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PET - Petmin - Condensed consolidated interim financial statements for
the six months ended 31 December 2007
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 Company" or "the Group")
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the SIX MONTHS ended 31 DECEMBER 2007
Achievements
- Revenue increased by 92% from R160 million to R306 million.
- Profit after tax increased by 145% from R39 million to R93 million.
- Headline earnings per share increased by 120% from 2.96 cents to 6.52
cents.
- Fully diluted earnings per share increased by 127% from 8.32 cents to 18.89
cents.
Condensed Consolidated Interim
Income Statement
for the six months ended 31 December 2007
GROUP Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2007 2006 2007
Notes R`000 R`000 R`000
Revenue 306 178 159 500 382 341
Cost of sales (250 654) (135 737) (326 500)
Gross profit 55 524 23 763 55 841
Other income - 26 052 54 943
- Profit on acquisition of
subsidiary - 26 052 26 052
- Profit on sale of
subsidiary - - 28 891
Other operating income
(Fair value derivatives) 5 803 - 607
Administration expenses (11 941) (6 020) (20 260)
Operating profit before
financing costs 49 386 43 795 91 131
Net finance expense (1 573) (488) (1 104)
- Financial income
(interest received) 1 560 874 3 352
- Financial expenses
(interest paid) (3 133) (1 362) (4 456)
Share of profit of
equity accounted
investee (net of
income tax) (ii) 61 706 - -
Profit before tax 109 519 43 307 90 027
Income tax expense (16 358) (4 809) (15 613)
Profit for the period 93 161 38 498 74 414
Basic earnings per
ordinary share (cents) 6 19.30 8.70 16.14
Diluted earnings per
ordinary share (cents) 6 18.89 8.32 15.77
Condensed Consolidated Interim
Cash Flow Statement
for the six months ended 31 December 2007
GROUP Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2007 2006 2007
R`000 R`000 R`000
Net cash flow from
operating activities 56 316 (20 459) 27 889
Cash flows from investing activities
Proceeds from sale of subsidiary - - 30 593
Investment in associate (20 346) - -
Increase in investment in
rehabilitation funds (188) (351) (912)
Acquisition of property, plant
and equipment (55 138) (67 881) (127 522)
Proceeds from sale of property, plant
and equipment - 273 399
Net cash flow from investing
activities (75 672) (67 959) (97 442)
Cash flows from financing activities
Proceeds from specific and general
share issues for cash during the
period 32 578 34 091 34 053
Repayment of borrowings (6 259) (4 771) (10 813)
Increase in borrowings - 36 529 36 529
Net cash flows from financing
activities 26 319 65 849 59 769
Net increase/(decrease) in
cash and cash equivalents 6 963 (22 569) (9 784)
Cash and cash equivalents
at beginning of period 60 350 70 134 70 134
Cash and cash equivalents
at end of period 67 313 47 565 60 350
Condensed Consolidated Interim Balance Sheet
at 31 December 2007
GROUP Reviewed Reviewed Audited
31 December 31 December 30 June
2007 2006 2007
Notes R`000 R`000 R`000
ASSETS
Non-current assets 639 741 423 018 469 518
Property, plant and
equipment 491 620 406 718 453 122
Intangible asset 5 963 6 556 6 222
Investment in associate (ii) 131 796 - -
Investments 2 2 2
Restricted financial
assets 10 360 9 742 10 172
Current assets 227 981 167 418 207 901
Assets classified as held
for sale - 1 485 -
Inventories 65 584 49 482 63 045
Trade and other
receivables 95 084 68 886 83 713
Taxation pre-paid - - 793
Cash and cash equivalents 67 313 47 565 60 350
Total assets 867 722 590 436 677 419
EQUITY AND LIABILITIES
Ordinary share capital
and reserves 632 795 408 985 451 051
Share capital 126 991 119 972 119 972
Share premium 231 297 1 58 912 155 995
Share option reserve 21 998 7 123 15 736
Contingent consideration 1 500 1 500 1 500
Retained earnings 251 009 121 478 157 848
Non-current liabilities 131 557 111 966 118 627
Interest bearing loans
and borrowings 31 566 41 272 36 436
Deferred taxation 76 661 56 321 61 612
Environmental
rehabilitation provisions 23 330 14 373 20 579
Current liabilities 103 370 69 485 107 741
Trade and other payables 90 517 52 513 87 115
Interest bearing loans
and borrowings 12 792 15 387 14 181
Taxation payable 61 1 585 6 445
Total equity and
liabilities 867 722 590 436 677 419
Net asset value ("NAV")
per share (cents) 7 124.57 85.22 93.99
Fully diluted NAV per
share (cents) 7 113.63 79.94 85.25
Condensed Consolidated Interim Statement of Changes in Equity
for the six months ended 31 December 2007
GROUP
Share Share Share option
capital premium reserve
R`000 R`000 R`000
Balance at 1 July 2006 109 972 134 821 5 141
Shares issued during the year
- General issue for cash 10 000 39 097 -
Share options granted - - 10 595
Contingent share issue on acquisition
of Springlake reversed - - -
Cost capitalised to share premium - (17 923) -
Dividends forfeited - - -
Profit for the year - - -
Balance at 30 June 2007 119 972 155 995 15 736
Shares issued during the period
- General issue for cash 3 250 30 5 50 -
- Issued on acquisition of investment
in associate 3 769 45 975 -
Costs capitalised to share premium - (1 223) -
Share options granted - 6 317
Fair value of options forfeited - - (55)
Profit for the period - - -
Balance at 31 December 2007 126 991 231 297 21 998
Contingent
consideration Retained
reserve earnings Total
R`000 R`000 R`000
Balance at 1 July 2006 27 552 82 980 360 466
Shares issued during the year
- General issue for cash - - 49 097
Share options granted - - 10 595
Contingent share issue on
acquisition
of Springlake reversed (26 052) - (26 052)
Cost capitalised to share premium - - (17 923)
Dividends forfeited - 454 454
Profit for the year - 74 414 74 414
Balance at 30 June 2007 1 500 157 848 451 051
Shares issued during the period
- General issue for cash - - 33 800
- Issued on acquisition of
investment
in associate - - 49 744
Costs capitalised to share premium - - (1 223)
Share options granted - - 6 317
Fair value of options forfeited - - (55)
Profit for the period - 93 161 93 161
Balance at 31 December 2007 1 500 251 009 632 795
Segment reporting
Segment information is presented in the condensed consolidated interim
financial statements in respect of the Group`s business segments, which are
the primary basis of segment reporting. The business segment reporting format
reflects the Group`s management reporting structures. Inter-segment pricing is
determined on an arm`s length basis. Segment results include items directly
attributable to a segment as well as those that can be allocated on a
reasonable basis.
Business segments
The Group comprises the following main business segments:
- Silica mining and marketing.
- Anthracite mining and marketing.
Business Segments
Silica
Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2007 2006 2007
R`000 R`000 R`000
Saleable tonnes produced 615 887 694 580 1 240 000
Tonnes sold 630 089 710 806 1 394 810
Segment revenue 68 653 61 291 127 712
Segment profit/(loss)
before tax
- segment result 19 975 20 467 35 379
- profit on sale of subsidiary - - -
- share of profit of equity
accounted investee - - -
- profit on acquisition of
subsidiary - - -
Segment profit/(loss)
before tax 19 975 20 467 35 379
Segment capital expenditure 11 500 5 522 15 424
Segment depreciation/
amortisation 3 715 3 692 7 235
Share option costs included
in segment profit/(loss)
before tax 95 95 190
Segment assets 194 301 157 977 187 080
Segment liabilities 78 498 115 315 93 829
Anthracite
Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2007 2006 2007
R`000 R`000 R`000
Saleable tonnes produced 615 360 313 363 720 135
Tonnes sold 597 084 334 391 733 999
Segment revenue 237 525 98 209 254 629
Segment profit/(loss)
before tax
- segment result 30 565 (630) 6 667
- profit on sale of subsidiary - - 28 891
- share of profit of equity
accounted investee - - -
- profit on acquisition of
subsidiary - - -
Segment profit/(loss)
before tax 30 565 (630) 35 558
Segment capital expenditure 43 499 62 351 113 861
Segment depreciation/
amortisation 12 985 7 453 17 144
Share option costs included
in segment profit/(loss)
before tax - - -
Segment assets 517 394 429 062 472 737
Segment liabilities 359 611 296 811 336 831
Other (Corporate office)
Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2007 2006 2007
R`000 R`000 R`000
Saleable tonnes produced - - -
Tonnes sold - - -
Segment revenue - - -
Segment profit/(loss)
before tax
- segment result (2 727) (2 582) (6 962)
- profit on sale of subsidiary - - -
- share of profit of equity
accounted investee 61 706 - -
- profit on acquisition of
subsidiary - 26 052 26 052
Segment profit/(loss)
before tax 58 979 23 470 19 090
Segment capital expenditure 139 8 192
Segment depreciation/
amortisation 46 16 39
Share option costs included
in segment profit/(loss)
before tax 6 112 1 877 7 526
Segment assets 473 774 311 855 311 268
Segment liabilities 23 479 9 174 6 690
Eliminations
Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2007 2006 2007
R`000 R`000 R`000
Saleable tonnes produced - - -
Tonnes sold - - -
Segment revenue - - -
Segment profit/(loss)
before tax
- segment result - - -
- profit on sale of subsidiary - - -
- share of profit of equity
accounted investee - - -
- profit on acquisition of
subsidiary - - -
Segment profit/(loss)
before tax - - -
Segment capital expenditure - - -
Segment depreciation/
amortisation - - -
Share option costs included
in segment profit/(loss)
before tax - - -
Segment assets (317 747) (308 458) (293 666)
Segment liabilities (226 661) (239 849) (210 982)
Consolidated entity
Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
31 December 31 December 31 December
2007 2006 2007
R`000 R`000 R`000
Saleable tonnes produced 1 231 247 1 007 943 1 960 135
Tonnes sold 1 227 173 1 045 197 2 128 809
Segment revenue 306 178 159 500 382 341
Segment profit/(loss)
before tax
- segment result 47 813 17 255 35 084
- profit on sale of subsidiary - - 28 891
- share of profit of equity
accounted investee 61 706 - -
- profit on acquisition of
subsidiary - 26 052 26 052
Segment profit/(loss)
before tax 109 519 43 307 90 027
Segment capital expenditure 55 138 67 881 129 477
Segment depreciation/
amortisation 16 746 111 161 24 418
Share option costs included
in segment profit/(loss)
before tax 6 207 1 972 7 716
Segment assets 867 722 590 436 677 419
Segment liabilities 234 927 181 451 226 368
Notes to the Condensed Consolidated Interim Financial Statements for the six
months ended 31 December 2007
1.Reporting entity
Petmin is a company domiciled in South Africa. The condensed consolidated
interim financial statements of the Company for the six months ended 31
December 2007 comprise the Company and its subsidiaries (together referred to
as the "Group").
The condensed consolidated interim financial statements were authorised for
issue by the directors on 6 March 2008.
2.Statement of compliance
The condensed consolidated interim financial statements have been prepared in
accordance with the recognition and measurement requirements of International
Financial Reporting Standards (IFRS) and the presentation and disclosure
requirements of IAS 34 - Interim Financial Reporting, and the South African
Companies Act. The condensed consolidated interim financial statements do not
include all of the information required for full annual financial statements
and should be read in conjunction with the consolidated annual financial
statements for the year ended 30 June 2007.
3.Significant accounting policies
The condensed consolidated interim financial statements are prepared on the
historical cost basis, except for financial instruments which are stated at
fair value, where applicable, in terms of IAS 32 - Financial Instruments:
Disclosure and Presentation and IAS 39 - Financial Instruments: Recognition and
Measurement.
The accounting policies have been applied consistently by Group entities and
have been applied consistently to all periods presented in these condensed
consolidated interim financial statements.
4. Estimates
The preparation of interim financial statements in conformity with IAS 34 -
Interim Financial Reporting, requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other factors that
are believed to be reasonable under the circumstances, the results of which
form the basis for making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and
future periods.
The significant judgements made by management in applying the Group`s
accounting policies and the key sources of estimation uncertainty were the same
as those applied to the consolidated financial statements as at and for the
year ended 30 June 2007, with the exception of the estimation of the fair value
of the acquisition of the investment in Veremo (see management commentary).
5.Review of results
The results of the Group as set out above have been reviewed by the Group`s
auditors, KPMG Inc. The review report is available for inspection at the
Group`s corporate and registered offices.
6.Earnings Per Ordinary Share
Earnings per ordinary share ("EPS") is based on the Group`s profit for the
period, divided by the weighted average number of shares in issue during the
period.
Reviewed
Six months ended
31 December 2007
Net Number Cents
income of shares per
R`000 `000 share
Basic EPS 93 161 482 659 19.30
Share options and
contingent
consideration - 10 484 (0.41)
Diluted EPS 93 161 493 143 18.89
Headline earnings per share
Headline earnings per share is
based on the Group`s headline
earnings divided by the weighted
average number of shares in issue
during the period.
Reconciliation between earnings
and headline earnings per share:
Basic EPS 93 161 482 659 19.30
Adjustments:
- AIM listing expense - - -
- share of profit of equity
accounted investee (61 706) - (12.78)
- profit on acquisition
of subsidiary - - -
Headline EPS 31 455 482 659 6.52
Share options and
contingent
consideration - 10 484 (0.14)
Diluted headline EPS 31 455 493 143 6.38
Reviewed
Six months ended
31 December 2006
Net Number Cents
income of shares per
R`000 `000 share
Basic EPS 38 498 442 520 8.70
Share options and
contingent
consideration - 20 279 (0.38)
Diluted EPS 38 498 462 799 8.32
Headline earnings per share
Headline earnings per share is
based on the Group`s headline
earnings divided by the weighted
average number of shares in issue
during the period.
Reconciliation between earnings
and headline earnings per share:
Basic EPS 38 498 442 520 8.70
Adjustments:
- AIM listing expense 663 - 0.15
- share of profit of equity
accounted investee - - -
- profit on acquisition
of subsidiary (26 052) - (5.89)
Headline EPS 13 109 442 520 2.96
Share options and
contingent
consideration - 20 279 (0.13)
Diluted headline EPS 13 109 462 799 2.83
7.Net Asset Value ("NAV") Per Share
Reviewed Reviewed
Six months Six months Audited
ended ended Year ended
31 December 31 December 30 June
2007 2006 2007
Ordinary share capital and
reserves (R`000) 632 795 408 985 451 051
Total number of shares in
issue (`000) 507 964 479 889 479 890
NAV per share (cents) 124.57 85.22 93.99
Reconciliation between NAV and fully
diluted NAV:
Ordinary share capital and
reserves (R`000) 632 795 408 985 451 051
Total number of shares in
issue (`000) 507 964 479 889 479 890
Share options and contingent
consideration (R`000) 48 923 31 706 49 173
Fully diluted number of
shares (`000) 556 887 511 596 529 063
Fully diluted NAV per share (cents) 113.63 79.94 85.25
NAV per share increased 39.35 cents or 46% compared to 31 December 2006.
Fully diluted NAV per share increased 33.69 cents or 42% compared to
31 December 2006.
8.Related Parties
NAMF Nominees (Proprietary) Limited who disposed of their shareholding in
Petmin (see 4 December 2007 press release) were, until that date, material
shareholders in Petmin. Dark Capital (Pty) Limited (Petmin`s anchor Black
Economic Empowerment shareholder) is a material shareholder in Petmin, and is
therefore a related party as defined by Section 10 of the JSE Limited ("JSE")
Listings Requirements.
Following the disposal by NAMF, the effective BEE shareholding in Petmin is
approximately 37% and management holds an effective 33% (a portion of the
management shareholding is also included in the BEE).
8.1 Petmin executive committee remuneration scheme and share option trust
As disclosed in the annual financial statements for the year ended 30 June
2007, the Petmin executive committee remuneration scheme an d share option
scheme affects the executive directors of the Company and constitutes a related
party transaction.
8.2 Other transactions with related parties
Other than as disclosed in note 6.1 above, there were no significant
transactions with related parties.
9. Subsequent events
9.1 Issue of shares for cash
On 19 February 2008, Petmin issued 15 million shares under the general
authority of the directors. The shares were issued at R3.08 per share, being
the volume weighted average price less 10% on the transaction date of 5
February 2008. In line with one of Petmin`s strategic objectives, i.e. to
increase its international shareholder base and to increase liquidity on the
AIM market, the shares were issued to a major international financial
institution.
9.2 Acquisition of subsidiary
In line with Petmin`s strategy of improving its export logistics and
distribution capabilities, Petmin has acquired a controlling shareholding in a
logistics and services company that has a proven track record and the required
skills to meet the anticipated increase in anthracite export volumes. The
purchase consideration is R7 875 000 and will be settled by the issuing of
1 750 000 Petmin shares of R4.50 per share.
9.3 Cautionary announcement
Shareholders are advised that the Company has entered into negotiations which
if successfully concluded, may have a material effect on the price of the
Company`s securities.
Accordingly, shareholders are advised to exercise caution when dealing in their
Petmin securities until a further announcement is made.
Management Commentary
i. Operations
Revenue for the six months ended 31 December 2007 increased by R147 million or
92% compared to 2006 and gross profit was R56 million, an increase of R32
million or 134%, as a result of the improved performance from the anthracite
division emanating from the ramp up of production and sales at Somkhele and due
to the improved performance from the Springlake Colliery. There was a
consistently strong performance of the silica mine, Sam Quarz (Pty) Limited
("SamQuarz").
The anthracite segment`s profit before tax for the six months ended 31 December
2007 included income of R5.8 million from the fair value adjustments on
unrealised US Dollar currency derivatives. With the significant move s in the
Rand/US Dollar exchange rate subsequent to the reporting date, the value of
these derivatives is likely to be negatively affected by the weakening of the
Rand against the US Dollar. Management is reviewing the Group`s hedging
strategy and will restructure hedges where appropriate. Improved US Dollar
prices for anthracite exports are expected in the six months to 30 June 2008.
Cash of R75 million (2006: R30 million) was generated by operations before
outflows from changes in working capital of R10 million (2006: R48 million),
tax R6.9 million (2006: R2.0 million) and net finance expense of R1.6 million
(2006: R0.5 million).
Capital expenditure of R55 million was incurred in the six months to
31 December 2007. R34 million was spent at Somkhele to accelerate both the
exploration and expansion programmes. SamQuarz spent R10 million on its project
to expand production to meet the increased demand of the glass industry
customers and R2 million to maintain operations. Springlake spent R9 million to
maintain the current operations, with most expenditure to improve the
performance of the coal processing plant and on maintaining underground
production levels.
The ratio of interest bearing debt to equity at 31 December 2007 was 7.01%
(2006: 13.85%).
As Somkhele continues to expand and the Group`s visibility of earnings
continues to improve, Petmin will consider increasing its gearing to fund
future expansion plans.
Anthracite division
Somkhele anthracite mine
Somkhele produced 250 302 and sold 261 272 tonnes of anthracite in the six
months to 31 December 2007. 85% of the sales tonnages in the six months to 31
December 2007 was exported via the nearby Richards Bay Dry Bulk terminal.
Demand from metallurgical customers is now increasing as management initially
focused on the delivery of lower quality coal to the export markets in the
first months of production at the mine. Anthracite of Somkhele`s quality is a
competitive alternative source of carbon units and can be used as a replacement
for coke as a reductant in certain metallurgical processes.
Mining is progressing well and coal is currently being mined from two mini-
pits in the project`s Area 2. Development of the mining Area 1 is progressing
well and management expects first production from t he Area in the latter half
of calendar 2008.
Springlake anthracite mine
Springlake produced 365 058 (2006: 313 363) and sold 335 812 (2006: 334 391)
tonnes of anthracite in the six months ended 31 December 2007. The increased
production was sourced from the opencast sections (up 24%), with production
volume from the underground sections increasing by 2%.
Improved international commodities prices are expected to have a positive
impact on profitability in the year ahead, with the colliery achieving record
prices for anthracite.
Silica division
SamQuarz silica mine
SamQuarz produced 615 887 (2006: 694 580) and sold 630 089 (2006: 710 806)
tonnes of silica and chert in the six months ended 31 December 2007. The
reduction in tonnages sold is mainly as a result of a reduction in the sales of
the by-product crusher run material in the six months to 31 December 2007.
The profit before tax for the six months ended 31 December 2006 included a
once-off recognition of additional profits on the sale of certain chert stocks
that were previously ascribed a zero value to an amount of approximately R4
million.
Revenue increased by 12% to R69 million (2006: R61 million) due to improved
prices negotiated on key sales contracts.
Capital expenditure has been focused on increasing production capacity both in
the open-pit and the plant to ensure that customers` increased demand levels
can be reliably attained. Two Barmac crushers have been installed successfully
and the increase in the production of glass industry products is sufficient to
meet the increased demand from this industry.
Impact of power shortages in South Africa
Subsequent to the reporting date, South Africa experienced a series of
electricity supply cuts that have interrupted operations. The negative impact
on production at the anthracite division during January and February 2008 may
result in the delay of two export vessels totalling approximately 70 000 tonnes
until after the 30 June 2008 reporting period. The full impact of these power
cuts on our South African based customers` demand for our products is not yet
known. Currently there is no evidence of a reduction in demand for our
commodities from our customers. The impact on sales at the anthracite
operations will be limited as these operations export the majority of their
product. Should there be any reduction in demand in South Africa, this surplus
will be diverted to the export market.
Orders have been placed for diesel generators to provide power to SamQuarz and
Somkhele, and a solution is being investigated for Springlake. The capital
allocated for the supply and installation of the generators is approximately
R19 million of which R7 million was already budgeted for at SamQuarz. It is
expected that the generators will be operational by the end of the second
quarter of calendar 2008 and assuming a 10% reduction in power supply, the
impact on operating costs will not be material.
ii. Investment in the Veremo iron ore project
As announced on 6 November 2007, Petmin concluded an agreement with Framework
Investments Limited ("Framework"), a 100% held subsidiary of Kermas Limited
(collectively, the "Kermas Group"), for the joint acquisition of Veremo
Holdings (Pty) Limited ("Veremo"). The acquisition will be effected in a series
of transactions whereby Petmin will ultimately hold 25% of Veremo with the
Kermas Group holding 75% ("Phase 2"). Kermas is an investment holding company
with a variety of investments in South Africa, including a substantial indirect
shareholding in Samancor Chrome Limited, the second largest producer of
ferrochrome in the world.
At 31 December 2007, Petmin held an effective 16.2% of Veremo, resulting in a
share of profit of equity accounted investee of R61.7 million on accounting for
the fair value of the investment in its associate. Management will within 12
months from the December reporting period review the fair value calculations
when the final shareholding of 25% of Veremo is attained and when the project
resource statement is updated and SAMREC compliant.
Veremo holds the rights to a substantial pollymetallic ore body in the Eastern
Bushveld in Mpumalanga. The ore body contains on average approximately 60.83%
Fe2O3 (wt%) and 14.39% TiO2 (wt%) suitable for the production of high quality
pig iron. The current unaudited resource figures reflect measured resources of
11 593 125 tonnes and indicated resources of 921 358 728 tonnes. The resource
modelling and a SAMREC-compliant Competent Person`s Report are under way and
should be completed before June 2008. Framework will fund and manage the
construction and commissioning of an integrated plant to initially produce 700
000 tonnes per annum of ductile iron and in addition, titanium bearing slag
which may be commercially exploited in the future, with plans to expand the
production rate over time. The ore body should sustain a life of mine in excess
of 50 years at the expanded production rate.
The Veremo project presents Petmin with exposure to a large scale mining and
beneficiation project with a substantial international partner with a proven
ability to manage large projects and adds another commodity in line with
Petmin`s multi-commodity minerals business strategy.
iii. Prospects
- SamQuarz
The programme to delineate the ore body is progressing well and management
expects completion of an updated SAMREC-compliant report of the reserves and
resources in the latter half of calendar 2008. Management expects that the
proven reserves should increase from the current 10 million tonnes of quartzite
to approximately 45 million tonnes by providing more certainty on the 35
million tonnes currently classified as a probable reserve. At current rates of
production this represents a 36 year life of mine.
Management expects SamQuarz to maintain current production volumes and increase
sales volumes as the demand for the crusher run material (as a product that is
being used in the building and maintenance of roads) has increased to 30 June
2008.
- Springlake Colliery
In the six months to 30 June 2008, Springlake is expected to take advantage of
the improved export prices for anthracite by placing spot cargoes at improved
US Dollar prices. The weakening of the Rand against the US Dollar will not have
a material effect on the existing export agreements of Springlake to 30 June
2008 as Springlake has sold forward the majority of its US Dollar receipts
until 30 June 2008 at an average exchange rate of R7.36 to the US Dollar and
the majority of all production to 30 June 2008 has been contracted.
- Somkhele anthracite project
Management expects the current production and sales profile to be maintained to
30 June 2008. To date, in the start-up phase, Somkhele has focused on ramping
up production volumes and its sales have predominantly been focused on a higher
ash export product in order to de-risk the start-up. Management`s focus going
forward will be on the production and marketing of higher quality products (as
a coke replacement).
To mitigate the risk of starting up a new project some 550 000 sales tonnes
were contracted during Somkhele`s construction phase at an average selling
price of $63 per tonne. 223 000 tonnes of these contracted sales were delivered
by 31 December 2007. Subsequently the export prices have on average increased
by more than 30% and Petmin will benefit from these higher prices for the
remaining portion of its production.
The weakening of the Rand against the US Dollar is expected to result in
improved revenues to 30 June 2008 as Somkhele had entered into zero cost collar
and cap currency options for the majority of its exports. These options have a
collar of R7.10 per US Dollar and a cap of a minimum of R8.20 per US Dollar.
Due to the unprecedented demand for metallurgical coals, Somkhele is
investigating capital projects to expand coal processing capacity and will
advise shareholders in due course whether the current plant capacity will be
increased from the current 120 000 run-of-mine tonnes per month.
The Board has approved additional capital of approximately R30 million to
install a destoning plant that will increase the yield from 50% (as a result of
bulk mining) to approximately 60%. It is expected that the destoning plant will
be in production by early 2009.This will result in an increase of approximately
16 000 saleable tonnes per month and an additional 15 000 tonnes per month of
raw coal which has a current market price of approximately $65 per tonne.
Additionally, the existing exploration drilling programme on some 2 500
hectares (out of a total 25 000 hectares under licence) has been accelerate d
on the back of positive initial drill results from which we anticipate to
increase the proven and probable reserves at Somkhele (currently 24 million run
-of-mine tonnes) by a minimum of 15 million tonnes of run-of-mine coal. At
120 000 run-of-mine tonnes per month this equates to a life of mine of 27
years. Management intends to publish an updated SAMREC-compliant Competent
Person`s Report before 31 December 2008.
- Veremo
Until the completion of Phase 2 of the acquisition of Veremo (estimated to be 3
0 April 2008), Petmin is managing the process of procuring an updated bankable
feasibility study on the Veremo project. Due to the importance of the project,
Petmin has agreed to the appointment of Bradley Doig as a director of Veremo in
this interim period.
Petmin`s management team is continuing to evaluate value enhancing propositions
to increase shareholder wealth.
By order of the Board
P J Nel J C du Preez
Chairman Chief Executive Officer
JOHANNESBURG
10 March 2008
Directors
P J Nel* (Chairman), L Mogotsi (Deputy Chairperson),
J C du Preez (Chief Executive Officer), B B Doig (Chief Operating Officer),
I Cockerill*#, E de V Greyling*, J P Mabena**, A Martin*, J A Strijdom*,
D H Warmenhoven, J Taylor*
*Non-executive #British (appointed 1 October 2007)
**Resigned 1 August 2007
Registered Office Corporate Office:
Parc Nouveaux, First Floor, Block C 37 Peter Place
225 Veale Street, Brooklyn, Pretoria, 0002 Bryanston, 2021
(PO Box 899, Groenkloof, 0027) Tel: (011) 706 1644 Fax: (011) 706 1594
Secretary and Sponsor - JSE
River Sponsors (Pty) Limited
Nominated Adviser and Broker - AIM
Numis Securities Limited
Transfer Secretaries
JSE: Computershare Investor Services (Proprietary) Limited
AIM: Computershare Investor Service s PLC
Auditors
KPMG Inc.
www.petmin.co.za
Date: 10/03/2008 10:59:45 Supplied by www.sharenet.co.za
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