Wrap Text
PAM - Palabora Mining Company Limited - Reviewed Preliminary results and
dividend announcement for the year ended 31 December 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")
Reviewed Preliminary results and dividend announcement for the year ended 31
December 2011
The preparation of the condensed consolidated preliminary financial information
was supervised by:
Dikeledi Nakene (CA) SA
Chief Financial Officer
COMMENTARY
Group financial
highlights
Reviewed Audited
For the year ended 31 31 December
December 2010
2011
Net profit for the year R`million 1 464 595
Basic earnings per Cents 3 028 1 231
share
Earnings before R`million 2 432 1 533
interest, tax,
depreciation and
amortisation (EBITDA)
Headline earnings R`million 1 468 594
Headline earnings per Cents 3 036 1 228
share
Dividend per share Cents 1 138 931
(declared)
Overview
The Managing Director, Anthony (Tony) Lennox said, "I am pleased to announce
that Palabora continues to build on its diverse commodity platform to deliver an
excellent performance for 2011. Combined with enhanced operational efficiencies,
an improving sales mix including higher magnetite volumes and firming commodity
prices, Palabora posted net profit of R1.464 billion compared to R595 million in
2010."
Shareholders are referred to the announcement of the Broad Based Black Economic
Empowerment (BBBEE) transaction published on 19 December 2011 wherein Palabora
announced the conversion, subject to certain administrative corrections, of
seven of its eight existing old order mining rights into new order mining
rights, a key step to enabling Palabora to move forward with the implementation
of the BBBEE transaction. The remaining old order mining right is subject to a
third party dispute, but such dispute will not prevent the implementation of the
BBBEE transaction insofar as the other new order mining rights are concerned. As
part of Palabora`s transformation strategy, Palabora embraced a fundamental
responsibility to participate and contribute meaningfully towards Enterprise
Development (ED) and Socio-economic Development (SED) in order to continue to
develop the community of Ba-Phalaborwa. To this end, the Board of Palabora (the
Board) approved R35 million for ED and SED projects to provide local
entrepreneurs with training, operational and/or financial assistance to
strengthen and grow their businesses.
During 2011 Palabora established a program called the Four Pillars of Growth
which are significant projects designed to move the company forward for the next
20 years. Tony said, "During the course of 2011 the Board endorsed the business
strategy which identified four areas for additional growth, comprising Lift II
mine development, magnetite expansion, vermiculite expansion and smelter
extension prefeasibility. A total of R196 million was spent on Lift II and
growth initiatives for the year. The business has established a formal dedicated
capability with the necessary leadership and structures to support the execution
of our strategy." This includes the trucking of magnetite to Maputo which
commenced in December 2011 with an expected 40kt to 60kt to be moved monthly and
complement the existing rail capability.
The Board declared a final dividend of R2.07 per share, which together with the
interim dividend of R9.31 per share brings the 2011 dividend to R11.38 per
share.
Safety
Tony said, "Palabora continues to set progressive targets to improve its safety
record and it is for that reason I am disappointed that our safety record
deteriorated compared to 2010, with all injuries increasing from 21 in 2010 to
24. I personally took time to interact with about 3 800 employees and
contractors during our Leadership Through Dialogue LeKgotla training programme
which was a huge success. All employees had a daylong session to share their
views on safety with the entire leadership. We are in the process of
implementing the safety and leadership recommendations adopted from the
interactions with our members of staff."
Production
Ore hoisted decreased 3% to 10.7Mt compared to 11.0Mt in 2010 mainly due to the
replacement of the winder drums during the first and second quarters of 2011 and
lower LHD availability in the fourth quarter due to the consolidation of the
maintenance contracts.
Total ore treated increased 1% to 11.8Mt compared to 11.7Mt in 2010 mainly due
to increased processing of slag and other material which increased 89% to 1.2mt
to mitigate the impact of lower underground ore supply and the impact of the
girth gear replacement overrun in the second quarter.
Copper concentrate production declined 7% to 228kt compared to 246kt in 2010 due
to lower mined ore milled and the impact of lower recoveries from minor
equipment failures and increased lower grade slag material.
Anode production increased 7% to 59.4kt compared to 55.7kt in 2010 due to
improvements in operational efficiencies and recovery rates at the smelter
following initiatives undertaken from the end of 2010 as well as utilisation of
prior year reverts stockpiles.
Magnetite production increased 13% to 3.4mt compared to 3.0mt in 2010 due to
increased export capacity available during 2011 arising from the absence of port
strikes that occurred in the second quarter of 2010 and the Brakspruit bridge
collapse in the third quarter of 2010.
Sales volumes
Whilst total copper sales decreased 3% to 70.1kt compared to 72.5kt, including
4.9kt of imported rod in 2010, the sales mix improved significantly in favour of
higher premium copper rod. Copper rod sales increased 21% including imported rod
in 2010 and 36% excluding imported rod for the previous year. A deliberate
decision was taken to retain higher copper cathode inventory of 3.5kt compared
to 1.3kt in 2010 to ensure adequate start up inventory for the 2012 financial
year.
Details of copper sales
volumes:
For the year For the year
ended ended
31 December 31 December
2011 2010
kt kt % change
Copper rod 51.6 42.8 21%
Cathode 6.7 12.1 (45%)
Reverts 5.3 9.1 (42%)
Refined copper scrap 6.5 8.5 (24%)
Total copper 70.1 72.5 (3%)
Magnetite volumes were 21% higher at 3 182kt compared to the previous year of
2 640kt as a result of improved train availability to transport material to
port.
Turnover
Post hedge turnover increased 31% to R8.1 billion from R6.1 billion in 2010 on
the back of firming product prices and higher magnetite sales volumes. The LME
copper price averaged Usc/lb 400, 18% higher from Usc/lb 340 for 2010. Post
hedge copper revenue increased 5% to R3.4 billion on 70.1kt compared to R3.2
billion on 72.5kt in 2010. Copper profitability contribution at 10% remains
weighed down by the hedge facility which reduced copper profitability by R1.04
billion.
Magnetite revenue increased 68% to R3.9 billion on 3.2Mt compared to R2.3
billion on 2.6Mt for the same comparative period, realising average prices of R1
233 and R886 per tonne for 2011 and 2010 respectively. The Asian region remains
the dominant market. Magnetite contribution to the Group operating profitability
was at 80% as a result of increasing prices and volumes over a relatively low
cost base due to the historical stock piles which do not carry any historical
mining costs.
Vermiculite revenue increased 35% to R518 million on 163kt compared to R385 on
179kt for 2010. Sales volumes were impacted by inland and sea logistical
constraints. Realised prices firmed to R3 181 from R2 156 per tonne for 2011 and
2010 respectively.
Cost of sales
Cost of sales increased 9% to R3.4 billion compared to R3.1 billion for the 2010
comparative period reflecting the above inflation increases in electricity rates
and labour cost increases, raw material price increases and maintenance
undertaken during the scheduled smelter shut down. Supplementary copper
purchases were higher at R671 million on 10.2kt compared to R614 million on
11.4kt due to increased copper prices.
Selling and administration expenses
Selling expenses increased 34% to R1.9 billion compared to R1.4 billion in 2010
mainly due to increased magnetite sales volumes and rail rates.
Administration expenses increased 48% to R711 million from R482 million in 2010
mainly due to costs associated with the business improvement initiatives,
facelift costs on the premises, compliance and risk management related costs,
implementation of King III Code of Corporate Governance including an expanded
communities and communications function, additional costs associated with the
preparation of the site for the IMBS pilot plant, above inflationary increases
in overhead labour costs and Ba-Phalaborwa community spend. The board also
approved a social and community enterprise development cost of R35 million in
December 2011 as part of Palabora`s BEE scorecard compliance.
Other costs include R39 million paid to employees in advance of the
implementation of the BBBEE transaction expected in the early part of 2012.
Cash flow from operating activities and capital expenditure
Cash flow from operating activities before dividends and STC increased by 61% to
R1.6 billion from R1 billion in 2010 on the back of increased profitability
associated with higher prices across all main products and higher magnetite
volumes.
Sustaining capital expenditure increased 100% to R445 million from R222 million
in 2010 mainly due to scheduled replacement strategies of production assets as
these reached the end of their economic life. Capital expenditure also includes
the acquisition of the nickel plant following the dissolution of the Nickel
Plant arrangement with a third party for R36 million, scheduled reverb smelter
shut down costs of R41 million and R51 million relating to the replacement of
the winder drums earlier in the year.
Declaration of dividend
A final cash dividend of 207 cents per share has been declared. The final
dividend together with the interim dividend paid in September 2011 brings the
total dividend for 2011 to 1 138 cents. The final dividend proposal reflects
Palabora`s focus on the Four Pillars of Growth to ensure a viable business model
to 2030 and the belief in the growth options currently available.
Payment in South African Rand will be made on Monday, 5 March 2012 to
shareholders recorded in the register of Palabora Mining Company as at Friday, 2
March 2012. The last day to trade to qualify for the dividend will be Friday, 24
February 2012 and the shares will trade ex-dividend from Monday, 27 February
2012. Share certificates may not be dematerialised or rematerialised between
Monday, 27 February 2012 and Friday, 2 March 2012, 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 2012. The final dividend relating to the 2010
financial year of R350 million was paid during the year.
Directorship
Nhlanhla Hlubi was appointed as an independent non-executive director of the
company, with effect from 1 February 2011. Nhlanhla 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 year`s 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.
Lindsay Kirsner resigned as non-executive director of the Board, with effect
from 3 February 2011. Lindsay has changed roles within Rio Tinto from Rio Tinto
Copper to Business Development.
With effect from 4 February 2011, Craig Kinnell was appointed as non-executive
director of the company. Craig joined Rio Tinto in 1985 as a graduate trainee,
after successfully completing a degree in Marketing and Economics. He
subsequently completed a Rio Tinto sponsored MBA in 1992 and has acquired
extensive international knowledge and experience within minerals marketing and
the commercial mining environment over the past 25 years. He has held several
board positions within Rio Tinto in South Africa, Namibia, China, Singapore,
Canada, USA, UK and Germany and filled a number of senior management positions,
including Managing Director of Rio Tinto Uranium and Senior Vice President Rio
Tinto Iron & Titanium. Craig is currently Chief Marketing Officer within Rio
Tinto Copper Group.
Dikeledi Nakene joins Palabora with broad experience in finance, management,
internal and external auditing. 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 the Food and Beverage SETA. Dikeledi holds a BCom Accounting cum
laude degree from University of the North, BCompt (Hons) degree from University
of South Africa and a higher diploma in Taxation law (University of the
Witwatersrand). She is also a qualified Chartered Accountant and a Certified
Internal Auditor.
Jo-Ann Yuen resigned as non-executive director from the Board with effect from
30 November 2011. Jo-Ann has changed roles within Rio Tinto moving from Rio
Tinto Copper to Kennecott Utah Copper as Chief Financial Advisor.
With effect from 1 December 2011, Jean-Sebastien Jacques has been appointed as a
non-executive director of the company. Jean-Sebastien is currently President of
International Operations within the Rio Tinto Copper group. He has extensive
experience in the metal and mining industry and in the management of
international teams. He has held several senior positions including group
strategy director for TATA Steel and corporate development and strategy director
for Corus group. Jean-Sebastien holds a Master of Science with honours from
Ecole Centrale, Paris.
The Board would like to express its thanks to Bruce Snyder, for his efforts in
the role of interim Chief Financial Officer, while a comprehensive recruitment
process was concluded. The Board welcomes Dikeledi Nakene who has been appointed
Chief Financial Officer from 18 April 2011. Bruce will continue to work within
the Rio Tinto Group.
At 31 December 2011 the Palabora Board was constituted as
follows:
Directors Alternate directors
1. Clifford N Zungu
(Chairman)
2. Anthony W Lennox (Managing
Director)*
3. Dikeledi L Nakene (Chief
Financial Officer)*
4. Francine A du
Plessis
5. Ray Abrahams
6. Willan J Abel
7. Nhlanhla A Hlubi
8. Craig Kinnell+
9. Jean-Sebastien Coen H.
Jacques> Louwarts#
*Executive Director #Dutch
Australian +British
>French
Appreciation
We are grateful to all the Board members for their active participation in
providing strategic direction to the company. The good results would not have
been achieved without the dedicated contribution from the management and all
staff members.
CN Zungu AW Lennox DL Nakene
Chairman Managing Director Chief Financial Officer
6 February 2012
GROUP SELECTED STATISTICS
31 December 31 December
2011 2010
Revenue
Copper (net of hedge) R` 3 387 3 213
million
Magnetite R` 3 924 2 339
million
Other by-products R` 225 194
million
Industrial minerals R` 518 385
million
Net profit before tax R` 2 176 863
million
Copper
Dry ore hoisted million
tonnes 10.7 11.0
Average copper grade % Cu
0.64 0.64
New copper in concentrate kilo
produced tonnes 68.0 75.0
Cathode produced kilo
tonnes 59.0 58.0
Average copper price realised USc/lb
394.6 347.0
Average LME copper price for USc/lb
the year 399.8 340.0
Average ZAR/US$ exchange rate R/US$
7.26 7.32
Spot ZAR/US$ exchange rate R/US$
8.19 6.64
Average copper price realised R/tonne 63 145 55 947
(pre hedge)
Average copper price realised R/tonne 48 342 44 273
(post hedge)
Vermiculite
Vermiculite sold tonnes 162 828 178 599
Average vermiculite price R/tonne 3 181 2 156
realised
Magnetite
Magnetite sold tonnes 3 182 367 2 640 489
Average magnetite price R/tonne 1 233 886
realised
Anode Slimes
Anode slimes sold tonnes 195 126
Average anode slimes price 1 033 540 1 436 508
realised
Nickel sulphate
Nickel sulphate sold tonnes 424 372
Average nickel sulphate price R/tonne 30 136 27 673
realised
Sulphuric acid
Sulphuric acid sold tonnes 95 681 51 593
Average sulphuric acid price R/tonne 113 59
realised
Marginal ore concentrate
purchased
Volumes tonnes 800
-
Cost R` 30
million -
Unit purchased price R/tonne 37 500
-
31 December 31 December
2011 2010
Imported blister
Volumes tonnes
- 1 858
Cost R`
million - 100
Unit purchased price R/tonne
- 53 802
Imported cathode
Volumes tonnes 10 168 3 801
Cost R` 671 192
million
Unit purchased price R/tonne 65 969 50 513
Imported rod
Volumes tonnes
- 4 913
Cost R`
million - 290
Unit purchased price R/tonne
- 58 974
Cash flow
Net cash from operating R` 780 592
activities million
Cash and cash equivalents R` 2 210 1 641
million
Costs
Production cost (excluding R` 2 393 2 004
purchases) million
Cost of sales R` 3 376 3 104
million
Capital expenditure and
commitments
Capital expenditure R` 445 222
million
Contracts placed at end of each R` 79 119
period million
Investments
Fair value of unlisted R` 445 398
investments million
Share capital
Authorised ordinary shares of R`000 100 000 100 000
R1 each
Issued ordinary shares of R1 000 48 337 48 337
each
Net asset value per share R/share
76 46
REVIEWED PRELIMINARY CONDENSED GROUP RESULTS
CONDENSED CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2011
Reviewed Audited
2011 2010
Note R`m R`m
Sale of products 9 092 6 976
Hedge loss realised (1 038) (845)
Revenue 8 054 6 131
Cost of sales (3 376) (3 104)
Gross profit 4 678 3 027
Selling and distribution costs (1 869) (1 391)
Administration expenses (711) (482)
Mineral and petroleum royalty (79) (88)
Other income 30 30
Exploration development and growth 5 (196) (40)
costs
Other expenses 6 (53) (6)
Profit before net finance cost and tax 7 1 800 1 050
Net finance income / (cost) 8 376 (187)
Finance cost 8 (47) (216)
Finance income 8 423 29
Profit before tax 2 176 863
Income tax expense 9 (712) (268)
Profit for the year 1 464 595
Profit for the year attributable to:
Equity holders of the parent 1 464 595
Earnings per share attributable to the
equity holders
of the parent (expressed in cent per
share)
- Basic and diluted earnings per share 10 3 028 1 231
(cents)
The notes on pages 14 to 24 are an integral part of these condensed
consolidated preliminary financial information.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
for the year ended 31
December 2011
Reviewed Audited
2011 2010
R`m R`m
Profit for the year 1 464 595
Other comprehensive income:
Available-for-sale
investments
- Valuation gains arising 37 30
during the year
Exchange differences on 36 (20)
translation of foreign
operations
Cash flow hedges
- Mark to market losses (49) (365)
arising during the year
- Transferred to profit or 1 038 845
loss for the year
- Hedge ineffectiveness 6 4
Actuarial loss on defined (2) ( 8)
benefit plans
Income tax relating to components of (290) (142)
other comprehensive income
Other comprehensive income 776 344
for the year, net of tax
Total comprehensive income 2 240 939
for the year
Total comprehensive income
attributable to:
Equity holders of the 2 240 939
parent
The notes on pages 14 to 24 are an integral part of these
condensed consolidated preliminary financial information.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
As at 31 December 2011
Reviewed Audited
2011 2010
Note R`m R`m
Assets
Non-current assets 3 891 4 281
Property, plant and equipment 2 702 2 877
Intangible assets 7 8
Financial assets 445 398
Deferred income tax asset 12 737 998
Current assets 4 048 3 298
Stores 136 113
Product inventories 921 680
Trade and other receivables 781 864
Cash and cash equivalents 2 210 1 641
Total assets 7 939 7 579
Equity
Equity attributable to owners
of the parent
Share capital and premium 629 629
Other reserves (1 023) (1 801)
Retained earnings 4 053 3 390
Total equity 3 659 2 218
Non-current liabilities 2 486 3 385
Financial liabilities 13 754 1 672
Close-down and restoration 3.1 665 617
obligation
Retirement benefit obligation 3.2 177 168
Deferred income tax liabilities 12 890 928
Current liabilities 1 794 1 976
Financial liabilities 13 968 1 049
Retirement benefit obligation 3.2 9 8
Borrowings 98
-
Trade and other payables 641 573
Related party payables 111 203
Current income tax liabilities 65 45
Total liabilities 4 280 5 361
Total equity and liabilities 7 939 7 579
The notes on pages 14 to 24 are an integral part of these condensed
consolidated preliminary financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31
December 2011
Attributable to owners of parent
Note Share Share Other Retained Total
capital premium reserves earnings
R`m R`m R`m R`m R`m
Balance at 1 48 581 (2 151) 3 201 1 679
January 2010
Total comprehensive - - 350 589 939
income for the year
Dividends paid 14 - - - (400) (400)
Balance at 31 48 581 (1 801) 3 390 2 218
December 2010
Total comprehensive 778 1 462 2 240
income for the year - -
Dividends paid 14 (799) (799)
- - -
Balance at 31 48 581 (1 023) 4 053 3 659
December 2011
The notes on pages 14 to 24 are an integral part of these condensed
consolidated preliminary financial information.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2011
Reviewed Audited
2011 2010
Note R`m R`m
Cash flows from operating activities
Cash generated from operating activities 2 308 1 343
Interest paid (3) (5)
Interest received 33 29
Dividends paid 14 (799) (400)
Income tax paid (759) (375)
Net cash generated from operating 780 592
activities
Cash flows from investing activities
Acquisition of property, plant and (442) (217)
equipment
Acquisition of intangible assets (3) (5)
Proceeds from disposal of property, plant 1
and equipment 3
Investment in available-for-sale (10) (7)
financial asset
Dividend income 4
-
Net cash used in investing activities (454) (222)
Cash flow from financing activities
Repayment of borrowings (107)
-
Net cash used in financing activities (107)
-
Net increase in cash and cash equivalents 219 370
Cash and cash equivalents at beginning of 1 641 1 395
year
Effects of exchange rate changes on the 350 (124)
balance of cash held in foreign
currencies
Cash and cash equivalents at end of year 2 210 1 641
The notes on pages 14 to 24 are an integral part of these condensed
consolidated preliminary financial information.
NOTES TO THE CONDENSED CONSOLIDATED PRELIMINARY FINANCIAL INFORMATION
For the year ended 31 December 2011
1. CORPORATE INFORMATION
Palabora Mining Company Ltd ("the Company") and its subsidiaries (together
"the Group") extracts and beneficiates copper, magnetite and vermiculite
from its mines in the Limpopo Province, South Africa. It is the primary aim
of the Company, a member of the worldwide Rio Tinto Group, to achieve
excellence in all aspects of its activities and to develop the Company`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 Company`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. The address of its
registered office is 1 Copper Road, Phalaborwa, 1389. The Company is a
public limited company which is listed on the Johannesburg Securities
Exchange Limited (JSE).
The condensed consolidated preliminary financial statements of Palabora for
the year ended 31 December 2011 were authorised for issue in accordance
with a resolution of the Board of Directors passed on 2 February 2012.
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
2.1 Basis of preparation
The condensed consolidated preliminary financial information for the year
ended 31 December 2011 has been prepared in accordance with International
Accounting Standard (IAS) 34, `Interim financial reporting`.
The condensed consolidated preliminary financial information should be read
in conjunction with the annual financial statements for the year ended 31
December 2010, which have been prepared in accordance with International
Financial Reporting Standards (IFRS) and Interpretations, the AC 500
standards (as issued by the Accounting Practices Board or its successor),
requirements of the South African Companies Act and regulations of the JSE
Limited.
2.2 Independent audit review
The preliminary financial statements have been reviewed by the company`s
independent auditors, PricewaterhouseCoopers Inc. 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.
The accounting policies applied in the preparation of the condensed
consolidated preliminary financial information are consistent with those
followed in the preparation of the Group`s annual financial statements for
the year ended 31 December 2010.
3. CHANGES IN ESTIMATES
3.1 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 2011:
* R13 million increase due to increased closure costs estimates
following a closure review;
* Rehabilitation of Loole Creek and ZBS resulted in a decrease of R9
million; and
* Finance charges (unwinding of discount) through the income statement
resulted in an increase of R44 million in the provision.
3.2 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 2011 is valued at
R186 million compared with R176 million at 31 December 2010.
The valuation resulted in a pre-tax actuarial loss of R2 million (2010: R8
million loss) being recognised in the statement of comprehensive income.
4. PRESENTATION CHANGE
Operating segments
Direct magnetite production costs were previously allocated under the
copper segment.
The presentation change resulted in a change in previous reported amounts
as follows:
Copper Joint- Total
product:
Magnetite
R`m R`m R`m
Year ended 31 December
2010
Reportable segment operating 522 823 1 345
profit before depreciation - as
reported previously
Cost reallocation 61 (61)
-
Reportable segment operating 583 762 1 345
profit before depreciation - as
reported currently
Reportable segment 150 762 912
operating profit - as
reported previously
Cost reallocation 61 (61)
-
Reportable segment 211 701 912
operating profit - as
reported currently
5. EXPLORATION AND DEVELOPMENT COST
2011 2010
R`m R`m
Lift II exploration and growth 196 40
related costs
Lift II exploration and growth costs relate to pre-feasibility
drilling and exploration of a copper mineralisation area under
the current footprint and early development activities.
6. OTHER EXPENSES
Reviewed Audited
2011 2010
R`m R`m
Hedge ineffectiveness 6 4
Impairment of accounts 2 2
receivable
Loss on disposal of property, plant 6
and equipment -
BBBEE Donation 39
-
53 6
7. PROFIT BEFORE TAX AND NET FINANCE COST
Reviewed Audited
2011 2010
R`m R`m
Profit before tax and net finance cost
is stated after charging,
amongst other items:
Depreciation of property, plant and 628 481
equipment
Amortisation of intangible 4 2
assets
Employee benefit expense 1 002 819
8. NET FINANCE INCOME/ (COST)
Reviewed Audited
2011 2010
R`m R`m
Finance cost (47) (216)
Interest expense on (3) (5)
borrowings
Unwinding of discount on close-down (44) (41)
and restoration costs
Net foreign exchange loss on operating (50)
activities -
Net foreign exchange loss on financing (120)
activities -
Finance income 423 29
Interest income on short-term bank 26 19
deposits
Interest income on available-for-sale 6 5
financial asset
Interest income on accounts receivable 1
balances 5
Net foreign exchange gain on operating 49
activities -
Net foreign exchange gain on financing
activities 341 -
376 (187)
9. INCOME TAX EXPENSE
The major components of income tax
expense are:
Reviewed Audited
2011 2010
R`m R`m
Normal income tax (699) (311)
South African
- Mining tax: Current (638) (315)
- Mining tax: Prior year (21)
18
Foreign
- Current (40) (14)
Secondary tax on companies (80) (39)
Deferred income tax 67 82
South African
- Current 67 84
- Prior year (2)
-
Income tax expense reported in the (712) (268)
income 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
- Actual state share and state share
deduction on mining tax - (3.8)
- Disallowable expenditure
- 0.4
- Deferred tax on unutilised STC
credits - 0.1
- Secondary tax on
companies 3.7 4.8
- Tax rate differential of foreign
subsidiaries 0.1 -
- Prior year under /
(over) provision 0.9 (2.0)
- Other
- 0.1
Effective tax rate
32.7 31.2
The state share tax on mining was replaced by the new royalty act with
effect from 1 March 2010.
10. 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
2011 2010
R`m R`m
Reconciliation of net profit for
earnings per share
Net profit attributable to equity 1 464 595
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 (million shares)
Earnings per share (cents) 3 028 1 231
11. HEADLINE EARNINGS
Profit Tax Profit
before expense after
tax tax
R`m R`m R`m
Year ended 31 December 2011
Profit per income statement 2 176 (712) 1 464
Loss on disposal of 6 (2) 4
property, plant and
equipment
Headline profit 2 182 (714) 1 468
Year ended 31 December 2010
Profit per income statement 863 (268) 595
Profit on disposal of (2) 1 (1)
property, plant and
equipment
Headline profit 861 (267) 594
Reviewed Audited
2011 2010
Headline earnings per share 3 036 1 228
(cents)
12. DEFERRED INCOME TAX
Reviewed Audited
2011 2010
R`m R`m
At 1 January 70 130
Tax charged to income 67 82
statement
Tax charged to statement of other (290) (142)
comprehensive income
At 31 December (153) 70
Deferred tax assets arising
from:
Provisions 255 237
Derivative financial 482 761
instruments
737 998
Deferred tax liabilities
arising from:
Accelerated capital (758) (808)
allowances
Available-for-sale (125) (111)
investment
Other (7) (9)
(890) (928)
Net deferred tax (153) 70
(liabilities) / assets
Comprising:
Deferred income tax assets 737 998
Deferred income tax (890) (928)
liabilities
(153) 70
13. FINANCIAL LIABILITIES
Derivative financial instrument - Cash flow hedges
At 31 December 2011, 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 2011 the cash flow hedges of the expected future sales
were assessed to be highly effective and the ineffective portion of R6
million was recognised directly under "Other expenses" in the income
statement.
Table of terms: 2011
Quantity Average Hedged Derivative
hedged value liability
price
Maturity year tonnes ZAR/t R`m R`m
2012 21 137 15 739 333 754
2013 16 330 15 739 257 968
37 467 590 1 722
Unamortised component of non-observable
inception gains -
Total of derivative financial 1 722
instrument
Non-current 754
Current 968
Total of derivative financial 1 722
instrument
Table of terms: 2010
Quantity Average Hedged Derivative
hedged value liability
price
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 of non-observable 11
inception gain
Total of derivative financial 2 721
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 of non-observable 11
inception gains
Total current portion 1 049
Total of derivative financial 2 721
instrument
14. DIVIDENDS PAID
The following dividends were declared and paid:
Reviewed Audited
2011 2010
R`m R`m
Previous year final
dividend:
724 cents per qualifying ordinary 349 300
share (2009: 620 cents)
Interim dividend:
931 cents per qualifying ordinary 450 100
share (2010: 207 cents)
799 400
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:
207 cents per qualifying ordinary 350
share (2010: 724 cents) 100
Secondary tax on companies due on 35
closing date of dividend cycle 10
15. RELATED PARTY TRANSACTIONS
Reviewed Audited
2011 2010
R`m R`m
The following significant transactions were
carried out with related parties:
Purchases of goods and services (Rio 655
Tinto Group) 733
Marketing fee (Rio Tinto Iron 28
Ore Asia) 145
Management fee (Rio 40
Tinto Group) 21
16. 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:
Copper Joint- By- Industrial Total
product: products: minerals
Magnetite Other
R`m R`m R`m R`m R`m
Year ended
31 December
2011
External customers
revenue
Sales from 4 425 3 924 225 518 9 092
products
Hedge loss (1 038) (1
realised - - - 038)
Reportable 3 387 3 924 225 518 8 054
segment
revenue
Reportable 654 1 707 107 125 2 593
segment
operating
profit
before
depreciation
Depreciation (450) (89) (10) (11) (560)
Reportable 204 1 618 97 114 2 033
segment
operating
profit
Copper Joint- By- Industrial Total
product: products: minerals
Magnetite Other
R`m R`m R`m R`m R`m
Year ended 31
December 2010
External customers
revenue
Sales from 4 058 2 339 194 385 6 976
products
Hedge loss (845) - - - (845)
realised
Reportable 3 213 2 339 194 385 6 131
segment
revenue
Reportable 583 762 104 27 1 476
segment
operating
profit
before
depreciation
Depreciation (372) (61) (6) (10) (449)
Reportable 211 701 98 17 1 027
segment
operating
profit
Reportable segment operating profit before depreciation include:
Year ended
31 December
2011
Joint 198 (198)
product - - -
allocation
Overhead (510) (116) (21) (37) (684)
allocation
costs
Selling and (16) (1 653) (19) (181) (1 869)
distribution
costs
Year ended
31 December
2010
Joint 149 (149)
product - - -
allocation
Overhead (374) (85) (15) (26) (500)
allocation
costs
Selling and (11) (1 218) (1) (164) (1 394)
distribution
costs
Reconciliation of reportable segment
operating profit to profit after tax:
Reviewed Audited
2011 2010
R`m R`m
Reportable segment 2 033 1 027
operating profit
Unallocated
amounts:
- Other including growth and Lift II (162) 57
exploration expenditure
- Depreciation and amortisation of tangible (71) (34)
and intangible assets
- Net 376 (187)
finance
income cost
Profit from 2 176 863
operations before
tax
Income tax (712) (268)
expense
Profit after 1 464 595
tax
17. COMMITMENTS
Commitments contracted for at the reporting date was R79 million (2010:
R119 million). Capital expenditure that was approved by the Board, but not
contracted for at 31 December 2011 amounts to R314 million (2010: R245
million).
18. CONTINGENT LIABILITIES
Legal matters
Various legal matters, including labour cases before the CCMA, are in
progress. The potential exposure is approximately R2 million (2010: R3
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.
Taxation penalty on the closure rehabilitation trust fund
During the year, the South African Revenue Service (SARS) issued Palabora
with a taxation penalty on its 2008 taxable income relating to the closure
rehabilitation trust fund. Palabora has objected to the penalty applied by
SARS with a response pending. The financial implication of the penalty is
not material to the underlying results as published.
19. EVENTS AFTER REPORTING DATE
Dividend declaration
The Board resolved to declare a dividend of R2.07 per share at a meeting
held on 2 February 2012. 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 2012.
Company Secretary:
KN Mathole
Sponsor:
One Capital
Transfer Secretaries:
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Registered address:
1 Copper Road, Phalaborwa, 1389
PO Box 65, Phalaborwa, 1390
Date: 06/02/2012 17:14:01 Supplied by www.sharenet.co.za
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