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Condensed Provisional Consolidated Financial Statements 30 June 2013, Dividend Declaration and Renewal of Cautionary
Petmin Limited
(Incorporated in the Republic of South Africa)
(Registration number 1972/001062/06)
JSE code: PET AIM code: PTMN
ISIN: ZAE000076014
("Petmin" or "the Group")
Condensed Provisional Consolidated
Financial Statements
for the year ended 30 June 2013
Dividend Declaration
and renewal of Cautionary Announcement
"Expansion at Somkhele Anthracite Mine delivering results"
- Earnings from continuing operations excluding impairments were up 18% to 15.25 cents (2012: 12.98 cents).
- 92% increase in second-half headline earnings per share from an improved performance compared to first-half
at Somkhele Anthracite Mine.
- Headline earnings per share of 15.25 cents (2012: 19.06 cents) 2012 included 6.68 cents from discontinued
operations (SamQuarz) which was sold in June 2012.
- Third plant successfully commissioned and fully operational in H2 FY 2013, producing 207 238 tonnes of
energy product.
- Dividend policy maintained and a dividend of 3 cents per share (20% of HEPS) declared
on 30 September 2013 (2013: 5 cents, 2012: 4 cents).
- R200 million impairment of investment in the Veremo project.
- Successful smelt tests conducted in the North Atlantic Iron Corporation ("NAIC") pig iron project.
Condensed Provisional Consolidated Income Statement
for the year ended 30 June 2013
Reviewed Audited
Year ended Year ended
30 June 30 June
2013 2012
Note R'000 R'000
Revenue 833 490 516 303
Cost of sales (664 100) (360 461)
Gross profit 169 390 155 842
Operating (expenses)/income (589) 6 532
Administration expenses (24 384) (20 611)
Results from operating activities 144 417 141 763
Mark-to-market of listed securities 5 683 (20 234)
Net finance expense (24 172) (6 988)
Finance income 4 306 2 936
Finance expenses (28 478) (9 924)
Separately disclosed items:
Impairment loss on equity accounted investee 7 (200 000)
Impairment loss on exploration asset (18 841)
Fair value gain on investment in jointly
controlled entity 3 404
Share of losses of equity accounted investees (1 625) (1 707)
(Loss)/profit before income tax (75 697) 97 397
Income tax expense (36 335) (41 377)
(Loss)/profit for the year from
continuing operations (112 032) 56 020
Profit for the year
from discontinued operation 8 38 517
Profit on sale of subsidiary 8 18 145
(Loss)/profit for the year (112 032) 112 682
Earnings per share
Basic earnings per ordinary share (cents) 9 (19.42) 19.53
Earnings per share from
continuing operations
Basic earnings per ordinary share (cents) 9 (19.42) 9.71
Diluted earnings per ordinary share (cents) 9 (19.42) 9.56
Condensed Provisional Consolidated Statement of
Financial Position
at 30 June 2013
Reviewed Audited
Year ended Year ended
30 June 30 June
2013 2012
Note R'000 R'000
ASSETS
Non-current assets 1 765 955 1 541 541
Property, plant and equipment 1 425 327 1 042 840
Investment in equity accounted investee 7 271 686 468 757
Loan due from joint venture 10 30 478
Investments 38 464 29 944
Current assets 374 425 494 701
Inventories 163 779 100 312
Trade and other receivables 201 768 111 741
Receivable on sale of subsidiary 8 1 158 281 064
Current tax assets 2 772
Cash and cash equivalents 4 948 1 584
Total assets 2 140 380 2 036 242
EQUITY AND LIABILITIES
Ordinary share capital and reserves 1 273 521 1 405 188
Share capital 143 575 143 763
Share premium 332 654 334 104
Share option reserve 9 440 3 508
Hedging reserve (2 619)
Foreign currency translation reserve 11 000 3 558
Retained earnings 779 471 920 255
Non-current liabilities 649 478 262 502
Interest free loan 1 122
Interest-bearing loans and borrowings 13 372 032 68 074
Loan due to venturer in joint venture 10 30 478
Deferred taxation liabilities 206 658 172 233
Environmental rehabilitation provision 39 188 22 195
Current liabilities 217 381 368 552
Trade and other payables 131 023 157 968
Current portion of interest-bearing loans and
borrowings 13 51 434 59 590
Hedge liability 3 637
Current tax liabilities 34 816
Shareholders for dividend 1 355 1 287
Bank overdraft 29 932 114 891
Total equity and liabilities 2 140 380 2 036 242
Condensed Provisional Consolidated Statement of
Comprehensive Income
for the year ended 30 June 2013 Reviewed Audited
Year ended Year ended
30 June 30 June
2013 2012
R'000 R'000
(Loss)/profit for the year (112 032) 112 682
Other comprehensive income (after tax)
Items that may be reclasssified to profit and
loss
Foreign currency translation differences 7 442 3 877
Effective portion of changes in fair value
of cash flow hedges (2 619)
Other comprehensive income for the year,
net of income tax 4 823 3 877
Total comprehensive income for the year (107 209) 116 559
Condensed Provisional Consolidated Statement of
Cash Flows
for the year ended 30 June 2013 Reviewed Reviewed
Year ended Year ended
30 June 30 June
2013 2012
Note R'000 R'000
Profit from operations before finance
(expense)/income 144 417 193 865
Adjustments for:
depreciation and amortisation 14 474 562 262 041
notional interest 2 250 3 014
profit on disposal of property, plant and
equipment (340) (17)
share options granted 5 932 962
Operating cash flows before changes
in working capital 626 821 458 865
(Increase)/decrease in trade and other
receivables (68 270) 12 453
Increase in inventories (62 061) (88 760)
(Decrease)/increase in trade and other payables (42 894) 66 781
Cash generated by operations 8 453 596 449 339
Income tax (paid)/refunded (37 588) 1 425
Finance income 4 306 4 010
Finance expenses (28 478) (10 958)
Net cash flow from operating activities 391 836 443 816
Cash flows from investing activities
Investment in jointly controlled entities 10 (91 765) (45 716)
Investment in listed shares (2 838) (16 616)
Acquisition of property, plant and equipment (672 594) (688 548)
to expand operations (130 164) (270 707)
to expand operations capitalised pre-strip 14 (529 701) (405 558)
to maintain operations (12 729) (12 283)
Proceeds from sale of subsidiary, net of cash
disposed 8 279 906 (23 889)
Proceeds from sale of property, plant and
equipment 7 068 24
Net cash flows from investing
activities (480 223) (774 745)
Cash flows from financing activities
Proceeds from options exercised 3 331
Treasury shares acquired (1 638) (9 590)
Payment on options forfeited (160)
Repayment of borrowings (78 997) (29 189)
Increase in borrowings 286 122 6 984
Dividends paid (28 777) (22 785)
Net cash flow from financing activities 176 710 (51 409)
Net increase/(decrease) in cash and cash
equivalents 88 323 (382 338)
Cash and cash equivalents at beginning of the year (113 307) 269 031
Cash and cash equivalents at end of
the year (24 984) (113 307)
Condensed Provisional Consolidated Statement of Changes in Equity
for the year ended 30 June 2013
Cash Foreign
Share flow currency
Share Share option hedging translation Retained
capital premium reserve reserve reserve earnings Total
R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balance at 30 June 2011 143 398 337 807 5 627 (319) 830 649 1 317 162
Total comprehensive income for the year 3 877 112 682 116 559
Profit for the year 112 682 112 682
Foreign currency translation differences 3 877 3 877
Transactions with owners, recorded directly in equity 365 (3 703) (2 119) (23 076) (28 533)
Share options exercised 1 281 4 971 (2 921) 3 331
Share options forfeited during the year (160) (160)
Treasury shares acquired during the year (916) (8 674) (9 590)
Share options granted 962 962
Dividend paid (23 076) (23 076)
Balance at 30 June 2012 (Audited) 143 763 334 104 3 508 3 558 920 255 1 405 188
Total comprehensive income for the year (2 619) 7 442 (112 032) (107 209)
Loss for the year (112 032) (112 032)
Effective portion of changes in fair value of cash flow hedges (2 619) (2 619)
Foreign currency translation differences 7 442 7 442
Transactions with owners, recorded directly in equity (188) (1 450) 5 932 (28 752) (24 458)
Treasury shares acquired during the year (188) (1 450) (1 638)
Share options granted 5 932 5 932
Dividend paid (28 752) (28 752)
Balance at 30 June 2013 (Reviewed) 143 575 332 654 9 440 (2 619) 11 000 779 471 1 273 521
Segment reporting Reportable segments
Segment information is presented in the condensed provisional consolidated financial statements in The Group comprises the following main reportable segments:
respect of the Group's segments. Silica mining and marketing ("Silica") Discontinued operation; sold on 29 June 2012.
The segment reporting format reflects the Group's management and internal reporting structure as Anthracite mining and marketing ("Anthracite").
reviewed by the chief operating decision-makers. - Expansion projects, which includes Petmin's exploration and development projects.
Segment revenue represents revenue to external customers. There was no inter-segment revenue.
Segment results include items directly attributable to a segment as well as those that can be allocated
on a reasonable basis.
Silica (discontinued) Anthracite Expansion projects Reconciling items/Eliminations Consolidated
Year Year Year Year Year Year Year Year Year Year
Units ended ended ended ended ended ended ended ended ended ended
of 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
measure 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
Anthracite/Silica saleable tonnes produced (tonnes) 1 245 406 822 431 637 220 822 431 1 882 626
Anthracite/Silica tonnes sold (tonnes) 1 135 807 802 325 546 051 802 325 1 681 858
Energy saleable tonnes produced (tonnes) 207 238 207 238
Energy tonnes sold (tonnes) 178 559 178 559
Segment revenue R'000 174 846 833 490 516 303 833 490 691 149
Segment revenue per tonne sold (Silica/Anthracite) (R/tonne) 153.94 996.99 945.52
Segment revenue per tonne sold (Energy) (R/tonne) 188.06
Segment finance (expense)/income R'000
Finance income R'000 1 074 1 450 2 856 2 936 4 306 4 010
Mark to market of listed securities R'000 5 683 (20 234) 5 683 (20 234)
Finance expense R'000 (1 034) (24 034) (7 201) (4 444) (2 723) (28 478) (10 958)
Segment profit per tonne (Silica/Anthracite) sold (R/tonne) 25.37 161.74 249.90
Segment profit/(loss) before tax R'000 48 667 129 766 136 458 (197 947) (40 782) (7 517) 61 624 (75 698) 205 967
Segment tax expense R'000 (13 627) (36 335) (38 760) (40 898) (36 335) (93 285)
Segment profit/(loss) after tax R'000 35 040 93 431 97 698 (197 947)** (40 782) (7 517) 20 726 (112 033) 112 682
Segment capital expenditure combined R'000 35 858 653 853 616 644 26 609 3 308 (7 868) 32 738 672 594 688 548
Segment capital expenditure R'000 35 858 124 152 211 615 26 609 3 308 (7 868) 32 738 142 893 283 519
Segment capital expenditure pre-strip R'000 529 701* 405 029 529 701 405 029
Segment depreciation combined R'000 474 145 258 706 417 445 474 562 259 151
Segment depreciation R'000 44 705 30 361 417 445 45 123 30 806
Segment depreciation pre-strip R'000 429 440* 228 345 429 440 228 345
Share option costs included in segment profit/(loss) before tax R'000 5 932 962 5 932 962
Segment assets R'000 1 653 643 1 106 627 447 964 575 819 38 773 353 796 2 140 380 2 036 242
Segment liabilities R'000 1 156 625 639 210 1 943 2 106 (291 709) (10 262) 866 859 631 054
* See note 14.
** See note 7.
Notes to the Condensed Provisional Consolidated Financial Statements
for the year ended 30 June 2013
1. Reporting entity
Petmin is a company domiciled in South Africa. The condensed provisional consolidated financial statements of the Group for the year ended 30 June 2013 comprise the Company and its subsidiaries
and the Group's interests in associates and jointly controlled entities (together referred to as the "Group").
The condensed provisional consolidated financial statements were authorised for issue by the directors on 27 September 2013.
2. Statement of compliance
The condensed provisional consolidated financial statements have been prepared under the supervision of Petmin's financial director, Mr BP Tanner CA (SA) and in accordance with the recognition
and measurement requirements of IFRS and the presentation and disclosure requirements of IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council and the South African Companies Act, 2008. The condensed provisional
consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated annual financial statements
for the year ended 30 June 2012, which are available upon request from the Company's registered office at 37 Peter Place, Bryanston, 2021, Johannesburg or at www.petmin.co.za
3. Significant accounting policies
The accounting policies have been applied consistently by the Group to all periods presented in these condensed provisional consolidated financial statements and are consistent to those applied
by the Group in its consolidated financial statements as at and for the year ended 30 June 2012.
New standards and interpretations adopted for the first time
IAS 1 amendment Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income
IAS 12 Income Taxes (This standard had no effect on the financial statements)
4. Functional and presentation currency
The condensed provisional consolidated financial statements are presented in South African Rands ("Rands"), which is the Company's functional currency. All financial information presented in
Rands has been rounded to the nearest thousand.
5. Estimates and judgement
The preparation of the condensed provisional consolidated reviewed financial statements in conformity with IAS 34 Interim Financial Reporting requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Other than the judgements applied to the impairment of the investment in Veremo (refer to note 7), the significant judgements made by management in applying the Group's accounting policies
and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 30 June 2012.
6. Review of results
The results of the Group as set out in these condensed provisional consolidated financial statements have been reviewed by the Group's auditors, KPMG Inc. The unqualified review report is
available for inspection at the Group's registered office.
The auditor's report does not necessarily report on all of the information contained in these financial results. Shareholders are therefore advised that in order to obtain a full understanding of the
nature of the auditor's engagement they should obtain a copy of the auditor's report together with the accompanying financial information from the issuer's registered office.
7. Impairment of investment in equity accounted investee
The controlling shareholders of Veremo Holdings (Proprietary) Limited (Veremo) were to fund and develop the project to commence production within 48 months of 30 April 2008. Veremo was
to distribute to Petmin the larger of: a cash payment of R65 million per year for three years, or 25% of the profit after tax from Veremo.
The first of the three cash payments of R65 million fell due on 28 February 2013 and this payment has not been received. Petmin has entered into discussions with the controlling shareholders of
Veremo regarding the payment due to Petmin.
Significant progress has been made at Veremo and development capital of R112 million has been invested to date by the controlling shareholders and the previous owners. MCC International
Incorporation Limited (MCC) was commissioned by Veremo 18 months ago to perform a feasibility study. During the year under review, they finalised their report on the project and concluded
that it is economically viable. The Veremo management team are in the process of evaluating and reviewing this report. Furthermore, Veremo is awaiting the approval of a new order mining licence
application.
Considering the state of the South African and world economies, Petmin has reviewed the project valuation parameters and recorded an impairment expense of R200 million at 30 June 2013.
The carrying value of the investment in Veremo prior to the impairment was R497 million. Petmin's initial investment in the project amounted to R95 million.
Management's estimation of the valuation of Veremo for purposes of this impairment was based on the value in use and the main assumptions used in the valuation model were as follows:
- Run-of-mine iron ore mined: 46 million tonnes (20 years). (The project has measured resources of 542.6 million tonnes, but only 20 years of operations were modelled.)
- Weighted average cost of capital (Real basis) of 11%.
- Risk free rate of return 6%.
- Long-term pig-iron price of $425/tonne.
- Rand Dollar exchange rate of R9.90/$1.00 in 2016. (Anticipated project start date as Petmin has a free carry on capital).
8. Discontinued operation
With the Competition Tribunal's approval received on 29 June 2012, all conditions for the sale of SamQuarz (Proprietary) Limited were fulfilled and the Group recorded a profit after tax on the
sale of R18 million at that date. In the year ended 30 June 2013, the Group received R280 million of the proceeds on the sale. For more information please refer to the detailed disclosures in the
audited consolidated annual financial statements for the year ended 30 June 2012.
The comparative numbers for the year ended 30 June 2012, include the following:
R'000
Profit for the year from discontinued operation 38,517
Cash de-recognised on sale of subsidiary. (23,889)
Net cash from operating activities:
Profit for the year from discontinued operation 37,366
Net cash from operating activities (35,834)
Net cash used in investing activities (5,999)
Net cash used in discontinued operation (4,467)
Notes to the Condensed Provisional Consolidated Financial Statements
for the year ended 30 June 2013
9. Earnings per share
Earnings per share ("EPS") are based on the Group's profit for the year, divided by the weighted average number of shares in issue during the year.
Reviewed Audited
Year ended Year ended
30 June 30 June
2013 2012
(Loss)/profit Number of Profit for Number of
for the year shares in Per share the year shares in Per share
R'000 thousands in cents R'000 thousands in cents
Basic earnings per share (112 033) 576 908 (19,42) 112 684 576 908 19,53
Share options* 8 771 (0,29)
Diluted EPS (112 033) 576 908 (19,42) 112 684 585 679 19,24
Headline earnings per share
Headline earnings per share is based on the Group's headline earnings divided by
the weighted average number of shares in issue during the year.
Reconciliation between earnings and headline earnings per share:
Basic EPS (112 033) 576 908 (19,42) 112 684 576 908 19,53
Adjustments:
Impairment of equity accounted investee 200 000 34,67
Fair value gain on investment in joint venture (3 404) (0,59)
Impairment of exploration asset 18 841 3,27
Profit on sale of subsidiary (18 145) (3,15)
Headline EPS 87 967 576 908 15,25 109 976 576 908 19,06
Share options* 8 771 (0,28)
Diluted headline EPS 87 967 576 908 15,25 109 976 585 679 18,78
Reconciliation between earnings per share and earnings per share
from continuing operations:
Basic EPS (112 033) 576 908 (19,42) 112 684 576 908 19,53
Profit for the year from discontinued operations (38 517) (6,68)
Profit on sale of discontinued operation (18 145) (3,14)
EPS from continuing operations (112 033) 576 908 (19,42) 56 022 576 908 9,71
Share options* 8 771 (0,15)
Diluted headline EPS (112 033) 576 908 (19,42) 56 022 585 679 9,56
* At 30 June 2013, the ruling share price of Petmin's shares was below the strike price of the options, being R2.50. As the exercise of the options would be anti-dilutive, they have been
ingored for the dilution calculations as at 30 June 2013.
10. Investment in jointly controlled entities
During the year ended 30 June 2013 Petmin made the following investments:
10.1 Investment in North Atlantic Iron Corporation ("NAIC")
During the year ended 30 June 2013, Petmin invested an additional US$6.5 million [approximately R55.4 million] (2012: US$5 million) [approximately R37.9 million] in the jointly
managed NAIC, taking its shareholding to 25.15% (2012: 17.00%). Petmin's investment in NAIC has been proportionately consolidated in accordance with the accounting policy for
investments in jointly controlled entities.
10.2 Investment in Somkhele Plant (Proprietary) Limited ("Mining JV")
On 27 February, 2013, Tendele Coal Mining (Proprietary) Limited, a 100% held subsidiary of Petmin, subscribed for 100 shares in the Mining JV for R100. After the issuance of the
shares, Tendele has a 50% shareholding in the issued ordinary share capital of the Mining JV with the remaining 50% held by Sandton Plant Hire (Proprietary) Limited ("SPH"). SPH has
been the mining contractor at the Somkhele Anthracite Mine since inception of the mine. The Mining JV is jointly controlled by Tendele and SPH.
With the establishment of a joint management team, the Mining JV gives Tendele more control over production, productivity, and efficiency and ensures that human resources policies
are consistent on the mine. Mining costs are more than 60% of cash operating costs at Somkhele and, by investing in the JV, Tendele claws back some of this cost by sharing in the
margins of the Mining JV and by earning interest on its loan account. In the year ended 30 June 2013 this proportionate share amounted to R3 million (2012: nil).
In addition to the subscription for shares, Tendele acquired 50% of the shareholder loan in the Mining JV for a total cost of R70 million (R62 million cash plus plant and equipment of
R8 million). This loan bears interest at prime bank overdraft rates. At 30 June 2013, 50% of this loan is shown as a receivable and 50% of the corresponding loan from our joint venture
partner is shown as a payable. In the period ended 30 June 2013, the Mining JV repaid R11.5 million of the loan to Tendele.
The Mining JV utilises plant and machinery with a carrying value of approximately R263 million, funded by shareholder loans and by finance lease obligations (at 30 June 2013 the finance
lease obligation in the mining JV amounted to R160 million). The Mining JV has finance lease facilities of R200 million. Tendele has provided a pro rata guarantee, limited to R100 million,
to the bankers of the Mining JV as security for its 50% share of the facilities.
Impact of forthcoming accounting standards on the Mining JV
In accordance with Petmin's current accounting policy to proportionately consolidate joint ventures, the assets and liabilities of the jointly controlled Mining JV were proportionately
consolidated, resulting in debt of approximately R80 million relating to the Mining JV being recorded at 30 June 2013. The forthcoming IFRS 11 Joint Arrangements, which will be
adopted by Petmin during the year commencing 1 July 2013, requires that joint ventures be accounted for under the equity accounting method and thus will no longer be proportionately
consolidated.
11. Investment in listed shares and warrants Red Crescent Resources Limited ("RCR")
As previously announced in the interim results for the six months ended 31 December 2012, Petmin invested C$0.3 million [R3 million] to maintain its equity holding in RCR at approximately
10% following a private placement by RCR to recapitalise the business and to settle debt.
12. Petmin secures extension to existing mining right at Somkhele Anthracite Mine
On 17 July 2012, Petmin announced that it had been granted a 20-year mining right for an expansion to new mining areas at its flagship Somkhele anthracite operation in northern KwaZulu-
Natal, South Africa. The new right is in addition to the existing 20-year right covering existing reserves, and will facilitate the expansion of operations by South Africa's largest producer of
metallurgical anthracite.
13. Banking facilities
As previously announced in the interim results for the six months ended 31 December 2012, the Group signed term loan facilities with Standard Bank, securing, in addition to the existing
R100 million overdraft facilities, new medium-term debt facilities of R225 million (Facility A) and a R100 million (Facility B) revolving credit facility. At 30 June 2013, Petmin had drawn
R285 million against the medium-term and revolving credit facilities. The loans bear interest at JIBAR plus 3.4% (Facility A) and JIBAR plus 2.85% for Facility B. Facility A is repayable in
quarterly capital instalments commencing in December 2014 and ending in December 2017. Facility B is repayable in one capital instalment on maturity in December 2015. Both facilities are
subject to cash sweep calculations that apply surplus funds to the earlier settlement of this debt. As security, Tendele Coal Mining (Proprietary) Limited and Petmin Limited have ceded their
bank accounts to Standard Bank and have provided General Notarial Bonds over their movable assets, other than Tendele's investment in the mining joint venture referred to in note 10.2,
and other than Petmin's investment in NAIC. In addition, Tendele has provided a Special Notarial Bond over its moveable property (other than the second plant which is bonded under a
pre-existing finance agreement).
14. Capital pre-stripping
It is Petmin's accounting policy to record the pre-strip capital of R529 million (2012: R405 million) as "capital". In reality, the capital expenditure is the net amount recognised in property, plant and
equipment during the year, i.e. R100 million (2012: R177 million), being pre-strip capital of R529 million less amortisation of R429 million (2012: capital of R405 million and amortisation of R228 million).
The amortisation is, in reality, the mining cost incurred in the year.
The open pit mining profile at Somkhele requires that overburden be removed from the pit before coal can be extracted. This overburden removal is capitalised to the development cost of the open
pit (so called "pre-strip") and is then expensed on a units-of-production basis as the coal is extracted from the open pits.
2013 2012
R'000 R'000
Pre-strip capital for year 100 177
Pre-strip (capex and opex) 529 405
Amortisation (actual mining cost for the year) (429) (228)
15. Dispute with energy product customer Contingent liability
On 19 June 2013, Tendele was served notice of application by one of its customers for arbitration of a matter under dispute between the parties. The customer applied for interim relief
pending the determination of disputes between the parties in arbitration proceedings. Judge E L Goldstein heard this application on 19 August 2013 and, after consideration, the application
by the customer was dismissed in favour of Tendele. The customer has indicated it will submit a claim for damages amounting to R30 million. Tendele and its legal advisors believe that the
claim is unlikely to be successful hence no liability has been recognised at 30 June 2013.
16. Related parties
The Group entered into various transactions with related parties which occurred in the normal course of business, under terms that are no more favourable than those arranged with independent
parties.
17. Subsequent events
17.1 Change in role of director
On 1 October 2013, Ian Cockerill will assume the position of non-executive chairman of Petmin Limited. As a result, Ian will no longer be remunerated in terms of an executive
remuneration scheme. Ian's non-executive remuneration package will be presented for approval at the upcoming AGM. Ian has agreed to make himself available as a consultant, should
the need arise, so his skill sets are not lost to Petmin. If Petmin is successful to substantially increase its asset base, Ian will consider to once again play an active executive role.
17.2 Renewal of cautionary announcement
Further to the cautionary announcement dated 9 September 2013, Petmin shareholders are advised that negotiations are still in progress which, if successfully concluded, may have
a material effect on the price of the Company's securities. Accordingly, shareholders are advised to continue exercising caution when dealing in the Company's securities until a full
announcement is made.
17.3 Declaration of dividend
On 30 September 2013, the Company announced that it had declared a dividend of 3 cents per share which is in line with the approved dividend policy.
The record date for payment of the cash dividend is 22 November 2013. Please refer to the separate notice of the declaration of dividend dated 30 September 2013 for more details.
17.4 De-listing and termination of Petmin's secondary listing on the Alternative Investment Market (AIM) of the London Stock Exchange (LSE)
On 12 September 2013, Petmin announced that it will de-list and terminate its secondary listing on AIM. Please refer to the separate announcement and letter to shareholders dated
12 September 2013 for more information.
Management commentary
for the year ended 30 June 2013
This management commentary has been prepared by management and has not been reviewed by the Group's auditors.
(i)General overview of performance
Like-for-like earnings per share up 18% to 15.25 cents (2012: 12.98 cents) (excludes SamQuarz and impairments).
Petmin generated a loss for the year from continuing operations of R112 million (2012: profit of R56 million) as an impairment expense of R200 million was recognised against the value of
the Veremo project (refer to note 7).
Profit after tax (excluding the Veremo impairment) was down 22% to R88 million (2012: R113 million) as 2012 included the profit on sale of SamQuarz of R18.1 million and the R38.5 million
profit generated by SamQuarz prior to its disposal.
Profit (excluding the Veremo impairment) in the second half of the year ("H2 2013") was up 92% to R58 million from the R30 million reported in the interim results for the six months
ended 31 December 2012 ("H1 2013"). This was largely as a result of management interventions at Somkhele Anthracite Mine addressing the production difficulties encountered in H1 2013.
The normalised profit (see table below) from ongoing operations decreased by 11% to R87 million (2012: R97 million) largely as a result of interest incurred on the increased levels of debt
used to fund the expansion and diversification programmes and due to the production difficulties encountered in H1 2013.
Normalised profit from ongoing operations (not reviewed) Year ended H2 2013 Change H1 2013 Year ended
30 June 2013 tonnes tonnes 30 June 2012
tonnes tonnes
Anthracite tonnes produced 822 431 528 666 80% 293 765 637 220
Anthracite tonnes sold 802 325 431 763 17% 370 562 546 051
Energy tonnes produced 207 238 207 238
Energy tonnes sold 178 559 178 559
R'000 R'000 Change R'000 R'000
Turnover 833 490 475 857 33% 357 633 516 303
Results from ongoing operations 140 599 86 411 59% 54 188 141 763
Net finance expense (20 354) (13 245) 86% (7 109) (6 988)
Pre-tax results from ongoing operations 120 245 73 166 55% 47 079 134 775
Pre-tax gross margin 14% 15% 17% 13% 26%
Assumed tax at 28% (33 669) (20 486) 55% (13 182) (37 737)
Assumed profit after tax from ongoing operations 86 576 52 679 55% 33 897 97 038
Shares in issue 576 908 188 576 908 188 0% 576 908 188 576 908 188
Normalised profit after tax from ongoing operations per share 15.01 9.13 55% 5.88 16.82
The table below summarises the Group's capital expenditure for the year ended 30 June 2013:
Year ended Year ended
30 June 2013 30 June 2012
Group capital expenditure R'000 R'000
Total capital expenditure 243 460
Somkhele 224 388
Group 19 72
Capital expensiture at Somkhele Anthracite Mine 224 388
Capital pre-stripping 100 177
Second wash plant 119
Third wash plant 62
Exploration, development, resource definition 32 29
Other items 30 63
Petmin incurred capital expenditure of R243 million (2012: R460 million) in support of its growth and diversification strategy; R224 million was spent at Somkhele (2012: R388 million) with
the balance of R19 million being Petmin's share of the capital expenditure of the proportionately consolidated, jointly controlled entities, North Atlantic Iron Corporation ("NAIC"), Iron
Bird Resources and the Mining JV.
With the significant capital investment at Somkhele largely completed, the mine is now geared to produce up to 1.2 million tonnes per annum of anthracite and 480 000 tonnes per annum
of energy product.
Petmin invested a further R92 million in jointly controlled entities (2012: R46 million). The net investment of R43 million in NAIC takes Petmin's interest at 30 June 2013 to 25.15% and
provided the funding to progress the Preliminary Economic Assessment (PEA) and to conduct smelt tests to successfully produce pig iron.
The net investment in the loans and shares of the Mining JV at Somkhele of R49 million provides Petmin with a 50% stake in that business and the ability to align the contract mining and
personnel management processes to Somkhele's goals and strategies.
The Group's operations remain strongly cash generative, generating R392 million in the year to 30 June 2013 (2012: R444 million). The 2012 comparative is R407 million on a like-for-like
basis if the operating cash flows of SamQuarz are excluded.
Management commentary
for the year ended 30 June 2013
This management commentary has been prepared by management and has not been reviewed by the Group's auditors.
Petmin's interest-bearing debt to equity ratio increased to 35.60% (2012: 17.26%) as R285 million of the R325 million MTL and RCF facilities from Standard Bank was drawn in the year ended 30 June 2013.
This calculation was further exacerbated by the R200 million impairment of the Veremo project.
The forthcoming IFRS 11 Joint Arrangements, which will be adopted by Petmin during the year commencing 1 July 2013, requires that joint ventures be accounted for under the equity accounting method.
Therefore joint ventures will no longer be proportionately consolidated after 30 June 2013. If Petmin's proportional share of the Mining JV's debt is excluded from the debt equity calculations at 30 June 2013,
the debt equity ratio would have been 29.34% and not the reported 35.60%.
Due to the current tough trading environment in the world, and specifically in the South African mining industry and, as the Executives all have a material equity stake in the Company, the executives proposed
to the Petmin Remco that their remuneration packages be further reduced to assist the Company during difficult times. The executive team has agreed to forfeit R3.5 million of the incentives that were earned
in terms of the currently approved remuneration scheme for the year ended 30 June 2013.
Anthracite division
Somkhele Anthracite Mine
Somkhele reported increased production after a full year of operations from the second wash plant, together with the commissioning of the third wash plant in February 2013 to produce an energy product.
During the year ended 30 June 2013, Somkhele produced 822 431 tonnes of anthracite (2012: 637 220 tonnes) and 207 238 tonnes of energy product (2012: nil).
The production difficulties at Somkhele Anthracite Mine as reported in H1 2013 were addressed by mine management and anthracite production increased by 80% in H2 2013 to 528 666 tonnes (H1 2013:
293 765 tonnes).
Net profit margins reduced to 16% (2012: 26%) for the year ended 30 June 2013 as sales price increases in a subdued market could not compensate for the increased cost of mining due to inflation, increased
interest charges on the new debt, the impact of an unprotected strike, and rainfall hampering operations in H1 2013. Management continues to explore every avenue to reduce costs and improve productivity.
The commissioning of the third processing plant at the end of February 2013 with a total cost of R62 million now provides Somkhele with the capacity to produce 480 000 tonnes per annum of product as a
blend for the energy market. Sales of energy product to the main contracted customer were suspended during June 2013 as the parties dispute the contracted qualities of the energy product. The dispute was
referred for arbitration. Please refer to note 15 for more information. Petmin has identified additional customers who have taken trial shipments of the energy product and have indicated their willingness to sign
off-take agreements at prices in excess of those currently contracted. Depending on the outcome of the arbitration process, Petmin will either continue to sell at the existing contracted prices or at substantially
better prices to the new customers.
The exploration and resource definition activities conducted during the year have borne fruit and management expects to report substantially increased SAMREC compliant reserves by November 2013.
As previously reported in the interim results for the six months ended 31 December 2012, a new order mining right was obtained for an extension to the existing mining area which now incorporates the
Luhlanga and KwaQubuka mining areas. Mining has commenced in the Luhlanga area, providing flexibility to blend production to supply improved qualities and to reduce the risk of production delays should
production in one of the pits be delayed.
In June 2013, Tendele submitted an application for a mining right over the remainder of the project Areas 4 and 5 at Somkhele, following an extensive drilling programme conducted over the past three years.
Formal acceptance of the application has been received from the Department of Mineral Resources.
As reported in the interim results for the six months ended 31 December 2012, a campaign was undertaken to stockpile an additional 100 000 ROM tonnes to ensure an adequate amount of readily available
coal for the wash plants in the event of a repeat of the production difficulties incurred in H1 2013. The campaign has been successful and as at 30 June 2013, Somkhele had 142 298 ROM tonnes on stockpile,
resulting in an increased investment in inventory.
Expansion Projects division
Petmin's strategy is to focus on the steel value chain and commodities required for infrastructure development and urbanisation. In the year ended 30 June 2013, Petmin's expansion was focused on advancing
the NAIC project.
NAIC
Petmin invested an additional US$6.5 million (2012: US$5 million) in the jointly managed NAIC, acquiring an additional 8% interest to take Petmin's shareholding in NAIC to 25%.
Petmin has joint management control of NAIC, with an earn-in option to acquire up to 40% for a total of US$25 million, plus a further option to acquire an additional 9.9% at a market-related price.
During the year ended 30 June 2013, an updated NI43-101 compliant statement was published by SRK Consulting in February 2013 which confirms an indicated resource of 334 million tonnes with a further
260 million tonnes in the inferred category. This resource statement only covers 3% of NAIC's 450km² claim.
Significant progress has been made in the project with gas-fired smelt tests having been conducted at a smelter commissioned in Forks, PA for purposes of testing the cold briquetted feed and also a pre-reduced
feed process. Tenova and Hatch are reviewing the smelt test results and will sign-off on the process.
An alternative coal-fired smelting process using the Outotec AusIron process was also successfully tested in an Australian-based smelter.
Iron Bird Resources Plc ("Iron Bird")
During the year ended 30 June 2013, application for a two-year extension to the exploration permits was made and this extension is expected to be granted shortly. We continue to seek a potential merger or
acquisition partner for this project.
Red Crescent Resources Limited ("RCR")
In the year ended 30 June 2013, Petmin invested C$325 000 (2012: C$5 million) 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 ruling share price of RCR at 30 June 2013 was 10 cents per share. 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 commissioned a dense media separation plant at its
Hakkari Zinc Project in November 2012 and has produced and sold 6 140 tonnes of direct shippable ore in the period to 30 June 2013.
Iron-ore South Africa (Veremo project)
Petmin and its partners in the Veremo iron ore project in Mpumalanga are awaiting the outcome of an application for a mining license with the Department of Mineral Resources (DMR).
MCC International Incorporation Limited (MCC) was commissioned by Veremo 18 months ago to perform a feasibility study and, during the year under review, finalised their report on the project and concluded
that it is economically viable. The Veremo management team are in the process of evaluating and reviewing this report.
Management commentary
for the year ended 30 June 2013
This management commentary has been prepared by management and has not been reviewed by the Group's auditors.
(ii)Prospects
Anthracite division
World commodity prices are currently under pressure and the export market for anthracite remains soft with downward pressure on prices. In the inland market, we have agreed to a roll-over of
prices with our major local customer. Taking into account the current market conditions, Somkhele has budgeted to produce and sell approximately 1 million tonnes of anthracite and 390 000 tonnes
of energy product (approximately 80% of the production capacity) in the year ending 30 June 2014.
Cost pressures remain an issue in the South African mining space with demands from labour for increases exceeding inflation and the impact of a weaker Rand on imported capital equipment, fuel and
explosives. Management is actively engaging with labour in an attempt to reach a workable solution for all parties in the current wage negotiations. A key focus for management in the year ahead is to
drive mining efficiencies as mining represents more than 60% of the operating cost at the mine.
Capital expenditure at Somkhele in FY 2014 is expected to be approximately R91 million (R40 million for infrastructure, roads and other related development of the Luhlanga and KwaQubuka mining
areas, R10 million for exploration, R12 million on community-related projects and various other development and maintenance capital items. In addition the actual development cost of the pits
(or pre-stripping) is expected to be approximately R6 million (see note 14).
Expansion projects division
At NAIC, the immediate focus is on the finalisation of the NI43-101 compliant PEA before 31 December 2013 and thereafter to implement the corporate restructuring of NAIC in readiness for a
Canadian Listing.
Various work streams are underway to optimise the project's initial business plan incorporated in the draft PEA to progress the project to a bankable level and to possibly source a strategic development
partner. Petmin has signed a management fee agreement with NAIC in which Petmin will, over the next 24 months, receive management fees amounting to $300 000 per annum in cash to compensate
for management time and expenditure on the project and up to 2.5% of the share capital in NAIC to be issued at nominal value as follows: 1% upon the completion of a satisfactory PEA and the balance
of 1.5% on the completion of a successful bankable feasibility study.
General
Petmin is reviewing its costs across the Group, including the reduction of costs at the corporate office and, as part of this process, Petmin decided to terminate its secondary listing on the AIM in
London. This decision was informed by the low volume of trade in the company's shares on the AIM, with the UK register comprising less than 3% of the overall total shareholding.
In light of the current tough world trading conditions and specifically in the South African Mining Industry, Petmin's Remuneration Committee and the Petmin Executive Team have agreed the terms of
a revised remuneration scheme which results in a material reduction in executive remuneration when compared to the previous scheme. Petmin will present details of the new executive remuneration
in more detail for a non-binding advisory vote at the upcoming AGM.
Additional details on Petmin, including a detailed presentation on the results (which will be available from 1 October 2013) can be found on our website www.petmin.co.za.
By order of the Board
I D Cockerill J C du Preez
Executive Chairman Chief Executive Officer
Sponsor and corporate adviser (JSE) Nominated Adviser and Broker (LSE: AIM)
River Group Macquarie Capital (Europe) Limited
Johannesburg
27 September 2013
Directors: I Cockerill# (Executive Chairman) L Mogotsi (Deputy Chairman) J du Preez (Chief Executive Officer)
B Doig B Tanner (Financial Director) M Arnold* E de V Greyling* K Kalyan* A Martin*
T Petersen* J Taylor*
*Non-executive #British American
Registered office: 37 Peter Place Bryanston 2021
Corporate office: 37 Peter Place Bryanston 2021 Tel:(011) 706 1644 Fax:(011) 706 1594 Website: www.petmin.co.za
Sponsor JSE: River Group Tel: +27 (0) 12 346 8540
Nominated Adviser and Broker AIM: Macquarie Capital (Europe) Limited
Company secretary: Mondial Consultants (Pty) Limited
Transfer secretaries: JSE: Computershare Investor Services (Proprietary) Limited
AIM: Computershare Investor Services PLC
Auditors: KPMG Inc.
A PDF version of these results is available on our website: www.petmin.co.za
Date: 30/09/2013 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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