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PAM - Palabora Mining Company Limited - Reviewed provisional results and
dividend announcement for the year ended 31 December 2010
Palabora Mining Company Limited
and its Subsidiaries
(a member of the Rio Tinto Group)
(Incorporated in the Republic of South Africa)
(Registration Number: 1956/002134/06)
JSE Code: PAM ISIN: ZAE000005245
("Group" or "Palabora" or "Company")
REVIEWED PROVISIONAL RESULTS AND DIVIDEND ANNOUNCEMENT for the year ended 31
December 2010
COMMENTARY
Group financial highlights Reviewed Audited
for the year ended 31 December 31 December
2010 2009
Net profit for the year R`million 595 284
Basic earnings per share R`cents 1 231 587
Earnings before interest, tax, R`million 1 533 1 128
depreciation and amortisation
(EBITDA)
Headline earnings R`million 594 290
Headline earnings per share R`cents 1 228 598
Net cash R`million 1 543 1 292
Dividend per share (declared) R`cents 724 620
Overview
Commenting on the full 2010 financial results, Anthony (Tony) Lennox, the
Managing Director, said, "Palabora has delivered a good performance driven
by firming copper and magnetite prices, posting profit after tax of R595
million, 110% above the R284 million for 2009". The emerging economies,
particularly China, continue to dominate the demand for commodities and
other base metals while the long term sustainability of firmer commodity
prices continues to depend on the economic recovery of European and North
American economies.
Copper production volumes were impacted by operational challenges in the
underground operations and smelter complex during 2010. Underground
production was affected by winder related issues which were first
experienced during the last quarter of 2009. Preventative maintenance has
been ongoing pending the replacement of the two winder drums scheduled for
the first quarter of 2011. The smelter and rod mill production challenges
experienced in the first half of the year have been addressed with the focus
turning to the implementation of process improvement initiatives which will
improve product availability to our customers and decrease costs.
Magnetite sales remained strong due to increasing demand for iron ore
throughout Asia. Palabora sales were impacted by the Transnet strike which
resulted in lower sales of approximately 120 000 tonnes and volumes were
also negatively impacted by the Brakspruit bridge rail incident in September
2010 which reduced volumes by a further 80 000 tonnes until the bridge`s
reopening in mid November. Intervening measures were implemented to
transport 180 000 tonnes of magnetite to Gravelotte and Hoedspruit, the
nearest rail loading stations. Tony said, "The incident tested the
robustness of our risk and safety management strategies with over 5 000
trips made to transport Palabora material by road without incident. We are
grateful to the Ba-Phalaborwa community for assisting us during this
difficult period."
The Board declared a final dividend of R7,24 per share, which together with
the interim dividend of R2.07 per share, brings the 2010 dividend to R9,31
per share.
Safety
Modest improvements were recorded in the All Injury Frequency Rate (AIFR) to
0,48% from 0,50% in 2009. The Lost Time Injury Frequency Rate (LTIFR)
improved to 0,28% in 2010 from 0,29% over the comparative period. Palabora
remains steadfast in its pursuit of an injury free workplace and embedded
zero harm culture throughout our operations.
Production
Refined copper produced declined 16% to 58kt from 69kt in 2009 on the back
of lower upstream throughput, lower head grade at the underground as well as
the operational challenges experienced at the smelter during the first half
of the year. Dry ore hoisted declined 3% to 11.0mt compared to 11,3mt in
2009 mainly due to winder breakdowns and low availability of load-haul-dump
units ("LHD`s"). The headgrade averaged 0,64% compared to 0,67% in 2009 due
to the effects of dilution from the west pit wall subsidence.
Concentrate production declined 9% to 246kt compared to 271kt in the
previous year due to lower underground throughput, lower ore grades and
substation fire damage at the concentrator during the first half of the
year. The decline in production from reduced throughput was partially
mitigated by the processing of record levels of high grade slag. A total of
870kt of high grade slag with contained copper of 20kt was milled during the
year compared to 278kt with contained copper of 9kt in 2009.
Production volumes and capacity in the smelter complex were negatively
impacted by the operational challenges experienced during the first half of
the year. New anode production declined 15% to 56kt from 66kt in 2009.
Smelter operations were negatively impacted by low Wolff cranes`
availability, low feed rates at the reverbatory furnace arising from
downtime at the furnace bath and the replacement of overhead cranes.
Improvements in the smelter complex were implemented throughout the year and
anode production continued to improve during the fourth quarter of this
year.
Sales volumes
Copper sales volumes were 17% lower at 72,5kt from 87kt in 2009 due to
reduced throughput arising from the issues mentioned above. Rod sales
included supplementary purchases of 5kt with Palabora`s copper rod sales
declining 30% due to the production challenges experienced at the smelter
and rod casting plant. Process improvement initiatives are underway to
improve rod availability to our customers. Cathode sales were in line with
production whilst more reverts and scrap were sold compared to 2009 due to
the production constraints.
For the year ended For the year ended
31 December 31 December %
2010 (kt) 2009 (kt) change
Copper rod 42,8 48,4 (12)
Cathode 12,1 23,8 (49)
Reverts 9,1 10,4 (13)
Refined copper scrap 8,5 4,4 93
Total copper 72,5 87,0 (17)
1 Includes 4,9kt of purchased rod to meet contractual commitments
Magnetite volumes were 3% higher at 2 640kt compared to the previous year
despite the Transnet strike and Brakspruit bridge collapse. Availability of
Transnet trains continues to constrain magnetite sales volumes.
Magnetite 2 640 2 569 3
Turnover
In line with firming copper and magnetite prices, gross turnover increased
20% to R7 billion from R5,8 billion in 2009. Post-hedge turnover increased
16% to R6,1 billion from R5,3 billion in 2009. The hedge loss increased 55%
to R845 million from R547 million in 2009 due to increasing copper prices
that prevailed during the year. The LME price closed the year at USc/Ib 401,
up 28% from USc/Ib 313 in 2009 and averaged USc/Ib 340 compared to USc/Ib
234 in 2009. The positive impact of firming commodity prices was partially
offset by the firming ZAR which reduced revenue on the vermiculite business.
Realised magnetite prices increased 50% to R886 per tonne compared to R589
per tonne in 2009.
Copper gross turnover increased 9% to R4,1 billion from R3,7 billion in 2009
from higher prices. Copper contributed 58% to gross revenue and 15% to the
operating profit. The magnetite business maintained its increasing
significance to the Group. Whilst volumes remained constant at 2,6 million
tonnes, turnover increased 55% to R2,3 billion, accounting for 34% of gross
revenue compared to R1,5 billion and accounting for 26% of gross revenue in
2009. Approximately 53% of magnetite revenue is from the historical stock
piles with the balance from current arisings. Reclamations from historical
stockpiles are only processed through the Magnetite Separation Plant (MSP)
and consequently magnetite contributed 74% of the operating profit compared
to 28% in 2009.
The supplementary rod imports to meet customer contractual commitments
contributed R290 million to gross turnover. The company did not incur any
losses on these imports.
Vermiculite turnover decreased 10% to R385 million from R428 million in 2009
as a result of a 2% decrease in volumes to 179kt from 183kt in 2009 and
lower realised prices due to the firming ZAR.
Cost of sales
Cost of sales remained constant at R3,1 billion compared to 2009.
Supplementary product purchases increased 6% to R614 million compared to
R581 million in 2009 due to increased copper rod and cathode purchases.
Higher margin copper in concentrate purchases accounted for 58% of the
product purchases in 2009 compared to lower margin cathode and rod purchases
which accounted for 76% of product purchases in 2010. Depreciation was 12%
lower in 2010 at R481 million compared to R549 million in 2009 due to lower
underground production.
Selling and administration expenses
Higher magnetite and crushed reverts sales volumes increased selling
expenses by 17% to R1,4 billion compared to R1,2 billion in 2009. Selling
expenses were also impacted by above inflation increase in rail costs on
magnetite and vermiculite sales. The stronger ZAR helped mitigate the impact
of the shipping costs. Overhead expenses increased 8% to R482 million from
R448 million due to higher than inflation increase in employee costs, higher
maintenance costs and costs relating to the BBBEE transaction. The
implementation of the new Mineral and Petroleum resources Royalty Act,
enacted with effect from 1 March 2010, increased overheads by R88 million.
Net finance costs
Net finance costs increased by 51% to R187 million from R124 million in 2009
mostly due from the effects of the firming ZAR on US dollar denominated cash
and working capital balances.
Working capital
The company has maintained a stable net working capital position with
product inventory levels being restricted to a 10% increase to R680 million
from R619 million in 2009. Trade and other receivables increased by 38% to
R864 million from R626 million over the comparative period in line with an
increase in commodity prices. Significant volumes of copper cathode were
sold at the end of the year to take advantage of the prevailing high prices.
Cash flow from operating activities before interest, dividends and tax
increased to R1,3 billion from R1,1 billion on the strength of higher
prices. Net cash generated before financing activities decreased to R370
million from R746 million due to absence of pension fund surplus of R241
million received in 2009, higher taxes paid in 2010, increased dividend paid
to shareholders during 2010 and higher sustaining capital expenditure.
Broad Based Black Economic Empowerment ("BBBEE")
Palabora concluded a BBBEE transaction with its new Black Economic
Empowerment ("BEE") partners on 10 June 2010. The agreements were lodged
with the Department of Mineral Resources ("DMR") on 2 July 2010 for final
approval. The BBBEE transaction was approved by Palabora`s shareholders on
15 October 2010 with 99 percent of the shareholders present voting in
favour. The transaction is not yet effective as the suspensive conditions in
terms of the agreement have not yet been met. Palabora is awaiting for
approval of its application for conversion of old order mining rights to new
order mining rights from the DMR.
Declaration of dividend
A final cash dividend of 724 cents per share has been declared.
Payment in South African Rand will be made on Monday, 7 March 2011 to
shareholders recorded in the register of Palabora Mining Company as at
Friday, 4 March 2011. The last day to trade to qualify for the dividend will
be Friday, 25 February 2011 and the shares will trade ex-dividend from
Monday, 28 February 2011. Share certificates may not be dematerialised or
rematerialised between Monday, 28 February 2011 and Friday, 4 March 2011,
both days inclusive.
This financial report does not reflect this dividend payable, which will be
recognised in shareholders` equity as an appropriation of retained earnings
in the year ending 31 December 2011. The final dividend relating to the 2009
financial year of R300 million was paid during the year.
Corporate governance
Mr Ray Abrahams and Ms Francine Anne du Plessis were appointed as
independent non-executive directors with effect from 11 January 2011.
Mr Johan Posthumus resigned as non-executive director of the Board, with
effect from 5 February 2010. Following a re-organisation at Anglo American,
Mr Posthumus was appointed to the role of manager Corporate Services within
Anglo American corporate offices. With effect from 5 February 2010, Mr WJ
Abel was appointed as non-executive director of the Board.
Ms Kay S Priestly resigned as a non-executive director of the Board, with
effect from 31 May 2010. With effect from 1 June 2010, Ms Jo-Ann Yuen was
appointed as non-executive director of the Board.
Ms Shelly Thomas and Mr Charles Asubonten retired as directors of the
Company at the annual general meeting held on 8 June 2010, with effect from
9 June 2010.
On 1 July 2010, Mr Matthew Gili resigned as the Managing Director at
Palabora after five and a half years with the Company, including three as
Managing Director. Mr Gili has accepted a new role at the Rio Tinto managed
Oyu Tolgoi project in Mongolia. With effect from 12 July 2010, Mr Anthony W
Lennox was appointed Managing Director at Palabora.
At 31 December 2010 the Palabora Board was constituted as follows:
Directors Alternate directors
1. Clifford N Zungu (Chairman)
2. Anthony W Lennox (Managing Director)*
3. Francine A du Plessis
4. Ray Abrahams
5. Willan J Abel
6. Jo-Ann S Yuen
7. Lindsay W Kirsner Coen H Louwarts#
*Executive Director
Australian
#Dutch
Appreciation
We extend our sincere gratitude to our valued customers, the Board, staff
and the Ba-Phalaborwa community for their continued support and dedication.
CN Zungu AW Lennox MB Snyder
Chairman Managing Director Interim Chief Financial Officer
7 February 2011
GROUP SELECTED STATISTICS
There have been no material changes to the information disclosed in the
annual report in compliance with paragraph 8.63(l) of the JSE Limited
Listing Requirements for the year ended 31 December 2009.
31 31
December December
2010 2009
Revenue
Copper (net of hedge) R`million 3 213 3 166
Magnetite R`million 2 339 1 513
Other by-products R`million 194 177
Industrial minerals R`million 385 428
Net profit before tax R`million 863 453
Copper
Wet ore hoisted million 11,2 11,54
tonnes
Dry ore hoisted million tonnes 11,0 11,30
Average copper grade % Cu 0,64 0,67
Copper in concentrate kilo tonnes 75 83
produced
Cathode produced kilo tonnes 58 69
Average copper price USc/lb 347 231
realised
Average LME copper USc/lb 340 234
price for the year
Average sales ZAR/US$ R/US$ 7,32 8,33
exchange rate realized
Spot ZAR/US$ exchange R/US$ 6,64 7,40
rate at 31 December
Average copper price R/ton 55 47
realised (pre hedge) 947 373
Average copper price R/ton 44 44
realised (post hedge) 273 249
Vermiculite
Vermiculite sold tonnes 178 183
599 264
Magnetite
Magnetite - Coarse tonnes 1 936 1 763
287 693
Magnetite - Oxide tonnes 401 503
237 023
Magnetite - DMS tonnes 302 301
965 848
Anode slimes
Anode slimes sold tonnes 126 89
Nickel sulphate
Nickel sulphate sold tonnes 372 370
Sulphuric acid sold tonnes 51 85
593 464
Imported concentrate
Volumes tonnes - 11
168
Cost R`million 2 469
Marginal ore
concentrate purchased
Volumes tonnes 800 3 632
Cost R`million 30 112
Imported blister
Volumes tonnes 1 858 -
Cost R`million 100 -
Imported cathode
Volumes tonnes 3 801 6 231
Cost R`million 192 318
Imported rod
Volumes tonnes 4 913 -
Cost R`million 290 -
Cash flow
Cash from operating R`million 592 937
activities
Cash and cash R`million 1 641 1 395
equivalents
Costs
Direct cash R`million 2 004 2 181
production cost excluding
purchases
Cost of sales R`million 3 104 3 106
Capital expenditure
and commitments
Capital expenditure R`million 222 133
Contracts placed at R`million 119 93
end of each period
Share capital
Authorised ordinary R`000 100 100
shares of R1 each 000 000
Issued ordinary 000 48 48
shares of R1 each 337 337
Net asset value per R/share 45,89 34,75
share
REVIEWED PROVISIONAL CONDENSED GROUP RESULTS
CONDENSED CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2010
Reviewed Audited
2010 2009
Note R`m R`m
Sale of products 6 976 5 831
Hedge loss realized (845) (547)
Revenue 6 131 5 284
Cost of sales (3 104) (3 106)
Gross profit 3 027 2 178
Selling and distribution costs (1 391) (1 185)
Administration expenses (482) (448)
Mineral and petroleum royalty (88) -
Other income 30 71
Exploration costs (40) (18)
Impairment loss 4 - (9)
Other expenses (6) (12)
Profit before net finance cost 5 1 050 577
and tax
Net finance cost 6 (187) (124)
Finance cost 6 (216) (190)
Finance income 6 29 66
Profit before tax 863 453
Income tax expense 7 (268) (169)
Profit for the year 595 284
Profit attributable to:
Equity holders of the parent 595 284
Earnings per share attributable
to the equity holders of the
parent (expressed in cents per
share)
- Basic and diluted earnings per 8 1 231 587
share (cents)
- Headline earnings per share 9 1 228 598
(cents)
The notes are an integral part of these provisional condensed Group results.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2010
Reviewed Audited
2010 2009
R`m R`m
Profit for the year 595 284
Other comprehensive income/(loss):
Available-for-sale investments
- Valuation gains arising during the year 30 16
Exchange differences on translation of foreign (20) (36)
operations
Cash flow hedges
- Mark to market losses arising during the (365) (2 100)
year
- Transferred to profit or loss for the year 845 547
- Hedge ineffectiveness 4 3
Actuarial (loss)/gain on defined benefit plans (8) 4
Income tax relating to components of other (142) 409
comprehensive income
Other comprehensive income/(loss) for the 344 (1 157)
year, net of tax
Total comprehensive income/(loss) for the year 939 (873)
Total comprehensive income/(loss) attributable
to:
Equity holders of the parent 939 (873)
The notes are an integral part of these provisional condensed Group results.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2010
Reviewed Audited
2010 2009
Note R`m R`m
Assets
Non-current assets 4 281 4 252
Property, plant and equipment 2 877 2 990
Intangible assets 8 5
Other financial assets 398 360
Deferred income tax assets 10 998 897
Current assets 3 298 2 755
Stores 113 115
Product inventories 680 619
Trade and other receivables 864 626
Cash and cash equivalents 1 641 1 395
Total assets 7 579 7 007
Equity
Equity attributable to owners of the
parent
Share capital and premium 629 629
Other reserves (1 801) (2 151)
Retained earnings 3 390 3 201
Total equity 2 218 1 679
Non-current liabilities 3 385 3 684
Other financial liabilities 11 1 672 2 335
Close down and restoration obligation 3.2 617 433
Retirement benefits obligation 168 149
Deferred income tax liabilities 10 928 767
Current liabilities 1 976 1 644
Other financial liabilities 11 1 049 877
Retirement benefits obligation 8 8
Borrowings 12 98 103
Trade and other payables 573 427
Related party payables 203 162
Current income tax liabilities 45 67
Total liabilities 5 361 5 328
Total equity and liabilities 7 579 7 007
The notes are an integral part of these provisional condensed Group results.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2010
Attributable to owners of parent
Share Share Other Retained
capital premium reserves earnings Total
R`m R`m R`m R`m R`m
Balance at 1 January 2009 48 581 (924) 2 966 2 671
Total comprehensive loss - - (1 161) 288 (873)
for the year
Dividends paid - - - (119) (119)
Unclaimed dividends - - (1) 1 -
Transfer of deferred tax - - (65) 65 -
on items included in
other reserves
Balance at 31 December 48 581 (2 151) 3 201 1 679
2009
Total comprehensive - - 350 589 939
income for the year
Dividends paid - - - (400) (400)
Balance at 31 December 48 581 (1 801) 3 390 2 218
2010
The notes are an integral part of these provisional condensed Group results.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2010
Reviewed Audited
2010 2009
R`m R`m
Cash flows from operating activities
Cash generated from operating activities 1 343 1 073
Pension fund surplus received - 241
Interest paid (5) (35)
Interest received 29 30
Dividends paid (400) (119)
Income tax paid (375) (253)
Net cash generated from operating activities 592 937
Cash utilised in investing activities
Acquisition of intangible assets (5) (2)
Acquisition of property, plant and equipment (217) (131)
Proceeds from disposal of property, plant and 3 -
equipment
Investment in available-for-sale financial asset (7) (30)
Interest received - 27
Dividend income 4 25
Net cash used in investing activities (222) (111)
Cash flow from financing activities
Repayment of borrowings - (80)
Net cash generated from financing activities - (80)
Net increase in cash and cash equivalents 370 746
Cash and cash equivalents at beginning of year 1 395 747
Effects of exchange rate changes on the balance of (124) (98)
cash held in foreign currencies
Cash and cash equivalents at end of year 1 641 1 395
The notes are an integral part of these provisional condensed Group results.
NOTES TO THE PROVISIONAL CONSOLIDATED GROUP RESULTS
1. CORPORATE INFORMATION
Palabora extracts and beneficiates copper, magnetite and vermiculite from
its mines in the Limpopo Province. It is the primary aim of the Group, a
member of the worldwide Rio Tinto Group, to achieve excellence in all
aspects of its activities and to develop the Group`s resources and assets in
a socially and environmentally responsible way for the maximum benefit of
its shareholders, employees, customers and the community in which it
operates. It is the Group`s firm belief that efficient and profitable
operations go hand-in-hand with high quality products and comprehensive and
effective safety, health and environmental protection programmes.
The Group is incorporated and domiciled in South Africa and has its primary
listing on the JSE Limited ("JSE"). The address of its registered office is
1 Copper Road, Phalaborwa, 1389.
The condensed consolidated provisional financial statements of Palabora for
the year ended 31 December 2010 were authorised for issue in accordance with
a resolution of the Board of Directors passed on 3 February 2011.
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
2.1 Basis of preparation
The condensed consolidated provisional financial report for the year ended
31 December 2010 has been prepared in compliance with International
Accounting Standard ("IAS") 34, Interim Reporting, as well as Schedule 4 of
the South African Companies Act, No. 61 of 1973, International Financial
Reporting Standards ("IFRS") and the AC 500 standards as issued by the
Accounting Practices Board.
2.2 Audit review
The provisional financial statements have been reviewed by the Company`s
auditors, PricewaterhouseCooper. Their unmodified review conclusion is
available for inspection at the Company`s registered office.
2.3 Significant accounting policies
The condensed consolidated financial report has been prepared in accordance
with the historical cost convention except for certain financial
instruments, which are stated at fair value, and is presented in Rand, which
is Palabora`s functional and presentation currency.
Except as described below, the accounting policies applied in the
preparation of the provisional condensed consolidated Group results are
consistent with those followed in the preparation of the Group`s annual
financial statements for the year ended 31 December 2009.
The following new standards and amendments to standards are mandatory for
the first time for the financial year beginning 1 January 2010:
- IFRS 1 (Amendment), First time adoption of IFRS (effective for financial
periods beginning on or after 1 January 2010) - Amendment relating to oil
and gas assets and determining whether an arrangement contains a lease;
- IFRS 2 (Amendment), Share based payments (effective for financial periods
beginning on or after 1 January 2010) - Amendment relating to group cash-
settled share based payment transactions - clarity of the definition of the
term "Group" and where in a group share based payments must be accounted
for;
- IFRS 3, Business combinations (effective for financial periods beginning
on or after 1 July 2009) - This comprehensive revision in IFRS 3 will have
an impact on future acquisitions;
- IAS 27 (Amendment), Consolidated and separate financial statements
(effective for financial periods beginning on or after 1 July 2009) -
Consequential amendments from changes to IFRS 3, Business combinations and
measurements of subsidiaries held for sale in separate financial statements;
- IAS 39 (Amendment), Eligible hedged items (effective for financial periods
beginning on or after 1 July 2009) - Clarifies the principles relating to
hedged risk of portions of cash flows;
- Improvements to IFRSs 2009 - Improvements to IFRS is a collection of
amendments to International Financial Reporting Standards ("IFRSs`). These
amendments are the result of conclusions the Board reached on proposals made
in its annual improvements project;
- AC 504, IAS 19 (AC 116), The limit on a defined benefit asset, minimum
funding requirements and their interaction in the South African pension fund
environment - (effective for financial periods beginning on or after 1 April
2009) - The South African Interpretation has been issued to provide guidance
on the application of IFRIC 14: IAS 19, The limit on a defined benefit
asset, minimum funding requirements and their interaction, in South Africa
in relation to defined benefit pension obligations (governed by the Pension
Funds Act, 1956 (the "Act")) within the scope of IAS 19 (AC 116), Employee
benefits;
- IFRIC 18, Transfers of assets from customers (effective for financial
periods beginning on or after 1 July 2009) - This interpretation provides
guidance on how to account for items of property, plant and equipment
received from customers, or cash that is received and used to acquire or
construct specific assets;
- Improvements to IFRSs 2008 - IFRS 5, Non-current assets held for sale and
discontinued operations - Plan to sell the controlling interest in a
subsidiary (effective for financial periods beginning on or after 1 July
2009) - This improvement clarifies that assets and liabilities of a
subsidiary should be classified as held for sale if the parent is committed
to a plan involving loss of control of the subsidiary, regardless of whether
the entity will retain a non-controlling interest after the sale;
- IFRS 1 (Amendment), First time adoption of IFRS, and IAS 27, Consolidated
and separate financial statements (effective for financial periods beginning
on or after 1 July 2009) - The amended standard allows first-time adopters
to use a deemed cost of either fair value or the carrying amount under
previous accounting practice to measure the initial cost of investments in
subsidiaries, jointly controlled entities and associates in the separate
financial statements. The amendment also removes the definition of the cost
method from IAS 27 and replaces it with a requirement to present dividends
as income in the separate financial statements of the investor;
- IFRIC 16, Hedges of a net investment in a foreign operation (effective for
financial periods beginning on or after 1 July 2009) - This interpretation
clarifies the accounting treatment in respect of net investment hedging; and
- IFRIC 17, Distribution of non-cash assets to owners (effective for
financial periods beginning on or after 1 July 2009) - This interpretation
provides guidance on accounting for arrangements whereby an entity
distributes non-cash assets to shareholders either as a distribution of
reserves or as dividends.
The following standards, amendments and interpretations to existing
standards have been published but are not effective and the Group has not
early adopted them
- IAS 12 (Amendment), Income taxes - Deferred tax: Recovery of underlying
assets 1 January 2012
- IAS 24 (Revised), Related party disclosures 1 January 2011
- IAS 32 (Amendment), Financial instruments: Presentation - Classification
of Rights Issues 1 February 2010
- IFRS 1 (Amendment): First-time adoption of International Financial
Reporting Standards - Limited exemptions from comparative IFRS 7,
Disclosures for first-time adopters 1 July 2010
- IFRS 1 (Amendment), First-time adoption of International Financial
Reporting Standards - Removal of fixed dates for first-time adopters 1 July
2011
- IFRS 1 (Amendment), First-time adoption of International Financial
Reporting Standards - Guidance on severe hyperinflation 1 July 2011
- IFRS 7 (Amendment), Financial instruments: Disclosures - Transfer of
financial assets 1 July 2011
- IFRS 9, Financial instruments 1 January 2013
- IFRS 9, (Amendment), Financial instruments 1 January 2013
- IFRIC 14 (Amendment), The limit on a defined benefit asset, minimum
funding requirements and their Interaction Prepayment of minimum funding
requirements 1 January 2011
- IFRIC 19, Extinguishing financial liabilities with equity instruments 1
July 2010
- Improvements to IFRSs 2010 - Each improvement has its own effective date.
Generally 1 July 2010 or 1 January 2011.
3. Changes in Estimates
3.1 Retirement benefits obligation
The cost of post employment medical benefits is determined using actuarial
valuations. The actuarial valuation involves making assumptions about
discount rates, mortality rates and income at retirement. Due to the long-
term nature of these plans, such estimates are subject to significant
uncertainty. The net employee liability at 31 December 2010 is valued at
R176 million compared with R157 million at 31 December 2009. The main
assumptions are summarised below:
31 December 31 December
2010 2009
Discount rate 8,25% p.a. 9,50% p.a.
Health care cost inflation 7,25% p.a. 8,00% p.a.
CPI inflation 5,25% p.a. 6,00% p.a.
Expected retirement age 58 58
Membership discontinued at retirement (%) - -
The valuation resulted in a pre-tax actuarial loss of R8 million (2009: R4,5
million gain) being recognised in the statement of comprehensive income.
3.2 Close-down and restoration obligation
The provision for close-down and restoration costs was impacted by the
following movements during the year ended 31 December 2010:
- R131 million increase due to increased closure costs estimates following a
full closure review;
- A decrease in the long-term inflation rate from 7,1% to 5,3% resulted in a
R13 million increase in the provision; and
- Finance charges (unwinding of discount) through the income statement
resulted in an increase of R41 million in the provision.
3.3 Operating segments
The magnetite joint product cost and overhead allocation methods have been
restated to align these with the manner the segments are monitored and
reported by management. The revised allocation method reports operating
results in a manner that is consistent with the operating and production
profile of each segment. Costs allocated to the magnetite joint product
relate to those costs incurred to mine the magnetite material from the
underground operations and processed through the concentrator (new arisings
material). No mining or concentrator costs are allocated to the historic
magnetite stockpiles.
This change has resulted in a restatement of previously reported operating
segment profits.
Joint- By-
product: products: Industrial
Copper Magnetite Other minerals Total
R`m R`m R`m R`m R`m
Year ended 31 December
2009
Reportable segment 301 90 129 41 561
operating profit - as
reported previously
Change in overhead (4) - (12) 16 -
allocation
Change in joint- (134) 134 - - -
product allocation
Change in depreciation 65 (65) - - -
allocation
Reportable segment 228 159 117 57 561
operating profit - as
reported currently
4. IMPAIRMENT LOSS
Reviewed Audited
2010 2009
R`m R`m
Impairment loss - (9)
A write off of unrecoverable costs relates to 2009 on the magnetite
feasibility project relating to the pipeline study.
5. PROFIT BEFORE TAX AND NET FINANCE COST
Reviewed Audited
2010 2009
R`m R`m
Profit before tax and net finance cost is stated
after chargingamongst other items:
Depreciation on property, plant and equipment 481 549
Amortisation on intangible assets 2 2
Employee benefit expense 819 763
6. NET FINANCE (COST)/INCOME
Reviewed Audited
2010 2009
R`m R`m
Finance cost (216) (190)
Interest expense on borrowings (5) (36)
Unwinding of discount on close-down and (41) (38)
restoration costs
Net foreign exchange loss on operating activities (50) (116)
Net foreign exchange loss on financing activities (120) -
Finance income 29 66
Interest income on short-term bank deposits 19 30
Interest income on pension surplus fund - 22
Interest income on available-for-sale financial 5 5
asset
Interest income on accounts receivable balances 5 -
Net foreign exchange gain on financing activities - 9
(187) (124)
7. INCOME TAX EXPENSE
The major components of income tax expense are:
Reviewed Audited
2010 2009
R`m R`m
Normal income tax (311) (262)
South African
- Mining tax: Current (315) (243)
- Mining tax: Prior year 18 -
- Non-mining tax: Current - (7)
Foreign
- Current (14) (12)
Secondary tax on companies (39) -
Deferred income tax
South African
- Current 84 93
- Prior year (2) -
Income tax expense reported in the income (268) (169)
statement
The tax rate reconciliation is as follows:
% %
Current statutory rate 28,0 28,0
Adjusted for:
Estimated state share (after tax) rate 3,6 3,6
Actual state share and state share deduction on (3,8) 0,5
mining tax
Dividend income - (0,3)
Disallowable expenditure 0,4 1,4
Deferred tax on unutilised STC credits 0,1 2,9
Secondary tax on companies 4,8 (0,9)
Prior year under/(over) provision (2,0) -
Other 0,1 2,2
Effective tax rate 31,2 37,4
The state share tax on mining was replaced by the new royalty act with
effect from 1 March 2010.
8. EARNINGS PER SHARE
Basic and diluted
Basic earnings per share is calculated by dividing the profit attributable
to equity holders of the parent by the weighted average number of ordinary
shares in issue during the year. There are no potential or actual dilutive
effects on the Group`s share capital.
Reviewed Audited
2010 2009
R`m R`m
Reconciliation of net profit for earnings per
share
Net profit attributable to equity holders of 595 284
parent
Reconciliation of weighted average number of
ordinary shares
Weighted average number of ordinary shares of 48 48
basic and diluted earnings per share (million
shares)
Earnings per share (cents) 1 231 587
9. HEADLINE EARNINGS
Profit before tax Tax expense Profit after tax
R`m R`m R`m
Year ended 31 December
2010
Profit per income 863 (268) 595
statement
Profit on disposal of (2) 1 (1)
property, plant and
equipment
Headline profit 861 (267) 594
Year ended 31 December
2009
Profit per income 453 (169) 284
statement
Impairment loss 9 (3) 6
Headline profit 462 (172) 290
Reviewed Audited
2010 2009
R`m R`m
Headline earnings per share (cents) 1 228 598
10. DEFERRED INCOME TAX
Reviewed Audited
2010 2009
R`m R`m
At 1 January 2010 130 (372)
Tax charged to income statement 82 93
Tax charged to statement of other (142) 409
comprehensive income
At 31 December 2010 70 130
Deferred tax assets arising from:
Provisions 237 77
Derivative financial instruments 761 897
STC credits - 1
998 975
Deferred tax liabilities arising from:
Accelerated capital allowances (808) (834)
Available-for-sale investment (111) (5)
Other (9) (6)
(928) (845)
Net deferred tax (liabilities)/assets 70 130
Comprising:
Deferred income tax assets 998 897
Deferred income tax liabilities (928) (767)
70 130
11. OTHER FINANCIAL LIABILITIES
Derivative financial instrument - Cash flow hedges
At 31 December 2010, the Group held a commodity swap contract designated as
a cash flow hedge of expected future sales to local customers under which
the Group receives a fixed price in Rand and in relation to a monthly
notional quantity of copper sales as detailed below and pays a floating
price based on the arithmetic average (mean) of the US$ LME Cash Settlement
Price, converted to Rand at the average SA Rand/US dollar exchange rate for
the calculation period. The cash flows paid under the terms of the hedging
instrument are designed to reduce variability in the rand proceeds of the
copper sales as set out in the table below.
As at 31 December 2010 the cash flow hedges of the expected future sales
were assessed to be highly effective and the ineffective portion of R4
million was recognised directly under "Other income" in the income
statement.
Table of terms: 2010
Average Hedged Derivative
hedged
Quantity price value liability
Maturity year tonnes ZAR/t R`m R`m
2011 21 825 15 739 344 1 038
2012 21 137 15 739 333 969
2013 16 330 15 739 257 703
59 292 934 2 710
Unamortised component 11
of non-
observable
inception gains
Total of derivative 2 721
financial
instrument
Non-current
Derivative financial 1 672
instrument
Unamortised component -
of non-
observable
inception gains
Total non-current 1 672
portion
Current
Derivative financial 1 038
instrument
Unamortised component 11
of non-
observable
inception gains
Total current portion 1 049
Total of derivative 2 721
financial
instrument
Table of terms: 2009
Average Hedged Derivative
hedged
Quantity price value liability
Maturity year tonnes ZAR/t R`m R`m
2010 22 188 15 739 349 863
2011 21 825 15 739 344 867
2012 21 137 15 739 333 833
2013 16 330 15 739 257 627
81 480 1 283 3 190
Unamortised 22
component of non-
observable
inception gain
Total of derivative 3 212
financial
instrument
Non-current
Derivative 2 327
financial
instrument
Unamortised 8
component of non-
observable
inception gains
Total non-current 2 335
portion
Current
Derivative 863
financial
instrument
Unamortised 14
component of non-
observable
inception gains
Total current 877
portion
Total of derivative 3 212
financial
instrument
12. BORROWINGS AND NET (CASH)/DEBT
Effective Reviewed Audited
interest rate 2010 2009
Description of loan Currency % R`m R`m
Current
Revolving credit ZAR Jibar+2,35 (48) (48)
facility - Tranche A
Revolving credit USD Libor+2,0 (50) (55)
facility - Tranche B
Total borrowings (98) (103)
Cash and cash 1 641 1 395
equivalents
Net cash 1 543 1 292
Approximately 51% of the Group`s existing borrowings is denominated in US
dollar for a total amount of US$7,5 million. The terms of repayments are
consistent with the information disclosed in the December 2009 annual
financial statements.
Net cash consist of borrowings and cash and cash equivalents. It is
calculated consistently year on year. No payment defaults were declared.
13. DIVIDENDS PAID
The following dividends were declared and paid:
Reviewed Audited
2010 2009
R`m R`m
Previous year final dividend:
620 cents per qualifying ordinary share (2008: 82 300 39
cents)
Interim dividend:
207 cents per qualifying ordinary share 100 80
400 119
After the respective reporting dates the following dividends were proposed
by the directors. The dividend declared is recognised in the period it is
paid.
Dividends declared:
724 Cents per qualifying ordinary share (2009: 350 300
620 cents)
Secondary tax on companies due on closing date of 35 29
dividend cycle
14. RELATED PARTY TRANSACTIONS
Reviewed Audited
2010 2009
R`m R`m
The following transactions were carried out with
related parties:
Recovery of travel and staff costs 23 7
Purchases of goods and services 683 493
Management fee (Rio Tinto London) 40 29
Key management compensation (executive directors) 8 11
15. OPERATING SEGMENTS
Management has determined the operating segments based on the reports
reviewed by the strategic steering committee that are used to make strategic
decisions. The committee considers the business from a product perspective.
The products are divided in the following segments:
- Copper - produces and markets refined copper;
- Joint-product: Magnetite - markets processed current arisings and built-up
stockpiles of magnetite, a joint-product from the copper mining process;
- By-products: Includes anode slimes, sulphuric acid and nickel sulphate;
and
- Industrial minerals - produces and markets vermiculite.
Reportable segments are as follows:
Joint- By-
product: products: Industrial
Copper Magnetite Other minerals Total
R`m R`m R`m R`m R`m
Year ended 31 December
2010
External customers
revenue
Sales from products 4 058 2 339 194 385 6 976
Hedge loss realised (845) - - - (845)
Reportable segment 3 213 2 339 194 385 6 131
revenue
Reportable segment 522 823 104 27 1 476
operating profit
before depreciation
and amortisation
Depreciation (372) (61) (6) (10) (449)
Reportable segment 150 762 98 17 1 027
operating profit
Year ended 31 December
2009
External customers
revenue
Sales from products 3 713 1 513 177 428 5 831
Hedge loss realised (547) - - - (547)
Reportable segment 3 166 1 513 177 428 5 284
revenue
Reportable segment 669 233 123 67 1 092
operating profit
before depreciation
and amortisation
Depreciation (441) (65) (6) (10) (522)
Impairment - (9) - - (9)
Reportable segment 228 159 117 57 561
operating profit
The following transactions were included under reportable segment operating
profit before depreciation and amortisation.
Joint- By-
product: products: Industrial
Copper Magnetite Other minerals Total
R`m R`m R`m R`m R`m
Year ended 31 December
2010
Joint-product 149 (149) - - -
allocation
Overhead allocation (374) (85) (15) (26) (500)
costs
Selling and (11) (1 218) (1) (164) (1 394)
distribution costs
Year ended 31 December
2009
Joint-product 165 (165) - - -
allocation
Overhead allocation (328) (50) (12) (21) (411)
costs
Selling and (18) (968) - (176) (1 162)
distribution costs
Reconciliation of reportable segment operating profit to profit after tax:
Reviewed Audited
2010 2009
R`m R`m
Reportable segment operating profit 1 027 561
Unallocated amounts:
- Other 57 43
- Depreciation and amortisation of tangible (34) (27)
and intangible assets
- Net finance income cost (187) (124)
Profit from operations before tax 863 453
Income tax expense (268) (169)
Profit after tax 595 284
16. COMMITMENTS
Commitments contracted for at the balance sheet date were R119 million
(2009: R93 million). Capital expenditure that was approved by the Board, but
not contracted for at 31 December 2010 amounts to R245 million (2009: R135
million).
17. CONTINGENT LIABILITIES
Legal matters
Various legal matters, including labour cases before the CCMA, are in
progress. The potential exposure is approximately R3 million (2009: R34
million).
Land claims
Presently four land claims have been filed regarding the government owned
property that Palabora uses for its mining operations. The four tribes have
joined together and are represented by one legal advisor. Clarifications of
the claims and Palabora`s defences are being pursued through legal channels.
The legal exposure is uncertain.
18. EVENTS AFTER REPORTING DATE
Dividend declaration
The Board resolved to declare a dividend of R7,24 per share at a meeting
held on 3 February 2011. This financial report does not reflect this
dividend payable, which will be recognised in shareholders` equity as an
appropriation of retained earnings in the year ending 31 December 2011.
The technical information referred to in this report has been reviewed by Mr
Nkosikhona Samuel Ngidi (SAIMM) - a full-time employee of the Company. He
has approved this information in writing before the publication of this
report.
Directors:
CN Zungu (Chairman)
AW Lennox (Managing Director)
LW Kirsner (alt. C Louwarts#)
WJ Abel
JS Yuen
F du Plessis
MR Abrahams
*Executive Director
Australian
#Dutch
Company secretary:
KN Mathole
Sponsor:
Barnard Jacobs Mellet Corporate Finance (Proprietary) Limited
Transfer Secretaries:
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001.
PO Box 61051, Marshalltown, 2107
Registered Office:
1 Copper Road, Phalaborwa, 1389
PO Box 65, Phalaborwa, 1390
The full report is available on our website at: www.palabora.com
Date: 07/02/2011 16:25:01 Supplied by www.sharenet.co.za
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