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Condensed Preliminary Consolidated Financial Statement for the year ended 30 june 2012
Petmin Limited
(Incorporated in the Republic of South Africa)
(Registration number 1972/001062/06)
JSE code: PET AIM code: PTMN
ISIN: ZAE000076014
("Petmin" or "the Group")
Condensed Preliminary Consolidated Financial Statements
for the year ended 30 June 2012
"R523 million invested to double capacity and to deliver on strategy despite difficult market conditions"
- Net cash flow from operations up 23% to R443.8 million (2011: R360.8 million)
- Profit after tax up 12% to R112.7 million (2011: R101.0 million)
- Headline earnings per share up 9% to 19.06 cents (2011: 17.50 cents)
- Dividend up 25% to 5 cents per share (2011: 4 cents)
- Somkhele capacity increased to 1.2 million saleable tonnes per annum
- New Order Mining Right extended to cover new mining areas at Somkhele
- Accelerated investment in North Atlantic Iron Corporation ("NAIC") pig iron project
- Sale of SamQuarz concluded for R281 million
Condensed Preliminary Consolidated Income Statement
for the year ended 30 June 2012
Reviewed Audited
Year ended Year ended
30 June 30 June
2012 2011
Note R'000 R'000
Revenue 516 303 471 385
Cost of sales (360 461) (344 303)
Gross profit 155 842 127 082
Operating income/(expense) 6 532 (7 177)
Administration expenses (20 611) (13 694)
Results from operating activities 141 763 106 211
- Mark to market of listed securities 8.3 (20 234) 346
Net finance (expense)/income (6 988) 3 698
- Finance income 2 936 4 889
- Finance expenses (9 924) (1 191)
Separately disclosed items:
Impairment loss on exploration asset 8.3 (18 841) -
Fair value gain on investment in jointly controlled entity 3 404 -
Share of losses of equity accounted investees (1 707) (524)
Profit before income tax 97 397 109 731
Income tax expense (41 377) (37 060)
Profit for the year from continuing
operations 7 56 020 72 671
Profit for the year from discontinued
operation (net of income tax) 6 38 517 28 311
Profit on sale of subsidiary 6 18 145 -
Profit for the year 112 682 100 982
Earnings per share
Basic earnings per ordinary share (cents) 7 19.53 17.50
Diluted earnings per ordinary share (cents) 7 19.24 17.40
Earnings per share from continuing operations
Basic earnings per ordinary share (cents) 7 9.71 12.60
Diluted earnings per ordinary share (cents) 7 9.56 12.52
Condensed Preliminary Consolidated Statement of Comprehensive Income
for the year ended 30 June 2012
Reviewed Audited
Year ended Year ended
30 June 30 June
2012 2011
R'000 R'000
Profit for the year 112 682 100 982
Other comprehensive income
Foreign currency translation differences 3 877 (319)
Other comprehensive income for the year,
net of income tax 3 877 (319)
Total comprehensive income for the year 116 559 100 663
Condensed Preliminary Consolidated Statement of Financial Position
at 30 June 2012
Reviewed Audited
as at as at
30 June 2012 30 June 2011
Note R'000 R'000
ASSETS
Non-current assets 1 541 541 1 126 251
Property, plant and equipment 1 042 840 620 662
Intangible assets - 1 889
Investment in equity accounted investee 468 757 470 138
Investments 29 944 33 562
Current assets 494 701 664 515
Inventories 100 312 22 134
Trade and other receivables 111 741 117 496
Receivable on sale of subsidiary 6 281 064 -
Current tax assets - 4 656
Cash and cash equivalents 1 584 227 792
Assets classified as held for sale 6 - 292 437
Total assets 2 036 242 1 790 766
EQUITY AND LIABILITIES
Ordinary share capital and reserves 1 405 188 1 317 162
Share capital 143 763 143 398
Share premium 334 104 337 807
Share option reserve 3 508 5 627
Foreign currency translation reserve 3 558 (319)
Retained earnings 920 255 830 649
Non-current liabilities 274 984 249 604
Interest-bearing loans and borrowings 80 556 96 674
Deferred taxation liabilities 172 233 133 206
Environmental rehabilitation provision 22 195 19 724
Current liabilities 356 070 224 000
Trade and other payables 157 968 88 131
Current portion of interest-bearing loans and
borrowings 47 108 23 466
Current tax liabilities 34 816 -
Shareholders for dividend 1 287 996
Bank overdraft 114 891 -
Liabilities classified as held for sale 6 - 111 407
Total equity and liabilities 2 036 242 1 790 766
Condensed Preliminary Consolidated Statement of Cash Flows
for the year ended 30 June 2012
Reviewed Audited
Year ended Year ended
30 June 2012 30 June 2011
Note R'000 R'000
Profit from operations before finance 193 865 142 018
(expense)/income
Adjustments for:
- depreciation and amortisation 261 041 191 946
- transfer of accumulated depreciation to provisions - (6 154)
- impairment charges - 3 735
- notional interest 3 014 3 187
- (profit)/loss on disposal of property, plant and (17) 10
equipment
- share-based payment included in expenses - 22 336
- decommissioning asset - new mining areas - 1 008
- management share options granted 962 2 532
Operating cash flows before changes in
working capital 458 865 360 618
Decrease/(Increase) in trade and other receivables 12 453 (14 360)
(Increase)/Decrease in inventories (88 760) 834
Increase in trade and other payables 66 781 13 124
Cash generated by operations 449 339 360 216
Income tax refunded/(paid) 1 425 (4 590)
Finance income 4 010 6 727
Finance expenses (10 958) (1 548)
Net cash flow from operating activities 443 816 360 805
Cash flows from investing activities
Long-term rehabilitation expenditure incurred - (236)
Investment in jointly controlled entities 8 (45 716) (13 552)
Investment in listed shares (16 616) (8 216)
Acquisition of property, plant and equipment (688 548) (361 431)
- to expand operations (270 707) (148 111)
- to expand operations - capitalised pre-strip 9 (405 558) (181 565)
- to maintain operations (12 283) (31 755)
Proceeds on sale of subsidiary, net of cash disposed 6 (23 889) -
Proceeds from sale of property, plant and equipment 24 5
Net cash flows from investing activities (774 745) (383 430)
Cash flows from financing activities
Proceeds from specific and general share issues for
cash during the year 3 331 29
Treasury shares acquired (9 590) (15 204)
Payment on options forfeited (160) -
Repayment of borrowings (29 189) (22 718)
Increase in borrowings 6 984 80 152
Dividends paid (22 785) (33 617)
Net cash flows from financing activities (51 409) 8 642
Net decrease in cash and cash equivalents (382 338) (13 983)
Cash and cash equivalents at beginning of year 12.1 269 031 283 014
Cash and cash equivalents at end of year (113 307) 269 031
Condensed Preliminary Consolidated Statement of Changes in Equity
for the year ended 30 June 2012
Foreign
Share currency
Share Share option translation Retained
capital premium reserve reserve earnings Total
GROUP R'000 R'000 R'000 R'000 R'000 R'000
Balance at 1 July 2010 142 681 331 337 3 121 - 764 282 1 241 421
Total comprehensive income for the year - - - (319) 100 982 100 663
Foreign currency translation differences - - - (319) - (319)
Profit for the year - - - - 100 982 100 982
Transactions with owners, recorded directly in equity 717 6 470 2 506 - (34 615) (24 922)
Shares issued during the year
- Share options exercised 11 43 (26) - - 28
Share-based payments 1 986 20 350 - - - 22 336
Treasury shares acquired during the year (1 280) (13 923) - - - (15 203)
Share options granted - - 2 546 - - 2 546
Share options forfeited during the year - - (14) - - (14)
Dividend paid - - - - (34 615) (34 615)
Balance at 30 June 2011 143 398 337 807 5 627 (319) 830 649 1 317 162
Total comprehensive income for the year - - - 3 877 112 682 116 559
Profit for the period - - - - 112 682 112 682
Foreign currency translation differences - - - 3 877 - 3 877
Transactions with owners, recorded directly in equity 365 (3 703) (2 119) - (23 076) (28 533)
Shares issued during the period
- Share options exercised 1 281 4 971 (2 921) - - 3 331
Share options forfeited during the year - - (160) - - (160)
Treasury shares acquired during the year (916) (8 674) - - - (9 590)
Share options granted - - 962 - - 962
Dividend paid - - - - (23 076) (23 076)
Balance at 30 June 2012 143 763 334 104 3 508 3 558 920 255 1 405 188
Segment reporting
Segment information is presented in the condensed preliminary consolidated financial statements in respect of the Group's segments.
The segment reporting format reflects the Group's management and internal reporting structure as reviewed by the chief operating
decision-makers.
Segment revenue represents revenue from external customers. There was no inter-segment revenue.
Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Reportable segments
The Group comprises the following main reportable segments:
- Silica mining and marketing ("Silica") - Discontinued operation, sold on 29 June 2012;
- Anthracite mining and marketing ("Anthracite"); and
- Business of Tomorrow, which includes Petmin's exploration and development projects. This segment has been designated as a
reportable segment in order to achieve fairer presentation due to its significance.
Segment Report
for the year ended 30 June 2012
Silica (Discontinued) Anthracite Business of Tomorrow Other (Corporate office) Eliminations Consolidated
Year Year Year Year Year Year Year Year Year Year Year Year
Units ended ended ended ended ended ended ended ended ended ended ended ended
of 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
measure 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
Saleable tonnes produced (tonnes) 1 245 406 1 325 868 637 220 524 006 - - - - - - 1 882 626 1 849 874
Tonnes sold (tonnes) 1 135 807 1 248 989 546 051 579 087 - - - - - - 1 681 858 1 828 076
Segment revenue R'000 174 846 170 082 516 303 471 385 - - - - - - 691 149 641 467
Segment revenue per tonne sold (R/tonne) R153.94 R136.18 R945.52 R814.01
Segment finance (expense)/
income
Finance income R'000 1 074 1 838 - 569 - - 2 936 4 320 - - 4 010 6 727
Mark to market of listed securities R'000 - - - - (20 234) 346 - - - - (20 234) 346
Finance expense R'000 (1 034) (357) (7 201) (852) - - (2 723) (339) - - (10 958) (1 548)
Segment profit per tonne sold (R/tonne) R25.37 R26.47 R249.90 R202.05
- segment result R'000 48 667 33 058 136 458 117 006 (40 782) (220) 61 624 (2 825) - - 205 967 147 019
Segment profit/(loss) before tax R'000 48 667 33 058 136 458 117 006 (40 782) (220) 61 624 (2 825) - - 205 967 147 019
Segment tax (expense) R'000 (13 627) (8 977) (38 760) (33 599) - - (40 898) (3 461) - - (93 285) (46 037)
Segment profit/(loss) after tax R'000 35 040 24 081 97 698 83 407 (40 782) (220) 20 726 (6 286) - - 112 682 100 982
Segment capital expenditure - combined R'000 35 858 63 294 616 644 268 069 3 308 467 32 738 29 547 - - 688 548 361 377
Segment capital expenditure R'000 35 858 63 294 211 615 86 718 3 308 467 32 738 29 547 - - 283 519 180 026
Segment capital expenditure - pre-strip* R'000 - - 405 029 181 351 - - - - - - 405 029 181 351
Segment depreciation - combined R'000 - 16 560 258 706 172 460 - - 445 408 - - 259 151 189 428
Segment depreciation R'000 - 16 560 30 361 18 980 - - 445 408 - - 30 806 35 948
Segment depreciation - pre-strip* R'000 - - 228 345 153 480 - - - - - - 228 345 153 480
Share option costs included in segment
profit/(loss) before tax R'000 - - - - - - 962 2 546 - - 962 2 546
Segment assets R'000 - 288 061 1 106 627 805 728 575 819 527 676 750 819 432 119 (397 023) (262 818) 2 036 242 1 790 766
Segment liabilities R'000 - 111 407 639 210 435 167 2 106 428 201 580 28 525 (211 842) (101 923) 631 054 473 604
*See note 9.
Notes to the Condensed Preliminary Consolidated Financial Statements
for the year ended 30 June 2012
1. Reporting entity
Petmin is a company domiciled in South Africa. The condensed preliminary consolidated financial statements of the Group for the year
ended 30 June 2012 comprise the Company and its subsidiaries and the Group's interests in associates and jointly controlled entities
(together referred to as the "Group").
The condensed preliminary consolidated financial statements were authorised for issue by the directors on 18 September 2012.
2. Statement of compliance
The condensed preliminary consolidated financial statements have been prepared under the supervision of Petmin's Financial Director,
Mr B P Tanner CA(SA) and in accordance with the recognition and measurement requirements of IFRS and the presentation and
disclosure requirements of IAS 34 - Interim Financial Reporting, the AC 500 Standards as published by the Accounting Practices Board
and the South African Companies Act, 2008. The condensed preliminary consolidated financial statements do not include all of the
information required for full annual financial statements and should be read in conjunction with the consolidated annual financial
statements for the year ended 30 June 2011, which are available upon request from the Company's registered office at 37 Peter Place,
Bryanston, 2021, Johannesburg, or at www.petmin.co.za.
3. Significant accounting policies
The accounting policies have been applied consistently by the Group to all periods presented in these condensed consolidated
preliminary financial statements and are consistent to those applied by the Group in its consolidated financial statements as at and for
the year ended 30 June 2011.
Functional and presentation currency
The condensed consolidated preliminary financial statements are presented in South African Rands ("Rands"), which is the Company's
functional currency. All financial information presented in Rands has been rounded to the nearest thousand.
4. Estimates and judgements
The preparation of the condensed preliminary consolidated reviewed financial statements in conformity with IAS 34 - Interim Financial
Reporting requires management to make judgements, estimates and assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making
the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the
revision affects both current and future periods.
The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation
uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 30 June 2011.
5. Review of results
The results of the Group as set out in these condensed preliminary consolidated financial statements have been reviewed by the
Group's auditors, KPMG Inc. The unqualified review report is available for inspection at the Group's registered offices.
6. Discontinued operation
With the Competition Tribunal's approval received on 29 June 2012, all conditions for the sale of SamQuarz (Pty) Limited were fulfilled
and the Group recorded a profit after tax on the sale of R18 million at that date. In July 2012, the Group received R258 million of
the proceeds on the sale. The balance of the proceeds (estimated to be R23 million) is payable upon completion of all the formalities
relating to the determination of the net asset value adjustment calculated as the move in the net assets of SamQuarz from the reference
date accounts. Taking into account the net sale proceeds and cash flows to Petmin since acquiring SamQuarz in September 2004,
Petmin has generated a cash return of 39% per year for the 7.75 years that it controlled SamQuarz.
Profit from discontinued operations for the year ended 30 June 2012 increased by R11 million largely as, in accordance with the
provisions of IFRS 5, depreciation ceased on the assets held for sale from 1 July 2011. Had this depreciation been recorded in 2012,
profit after tax from discontinued operations would have amounted to R25 million.
The results from the discontinued operation are presented in the table below:
Reviewed Audited
Year ended Year ended
30 June 2012 30 June 2011
R'000 R'000
Results of discontinued operation
Revenue 174 846 170 082
Cost of sales (113 180) (111 289)
Gross profit 61 666 58 793
Operating expenses (10 902) (24 515)
Administration expenses (2 137) (2 701)
Results from operating activities 48 627 31 577
Net finance income 40 1 481
- Finance income 1 074 1 838
- Finance expenses (1 034) (357)
Profit before income tax 48 667 33 058
Income tax expense (13 627) (8 977)
Profit for the year 35 040 24 081
Add: Profit on fee income earned in Petrnin Limited 3 477 4 230
Profit for the year from discontinued operations 38 517 28 311
Earnings per share
Basic earnings per share (cents) 6.68 4.90
Diluted earnings per share (cents) 6.58 4.88
Cash flows from/(used in) discontinued operation
Net cash from operating activities 37 366 46 742
Net cash used in investing activities (35 834) (62 286)
Net cash used in financing activities (5 999) (6 200)
Net cash used in discontinued operation (4 467) (21 744)
Effect of disposal on the financial position of the Group
Property, plant and equipment (234 053)
Inventory (36 549)
Trade and other receivables (23 852)
Cash and cash equivalents (13 040)
Deferred tax liabilities 59 739
Rehabilitation provision 7 998
Interest-bearing loans and borrowings 2 994
Trade and other payables 23 218
Current tax liability 439
Net assets and liabilities (213 106)
Gross proceeds 281 064
Less: Selling expenses (10 849)
Net proceeds 270 215
Less: Cash disposed (13 040)
Cash Inflow from sale before change in working capital 257 175
Increase in debtor on sale of SamQuarz (281 064)
Net cash outflow (23 889)
7. Earnings per share
Earnings per share ("EPS") are based on the Group's profit for the year, divided by the weighted average number of shares in issue during the year.
Reviewed Audited
Year ended Year ended
30 June 2012 30 June 2011
Profit for Number of Per Profit for Number of Per
the year shares in share the year shares in share
R'000 thousands in cents R'000 thousands in cents
Basic earnings per share 112 682 576 908 19.53 100 982 576 908 17.50
Share options and contingent consideration - 8 771 (0.29) - 3 514 (0.10)
Diluted EPS 112 682 585 679 19.24 100 982 580 422 17.40
Headline earnings per share
Headline earnings per share is based on the Group's headline earnings divided by the weighted average number of shares in issue during the year.
Reconciliation between earnings and headline earnings per share
Basic EPS 112 682 576 908 19.53 100 982 576 908 17.50
Adjustments:
- Fair value gain on investment in joint venture (3 404) - (0.59) - - -
- Impairment of exploration asset 18 841 - 3.27 - - -
- Profit on sale of subsidiary (18 145) - (3.15) - - -
Headline EPS 109 974 576 908 19.06 100 982 576 908 17.50
Share options and contingent consideration - 8 771 (0.28) - 3 514 (0.10)
Diluted headline EPS 109 974 585 679 18.78 100 982 580 422 17.40
Reconciliation between earnings per share
and earnings per share from continuing
operations
Basic EPS 112 682 576 908 19.53 100 982 576 908 17.50
Profit for the year from discontinued operations (38 517) - (6.68) (28 311) - (4.90)
Profit on sale of discontinued operation (18 145) - (3.14) - - -
EPS from continuing operations 56 020 576 908 9.71 72 671 576 908 12.60
Share options and contingent consideration - 8 771 (0.15) - 3 514 (0.08)
Diluted EPS from continuing operations 56 020 585 679 9.56 72 671 580 422 12.52
The Earnings per share from continuing operations in 2012 were negatively affected by the impairment of the investments in Red Crescent Resources
Limited and the Sivas project. If the R39 million impairment in 2012 is ignored, EPS from continuing operations would have been 16.48 cents in 2012.
8. Investment in jointly controlled entities
Petmin previously announced its strategy to become a globally diversified mining company with a focus on those specific commodities that feed
into the steel value chain. Petmin's investment philosophy is to reduce risk of entry into new geographic areas and commodities by contracting on
an earn-in, stepped acquisition basis with joint management control from inception rather than, and not as, an investor in a portfolio of minority
stakes with no control. This "value and risk-based approach" requires that key milestones are agreed upfront for each phase of the investment and if
these milestones are not met, then Petmin is not obliged to continue with its investment. As previously announced and in line with this investment
philosophy. Petmin has made the following investments during the year ended 30 June 2012:
8.1 Investment in North Atlantic Iron Corporation ("NAIC")
Petmin invested an additional $5 million (2011: $1.5 million) in the jointly managed NAIC acquiring an additional 12% interest to take Petmin's
shareholding in NAIC to 17%. Petmin's investment in NAIC has been proportionately consolidated in accordance with the accounting policy
for investments in jointly controlled entities.
8.2 Investment in Iron Bird Resources Plc ("Iron Bird")
Petmin invested an additional $1.5 million (2011: $0.5 million) in the jointly managed Iron Bird, increasing its shareholding in Iron Bird to 50%.
8.3 Red Crescent Resources Limited ("RCR")
Petmin invested CAD3 055 000 to increase its equity holding in RCR to approximately 10.1%. The funds were applied to the exploration
programme at RCR's Sivas copper project and therefore a portion of the investment has been accounted for as an investment in mineral assets,
with the balance being reflected as an investment in listed securities.
9. Capital pre-stripping
It is Petmin's accounting policy to record the pre-strip capital of R405 million (2011: R181 million) as "capital". In reality the capital expenditure is the
net amount recognised in property, plant and equipment during the year, i.e. R177 million (2011: R28 million), being pre-strip capital of R405 million,
less amortisation of R228 million (2011: capital R181 million, amortisation R153 million). The amortisation is the direct mining cost incurred in the
year. The open pit mining profile at Somkhele requires that overburden be removed from the pit before coal can be extracted. This overburden
removal is capitalised to the development cost of the open pit (so called "pre-strip") and is then expensed on a units-of-production basis as the coal
is extracted from the open pits. The pre-strip expenditure in 2012 reflects the increased expenditure to ensure supply of run-of-mine coal to feed
both the existing and the newly commissioned second plant at Somkhele.
10. Related parties
No material related party transactions were entered into.
11. Change in directors
As announced on 13 September 2011, Petmin appointed Mr Trevor Petersen with effect from 12 September 2011 as an independent non-executive
director and as a member of Petmin's audit and risk committee.
Petmin furthermore announced after the AGM held on 25 November 2011, that Mr J Strijdom retired as a director of Petmin on that date and
did not make himself available for re-election as a director. Petmin thanks Mr Strijdom for his service to Petmin and his contribution to its audit
and risk committee.
12. Subsequent events
12.1 Cash proceeds received for the sale of SamQuarz
During July 2012, Petmin received R258 million of the proceeds on the sale in cash. The balance of the proceeds (estimated to be R23 million)
is payable upon completion of all the formalities relating to the determination of the net asset value adjustment calculated as the move in the
net assets of SamQuarz from the reference date accounts.
12.2 Investment in North Atlantic Iron Corporation
On 16 August 2012, Petmin announced that it had invested a further US$4.5 million to increase its stake in the North Atlantic Iron
Corporation from 17% to 22.5% based on the project's technical and economic viability.
12.3 Petmin secures extension to existing mining right at Somkhele anthracite mine
On 17 July 2012, Petmin announced that it had been granted a 20-year mining right for an expansion to new mining areas at its flagship
Somkhele anthracite operation in northern KwaZulu-Natal, South Africa.
The new right is in addition to the existing 20-year right covering existing reserves, and will facilitate the expansion of operations by South
Africa's biggest producer of metallurgical anthracite.
12.4 Declaration of dividend
On 19 September 2012, the Company announced that it had declared a dividend of 5 cents per share which is in line with the approved
dividend policy.
The record date for payment of the cash dividend is 16 November 2012. Please refer to the separate notice of the declaration of dividend
dated 19 September 2012 for more details.
12.5 Cancellation of R82 million Black Economic Empowerment ("BEE") surety
In January 2010, Petmin shareholders approved an R82 million surety by Petmin on behalf of Dark Capital (Pty) Limited, Petmin's primary
BEE partner. The Petmin Board is pleased to inform shareholders that the surety has been withdrawn with effect from 24 August 2012
following Dark Capital's payment in full of its R65 million debt to the Standard Bank of South Africa. Dark Capital expresses its appreciation
to shareholders for approving the surety. The Petmin Board also expresses its appreciation to Dark Capital for its continued commitment
to Petmin.
12.6 Capital expenditure and cash requirements
Although Somkhele has the potential to produce material cash flows, the Petmin Board believes that during these uncertain times, it is prudent
to ensure that sufficient cash and facilities are available.
The Group has signed approved term sheets from Standard Bank, our bankers since inception, securing, in addition to the existing R100 million
overdraft facilities, new medium-term debt facilities of R225 million and a Rl00 million revolving credit facility.
12.7 Other subsequent events
There have been no other events that have occurred subsequent to 30 June 2012 and before the condensed preliminary consolidated financial
statements are authorised for issue which require adjustment of, or disclosure in the financial statements or notes thereto in accordance with
IAS 10 - Events After the Reporting Period.
Management commentary for the year ended 30 June 2012
(i) General overview of performance
Petmin reported a significant investment of R523 million (2011: R230 million) to double capacity at its Somkhele anthracite mine and to
continue to deliver on its growth and diversification strategy.
Petmin reported stable financial results with operations performing well and has had a satisfactory year of expansion and growth despite
difficult trading conditions, with the doubling of capacity at the Somkhele anthracite mine, accelerated investment in NAIC and the successful
conclusion of the sale of SamQuarz.
The Group's operations remain strongly cash-generative, generating R443.8 million in the year to June 2012 (2011: R360.8 million).
Profit after tax was up 12% to R112.7 million (2011: R101.0 million) after including the profit on sale of SamQuarz of R18.2 million and the
write-down of the investments in RCR totalling R39.0 million.
The normalised profit (see table below) from ongoing operations increased by 23% to R97 million (2011: R79 million).
Reviewed Audited
Year ended Year ended
30 June 2012 30 June 2011
Normalised profit from ongoing operations R'000 R'000
Results from ongoing operations 141 763 106 211
Net finance (expense)/income (6 988) 3 699
Pre-tax results from ongoing operations 134 775 109 910
Assumed tax at 28% (37 737) (30 775)
Assumed profit after tax from ongoing operations 97 038 79 135
Shares in issue 576 908 188 576 908 188
Normalised profit after tax from ongoing operations per share 16.82 13.72
Results from operations were steady with Somkhele reporting a profit after tax of R97.7 million (2011: R83.4 million) up 17%, and SamQuarz
reporting a profit after tax of R35.0 million (2011: R24.1 million). In accordance with the provisions of IFRS 5, depreciation ceased on the assets
held for sale (SamQuarz) from 1 July 2011. Had this depreciation been recorded in 2012, profit after tax from SamQuarz would have been
R20.7 million, down R3.4 million from 2011.
Capital expenditure increased to R460 million (2011: R208 million) of which R177 million (2011: R28 million) was spent on pre-stripping
the open pits at Somkhele in order to double production rates to feed the second plant which was fully operational in the last quarter of
FY2012. The main capital projects at Somkhele included the second wash plant (R119 million), exploration and resource definition activities
(R29 million) and completion of new access roads (R3.4 million).
Petmin invested a further R62.3 million (2011: R21.8 million) in its foreign domiciled, jointly controlled exploration and development projects,
with its focus on the investment in NAIC which is being accelerated based on positive exploration results.
Petmin's interest-bearing debt to equity ratio increased to 17.26% (2011: 11.48%) as overdraft facilities of R114.9 were utilised at 30 June
2012 pending the receipt of the SamQuarz sale proceeds in July 2012.
Anthracite division
Somkhele anthracite mine
Monthly production doubled in May and June 2012 at Somkhele following the successful commissioning of the second wash plant. Somkhele
now has an annual production capacity in excess of 1.2 million saleable tonnes of anthracite.
The impact of the second plant enabled Somkhele to produce 637 220 tonnes (2011: 524 006 tonnes) of saleable anthracite in the year to
30 June 2012. Somkhele sold 546 051 tonnes (2011: 579 087 tonnes) of anthracite in the year to 30 June 2012.
Net profit margins were stable at 26% (2011: 25%) for the year ended 30 June 2012 despite increased mining costs as the mine moved
to exploit deeper reserves with increased strip ratios in the move to Area1. Mining costs per run of mine tonne increased 21% mainly due
to the increased strip ratios, but mining costs per saleable tonne reduced by 3% due to the utilisation of the second wash plant to process
discard and increase yield.
Construction of a third processing plant at an estimated cost of R62 million has been approved and is expected to be commissioned in the
first quarter of CY2013.
The exploration and resource definition activities during the year indicate that Somkhele has an opencast Life of Mine in excess of 20 years
with both plants running at full capacity and producing approximately 1.2 million tonnes of anthracite. During the year detailed revised
mining plans were developed to reduce the strip ratio to an average of 3.5 over the remaining Life of Mine and these revised mine plans will
substantially reduce the capital required to develop the various pits.
Silica division - SamQuarz silica mine
The sale of the SamQuarz silica mine, for final gross proceeds of R281.1 million, was concluded on 30 June 2012, with the group recording
a profit after tax of R18.2 million.
Business of Tomorrow division
Petmin's strategy is to focus on the steel value chain and commodities required for infrastructure development and urbanisation.
With the higher level of risk associated with exploration, Petmin is satisfied that its value and risk-based investment philosophy potentially
delivered a world-class pig iron project, may deliver a substantial return on its investment in Iron Bird and, to the disappointment of
management, RCR Sivas Copper's results did not meet Petmin's investment criteria. Petmin still believes that Turkey provides tremendous
potential, and we will work with RCR management in searching for opportunities.
During the year, Petmin made the following investments:
North Atlantic Iron Corporation ("NAIC")
Petmin invested an additional $5 million (2011: $1.5 million) in the jointly managed NAIC acquiring an additional 10% interest to take Petmin's
shareholding in NAIC to 17%.
Petmin has accelerated its investment in NAIC, the iron sands to pig iron project in Canada, based on its technical and economic feasibility.
Petmin increased its shareholding to 17% during the year ended 30 June 2012 (2011: 5%) and in August 2012, Petmin further increased its
stake in NAIC to 22.5%.
Petmin has joint management control of NAIC, with an earn-in option to acquire up to 40% for a total of US$25 million, plus a further option
to acquire an additional 9.9% at a market-related price.
In March 2012, NAIC's maiden resource statement indicated that its iron sands resource provides an abundant low-cost feedstock for
production of a concentrate which can be converted into high-purity pig iron. The NAIC resource is 594 million tonnes of sand at 9.35 wt
% of which 38.02% is Fe2O3 equivalent. The NAIC claim has been explored to a depth of 15 metres. Aeromagnetic and Lidar surveys, and
deeper drilling subsequent to the maiden resource statement, indicate potential for the NAIC iron sands resource to be extended to well
below this level. An updated resources statement is expected to be issued during Q4 2012.
A pilot mineral processing plant has been commissioned alongside the NAIC resource in Goose Bay, Labrador, and the first concentrate was
produced during August 2012 with results in line with our expectations.
Iron Bird Resources Plc. ("Iron Bird")
In the year ended 30 June 2012, Petmin invested an additional $1.5 million (2011: $0.5 million) in the jointly managed Iron Bird increasing its
shareholding in Iron Bird to 50%.
Following satisfactory results of its exploration programme, Petmin and its joint venture partners are considering their options to either merge
with a larger iron ore company or to sell the investment in the Mt Ginka iron ore project in northern Liberia.
Red Crescent Resources Limited ("RCR")
In the year ended 30 June 2012, Petmin invested CAD3 055 000 to increase its equity holding in RCR to approximately 10.1%. The funds
were applied to the exploration programme at RCR's Sivas copper project and therefore a portion of the investment has been accounted for
as an investment in mineral assets, with the balance being reflected as an investment in listed securities.
Exploration for copper and associated minerals at the Sivas project in Turkey delivered disappointing results and, in line with Petmin's
investment approach, when the exploration results did not meet Petmin's investment criteria, the decision was taken to withdraw from the
Sivas project. Petmin recorded a R39.1 million impairment, with R20.2 million on the mark-to-market of its investment in the Toronto-listed
shares of explorer RCR and an impairment of R18.9 million on its Sivas exploration asset. Petmin retains its investment of 9 280 000 listed
shares in RCR.
Iron ore - South Africa (Veremo project)
Petmin and its partners in the Veremo iron ore project in Mpumalanga are awaiting the outcome of an application for a mining licence with
the Department of Mineral Resources.
Kermas Limited, the controlling shareholder of Veremo, is evaluating development options for potential annual production of a million tonnes
of pig iron and titanium-rich slag as a by-product. Kermas has signed an agreement with a Chinese international plant construction company
MCC International Incorporation Limited to complete a detailed bankable feasibility study on Veremo before the end of Q1 2013.
(ii) Prospects
Anthracite division
Although world markets remain uncertain, production and sales levels are expected to significantly increase from those achieved in FY2012,
with an expected reduction in spot US$ export prices expected to be offset by a weaker Rand/Dollar exchange rate. Export sale negotiations
have all indicated extremely difficult trading conditions with export duff prices (18.5 Ash; 8.5 Volatiles) between US$90 and US$100 FOB for
the next six months possibly moving to the US$110 Free on Board ("FOB") in second half of the financial year 2013.
We anticipate to sell approximately 900 000 tonnes of anthracite during the next 12 months, some 300 000 less than capacity as a result of
a depressed market. We anticipate to sell some 420 000 tonnes into the export market (and have committed orders for 360 000 tonnes)
and 480 000 into the local market (and have committed orders for 370 000 tonnes).
The construction and commissioning of the third processing plant at Somkhele with an annual capacity to produce approximately 480 000
tonnes of product for the energy market from the processing of discard is expected to be completed by Q1 2013. Processing of the discard
increases Somkhele's yield from 42% to in excess of 50%. We are in the process of securing a new five-year take-or-pay agreement to supply
20 000 tonnes per month of into the energy market, commencing in Q1 2013 at an initial price of R170 per tonne, escalating annually.
Capital expenditure at Somkhele in FY 2013 is expected to be approximately R95 million as the construction of the third plant and the
exploration programmes are finalised. In addition the actual development cost of the pits (or pre-stripping) is expected to be approximately
R110 million (see note 9).
Business of Tomorrow division
At NAIC, an updated resources statement is expected to be issued during Q4 CY2012 followed by a NI43-101 compliant project statement
in Q1 CY2013. Petmin has budgeted to spend an additional US$10 million to advance the project in FY2013 and to increase its stake to
30% in the potentially world-class pig iron project.
Work continues on the trial production of an iron concentrate, design of a pilot processing plant for smelt tests, metallurgical analysis and a
preliminary economic assessment.
Additional details on Petmin, including a detailed presentation on the results (which will be available from
20 September 2012) can be found on our website www.petmin.com.
By order of the Board
I D Cockerill J C du Preez
Executive Chairman Chief Executive Officer
Johannesburg Sponsor
19 September 2012 River Group
Directors: I Cockerill# (Executive Chairman) L Mogotsi (Deputy Chairman) J du Preez (Chief Executive Officer)
B Doig B Tanner (Financial Director) M Arnold* E de V Greyling* K Kalyan* A Martin* T Petersen* J Taylor*
*Non-executive #British American
Registered office: 37 Peter Place, Bryanston, 2021
(PO Box 6070, Rivonia, 2128)
Corporate office: 37 Peter Place Bryanston 2021
Tel: (011) 706 1644
Fax: (011) 706 1594
Website: www.petmin.co.za
Sponsor - JSE: River Group
Tel: +27 (0) 12 346 8540
Nominated adviser - AIM: Macquarie Capital (Europe) Limited
Company Secretary: Mondial Consultants (Pty) Limited
Transfer secretaries: JSE: Computershare Investor Services (Proprietary) Limited
AIM: Computershare Investor Services PLC
Auditors: KPMG Inc.
A PDF version of these results is available on our website: www.petmin.co.za
Date: 19/09/2012 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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