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PETMIN LIMITED - Erratum Petmin Ltd interim financial results for the six months ended 31 December 2012

Release Date: 04/03/2013 12:07
Code(s): PET     PDF:  
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Erratum 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")



ERRATUM
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 5.22 cents (2011: 6.18 cents).


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 Alternate    010 201 6800

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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