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Shares in Motsepe's ARM rally on 234% jump in headline earnings

Mar 16 2017 17:08
Lameez Omarjee
Patrice Motsepe. (File, AFP)

Patrice Motsepe. (File, AFP)

Company Data

AFRICAN RAINBOW MINERALS LIMITED [JSE:ARI]

Last traded 113
Change 1
% Change 1
Cumulative volume 712997
Market cap 0

Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Johannesburg – The share price of African Rainbow Minerals (ARM) climbed over 11% on Thursday after the group reported headline earnings had grown 234% to over R1.6bn. This is attributed to the ARM Ferrous division and the Two Rivers Platinum Mine.

The shares were changing hands 11.46% higher at R105.26 minutes before trading on the JSE closed. This is still far off the R216-peak it reached in January 2014.

ARM, headed by executive chairperson Patrice Motsepe, however posted a loss of R283m for the six months ended December 31.

Earnings Before Interest Taxation Depreciation and Amortisation (Ebitda) was R10.1bn, down from the previous period’s R10.8bn. No dividend was declared.  As at December 31, the group’s market capitalisation was R21.5bn.

The loss borne by shareholders comes to R254m. The loss was mainly attributed to the impairment of the group’s Nkomati Nickel Mine assets of R711m, after tax and the impairment of Modikwa Platinum Mine assets of R734m, after tax, according to the company's results announcement. The Assmang joint venture also reported an impairment loss of R422m, related to the sale of Dwarsrivier.

READ: Motsepe’s ARM finally pays up

Special items in the income statement negatively impacted profits by R2.3bn, as did taxation which shaved off R515m.

Sales for the reporting period were 3% higher than the corresponding period at R4.4bn and the average gross profit margin increased to 15%, compared to 16.5% in the previous corresponding period.

Of the group’s mines’ performance, headline earnings had improved overall, bar Modikwa, ARM Coal, and ARM strategic services and exploration. Corporate and other operations reported a loss of R206m, down from earnings of R331m reported in 2015.

Over the period, the average rand prices for most of the commodities which ARM produces increased in comparison to the corresponding period in 2015. US dollar prices for commodities increased significantly during the last quarter of the reporting period.

Overall the group managed to achieve “good cost containment” at all mines except Goedgevonden (GGV) and Nkomati where unit costs increased due to lower production. Most operations kept cost increases below inflation.

Capital expenditure decreased by R209m or 15% to R1.15bn. A large portion was allocated to the Black Rock Project.

READ: African Rainbow Minerals to cut jobs as profits halve

The group undertook restructuring for loss making operations. Lubambe mine downsized output, and reduced related labour costs. “Lubambe remains under review and an announcement will be made when appropriate,” the firm said.

The ARM Coal division recorded headline earnings of R99m, up from a R129m loss from the first half of 2016. This R228m turnaround is mainly due to improved coal prices and low unit costs.

“Nkomati achieved a headline profit for the period, but is entering a difficult three-year phase with declining output,” ARM said.

Outlook

According to ARM the mining industry has been buoyed by increased US dollar commodity prices. Increased prices are expected as a result of the stabilisation of the global commodity supply, the outcome of the US presidential elections and decreasing commodity inventory levels.

It also said the recent strengthening of the rand against the US dollar has to some extent partly offset the US dollar price gains. The rand/dollar exchange rate averaged R13.98/$ during the period which is 3% weaker than the corresponding period in 2015, where it averaged R13.61/$.

“Looking forward it is estimated that US dollar commodity prices could come off recent highs and settle at lower levels while the rand could remain relatively strong.”

ARM will continue to focus on cost containment, prudency of capital expenditure, capital allocation and the detailed review of unprofitable operations. The group will also consider growth opportunities related to organic growth, research and development projects and merger and acquisition transactions.

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