Wrap Text
Reviewed Preliminary Results and Renewal of Cautionary for the year ended 31 December 2012
Palabora Mining Company Limited
and its Subsidiaries
(a member of the Rio Tinto Group)
("Group" or "Palabora" or "Company")
Incorporated in the Republic of South Africa
Registration number: 1956/002134/06
JSE Code: PAM ISIN: ZAE000005245
REVIEWED PRELIMINARY RESULTS
AND RENEWAL OF CAUTIONARY
for the year ended 31 December 2012
Company Secretary: KN Mathole
Registered address: 1 Copper Road, Phalaborwa, 1389
PO Box 65, Phalaborwa, 1390
Transfer Secretaries: Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Sponsor: One Capital
The preparation of the condensed consolidated preliminary financial information was
supervised by:
Dikeledi L Nakene (CA)SA
Chief Financial Officer
Key group financial statistics
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2012 2011
Net (loss)/profit for the year R'm (97) 1 464
Basic (loss)/earnings per share Cents (201) 3 028
Earnings before interest, tax, depreciation and
amortisation (EBITDA) R'm 413 2 432
Headline (loss)/earnings R'm (82) 1 468
Headline (loss)/earnings per share Cents (171) 3 036
Cash and cash equivalents R'm 1 980 2 210
Dividend per share (declared) Cents - 1 138
Net exchange gain R'm 94 341
Exploration, development and growth costs R'm 684 196
Overview
The 2012 financial year proved challenging for the mining industry at large and for Palabora
in particular. Regrettably a contractor employee lost his life in October whilst performing
scheduled maintenance works at crusher 4, underground. Commenting on the unfortunate
incident, the Managing Director, Anthony 'Tony' Lennox said: "It saddens me that we lost a
life in circumstances that were absolutely preventable. The fatality, together with all
workplace-related injuries no matter how minor, represents a real yet brutal reminder to
double up efforts around safety".
Copper and magnetite prices softened during the year. Coupled with the guide rope failure
on 4 July 2012, as well as increased Lift II project and growth-related costs compared to
2011 resulted in a loss after tax of R97 million for the year against a profit of R1.46 billion for
2011. Ceteris paribus, the impact of lower prices net of foreign exchange, reduced the 2011
earnings by R542 million reflecting the extent of the volatility in 2012.
As part of risk management Palabora is insured for business interruption. The insurance
claim in respect of the guide rope is in progress.
Spending on Lift II increased compared to 2011 with an after tax effect of R351 million. All
the Lift II project spending is being expensed until the project is approved to progress to
feasibility stage. The pre-feasibility studies are being finalised and the Board of Directors is
scheduled to review and if considered commercially viable, approve the project to progress
to feasibility stage during 2013 and capitalisation of any further spend commences
thereafter.
Notwithstanding the challenges, Palabora managed to maintain a healthy cash position of
R1.98 billion, net of dividends paid of R100 million, compared to R2.2 billion in 2011. This
was mainly achieved through a 54% increase in magnetite sales to 4.9Mt compared with 3.2Mt
in 2011. Magnetite sales increased mainly on the back of the road trucking to Maputo.
Magnetite prices steadily recovered from the mid-year dip and closed the year firmer.
The major world economies largely remain weak and the outlook on commodity prices is
dependent on the recovery of the same. There are good growth opportunities in iron ore and
Palabora continues to expand its magnetite production with the recently constructed belt
filter press set to be commissioned during 2013 to increase drying capacity. Other projects
lined up in 2013 include increasing the magnetite booster and separation plants to reduce
bottlenecks in the production stream.
Safety
All injuries remained constant at 24 for the year as was in 2011. Six of the 2012 injuries
relates to Lift II project. Containing incidences and injuries associated with the Lift II
exploratory and early development works is top priority in 2013 and beyond.
Copper production
The hoisting shaft guide rope failure in the third quarter and safety-related stoppages which
followed the shaft incident were major events which materially impacted the business. The
impact of the guide rope, declining ore grades and reduced concentrator recoveries during
the first quarter resulted in refined copper production decreasing 31% to 40.9kt compared to
59kt in 2011 with other production streams being affected as follows:
- dry ore hoisted decreased to 8.6Mt compared to 10.7Mt in 2011;
- total ore treated decreased to 9.2Mt compared to 11.8Mt in 2011;
- copper in concentrate production decreased to 49.1kt from 68.0kt in 2011; and
- anode production decreased to 40.6kt compared to 59.4kt in 2011.
Magnetite production
Total magnetite including course material (65% fe), iron oxide (56% fe) and DMS,
production increased to 5.3Mt from 3.4Mt in 2011 in line with increased logistical capacity
from the road trucking of iron oxide to Maputo port which commenced in December 2011.
The production of iron oxide increased 50% to 2.6Mt to take advantage of improved logistical
options. Higher grade and higher margin course material production was impacted by the
guide rope failure decreasing 21% to 2.6Mt from 3.3Mt in 2011. The lost production was
replaced with the production of lower grade and lower margin iron oxide.
Vermiculite production
Efforts to transform the vermiculite business to increase its contribution to the bottom line
have been hampered by adverse developments in the world market including increased
competition in the American market and reduced demand in Europe. Consequently
production decreased 19% to 133kt compared to 164kt in 2011 in line with reduced demand.
Loss for the year
The decrease in the bottom line from 2011 after tax profit of R1.464 billion to a loss of R97
million is mainly due to:
- guide rope failure (insurance claim process ongoing);
- lower commodity prices on copper and magnetite reduced earnings by R1.2 billion;
- weaker rand on exports, net of foreign currency denominated costs, increased
earnings by R658 million, averaging R8.19/US$ vs R7.26/US$ in 2011;
- lift II and growth-related costs expensed reduced earnings by R351 million; and
- in spite of the guide rope failure which impacted production for 67 days, cash
production costs increased 3% to R2.5 billion compared R2.4 billion in 2011 mainly
from inflationary pressures and also reflects the fixed nature of Palabora's costs.
Selling, distribution and administration costs
Selling and distribution costs increased 61% to R3 billion from R1.9 billion in 2011 on the
back of increased magnetite sales and above inflation increases in freight and port charges
partially offset by reduced vermiculite sales. Magnetite exports increased 58% to 4.6Mt
compared to 2.9Mt in 2011 whilst vermiculite exports decreased due to the subdued
demand. The road trucking to Maputo initiative commenced in December 2011 and the total
cost for the year was R525 million for 1.4Mt magnetite dispatched. Port charges doubled to
R441 million for the year due to increased use of the additional but more expensive terminal
in Maputo to accommodate road trucking. Maputo port charges are also affected by the
weaker rand with the average exchange depreciating 13% compared to 2011.
Administration expenses increased 9% to R772 million compared to R711 million in 2011
mainly due to the R25 million increase in insurance expenses as well as increase in staff
costs.
Turnover variance analysis (R'm)
Turnover for the year ended 31 December 2011 8 054
Copper price (373)
Magnetite price (1 247)
Vermiculite and by-products prices (42)
Hedge 12
Foreign exchange 1 170
Flexed turnover 7 574
Copper volume (313)
Magnetite volume 1 709
Vermiculite volume (166)
By-product volume (88)
Turnover for the year ended 31 December 2012 8 716
- Increased magnetite sales volumes (4.9Mt vs 3.2Mt) from trucking to Maputo and
marginally improved wagon availability from Transnet increased turnover by R1.7
billion;
- Lower copper and magnetite prices reduced turnover by R1.62 billion;
- Weaker rand on foreign currency denominated sales increased turnover by R1.17
billion;
- Lower copper volumes (65kt vs 70kt) reduced turnover by R313 million.
Copper sales volume mix
For the year For the year
ended ended
31 December 31 December
2012 2011
kt kt % change
Onsite processed copper rod* 44.9 51.6 (13)
Imported copper rod# 6.7 - 100
Total copper rod 51.6 51.6 -
Cathode 5.9 6.7 (12)
Reverts 2.6 5.3 (51)
Refined copper scrap 5.3 6.5 (19)
Total copper sold 65.4 70.1 (7)
* Includes rod produced from cathode imports
# Due to guide rope failure
Cash flow and Capital
Cash generated from operating activities decreased 78% to R514 million from R2.3 billion in
2011 mainly due to increased spend on Lift II exploration and early development
works compared to 2011, lower realised prices, tax pre-payment of R164million arising from
subsequent losses realised for the year and the impact of the production shaft hoisting guide
rope failure.
Sustaining capital expenditure will be maintained at minimum levels for the next three years
unless such expenditure can benefit Lift II once approved.
Broad-Based Black Economic Empowerment (BBBEE)
Palabora continues to make significant progress towards the fulfilment of the outstanding
suspensive conditions and the implementation of the BBBEE transaction.
Suspensive conditions
Palabora confirms fulfilment of the following key suspensive conditions:
- execution of seven converted mining rights. Palabora anticipates the execution of the
final converted mining right to be achieved shortly;
- adoption or amendment for the constitutional documents of the BBBEE partners and
Palabora Copper Proprietary Limited (Palabora Copper); and
- receipt of counterparty consents to the transfer of essential contracts from Palabora
to Palabora Copper upon the implementation of the BBBEE transaction.
A key suspensive condition which remains to be fulfilled is the consent of the Minister of
Mineral Resources in terms of section 11 of the Mineral and Petroleum Resources
Development Act, 2002 to the cession of the mining rights (other than the mining right which
remains subject to a third-party dispute) from Palabora to Palabora Copper and the
registration thereof in the name of Palabora Copper. This process may be expected to take
between two to six months.
Rio Tinto Group and Anglo American Plc divestment and Renewal of
Cautionary
Palabora shareholders ("Shareholders") are referred to the announcements published on
SENS on 11 December 2012 and 28 December 2012 ("Announcements"), regarding Rio
Tinto Group ("Rio Tinto") and Anglo American PLC ("Anglo American") entering into a
binding agreement to sell their respective effective shareholdings in Palabora ("Agreement")
to a consortium comprising South African and Chinese entities led by the Industrial
Development Corporation of South Africa Limited and by the Hebei Iron & Steel Group Co.
Ltd.
The completion of the sale of Rio Tinto's and Anglo American's respective effective
shareholdings in Palabora is subject to the fulfilment of certain conditions, as detailed in the
Announcements, by 30 June 2013 (which date can be extended by mutual consent of the
parties to the Agreement).
As previously communicated, Rio Tinto and Anglo American expect that it will take between
four and six months from the date of the announcement for these conditions to be fulfilled.
As also previously communicated, the purchasers must extend an offer in terms of South
African Takeover Regulations ("Mandatory Offer") to all remaining Shareholders upon the
sale of Rio Tinto's and Anglo American's interests being completed ("Closing"). Any offer to
minority Shareholders is therefore conditional on the completion of the sale of Rio Tinto and
Anglo American's shareholdings in Palabora.
Accordingly, Shareholders are advised to continue exercising caution when dealing in the
Company's securities until a further announcement is made.
Social responsibility
During the year Palabora disbursed R43 million (2011: R35 million) in support of Enterprise
and Socio Economic Development through the Palabora Foundation in terms of the BBBEE
Act and the Mining Charter to ensure self sustainability of the surrounding communities.
Directorship
Mr William John Abel resigned as non-executive director of the Board, with effect from 01
January 2012. Mr Abel retired from Anglo American, after several years of service.
With effect from 2 January 2012, Mr Hendrik Johannes Faul was appointed as non-
executive director of the Company. Mr Faul is currently Group Head of Mining at Anglo
American. He has extensive experience in the minerals and resources industry, both in
surface and underground mining, processing, logistics and marketing. He has held several
senior positions including Chief Executive Officer for Anglo Zinc and General Manager for
various mining companies. Mr Faul holds a B(Eng) mining degree from the University of
Pretoria. He also holds a South African Mine Manager's Certificate for metalliferous mines
and is registered with the South African Council for Project and Construction Management
Professionals as a professional construction project manager.
Mr Coen Hubertus Louwarts resigned as an alternate director effective from 12 October
2012.
With effect from 1 December 2012, Mr Eric Yan was appointed as an alternate director. Mr
Yan is currently Business Development Manager at Rio Tinto Copper Group. He has
extensive experience in defining corporate and marketing strategies, identifying growth
opportunities, competitive benchmarking and improving and managing business
performance. Mr Yan holds a BSc Mechanical Engineering Degree from the University of
Cape Town and a Masters in Business Administration from INSEAD.
Mr Peter Ward was appointed as an independent non-executive director of the company,
with effect from 18 December 2012. Mr Ward has held several positions as a director as well
as serving on board committees in many listed and unlisted companies including inter alia
Adcorp Holdings Limited, Aveng Limited, Hollard Holdings (Pty) Limited and Imperial Bank
Limited. He is a member of the Institute of Directors South Africa and South African Institute
of Chartered Accountants. Mr Ward is a qualified chartered accountant and holds a BComm
degree (Rhodes University), Certificate in Theory of Accounting (University of the
Witwatersrand), Diploma in Alternate Dispute Resolution (Arbitration Foundation of Southern
Africa) and Executive Development Programme (Columbia Business School).
At 31 December 2012 the Palabora Board was constituted as follows:
Directors Alternate directors
1. Clifford N Zungu (Chairman)
2. Anthony W Lennox (Managing Director)* (Australian)
3. Dikeledi L Nakene (Chief Financial Officer)*
4. Francine A du Plessis
5. Moegamat R Abrahams
6. Nhlanhla A Hlubi
7. Craig Kinnell (British)
8. Jean-Sebastien Jacques (British) Eric Yan (British)
9. Hendrik J Faul
10. Peter Ward
*Executive director
Appreciation
We are grateful to all the Board members for their active participation in providing strategic
direction to the Company. The Board looks forward to working with the new investors once
Rio Tinto and Anglo American finalise the share sale in Palabora.
CN Zungu AW Lennox DL Nakene
Chairman Managing Director Chief Financial Officer
12 February 2013
Group selected statistics
31 31
December December
2012 2011
Revenue
Copper (net of hedge) Rand million 3 283 3 387
Magnetite Rand million 4 890 3 924
Other by-products Rand million 138 225
Industrial minerals Rand million 405 518
Net (loss)/profit before tax Rand million (110) 2 176
Copper
Dry ore hoisted million tonnes 8.6 10.7
Average copper grade % Cu 0.59 0.64
New copper in concentrate produced kilo tonnes 49.1 68.0
Cathode produced kilo tonnes 40.9 59.0
Average copper price realised USc/lb 365.2 394.6
Average LME copper price USc/lb 360.7 399.8
Average ZAR/US$ exchange rate R/US$ 8.19 7.26
Spot ZAR/US$ exchange rate R/US$ 8.48 8.19
Average copper price realised (pre-hedge) R/tonne 65 943 63 145
Average copper price realised (post-hedge) R/tonne 50 250 48 342
Magnetite
Magnetite sold DM tonnes 4 891 815 3 182 367
Average magnetite price realised R/tonne 1 000 1 233
Vermiculite
Vermiculite sold tonnes 115 428 162 828
Average vermiculite price realised R/tonne 3 508 3 181
Anode slimes
Anode slimes sold tonnes 121 195
Average anode slimes price realised R/tonne 1 008 842 1 033 540
Nickel sulphate
Nickel sulphate sold tonnes 155 424
Average nickel sulphate price realised R/tonne 28 621 30 136
Sulphuric acid
Sulphuric acid sold tonnes 65 502 95 681
Average sulphuric acid price realised R/tonne 182 113
Imported cathode purchased
Volumes tonnes 12 585 10 168
Cost Rand million 860 671
Average unit purchase price R/tonne 68 311 65 969
Imported rod purchased
Volumes tonnes 6 735 -
Cost Rand million 440 -
Average unit purchase price R/tonne 65 350 -
Cash flow
Net cash from operating activities Rand million 148 780
Cash and cash equivalents Rand million 1 980 2 210
Costs
Production cost (excluding product purchases) Rand million 2 460 2 393
Cost of sales Rand million 4 338 3 376
Capital expenditure and commitments
Total capital expenditure Rand million 366 445
Sustaining capital Rand million 255 445
Growth capital
Authorised ordinary shares of R1 each Rand million 111 -
Share capital R'000 100 000 100 000
Issued ordinary shares of R1 each R'000 48 337 48 337
Net asset value per share R/share 86 76
Palabora Mining Company Limited and its subsidiaries
Reviewed condensed consolidated income statement
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
Note 2012 2011
R'm R'm
Sale of products 9 741 9 092
Hedge loss realised (1 025) (1 038)
Revenue 8 716 8 054
Cost of sales (4 338) (3 376)
Gross profit 4 378 4 678
Selling and distribution costs (3 018) (1 869)
Administration expenses (772) (711)
Mineral and petroleum royalty (47) (79)
Exploration, development and growth costs 4 (684) (196)
Impairment of property, plant and equipment 5 (22) -
Other income 23 30
Other expenses (31) (53)
(Loss)/profit before net finance income and 6 (173) 1 800
tax
Net finance income 7 63 376
Finance income 7 122 423
Finance cost 7 (59) (47)
(Loss)/profit before tax (110) 2 176
Income tax income / (expense) 8 13 (712)
(Loss)/profit for the year (97) 1 464
(Loss)/profit for the year attributable to:
Equity holders of the parent (97) 1 464
(Loss)/earnings per share attributable to the
equity holders of the parent (expressed in
cents per share)
Basic and diluted (loss)/earnings per share
(cents) 9 (201) 3 028
The notes on pages 14 to 23 are an integral part of the condensed consolidated preliminary
financial information.
Reviewed condensed consolidated statement of comprehensive income
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2012 2011
R'm R'm
(Loss)/profit for the year (97) 1 464
Other comprehensive income:
Available-for-sale investments
- Valuation gains arising during the year 57 37
Exchange differences on translation of foreign
operations 16 36
Cash flow hedges
- Mark to market losses arising during the year (150) (49)
- Transferred to profit or loss for the year 1 025 1 038
- Hedge ineffectiveness 6 6
Actuarial loss on defined benefit plans (19) (2)
Income tax relating to components of other
comprehensive income (254) (290)
Other comprehensive income for the year, net
of tax 681 776
Total comprehensive income for the year 584 2 240
Total comprehensive income attributable to:
Equity holders of the parent 584 2 240
The notes on pages 14 to 23 are an integral part of the condensed consolidated preliminary
financial information.
Reviewed condensed consolidated statement of financial position
Reviewed Audited
As at As at
31 December 31 December
Note 2012 2011
R'm R'm
Assets
Non-current assets 3 098 3 154
Property, plant and equipment 2 474 2 702
Intangible assets 12 7
Financial assets 612 445
Current assets 4 033 4 048
Stores inventories 167 136
Product inventories 871 921
Trade and other receivables 851 781
Cash and cash equivalents 1 980 2 210
Current income tax assets 164 -
Total assets 7 131 7 202
Equity
Equity attributable to owners of parent
Share capital and premium 629 629
Other reserves (328) (1 023)
Retained earnings 3 842 4 053
Total equity 4 143 3 659
Liabilities
Non-current liabilities 1 305 1 749
Financial liabilities 11 - 754
Close down and restoration obligation 771 665
Retirement benefits obligation 205 177
Deferred income tax liabilities 12 329 153
Current liabilities 1 683 1 794
Financial liabilities 11 847 968
Retirement benefits obligation 8 9
Trade and other payables 641 641
Related-party payables 187 111
Current income tax liabilities - 65
Total liabilities 2 988 3 543
Total equity and liabilities 7 131 7 202
The notes on pages 14 to 23 are an integral part of the condensed consolidated preliminary
financial information.
Reviewed condensed consolidated statement of changes in equity
Attributable to owners of the parent
Share Share Other Retained
capital premium reserves earnings Total
R'm R'm R'm R'm R'm
Balance at 1 January 2011 48 581 (1 801) 3 390 2 218
Total comprehensive income for
the year - - 778 1 462 2 240
Dividends paid - - - (799) (799)
Balance at 31 December 2011 48 581 (1 023) 4 053 3 659
Total comprehensive income/
(loss) for the year - - 695 (111) 584
Dividends paid - - - (100) (100)
Balance at 31 December 2012 48 581 (328) 3 842 4 143
Reviewed condensed consolidated statement of cash flows
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2012 2011
R'm R'm
Cash flows from operating activities
Cash generated from operating activities 514 2 308
Interest paid - (3)
Interest received 28 33
Dividends paid (100) (799)
Income tax paid (294) (759)
Net cash-generated from operating activities 148 780
Cash flows from investing activities
Acquisition of property, plant and equipment (354) (442)
Acquisition of intangible assets (12) (3)
Proceeds on disposal of property plant and
equipment 2 1
Investment in available-for-sale financial asset (110) (10)
Net cash used in investing activities (474) (454)
Cash flows from financing activities
Repayment of borrowings - (107)
Net cash used in financing activities - (107)
Net (decrease)/increase in cash and cash
equivalents (326) 219
Cash and cash equivalents at beginning of year 2 210 1 641
Effects of exchange rate changes on the balance
of cash held in foreign currencies 96 350
Cash and cash equivalents at end of year 1 980 2 210
The notes on pages 14 to 23 are an integral part of the condensed consolidated preliminary
financial information.
Notes to the condensed consolidated preliminary financial information
1. Corporate Information
Palabora Mining Company Limited ("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 exchange operated by the JSE Limited.
The condensed consolidated preliminary financial statements of Palabora for the year
ended 31 December 2012 were authorised for issue in accordance with a resolution
of the Board of Directors passed on 8 February 2013.
2. Basis of preparation and accounting policies
2.1 Basis of preparation
The condensed consolidated preliminary financial information for the year ended 31
December 2012 has been prepared in accordance with International Accounting
Standard (IAS) 34, 'Interim financial reporting'.
The condensed consolidated preliminary financial information has been prepared in
accordance with International Financial Reporting Standards (IFRS) and Interpretations,
the AC 500 standards (as issued by the Accounting Practices Board), requirements of the
South African Companies Act and regulations of the JSE and should be read in conjunction
with the audited annual financial statements for the year ended 31 December 2011.
2.2 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 in terms of IFRS and consistent with those
followed in the preparation of the Group's annual financial statements for the year
ended 31 December 2011.
2.3 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.
The auditor's report does not necessarily cover all of the information contained in
these reviewed preliminary results. Shareholders are therefore advised that in order
to obtain a full understanding of the nature of the auditor's work they should obtain a
copy of that report together with the accompanying financial information from the
registered office of the Company.
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 2012:
- R90 million increase due to increased closure costs estimates following a closure
review;
- an increase in the nominal discount rate from 6.8% to 7.3% resulted in a R30
million decrease; and
- finance charges (unwinding of discount) through the income statement resulted
in an increase of R46 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 2012 is valued at R213 million compared with R186 million at 31
December 2011.
The valuation resulted in a pre-tax actuarial loss of R19 million (2011: R2 million loss)
as a result of a decrease in real discount rate and an increase in medical
contributions being recognised in the statement of comprehensive income.
4. Exploration, development and growth costs
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2012 2011
R'm R'm
Lift II exploration and development 646 196
Transfer from property, plant and equipment 38 -
684 196
Lift II exploration and development costs relate to pre-feasibility drilling and
development of a copper mineralisation area under the current footprint. Some of the
Western extension project assets are being used for Lift II activities and have been
transferred out of property, plant and equipment to Lift II exploration and
development costs.
5. Impairment of property, plant and equipment
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2012 2011
R'm R'm
Western extension project 22 -
A write off of unrecoverable costs accumulated to date on the Western extension
project was recognised during the year, as management does not expect any future
economic benefits from the project.
6. (Loss)/profit before net finance income and tax
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2012 2011
R'm R'm
(Loss)/profit before net finance income and tax is
stated after charging, amongst other items:
Depreciation on property, plant and equipment 579 628
Amortisation of intangible assets 7 4
Employee benefit expense 1 124 1 002
Product purchases 1 300 671
Repairs and maintenance 1 393 1 084
7. Net finance income
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2012 2011
R'm R'm
Finance income 122 423
Interest income on short-term bank deposits 18 26
Interest income on available-for-sale financial
asset 6 6
Interest income on account receivable balances 4 1
Net foreign exchange gain on operating activities - 49
Net foreign exchange gain on financing activities 94 341
Finance cost (59) (47)
Interest expense on borrowings - (3)
Unwinding of discount on close-down and
restoration costs (46) (44)
Net foreign exchange loss on operating activities (13) -
63 376
8. Income tax income/(expense)
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2012 2011
R'm R'm
Normal income tax (55) (699)
South African
Mining tax: current (50) (638)
Mining tax: prior years - (21)
Foreign tax: current (5) (40)
Secondary tax on companies (10) (80)
Deferred income tax 78 67
South African tax
Current 80 67
Prior years (2) -
Income tax income/(expense) reported in the
income statement 13 (712)
Tax rate reconciliation:
% %
Current statutory rate 28.0 28.0
Adjusted for:
Secondary tax on companies (9.1) 3.7
Tax rate differential on foreign subsidiaries (4.0) 0.1
Deferred tax prior year adjustment (1.8) 0.9
Disallowable expenditure (1.3) -
Effective tax rate 11.8 32.7
9. (Loss)/earnings per share
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
Basic and diluted 2012 2011
Reconciliation of net (loss)/profit to earnings
per share
Net (loss)/profit attributable to equity holders of
the parent (rand million) (97) 1 464
Reconciliation of weighted average number of
ordinary shares
Weighted average number of ordinary shares of
basic and diluted earnings per share (million
shares) 48 48
(Loss)/earnings per share (cents) (201) 3 028
10. Headline (loss) / earnings
(Loss) / Tax (Loss) /
profit expense Profit
before tax after tax
Year ended 31 December 2012
Loss per income statement (R million) (110) 13 (97)
Profit on disposal of property, plant and
equipment (R million) (1) - (1)
Impairment of property, plant and equipment
(R million) 22 (6) 16
Headline loss (R million) (89) 7 (82)
Weighted average number of ordinary shares of
basic and diluted headline earnings per share
(million share) 48
Headline loss per share (cents) (171)
Year ended 31 December 2011
Profit per income statement (R million) 2 176 (712) 1 464
Loss on disposal of property, plant and
equipment (R million) 6 (2) 4
Headline earnings (R million) 2 182 (714) 1 468
Weighted average number of ordinary shares of
basic and diluted headline earnings per share
(million share) 48
Headline profit per share (cents) 3 036
11. Financial liabilities
The Group holds a commodity swap contract designated as a cash flow hedge of
expected future sales to customers. Palabora receives a fixed price in rand in relation
to a monthly notional quantity of copper sales as detailed below. It 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$ 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. The commodity swap contract expires on 30 September 2013.
Table of terms: 31 December 2012 Average
hedged Hedged Derivative
Quantity price value liability
Maturity year tonnes R/t R'm R'm
2013 Current portion 16 330 15 739 257 847
Table of terms: 31 December 2011 Average
hedged Hedged Derivative
Quantity price value liability
Maturity year tonnes R/t R'm R'm
2012 Current portion 21 137 15 739 333 968
2013 Non-current portion 16 330 15 739 257 754
37 467 590 1 722
12. Deferred income tax
Reviewed Audited
As at As at
31 December 31 December
2012 2011
R'm R'm
At 1 January (153) 70
Tax charged to the income statement 78 67
Tax charged to statement of other comprehensive
income (254) (290)
At 31 December (329) (153)
Deferred income tax assets arising from:
Provisions 336 255
Derivative financial instruments 237 482
573 737
Deferred income tax liabilities arising from:
Accelerated capital allowances (756) (758)
Available-for-sale investment (165) (125)
Other 19 (7)
(902) (890)
Net deferred income tax liabilities (329) (153)
13. Dividends paid
The following dividends were declared and paid:
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2012 2011
R'm R'm
Previous year final dividend:
207 cents per qualifying ordinary share (2010:
724 cents) 100 349
Interim dividend:
Nil cents per qualifying ordinary share (2011: 931
cents) - 450
100 799
After the respective reporting dates the following
dividends were proposed by the directors. The
dividend declared is recognised in the period it is
approved.
Final dividend declared:
Nil cents per qualifying ordinary share (2011: 207
cents) - 100
Secondary tax on companies due to closing date
of dividend cycle - 10
14. Related-party transactions
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2012 2011
R'm R'm
The following transactions were carried out
with related parties:
Purchase of goods and services (Rio Tinto
Group) 1 101 754
Marketing fee (Rio Tinto Iron Ore Asia) 141 145
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;
- jointproduct: Magnetite markets processed current arising and builtup
stockpiles of magnetite, a jointproduct from the copper mining process;
- byproducts includes anode slimes, sulphuric acid and nickel sulphate; and
- industrial minerals produces and markets vermiculite.
Reportable segments are as follows:
Joint-
product: By- Industrial
Copper Magnetite products minerals Total
R'm R'm R'm R'm R'm
Year ended 31 December 2012
External customers revenue
Sales from products 4 308 4 890 138 405 9 741
Hedge loss realised (1 025) - - - (1 025)
Reportable segment revenue 3 283 4 890 138 405 8 716
Reportable segment operating
(loss)/profit before
depreciation (398) 1 442 36 (11) 1 069
Depreciation (422) (65) (8) (10) (505)
Reportable segment
operating (loss)/profit (820) 1 377 28 (21) 564
Year ended 31 December 2011
External customers revenue
Sales from products 4 425 3 924 225 518 9 092
Hedge loss realised (1 038) - - - (1 038)
Reportable segment revenue 3 387 3 924 225 518 8 054
Reportable segment operating 654 1 707 107 125 2 593
profit before depreciation
Depreciation (450) (89) (10) (11) (560)
Reportable segment
operating profit 204 1 618 97 114 2 033
Reportable segment operating (loss)/profit before depreciation includes:
Joint-
product: By- Industrial
Copper Magnetite products minerals Total
R'm R'm R'm R'm R'm
Year ended 31 December 2012
Joint product cost allocation 159 (159) - - -
Overhead allocation costs (534) (128) (41) (39) (742)
Selling and logistics costs (10) (2 877) (1) (130) (3 018)
Year ended 31 December 2011
Joint product cost allocation 198 (198) - - -
Overhead allocation costs (510) (116) (21) (37) (684)
Selling and logistics costs (16) (1 653) (19) (181) (1 869)
15. Operating segments - continued
Reconciliation of reportable segment operating profit to (loss)/profit after tax:
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2012 2011
R'm R'm
Reportable segment operating profit 564 2 033
Unallocated amounts:
Exploration, development and growth costs (684) (196)
Other 50 34
Unallocated depreciation and amortisation (81) (71)
Impairment of property, plant and equipment (22) -
Net finance income 63 376
(Loss) / profit from operations before tax (110) 2 176
Income tax expense 13 (712)
(Loss) / profit after tax (97) 1 464
16. Commitments
Commitments contracted for at the reporting date was R117 million (2011: R79
million). Capital expenditure that was approved by the Board, but not contracted for
at 31 December 2012 amounts to R238 million (2011: R314 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 (2011: R2 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
In 2011 the South African Revenue Service (SARS) issued Palabora with a taxation
penalty of 25% on its 2008 taxable income relating to the closure rehabilitation trust
fund. Palabora objected to the penalty applied by SARS where after SARS reduced
the penalty to 10% which amount to approximately R10 million excluding interest.
Another appeal on the partial allowance was lodged in 2012 for the penalty to be
waived. No further correspondence has been received by SARS to date and the
matter is still pending.
18. Ore reserves
The total probable ore reserves remaining as at 31 December 2012 were 35.46
million tonnes (2011: 48.91 million tonnes) at 0.54% (2011: 0.57%) copper content.
19. Going concern
The Board has reviewed the future cash flows of the business. Determining the future
expected cash flows requires management to make estimates and assumptions that
affect cash flow. These include commodity prices, exchange rate and production
levels. Actual results could differ from these estimates. Based on the estimated future
cash flows the board believes that the Company and the Group have adequate
resources to continue as a going concern for the foreseeable future.
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