an issue with demands from labour for increases exceeding inflation and the impact of a weaker rand on imported capital equipment, fuel and explosives.
Management is engaging with labour in an attempt to reach a workable solution for all parties in the current wage negotiations. A key focus for management in the year ahead is to drive mining efficiencies as mining represents more than 60% of the operating cost at the mine.
