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PAM - Palabora Mining - Unaudited interim report and dividend announcement
for the six months ended 30 June 2011
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")
UNAUDITED INTERIM REPORT AND DIVIDEND ANNOUNCEMENT
for the six months ended 30 June 2011
COMMENTARY
Group financial highlights Six months Six months
ended ended
For the period ended 30 June 30 June
2011 2010
Net profit for the period R`million 758 306
Basic earnings per share Cents 1 568 632
Earnings before interest, tax, R`million 1 429 668
depreciation and amortisation
(EBITDA)
Headline earnings R`million 764 304
Headline earnings per share Cents 1 580 630
Dividend per share (declared) Cents 931 207
Overview
The Managing Director, Anthony (Tony) Lennox said, "Palabora continued to
deliver operational improvements that have led to a strong performance in
the first half of the year with profit after tax of R758 million, 148%
higher than R306 million for the comparative period in 2010 and exceeding
full year 2010 profit after tax of R595 million on the back of firming
product prices. We are confident these improvement initiatives will
continue to deliver positive results on the prospects for the remainder of
the year if copper and magnetite prices maintain current trends and levels.
Exploratory and developmental works are ongoing on the Lift II project
below the current Lift I footprint. The order of magnitude studies have
been finalised and the Palabora Board has approved the project to proceed
to the pre-feasibility stage. The approval highlights Palabora`s ability to
develop and mine the additional copper and magnetite deposit which if
approved will extend the life of the copper operations by up to 12 years
from the end of the current Lift I operations. Palabora is positive that
the additional studies will confirm our expectation of the ore reserve body
to further extend the life of mine for the mutual benefit of all our
stakeholders. To this end Tony said, "I am pleased to advise that Palabora
now has a dedicated growth team led by Nick Fouche to spearhead growth
projects including the magnetite expansion."
Both winder drums were replaced in February and April and we anticipate
increased hoisting rates of underground material. The various measures
implemented from mid-2010 have seen improvement in the smelter performance
and we anticipate further improvements after the shutdown in August to
rebuild the reverb furnace.
The Board declared an interim dividend of R9,31 per share.
Safety
The safety of all our employees and contractors remains a top priority
throughout our operations. The progressive Lost Time Injury Frequency Rate
(LTIFR) improved to 0,20 from 0,34 for the same period in 2010. The
importance of safety and safe work practices continues throughout the
organisation by creating more awareness and implementation of the current
safety programmes.
Production
Underground dry ore hoisted at 5,3 million tonnes at an average head grade
of 0,66% is in line with the 5,5 million tonnes at an average head grade of
0,65% for the corresponding period in 2010. Production was impacted by the
slowing down of hoisting rates in the first quarter pending the replacement
of both winders, one each in February and April 2011. A steady increase in
hoisting rates is expected for the remainder of the year. Business
improvement initiatives are currently undertaking a winder optimisation
project with recommendations for further improvement in hoisting rates
anticipated towards the end of the year.
Underground ore treated at 5,8 million tonnes was higher than both ore
hoisted and the comparative period in 2010 of 5,6 million. Production was
however impacted by a primary crusher failure during the first quarter and
overruns in the scheduled girth gear replacement at the automills at the
end of May and beginning of June. The overrun impact was mitigated through
increased slag processing and suspension of toll milling to ensure
throughput to the smelter. Normal operations together with commencement of
toll milling were quickly restored through effective disaster recovery and
maintenance planning to ensure uninterrupted copper supplies to our
customers.
Concentrate produced was 120kt at an average grade of 30,1% and in line
with the corresponding period in 2010 at an average copper grade of 30,4%.
New anode production increased 22% to 33kt compared to 27kt for the
comparative period in 2010. The operational challenges experienced at the
smelter in 2010 are being resolved through intervening measures implemented
from mid 2010 with expected continued performance improvements after the
August reverb furnace rebuild. Production was constrained by acid disposal
challenges due to excess supply in the local market. Palabora continues to
explore alternative markets in the SADC region.
Improved throughput from the smelter resulted in refined copper increasing
23% to 32kt from 26kt for the corresponding period in 2010. The tankhouse
operated an average of 14 sections compared to the 10 sections during the
first half of 2010.
Sales volume
Whilst copper sales volumes at 34kt have remained in line with the
comparative period in 2010, there has been a significant improvement in the
sales mix with copper rod increasing 44% to 27.1kt compared to 18.8kt for
the period ended 30 June 2010. Rod sales for 2010 included 4.9kt of
imported rod to meet customer contractual commitments following operational
challenges at the smelter and rod plant during the first half of 2010. The
improvement in the copper sales mix towards rod reflects our continued
commitment to the local rod market and the additional value this delivers
to Palabora and its stakeholders. Lower margin rod imports were substituted
by higher margin cathode imports of 6.7kt against 1.8kt for the period
ended 30 June 2010. The rod casting plant benefitted from increased
throughput from the smelter. The plant however suffered a taphole blockage
which affected rod supply to the market in April. The causes of the
blockage were investigated and findings and improvements are being
finalised before implementation.
Six months ended Six months ended
30 June 2011 (kt) 30 June 2010 (kt) % change
Copper rod 27,1 18,8 44
Cathode 3,4 6,2 (45)
Reverts 1,7 5,1 (67)
Refined copper scrap 1,8 4,1 (56)
Total copper 34,0 34,2 (1)
Magnetite volumes were 24% higher at 1 693kt compared to 1 366kt for the
period ended 30 June 2010 as a result of improved train availability to
transport material to port. We continue to restrict production below the
current operational capacity due to logistical constraints on wagon
availability.
Magnetite (kt) 1 693 1 366 24%
Transnet has informed Palabora of the expected suspension and closure of
the Brakspruit rail bridge for a period of three weeks from September as
the existing bridge needs to be repaired.
Palabora will consult with all relevant stakeholders including Transnet to
ensure the continued supply of magnetite and vermiculite to our customers.
Following these discussions, it is anticipated that Palabora will use road
transport to facilitate the movement of magnetite and vermiculite to
Gravelotte and Hoedspruit for onward railage to the ports of Maputo,
Richards Bay and Durban. The unexpected disruption will impact on magnetite
and vermiculite sales volumes as the use of the alternative transport
centres of Gravelotte and Hoedspruit do not allow for similar transport
volumes and capacity while additional maintenance activities on the rail
network will also result in additional disruptions.
The proposed arrangements are consistent with the disaster management plans
undertaken by the Group during last year`s Brakspruit bridge incident.
Palabora will endeavour to replicate and implement the successful
Brakspruit disaster management plans to ensure minimum impact on the local
communities while continuing to supply our customers given the constraints.
Turnover
Post hedge turnover increased by 38% to R4 billion from R2,9 billion for
the comparative period in 2010 on the back of firming product prices and
higher magnetite sales volumes. The LME copper price averaged USc/Ib 426,
31% up from USc/Ib 324 for the comparative period in 2010. Post hedge
copper revenue increased by 19% to R1,7 billion on 34kt compared to R1,5
billion on 34.2kt for the previous period.
Magnetite revenue increased by 68% to R2 billion on 1.7Mt compared to R1,2
billion on 1.4Mt realising average prices of R1 162 and R857 per ton for
2011 and 2010 respectively. Demand for magnetite in the Asian market
especially China remains strong. Magnetite contribution to Group operating
profitability was at 80% due to increasing prices and volumes over a fairly
constant cost base due to the historical stock piles which do not carry any
historical mining costs.
Vermiculite revenue increased 26% to R234 million on 82kt compared to R186
million on 85kt for the six months to 30 June 2010. Sales volumes were
impacted by inland and sea logistical constraints. Realised prices firmed
to R2 862 from R2 177 per ton for the six months period ending 30 June 2011
and 2010 respectively.
Cost of sales
Cost of sales increased by 6% to R1,6 billion compared to R1,5 billion for
the comparative period in 2010. Supplementary copper purchases were lower
at R444 million on 6.7kt compared to R536 million on 9.7kt in 30 June 2010
following improved operational performance at the smelter.
Selling and administration expenses
Selling expenses increased by 25% to R900 million compared to R718 million
mainly as a result of increased magnetite sales volumes of 1.7Mt against
1.4Mt in 2010 as well as higher railage costs. Administration expenses
increased by 69% to R364 million mainly due to above inflation increase in
salaries and power costs, the effects of the initial costs associated with
the business improvement initiatives, costs associated with the programme
designed to improve the operating image of Palabora across all
stakeholders, costs associated with the outsourcing of the internal audit
function and implementation of King III Code of Corporate Governance and
cost overruns associated with the unexpected additional decontamination of
land arising from the ZBS plant site.
Net finance income
Higher net finance income is associated with the weakening ZAR against the
US$ on US$ net debt balances where the ZAR ended at R6,83/US$ compared to
R6,64/US$ at the end of 2010.
Working capital
Anode and refined copper inventory has increased compared to 31 December
2010 due to both improved smelter and refinery performance and additional
production ahead of the planned smelter August shut-down to rebuild the
reverb furnace which will result in no anode production. The Company will
continue to mine and treat ore during this period which will be smelted and
refined once the reverb furnace is brought back on-line.
Trade and other receivables increased by 37% to R1 184 million compared to
R864 million at 31 December 2010 in line with growth in revenue. Cash and
cash equivalents increased to R1,7 billion, up from R1,6 billion as at 31
December 2010.
Cash flow from operating activities and capital expenditure
Cash flow from operating activities before interest, dividends and tax
increased by 206% to R948 million from R310 million in 2010 on the back of
increased profitability associated with higher prices across all main
products and higher magnetite volumes. Net cash generated for the six
months ended 30 June 2011 is R239 million compared to cash utilised of R280
million for the comparative period in 2010.
Net cash generated for the six-month period to 30 June 2011 increased by
R18 million due to higher final 2010 dividend, provisional tax payment and
higher sustaining capital expenditure over the same period in 2010.
Sustaining capital expenditure increased to R129 million in the six months
to June 2011 from R53 million in the comparative prior year from the
scheduled replacement strategies of production assets as these reach the
end of their economic life. Capital expenditure also includes R36 million
relating to the acquisition of the nickel plant following the dissolution
of the Nickel Plant joint venture with a third party, scheduled reverb
smelter shut down costs of R16 million and R37 million relating to the
replacement of the winder drums earlier in the year. Palabora has
maintained a strong cash balance of R1,7 billion compared to R1,1 billion
at 30 June 2010.
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 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. Palabora continues to engage with the
DMR to ensure the implementation of the transaction.
National Treasury has proposed in its latest Tax amendment bill the
suspension of Section 45 of the Income Tax Act. This section would have
resulted in the BBBEE transaction being effected in a tax neutral manner.
Palabora has made representations on the impact of this suspension on the
proposed BBBEE transaction to National Treasury and discussions are
ongoing.
Declaration of dividend
An interim cash dividend of 931 cents per share has been declared.
Payment in South African Rand will be made on Monday, 5 September 2011 to
shareholders recorded in the register of Palabora Mining Company as at 2
September 2011. The last day to trade to qualify for the dividend will be
Friday, 26 August 2011 and the shares will trade ex-dividend from Monday,
29 August 2011. Share certificates may not be dematerialised or
rematerialised between Monday, 29 August 2011 and Friday, 2 September 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
for the year ended 31 December 2011. The final dividend relating to the
2010 financial year of R350 million was paid during the period.
Corporate governance
Mr Nhlanhla Hlubi was appointed as an independent non-executive director of
the Company, with effect from 1 February 2011. Mr Hlubi is currently a
director and Head of Compliance and Risk Management in the retail division
at Alexander Forbes. He is an admitted Attorney with over 10 years` post
admission experience in financial planning, legal, regulatory compliance
and risk management. He has held numerous positions in the financial
services industry as a Financial Consultant and Regional Legal Advisor.
Mr Lindsay Kirsner resigned as non-executive director of the Board, with
effect from 3 February 2011. Mr Kirsner has changed roles within Rio Tinto
from Rio Tinto Copper to Business Development.
With effect from 4 February 2011, Mr Craig Kinnell was appointed as non-
executive director of the Company. Mr Kinnell is currently a Chief
Marketing Officer within Rio Tinto Copper since July 2010 and has global
responsibility for the marketing strategy, logistics, customer relationship
management, product stewardship and sales of all copper products,
molybdenum, precious metals, rhenium, nickel and all associated by-products
at Kennecott Utah Copper, Northparkes, Oyu Tolgoi and Eagle Nickel mines.
He also leads the development of marketing strategy for Copper projects and
works closely with Operations and Rio Tinto`s Executive Committee.
The Board would like to express its utmost gratitude and thanks to Mr M B
Snyder, for his hard work and dedication to the Group. Mr M B Snyder was
the interim acting Chief Financial Officer, while a comprehensive
recruitment process was concluded. The Board welcomes Ms Dikeledi Nakene
who has been appointed Chief Financial Officer from 18 April 2011. Mr M B
Snyder will continue to work within the Rio Tinto Group.
Ms Dikeledi Nakene was appointed as Chief Financial Officer and Ex Officio
Board member with effect from 18 April 2011. Ms Nakene joins the Company
with board experience in finance, management and internal and external
auditing. She is a chartered accountant - CA(SA) and certified internal
auditor (CIA). She has held numerous senior positions including Executive
General Manager, Audit Partner, Chief Financial Officer for the Department
of Sport, Arts and Culture as well as chairperson of the Audit Committee
for Food and Beverage SETA. Ms Nakene holds a BCom Accounting cum laude
(University of the North); BCompt Honours (University of South Africa); and
a higher diploma in Taxation Law (Wits). In addition she is a member of
several professional organisations including the Institute of Internal
Auditors and South African Institute of Chartered Accountants.
At 30 June 2011 the Palabora Board was constituted as follows:
Directors Alternate directors
1. Clifford N Zungu (Chairman)
2. Anthony W Lennox (Managing Director)*
3. Dikeledi Nakene (Chief Financial Officer)*
4. Francine A du Plessis
5. Ray Abrahams
6. Nhlanhla A Hlubi
7. Willan J Abel
8. Jo-Anne S Yuen Coen H Louwarts#
9. Craig Kinnel+
*Executive Director Australian #Dutch +British
Appreciation
These good results are testimony to the diligence and hard work from the
Board of Directors, management and staff. We remain grateful to our
customers and the Phalaborwa community for their continuing support.
CN Zungu AW Lennox DL Nakene
Chairman Managing Director Chief Financial Officer
28 July 2011
GROUP SELECTED STATISTICS
There have been no material changes to the information disclosed in the
annual report in compliance with paragraph 8.63(m) of the JSE Listings
Requirements for the year ended 31 December 2010.
Six Six months
months ended
ended
30 June 30 June 2010
2011
Revenue
Copper (net of hedge) R`million 1 725 1 454
Magnetite R`million 1 967 1 170
Other by-products R`million 86 102
Industrial minerals R`million 234 186
Net profit before tax R`million 1 104 439
Copper
Dry ore hoisted millions 5,3 5,5
tonnes
Average copper grade % Cu 0,66 0,65
Copper in concentrates kilo 36,0 36,4
produced tonnes
Cathode produced kilo 32,1 25,8
tonnes
Average copper price USc/lb 438,2 331,1
realised
Average LME copper USc/lb 425,8 324,3
price for half year
Average sales ZAR/US$ R/US$ 6,90 7,52
exchange rate
Spot ZAR/US$ exchange R/US$ 6,83 7,64
rate
Average copper price R/ton 66 516 54 919
realised (pre hedge)
Average copper price R/ton 50 809 42 570
realised (post hedge)
Vermiculite
Vermiculite sold tonnes 81 874 85 249
Average vermiculite R/ton 2 862 2 177
prices realised
Magnetite
Magnetite sold tonnes 1 693 1 365 997
090
Average magnetite R/ton 1 162 857
price realised
Anode slimes
Anode slimes sold tonnes 95 43
Nickel sulphate
Nickel sulphate sold tonnes 168 127
Average nickel R/ton 34 365 28 815
sulphate prices
realised
Sulphuric acid
Sulphuric acid sold tonnes 53 241 20 243
Average sulphuric acid R/ton 98 97
prices realised
Marginal ore
concentrate purchased
Volumes tonnes - 800
Cost R`million - 30
Unit purchased price - 37 705
Imported blister
Volumes Tonnes - 2 149
Cost R`million - 119
Unit purchased price - 55 248
Imported cathode
Volumes Tonnes 6 726 1 800
Cost R`million 444 96
Unit purchased price 65 980 53 353
Imported rod
Volumes Tonnes - 4 913
Cost R`million - 289
Unit purchased price - 58 887
Cash flow
Net cash from R`million 239 (280)
operating activities
Cash and cash R`million 1 708 1 091
equivalents as at 30
June
Costs
Production cost R`million 1 131 1 040
(excluding concentrate
purchases)
Cost of sales R`million 1 603 1 504
Capital expenditure
and commitments
Capital expenditure R`million 218 53
Contracts placed at R`million 138 74
end of period
Investments
Fair value of unlisted R`million 410 368
investments
Share capital
Authorised ordinary R`000 100 000 100 000
shares of R1 each
Issued ordinary shares 000 48 337 48 337
of R1 each
Net asset value per R/share 61 46
share
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months Six months
ended ended
30 June 30 June
2011 2010
Note R`m R`m
Sale of products 4 543 3 332
Hedge loss realised (531) (420)
Revenue 4 012 2 912
Cost of sales (1 603) (1 504)
Gross profit 2 409 1 408
Selling and distribution costs (900) (718)
Administration expenses (364) (216)
Other operating costs (50) (55)
Other income 17 16
Exploration costs 4 (40) -
Other expenses (7) (2)
Profit before net finance cost 5 1 065 433
and tax
Net finance income 6 39 6
Finance cost (31) (30)
Finance income 70 36
Profit before tax 1 104 439
Income tax expense 7 (346) (133)
Profit for the half year 758 306
Profit attributable to:
Equity holders of the parent 758 306
Earnings per share attributable
to the equity holdersof the
parent (expressed in cents per
share)
- Basic and diluted earnings per 8 1 568 632
share (cents)
- Headline earnings per share 9 1 580 630
(cents)
The notes are an integral part of these condensed Group results.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months
ended ended
30 June 30 June
2011 2010
R`m R`m
Profit for the half year 758 306
Other comprehensive income/(loss):
Available-for-sale investments
- Valuation gains arising during the half year 7 4
Exchange differences on translation of foreign 6 -
operations
Cash flow hedges:
- Mark to market (loss)/gain arising during the (77) 342
half year
- Transferred to profit for the half year 531 420
- Hedge ineffectiveness 2 2
Income tax relating to components of other (131) (216)
comprehensive income
Other comprehensive income for the half year, 338 552
net of tax
Total comprehensive income for the half year 1 096 858
Total comprehensive income attributable to:
Equity holders of the parent 1 096 858
The notes are an integral part of these interim condensed Group results.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
30 June 31 Dec
2011 2010
Note R`m R`m
Assets
Non-current assets 4 002 4 281
Property, plant and equipment 2 712 2 877
Intangible assets 7 8
Other financial assets 410 398
Deferred income tax assets 10 873 998
Current assets 3 927 3 298
Stores 107 113
Product inventories 928 680
Trade and other receivables 1 184 864
Cash and cash equivalents 1 708 1 641
Total assets 7 929 7 579
Equity
Equity attributable to owners of the
parent
Share capital and premium 629 629
Other reserves (1 463) (1 801)
Retained earnings 3 798 3 390
Total equity 2 964 2 218
Liabilities
Non-current liabilities 2 971 3 385
Other financial liabilities 11 1 296 1 672
Close down and restoration obligation 612 617
Retirement benefits obligation 172 168
Deferred income tax liabilities 10 891 928
Current liabilities 1 994 1 976
Other financial liabilities 11 960 1 049
Close-down and restoration obligation 2 -
Retirement benefits obligation 8 8
Borrowings 12 99 98
Trade and other payables 619 573
Related party payables 246 203
Current income tax liabilities 60 45
Total liabilities 4 965 5 361
Total equity and liabilities 7 929 7 579
The notes are an integral part of these interim condensed Group results.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
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 2010 48 581 (2 151) 3 201 1 679
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
Total comprehensive - - 338 758 1 096
income for the half year
Dividends paid - - - (350) (350)
Balance at 30 June 2011 48 581 (1 463) 3 798 2 964
The notes are an integral part of these interim condensed Group results.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months Six months
ended ended
30 June 30 June
2011 2010
R`m R`m
Cash flows from operating activities
Cash generated from operating activities 948 310
Interest paid (4) (3)
Interest received 19 14
Dividends paid (350) (300)
Income tax paid (374) (301)
Net cash generated/(utilised in) from operating 239 (280)
activities
Cash utilised in investing activities
Acquisition of property, plant and equipment (218) (53)
Proceeds from disposal of property, plant and - 3
equipment
Investment in available-for-sale financial asset (5) (3)
Dividend income 2 2
Net cash used in investing activities (221) (51)
Net increase/(decrease) in cash and cash 18 (331)
equivalents
Cash and cash equivalents at beginning of the 1 641 1 395
year
Effects of exchange rate changes on the balance 49 27
of cash held in foreign currencies
Cash and cash equivalents at end of half period 1 708 1 091
The notes are an integral part of these interim condensed Group results.
NOTES TO THE INTERIM CONDENSED 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 is listed on
the JSE Limited ("JSE"). The address of its registered office is 1 Copper
Road, Phalaborwa, 1389.
The condensed consolidated interim financial statements of Palabora for the
half year ended 30 June 2011 were authorised for issue in accordance with a
resolution of the Board of Directors passed on 28 July 2011.
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
2.1 Basis of preparation
The condensed consolidated interim financial information for the six months
ended 30 June 2011 has been prepared in accordance with International
Accounting Standard ("IAS") 34, Interim Reporting, as well as Schedule 4 of
the South African Companies Act, No. 71 of 2008, IFRS and the AC 500
standards as issued by the Accounting Practices Board and the disclosure
requirements of the JSE`s Listing Requirements.
The interim financial report does not include all the information and
disclosure requirements in the annual financial statements, and should be
read in conjunction with the Group`s annual financial statements for the
year ended 31 December 2010.
2.2 Significant accounting policies
The condensed consolidated interim 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 interim 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 2010.
The following new standards and amendments to standards are mandatory for
the first time for the financial year beginning 1 January 2011:
- IFRS 1 (Amendment): First-time Adoption of International Financial
Reporting Standards - Limited Exemptions from Comparative IFRS 7
Disclosures for First-time Adopters (effective for financial periods
beginning on or after 1 July 2010) - The additional amendment relieves
first-time adopters of IFRS from presenting comparative information for new
three level classification disclosures required by March 2009 amendments to
IFRS 7 `Financial Instruments: Disclosures`. The amendment is not
applicable to the Group;
- IAS 24 (Revised): Related Party Disclosures (effective for financial
periods beginning on or after 1 January 2011) - The revision simplifies the
disclosure requirements for government-related entities and clarifies the
definition of related parties. The amendment may require additional
disclosure at year end;
- IAS 32 (Amendment): Financial Instruments: Presentation (effective for
financial periods beginning on or after 1 February 2010) - Accounting for
rights issues (including rights, options and warrants) that are denominated
in a currency other than the functional currency of the issuer;
- IFRIC 13: Customer loyalty programmes (effective for financial periods
beginning on or after 1 January 2011) - The meaning of the term `fair
value` is clarified in the context of measuring award credits under
customer loyalty programmes. The amendment is not applicable to the Group;
- IFRIC 14 (Amendment): The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction- Prepayment of minimum funding
requirements (effective for financial periods beginning on or after 1
January 2011) - This amendment applies in the limited circumstances when an
entity is subject to minimum funding requirements and makes an early
payment of contributions to cover those requirements. The amendment permits
such an entity to treat the benefit of such an early payment as an asset.
The amendment does not have an impact on the Group pension scheme;
- IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments
(effective for financial periods beginning on or after 1 July 2010) - This
interpretation provides guidance on how to account for the extinguishment
of a financial liability by the issue of equity instruments. The amendment
is not currently applicable; and
- Improvements to IFRS 2010 - (effective for financial periods beginning on
or after 1 July 2010 or 1 January 2011) - 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.
3. PRESENTATION CHANGE
3.1 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 implemented and
presented in the Groups`s annual financial statements for the year ended 31
Decemeber 2010 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.
The change resulted in a restatement of previously reported operating
segment profits.
Joint- By-
product: products: Industrial
Copper Magnetite Other minerals Total
Period ended 30 June R`m R`m R`m R`m R`m
2010
Reportable segment 20 309 92 - 421
operating profit - as
reported previously
Change in overhead 20 (23) (7) 10 -
allocation
Change in joint- 75 (75) - - -
product allocation
Change in 27 (27) - - -
depreciation
allocation
Reportable segment 142 184 85 10 421
operating profit - as
reported currently
4. EXPLORATION AND DEVELOPMENT COST
Six months ended Six months ended
30 June 2011 30 June 2010
R`m R`m
Lift II Development Cost (40) -
Lift II development costs relate to pre-feasibility drilling and
development of a copper mineralisation area under the current footprint.
5. PROFIT BEFORE TAX AND NET FINANCE COST
Six months ended Six months ended
30 June 2011 30 June 2010
R`m R`m
Profit before tax and net finance
cost is stated after charging,
amongst other items:
Depreciation on property, plant and (363) (234)
equipment
Amortisation on intangible assets (1) (1)
Employee benefit expense (496) (406)
6. NET FINANCE)/INCOME
Six months ended Six months ended
30 June 2011 30 June 2010
R`m R`m
Finance cost (31) (30)
Interest expense on borrowings (4) (3)
Unwinding of discount on close-down (22) (19)
and restoration costs
Net foreign exchange loss on (5) (8)
operating activities
Finance income 70 36
Interest income on short-term bank 16 12
deposits
Interest income on available-for- 3 2
sale financial asset
Net foreign exchange gain on 51 22
financing activities
Net finance income 39 6
7.INCOME TAX EXPENSE
The major components of income tax expense are:
Six months ended Six months ended
30 June 2011 30 June 2010
R`m R`m
Normal income tax (354) (172)
South African
- Mining tax: current (336) (166)
- Mining tax: prior year - 1
- Non-mining tax: current - (1)
Foreign
- Current (18) (6)
Secondary tax on companies (35) (29)
Deferred income tax
South African
- Current 43 68
Income tax expense reported in the (346) (133)
income statement
The tax rate reconciliation is as
follows:
% %
Current standard rate 28,0 28,0
Adjusted for:
- Actual state share and state - 0,6
share deduction on mining tax
- Dividend income (1,7) (0,1)
- Disallowable expenditure - 0,5
- Tax rate differential of foreign 1,9 -
subsidiaries
- Secondary tax on companies 3,1 7,0
- Prior year provision - (1,8)
- Other - (3,9)
Effective tax rate 31,3 30,3
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.
Six months ended Six months ended
30 June 2011 30 June 2010
R`m R`m
Reconciliation of net profit for
earnings per share
Net profit attributable to equity 758 306
holders of parent
Reconciliation of weighted average
number of ordinary shares
Weighted average number of ordinary 48 48
shares of basic and diluted
earnings per share
Earnings per share (cents) 1 568 632
9. HEADLINE EARNINGS
Profit before Tax Profit after
tax expense tax
R`m R`m R`m
Six months ended 30 June 2011
Profit per income statement 1 104 (346) 758
Loss on disposal of property, 6 - 6
plant and equipment
Headline profit 1 110 (346) 764
Six months ended 30 June 2010
Profit per income statement 439 (133) 306
Profit on disposal of property, (2) - (2)
plant and equipment
Headline profit 437 (133) 304
Six months ended Six months ended
30 June 2011 30 June 2010
R`m R`m
Headline earnings per share (cents) 1 580 630
10. DEFERRED INCOME TAX
Six months ended Year ended
30 June 2011 31 December 2010
R`m R`m
At beginning of period 70 130
Tax charged to income statement 43 82
Tax charged to statement of other (131) (142)
comprehensive income
At end of period (18) 70
Deferred tax assets arising from:
Provisions 241 237
Derivative financial instruments 632 761
Other - -
873 998
Deferred tax liabilities arising
from:
Accelerated capital allowances (762) (808)
Available-for-sale investment (115) (111)
Other (14) (9)
(891) (928)
Net deferred tax (18) 70
(liabilities)/assets
Comprising:
Deferred income tax asset 873 998
Deferred income tax liabilities (891) (928)
(18) 70
11. OTHER FINANCIAL LIABILITIES
Derivative financial instruments - Cash flow hedges
At 30 June 2011, the Group held a commodity swap contract designated as a
hedge of expected future sales to local customers under which the Group
receives a fixed price in Rand 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 30 June 2011 the cash flow hedges of the expected future sales were
assessed to be highly effective and the ineffective portion of R2 million
was recognised directly in the statement of other comprehensive income.
Table of terms: 30 June 2011
Average
hedged Hedged Derivative
Maturity Quantity price value liability
Year tonnes ZAR/t R`m R`m
2011 10 913 15 739 172 596
2012 21 137 15 739 333 990
2013 16 330 15 739 257 670
48 380 762 2 256
Unamortised -
component of non-
observable inception
gain
Total of derivative 2 256
financial instrument
Non-current
Derivative financial 1 296
instrument
Total non-current 1 296
portion
Current
Derivative financial 960
instrument
Total current 960
portion
Total of derivative 2 256
financial instrument
Table of terms: 31
December 2010
Average
hedged Hedged Derivative
Maturity Quantity price value liability
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 11
component of non-
observable inception
gain
Total of derivative 2 721
financial instrument
Non-current
Derivative financial 1 672
instrument
Total non-current 1 672
portion
Current
Derivative financial 1 038
instrument
Unamortised 11
component of non-
observable inception
gain
Total current 1 049
portion
Total of derivative 2 721
financial instrument
12. BORROWINGS
Effective Six months ended Year ended
interest rate 30 June 2011 31 December
2010
Description of Currency % R`m R`m
loan
Revolving credit ZAR Jibar+2 48 48
facility -
Tranche A
Revolving credit USD Libor+2 51 50
facility -
Tranche B
Total borrowings 99 98
The revolving credit facility (RCF) consists of a tranche A of 47,5 million
Rand, and a tranche B of 7,5 million US dollars. Each revolving facility
loan is repayable on the last day of its interest period (quarterly).
13. DIVIDENDS PAID
The following dividends were declared and paid:
Six months ended Year ended
30 June 2011 31 December 2010
R`m R`m
Previous year final dividend:
724 cents per qualifying ordinary 350 300
share (2010: 620 cents)
Interim dividend:
207 cents per qualifying ordinary - 100
share
350 400
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:
931 cents per qualifying ordinary 450 350
share (2010: 724 cents)
Secondary tax on companies due on 45 35
closing date of dividend cycle
14. RELATED PARTY TRANSACTIONS
Six months ended Year ended
30 June 2011 31 December 2010
R`m R`m
The following transactions were
carried out with related parties:
Recovery of travel and staff costs 2 1
Purchases of goods and services 318 316
Key management compensation 5 8
(executive directors)
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
Period ended 30 June
2011
External customers
revenue
Sales from products 2 256 1 967 86 234 4 543
Hedge loss realised (531) - - - (531)
Reportable segment 1 725 1 967 86 234 4 012
revenue
Reportable segment 414 943 38 42 1 437
operating profit
before
depreciationand
amortisation
Depreciation (251) (52) (7) (7) (317)
Reportable segment 163 891 31 35 1 120
operating profit
Period ended 30 June
2010
External customers
revenue
Sales from products 1 874 1 170 102 186 3 332
Hedge loss realised (420) - - - (420)
Reportable segment 1 454 1 170 102 186 2 912
revenue
Reportable segment 329 211 88 15 643
operating profit
before depreciation
and amortisation
Depreciation (187) (27) (3) (5) (222)
Reportable segment 142 184 85 10 421
operating profit
Reconciliation of reportable segment operating profit to profit after tax:
Six months ended Six months ended
30 June 2011 30 June 2010
R`m R`m
Reportable segment operating profit 1 120 421
Unallocated amounts:
- Other (8) 25
- Depreciation and amortisation of (47) (13)
tangible and intangible assets
- Net finance income cost 39 6
Profit from operations before tax 1 104 439
Income tax expense (346) (133)
Profit after tax 758 306
16. COMMITMENTS
Commitments contracted for at the balance sheet date were R138 million (31
December 2010: R119 million). Capital expenditure that was approved by the
Board, but not contracted for at 30 June 2011 amounts to R220 million (31
December 2010: R245 million).
17. CONTINGENT LIABILITIES
Legal matters
Various legal matters, including labour cases before the CCMA, are in
progress. The potential exposure is approximately R1 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 931c per share at a meeting
held on 28 July 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.
Company secretary:
KN Mathole
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: 01/08/2011 15:18:01 Supplied by www.sharenet.co.za
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