Wrap Text
Unaudited interim report for the six months ended 30 June 2013
Palabora Mining Company Limited
and its Subsidiaries
("Group" or "Palabora" or "Company")
Incorporated in the Republic of South Africa
Registration Number: 1956/002134/06
JSE Code: PAM ISIN: ZAE000005245
UNAUDITED INTERIM REPORT
for the six months ended 30 June 2013
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 interim financial information was supervised
by:
Dikeledi L Nakene (CA) SA
Chief Financial Officer
Key group financial statistics
Six months Six months
ended ended
For the period ended 30 June 2013 30 June 2012
Post hedge revenue R'm 4 845 4 296
Net profit for the period R'm 778 338
Basic earnings per share Cents 1 610 699
Earnings before interest, tax, depreciation and
amortisation (EBITDA) R'm 983 747
Adjusted EBITDA (excluding insurance claim,
exploration, development and growth costs) R'm 1 126 1 110
Headline earnings R'm 779 337
Headline earnings per share Cents 1 612 697
Exploration, development and growth costs* R'm 387 363
Insurance claim R'm 244 -
Dividend per share (declared) Cents - -
* Currently Lift II costs are being expensed until the project is approved.
Overview
The year 2013 marks a number of key milestones in the history of Palabora. Firstly new
investors are now on board following the Rio Tinto and Anglo American divestment process
finalisation and secondly we are excited that the BBBEE transaction, effective 1 August, is in
its implementation phase. The associated IFRS 2 charge in respect of the BBBEE
transaction will be expensed in the second half of the year. Additionally the hedge facility
expires at the end of September with the last hedge payment in October. This will bring
much needed relief to the copper business given the declining head grade as we approach
the end of life of mine for the current Lift I operations in 2015.
The magnetite business continues to do well and remains critical to the business during this
copper contraction phase pending a Board decision on Lift II to extend the life of mine. The
belt filter plant is anticipated to be commissioned in the third quarter to increase magnetite
drying capacity to 6Mt per annum. The second phase of the magnetite growth phase is
underway to align the capacity of the magnetite booster and magnetite separation plants
with the belt filter plant capacity. These two projects are expected to be commissioned in the
second half of 2014.
The insurance claim in respect of the guide rope failure in the third quarter of 2012 was
finalised in June 2013. The settlement of R244 million goes some way in reducing the impact
of the guide rope failure which resulted in the copper business incurring a loss of R711
million in 2012. In terms of the business interruption insurance policy the first 30 days were
not covered and additionally the excess limit was US$10 million.
Magnetite sales volumes increased 26% to 2.7Mt on the back of increased trucking to
Maputo as well as improved rail capacity. Railed tonnage increased 28% to 2.1Mt whilst
sales from trucking increased 33% to 420kt.
There were a number of challenges which affected copper production during the first half of
the year. During the first quarter the underground south hoisting winder bearing failed
followed by an unfortunate illegal sit-in strike by underground employees. In the second
quarter production was affected by the underground north hoisting winder tail rope tangle as
well as two Section 54s served by the Department of Mineral Resources ('DMR') at both the
underground and concentrator. There was also a second unprotected strike by smelter
employees in the second quarter which compounded operational challenges at the same
plant. Magnetite exports through Maputo port were negatively affected for two months by a
rail bridge collapse due to a derailment in Mozambique.
Despite these challenges, Palabora's adjusted EBITDA, excluding Lift II costs and insurance
claim was in line with the comparative period in 2012. Palabora also managed to maintain a
healthy cash position of R3 billion as at 30 June 2013 compared to R1.98 billion as at 31
December 2012. This was mainly achieved through an increase in magnetite sales, part
settlement of the insurance claim received during June 2013 and the weakening of the rand
against the US dollar.
Safety
All injuries decreased to 13 for the six months ended 30 June 2013 from 15 injuries for the
same period in 2012, with a year to date all injury frequency rate of 0.53 for the first half year
of 2013 compared to 0.60 for the same period in 2012. The safety of our employees and
contractors remain the foremost priority for Palabora. For this reason sustaining capital
expenditure is largely restricted to safety and regulatory compliance during this copper
contraction phase of the current Lift I operation.
On 7 May 2013 a Section 54 was served by the DMR due to uncontrolled access to
trackless mobile machinery. All operations involving trackless mobile machinery were
suspended until 9 May 2013. Another Section 54 was served on 22 May 2013 due to a
safety incident at the concentrator. The concentrator operations were suspended until 29
May 2013 which affected all downstream operations. All concerns were addressed to the
satisfaction of the DMR and measures have been put in place to avoid recurrence.
Copper production
Ore hoisted declined 19% to 4.4Mt for the six months ended 30 June 2013 from 5.5Mt for
the same period in 2012 mainly due to the challenges explained above. The ore grade was
also lower (0.57% vs 0.60%) and consistent with expectation as the current Lift I operations
draw to an end in 2015.
Total ore treated declined 25% to 4.4Mt for half year 2013 compared to 5.8Mt for the
comparative period in 2012 due to the underground challenges and Section 54s served by
the DMR.
New concentrate smelted increased 4% to 111kt compared to the corresponding period in
2012 mainly due to supplementary concentrate imports (5t contained copper).
New copper anode production was 4% lower (27.3kt vs 28.5kt) mainly due to lower smelting
rates at the reverb.
Refined copper production declined 6% to 25.8kt compared to 27.4kt for the comparative
period in 2012.
Magnetite production
Total magnetite production, consisting course material (65% fe), iron oxide (56% fe) and
dense medium separation (DMS), increased to 2.6Mt for the six months ended 30 June 2013
from 2.4Mt for the corresponding period in 2012. This increase is in line with increased
logistical capacity from road trucking to Maputo port, partially offset by the impact of a rail
bridge collapse following a derailment in Mozambique which affected production for two
months.
Vermiculite production
Vermiculite production decreased 4% to 73kt compared to 76kt for the same period in 2012.
Production will be monitored to ensure continued alignment with sales in line with market
conditions.
Profit for the period
The 130% increase in profit after tax for the six month period to R778 million in 2013 from
R338 million in 2012 is mainly due to:
- Post tax insurance claim of R176 million for the underground guide rope failure in
2012; and
- Net foreign exchange gains due to the weakening of rand against US dollar
(R9.18/US$ vs R7.94/US$) as detailed below:
R'm
Turnover 323
Cash held in foreign currencies 191
Working capital 78
Foreign currency denominated costs (59)
Effect of after tax foreign exchange gains compared to 2012 533
Turnover variance analysis (R'm)
Turnover for the six months ended 30 June 2012 4 296
Price variance
- Copper (66)
- Magnetite (93)
- Vermiculite and by-products (3)
Hedge variance (22)
Foreign exchange 448
Flexed turnover 4 560
Volume variance
- Copper (354)
- Magnetite 648
- Vermiculite 10
- By-products (19)
Turnover for the six months ended 30 June 2013 4 845
- Magnetite sales volumes increased 26% to 2.7Mt from 2.1Mt in 2012 and increased
turnover by R648 million;
- Weaker rand on foreign currency denominated sales increased turnover by R448
million;
- Lower copper prices (USc344.6/lb vs USc373.7/lb) and magnetite prices (US$129/t
vs US$142/t) reduced turnover by R159 million;
- Lower copper volumes (28kt vs 33kt) reduced turnover by R354 million.
Six months Six months
ended ended
30 June 2013 30 June 2012
kt kt % change
Copper sales volume mix
Copper rod 26.1 27.3 (4)
Cathode 1.3 2.7 (52)
Refined copper scrap 0.1 2.6 (96)
Total copper sold 27.5 32.6 (16)
Magnetite sales volumes
Export 2 544 1 972 29
Rail: Maputo port 1 364 992 38
Rail: Richards Bay port 760 665 14
Trucking: Maputo port 420 315 33
Local sales 109 134 (19)
Total magnetite sold 2 653 2 106 26
Selling, distribution and administration costs
Selling and distribution costs increased by 25% to R1.7 billion for the first half of 2013
compared to R1.3 billion for the first half of 2012 mainly due to increased magnetite sales
volumes and impact of weaker rand on freight as well as Maputo port charges.
Administration expenses increased by 11% to R426 million compared to R384 million in
2012 mainly due to contribution of R22 million towards enterprise development programmes
in first half of 2013 and increased insurance costs of R10 million.
Cash flow and capital
Net cash generated from operating activities increased to R876 million for the six months
ended 30 June 2013 compared to R178 million during the same period in 2012 mainly due to
a decrease in tax and dividend payments of R340 million, part insurance claim received
during June 2013 (R154 million) and higher foreign exchange gains realised. Tax payments
are lower for 2013 due to the utilisation of a tax overpayment made in 2012 of R124 million.
Capital expenditure increased to R161 million from R123 million in 2012. Growth capital
expenditure in respect of the belt filter press for magnetite was R29 million.
Broad Based Black Economic Empowerment (BBBEE)
The BBBEE Transaction was implemented on 1 August 2013.
As previously advised, Palabora's remaining old order mining right, which has not yet been
converted, will be transferred to Palabora Copper Proprietary Limited ("Palabora Copper")
once it has been converted and the requisite consent to its transfer to Palabora Copper has
been obtained from the DMR. Palabora continues to engage with the DMR in order to
achieve the conversion of this right and its transfer to Palabora Copper. Shareholders will
be kept apprised of developments in this regard.
Rio Tinto and Anglo American Divestment
The Rio Tinto and Anglo American Divestment was implemented on 31 July 2013. This has
resulted in the Consortium acquiring, directly and indirectly, 74.5% of the issued share
capital of the Company.
As a result, and as previously advised, the Consortium is required to extend an offer to all
remaining Shareholders to acquire their ordinary shares in Palabora ("Mandatory Offer"),
which offer Shareholders may accept as to all or a portion of their Palabora ordinary shares
("Shares"). Pursuant to the Mandatory Offer, and subject to and in accordance with the
requirements of the Companies Act, 71 of 2008, as amended, and the Fundamental
Transactions and Takeover Regulations contained in Chapter 5 of the Companies
Regulations, 2011, as amended ("Companies Regulations"), Palabora understands that
Shareholders are to be offered a consideration of ZAR 110 per Share, plus an additional
ZAR 5.95 per Share, being a non-compounding escalation amount of 5% per annum
calculated over the period from 1 July 2012 up to, but excluding, the closing date of the Rio
Tinto and Anglo American Divestment, being 31 July 2013.
Note that this announcement by Palabora does not constitute the firm intention
announcement in respect of the Mandatory Offer required to be made by the Consortium in
accordance with Regulation 101(1) of the Companies Regulations.
Directorship
At 30 June 2013 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
On behalf of the Board and Ba-Phalaborwa community I would like to thank the outgoing
shareholders, Rio Tinto and Anglo American, for the support and commitment during their
tenure and look forward to a new era under the new investors.
CN Zungu AW Lennox DL Nakene
Chairman Managing Director Chief Financial Officer
8 August 2013
Group selected statistics
Six months Six months
ended ended
30 June 30 June
2013 2012
Revenue
Copper (post-hedge) R'million 1 393 1 635
Magnetite R'million 3 144 2 368
By-products R'million 98 94
Industrial minerals R'million 210 199
Profit before tax R'million 1 067 485
Copper
Dry ore hoisted kilo tonnes 4 419 5 488
Underground ore treated kilo tonnes 4 360 5 180
Average copper grade % Cu 0.57 0.60
Copper in concentrate produced kilo tonnes 22.2 31.3
Cathode produced kilo tonnes 25.8 27.4
Average copper price realised USc/lb 344.6 373.7
Average LME copper price USc/lb 341.9 367.0
Average ZAR/US$ exchange rate R/US$ 9.18 7.94
Spot ZAR/US$ exchange rate R/US$ 9.96 8.49
Average copper price realised (pre-hedge) R/tonne 69 753 65 624
Average copper price realised (post-hedge) R/tonne 50 572 50 103
Magnetite
Magnetite produced kilo tonnes 2 628 2 377
Magnetite sold kilo tonnes 2 653 2 106
Average magnetite price realised R/tonne 1 185 1 124
Average magnetite price realised US$/tonne 129 142
Vermiculite
Vermiculite sold tonnes 59 246 56 454
Average vermiculite price realised R/tonne 3 543 3 523
Anode slimes
Anode slimes sold tonnes 67 81
Average anode slimes price realised R/tonne 1 283 823 1 024 634
Nickel sulphate
Nickel sulphate sold tonnes 66 102
Average nickel sulphate price realised R/tonne 28 840 28 376
Sulphuric acid
Sulphuric acid sold tonnes 44 326 45 406
Average sulphuric acid price realised R/tonne 223 174
Imported concentrate purchased
Volumes tonnes 4 999 -
Cost R'million 376 -
Average unit purchase price R/tonne *75 114 -
* High in silver content
Six months Six months
ended ended
30 June 30 June
2013 2012
Imported cathode purchased
Volumes tonnes 805 4 498
Cost R'million 63 310
Average unit purchase price R/tonne 77 956 68 947
Imported rod purchased
Volumes tonnes - 748
Cost R'million - 51
Average unit purchase price R/tonne - 68 224
Cash flow
Net cash from operating activities R'million 876 178
Cash and cash equivalents R'million 3 031 2 245
Costs
Production cost (excluding product
purchases) R'million 1 233 1 286
Cost of sales R'million 1 939 1 791
Capital expenditure R'million 161 123
Sustaining capital R'million 132 111
Growth capital R'million 29 12
Share capital
Authorised ordinary shares of R1 each 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 111 88
Palabora Mining Company Ltd and its subsidiaries
Unaudited condensed consolidated income statement
Six months Six months
ended ended
30 June 2013 30 June 2012
R'm R'm
Note
Sale of products 5 374 4 803
Hedge loss realised (529) (507)
Revenue 4 845 4 296
Cost of sales (1 939) (1 791)
Gross profit 2 906 2 505
Selling and distribution costs 3 (1 659) (1 327)
Administration expenses 4 (426) (384)
Mineral and petroleum royalty (39) (26)
Exploration, development and growth costs 5 (387) (363)
Other income 6 252 11
Other expenses (19) (3)
Profit before net finance income and tax 7 628 413
Net finance income 8 439 72
Finance income 8 467 96
Finance cost 8 (28) (24)
Profit before tax 1 067 485
Income tax expense 9 (289) (147)
Profit for the period 778 338
Profit for the period attributable to:
Equity holders of the parent 778 338
Earnings per share attributable to the equity
holders of the parent (expressed in cents per
share)
Basic and diluted earnings per share (cents) 10 1 610 699
Unaudited condensed consolidated statement of comprehensive income
Six months Six months
ended ended
30 June 2013 30 June 2012
R'm R'm
Profit for the period 778 338
Other comprehensive income:
Available-for-sale investments
- Valuation gains arising during the period 58 16
Exchange differences on translation of foreign
operations 27 9
Cash flow hedges
- Mark to market losses arising during the (13) (52)
period
- Transferred to profit or loss for the period 529 507
- Hedge ineffectiveness 4 3
Income tax relating to components of other
comprehensive income (160) (130)
Other comprehensive income for the period,
net of tax 445 353
Total comprehensive income for the period 1 223 691
Total comprehensive income attributable to:
Equity holders of the parent 1 223 691
Unaudited condensed consolidated statement of financial position
As at As at
30 June 31 December
Note 2013 2012
R'm R'm
Assets
Non-current assets 2 967 3 098
Property, plant and equipment 2 279 2 474
Intangible assets 12 12
Financial assets 676 612
Current assets 5 279 4 033
Stores inventories 125 167
Product inventories 1 086 871
Trade and other receivables 1 037 851
Cash and cash equivalents 3 031 1 980
Current income tax assets - 164
Total assets 8 246 7 131
Equity
Equity attributable to owners of parent
Share capital and premium 629 629
Other reserves 117 (328)
Retained earnings 4 620 3 842
Total equity 5 366 4 143
Liabilities
Non-current liabilities 1 424 1 305
Close down and restoration obligation 800 771
Retirement benefits obligation 210 205
Deferred income tax liabilities 12 414 329
Current liabilities 1 456 1 683
Financial liabilities 13 331 847
Retirement benefits obligation 8 8
Trade and other payables 905 641
Related party payables 62 187
Current income tax liabilities 150 -
Total liabilities 2 880 2 988
Total equity and liabilities 8 246 7 131
Unaudited 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 2012 48 581 (1 023) 4 053 3 659
Total comprehensive income for
the year - - 695 (111) 584
Dividends paid - - - (100) (100)
Balance at 31 December 2012 48 581 (328) 3 842 4 143
Total comprehensive income for
the period - - 445 778 1 223
Balance at 30 June 2013 48 581 117 4 620 5 366
Unaudited condensed consolidated statement of cash flows
Six months Six months
ended ended
30 June 2013 30 June 2012
R'm R'm
Cash flows from operating activities
Cash generated from operating activities 912 553
Interest received 14 15
Dividends paid - (100)
Income tax paid (50) (290)
Net cash generated from operating activities 876 178
Cash flows from investing activities
Acquisition of property, plant and equipment (161) (123)
Proceeds on disposal of property plant and
equipment - 1
Investment in available-for-sale financial asset (5) (103)
Net cash used in investing activities (166) (225)
Net increase/(decrease) in cash and cash
equivalents 710 (47)
Cash and cash equivalents at beginning of period 1 980 2 210
Effects of exchange rate changes on the balance
of cash held in foreign currencies 341 82
Cash and cash equivalents at end of period 3 031 2 245
Notes to the condensed consolidated interim financial information
1. Corporate Information
The Company and its subsidiaries extracts and beneficiates copper, magnetite and
vermiculite from its mines in the Limpopo Province, South Africa. It is the primary aim
of the Company, 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 stock exchange operated by the JSE Limited
("JSE").
The condensed consolidated interim financial statements of Palabora for the period
ended 30 June 2013 were authorised for issue in accordance with a resolution of the
Board of Directors passed on 7 August 2013.
2. Basis of preparation and accounting policies
2.1 Basis of preparation
The condensed consolidated interim financial information for the six months ended
30 June 2013 have been prepared in accordance with International Accounting
Standard (IAS) 34, 'Interim financial reporting'.
The condensed consolidated interim financial information has been prepared in
accordance with International Financial Reporting Standards ("IFRS") and
Interpretations, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Reporting Pronouncements ("FRPs") as issued
by Financial Reporting Standards Council ("FRSC"), 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 2012.
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
interim 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 2012.
Six months Six months
ended ended
30 June 2013 30 June 2012
R'm R'm
3. Selling and distribution costs
Magnetite (1 602) (1 276)
Freight (508) (440)
Port charges (216) (171)
Sales commission (82) (63)
Rail costs (480) (386)
Trucking costs* (316) (216)
Vermiculite (56) (48)
Copper (1) (3)
(1 659) (1 327)
*Includes trucking to Mica for onward railing
4. Administration expenses
Employee related costs (172) (174)
General and administration costs (100) (66)
External/contractor services (91) (93)
Repairs and maintenance (11) (10)
Depreciation (52) (41)
(426) (384)
5. Exploration, development and growth costs
Lift II exploration and development (387) (363)
Lift II exploration and development costs relate to pre-feasibility drilling and
development of a copper mineralisation area under the current footprint.
6. Other income
Included in "other income" on the income statement, is the business interruption
insurance claim amounting to R244 million in respect of the underground production
shaft guide rope failure on 4 July 2012 which affected ore hoisting until 9 September
2012.
Six months Six months
ended ended
30 June 2013 30 June 2012
R'm R'm
7. Profit before net finance income and tax
Profit before net finance income and tax is stated
after charging, amongst other items:
Depreciation on property, plant and equipment (352) (331)
Amortisation of intangible assets (3) (3)
Employee benefit expense (593) (593)
Product purchases (438) (361)
Repairs and maintenance (641) (786)
8. Net finance income
Finance income 467 96
Interest income on short-term bank deposits 11 12
Interest income on available-for-sale financial
asset 3 3
Net foreign exchange gain on operating activities 107 -
Net foreign exchange gain on financing activities 346 81
Finance cost (28) (24)
Unwinding of discount on close-down and
restoration costs (28) (23)
Net foreign exchange loss on operating activities - (1)
439 72
9. Income tax expense
Normal income tax (364) (185)
South African
Mining tax: Current (342) (180)
Mining tax: Prior years (18) -
Foreign tax: Current (4) (5)
Secondary tax on companies - (10)
Deferred income tax 75 48
South African tax
Current 64 48
Prior years 11 -
Income tax expense reported in the income
statement (289) (147)
Tax rate reconciliation:
% %
Current statutory rate 28.0 28.0
Adjusted for:
Secondary tax on companies - 0.6
Tax rate differential on foreign subsidiaries (0.9) 1.2
Deferred tax prior year adjustment 0.7 0.4
Disallowable expenditure (0.7) 0.1
Effective tax rate 27.1 30.3
Six months Six months
ended ended
30 June 2013 30 June 2012
R'm R'm
10. Earnings per share
Basic and diluted
Reconciliation of net profit to earnings per
share
Net profit attributable to equity holders of the
parent (rand million) 778 338
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
Earnings per share (cents) 1 610 699
11. Headline earnings
Profit Tax Profit
before tax expense after tax
Six months ended 30 June 2013
Profit per income statement (R million) 1 067 (289) 778
Loss on disposal of property, plant and
equipment (R million) 1 - 1
Headline profit (R million) 1 068 (289) 779
Weighted average number of ordinary shares of
basic and diluted headline earnings per share
(million share) 48
Headline profit per share (cents) 1 612
Six months ended 30 June 2012
Profit per income statement (R million) 485 (147) 338
Profit on disposal of property, plant and
equipment (R million) (1) - (1)
Headline earnings (R million) 484 (147) 337
Weighted average number of ordinary shares of
basic and diluted headline earnings per share
(million share) 48
Headline profit per share (cents) 697
12. Deferred income tax
Six months For the year
ended ended
30 June 31 December
2013 2012
R'm R'm
At beginning of period (329) (153)
Tax charged to the income statement 75 78
Tax charged to statement of other comprehensive
income (160) (254)
At end of period (414) (329)
Deferred income tax assets arising from:
Provisions 299 336
Derivative financial instruments 93 237
392 573
Deferred income tax liabilities arising from:
Accelerated capital allowances (641) (756)
Available-for-sale investment (183) (165)
Other 18 19
(806) (902)
Net deferred income tax liabilities (414) (329)
13. Financial liabilities
Derivative financial instrument Cash flow hedge
The Group holds a commodity swap contract designated as hedge of expected future
sales to customers. The Group 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 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: 30 June 2013 Average
hedged Hedged Derivative
Quantity price value liability
Maturity year tonnes R/t R'm R'm
2013 Current portion 6 356 15 739 100 331
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
Six months Six months
ended ended
30 June 2013 30 June 2012
R'm R'm
14. Dividends paid
The following dividends were declared and paid:
Previous year final dividend:
Nil cents per qualifying ordinary share (2011: 207
cents) - 100
15. Related party transactions
The following transactions were carried out
with related parties:
Purchase of goods and services (Rio Tinto
Group) (774) (580)
Marketing fee (Rio Tinto Iron Ore Asia) (93) (72)
16. Operating segments
Management has determined the operating segments based on the reports reviewed
by the strategic steering committee that are used to make strategic decisions. The
committee considers the business from a product perspective. The products are
divided in the following segments:
- Copper produces and markets refined copper;
- 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
Period ended 30 June 2013
External customers revenue
Sales from products 1 922 3 144 98 210 5 374
Hedge loss realised (529) - - - (529)
Reportable segment revenue 1 393 3 144 98 210 4 845
Reportable segment operating
(loss)/profit before
depreciation and insurance (141) 1 157 52 42 1 110
claim
Insurance claim (refer note 6) 216 13 15 - 244
Depreciation (258) (35) (5) (5) (303)
Reportable segment
operating (loss)/profit (183) 1 135 62 37 1 051
Period ended 30 June 2012
External customers revenue
Sales from products 2 142 2 368 94 199 4 803
Hedge loss realised (507) - - - (507)
Reportable segment revenue 1 635 2 368 94 199 4 296
Reportable segment operating
profit before depreciation 240 790 41 - 1 071
Depreciation (247) (37) (5) (6) (295)
Reportable segment
operating profit (7) 753 36 (6) 776
Reportable segment operating (loss) / profit before depreciation and insurance claim
includes:
Joint-
product: By- Industrial
Copper Magnetite products minerals Total
R'm R'm R'm R'm R'm
Period ended 30 June 2013
Joint product cost allocation 89 (89) - - -
Overhead allocation costs (290) (68) (22) (22) (402)
Selling and logistics costs (1) (1 602) - (56) (1 659)
Period ended 30 June 2012
Joint product cost allocation 97 (97) - - -
Overhead allocation costs (268) (67) (24) (23) (382)
Selling and logistics costs (3) (1 276) - (48) (1 327)
Reconciliation of reportable segment operating profit to profit after tax:
Six months Six months
ended ended 30 June
30 June 2013 2012
R'm R'm
Reportable segment operating profit 1 051 776
Unallocated amounts:
Exploration, development and growth costs (387) (363)
Other 16 41
Unallocated depreciation and amortisation (52) (41)
Net finance income 439 72
Profit before tax 1 067 485
Income tax expense (289) (147)
Profit for the period 778 338
17. Commitments
Commitments contracted for at the reporting date was R85 million (31 December
2012: R117 million). Sustaining capital expenditure that was approved by the Board,
but not contracted for at 30 June 2013 amounts to R100 million (31 December 2012:
R238 million).
18. Contingent liabilities
Legal matters
Various legal matters, including labour cases before the CCMA, are in progress. The
potential exposure is approximately R4 million (31 December 2012: R1 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.
Palabora Europe Limited (PEL) pension fund
Palabora Europe Limited (PEL) is a wholly-owned subsidiary of Palabora and
participates in a group pension arrangement of Rio Tinto Pension Fund in the United
Kingdom.
In terms of section 75 of the United Kingdom Pensions Act 1995, should one
employer with defined benefit liabilities cease to have active employees whilst at
least one other employer with defined benefit liabilities continues to do so in the same
defined benefit plan, which would occur if PEL ceased to be a part of the Rio Tinto
group, then PEL would cease to participate in the Fund.
Upon ceasing to participate in the Fund, a debt would be triggered under section 75
of the United Kingdom Pensions Act 1995, payable to the Fund. The debt can only be
known after the date on which it is triggered and will depend on market conditions at
that date. Based on professional advice is currently estimated to be £7.5 million
(ZAR114 million). Accordingly, PEL (and, on a consolidated basis, Palabora) has a
contingent liability for this potential future liability.
19. Ore Reserves
There have not been any material changes to the ore reserves as disclosed in the
2012 annual report.
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