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Press Release Petmin Ltd interim financial results for the six months ended 31 December 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")
4 March 2013
Press Release Petmin Ltd interim financial results for the six months ended 31 December
2012
PETMIN OVERCOMES END-2012 CHALLENGES AND TARGETS INCREASED
PRODUCTION AND REVENUE
Financial highlights
Net cash flow from operations R161m despite difficult conditions
Like for like profit after tax down 16% to R30m (2011: R36m)
Shareholding in NAIC increased to 22.5% following significant project progress
New R325m banking facilities secured
R238m (2011: R273m) invested in local and international growth and diversification
R280m cash received for sale of SamQuarz silica operation
Operational highlights
Extension to mining licence at Somkhele metallurgical anthracite mine
Updated resource statement for North Atlantic Iron Corporation (NAIC)
Highlights for the period after 31 December 2012
Third Somkhele plant commissioned in February 2013
Greater control of Somkhele costs and productivity from JV with mining contractor
New stockpile policy to enable continued operations at Somkhele during excess rainfall
First smelt test completed and significant progress as NAIC advances towards preliminary
economic assessment (PEA)
JSE and AIM-listed Petmin has reported profit after tax down 36% to R30m (2011: R47m) for the
six months to 31 December 2012 following a quarter of production losses caused by excessive rain
and the effect of an unprotected strike at its Somkhele metallurgical anthracite mine in KwaZulu-
Natal.
Petmin generated R161m of cash (2011: R200m) in the period under review. Profit after tax was
down 16% on a like for like basis from ongoing operations (2011: R36m), taking account of the
sale of the SamQuarz silica operation in June 2012 for R281.1m. Earnings per share from
continuing operations were down 16% at R5.22 (2011: R6.18).
Excess rain prevented the loading and delivery of 192,000 tonnes of exposed coal to the Somkhele
wash plants.
Petmin invested R238m (2011: R273m) in the period under review to deliver on its growth and
diversification strategy, including R29m to take its share in NAIC to 22.5%.
Sales volumes and prices at Somkhele were maintained as demand remained steady and deliveries
to customers were made from stockpiles.
During the six months to 31 December 2012, the impact of the second wash plant enabled
Somkhele to increase production by 44% to 293 765 tonnes (2011: 203 425 tonnes) of saleable
anthracite, and tonnes sold increased by 63% to 370 562 tonnes (2011: 227 041 tonnes), with some
sales from stockpile.
Although production increased by 44%, infrastructure and staff levels were geared for a 100%
increase, which negatively affected profit margins.
The Somkhele mine has increased its ROM stockpile to 100 000 tonnes outside the pit and at the
plant head, enabling the mine to cope with further extreme weather conditions.
Petmin expects production from Somkhele to increase significantly in the six months ending 30
June 2013, with the anthracite market showing reasonable demand at prices better than the
previous six months. After continued heavy rains in January2013, Somkhele operated at budgeted
production levels in February 2013 and management is confident recent challenges have been
largely overcome.
“The fundamentals of the Somkhele operation remain strong despite short-term weather and labour
challenges,” said Petmin executive chairman Ian Cockerill. “We have overcome these challenges
and are well positioned to increase production and sales to budgeted levels during the next six
months.”
The third processing plant at Somkhele is being commissioned and in February 2013 started
producing coal for the energy market. Somkhele has a new five-year take-or-pay agreement to
supply 25 000 tonnes per month of energy product, starting in Q1 2013 at R170 per tonne and
escalating annually.
Subsequent to 31 December 2012, Petmin’s wholly-owned operator of Somkhele, Tendele Coal
Mining, signed a 50/50 joint venture agreement (JV) with its mining contractor Sandton Plant Hire
(SPH). The JV has joint management and enables Tendele to improve productivity and efficiency.
It standardises labour practices on the mine and gives Tendele responsibility for all Somkhele
human resources in the JV.
During the six months ended 31 December 2012, Petmin received R280m cash for the sale of its
SamQuarz silica operation.
Cancellation of R82m BEE surety
In January 2010, Petmin shareholders approved an R82m surety by Petmin on behalf of Petmin’s
primary BEE partner, Dark Capital (Pty) Ltd. The surety has been withdrawn with effect from 24
August 2012 following Dark Capital’s payment in full of its R65m debt to the Standard Bank of
South Africa.
Banking facilities secured
During the period under review, the Group signed term loan facilities with Standard Bank, its
bankers since inception, securing, in addition to the existing R100m overdraft facilities, new
medium-term debt facilities of R 225m (Facility A) and a R100m (Facility B) revolving credit
facility. At 31 December 2012, Petmin had drawn R150m against the medium-term and revolving
credit facilities.
Operations update
Somkhele metallurgical anthracite
Production at Somkhele in the six months ended 31 December 2012 was severely constrained by
an unprotected strike by contractor employees and unusually high rainfall which prevented the
delivery of coal from the open pits to the wash plants.
A total of 42 production days were lost, leading to a shortfall of 255,000 run-of-mine (ROM)
tonnes or 107,100 saleable tonnes. By end-December 2012, Somkhele had 192,000 tonnes of
exposed coal that could not be delivered due to the heavy rainfall. By February 2013, Tendele had
secured access to this coal and the mine was operating at budgeted levels.
The Somkhele mine has increased its ROM stockpile to 100 000 tonnes outside the pit and at the
plant head, enabling the mine to cope with further extreme weather conditions.
In the six months ended 31 December 2012, Somkhele maintained its expected sales volumes and
prices as demand remained steady and deliveries were made from stockpiles on hand. Production
increased by 44% to 293 765 tonnes (2011: 203 425 tonnes) of saleable anthracite in the six
months to 31 December 2012 and tonnes sold increased by 63% to 370 562 tonnes (2011: 227 041
tonnes).
Two years of significant capital investment in Somkhele is largely complete and the mine is
geared to annually produce some 1.2 million tonnes of anthracite and 480 000 tonnes of energy
product from the third plant, which started production in February 2013 and is expected to be at
planned capacity in March 2013. Somkhele secured a new five-year take-or-pay agreement to
supply 25 000 tonnes per month of product into the energy market commencing in Q1 2013 at
R170 per tonne, escalating annually.
Investment at Somkhele included R115m on pre-stripping the open pits, with R45m on the third
wash-plant and R8m on back-up power for the second plant. A further R10m was invested in
exploration to expand Somkhele reserves, and R6m for development of the Luhlanga mining area.
During the period under review a new order mining right was obtained for the Luhlanga area.
Once the Luhlanga is in production (expected April 2013), Somkhele will operate in four different
pit areas, providing flexibility to blend production for improved quality and reducing the risk of
production delays.
With productivity improving and an anthracite market showing reasonable demand at prices better
than during the previous six months, Petmin expects production from Somkhele to increase
significantly in the six months ending 30 June 2013.
Petmin anticipates selling approximately 876 000 (previous estimate 900 000 tonnes) of
metallurgical anthracite during the financial year ending 30 June 2013, with margins recovering as
production increases to budgeted levels.
Capital expenditure (excluding pre-strip) at Somkhele in the six months to 30 June 2013 is
expected to be approximately R26m as the third plant and exploration programmes are finalised.
Somkhele expects development cost of the pits (or pre-stripping) to be approximately R24m in the
six months to June 2013.
Joint venture agreement – mining contractor
Subsequent to 31 December 2012, Tendele finalized a 50/50 joint venture (JV) agreement with
Sandton Plant Hire (Pty) Ltd (SPH), the mining contractor at Tendele since inception. A joint
management team has been established and the JV will give Tendele more control over
productivity and efficiency in mining processes. Tendele has also assumed responsibility for all
human resources functions of the JV, ensuring that labour practices are standardised on the
Somkhele mine.
Mining costs amount to some 67% of all cash operating costs at Somkhele. Tendele will take a
share of margins in the JV, which utilises plant and machinery to the value of R276m. Tendele
intends to provide a guarantee limited to R100m to ABSA, the lenders to the JV.
Upon signature of the JV agreement, Petmin paid R62m on loan account for its share of the JV
funding requirements.
Projects update
North Atlantic Iron Corporation (NAIC) – iron sands to pig iron in Canada
During the period under review, Petmin invested an additional US$4.5m to take its stake in NAIC
to 22.5%. Petmin has joint management control over the project, with a total investment in NAIC
to date of US$11m. Petmin has an option to acquire up to 40% of NAIC for a total of US$25m and
an additional option on a further 9.9% at a market-related price.
A pilot mineral processing plant was commissioned alongside the NAIC resource in Goose Bay,
Labrador, producing its first concentrate during August 2012. The initial concentrate test results
are encouraging and in line with management expectations.
NAIC currently has an inferred resource of 594m tonnes of iron sands at 9.53 wt %, of which
37.46% is FE2O3, from which NAIC produces a 54% Fe concentrate, a quality feed-stock for
high-purity pig iron production. An updated NI43-101 compliant statement published by SRK
Consulting in February 2013 confirms an indicated resource of 334m tonnes with a further 260m
tonnes in the inferred category. The tonnage has not been discounted for containing clay. The
resource statement is based on just 3% of NAIC’s 450km2 claim.
NAIC will run series of smelt tests at a facility in Forks, Pennsylvania, to prove the scalability of
pig iron production using the NAIC concentrate. Cold commissioning of the furnaces in Forks
Pennsylvania commenced on 18 February 2013 and the first smelt test was completed on 26
February. The process will be signed off by independent experts during Q2 2013 and results of the
smelt test will be published in early April 2013. The NI43 -101 compliant Preliminary Economic
Assessment (PEA) which has been underway for the past 12 months is expected to be published
before the end of Q4 2013. The PEA covers all aspects of the project including geology,
hydrology, environmental, concentration, smelting, site selection and infrastructure requirements.
Petmin has budgeted to spend an additional US$6m in the six months ending 30 June 2013 to
increase its stake to 30% in this potentially world-class pig-iron project. Petmin remains fully
committed to this project and the significant opportunity which it presents to the company.
The selection of a site for pig iron production has the most significant impact on the economics of
the project. Among factors being considered are proximity to markets, access to a port with
reasonable shipping time to Goose Bay, and the availability and price of power. These input
factors contribute to approximately 60% of the cost of pig iron production. Nine sites in the US
and Canada have been asked to submit proposals for evaluation during March 2013. Power utility
Nalcor has confirmed that electricity will be available for the NAIC concentration plan at a cost of
4.8c/kwh.
A review of the relevant environmental regulatory process is complete and NAIC met in January
2013 with senior environmental officials for Newfoundland and Labrador. Canadian regulators
require environmental registration shortly after the conclusion of the PEA. Environmental
approval can be expected about a year after registration.
The PEA will include details of the mining process, concentration plant and transport of
concentrate, smelter plant, and port infrastructure. NAIC is considering two production models –
either 25 million tonnes of iron sands per annum to produce up to 1.25 million tonnes per annum
of concentrate and 500-600,000 tonnes of pig iron; or 37.5 million tonnes of iron sands for up to
1.875 million tonnes of concentrate and 800,000 tonnes of pig iron.
Mining methods under consideration include dry mining, dredge mining and bucket wheel
excavators.
Petmin has significantly increased its operational involvement in NAIC during the past six months
and this will continue.
Early stage capital expenditure estimates for development of the NAIC project are in the region of
$575m. Management expects this figure to reduce as more detail is received on each of the project
work streams.
Veremo iron ore project in Mpumalanga
In the six months ended 31 December 2012, additional information in support of the application
for a mining right was provided to the Department of Mineral Resources, and the outcome of the
application is awaited. 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 Q2 2013. Petmin continues to work with Kermas,
the ultimate controlling shareholder in Veremo, to ensure the maximum extraction of value from
the project.
Iron Bird Resources Plc – iron ore in Liberia
As previously announced, 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 six months ended 31 December 2012, Petmin invested C$325,000 (2011: C$3 055 000) to
acquire 6.5 million shares in RCR together with 6.5 million share warrants that provide the holder
with the right to acquire RCR shares for 7 Canadian cents per share for three years. The
investment maintains Petmin’s shareholding in RCR at approximately 10% following a private
placement by RCR to recapitalise the business and to settle debt.
Following the restructuring of its board and senior management, RCR has made good operational
progress on its Hakkari Zinc Project and has commenced production and sales of direct shippable
ore.
ENDS
Investors and analysts are invited to join a teleconference and Q&A with management at
11h00 South African time on Monday 4 March 2013. A playback facility will be available
after the call. Dial-in details below.
Country Access Number
South Africa (Toll-Free) 0 800 200 648
South Africa - Cape Town 021 819 0900
South Africa - Durban 031 812 7600
South Africa - Johannesburg 011 535 3600
South Africa - Johannesburg
010 201 6800
Alternate
UK (Toll-Free) 0808 162 4061
UK Emergency Only (Toll-Free) 0 800 917 7042
Other Countries (Intl Toll) +27 11 535 3600
Other Countries - Alternate +27 10 201 6616
Playback Access Numbers
PLAYBACK CODE – 23446#
Country Access Number
Other Countries (Intl Toll) +27 11 305 2030
South Africa (Telkom) 011 305 2030
UK (Toll-Free) 0 808 234 6771
Enquiries:
Petmin
Bradley Doig
+27 11 706 1644
Media
Jonathon Rees
+27 76 185 1827
Sponsor and Corporate Advisor (JSE)
River Group
Andrew Lianos
+27 834 408 365
Nominated Adviser and Broker (AIM)
Macquarie Capital (Europe) Limited
Steve Baldwin
+44 20 3037 2362
Nicholas Harland
+44 20 3037 2369
River Group
Johannesburg
4 March 2013
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